Workers' Compensation

Top 10 Events of 2018 – Workers’ Comp System

by Julius Young

As the year comes to a close, it’s time to assess what was significant in California’s workers’ compensation system in 2018. With hindsight, what were the big developments and the big themes?

Each year I assess system developments at mid year and at year’s end. Here, in no particular order, are my picks for 2018 (with links to blog posts discussing these developments in detail):

1. California instituted a prescription drug formulary

This is a major change and follows adoption of formularies in many states. It took a lengthy period of drafting and multiple comment rounds, but the DWC finally adopted formulary regulations that went into effect at the beginning of 2018. Those formulary regs follow the late 2017 DWC adoption of revised MTUS treatment guidelines, largely based on ACOEM treatment protocols. The formulary regulations exempt some medications from review but others are non-exempt. Disputes over pharmaceuticals have been a major component of UR and IMR volume.

In July 2018 the California Workers’ Compensation Institute released an analysis showing results from the first 5 months of 2018. The formulary appeared to have had some effect on pharmacy disputes, as CWCI claimed that “The findings show that the proportion of UR decisions involving prescription drug requests fell from 44.5 percent in the pre-formulary period to 40.7 percent in the first five months of 2018, a relative decline of 8.5 percent.”

2. Possible reform of the way QMEs are paid for medical-legal reports generated increasing controversy

The past several years have seen turmoil in the QME system, as the number of QMEs have declined and as the DWC Medical Unit took a hard line on renewing the status of some QMEs.

In May 2018 the DWC held a public forum on proposed changes to QME billing. As a result, there was a huge reponse by the QME community, many of whom predicted that they would either stop doing QMEs or, if they stayed in the system, would not be able to do quality work.

By year’s end the DWC has not moved forward with any proposed regulations. Several QME groups and physician professional organizations have submitted proposals for changes in the QME billing system, and the DWC appears for the moment to be taking a more collaborative approach, gathering ideas before moving forward in the regulatory process.

Meanwhile, RAND’s long anticipated QME study was posted. My comments on that study are here.

3. Workers’ compensation insurance rates continued a declining pattern for most employers

Workers’ comp does not appear as a hot-button issue these days in articles on California’s business climate. Although what rates employers actually pay depends on many factors, the advisory workers’ compensation rate approved by the California Insurance Commissioner continued to decline. In November 2018 outgoing Insurance Commissioner Dave Jones approved the eighth advisory rate decrease since 2015, ordering a non-binding advisory rate of $1.63 per $100 of payroll.

The text of the DOI finding is here.

Average rates actually charged California employers were down about 10% in 2018 from 2017 levels.

4. The cost of administering the system remained extremely high in relation to benefits provided

According to the 2018 WCIRB State of the System report, in 2018 (as in 2017) it costs $.53 to deliver $1 of benefits, an absolutely stunning ratio. Too little is going to workers after brokers, ALAE (allocated risk expenses), ULAE (insurer overhead costs) and other segments take their cut.

Frictional costs, loss adjustment expense and cost containment expenses continued to be extremely high. Frictional costs now exceed the cost of paid indemnity benefits (TD and PD payments). According to the 2018 SOS report, total overhead expenses now comprise 42% of insurer costs vs. 58% for indemnity and medical. The CHSWC draft annual report for 2018 has the figure even higher, with expenses reaching 44.3% of system costs in 2017.

Here is my detailed commentary on those high expenses.

While many employers may be celebrating lower workers’ comp costs, the poor ratio of costs to benefits paid is increasingly worrisome.

And as I note in a December 2018 blog post

“The WCIRB 2018 State of the System report provides a visual summary of the SB 863 results based on comparison of original 2012 projections with 2016 WCIRB figures. As of 2016, overall savings were $1.3 billion, not the estimated $200 million.

That’s a big imbalance, one that leads many worker advocates to believe that workers should share some of the savings by further benefit increases or lightening a bit on some of the system’s roadblocks.”

5. There were few significant bills signed by Governor Brown during his last year

In late September Governor Brown vetoed five comp-related bills while signing four others. A full description of those bills can be found in my September 24 post you can find here.

Looking back on the past several years, Brown vetoed any bills that the employer community felt might endanger the 2004 and 2012 reform bills. As in the past several years, bills supported by the applicant bar got no traction.

However, a rumored push to change the rules on cumulative trauma claims in California never materialized.

One sleeper issue arising out of this year’s legislative session may be the possible impact of the California Consumer Privacy Act of 2018 (CCPA), effective 1/1/2020, on California workers’ comp. Some insurers, employers and defense firms are concerned as to how this law may expose them to liability for data breaches and problems with information security. It is quite likely that 2019 will see legislative efforts to amend CCPA.

6. California courts issued several 2018 decisions that could have a significant impact on the system, and the applicant bar was on the losing end of many of the significant appellate cases

Key cases include the following:

  • Dynamex Operations West v. Superior Court (California Supreme Court); this case, while not arising in a workers’ comp context, could have significant implications for the definition of who is an employee and who is an independent contractor. In a dispute over wage and hour rules the court adopted a more broad criteria for finding a worker to be an employee. Employers, particularly “gig economy” companies, called foul and have begun to mount an effort to overturn or limit the application of Dynamex.
    Here are thoughts on what may follow Dynamex.
  • King v. CompPartners (California Supreme Court) (the court, finding that workers’ comp preempted a civil remedy, rejected a tort remedy sought by a worker who alleged that a UR reviewer has a duty of care to the worker, who was not warned by the reviewer of the danger of withdrawing from a non-certified medication).
    Here is my post on the case.
  • County of San Diego v. WCAB (Pike) (Court of Appeal) (rejecting an award of TD after 5 years from the date of injury even though a petition to reopen was filed before the 5 year anniversary of injury).
    Commentary on Pike can be found here.
  • Zuniga v. WCAB (Court of Appeal) (rejecting another challenge to the constitutionality of the IMR system)
  • SCIF v. WCAB (Guzman) (Court of Appeal) (holding that where worker’s soil compactor hit a rock and fell on him, there was not a “sudden and extraordinary” event that would trigger an exception to the 6-month employment requirement for psyche claims).
    My commentary on the Guzman case is here
  • Department of Corrections and Rehabilitation v. WCAB (Fitzpatrick) (Court of Appeal) (in this decision which has implications for cases where workers seek a fining of permanent total disability, the court held that for pre-1/1/2013 cases Labor Code 4660 governs how a finding of permanent total disability call be made under Labor Code 4662(b) “in accordance with the fact”).
    Further thoughts on Fitzpatrick can be found here.
  • City of Petaluma v. WCAB (Lindh) (Court of Appeal) (in this decision the court overturned a WCAB panel decision that had rejected a QME’s apportionment determination, finding on the facts in the case that there could be apportionment to an asymptomatic pre-existing condition).
    My post on Lindh is here.
  • City of South San Francisco v. WCAB (Court of Appeal) (clarifying employer liability under California cumulative trauma statutes in a case involving industrial cancer presumptions for firefighters)
  • Suon v. California Dairies (WCAB en banc) (dealing with disputed request for replacement QME panel where there were issues regarding “information” and “communication” to the QME)
    Reflections on this case can be found in my post here.

7. The focus on combating workers’ comp provider fraud continued

While employer premium fraud and labor law violations in the underground economy remain a major problem, alleged fraud by medical providers continued to generate much publicity. Names of accused or convicted workers’ comp profiteers such Drobot, Solakyan, Garbino, Uwaydah, Barri, Sobol, Iglesias and Howser continued to pop up in indictments and lien consolidations.

The anti-fraud statutes AB 1244 and SB 1160 continued to have effects. In June 2018 the DWC announced that 263 medical providers had been suspended from the system.

A March 2018 DWC report had noted that as of that time 465,000 liens filed by or on behalf of criminally charged providers had been stayed. And hundreds of thousands of liens had been dismissed by operation of law due to failure to file lien declarations required by Labor Code 4903.05. Those liens had a claimed value in the billions. The DWC report can be found here.

Still, even with all this, there was concern that profiteering on the backs of injured workers remained endemic in the California system.

8. In the last year of Brown’s term there were major personnel changes at DIR/DWC and at the WCAB

In a sudden move that shocked many, Christine Baker resigned her post as Director of the California Department of Industrial Relations. The exact circumstances of her departure were surrounded by rumor but shrouded from the comp community. Baker was replaced by a caretaker at DIR, Andre Schoorl, with Schoorl reporting to David Lanier. Baker’s departure marked the end of an era, as she had left an indelible mark on California workers comp in the last 20 years in her successive roles at CHSWC, the DWC and the DIR, including extensive activity putting together a coalition for the 2012 reforms and shepherding the multi-year effort to craft regulations required by SB 863. Whether loved, feared or hated by stakeholders, her vision for the system remains in place at the end of 2018.

Meanwhile, George Parisotto was confirmed as AD of the DWC. Parisotto’s vision for 2019 was covered in my recent post, “Setting the Agenda”:

2018 was also notable for changes at the WCAB. Longtime commissioner Frank Brass quietly retired in January 2018. I commented on Brass’ tenure here.

In the summer of 2018 Governor Brown made a somewhat controversial pick, choosing a non-lawyer, an old high school chum for one of the slots. That friend of Brown, Juan Pedro Gaffney, had ties to other senior Democratic politicians as well, and won confirmation despite no experience in the workers’ comp field.

Shortly thereafter Brown appointed a 29 year old politically connected lawyer, Katherine Williams Dodd, to another of the vacant WCAB slots.

At the end of 2018 it was announced that Angie Wei of the California Labor Federation will be joining the incoming Newsom administration in a major policy adviser post. Ms. Wei, a CHSWC Commissioner, was a major force in forging a coalition between labor and employers culminating in the 2012 reforms.

Newsom himself has issued almost no public statements on workers’ comp during the 2018 campaign, and it seems unlikely that workers’ comp will be a major priority of his administration as long as comp costs remain static.

9. IMR volume continued at a high volume, and at year end CHSWC commissioners expressed concern

Anecdotally, workers and applicant attorneys continued to complain of problems with treatment denials.

A September 2018 California Workers’ Compensation Institute study looking at data through mid 2018 found that IMR volume had actually increased in 2018, though IMR outcomes remained basically the same, with IMR reviewers upholding the UR reviewer treatment non-certification more than 90% of the time. The report noted that “a small number of physicians continue to account for most of the disputed medical services that go through IMR.”

The September 2018 DIR report analyzing 2017 IMR data can be found here.

At year’s end, several CHSWC commissioners expressed concern about the continuing high volume of IMR disputes, noting that that was not what was intended in the 2012 reforms, and posing queries as to why the frequency of disputes remains so high and what can be done about it.

10. As always, there were a raft of studies on how aspects of the system are preforming

Today’s studies can sometimes become the basis for tomorrow’s policy changes. Here are some of the studies I tracked in 2018, with links to commentary:

Stay tuned. I’ll soon be posting a 2019 workers’ comp quiz where readers can test their skill at predicting the future.

My 2017 Top Ten list can be seen here.

My mid-year 2018 Top 10 list covered several other issues can be found here.

Julius Young

© Copyright 2019 Julius Young. All rights reserved. Reprinted with permission.

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