"CARVE OUTS" - STUDY OF ALTERNATIVE DISPUTE RESOLUTION SYSTEMS

The 1993 reform legislation enabled the California construction industry to collectively bargain for alternative workers' compensation programs, also known as "carve outs". The Commission contracted for an independent, outside study of the carve-out programs in California.

This independent study involves several concurrent efforts. Each of these efforts is meant to inform carve-out participants and other interested parties about the advantages and problems associated with these experiments in alternative dispute resolution and efforts to speed benefit delivery to workers. Much of the early research on carve-outs suggested that these alternatives saved employers substantially on workers' compensation costs while reducing the level of litigation. However, there was considerable concern within the community over the protection of workers' rights and benefits.

All carve-out agreements were reviewed and the principal administrator for each program was interviewed concerning a number of important issues including length of medical control, construction of medical provider lists, restrictions on medical-legal evaluator lists, alternate dispute resolution processes, access of workers to legal representation, participation rates among eligible employers, costs of administration, and level of litigation.

Drawing on information from this survey, two case studies are being conducted. The two carve-outs were selected based on two separate models of employer/union negotiation. One study was selected as a large project "wrap-up" arrangement where a single owner negotiated an agreement with all trades involved in the project. The other study examines the experience of an agreement between an association of many employers and a number of union locals representing only a single trade. Each of these carve-outs was the subject of extensive interviews of many participants including employers, union leaders, workers, ombudspersons, mediators, arbitrators, medical providers, claims administrators, insurers, safety personnel and negotiators for both sides.

An analysis of the structure and functioning of the ADR process was conducted for all operating carve-outs. This involved analysis of documents and agreements, site visits, numerous interviews with participants, and a telephone and written survey of all current ombudspersons. These analyses focus on the way in which the ADR structures and implementation may affect the independence of the ombudspersons, the fairness of the process, and the protection of the rights of workers and employers.

Carve-outs are a new innovation and data is limited. This part of the project focuses on the development of a methodology to reliably evaluate the impact of carve-outs on the costs to employers, litigation rates, and impact on worker benefits. The object is to develop reliable methods that can be implemented with currently collected data, reproducible in other jurisdictions, and straightforward to apply and interpret. In addition, these methods are being applied to the data available from the two case studies. The data from these carve-outs is the most extensive and most mature.

The first phase of the carve-out study was completed in March 1998. The second phase is anticipated to be completed in September 1998.

A presentation of preliminary findings was given to CHSWC at it meeting in April 1998.

The study determined that while early data reported by DWC suggested that carve-outs resulted in substantial savings on both medical and indemnity costs, precipitous drops in litigation, and possible marked improvements in safety, these conclusions were drawn from limited data. As a result, that data may also have been misinterpreted.

Litigation rates on further evaluation appear similar between both systems, at least at this early stage. The number of claims resulting in some form of dispute resolution, a mediation or arbitration under a carve-out or a mandatory settlement conference or hearing in the statutory system, were similar. The same is apparently true for the portion of seriously injured workers that are represented by an attorney.

Early data from the quantitative evaluation, currently in process, indicates that both medical and indemnity costs have declined for carve-out employers, but this decline mirrors a similar decline for non-carve-out employers, reflecting a general improvement in the California workers' compensation environment since the early 1990's.

Part of the reason that the carve-outs may have produced less dramatic savings than earlier predicted may be because the ADR processes and medical and medical-legal provisions are still evolving towards a best practice. With improvements in implementation, it is anticipated increased savings will occur. The final report will make a number of recommendations on how these processes could be constructed to create maximum benefits for unions and employers.

A final report will be available in November 1998.