Executive Summary and Recommendations

Commission on Health and Safety and Workers' Compensation

1995-96 Annual Report

Executive Summary and Recommendations

This document is the second annual report of the California Commission on Health and Safety and Workers' Compensation.

The Commission, created by the workers' compensation reform legislation of 1993, is charged with overseeing the health and safety and workers' compensation systems in California and recommending administrative or legislative modifications to improve their operation.

During the past year, the Commission has contracted with independent research organizations in the academic and private sectors to work with state agency personnel and interested members of the workers' compensation community. This cooperative public-private partnership continues to work together to identify, describe, measure and propose solutions to problems and difficulties in the current health and safety and workers' compensation systems.

The Commission has been focusing on assessing the impact of the 1993 workers' compensation reform legislation on the affected systems and upon the workers' compensation community.

The following findings and recommendations are derived from the Commission's various studies and other activities described in this report:


Impact of the Reform on the Workers' Compensation Community

The workers' compensation community believes that the workers' compensation system is still too complex and needs simplification and further modification in certain areas.

The Commission recommends continuing evaluation and monitoring of the California workers' compensation system.

The workers' compensation community has been very responsive to the Commission and other DIR entities when invited to participate in evaluation and advisory activities.

The Commission commends the community for its involvement and recommends a continuation of this good working relationship in all such DIR activities.

Impact on Workers

Some injured workers have indicated they feel that they do not receive adequate information about their rights and responsibilities under workers' compensation.

The Commission recommends that state agencies and the workers' compensation community focus efforts on providing timely and understandable information to workers, before and after injury. The Commission has taken steps to improve worker knowledge and understanding of the program, including contracting for projects to develop written and video information and to convene a statewide task force on young worker safety.

Impact on Employers

The reform legislation affected California employers in two significant ways. The elimination in the workers' compensation minimum rate law has resulted in lower premiums and the passage of a group of provisions known as the "employers bill of rights" has given employers more information and control over workers' compensation claims.

The Commission recommends continued monitoring of the costs and benefits of the workers' compensation system to determine the long range impact of the reforms. Current projections are inconclusive; some indicate that costs are going up while others predict that costs will remain near the current level.


Claims Adjudication

The introduction of mandatory settlement conferences was meant to reduce the need for formal hearings and decisions and to speed the resolution of workers' compensation cases. However, data from the medical-legal study suggest that this goal has not as yet been achieved. Instead of reaching voluntary settlements that do not necessitate active involvement by the DWC, parties are increasingly using one or more dispute resolution methods.

The Commission recommends continued monitoring and analysis of the claim adjudication process, delays, and timeframes for case resolution.

Vocational Rehabilitation

It has been reported that Qualified Rehabilitation Representatives may be writing plans that use funds from State Disability Insurance (SDI) to supplement the vocational rehabilitation benefit. Concern has been expressed that the workers' compensation vocational rehabilitation benefit, that was "capped" at $16,000 by the reform legislation, could possibly be circumvented by such action.

The Commission recommends that a work group be convened to develop an issue paper on this subject, which could serve as the basis for remedial action if needed.

Disability Evaluation

Incomplete physician reports have been cited as a major factor leading to inconsistency in permanent disability ratings. Many of DWC's disability evaluators state that their largest problem with the current system is the poor quality of medical reports that they have to rate.

The Commission recommends continued efforts by IMC and DWC to educate treating physicians and the workers' compensation medical community in the proper reporting methods. The Commission has contracted for a study of incomplete physician reports. The study will determine the nature and magnitude of the problem, ascertain who is producing incomplete reports and why, develop quantitative analysis, provide recommendations for improving the quality of reports and calculate the cost/benefit of possible modifications.

In an effort to reduce litigation, the California's workers' compensation reform provided a mechanism for an injured worker to obtain a summary permanent disability rating from DWC's Disability Evaluation Unit (DEU). Because of backlogs in the DEU, the Administrative Director in essence suspended the summary rating process for a time, by urging the workers' compensation community to self-rate cases, develop a proposed settlement, and submit it to DWC for review and approval.

The Commission recommends that the summary rating process be evaluated in the future, when the program is fully operational.

The DWC reports that it is in the process of revising the Permanent Disability Rating Schedule. Draft copies of a proposed revision to the PDRS, including various guidelines were distributed to some members of the workers' compensation community for review and comment. However, some physicians are using the proposed guidelines in current medical reports.

The Commission recommends continued efforts by DWC to notify the community that the proposed guidelines are not be used unless and until they are adopted as part of the Permanent Disability Rating Schedule.

The Commission realizes that the rating of permanent disability is one of the most difficult tasks of the workers' compensation system. The manner in which California rates and compensates injured workers for total and partial permanent disability has enormous impact on the adequacy of their benefits, their ability to return to gainful employment, the smooth operation of DWC's adjudication system and the cost of the workers' compensation system to employers.

The Commission contracted with the Rand Corporation to conduct a study that would look at California's permanent disability benefit levels, the rating methods and the cost of providing those benefits in comparison to similar systems in other states. The report will include recommendations for improving the California system.

Medical Issues

The workers' compensation managed care program was intended by the Legislature to be self funding . However, the program has not yet generated sufficient income to support the start-up loan or the ongoing program and staff. It would appear that DWC has had to absorb the difference between managed care costs and revenues.

The Commission recommends that the cost-effectiveness of the DWC Managed Care Unit be examined in light of the reduction in its projected workload.

The Health Care Organization certification program has been criticized throughout the community for being too complex and posing a barrier to participation in the workers' compensation managed care program.

The Commission recommends a reexamination of the legal mandates of the HCO Certification Program and the approach employed to implement the program.

The workers' compensation community has expressed concern about the overlapping responsibilities of the Industrial Medical Council and the Division of Workersà Compensation with respect to medical issues in meeting legislative mandates. Critics have cited a lack of coordination between the IMC and DWC in these areas.

The Commission recommends that a review be made of the legislative mandates and that the roles of and the relationship between the Industrial Medical Council and the Division of Workers' Compensation be examined.

Medical Legal Evaluations

The Commission's Medical-Legal study determined that the cost of medical-legal examinations on partial permanent disability (PPD) claims has declined significantly since its peak during the 1991 accident year. The study also showed that the costs of medical-legal exams performed on permanent partial disability claims of insured employers declined 84 percent from a high of $394.5 million for the 1991 accident year to an estimated $64.5 million for the 1994 accident year. The cost was driven down by revisions in the medical-legal fee schedule, restrictions on the compensability of psychiatric claims, and limits on the number of medical-legal exams.

The Commission concludes that the reform legislation has been effective in this area. The Commission will continue to monitor medical-legal costs in the workers' compensation system.


While the activities of the Department of Insurance may not specifically be included within the Commission's purview, the Workers' Compensation Fraud Assessment Commission and DOI's Fraud Division deal with suspected fraud in workers' compensation claims. The Commission notes that the workers' compensation community is being assessed about $25 million per year to fund those activities.

The Commission fully supports anti-fraud activities in the workers' compensation system. However, given the decline in the number of workers' compensation claims and the significant assessment on employers, the Commission recommends that the cost-effectiveness of the Department of Insurance's workers' compensation fraud activities be examined.


High Hazard Consultation and Inspection Program

The cost-effectiveness of the Cal-OSHA Target Inspection Program may be hampered by the inability to identify the so-called "high hazard employers." The current method utilizes various factors, some of which are based upon dated information which does not necessarily reflect the current situation.

The Commission recommends that the Division of Occupational Safety and Health continue its effort to come up with guidelines and/or develop alternative methods to identify high hazard employers.


Division of Workers' Compensation

The Division of Workers' Compensation has been working on the development of the "DWC Information System" to meet the future needs of the department, the Legislature and the community. DWC recommends that legislation be enacted to protect the confidentiality of data.

The Commission supports this effort and the need for confidentiality of data.

The workers' compensation community has expressed concern over the development of the DWC Information System, citing a lack of understanding of what the system is supposed to do and how it is going to do it.

The Commission recommends that the DWC develop and issue written materials to the public describing the proposed information system and plans for its development and implementation. The Commission also recommends that DWC continue documenting the discussions and agreements reached at internal planning meetings.

The Commission has been somewhat hindered in its analytical evaluation of the current system because of the lack of consistent data and basic performance measurements available from the Division of Workers' Compensation. This situation also hampers the operations of the DWC.

The Commission recommends that DWC focus resources on obtaining and reporting consistent, reliable and credible data from the existing WCAB-Rehabilitation and Disability Evaluation online systems.

The Commission notes that the Division of Workers' Compensation is addressing some of its operational difficulties by reorganizing staff reporting relationships and reengineering work processes.

The Commission supports actions designed to improve operations. The Commission recommends that DWC form a group comprised of staff and interested members of the community to perform ongoing monitoring and evaluation of such changes and recommend needed modifications.

The Division of Workers' Compensation is employing outside consultants to develop new systems and to recommend improvements in operations.

The Commission urges DWC to work closely with the outside consultants to insure that they fully understand the unique aspects, parameters and constraints of state service operations and the mandates that must be met within that environment.

The workers' compensation community has expressed concern that the DWC has negatively impacted injured workers by closing offices, shifting workload and making other significant changes in its service to the public without sufficient notice nor advanced planning.

The Commission recommends that DWC proceed with such activities only after careful planning and sufficient notice to and consideration of those affected by such actions.

It is reported that there are approximately $300 million in unrecovered liens filed by the Employment Development Department against workers' compensation cases.

The Commission recommends that a work group be convened to develop solutions to this problem.

Commission on Health and Safety and Workers' Compensation

The funding for the Commission is derived solely from penalty monies assessed and collected by the Audit Unit of the Division of Workers' Compensation. The level of funding is unpredictable and hampers the Commission's ability to insure that its long-range plans can be met. The Commission also notes that the level of its funding depends upon the actions of an entity which the Commission is overseeing -- an appearance of potential conflict of interest.

The Commission recommends that a definite funding level be established for the Commission. If the Audit Unit does not collect sufficient monies, a General Fund appropriation or user funding assessment should be made to make up the difference. The Commission wants to continue to provide cost-effective executive level information to the Governor, the Legislature, the health and safety and workers' compensation communities, and to the public. Such information is critical to the formulation of optimum public policy benefiting all Californians.