BILL ANALYSIS                                                                                                                                                                                                    Ó






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: June 13, 2012               2011-2012 Regular 
          Session                              
          Consultant: Gideon L. Baum                   Fiscal:Yes
                                                       Urgency: No
          
                                  Bill No: AB 1687
                                    Author: Fong
                         As Introduced/Amended: June 6, 2012
          

                                       SUBJECT
          
                     Workers' compensation: utilization review.


                                      KEY ISSUE

          Should the Legislature require the Administrative Director to 
          require the sending of a notice to an injured worker on how to 
          object to a utilization review decision to modify, delay or deny 
          medical treatment?  
          
          Should the Legislature permit the Workers' Compensation Appeals 
          Board to award attorney's fees in the event of a successful 
          challenge of a utilization review decision to delay, modify, or 
          deny medical treatment if the injured worker has previously 
          settled his or her claim and the settlement included future 
          medical care?
          

                                       PURPOSE
          
          To require an injured worker to receive a notice in the event of 
          medical treatment being modified, delayed, or denied through the 
          utilization review system, as well as allowing the Workers' 
          Compensation Appeals Board to award attorney's fees under 
          specified conditions.


                                      ANALYSIS
          
           Existing law  establishes a workers' compensation system that 
          provides benefits to an employee who suffers from an injury or 









          illness that arises out of and in the course of employment, 
          irrespective of fault.  This system requires all employers to 
          secure payment of benefits by either securing the consent of the 
          Department of Industrial Relations to self-insure or by securing 
          insurance against liability from an insurance company duly 
          authorized by the state.

           Existing law  defines "utilization review" (UR) as utilization 
          review or utilization management functions that prospectively, 
          retrospectively, or concurrently review and approve, modify, 
          delay, or deny treatment recommendations by physicians, based on 
          medical treatment guidelines.  (Labor Code §4610)
           
          Existing law  requires every employer to establish a medical 
          treatment utilization review (UR) process, in compliance with 
          specified requirements, either directly or through its insurer 
          or an entity with which the employer or insurer contracts for 
          these services.  Those requirements include:

             a)    Each utilization review process shall be governed by 
               written policies and procedures. These policies and 
               procedures shall ensure that decisions based on the medical 
               necessity to cure and relieve of proposed medical treatment 
               services are consistent with the schedule for medical 
               treatment utilization adopted pursuant to regulations from 
               the Administrative Director;
             b)   These written policies must be reviewed annually by 
               actively practicing physicians and disclosed to a physician 
               or injured worker if used as the basis of a decision to 
               modify, delay, or deny services in a specified case under 
               review;
             c)   No person other than a licensed physician who is 
               competent to evaluate the specific clinical issues involved 
               in the medical treatment services may modify, delay, or 
               deny requests for authorization of medical treatment;
             d)   Utilization review processes must follow certain 
               specified timelines as provided in law, which are generally 
               5 to 14 days for prospective review, 30 days for 
               retrospective review, or 72 hours in the event of emergency 
               medical circumstances for an injured worker; and
             e)   The Administrative Director may assess, by order, 
               administrative penalties in the event of an employer, 
          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 2

          Senate Committee on Labor and Industrial Relations 
          








               insurer, or other entity fails to meet any of the 
               utilization review timeframes or fails to meet any other 
               utilization review requirements.
               (Labor Code §4610)
           
          Existing law  provides that, when the payment of compensation, 
          which includes medical treatment, is unreasonably delayed or 
          refused, the amount delayed or refused shall be increased by up 
          to 25 percent or $10,000, whichever is less.  (Labor Code §5814)

           Existing law  provides that, in the event of an unreasonable 
          delay or refusal of payment of compensation, reasonable 
          attorney's fees incurred for enforcing the payment of 
          compensation may be awarded.  (Labor Code §5814.5)
           
          Existing law  requires that the Administrative Director of the 
          Division of Workers' Compensation, in consultation with the 
          Commission on Health and Safety and Workers' Compensation, must 
          prescribe reasonable rules and regulations for serving the 
          employee or the employees dependents certain specified notices.  
          These notices include:

             1)   Notice of the right to consult with an attorney;
             2)   Notices of any change in the amount or type of benefits 
               being provided, the termination of benefits, the rejection 
               of any liability for compensation, and an accounting of 
               benefits paid; and
             3)   Notices of rights to select the primary treating 
               physician, written continuity of care policies, requests 
               for comprehensive medical evaluation, and offers of regular 
               modified, or alternative work.
               (Labor Code §138.4) 
           
          This bill  would include to the above-discussed list a notice 
          that includes explanations of the options available to object to 
          a decision made pursuant to the utilization review process to 
          modify, delay, or deny medical treatment.

           This bill  would also provide that if an award made by the 
          Workers' Compensation Appeals Board specifies the provision of 
          future medical treatment and a dispute arises in the course of a 
          utilization review with the enforcement of this award, and the 
          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 3

          Senate Committee on Labor and Industrial Relations 
          








          applicant employs an attorney for purposes of enforcing the 
          award and prevails, the appeals board may award attorney's fees 
          reasonably incurred by the applicant in connection with 
          enforcement of the award.


                                      COMMENTS

          
          1.  Need for this bill?

            The requirement for insurers and employers to utilize 
            utilization review in the workers' compensation setting was 
            first created by SB 228 (Alarcon), Chapter 639, Statutes of 
            2003.  The idea was to create a mechanism to transparently 
            address questions on if a request for medical treatment in the 
            workers' compensation system followed the medical utilization 
            guidelines set by the Division of Workers Compensation.  This 
            bill focuses primarily on an unusual facet of the utilization 
            review process: what happens when future medical treatment 
            that has already been stipulated to by the employer or insurer 
            gets modified, delayed, or denied by utilization review.

            In the workers' compensation system, it is somewhat common for 
            cases for a settlement to require that the employer or insurer 
            continue to provide the injured worker future medical 
            treatment through the workers' compensation system for his or 
            her occupational injury.  Since the case in the main has been 
            settled, generally speaking, the applicant attorney would 
            receive his or her fees (which is usually a percentage of the 
            monetary award) and move on to other cases.  In the event of 
            the agreed-upon medical care getting modified, delayed, or 
            denied by utilization review, the injured worker would be 
            limited in his or her ability to enforce the award of future 
            medical benefits.

            AB 1687 seeks to address this by allowing the Workers' 
            Compensation Appeals Board, in the event of a dispute arising 
            from utilization review, to award reasonably incurred 
            attorney's fees in the enforcement of an award that specified 
            future medical treatment.  Additionally, AB 1687 includes a 
            notice requirement for an injured worker in the event of a 
          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 4

          Senate Committee on Labor and Industrial Relations 
          








            modification, delay, or denial of treatment pursuant to the 
            utilization review process.

          2.  AB 1687 and Utilization Review Data:  

            While AB 1687 was moving through the Assembly, several 
            stakeholders questioned the numbers used by Assembly 
            Appropriations Committee in estimating the number of 
            utilization review requests that are denied.  While the 
            Assembly Appropriations Committee estimated that between 6% 
            and 20% of all utilization review requests are denied, citing 
            data from the Division of Workers' Compensation (DWC), other 
            stakeholders put the number at closer to 80% to 90%.  For the 
            purposes of clarity, this issue will be addressed, as well as 
            put in the context of AB 1687.  

            Labor Code §129 requires the Division of Workers' Compensation 
            to audit insurers, self-insured employers, and third-party 
            administrators.  Each audit subject is audited every 5 years.  
            As a part of this audit, a random sample of requests for 
            utilization review authorization from an insurer, self-insured 
            employers, or third-party administrators are reviewed.  The 
            findings from this portion of the audit are available on the 
            DWC website. 

            When looking at the samples from 2010 and 2011, the denial 
            rate for utilization review authorization is 23% and 27%, 
            respectively.  For 2012, the audits are ongoing, but the 
            current denial rate is 17%.  Additionally, this aggregation is 
            somewhat complicated by the fact that the utilization review 
            denial rates vary greatly from firm to firm; in some cases, no 
            utilization review requests were denied, while in others 
            virtually every utilization review request was either delayed, 
            modified, or denied.

            In the context of AB 1687, this gives us some sense of the 
            pool of utilization review denials that would require a 
            notice.  Additionally, this is the probable source of claims 
            that may trigger legal assistance, assuming the above-samples 
            are reflective of the workers' compensation system as a whole. 
             However, it is currently unknown how many of those denials 
            involve workers with settled claims that include future 
          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 5

          Senate Committee on Labor and Industrial Relations 
          








            medical treatment.  Additionally, it is not known how many of 
            those individuals would retain an attorney to pursue an action 
            in from of the Workers' Compensation Appeals Board.

            Finally, as it is unknown what kind of notice the 
            Administrative Director of the Division of Workers' 
            Compensation would prescribe, as well as the circumstances 
            that such a notice would go out, it is unknown how many 
            notices would go out, as well as their impact.

          3.  Possible Amendments:  

            As was discussed above, most future medical awards occur when 
            the workers' compensation claim is largely settled.  However, 
            the language currently in the bill leaves open the question of 
            how settled the claim must be to allow the Workers' 
            Compensation Appeals Board to award attorney's fee.  This 
            could create a situation where future medical care is 
            stipulated without an award of permanent disability, which 
            could then drive attempts to seek attorney's fees which are 
            beyond the author's goal with this legislation.

            To address this, the Committee may wish to insert the 
            following language on page 8, line 38, after the last 
            sentence: "This section shall apply only to medical disputes 
            arising after a final award of permanent disability."

          3.  Proponent Arguments  :
            
            Proponents note that existing law protects injured workers in 
            the workers' compensation system by providing notices and 
            ensuring that their appellate rights can be utilized.  
            However, proponents note that existing notice requirements do 
            not provide injured workers information on how to object to 
            utilization review decision to modify, delay, or deny medical 
            treatment.  Additionally, proponents note that for injured 
            workers who have settled their workers' compensation but 
            continue to receive future medical treatment through the 
            workers' compensation system, a utilization review dispute is 
            particularly difficult, as they would need to address the 
            delay, modification, or denial of medical treatment without 
            representation.  
          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 6

          Senate Committee on Labor and Industrial Relations 
          









            Proponents believe that AB 1687 addresses both these issues by 
            requiring that the injured worker receives a notice of the 
            options available to him or her to object to a utilization 
            review decision as well as allow the Workers' Compensation 
            Appeals Board to award attorney's fees in the event of a 
            successful objection to a utilization review delay, 
            modification, or denial of medical care.

          4.  Opponent Arguments  :

            Opponents are opposed to the bill, arguing that the additional 
            notification requirements are unduly complicating and costly 
            additions to a utilization review system that is performing a 
            valuable function of preventing inappropriate treatment that 
            is not evidence-based, and which forces treating physicians to 
            practice evidence-based medicine because the failure to 
            provide proper documentation for treatment requests will 
            result in delays due simply to inadequate medical information. 
             Opponents also argue that there are already enforcement 
            provisions for unreasonable delays, denials or modifications, 
            but that good faith use of the utilization review system 
            should not be made more costly.  Finally, opponents also argue 
            that this bill creates more frictional costs which are 
            currently trying to be eliminated from the system.

            Opponents also argue that giving the ability to the Workers' 
            Compensation Appeals Board to award attorney's fees as 
            provided in AB 1687 will add costs to the system, and that the 
            Division of Workers' Compensation already has an Information 
            and Assistance Unit located in 24 places throughout California 
            to help injured workers in these sorts of cases.


          5.  Prior Legislation  :

            AB 584 (Fong) of 2011 would have required a physician 
            conducting utilization review in the workers' compensation 
            system to be licensed in California.  AB 584 was vetoed by 
            Governor Brown.


          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 7

          Senate Committee on Labor and Industrial Relations 
          








                                          




                                       SUPPORT
          
          California Professional Firefighters (Sponsor)
          California Labor Federation
          California School Employees Association
          California Society of Industrial Medicine and Surgery
          California Society of Physical Medicine and Rehabilitation
          Glendale City Employees Association
          Organization of SMUD Employees
          San Bernardino Public Employees Association
          San Luis Obispo County Employees Association
          Santa Rosa City Employees Association
          Union of American Physicians and Dentists/AFSCME-Local 206
          Voters Injured at Work
          
                                     OPPOSITION
          
          Acclamation Insurance Management Services
          Allied Managed Medical Care
          ALPHA FUND
          American Insurance Association
          California Association of Joint Powers Authorities
          California Chamber of Commerce
          California Coalition on Workers Compensation
          California Special Districts Association
          California State Association of Counties
          League of California Cities
          Los Angeles County Board of Supervisors
          Regional Council of Rural Counties







          Hearing Date:  June 13, 2012                             AB 1687  
          Consultant: Gideon L. Baum                               Page 8

          Senate Committee on Labor and Industrial Relations