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Workers’ Comp in California: What’s Ahead for Employers?

By Toni Vranjes  5/2/2013

With costs in the California workers’ compensation system skyrocketing, and permanent-disability benefits falling, a group of negotiators struck a deal last year to address these issues.

The business community and organized labor touted Senate Bill (SB) 863 as a balanced reform measure, and Gov. Jerry Brown signed it in September. Supporters say the law will reduce litigation and increase efficiency while helping workers. The legislation boosts permanent-disability benefits by 30 percent, and it will save businesses $1 billion this year alone, according to the governor’s office.

Nevertheless, critics say some parts of the law are unfair and will harm injured workers. Both supporters and critics expect some parts of the measure to be challenged in court.

With so much uncertainty, employers should focus on being proactive with their workers’ compensation claims, lawyers advise.

SB 863: a New Era Arrives

Among the provisions of the law are the following:

*Independent Medical Review (IMR): The IMR process streamlines the review of medical-treatment disputes. Previously, judges could have the final say on questions of medical necessity, but now medical professionals will make that determination. An IMR decision can be appealed to the Workers’ Compensation Appeals Board for only a few reasons, including fraud, conflict of interest, or mistakes “of fact.”

*Permanent-Disability Benefits: The law increases the weekly minimum and maximum benefit rates, phasing in the higher rates over two years. S.B. 863 also changes the formula for calculating impairment ratings, which help determine the benefits for each injured worker.

*Restricted Use of “Add-Ons”: Previously, workers could receive higher benefits by using three add-ons: sleep disorders, sexual dysfunction and psychiatric disorders arising from the physical injury. The law eliminates the add-ons for the first two, and it restricts the third category to certain circumstances, such as workplace violence.

*Return-to-Work Fund: The new return-to-work program offers $120 million annually to workers whose benefits are “disproportionately low” compared with their earnings loss.

*Medical Provider Networks (MPNs): Another stated goal is improving medical-provider networks, which insurance companies or self-insured employers establish to treat injured workers. Under S.B. 863, “medical-access assistants” must be available to help workers find providers in the network. Also, if a worker receives out-of-network treatment without permission, employers won’t be required to pay for it.

*Independent Bill Review: This system is designed to resolve disputes over payments to doctors.

*Lien Filing: In an effort to reduce the number of liens filed by service providers seeking payment, the law institutes filing fees.

Supplemental Job-Displacement Vouchers: An injured worker might be eligible for a $6,000 retraining voucher if the employer doesn’t offer a job that accommodates work restrictions.

Reaction to the New Law

S.B. 863 has many advocates, although it’s not universally loved.

One supporter is the Workers’ Compensation Action Network, a coalition of employers and insurers. The costs of running the system had become overwhelming, and the overhaul was necessary to reduce litigation and cut costs, said spokesman Jerry Azevedo. Meanwhile, workers benefit from the increased payments, he added.

The California Chamber of Commerce also supports the legislation. Despite workers’ compensation reforms enacted in 2002-2004, system costs have risen over the past five years, and S.B. 863 is a “balanced approach” to the problem, according to the group.

Employees also weren’t faring well under the previous system, claims the California Labor Federation, which also backs the law. After the state’s 2004 reform law, the total dollar amount awarded for permanent disability decreased by 67 percent, the group said.

Moreover, premiums have increased over the past three years, according to data provided by the Workers’ Compensation Insurance Rating Bureau. For the last half of 2012, the projected industry average rate that insurers charged per $100 of payroll was $2.60. That’s a 24 percent increase from 2009.

KBA Engineering President Sean McNally, who helped negotiate S.B. 863, expects that employers will get some relief. But it might take a couple of years for premiums to drop again, said McNally, a member of the state Commission on Health and Safety and Workers’ Compensation.

The most vocal critic of the law is the California Applicants’ Attorneys Association (CAAA), which represents injured workers. The group blasts the IMR process, saying it’s unfair to workers. While the CAAA supports the increased benefits, it contends that some severely injured workers could be worse off because of the new rating formula.

The group says that IMR deprives employees of their right to judicial review of medical-treatment disputes. CAAA member Brett Borah, of Borah & Shaffer in Cupertino, said the IMR doctor is anonymous and “has the absolute power to say no.” Noting that this raises due-process concerns, he predicted there will be a legal challenge to the IMR provision. He calls S.B. 863 “terrible legislation.”

This process also worries Stephen Nakata, a Pasadena defense lawyer at Laughlin, Falbo, Levy & Moresi. He said that disputes now go to an unknown IMR doctor who can’t be questioned.

“It has upset both sides to a certain extent,” Nakata said.

The CAAA also criticizes the restrictions on add-ons. For instance, if a worker is confined to a wheelchair, there should be compensation for the resulting psychological injuries, Borah said.

“He will never dance with his daughter at her wedding and never play ball with his boy in the backyard,” he noted.

Another problem, the association points out, is that the new rating formula no longer accounts for “diminished future earning capacity.” Although the law includes the $120 million fund for workers with disproportionately low” benefits compared with their lost wages, the CAAA has said it’s unclear how that will be defined.

Defending the legislation, Azevedo said that IMR is “objective third-party independent medical review.” He said the new rating formula, along with the $120 million fund, brings more generous benefits. He also called the add-ons a “clear area of abuse” by lawyers.

The association said the soaring costs are due to “utilization review,” in which employers or their claims administrators review treatment decisions. They’re constantly reevaluating and denying the recommendations of their “handpicked” doctors, said CAAA spokesman Steve Hopcraft.

 Then there’s the issue of attorney fees. Lawyers representing injured workers receive a percentage of disability benefits. Azevedo said lawyers are upset because they can’t receive fees on payments from the $120 million fund. Emphasizing  that its lawyers aren’t paid by the hour and that it is motivated by its concern for workers, the CAA adds that it welcomes a more efficient system.

There’s a lot of uncertainty ahead. In February state Senator Jim Beall introduced S.B. 626, which would reverse many parts of S.B. 863. Looking ahead, Azevedo expects many legal challenges to S.B. 863.

Despite the concerns, the CAAA said it’s working with state officials and others to implement the new law.

What Should Employers Do Now?

Here are some tips to comply with the law and reduce the chances of litigation:

*Notify All Employees of the New Law: Post notices in the workplace, listing employees’ rights and responsibilities in the workers’ compensation process, Nakata said. Display them in places where employees gather, such as the lunchroom.

If there’s a medical-provider network, inform employees about their rights and responsibilities in the MPN process, said Yvonne Lang, president of the California Workers’ Compensation Defense Attorneys’ Association. An employer should notify workers when a new MPN is established and when it switches to a different MPN. Companies also should notify employees when they are hired, and they should provide the information again to injured workers.

*Inform Doctor of Worker’s Job Duties: When an injured worker’s medical condition becomes “permanent and stationary”—meaning it is at the maximum level of improvement—the doctor must describe any work restrictions on the Physician’s Return-to-Work & Voucher Report.

If a job description is available, the doctor can evaluate the patient’s ability to do the work, said Oakland attorney Carol Powell, of the defense firm Mullen & Filippi. The employer should promptly send an accurate job description to the claims adjustor, who then will send it to the doctor. Without it, the physician might rely on the description provided by the patient, which might be inaccurate.

*Communicate with Injured Workers: Once restrictions are known, the employer should collaborate with the worker to develop a permanently modified or alternative job, according to Powell. By being proactive, employers can avoid having to provide a $6,000 voucher and, possibly, prevent litigation.

To avoid the voucher, the employer must offer the work arrangement within 60 days of receiving the report that the worker’s condition is “permanent and stationary,” said Don Barthel, a Sacramento defense lawyer at Bradford & Barthel.

If an employer fails to discuss possible options with an injured employee, that could be the basis for a civil disability-discrimination lawsuit, Nakata said.

“One of the primary reasons applicants litigate is because they have no job to go back to and nothing to lose,” Powell said in an e-mail.

Show that you care, advises Lang, an attorney in the Oxnard office of Pearlman, Borska & Wax. For instance, an HR manager might tell the individual that modified work is available and that “we want you to come back to work and feel useful and capable.”

“Don’t just wash your hands of the employee,” Lang cautioned.

Toni Vranjes is a freelance business writer in San Pedro, Calif.

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