The Garamendi Plan
for Workers’ Compensation Reform
Insurance Commissioner John Garamendi is committed to working closely with the
Legislature to devise the solutions necessary to bring
Medical Cost Containment
Problem:
The current workers’ compensation medical payment system is
unnecessarily complex, costly, difficult to administer and often outdated. Key components of the workers’ compensation
medical system - specifically outpatient surgery centers - are still
unregulated and are placing extreme cost burdens on the entire system. Uncontrolled and unpredictable inflation of
workers’ compensation medical costs is one of the system’s primary cost drivers
and a central cause of escalating workers’ compensation premiums in the
State.
While the number of claims
have continued to decline in recent years, medical costs have continued
to spiral out of control. From 1997 to
2002, medical costs per claim increased by 125%, rising from $13,845 to $31,120
per claim. By comparison, national
medical inflation grew by 22% and average indemnity benefits per claim by 32%
over the same period. This medical cost
inflation has a strong negative impact on insurance companies’ reserves and
surplus and consequently the overall financial health of insurance companies.
Solution:
Establish medical fee schedules for all parts of the workers’
compensation medical system and index them to 120% of Medicare fee schedules
which will help contain medical costs and bring stability and predictability to
the workers’ compensation system.
Stability and predictability allow actuaries
to predict costs and insurance companies to correctly price their
premiums. Our current fee schedule is
not tied to Medicare, and is not updated and does not accurately reflect cost
of care. Current law expects a state
agency with inadequate funding and little experience to create and update
complex medical fee schedules. Experience
has proven it does not work. For
example, the current Department of Industrial Relations (DIR) official medical
fee schedule has not been updated for five years, effectively making it
irrelevant and obsolete. The State’s
budget crisis has also jeopardized DIR funding to complete the pharmacy fee
schedule called for in AB 749.
Tying costs to the Medicare fee
schedule makes sense. It will provide a
payment standard, allow for consistent and timely updates to the fee schedules
and lead to additional cost savings through lower administrative costs on
implementing and updating the schedules.
Building on Medicare as a base, an exceptions process can be established
for those medical services that can prove the Medicare schedule does not
provide sufficient compensation.
Language comparable to SB 228 which requires comprehensive
Medicare-indexed fee schedules for all areas of the workers’ compensation
system must be an essential element of any meaningful reform plan. An extensive study of SB 228 by the California
Commission on Health and Safety and Workers’ Compensation (CHSWC)
conservatively estimates it will save employers, local government, and the
state of
Concrete reform requires
indexing the fee schedules to Medicare.
Charge-based fee schedules in alternative legislation would not produce
any savings to the system. Charge-based
fee schedules would create the illusion of worker’s comp reform without in any
way affecting the medical cost inflation that is destroying
Legislation:
SB 228 (Alarcon)
Repeal
of the Treating Physician Presumption
Problem: AB 749 repealed the presumption of
correctness of the treating physician only for injuries occurring on or after
Solution: The treating physician’s presumption should
be repealed for all injuries including those that occurred before
Problem:
Numerous interstate comparisons and California-specific studies have
demonstrated that overutilization of medical
treatment is a serious problem within
Solution: Implementation of a comprehensive
fee schedule will lead to savings, but without accompanying effective medical
utilization controls, such savings will be eroded. We propose adopting a workers’ compensation
medical utilization structure that includes evidence-based clinical treatment
guidelines, a strong definition of “medical necessity” and a streamlined
independent evaluation process. Such a
program would significantly reduce delays in medical treatment to injured
workers and litigation over medical treatment disputes. We recommend using the
In order to address
individual patient differences and to accommodate advances in medical science,
it is important to include an independent examination process composed of
medical professionals, so that treatments exceeding the guidelines can be
evaluated and approved where appropriate.
The independent examination process would allow workers’ compensation
medical decisions to be made by medical practitioners. While the evidence-based clinical guidelines
would be the accepted standard of treatment, the examiner would consider new or
additional scientific evidence of efficacy to approve a treatment that exceeds
the guidelines.
Legislation:
Commissioner’s Language – Utilization Review, SB 757 (Poochigian) [Official Utilization Schedule]
Problem:
Use of brand name drugs and high dispensing fees in the workers’
compensation system places excessive costs in the system.
Solution:
Existing law requires pharmacies to provide the generic equivalent of a
name brand drug, when filling a workers' compensation prescription, unless (1)
there is no generic drug equivalent available, or (2) the
prescribing physician has specifically provided otherwise in
writing. Proposed legislation would
close a loophole in last year’s generic-drug legislation (part of AB 749) by
extending the generic-drug-dispensing requirement, currently imposed on
pharmacies, to hospitals, clinics and physicians, when filling workers'
compensation prescriptions.
Legislation:
SB 223 (Margett)
Immediate
Medical Treatment
Problem: For countless reasons, injured workers are routinely
denied the immediate, essential, and, often times, basic medical treatment they
are entitled to under the workers’ compensation system. In 9 out of 10 cases, the injured worker is
ultimately granted the medical care they or their physician initially
request. These unnecessary delays in
medical treatment lead to unnecessary costs (increased medical, indemnity, and
litigation) as untreated workers’ medical conditions worsen, they take much
longer to return to work, and they seek legal counsel to resolve the issues.
Solution: The employer will be responsible for
providing immediate medical treatment to all injured workers. Employers will have up to one year to deny a
claim as opposed to the current 90 day period and can deny a claim for fraud at
any time. Employers will be responsible
for all medical treatment until the claim is denied.
Problem:
Inefficient claims handling contributes greatly to claims staying open
longer and increased and unnecessary litigation in the system. A large percentage of claims handlers are
overworked and underprepared to do their job. The overwhelming majority of participants in
Solution:
(1) Establish certification standards and continuing education
requirements for claims examiners to improve the consistency and quality of
claims handling, (2) provide more and better training resources for claims
examiners.
Legislation:
AB 1262 (Matthews) – Commissioner Sponsored
Problem:
There are credible indications that insurance companies are not handling
claims quickly or efficiently enough, thus leading to higher claims costs due
to increased medical utilization and higher than necessary rates of litigation. In addition, there is an unduly high rate of
litigation between insurers and medical providers over medical payments. This is likely due to delays in payment.
Solution:
Commissioner Garamendi is initiating a process
to include workers’ compensation insurance companies in the fair claims
practices regulations under Insurance Code Section 790 et seq.,
that regulates unfair or deceptive trade practices.
Problem: Penalties should have a
reasonable relationship to the violation.
The current penalty structure is irrational by allowing penalties to be
assessed against the species of benefit paid, both past and future, for the
entire claim, rather than the specific amount that was either delayed or
payment was refused. Consequently, in a case where $200,000 in medical benefits
was paid, a late $10 payment on reimbursement for a prescription to an injured
worker can result in a 10% penalty or $20,000.
The current structure provides very strong incentives for allegations of
penalties to gain larger settlements and unnecessary litigation.
Solution: Require injured workers and their
attorneys to timely and specifically report when they believe employers have
unreasonably delayed or refused to pay benefits. Allow for disputes on unreasonably refused or
delayed benefits to be resolved without litigation and payment of an immediate,
no fault 10% penalty based upon
the amount that was refused or delayed. If the matter is disputed further, then allow
for a larger 25% penalty on the amount in dispute or $500, whichever is
greater, to be assessed. This would help
create a more responsive and rational penalty structure that effectively deters
the specific negative conduct of the insurer or employer. It would also significantly diminish the
opportunity to allege unwarranted penalties and reduce unnecessary litigation
and costs in the system.
5814 penalties should not apply to claims that have been inherited by
the California Insurance Guarantee Association (CIGA).
Legislation:
AB 1480 (Richman) [as amended
Problem:
Currently, the only option most injured workers have, if they do not
receive the prompt and appropriate medical treatment and benefits they are
entitled to, is to pursue their grievance through the Workers’ Compensation
Appeals Board (WCAB). Not only does this
lead to unnecessary delay in benefit delivery, but it often times leads to
pointless and costly litigation.
Solution:
Create more carve outs, alternative dispute resolution mechanisms, and
ombudsman programs that provide injured workers with more options for resolving
disputes without lengthy and costly litigation.
Several carve out programs, specifically those with an ombudsman, have had
demonstrated success in reducing the level of litigation, returning workers to
work more quickly, and reducing the overall cost burden on the system. Carve outs that are requested by unions
should be permitted and should be a permissive subject of bargaining. The minimum premium volume required to
establish a carve out should be reduced from $250,000
to $50,000.
Problem: The current culture of
Solution:
The California Department of Insurance (CDI) is restructuring, re-energizing, prioritizing and coordinating its
fraud and investigation units and seeking to improve its working relationship
with district attorneys and other state, federal, and local law enforcement
agencies with an emphasis on information sharing. As part of these anti-fraud efforts, CDI
supports increased criminal penalties for false or fraudulent statements and
activities in connection with workers’ compensation claims. CDI is also developing new regulations to
help
insurance carriers step up their anti-fraud efforts
and become more effective in identifying, investigating, and reporting workers'
compensation fraud. The Department is
developing a work plan to increase the number of audits performed by the Fraud
Division SIU (Special Investigations Unit) Compliance Unit and continuing with
an aggressive outreach plan to educate the public on anti-fraud efforts and how
to identify and report fraud. Finally,
CDI is strengthening its working relationship with the Workers' Compensation
Insurance Rating Bureau (WCIRB) to support the Department's anti-fraud
efforts. This includes the WCIRB
developing an effective special investigations unit, obtaining the same
immunity from liability for reporting fraud that insurance companies have and supplying CDI with timely access to
their data.
Legislation:
AB 1578 (Vargas), AB 1099 (Negrete-McLeod), SB
354 (Speier), AB 1215 (Vargas)
Problem:
The physician referral process for injured workers is an area of
potential fraud and conflict of interest with the temptation of some physicians
to refer injured workers for services and treatment to an entity in which they
have a financial interest.
Solution:
Prevent physicians from referring workers’ compensation patients to
clinics in which the physician has a financial interest. Existing law already prohibits this practice
in most cases. Proposed legislation
would close a loophole which allows it for outpatient surgery clinics.
Legislation:
AB 1579 (Cogdill), SB 899 (Poochigian),
SB 354 (Speier)
Other Proposed Reforms
Problem:
The current system for determining an injured worker’s level of
disability (PD, PPD, TD) is highly subjective and inconsistent leading to ever
more litigation and unequal settlements in which small injuries get too much
and serious injuries get too little.
Solution:
CHSWC is nearing completion (August 2003) of an extensive study by the
Rand Corporation that recommends a new, more objective method of determining
the permanent disability of an injured worker.
Legislation:
The Legislature should take immediate action on legislation to improve
the current system once this study is complete.
California Department of
Insurance
300 Capitol Mall,
1-800-927-4357