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