BILL ANALYSIS                                                                                                                                                                                                    Ó

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

          Date of Hearing: August 31, 2012             2011-2012 Regular 
          Consultant:  Gideon L. Baum                  Fiscal:Yes
                                                       Urgency: No
                                   Bill No: SB 863
                                   Author: DeLeon
                       As Introduced/Amended: August 30, 2012

                               Workers' compensation.

                                      KEY ISSUE

          Should the Legislature reform the workers' compensation system 
          in order to cut costs for employers and increase benefits to 
          injured workers by more than $700 million?

          To reduce frictional costs, speed up medical care for injured 
          workers, and to increase Permanent Disability (PD) indemnity 
          benefits to injured workers.

           Existing law  establishes a workers' compensation system that 
          provides benefits to an employee who suffers from an injury or 
          illness that arises out of and in the course of employment, 
          irrespective of fault.  This system requires all employers to 
          secure payment of benefits by either securing the consent of the 
          Department of Industrial Relations to self-insure or by securing 
          insurance against liability from an insurance company duly 
          authorized by the state.

           This bill  would implement/enact a holistic reform of the 
          workers' compensation that would, among other things, provide 
          reforms in the following areas:


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

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

          3)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.

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

          5)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.

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

          7)Authorizes discretionary administrative audits of MPNs by the 

          8)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.

          9)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.
          Independent Medical Review:  

          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 2

          Senate Committee on Labor and Industrial Relations 


          1)Implements an Independent Medical Review (IMR) process, 
            similar to what is found at the Department of Managed Health 
            Care (DMHC), in order to provide independent medical review by 
            doctors for health care disputes.

          2)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.

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

          4)Provides a timeline for approval of treatment after 
            utilization review of 2-3 months, rather than the current 
            judicial timelines which can take up to 18 or 24 months; 

          5)Establishes a hierarchy of standards that are to be applied by 
            IMR, with the Medical Treatment Utilization Schedule adopted 
            by the Administrative Director 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.

          6)Ensures that the hierarchy of standards enforces 
            evidence-based medicine as the primary standard for treatment.

          7)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.

          8)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.

          9)Provides for the Administrative Director (AD) of the DWC to 
            contract with qualified organizations to implement the IMR 
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 3

          Senate Committee on Labor and Industrial Relations 


            functions, subject to detailed conflict of interest rules and 
            substantive responsibilities, as specified.

          10)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, as well as a 
            severability clause.

           Independent Bill Review:  

          1)Establishes an Independent Bill Review (IBR) process to take 
            medical billing disagreements under rules similar to the IMR 
            process, limiting the need for liens filing.

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

           Workers' Compensation Liens Reform:  

          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, 
            recoverable if the lien claimant prevails.

          4)Adopts a statute of limitation within which liens must be 

           Fee Schedules:  

          1)Requires the Administrative Director to adopt a medical fee 
            schedule methodology based on Medicare's Resource-Based 
            Relative Value Scale (RBRVS) system, with specified 
            modifications for California's workers' compensation system, 
            including geographic adjustments.

          2)Adopts a fee schedule for ambulatory surgery centers (ASCs).
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 4

          Senate Committee on Labor and Industrial Relations 


          3)Requires the Department of Industrial Relations (DIR) to study 
            the feasibility of establishing a facility fee for services 
            performed in ASCs.

          4)Clarifies the rules that govern the fee schedule applicable to 
            vocational expert compensation;

          5)Provides that if the MediCal fee schedule for prescription 
            medications is reduced in order to meet specified MediCal 
            budget needs, the budgetary reduction shall not be included in 
            the workers' compensation official medical fee schedule;

          6)Prohibits payment for home care services where the services 
            were already being provided 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 

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

           Medical Care Reforms:  

          1)Eliminates the pass-through for implantable surgical hardware.

          2)Requires the Administrative Director to adopt a regulation to 
            allow an additional reimbursement where the basic hospital fee 
            schedule does not adequately cover the cost of the hardware.

          3)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.

          4)Repeals the requirement that a second opinion be obtained in 
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 5

          Senate Committee on Labor and Industrial Relations 


            cases of spinal surgery, and instead would resolve questions 
            of appropriateness of spinal surgery in the IMR process.

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

          6)Streamlines the Agreed Medical Evaluator (AME) and QME 

          7)Limits Chiropractic QMEs to individuals who are doctors of 
            chiropractic and certified in California workers' compensation 
            evaluation by a provider recognized by the administrative 

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

          9)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.

          1)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.

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

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

           Permanent Disability:  

          1)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 
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 6

          Senate Committee on Labor and Industrial Relations 


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

          2)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 requires 
            all appropriate medical treatment for these injuries.

          3)Limits psychological add-ons when calculating a PD rating to 
            cases involving catastrophic injury or that involved a violent 
            workplace incident, but requires all appropriate medical 
            treatment for psychological injuries.

          4)Eliminates the diminished future earnings capacity (DFEC) from 
            the determination of permanent disability, and instead 
            provides that all permanent disability awards are increased by 
            a multiplier of 1.4 for the loss of future earnings, 
            comparable to the top available DFEC modifier.

          5)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.

          6)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.


          Return to Work:

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

             a)   Change the point in time the benefit is triggered;
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 7

          Senate Committee on Labor and Industrial Relations 


             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.

          2)Creates a $120 million return-to-work program annually derived 
            from the Workers' Compensation Administration Revolving Fund 
            for making supplemental payments to workers whose permanent 
            disability benefits are disproportionately low in comparison 
            to their earnings loss.

          3)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.


          1.  Need for this bill?

            SB 863 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.

          2.  Independent Medical Review:

            SB 863 proposes to change the way medical disputes are 
            resolved.  Currently, when there is a disagreement about 
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 8

          Senate Committee on Labor and Industrial Relations 


            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.  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 law.

          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. 

            Certain constitutional claims have been brought up regarding 
            IMR.  The proponents of this bill, as well as the Committee, 
            have reached out to outside legal counsel on the possibility 
            of constitutional issues.  Each legal opinion stated that this 
            provision was within the constitutional confines on the powers 
            delegated to the Legislature through Article XIV, Section 4 of 
            the State Constitution.
           3.  Proponent Arguments  :
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 9

          Senate Committee on Labor and Industrial Relations 


            Proponents argue that SB 863 is a negotiated package that 
            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.  
            Proponents further note that this reform package should not 
            come as a surprise to anyone, and that it is the culmination 
            of three years of research conducted by the Commission on 
            Health and Safety and Workers' Compensation (CHSWC), a 
            statewide listening tour hosted by the Brown Administration, 
            and the aggregation of several bills that have moved through 
            the legislative process and have been heard in policy 
            committee.  Proponents argue the status quo is unacceptable 
            and simply unsustainable.

          4.  Opponent Arguments  :

            The California Applicants' Attorneys Association opposes the 
            SB 863, arguing that while the bill contains "worthy 
            proposals" and a "partial restoration" of permanent disability 
            benefits for some injured workers, CAAA believes that SB 863 
            takes away the rights of many of the most seriously injured 
            workers to get fair compensation for their injuries.  CAAA 
            argues that, due to numerous giveaways to the business 
            community, this bill reduces compensation for hundreds if not 
            thousands of the most severely injured workers.  CAAA argues 
            that injured workers have suffered enough under the results of 
            the passage of SB 899 under the Schwarzenegger Administration, 
            and believes that SB 863 is a step in the wrong direction.

          5.  Prior Legislation  :

            SB 863 (Lieu), as introduced in 2011, contained similar 
            provisions to this version of the bill regarding lien filing.  

            SB 959 (Lieu) of 2012 dealt with the spinal hardware 
            pass-through, which is also contained in this compromise.  SB 
            959 is currently on the Assembly Inactive File. 

          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 10

          Senate Committee on Labor and Industrial Relations 


          Acclamation Insurance Management Services
          Air Conditioning Sheet Metal Association
          Allied Managed Care
          American Federation of State, County and Municipal Employees
          Associated Builders and Contractors of California
          Association of California Healthcare Districts
          Association of California School Administrators
          Brand Source Pacific Rim Region
          CA Faculty Association
          California Association of Competitive Telecommunications 
          California Association of Joint Powers Authorities
          California Association of Psychiatric Technicians
          California Association of School Business Officials
          California Association of Suburban Schools
          California Chamber of Commerce
          California Chapter American Fence Association
          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 Conference of Carpenters
          California County Superintendents Educational Services 
          California Employers Association
          California Faculty Association
          California Fence Contractors Association
          California Grocers Association
          California Independent Oil Marketers Association
          California Labor Federation
          California Landscape and Irrigation Council
          California Legislative Conference of the Plumbing, Heating and 
          Piping Industry
          California Manufacturers and Technology Association
          California Medical Association
          California Metals Association
          California Nurses Association
          California Professional Association of Specialty Contractors
          California Professional Firefighters
          California Retailers Association
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 11

          Senate Committee on Labor and Industrial Relations 


          California School Board Association
          California School Employee Association
          California Special Districts Association
          California State Association of Counties
          California State Council of Laborers
          California State Firefighters' Association
          California State Pipe Trades Council
          California Teachers Association
          California-Nevada Conference of Operating Engineers

          Coalition of Small and Disabled Veteran Businesses
          Communication Workers of America
          Engineering Contractors' Association
          Flasher Barricade Association
          International Alliance of Theatrical Stage Employees
          International Brotherhood of Electrical Workers
                                                                                  Kern County Superintendent of Schools
          Marin Builders Association
          Monterey County Business Council
          North Bay Labor Council
          Northern California Independent Booksellers Association
          Oakland Metropolitan Chamber of Commerce
          Office of the Mayor, City of Burbank
          Painting and Decorating Contractors of California, Inc.
          Plumbing Heating and Cooling Contractors of California
          Professional Engineers in California Government
          Regional Council of Rural Counties
          San Francisco Builders Exchange
          San Francisco Chamber of Commerce
          San Francisco Council of District Merchants Association
          San Francisco Small Business Network
          Sheet Metal Workers
          SMAC Moving Coil Actuators
          Small Business California
          Small Business California
          Small Manufacturer Association of California
          State Building and Construction Trades Council
          State Compensation Insurance Fund
          Tri-Counties Central Labor Council
          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 12

          Senate Committee on Labor and Industrial Relations 


          U.S. Health Works Medical Group
          UAW International Union and Locals 2865, 4123 and 5810
          UNITE HERE
          United Food and Commercial Workers
          United Parcel Service
          US Heallthworks
          Zenith Insurance
          California Applicants' Attorneys Association
          California Chiropractic Association
          Voters Injured at Work

          Hearing Date:  August 31, 2012                           SB 863  
          Consultant: Gideon L. Baum                               Page 13

          Senate Committee on Labor and Industrial Relations