ALWAYS UNDER THE MICROSCOPE

California’s workers’ comp system is always under the microscope. 2019 has been no different, with a stream of studies released during the year. What did we learn this year? Many attorneys working in the system can go a whole year without really paying attention to system analyses. I know. I paid little attention for years til I started blogging. Most injured workers are understandably too absorbed with their own claims to follow the paper trail of system studies. Studies that look at the system from a macro level usually fail to capture the struggles some workers have getting timely and helpful treatment and regaining a successful earnings career. Anecdotal experiences do matter. But system stakeholders such as employers, insurers and medical provider groups do trot out studies to make arguments buttressing their preferred policy goals. Studies can be key in the direction of the system. Ignore them at your own risk. Here are my take aways from prominent 2019 California workers’ comp studies, together with links to source material: 1. The 2012 SB 863 reforms under Governor Brown resulted in a far larger ratio of cost savings for employers when compared to benefit increases for workers than had been promised or expected An October 2012 report by the WCIRB noted some of the expected benefit cost increases and savings from SB 863: https://www.wcirb.com/sites/default/files/documents/Updated_Evaluation_SB863_COMPLETE.pdf That report included the following projection:

“In total, by the 2014 injury year, the currently quantifiable provisions of the legislation, including the impact on claim frequency (utilization), is estimated to decrease total system costs by 2.7%, or $0.5 billion, annually.”

But what a difference a few years makes! Yes, there were some benefit increases in SB 863, but effects of other provisions far outstripped projections. Some seven years later, an October 2019 WCIRB monitoring report shows system savings from SB 863 of $2.3 billion annually and notes that:

“There appears to have been little evidence of erosion of these reform impacts as of this time. As result, these savings have generally been sustained and have accumulated to a total system-wide savings of over $10 billion since SB 863’s implementation.” The report can be found here: https://www.wcirb.com/sites/default/files/documents/research_brief_october_2019_sb_863_cost_monitoring_update.pdf The report notes that: “Workers’ compensation reforms are not implemented in a vacuum. Post-reform cost levels are impacted not only by those reforms but also subsequent legislation, regulations and judicial action as well as other economic or claims-related phenomena. As a result, it can be challenging to isolate the impact of specific reforms from that of other factors. Nevertheless, it is clear that SB 863 has been a principal factor in reducing workers’ compensation cost levels in California. While permanent disability benefits have increased as expected, frictional cost savings have not emerged as initially projected. However, reductions in medical cost levels have been far greater than expected. These savings have largely driven a series of advisory pure premium rate decreases totaling more than 40% and have resulted in in the lowest average charged premium rates in the marketplace in more than forty years.”

While actual comp insurance rates charged employers may vary, both the DOI -approved advisory rate and the average rates charged employers have continued to drop, including a 9% “pure premium” recommended rate cut for 2020, the 9th consecutive advisory rate cut. Attorneys and some worker advocates are impatient to see more of the post-SB 863 system savings spread around to injured workers, but as yet have been unable to get any traction in the legislature or the court of public opinion.

2. California’s QME system for Medical-Legal reports remains very troubled Efforts by the DWC to develop a revised system for compensating California QMEs has been bogged down for some time now, though meetings with stakeholder groups are ongoing after stiff resistance to several draft proposals. Meanwhile a November 2019 report by the California State Auditor documented significant problems with the QME system. The report cited the Department of Industrial Relations, charging that “Its failure to adequately administer the Qualified Medical Evaluator process may delay injured workers’ access to benefits”: https://www.auditor.ca.gov/reports/2019-102/index.html The audit report noted problems with the numbers of QMEs, inappropriate DWC administration of the QME reappointment process, and lack of efforts by the DWC to ensure report quality. An attempted rebuttal by the DWC was met with a point by point rejoinder from the State Auditor. 3. Efforts to reduce opioid use in the California system have been a large success A November 2019 CWCI report titled “The Impact of Declining Opioid Use on Lost-Time Claim Development & Outcomes in California Workers’ Compensation” documents a steep drop in opioid use in California’s comp system over the 10 years from 2008 to 2018. Among the key study findings are these: • “Cumulative savings from the decline in opioids are projected at $6.5 billion for 2010-2017 claims” • The share of injured workers receiving opioids declined by 51% over the 10 year period, from 49% to 24% • The share of workers with chronic opioid use declined by 77% (from 13% to 3%) and the share of workers with acute (i.e.short term) use declined by 40% (from 26% to 21%) •Declining opioid use appears to have reduced the length of TD claims and the amount of benefit payments to the point that “systemwide savings from the decline in opioid use are projected to reach 16.5% for 2017 claims at 10 years of development”

4. A relatively small subset of treating physicians have been driving a large percentage of medical disputes and some are indicted providers

As medical data analytics becomes more sophisticated, data scientists are starting to take a closer look at the physicians who are involved in large numbers of treatment disputes. One such analysis was the December 2019 WCIRB research brief “Treatment Patterns of Medical Providers Indicted for Fraud in California Workers’ Compensation” which found that

“The average total medical paid per indicted provider was 10 times higher than the average paid to other providers between 2013 and 2018, largely because indicted providers treated significantly more injured workers and rendered more services per injured worker.”
“The shares of medical payments for medical-legal (ML) and medical liens to indicted providers were two to three times higher compared to other providers. Indicted providers were also paid a significantly higher share of payments for complex office visits and ML evaluations.”

https://www.wcirb.com/sites/default/files/documents/treatment_patterns_of_medical_providers_indicted_for_fraud_in_ca_workers_comp.pdf 5. Regional differences in California workers’ comp remain significant A 2019 “Geo Study” from the WCIRB reported on California regional differences. The study claims that “Even after controlling for industrial mix and wage level differences”, claims frequency was significantly higher in the LA basin and lower in the San Francisco Bay Area, with the Peninsula/Silicon Valley being the lowest. Also significantly higher in the LA basin were cumulative trauma claims, med-legal costs, and allocated loss expenses (ALAE). The study, which includes maps, can be found here: https://www.wcirb.com/sites/default/files/documents/2019_wcirb_geo_study.pdf However, the share of total claims involving cumulative trauma or occupational disease dropped in 2017 in Southern California. 6. Although the data is still in development, the prescription drug formulary adopted pursuant to AB 1124 and implemented in 2018 under Governor Brown is reducing some frictional costs, but the full impact is not yet clear A CWCI March 2019 study examines the distributions of prescriptions and payments by formulary category, including discussion of “exempt” and “non-exempt” medications: https://www.cwci.org/document.php?file=4204.pdf The WCIRB released an August 2019 research brief, “California’s New Drug Formulary-One Year Checkup”: https://www.wcirb.com/sites/default/files/documents/research_brief_californias_new_drug_formulary_one_year_checkup.pdf The study after one year of experience with the formulary notes that: “Even before the implementation of the drug formulary, pharmaceutical costs in California had been declining sharply. Key drivers of the decrease include Senate Bill No. 863 reforms related to IMR and spinal surgeries, changes in the federal government upper-limit pricing levels, anti-fraud efforts and the public reaction to the national opioid epidemic. While there was an even more significant drop in the utilization and cost of pharmaceuticals in 2018, it is not immediately clear how much of the decline was due to the formulary and how much was due to the continuation of the factors driving the prior year decreases.” However, they conclude that: “One year after the drug formulary was enacted, prescriptions of drugs subject to prospective UR in the formulary experienced a significant decline, while drugs not subject to prospective UR were prescribed 41 percent more. The changing mix of prescription drugs indicates a shift toward prescribing drugs not subject to prospective UR, which could potentially reduce UR requests and result in lower drug costs. This suggests that the new drug formulary has played an important role in reducing pharmaceutical costs. In addition, payments for the pharmaceutical components expected to be most likely impacted by the formulary all continued to decline in 2018. The decline accelerated in 2018 compared to 2017 and was greater in the second half of the year compared to the first half, which is indicative of the expected increase in the impact of the drug formulary over time. Efforts to improve the drug formulary are ongoing, and the WCIRB will continue monitoring its impact on the utilization and costs of pharmaceuticals in the workers’ compensation system as more data becomes available.” Also noteworthy is a February 2019 CWCI study “California Workers’ Compensation Prescription Drug Utilization & Payment Distributions, 2009-2018”: https://www.cwci.org/document.php?file=4190.pdf The 2019 WCIRB “Geo Study” notes that “The largest decreases in pharmaceutical costs have occurred in Southern California regions, which had the highest pharmaceutical spending at the beginning of the study period”. 7. Costs to administer California’s system are the shamefully high The WCIRB State of the System documents system administrative expenses that are the highest in the nation. Loss adjustment expenses in 2018 were 23% or system costs, almost as high as incurred indemnity benefits (TD and PD payments) which were 26% of system payments. Indemnity (26%) and medical payments (28%) when added together totaled 54% of system payments. The national median ratio of allocated loss adjustment expense to overall losses was 10.6%, but California clocked in at 22.9%. Unallocated loss expenses in California were 13.6% in comparison to a national median of 7.6%. California’s system costs 54 cents to deliver a dollar of benefits. The national workers comp median is 24 cents. Medicare costs 2 cents to deliver one dollar of benefits. It’s all in the 2018 State of the System: https://www.wcirb.com/sites/default/files/documents/2019_state_of_the_system_report.pdf 8. RAND continues to do wage-loss monitoring studies A September 2019 presentation by RAND researchers to CHSWC (now posted on the CHSWC website) noted that RAND research is ongoing, but on a interim basis they reported

Overall labor market outcomes have held steady for workers injured during 2016 – 2017
Improvements in outcomes for Cumulative Injuries in Southern California
Some preliminary evidence of improving outcomes for workers with permanent disability

9. Researchers have begun to study the interaction between gig/platform based alternative work arrangements and workers’ compensation A 2019 paper prepared by RAND researchers for the National Bureau of Economic Research titled “How Do Alternative Arrangements Affect Income Risk After Workplace Injury” was presented to CHSWC. The authors claim that “this study provides the first evidence on how differences in work arrangements influence the extent of income risk workers face conditional on injury.” In conclusions that may be relevant to the debate over AB5 and the codification of the Dynamex case, they note that: “We found that temporary and contract workers face more substantial income risk—in terms of larger reductions in earnings and employment due to injury—than do observably similar direct-hires injured doing the same job.” The study can be found here: https://www.dir.ca.gov/chswc/Meetings/2019/Alt-Work-Arrangements-NBER.pdf 10. Insured employers could be saving themselves money by going self-insured, according to a 2019 study The study prepared for the California Self-Insurers Security Fund by Mark Priven of Bickmore Actuarial consultants, claims that self insurers save 21% on average: https://www.securityfund.org/assets/docs/Bickmore%20Comparision%20Self-Insurance%20v%20Insurance%20-%20FINAL.pdf Stay tuned. I’ll be doing an end of year recap of the 2019 Top 10 developments in California workers’ comp, and a quiz on likely 2020 developments. Julius Young https://www.boxerlaw.com/attorney/julius-o-young/