BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  SB 863
                                                                  Page  1

          Date of Hearing:   August 31, 2012

                           ASSEMBLY COMMITTEE ON INSURANCE
                                Henry T. Perea, Chair
                   SB 863 (De Leon) - As Amended:  August 30, 2012

           SENATE VOTE  :   Not relevant
          SUBJECT  :   Workers' compensation

           SUMMARY  :   Enacts major reforms to the workers' compensation 
          system.  Specifically,  this bill  :   

          1)Eliminates one of the two pathways for chiropractors to 
            qualify as Qualified Medical Evaluators (QME).

          2)Limits the number of office locations that a QME may file with 
            the Division of Workers' Compensation (DWC) to 10.

          3)Reduces the scope of evaluations that QMEs perform by 
            establishing an Independent Medical Review system (IMR), 
            patterned after the existing IMR process implemented by the 
            Department of Managed Health Care (DMHC) for resolving health 
            insurance disputes, to resolve medical treatment issues.

          4)Establishes a hierarchy of standards that are to be applied by 
            IMR, with the Medical Treatment Utilization Schedule adopted 
            by the AD as the highest source for evaluating the 
            appropriateness of medical treatment, followed by the same 
            ranked standards that apply to HMOs under the Knox-Keene Act.

          5)Eliminates the Workers' Compensation Appeals Board's (WCAB) 
            authority to adjudicate medical treatment disputes that are 
            directed to the IMR process.

          6)Permits the employee to provide new information to the IMR not 
            reviewed by utilization review (UR), provided the employee 
            gives this additional information to the employer to allow the 
            employer an opportunity to reconsider based on this 

          7)Allows the employee to appeal a UR decision by requesting an 
            IMR either immediately after the UR decision or after getting 
            a second utilization review with addition information.


                                                                  SB 863
                                                                  Page  2

          8)Makes the results of the IMR process binding on all parties, 
            absent clear and convincing evidence of fraud or conflict of 
            interest, that the AD acted in excess of his or her authority, 
            that the decision was the result of bias relating to protected 
            classes, or that the decision was the result of a plainly 
            erroneous express or implied finding of fact that is a matter 
            of ordinary knowledge and not a matter that is subject to 
            expert opinion.   

          9)Prohibits the WCAB or a court to make a determination on a 
            medical matter in the event of a reversal of an IMR decision, 
            and instead requires that the matter be returned to IMR, for 
            additional appropriate proceedings.

          10)Establishes penalties in the event an employer fails to 
            notify an injured worker of his or her right to IMR, or fails 
            to implement a decision by IMR favorable to the injured 

          11)Provides that a reversal of a UR decision by IMR is not 
            necessarily an unreasonable delay in providing treatment 
            within the meaning of the provisions that penalize an insurer 
            or employer for unreasonably denied treatment.

          12)Adopts findings and declarations of Legislative intent with 
            respect to the IMR process and its value to injured workers 
            and to the workers' compensation system.

          13)Establishes an Independent Bill Review (IBR) process to take 
            medical billing disagreements out of the jurisdiction of the 
            WCAB adjudication system under rules similar to the IMR 

          14)Adopts a severability clause for the IMR provisions.

          15)Provides for the Administrative Director (AD) of the DWC to 
            contract with qualified organizations to implement the IMR and 
            IBR functions, subject to detailed conflict of interest rules 
            and substantive responsibilities, as specified.

          16)Contains findings relating to the need to contract for IMR 
            and IBR services.

          17)Repeals several outdated annual reporting requirements.


                                                                  SB 863
                                                                  Page  3

          18)Prohibits Professional Employer Organizations (PEOs) and 
            temporary staffing agencies from becoming self-insured for 
            workers' compensation purposes, and requires any of these 
            entities that are currently self-insured to become insured by 
            January 1, 2015.

          19)Requires public agencies that are self-insured to submit 
            specified data to the Department of Industrial Relations (DIR) 
            for purposes of policy analysis, and directs the Commission on 
            Health and Safety and Workers' Compensation (CHSWC) to conduct 
            a study of public sector self-insured programs.

          20)Provides that the costs incurred by DIR in administering the 
            public sector workers' compensation program are to be paid 
            from the Workers' Compensation Administration Revolving Fund 
            (user funding as opposed to General Fund.)

          21)Repeals the requirement that a second opinion be obtained in 
            cases of spinal surgery, and instead would resolve questions 
            of appropriateness of spinal surgery in the IMR process.

          22)Streamlines the Agreed Medical Evaluator (AME) and QME 
            process to eliminate unnecessary delays and friction in the 

          23)Provides that a report by a physician procured independently 
            by an injured worker cannot be the sole basis of an award for 
            compensation, but that a QME or authorized treating physician, 
            when the QME or authorized treating physician is preparing a 
            report, shall address any such report and indicate whether he 
            or she agrees with the findings or conclusions of the 
            independently procured physician, and there reasons therefore.

          24)Establishes a prohibition for any interested party in the 
            workers' compensation system to have a financial interest in 
            another entity to which it is referring a party for services, 
            or for which it is paying or receiving compensation, if the 
            employer is paying the charges; provided that financial 
            interests in affiliated entities in claims handling are 
            subject to mandatory disclosure rather than this prohibition.

          25)Increases aggregate Permanent Disability (PD) benefits by 
            approximately $740 million per year, phased in over a two-year 
            period, and adjusts the formula for calculating the benefit 
            amount so that compensation amounts more accurately reflect 


                                                                  SB 863
                                                                  Page  4

            loss of future earnings, and to ensure that no class of 
            injured workers receive a lower award than under the present 

          26)Eliminates sleep disorder and sexual dysfunction "add-ons" to 
            primary injuries that do not include these injuries when 
            calculating the level of PD, but require all appropriate 
            medical treatment for these injuries.

          27)Eliminates the diminished future earnings capacity from the 
            determination of permanent disability, and limits the 
            definition of permanent disability to include only a 
            consideration of how age and occupation affects the overall 
            classification of employment of the injured worker, rather 
            than the individual injured worker's ability to compete in the 
            open labor market or reduction of future earnings.

          28)Limits psychological add-ons when calculating a PD rating to 
            cases involving catastrophic injury or that involved a violent 
            workplace incident.

          29)Provides that all permanent disability awards are increased 
            by a multiplier of 1.4.

          30) Establishes a return to work program administered by the 
            Director of the DIR, funded with $120,000,000 annually from 
            the workers' compensation revolving fund, for the purpose of 
            making supplemental payments to workers whose PD benefits are 
            disproportionately low in comparison to their earnings loss.

          31)Requires the Director to adopt regulations to establish 
            eligibility for these payments, based on studies conducted by 
            the Director in consultation with the Commission on Health and 
            Safety and Workers' Compensation (CHSWC).  

          32)Provides that in enacting the bill adding these changes to 
            the PD system, it is not the intent of the Legislature to 
            overrule the holding in  Milpitas Unified School District  v. 
             Workers' Comp. Appeals Bd. (Guzman)  , which established that 
            the presumption that an AMA Guides rating is correct is 
            rebuttable by evidence presented by the injured worker.

          33)Clarifies that an insurer or employer can pay for physical 
            medicine treatments in excess of the 24-visit cap without that 
            payment constituting a blanket waiver of the cap.


                                                                  SB 863
                                                                  Page  5

          34)Provides that a chiropractor who has reached the 24-visit cap 
            cannot serve as the injured worker's primary treating 

          35)Eliminates the requirement that a Medical Provider Network 
            (MPN) have non-occupational medicine specialists constitute at 
            least 25% of the physicians in the network.

          36)Requires an MPN to obtain a written acknowledgement from a 
            physician that the physician agrees to be in the MPN.

          37)Requires all MPNs to have a "medical access assistant" staff 
            person or persons, who need not be employees, but who must be 
            located within the United States, to aid injured workers in 
            obtaining appointments or referrals within the MPN.

          38)Allows the AD to generically approve an MPN, as opposed to 
            requiring a separate approval for each employer.

          39)Provides that the approval of an MPN by the AD is conclusive 
            in a matter before the WCAB that the MPN is valid, subject to 
            proof that there was a specific failure as to a specific 
            injured worker.

          40)Requires periodic administrative audits of MPNs by the AD.

          41)Authorizes discretionary administrative audits of MPNs by the 

          42)Limits the reasons that can be used to avoid obtaining 
            treatment within an MPN, and establishes an expedited process 
            to resolve any disputes about whether the injured worker is 
            required to be treated within the MPN.

          43)Requires a physician who knows or should know that the 
            patient is suffering from an occupational injury to notify the 
            employer within 5 days that the injured worker is being 
            treated outside the MPN, and prohibits payment by an employer 
            or insurer for any treatment provided to the injured worker 
            when the notice requirements have not been complied with.

          44)Provides that where interpreter services are needed, the 
            injured worker shall make a request to the employer or 
            insurer, and the employer or insurer shall pay for the 


                                                                  SB 863
                                                                  Page  6

            interpreter services.

          45)Requires that interpreters be certified, and authorizes the 
            AD to establish, operate or contract for an interpreter 
            certification program.

          46)Prohibits an interpreter certification entity from having a 
            financial interest in training or employing interpreters.

          47)Modifies the Supplemental Job Displacement Benefit (SJDB) 
            rules to:

             a)   Change the point in time the benefit is triggered;
             b)   Prohibit "cashing out" the retraining voucher in 
             c)   Establish which schools are qualified to be paid by the 
               retraining voucher;
             d)   Limit the time period during which the voucher is valid 
               to 2 years; and
             e)   Specify that an injury that occurs during retraining 
               does not constitute a compensable injury.

          48)Prohibits the filing of a lien against an award for matters 
            that are subject to IMR and IBR dispute resolution.

          49)Establishes a $150 filing fee in order to file a lien, 
            recoverable if the lien claimant prevails.

          50)Establishes a $100 activation fee for legacy liens (unless 
            the lien was previously subject to a since-sunsetted $100 
            filing fee), recoverable if the lien claimant prevails.

          51)Adopts firm time limits within which liens must be filed. 

          52)Adopts a fee schedule for ambulatory surgery centers (ASCs).

          53)Requires the DIR to study the feasibility of establishing a 
            facility fee for services performed in ASCs.

          54)Requires the AD to adopt a medical fee schedule methodology 
            based on medicare's RBRVS system, with specified modifications 
            for California's workers' compensation system, including 
            geographic adjustments.

          55)Clarifies the rules that govern the fee schedule applicable 


                                                                  SB 863
                                                                  Page  7

            to vocational expert compensation, and provides that written 
            testimony, in lieu of live testimony, is proper.

          56)Provides that if the MediCal fee schedule for prescription 
            medications is reduced in order to meet specified MediCal 
            budget needs, that reduction shall not be included in the 
            workers' compensation official medical fee schedule, which is 
            otherwise linked to the MediCal schedule.

          57)Prohibits payment for home care services where the services 
            were already being provided prior to injury (i.e., no pay for 
            cooking for the injured worker if a spouse was already doing 
            that function prior to injury); authorizes the AD to adopt a 
            home care services utilization and fee schedule, and limits 
            the re-opening of old cases where home care services are 
            alleged to have been provided but were not authorized or 
            ordered by a physician before the services were rendered.

          58)Authorizes the AD to adopt a fee schedule for copying 
            services, and establishes substantive rules to govern these 

          59)Eliminates the "double-payment" pass-through for implantable 
            surgical hardware, subject to the AD adopting a regulation to 
            allow an additional reimbursement where the basic hospital fee 
            schedule does not adequately cover the cost of the hardware.

          60)Contains language to prevent chaptering problems with SB 

           EXISTING LAW  :

          1)Provides, based on the state constitution, that the 
            Legislature has plenary authority to establish a system of 
            providing workers' compensation benefits to workers who suffer 
            injuries that arise out of or in the course of employment.

          2)Grants the Legislature broad discretion is establishing the 
            means by which disputes in the workers' compensation system 
            may be resolved.

          3)Includes both medical services and indemnification payments 
            for permanently disabled workers among the various benefits 
            that are available to injured employees.


                                                                  SB 863
                                                                  Page  8

          4)Provides for "employer control" of medical treatment if the 
            employer establishes an MPN that meets detailed criteria, 
            including a requirement that 25% of the doctors in the MPN are 
            not occupational medicine specialists.

          5)Provides that an employer is entitled to require an injured 
            employee to be treated for a workplace injury within its MPN, 
            provided that the MPN is approved by the AD, and various 
            notice requirements have been met.

          6)Allows, via case law, injured employees to be treated outside 
            the MPN due to minor failures in pre-employment notice 
            requirements, workplace notice posting requirements, as well 
            as substantive deficiencies in the MPN.

          7)Allows an entity that arranges for networks of medical 
            providers to require a physician to participate in a workers' 
            compensation network as a condition of participation in other 
            networks arranged by that entity.

          8)Provides that most services provided to parties in the 
            workers' compensation system are subject to a fee schedule, 
            but does not have a formal fee schedule for interpreter, 
            copying, transportation or ambulatory surgery center services.

          9)Provides that disputes about medical treatment are resolved 
            based on pre-litigation utilization review by employers, 
            expert medical opinion obtained through the QME/AME process, 
            and litigation before a workers' compensation judge.

          10)Requires billing disputes (that is, conflicts over whether 
            billing codes were properly complied with, fee schedules 
            properly applied, and related matters that do not involve a 
            challenge to the actual services provided) be resolved by a 
            workers' compensation judge in connection with the 
            case-in-chief, often causing delays in settling cases, and 
            creating a huge backlog of low-priority workload for workers' 
            compensation judges.

          11)Allows a report from a self-procured physician to be admitted 
            into evidence on any disputed issue, even if the employee has 
            improperly declined to seek treatment within the MPN.

          12)Establishes selected, but not comprehensive, financial 
            conflict of interest rules for participants in the workers' 


                                                                  SB 863
                                                                  Page  9

            compensation system.

          13)Allows basic PD ratings to be increased due to individualized 
            evidence that the injured worker has suffered "compensable 
            consequences" of the primary injury due to sleep and sexual 
            disorders that flow from the primary injury.

          14)Allows an injured worker to present evidence to rebut a PD 
            rating derived from the basic PD rating formula, and to 
            present evidence of a diminished future earning capacity.

          15)Establishes a Supplemental Job Displacement Benefit, but 
            contains functional impediments in most cases that prevent 
            delivery of these benefits in a manner helpful to an injured 
            worker who needs retraining.

          16)Contains a soft statute of limitation on the filing of liens 
            for disputed medical or other services, and requires that 
            liens be adjudicated by workers' compensation judges.

          17)Requires the AD to adopt and periodically update an Official 
            Medical Fee Schedule, but does not mandate or prohibit that 
            this schedule be based on medicare's RBRVS system.

          18)Provides that medications provided to injured workers shall 
            be paid for at the rate determined by the MediCal fee 

          19)Allows generally for home care services to be paid for where 
            an injured worker needs these services as a result of the 
            injury, but does not provide any specific rules governing the 
            scope of or payment for these services.

           FISCAL EFFECT  :   Undetermined.

           COMMENTS  :   

           1)Purpose  .  This bill reflects a negotiated compromise between 
            employers and employees to adopt a substantial increase in 
            permanent disability benefits ($740 million), to ameliorate 
            unexpected reductions that flowed from the 2004 reforms, 
            balanced by substantial changes in the benefit delivery system 
            to eliminate waste, inefficiency, and other loopholes that 
            result in unnecessary employer costs that go to recipients 
            other than injured workers.


                                                                  SB 863
                                                                  Page  10

           2)Workers' Compensation - the Great Compromise  .  Fundamentally, 
            workers' compensation is an agreement between employers and 
            employees to each give up a right in exchange for the 
            stability and certainty of the workers' compensation system.  
            Employees give up the right to sue in tort for injuries, and 
            employers give up the right to contest fault.  Employees give 
            up the right to tort damages in favor of more limited, but 
            more certain and more easily obtained benefits.  Employers 
            agree to pay benefits in all cases where the injury is work 
            related.  The hallmark of this arrangement is that relatively 
            certain defined benefits are to be delivered to injured 
            workers on a no fault basis in a relatively timely manner.

          In this system, the relevant parties to the agreement are 
            employees and employers.  Every other stakeholder - providers 
            of medical services and products, lawyers, insurers, and 
            various providers of a range of related services - are service 
            providers contributing goods and services necessary to carry 
            out the agreement between employees and employers.  However, 
            they are not direct parties to the agreement.

          Over the years, the principles of relatively certain defined 
            benefits and relatively timely delivery have been seriously 
            eroded.  Inconsistency in parties' ability to ascertain 
            exactly what benefits an injured worker is entitled to has 
            forced the system to develop a complex, cumbersome, and slow 
            litigation-based dispute resolution system.  At a fundamental 
            level, the proposal contained in this bill is an effort by the 
            direct parties to the workers' compensation agreement 
            (employees and employers) to return to the principles of 
            relatively certain defined benefits, and relatively timely 
            delivery of those benefits.  

           3)The 2004 Reforms  .  In 2004, with recently-elected Governor 
            Schwarzenegger poised to file signatures to place a workers' 
            compensation reform initiative on the ballot, the Legislature 
            passed and the Governor signed SB 899 (Poochigian) - Statutes 
            2004, Chapter 34 - in lieu of the initiative.  These reforms 
            enacted a broad range of changes to the workers' compensation 
            system, but two issue areas are of primary importance to the 
            reform proposal contained in SB 863.

          First, SB 899 substantially changed the permanent disability 
            rating system.  Employers and insurers had long complained 


                                                                  SB 863
                                                                  Page  11

            that the rating system was far too subjective, which resulted 
            in widely varying results for similar cases.  The result of 
            this variation was a tremendous amount of litigation because 
            both sides could see the potential of changing the result in a 
            great number of cases.  SB 899 adopted several changes to the 
            law designed to resolve this problem.  The bill required 
            objective medical findings, the use of the American Medical 
            Association Guides to the Evaluation of Permanent Impairment, 
            5th Edition (AMA Guides), and use of a numerical formula to 
            address the impact on the injured worker's future earning 
            capacity (FEC).  These changes were intended to reduce 
            litigation and increase consistency of results.  They were 
            also intended to eliminate some cases altogether - so-called 
            "zeroes" who under the old system obtained a rating based on 
                                                              subjective but not medically verifiable pain.  Under the new 
            rules, this class of injured worker receives a "zero" percent 
            PD rating.

          These reforms did not have as much impact on litigation as 
            predicted, largely due to a clearly unexpected result - PD 
            awards for injured workers who still obtained a rating fell by 
            approximately 50% or more on average.  This result was largely 
            due to the way the Schwarzenegger Administration's regulations 
            implemented SB 899.  The call for reform had never included an 
            argument that widespread benefit reductions be included.  As 
            these reductions became evident, lawyers sought aggressive 
            means to develop ways to increase the low ratings, and they 
            succeeded in certain respects, discussed in more detail below. 
             Contemporaneously, political pressure began to build for a PD 
            benefit increase, which is a key component of SB 863.

          Second, SB 899 authorized the establishment of medical provider 
            networks (MPNs) that, if properly established by the employer 
            and approved by the AD, were intended to grant "employer 
            control" over medical treatment.  Prior to SB 899, the injured 
            worker had the choice of treating physician starting 30 days 
            after the injury.  This right was criticized because of 
            employer concerns that injured workers were being directed to 
            physicians who were not using evidence-based treatments, and 
            instead were engaging in treatment patterns designed to 
            increase the legal case for higher disability ratings.  The 
            MPN was intended to provide quality evidence-based treatment 
            for injured workers but with a network of physicians developed 
            by the employer, which would presumably decline to contract 
            with outlier physicians.


                                                                  SB 863
                                                                  Page  12

          Two primary problems have developed with MPNs.  Injured workers 
            have far too frequently found it difficult or impossible to 
            find physicians on the MPN list to treat them.  A related 
            problem is that because of these difficulties, many injured 
            workers are being directed to the same outside physicians that 
            employers sought to avoid by creation of the MPNs.  In 
            addition, physicians have complained that they are leveraged 
            to be in networks they do not want to be in, and get listed in 
            networks that they had no notice of.  A major part of the 
            reforms proposed by SB 863 involve strengthening the rules to 
            ensure that the MPNs are sound, and strengthening the rules 
            requiring treatment of injured workers by MPN physicians.

           4)MPN Reforms  .  One of the primary concerns expressed by 
            employers is that the expected control of medical care and 
            delivery of evidence-based medicine to injured workers through 
            MPNs authorized by SB 899 has not materialized.  Employers 
            point out that the workers' compensation courts have allowed a 
            range of erosions to what was expected after SB 899 was 
            enacted.  Specifically, they point to cases where employees, 
            after being in treatment within an MPN, simply go to outside 
            physicians, expect those physicians to be paid by the 
            employer, and justify this through technical notice errors 
            that have nothing to do with the delivery of health care 
            services.  In response, SB 863 requires out-of-network 
            physicians treating an injured worker to notify the employer 
            within 5 days, establishes an expedited hearing process to 
            determine if treatment outside the MPN is legitimate, and 
            prohibits payment to physicians violating these rules.  The 
            bill is designed to eliminate existing practices whereby weeks 
            or months of out of network treatment is being provided, often 
            without any notice to the employer, and liens are being filed 
            in staggering number (see below) by providers seeking payment 
            for treatments that were not pre-authorized.

          In addition, the bill tightens regulatory oversight to ensure 
            that MPNs are viable entities, and provides rights to 
            physicians who may not want to be included in the MPN, 
            including a repeal of the rule at least 25% of each MPN's 
            providers must be non-occupational medicine specialists.  The 
            concern has been that these are the providers least likely to 
            be willing to take workers' compensation cases, and account 
            for a high percentage of providers on the lists given to 
            injured workers who will not schedule appointments.  


                                                                  SB 863
                                                                  Page  13

          These reforms are designed to improve the quality of the MPNs, 
            and in that regard improve the quality of evidence-based 
            medicine as the basis of treating injured workers, and based 
            on these improvements, enhance the ability of employers to 
            provide treatment for injured workers within the MPN.

          The bill expressly eliminates some of the reasons that attorneys 
            for injured workers have used to justify getting treated 
            outside of MPNs.  For example, the law requires a 
            pre-employment notice to an employee that the employer uses an 
            MPN, and there are requirements for on-site posting of MPN 
            notices in workplaces.  Deficiencies in meeting these 
            requirements have been used to get out of MPNs, even by 
            injured workers who, at the time of injury received all 
            necessary information about accessing the MPN, and who in fact 
            had been treated by MPN providers for some time.  The bill 
            eliminates these technical violations as a basis to obtain 
            treatment outside of the MPN, establishes a presumption that 
            an approved MPN is valid, but continues to allow an injured 
            worker to prove that the MPN is failing to make appropriate 
            treatment available, thereby justifying outside treatment.

          The bill also addresses one of the incentives to seek treatment 
            outside of an MPN.  Case law at the WCAB level had held that a 
            medical report obtained outside an MPN that should have been 
            used for treating the worker was inadmissible in WCAB 
            proceedings.  The Court of Appeal revered this rule in the 
             Valdez  case.  Employers have argued that allowing this sort of 
            evidentiary use would incentivize wrongful efforts to seek 
            treatment outside of the MPN.  The bill stops short of 
            overruling the Court of Appeal, but adds two rules: first, the 
            bill provides that a report from an outside physician shall 
            not be the sole basis of an award of compensation, and second, 
            a QME or treating physician shall consider the outside report 
            in any report they make, and indicate agreement of 
            disagreement, and the reasons therefore.

           5)Independent Medical Review  .  SB 863 proposes to change the way 
            medical disputes are resolved.  Currently, when there is a 
            disagreement about medical treatment issues, each side 
            attempts to obtain medical opinions favorable to its position, 
            and then counsel for each side tries to convince a workers' 
            compensation judge based on this evidence what the proper 
            treatment is.  This system of "dueling doctors" with 


                                                                  SB 863
                                                                  Page  14

            lawyers/judges making medical decisions has resulted in an 
            extremely slow, inefficient process that many argue does not 
            provide quality results.  Long delays in obtaining treatment 
            result in poorer outcomes, reduced return to work potential, 
            and excessive costs in the system, none of which are good for 
            injured workers.  SB 863 would instead adopt an independent 
            medical review system patterned after the long-standing and 
            widely applauded IMR process used to resolve medical disputes 
            in the health insurance system.  Thus, a conflict-free medical 
            expert would be evaluating medical issues and making sound 
            medical decisions, based on a hierarchy of evidence-based 
            medicine standards drawn from the health insurance IMR 
            process, with workers' compensation-specific modifications.  
            The bill contains findings that this system would result in 
            faster and better medical dispute resolution than existing 

          The IMR system is designed to ensure that medical expertise is 
            used to resolve medical disagreements.  Thus, the decision 
            from the IMR is final and binding on the parties.  
            Nonetheless, in the exercise of the Legislature's plenary 
            authority to establish a workers' compensation system that 
            includes a review of decisions, there is a process to appeal 
            the IMR result, but this review process does not allow the 
            second-guessing of medical expertise.  Rather, the appeal is 
            limited to circumstances where there was fraud, conflict of 
            interest, discrimination based on protected classes, or clear 
            mistakes of facts that do not involve medical expertise. 

          According to the California Applicants' Attorneys Association 
            (CAAA) the IMR process prohibits WCAB or judicial review of 
            medical necessity for treatment of work injuries, and is in 
            direct conflict with the California Supreme Court's 
            Determination in  State Compensation Insurance Fund  v.  Workers' 
            Compensation Appeals Board (Sandhagen)  , which provided that an 
            injured worker was entitled to an expeditious, complete and 
            final judicial review of all treatment disputes.  It should be 
            noted that  Sandhagen  was not decided in the context of an IMR 
            process, and may not be on point with respect to reviewing an 
            IMR decision.

           6)PD Reforms  .  PD reforms are probably the most controversial 
            element of the proposal.  Despite increasing annual PD 
            payments to injured workers by an estimated $740 million 
            (after a 2-year phase-in), some have objected to the way that 


                                                                  SB 863
                                                                  Page  15

            this increase is structured, as well as changes in how 
            approximately $1 billion in existing PD expenditures are 
            redirected.  There are numerous ways that a PD system can be 
            structured.  At one end of the spectrum, there can be 
            relatively broad guidelines, and every injured worker could be 
            entitled to prove to the workers' compensation courts his or 
            her individual circumstances.  This approach, of course, would 
            have little predictability, and would have tremendous 
            frictional costs and delays in delivering benefits.  At the 
            other end of the spectrum, there can be a total formulaic 
            approach where there is no opportunity to bring in 
            individualized proof.  Employers have argued that the current 
            system operates too close to the former, and this bill moves 
            in the direction of the latter, while retaining key rights for 
            limited individual proof of unique circumstances.  Employees 
            have agreed to these changes in exchange for increased 
            benefits for all classes of employee, and increased certainty 
            and speed in the delivery of the benefits.

          The bill specifically limits some of the "add-ons" that can be 
            established by individualized proof - sleep disorders, sex 
            disorders, and to a limited extent, psychological disorders - 
            because these add-ons have greatly expanded in recent years, 
            largely as a result of the inappropriately low PD ratings that 
            followed from the 2004 reforms.  Since benefit levels are 
            being substantially increased by the bill, many believe that 
            these add-ons, which generate substantial litigation expense, 
            are no longer needed.  

          Not everyone agrees with this conclusion.  For example, the CAAA 
            argues that the bill alters the existing statutory description 
            of permanent disability and may undermine or reverse fifty 
            years of California Supreme Court case law allowing injured 
            workers to recover compensation for their lost ability to earn 
            a living, citing the Court of Appeal decision in  Ogilvie  v. 
             Workers' Compensation Appeals Board  and the 2007 Supreme Court 
            Decision in  Brodie  v.  Workers' Compensation Appeals Board.
           7)Lien Reforms .  The current lien system in workers' 
            compensation is out of control.  There is no effective statute 
            of limitations, because case law has developed tolling rules 
            that result in most billing matters remaining alive 
            indefinitely.  In addition, the method of resolution requires 
            formal litigation in an already overcrowded workers' 
            compensation court system.  There are presently hundreds of 


                                                                  SB 863
                                                                  Page  16

            thousands of backlogged liens, possibly in excess of a 
            million, and many of these are related to long-since closed 

          One of the concerns most often expressed by employers is that 
            liens get filed by providers for months of treatment when the 
            employer had no idea that there was any treatment being 
            provided.  The bill seeks to avoid these situations by 
            mandatory notice by providers to the employer, an expedited 
            hearing process to determine if the provider has a right to be 
            treating the injured worker, and a prohibition against paying 
            bills submitted in violation of these rules.

          But lien abuse is not limited to treatment the employer has no 
            notice of.  For example, it has become common for third 
            parties to purchase old receivables from providers, who often 
            billed at (higher) usual and customary rates but were properly 
            paid according to established fee schedules.  These third 
            parties then file liens in an effort to leverage settlements.  
            Another example of lien abuse involves a provider filing a 
            lien for excessive amounts after being paid, again with the 
            hope of obtaining a settlement.  Nuisance-value settlements 
            are rampant because the workers' compensation courts simply 
            don't have time for these minor matters when crucial right to 
            benefits issues are the priority cases.  To address this 
            growing volume of problem liens, the bill proposes to re-enact 
            a lien filing fee, so that potential filers of frivolous liens 
            have a disincentive to file.  This approach worked well in the 
            past before it sunset (due to the DWC's inability to track the 
            fees - a problem DWC says no longer exists.)  The lien filing 
            fee is refundable if the lien-claimant prevails. In addition, 
            for liens that are pending, and were filed after the prior 
            filing fee sunset, the bill provides for the payment of an 
            activation fee.  Again, the purpose is to provide a 
            disincentive to file frivolous liens.

          Not surprisingly, there has been concern expressed that filing 
            fees are a burden on providers who may have legitimate billing 
            disputes with the employer or insurer.  Therefore, in order to 
            further eliminate a major portion of the unnecessary volume of 
            liens, the bill would create an "independent bill review" 
            process where expert bill reviewers would make determinations 
            in cases where it is merely a billing, and not a substantive 
            treatment, dispute.  This IBR process would relieve 
            substantial congestion in the workers' compensation courts, 


                                                                  SB 863
                                                                  Page  17

            provide much faster dispute resolution, and result in better 
            decisions by billing experts as opposed to judges, who have no 
            special training in the arcane world of billing codes and 

           8)RBRVS .  Medicare uses a resource based relative value system 
            (RBRVS) as the foundation for calculating payment for 
            physician services.  Most states use RBRVS in their workers' 
            compensation system.  In California, this issue has been 
            debated for years, and subject to substantial consideration 
            and hearings by the DWC.  However, it has not been adopted. 
            Last year, the Assembly Insurance Committee passed SB 923 (De 
            Leon), which would have required the DWC to adopt RBRVS, but 
            the bill was not taken up on the Assembly Floor.

          RBRVS is not without controversy within the medical community, 
            even as it is a well-understood system that is virtually 
            self-updating as medicare regularly updates it.  Specifically, 
            it is argued by specialists that the RBRVS rules favor primary 
            care physicians over specialists, and would result in unfair 
            reimbursement cuts to specialists.  On the other hand, primary 
            care physicians argue that some specialties receive 
            reimbursement at over 300% of the medicare rate by 
            California's workers' compensation system.  It should be noted 
            that SB 863 does not provide the "revenue neutrality" 
            provision that rendered SB 923 controversial. 

           9)Other Fee Schedules  .  Market pricing does not work well in 
            workers' compensation, since the people who receive services 
            (injured workers) are not the payors.  There is not market 
            pressure for the injured worker to say "no" to over-priced 
            services.  As a result of this dynamic, most services that 
            employers are mandated to pay for in workers' compensation are 
            subject to a fee schedule, and in many cases, to utilization 
            schedules as well (as over-utilization has the same 
            inflationary impact as over-pricing.)  However, not all 
            services have been subjected to fee schedules, and some 
            services are covered by fee schedules that allow for overly 
            generous payments according to research data reported by 
            CHSWC.  As a result, the bill proposes establishing or 
            updating utilization and/or fee schedules for the following 
            services: ambulatory surgery center facility fees, interpreter 
            services, vocational experts, home care services, and copying 


                                                                  SB 863
                                                                  Page  18

          With respect to home care services, the bill seeks to adopt a 
            fee schedule, identify appropriate utilization, require a 
            physician to order the services, and cut off a practice of 
            re-opening old cases where there had never been a physician 
            order for home care, and pursuing a lien on behalf of a family 
            member who cared for the injured worker.  Since attorneys 
            pursuing these claims are not representing the injured worker, 
            the usual attorneys fee rules for workers' compensation cases 
            do not apply.  There have been reports of 50% contingency fees 
            on claims of months of  24/7 home care services, where there 
            had never been any notice that the services were needed or 
            ordered by a physician.

           10)SJDB  .  Return to work after an injury is crucial to an 
            injured worker's long term financial and emotional health.  
            California, unfortunately does a poor job of returning its 
            injured workers to work.  In 2004, SB 899 adopted a 
            supplemental job displacement benefit designed to provide 
            retraining services for injured workers who could not return 
            to their existing job.  However, this program has never worked 
            well because the trigger for the benefit occurs far too late 
            for the benefit to work well.  This bill attempts to reform 
            the SJDB to make its promise of retraining viable.


          Acclamation Insurance Management Services
          Advanced Ambulatory Surgery Center
          Air Conditioning Sheet Metal Association 
          Allied Managed Care
          ALPHA Fund
          American Federation of State, County and Municipal Employees
          American Subcontractors Association of California
          Association of California Healthcare Districts (ACHD)
          Association of California School Administrators (ACSA) 
          Brand Source Pacific Rim Region
          California Association of Competitive Telecommunications 
          California Association of Joint Powers Authorities (CAJPA) 
          California Association of Sheet Metal and Air Conditioning 
          Contractors Association


                                                                  SB 863
                                                                  Page  19

          California Carpenters Conference
          California Chapter of the American Fence Association
          California Chapters of the National Electrical Contractors 
          California Coalition on Workers' Compensation
          California Concrete Contractors Association (CCCA)
          California Employers Association
          California Faculty Association 
          California Farm Bureau
          California Fence Contractors' Association
          California Grocers Association
          California Hospital Association (CHA)
          California Independent Oil Marketers Association 
          California Labor Federation 
          California Landscape and Irrigation Council
          California Landscape Association 
          California Landscape Contractors Association (CLCA)
          California Legislative Conference of the Plumbing, Heating and 
          Piping Industry
          California Manufacturers and Technology Association
          California Medical Legal Specialists, LLS (CMLS)
          California Metals Coalition 
          California Nurses Association
          California Occupational Medicine Physicians
          California Physical Therapy Association 
          California Professional Firefighters 
          California Retailers Association
          California School Employee Association
          California Small Business Association
          California Special Districts Association (CSDA) 
          California State Association of Counties (CSAC)
          California State Council of Laborers
          California State Pipe Trades Council
          California Teachers Association
          California Trucking Association 
          California-Nevada Conference of Operating Engineers
          CALPASC-California Professional Association of Specialty 
          Coalition of Small and Disabled Veteran Businesses 
          Communication Workers of America
          Engineering Contractors' Association
          Federal Express (FedEx)
          Flasher Barricade Association


                                                                  SB 863
                                                                  Page  20

          Globe Iron Foundry, Inc.
          Golden State Builders Exchanges (GSBE)
          Grimmway Farms 
          Insurance Brokers and Agents of the West 
          International Alliance of Theatrical Stage Employees
          International Brotherhood of Electrical Workers
          International Longshore & Warehouse Union Southern California 
          District Council (ILWU SCDC)
          International Union, United Automobile, Aerospace & Agricultural 
          Implement Workers of America - UAW 
          Kaiser Permanente 
          Laborers' Local 777 & 792
          Liberty Mutual
          Los Angeles Police Protective league 
          Marin Builders' Association
          Monterey County Business Council
          National Federation of Independent Businesses (NFIB)
                                                                                North Bay Labor Council
          Northern California Independent Booksellers Association (NCIBA)
          Numerous Individuals
          Numerous Physiological Associations
          Oakland Metropolitan Chamber of Commerce
          Painting & Decorating contractors of California, Inc. 
          Plumbing Heating and Cooling Contractors Association of 
          California (PHCC)
          Psych Techs
          Regional Council of Rural Counties
          San Francisco Builders Exchange 
          San Francisco Chamber of Commerce
          San Francisco Council of District Merchants Associations
          San Francisco Small Business Network
          School Insurance Authority
          Sheet Metal Workers
          Small Business Association
          Small Business California 
          Southern California Contractors Association 
          State Building & Construction Trades Council of California 
          Tri-Counties Central Labor Council
          U.S. Health Works Medical Group
          UAW International Union and Locals 2865, 4123 and 5810
          UNITE HERE
          United Auto Workers 
          United Food and Commercial Workers


                                                                  SB 863
                                                                  Page  21

          UPS-United Parcel Service
          Western Carwash Association 
          Western Electrical Contractors Association (WECA)
          Western Growers Association
          Western Occupational & Environmental Medical Association 

          Advanced Ambulatory Surgery Center
          California Hospital Association (CHA)
          California Medical Legal Specialists, LLS (CMLS)
          International Longshore & Warehouse Union Southern California 
          District Council (ILWU SCDC)
          Numerous Individuals
          Numerous Physiological County Associations

           Analysis Prepared by  :    Mark Rakich / INS. / (916) 319-2086