Bulletin No. 02-02
September 10, 2002

DWC Notes HCO Growth, Clarifies Issues Regarding the Program

Enrollment in Health Care Organizations (HCOs) has been growing significantly - from 170,000 employees in December 2001 to over 380,000 by August 1, 2002.  With this increased interest, DWC is pleased to respond to any questions interested parties have about the program.

Recently the Division was asked to clarify the degree of independence necessary between an HCO's medical case management and utilization review functions and an insurer, self-insured employer or Third Party Administrator (TPA) that contracts with the HCO.

The degree of independence between an insurer, self-insured employer or TPA and an HCOs day to day utilization review and/or case management operations must be absolute.  Utilization review and medical case management are two of the core functions of an HCO.  An insurer, self-insured employer or TPA that contracts with an HCO should have no role in or influence over the HCO's medical case management or utilization review process in individual cases.   Payers have the ability to review an HCO's UR protocols when evaluating a proposed contract, and to review a given HCO's performance overall when considering renewal of a contract.

Labor Code Section 4600.6(i)(7) and Title 8, Cal. Code of Regulations, Section 9772 each require a workers' compensation insurer, third-party administrator, or other entity seeking certification as an HCO to be able to demonstrate that health care decisions are rendered by qualified providers, "unhindered by fiscal and administrative management."

Title 8, Cal. Code of Regulations, Section 9774(a)(1) requires an HCO to maintain a written quality of care program describing the process whereby the medical reasonableness or medical necessity of requests for authorization are reviewed and decisions on such requests are made by the HCO.  Influence or interference by an insurer or self-insured employer should not be allowed to undercut this quality of care program.

One portion of a package of regulation DWC is currently in the process of adopting to implement AB 749 will emphasize the degree of independence required  for organizations seeking certification.  It will mandate that any applicant for certification as an HCO that is owned in whole or in part or controlled by a workers' compensation insurer or self-insured employer to demonstrate that the insurer or self-insured employer's claims function shall have no influence or control over medical decision-making by the HCO.

The proposed amendment will also require such an applicant to demonstrate that the clear authority of its Medical Director over all medical decisions is reflected both in its organizational chart and any internal procedure manual or other internal description of HCO operations.

The legislature has provided that extended medical control is the benefit granted to employers who contract with HCO's to provide their employees with quality and timely care provided and managed in an unbiased manner with an emphasis on return to work for the injured worker.

Anyone with questions concerning this issue or other issues concerning the Division's HCO program is encouraged to contact the Division's Managed Care program staff at (415) 703-4600.