BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 863|
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                              UNFINISHED BUSINESS


          Bill No:  SB 863
          Author:   De León (D), et al.
          Amended:  8/30/12
          Vote:     21

           
          PRIOR VOTES NOT RELEVANT

           ASSEMBLY FLOOR  :  Not available


           SUBJECT  :    Workers compensation

           SOURCE  :     Author


           DIGEST  :    This bill enacts major reforms to the workers 
          compensation system.

           Assembly Amendments  delete Senate version of the bill and 
          insert the above language.

           ANALYSIS  :    

          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 
                                                           CONTINUED





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              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.

            4.  Provides for "employer control" of medical treatment 
              if the employer establishes a Medical Provider Network 
              (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 administrative director, 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 
              Qualified Medical Examiner (QME)/Agreed Medical 
              Evaluator (AME) process, and litigation before a 
              workers' compensation judge.







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            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' compensation system.

            13. Allows basic permanent disability 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 permanent disability rating derived from the basic 
              permanent disability 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 







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              resource based relative value system (RBRVS) system.

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

            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.

          This bill:

            1.  Eliminates one of the two pathways for chiropractors 
              to qualify as a 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 WCAB's 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, provided 
              the employee gives this additional information to the 
              employer to allow the employer an opportunity to 
              reconsider based on this information.







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

            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 worker.

            11. Provides that a reversal of a utilization review 
              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 process.

            14. Adopts a severability clause for the IMR provisions.







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            15. Provides for the Administrative Director 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.

            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 AME and QME process to eliminate 
              unnecessary delays and friction in the system.

            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 







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

            26. Eliminates sleep disorder and sexual dysfunction 
              "add-ons" to primary injuries that do not include these 
              injuries when calculating the level of permanent 
              disability, 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 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 
              permanent disability rating to cases involving 
              catastrophic injury or that involved a violent 
              workplace incident.








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            29. Provides that all permanent disability awards are 
              increased by a multiplier of 1.4 for the loss of future 
              earnings.

            30. Establishes, for injuries occurring from January 1, 
              2013 through December 31, 2015, a 30% "bump up" of the 
              permanent disability award, and for injuries occurring 
              on or after January 1, 2016, a 15% "bump up" of the 
              permanent disability award for injured workers who are 
              not given a qualifying return to work offer.

            31. Provides that in enacting the bill adding these 
              changes to the permanent disability 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.

            32. Requires the Commission on Health and Safety and 
              Workers' Compensation to conduct a study comparing 
              average loss of earnings for employees who sustained 
              work-related injuries with permanent disability ratings 
              under the permanent disability rating schedule and 
              evaluate the impact of increased payments made pursuant 
              to the "bump up" provisions, and report to the 
              Legislature before January 1, 2016

            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.

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

            35. Eliminates the requirement that a 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.







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            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 AD.

            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 interpreter services.

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







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            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 settlements;

               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.

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

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

            3.  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.

            4.  Adopts firm time limits within which liens must be 
              filed. 

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

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







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              ASCs.

            7.  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.

            8.  Clarifies the rules that govern the fee schedule 
              applicable to vocational expert compensation, and 
              provides that written testimony, in lieu of live 
              testimony, is proper.

            9.  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.

            10. 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.

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

            12. 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.

            13. Contains language to prevent chaptering problems with 
              SB 1105.

           Comments  







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          According to the Assembly Insurance Committee, 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.

           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 







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          benefits, and relatively timely delivery of those benefits. 
           

           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 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 PERMANENT DISABILITY rating.

          These reforms did not have as much impact on litigation as 
          predicted, largely due to a clearly unexpected result - 
          permanent disability 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 







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          succeeded in certain respects, discussed in more detail 
          below.  Contemporaneously, political pressure began to 
          build for a permanent disability benefit increase, which is 
          a key component of SB 863.

          Second, SB 899 authorized the establishment of 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.

           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.

           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 







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          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.  

          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 







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          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.

           Independent Medical Review  .  This bill 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 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.  This bill instead adopts 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. 
           This bill contains findings that this system would result 
          in faster and better medical dispute resolution than 
          existing law.







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          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. WCAB (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.

           Permanent disability Reforms  .  Permanent disability reforms 
          are probably the most controversial element of the 
          proposal.  Despite increasing annual permanent disability 
          payments to injured workers by an estimated $740 million 
          (after a 2-year phase-in), some have objected to the way 
          that this increase is structured, as well as changes in how 
          approximately $1 billion in existing permanent disability 
          expenditures are redirected.  There are numerous ways that 
          a permanent disability 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 







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          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 permanent disability 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. WCAB  and the 2007 Supreme Court 
          Decision in  Brodie v. WCAB  .

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

          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 







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          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, 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 
          procedures.








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           RBRVS  .  Medicare uses a 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 this bill does not provide the 
          "revenue neutrality" provision that rendered SB 923 
          controversial. 

           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 
          services.

          With respect to home care services, the bill seeks to adopt 
          a fee schedule, identify appropriate utilization, require a 







                                                                SB 863
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          21

          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.

           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.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  Yes

           SUPPORT  :   (Verified  8/31/12)

          Acclamation Insurance Management Services
          Air Conditioning Sheet Metal Association 
          Allied Managed Care
          ALPHA Fund
          American Federation of State, County and Municipal 
          Employees
          American Subcontractors Association of California
          Associated California Self Insured Businesses (ACSIB)
          Association of California Healthcare Districts (ACHD)
          Association of California School Administrators (ACSA) 
          AT&T
          Boeing
          Brand Source Pacific Rim Region
          California Association of Competitive Telecommunications 
          Companies 
          California Association of Joint Powers Authorities (CAJPA) 







                                                                SB 863
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          22

          California Association of School Business Officials
                                                                                  California Association of Sheet Metal and Air Conditioning 
          Contractors Association
          California Association of Suburban Schools 
          California Carpenters Conference
          California Chamber of Commerce
          California Chapter of the American Fence Association
          California Chapters of the National Electrical Contractors 
          Association
          California Coalition on Workers' Compensation
          California Concrete Contractors Association 
          California Employers Association
          California Faculty Association 
          California Farm Bureau
          California Fence Contractors' Association
          California Grocers Association
          California Independent Oil Marketers Association 
          California Labor Federation 
          California Landscape and Irrigation Council
          California Landscape Association 
          California Landscape Contractors Association
          California Legislative Conference of the Plumbing, Heating 
          and Piping 
                Industry
          California Manufacturers and Technology Association
          California Medical Association 
          California Metals Coalition 
          California Nevada Cement Association 
          California Nurses Association
          California Occupational Medicine Physicians
          California Physical Therapy Association 
          California Professional Association of Specialty 
          Contractors
          California Professional Firefighters 
          California Retailers Association
          California School Boards Association
          California School Employee Association
          California Small Business Association
          California Special Districts Association  
          California State Association of Counties 
          California State Council of Laborers
          California State Pipe Trades Council
          California Teachers Association
          California Teamsters Public Affairs Council 







                                                                SB 863
                                                                Page 
          23

          California Trucking Association 
          California-Nevada Conference of Operating Engineers
          Change.org 
          Clinica Romero
          Coalition of Small and Disabled Veteran Businesses 
          Communication Workers of America
          Confederacion ControAmericana 
          Disney 
          El Centro Del Pueblo
          Engineering Contractors' Association
          Federal Express 
          Flasher Barricade Association
          Gateways Hospital
          Globe Iron Foundry, Inc.
          Golden State Builders Exchanges 
          Grimmway Farms 
          Hermandad Mexicana National
          Homeboy Industries
          Insurance Brokers and Agents of the West 
          International Alliance of Theatrical Stage Employees
          International Brotherhood of Electrical Workers
          International Union, United Automobile, Aerospace & 
          Agricultural Implement Workers of America - UAW 
          Jesuit Restorative Justice Initiative
          Kaiser Permanente 
          Kern County Superintendent of Schools
          Legacy LA
          Liberty Mutual
          Los Angeles Police Protective league 
          Marin Builders' Association
          Monterey County Business Council
          National Federation of Independent Businesses 
          North Bay Labor Council
          Northern California Independent Booksellers Association
          Oakland Metropolitan Chamber of Commerce
          Painting & Decorating Contractors of California, Inc. 
          PECG/CAPS
          Plumbing Heating and Cooling Contractors Association of 
          California 
          Psych Techs
          Regional Council of Rural Counties
          Safeway
          Salvadoran-American Leadership and Educational Fund
          San Francisco Builders Exchange 







                                                                SB 863
                                                                Page 
          24

          San Francisco Chamber of Commerce
          San Francisco Council of District Merchants Associations
          San Francisco Small Business Network
          School Insurance Authority
          SEIU Local 1000
          Service Employees International Union 
          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
          United Parcel Service
          Western Carwash Association 
          Western Electrical Contractors Association (WECA)
          Western Growers Association
          Western Occupational & Environmental Medical Association 
          White Memorial Medical Center
          Zenith

           OPPOSITION  :    (Verified  8/31/12)

          California Applicants' Attorneys Association

           ARGUMENTS IN SUPPORT  :    The supporters write, "This 
          negotiated package increases permanent disability benefits, 
          minimizes delays in medical treatment, Improves access to 
          care and provides hard savings in excess of the cost of 
          benefit increases."

           ARGUMENTS IN OPPOSITION  :    The California Applicants' 
          Attorneys Association opposes this bill and writes, "Though 
          there are some worthy proposals embedded in the legislation 
          and a partial restoration of permanent disability benefits 
          for some injured workers, as an overall matter it takes 
          away rights of many of the most seriously injured workers 
          to get fair compensation for their injuries.  In 
          particular, the legislation restricts the ability of an 
          injured worker to access necessary medical treatment and to 







                                                                SB 863
                                                                Page 
          25

          receive adequate compensation if a worker is permanently 
          disabled and cannot return to work at the same salary."


          PQ:d  8/31/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****