Cost Savings in California Workers’ Comp Reform May Fall Short

By Don Jergler | March 7, 2014
saving money

California’s sweeping workers’ compensation reform is working for the most part, but some of the savings may not materialize thanks to pressure on the system, according to Dave Bellusci, executive vice president, chief operating officer and chief actuary at the Workers’ Compensation Rating Bureau.

Bellusci was speaking Thursday on the state’s workers’ comp system at the Golden Gate Chapter of the Chartered Property Casualty Underwriters Society during the group’s “All Industry Day”

The group held their daylong conference the Delancey Street Conference Center, which houses a residential self-help organization for former substance abusers, ex-convicts, homeless and others.

workers_compAlso addressing the large group of insurance professionals at the conference was Alex Swedlow, president and chief executive officer of the California Workers’ Compensation Institute.

Both men talked about the state’s workers’ comp reform law, Senate Bill 863, passed at the end of 2012 and implemented last year.

Among the host of changes the bill made was to establish an independent medical review process. IMR takes the process of reviewing cases that were elevated from utilization review away from a process that included judges and other members of the workers’ comp community and puts it in the hands of doctors.

The IMR process was projected to produce a savings of $400 million related to administrative costs.

That was assuming that between 50,000 and 60,000 disputes would make it to IMR each year.

But many more cases have been going to IMR, according to Bellusci.

By WCIRB’s estimates more than 14,000 IMR cases are being brought each month, putting the system on pace for more than 170,000 cases for the year.

“We think the administrative costs are probably not going to materialize if they stay at this level,” Bellusci said.

According to Swedlow, other than that, the new system seems to be working as intended.

Based on the medical treatment utilization schedule or other guidelines, 75 percent of all treatment requests are being approved at the initial level without further review, according to Swedlow.

Out of the one-fourth of cases that get elevated for further review, slightly more than 23 percent of the time that treatment is either modified or denied, he said.

When it’s all added up, that means less than 5 percent of requests are either modified or denied, Swedlow said.

One trouble spot for Swedlow in both the new and the old systems is that pharmacy costs continue to dominate.

According to Swedlow, 43 percent of utilization reviews are over pharmacy spending and more the one-third of IMRs are for pharmacy.

Much of the pharmacy spending in workers’ comp comes from physicians prescribing opioids, Swedlow said.

According to him, 30 percent of the pharmacy spending goes to Schedule II and Schedule II opioids.

Nearly half the Schedule II opioids, like morphine and oxycodone, are being prescribed for minor injuries, Swedlow said, adding that the opioid problem has become worse across the U.S. each year.

“This is truly an national epidemic,” he said.

Another epidemic that continues to impact workers’ comp is obesity, which may become a bigger problem for the system he said.

Swedlow fears that a decision in June 2012 by the American Medical Association House of Delegates reclassifying obesity as “a disease state” may elevate the cases of injured workers who are obese. With obesity reclassified as a disease, medical providers may feel a greater responsibility to counsel obese patients about their weight, or if treatment for a compensable injury causes significant weight gain, Swedlow said.

“We feel thanks to AMA obesity may move from being treated as a comorbidity to a compensable injury,” Swedlow said.

See related story from CPCU’s All Industry Day: Secret Service Agent Says Many Cyber Breaches Go Unreported

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