April 30, 2012


Dear Director Baker and Administrative Director Moran,


Over the past several weeks you conducted a series of public forums to gather input on current issues in California's workers' compensation system. In order to provide you a picture of the real-life experiences of employees in this system, members of the California Applicants' Attorneys Association (CAAA) asked some of their clients to participate in these forums. Although the details varied from case to case, each of these employees described a situation beset with repeated delays and plagued by inadequate benefits. The stories told by these individuals describe a system that has become unworkable for the very people it was designed to help - injured employees. Delay and denial have become standard operating procedure, leaving far too many employees without the medical treatment they need to recover and return to work and without adequate indemnity benefits they need to achieve at least a minimal financial security.


One of the purposes of these forums was to gather suggestions for improving the system. At a legislative hearing earlier this month, you told the committee that the Administration is seeking suggestions for reforms that will create savings to balance the cost of a much needed increase in benefit levels. As small businesspersons, CAAA members understand that controlling employers' workers' compensation costs is important. However, the focus of any changes should not be on simply cutting costs. Instead, the goal of any statutory or regulatory reforms must be on making the system work for injured employees. Adopting reforms that promote the prompt and efficient delivery of appropriate and necessary benefits, allowing cases to close and employees to return to work faster, is actually the most effective way to eliminate unnecessary expenses and generate needed savings.


The statutory changes adopted in 2003 - 2004 show how reforms that were designed solely to cut costs are more likely to have exactly the opposite effect. Consider, for example, the convoluted medical treatment authorization process created by overlapping "cost-cutting" reforms in SB 228 and SB 899. The employer selects the treating physician, treatment requests by this employer-selected physician are subject to statutory caps and mandatory treatment guidelines, those treatment requests are also subject to utilization review by a non-examining physician, and disputes go to a QME whose intended random selection turns out to be anything but random.


These overlapping provisions have created a quagmire that in far too many cases delays needed treatment for months or even years. Consider the case of Margaret Ramirez, a hospital technician who testified at the San Bernardino forum. Margaret has experienced month after month of delay. Treatment requests from her physician have been routinely ignored for months and then denied, Margaret told you. UR denials have spanned the range of requests and have included examinations, medication, surgery, even mileage.


Imelda de la Cruz, a testing technician who testified in Los Angeles, fell and tore her meniscus. Imelda told you how a recommended surgery was authorized only after multiple delays, and that her recovery took much longer than necessary because of repeated delays and denials of post-surgical treatment.


Any delay harms injured employees. For some, like Greg Candler, a driver who testified today in Oakland, a delay of more than four months in treating his rotator cuff tear could limit his ability to recover fully and may significantly increase his lifelong disability from this injury. For others, like Ralph Jones, a high school security employee who testified in West Sacramento, his surgery was delayed for more than two years, entirely using up his statutory 104 weeks of temporary disability benefits. Many others, like David Knapp, an airline employee who testified in West Sacramento, just want to get back to work. David injured his back, but despite objective medical evidence - two MRIs - his insurer took nine months to accept the claim and another seven months to authorize treatment. An AME projected a six month timeline to return to work, but his insurer simply ignored the recommendations of the AME and it was 23 months before David returned to work. Then following another injury David had back surgery but was denied therapy, again delaying his return to work.


As illustrated by these employees' stories, however, these delays don't just harm the employees, they also harm their employers by generating huge unnecessary costs. Attached to this letter is a copy of a report prepared by CAAA entitled "California Workers' Compensation 2012: The State of the System." That report highlights data from both the WCIRB and the CWCI showing that the fastest rising "medical" cost is actually the expense of medical cost containment - utilization review and bill review.


Rather than cutting costs, 2004 "reforms" like UR have now become the main cost drivers in the system. The convoluted process of providing medical treatment offers the opportunity to profit at each step of the way, with no disincentive to stop abuse and delay. Dan Maderios, a window installer who testified in West Sacramento, was billed by a clinic because the adjuster had denied payment for an evaluation, even though that evaluation had been ordered by the insurer. Dan had to get a judge to order payment by the insurer. Michael McClendon, who testified in Los Angeles, described to you how his medicines, therapy, and surgery are all denied despite his 100% disability rating. Mary DeSoto, who testified in Fresno, told you how one recommended surgery was delayed for over a year and was performed only after a judge ruled a UR report was defective, while a second surgery - denied by UR despite the fact that it was recommended by an AME - again was performed only after a judge's order. And Millie Mellum, a carpenter who testified here in Oakland, described how she was denied needed treatment despite an order by a workers' compensation judge.


As these cases illustrate, trying to get approval for most medical treatment has devolved into a morass of UR denials, QME/AME evaluations, physician depositions, and Board conferences and hearings. Each of these steps not only delays the provision of needed treatment, but exponentially increases both defense and adjuster costs. Delaying return to work also increases employers' expenses both by extending the period of temporary disability and by adding costs for hiring and training replacement employees.


In short, instead of providing the intended quick process for approving medical treatment requests, UR is far too often used simply to delay treatment, and has become a major cost driver in the system. The entire process needs to be re-examined to make certain that the provision of appropriate and necessary medical treatment is not delayed. Why, for example, should treatment requests from hand-picked physicians in a Medical Provider Network go through UR? Should there be rules regulating conflict of interest between UR entities and payers? Should there be some regulation of entities that conduct UR? Should UR entities be penalized or barred for a pattern of frivolous denials?


But UR is not the only stumbling block in this process. As illustrated by the unequal distribution of panel assignments documented by the CHSWC QME study of September, 2010, the current panel QME process creates perverse incentives for both the evaluators and the parties. Several employees told you how they waited for over a year to get an evaluation by a QME, and in many cases that delay is compounded by a further delay because one of the parties schedules a deposition. Then there are those cases in which the QME report is thrown out because it is untimely, or it doesn't constitute substantial medical evidence, and the lengthy process must start over, further delaying the provision of treatment.


As with the UR process, the entire panel QME process needs to be re-examined. Securing necessary evidence is a fundamental due process right of both parties, and procedures should be adopted that facilitate this process, rather than impede it. Steps can be taken to limit the ability of some QMEs to "game" the system, but ultimately the rights of the parties are best protected by creating a process that allows both parties to secure the necessary evidence as quickly and efficiently as possible.


The inefficient panel QME process is just one of the problems caused by the misguided incentives created by the 2004 "reforms." Major delays occur because there are no longer any effective deterrents in the system. The "reformed" §5814 penalties - even at the maximum 25% - are minuscule when applied to most medical treatment delays. It does not appear that audit penalties serve as an effective deterrent either. The entire penalty structure needs to be re-evaluated to provide an effective disincentive against unreasonable delay. An unjustified denial, or even a long delay, may cause the employee to give up, or it may use up enough of the employee's statutory 104 weeks of temporary disability so that a needed surgery becomes impracticable.


The growing problem of liens has been similarly affected by the misaligned incentives created by the 2004 "reforms." Because virtually all liens are settled without a finding by a trier of fact, there is actually an incentive to ignore the rules. Payers can delay paying legitimate bills for years without fear of penalty, and are then further rewarded because most settlements are for less than the billed amount. Similarly some providers bill inappropriately, knowing that eventually they will be able to settle for at least a percentage of that inappropriate bill. Here again the system needs to reorder the incentives and disincentives to assure that reasonable bills are promptly paid and unreasonable bills are properly penalized.


In closing, CAAA stands ready to work with you, along with all other parties in the workers' compensation system, to address the very real problems facing injured employees. As illustrated by the testimony of employees at every one of your recent forums, in far too many cases the current system simply does not provide the prompt medical treatment and adequate indemnity compensation that is mandated by our state Constitution. Fixing these problems and getting injured employees the medical and indemnity benefits they need and deserve must be goal of any future changes.


This is not to ignore the need to control employers' costs. However, the best way to eliminate the unnecessary expenses in the system that have become major cost drivers is to adopt changes that promote the prompt delivery of appropriate benefits. Where overlapping requirements exist - UR and MPNs, for example - changes should be adopted to eliminate the delay and costs generated by this overlap. Where incentives are misaligned - the panel QME process, for example - the process should be redesigned to facilitate a prompt and efficient process to obtain necessary medical evidence. Payers should have the proper incentive to pay legitimate bills promptly, and providers should have a disincentive against submitting inappropriate bills.


Please feel free to contact me directly as efforts are begun to improve the system for injured employees.




S. Bradley Chalk, President
California Applicants' Attorneys Association



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