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Chapter 4.5. Division of Workers' Compensation
Subchapter 1.5. Injuries on or After January 1, 1990
Article 3. Auditing

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§10106. Random and Non-Random Audit Subject Selection; Complaint/Information Investigation.

(a) In its discretion, the Audit Unit may treat an affiliated group of insurers at a single adjusting location as individual insurers, or may combine all or any of them as a single insurer audit subject. In its discretion, the Audit Unit may treat parent and subsidiary self-insured employers at a single adjusting location as individual self-insureds, or may combine all or any of them as a single self-insured audit subject.

(b) The final selection of audit subjects shall be within the discretion of the Audit Unit. The Audit Unit may investigate information or complaints instead of, or in addition to, conducting an audit. Investigations and/or audits may be conducted if complaints or information indicate the possible existence of claims handling practices which would be assessed as a civil penalty under Labor Code Section 129.5(d).

(c) The Audit Unit shall select at least half of its audit subjects at random from any available listing of adjusting locations of workers' compensation insurers, self-insured employers, self-insured joint powers authorities, legally uninsured employers, and third-party administrators. If, after the results of an audit become final, none of the criteria qualifying an audit subject for a return non-random audit pursuant to subsection (f) of this section exist, the audit subject shall be removed from the pool of potential random audit subject selection for three years. However, eligibility under this subsection for removal from the pool for random audit subject selection shall not bar the non-random selection of the audit subject pursuant to this section or Labor Code Section 129(b).

(d) In order to establish priorities for audits pursuant to Labor Code s129(b), the Audit Unit shall review and compile complaints and information that indicate a claims administrator is failing to meet its obligations under Divisions 1 or 4 of the Labor Code or regulations of the administrative director.

  (1) The information and complaints shall be tracked and compiled into a list of Claims Administrators Identified for Potential Non-Random Investigation as follows:  


  (i) Complaints or information available to the Audit Unit which indicate possible violations of the kind which, if found on audit, would be subject to the assessment of administrative penalties or issuance of notices of compensation due shall be retained in potential audit subject files by claims adjusting locations. Factual information and complaints shall be weighted on the basis of apparent severity of the alleged violation, using the assessment categories set forth in the subsections (a) through (d) of s10111 and s10111.1 to set a point value.  


  An alleged violation that would fall within subsection (a) is given one point, an alleged violation that would fall within subsection (b) is given five points, an alleged violation that would fall within subsection (c) is given ten points, and an alleged violation that would fall within subsection (d) is given fifty points. When multiple violations are alleged in one complaint, each potential violation is given the appropriate point(s).  


  Points assigned for violations which are evidenced by decisions or findings rendered by the WCAB or Rehabilitation Unit shall be multiplied by ten.  


  (ii) Periodically, the audit unit shall review and analyze the complaint and information data in order to establish a list of Claims Administrators Identified for Potential Non-Random Investigation. The total number of points assigned to a claims administrator at an adjusting location shall be compared to the total number of claims reported at that claims adjusting location as indicated on the Annual Report of Inventory or the Self Insurer's Annual Report. The claims administrators shall be ranked on the list of Claims Administrators Identified for Potential Non-Random Investigation on the basis of the ratio of weighted complaints to case load size at each adjusting location. It is within the discretion of the Audit Unit to determine when new lists shall be established.  


  (2) The audit unit shall select any number of the highest ranking claims adjusting locations for investigation from the list of Claims Administrators Identified for Potential Non-Random Investigation.  


  (i) The Audit Unit shall notify the claims administrator that it will conduct an investigation, and shall specify the files it will review by providing the names of the injured workers. The Audit Unit shall give the claims administrator a minimum of three working days notice of the date of commencement of the investigation. Notice may be given by telephone. The claim files shall be made available to the Audit Unit at the time of the commencement of the investigation. The Audit Unit may examine claim files and require a claims administrator to provide documents and information.  


  (ii) The Audit Unit shall examine the selected files and shall assign points for each violation found in the files in accordance with the point system set forth in subsection (d)(1)(i), except that there shall be no multiplier for violations evidenced by decisions or findings of the WCAB or Rehabilitation Unit. Points shall be assigned for every violation found in the file, both violations that were alleged in the complaints and additional violations found by the audit unit.  


  (iii) The Audit Unit shall send a notice to the claims administrator which outlines the violations found in the files investigated. The claims administrator may request copies of the complaints relating to the files investigated. The complaints may be kept confidential by the audit unit if confidentiality is requested by the complainant.  


  (iv) The claims administrator may present documentation and/or argument to the Audit Unit to disprove any or all of the violations found by the audit unit in the investigated files. The documentation and argument must be post-marked or personally delivered to the Audit Unit within fourteen days of receipt of the letter outlining the violations.  


  (v) The Audit Unit shall consider documents and argument submitted by the claims administrator to disprove the violations found in the investigated files and determine whether there is a basis to alter any of the points previously assigned.  


  (vi) The adjusting locations shall then be ranked on a list of Claims Administrators Identified for Potential Non-Random Audit on the basis of the ratio of violation points to the number of claims investigated at each adjusting location.  


(e) The Audit Unit shall select non-random audit subjects from the list of Claims Administrators Identified for Potential Non-Random Audit, and shall endeavor to give priority in scheduling audits to those administrators that have been assigned the most points. However, the audit unit may also consider the results and recency of prior audits at the adjusting location, the resources of the audit unit, and the need to conduct random audits, in scheduling investigations and audits. The Audit Unit is not required to investigate or audit every claims administrator on the list, nor is it required to investigate or audit in the order in which claims administrators appear on the list.

If the Audit Unit is able to conduct more non-random audits than the number appearing on the list of Claims Administrators Identified for Potential Non-Random Audit, it may select any number of the next highest ranking adjusting locations appearing on the list of Claims Administrators Identified for Potential Non-Random Investigation. The adjusting locations shall then be investigated and ranked according to subsection (d)(2).

(f) Prior audit results shall be used independently as factual information to support selection of a claims administrator for non-random audit.

  (1) The Audit Unit shall return for a repeat non-random audit of denied files of the audit subject within one to three years of the results of an audit becoming final if there is more than one unsupported denial and the number of unsupported denials exceeds 5% of the audited denied claims.  


  (2) The Audit Unit shall return for a repeat non-random audit of indemnity files of the audit subject within one to three years of the results of an audit becoming final if:  


  (i) The number of randomly selected audited files with violations involving the failure to pay indemnity exceeds 20% of the audited files in which indemnity is accrued and payable and the average amount of unpaid indemnity exceeds $200.00 per file in which indemnity is accrued and payable, or  


  (ii) The numbers of randomly selected files with violations involving the late first payments of temporary disability indemnity, permanent disability indemnity, vocational rehabilitation maintenance allowance, late subsequent indemnity payments, and late payments of death benefits, as mitigated for frequency under Section 10111.1(e)(3)(i) through (v), exceeds 30% of the audited files in which those indemnity payments have been made, and the number of audited files with violations involving the failure to issue benefit notices, as assessed under Section 10111.1(a)(7)(ii) of these regulations, exceeds 30% of the files in which there is a requirement to issue those notices.  


(g) The Audit Unit shall send a claims administrator selected for non-random audit a Notice of Audit in accordance with s10107. The Notice of Audit for a non-random audit may be appealed as follows:

  (i) Within 7 days after receiving a Notice of Audit the claims administrator may appeal its selection for audit by filing and serving a request for an appeals conference or a request for a written decision by the Administrative Director without a conference.  


  (ii) Within 21 days after the request for a written decision or an appeals conference is filed, the appellant shall file with the Administrative Director and serve a written statement setting forth the legal and factual basis of the appeal, and including documentation or other evidence which supports the appellant's position.  


  (iii) If a request for an appeals conference or a request for a written decision without conference or if the written statement and documentation are not timely filed and served under Subsections (g)(i) and (g)(ii), the claims administrator shall be deemed to have finally waived the issue of the propriety of its selection for audit. The claims administrator will be precluded from raising the issue at any subsequent appeals of Notices of Penalty Assessment or Notices of Compensation Due.  


  (iv) Service and filing are timely if the documents are placed in the United States mail, first class postage prepaid, or personally delivered between the hours of 8:00 a.m. and 5:00 p.m., within the periods specified in Subsections (g)(i) and (g)(ii). The original and all copies of any filing shall attach proof of service as provided in Section 10514.  


  (v) The appeal process shall be governed by Section 10115.2.  


     Note: Authority cited: Sections 59, 129.5, 133 and 5307.3, Labor Code. Reference: Sections 7, 53, 111, 124, 129 and 129.5, Labor Code; and Sections 11180, 11180.5, 11181 and 11182, Government Code.  

 HISTORY 

   
1. Relocation of article 3 heading to article 5 and repealer and new section filed 1-28-94; operative 1-28-94.  Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 94, No. 4).   For prior history, see Register 90, No. 4.

2. Amendment of subsection (b), (d)(2), and (e) filed 2-14-96; operative 2-14-96. Submitted to OAL for printing only pursuant to  Government Code section11351 (Register 96, No. 7).

3. Amendment of section and Note filed 10-26-98; operative 11-25-98 (Register 98, No. 44).

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