California continues to suffer due to the huge underground economy.

Honest employers end up competing against employers who cut corners on workers' comp coverage, labor laws, and taxes.

This was the subject of a hearing at California's capitol this week. The hearing was the California Senate Info-Hearing on Small Business and the California Economy. You can watch it online by clicking on the California
Channel:
http://www.calchannel.com/channel/viewvideo/3182

State Senator Mark DeSaulnier noted that these issues have been studied for some time, including by the Little Hoover Commission, and the problem seems to be getting worse.

The hearing was far too long and detailed to summarize in a blog post. Speakers included Scott Hauge from Small Business California, Dan Kurtilla of EDD, David Fogt of the California Contractors State Licensing Board, several contractors, and others.

Christine Baker, the Acting Director of the California Department of Industrial Relations, testified. Baker noted that the strategy of the department is to focus on non-compliant employers without interfering unnecessarily with compliant employers.

During the past few years there have been many publicized "sweeps" by labor standards enforcement.

Baker noted that lack of workers' comp coverage is a good indication of cheating and provides a huge competitive disadvantage.

SB 313 (sponsored by Desaulnier) provides for increased penalties for lack of coverage and Baker noted that DIR is seeing "some significant citations"

According to Baker, out of 1,498 employers randomly identified by EDD about 31% were found by the WCIRB to be lacking coverage. On followup, about 80 out of the 479 suspected scofflaws were found to have coverage and 45 got notice and then obtained coverage. 56 were cited for no coverage at the time of inspection and 46 were cited for past lapse of coverage. Baker noted that fines of over $400k were levied.

Whatever the exact numbers and percentages, it's clear that this is a huge problem. Baker noted that they hear many stories of employers who buy just enough coverage to stay under the radar. Other employers misclassify workers.

So starting in January 2012 DIR plans a more proactive program to use data to identify cheaters ".by red flags".

And she noted some changes in strategy at the department of Labor Standards Enforcement, including "surveillance before inspection".

Dan Kurtilla of EDD noted that EDD is the lead agency in the Joint Enforcement Strike Force, which is an interactive task force. They have 16 MOUs with agencies such as IRS, the Franchise Tax Board, Department of Justice, the U.S. Department of Labor, the Department of Insurance, the Department of Consumer Affairs , and DIR etc.

Kurtilla claimed that Franchise Tax Board Studies show that 11% of any California tax owed in any year is being unpaid because of the underground economy. This could amount to $6.5 billion in unpaid taxes.

At a time when schools, universities, and aid to needy folks is being cut, that's real money.

From the workers comp context, this is not new. I've been posting on this for years. Here are links to "It's the Employer Fraud, Stupid" #1 :
http://www.workerscompzone.com/index.ph ... 670342ae49

And to "It's The Employer Fraud, Stupid" #2:
http://www.workerscompzone.com/index.ph ... 818-110358

With benefit increases dependent on system cost savings, identifying cheating employers becomes ever more critical.

Here is the link to view the second segment of the Senate Informational Hearing on Small Business and the Underground Economy:
http://www.calchannel.com/channel/viewvideo/3183

And here is a link to a good piece on the issue written by Marc Lifsher for the Los Angeles Times:
http://www.latimes.com/business/la-fi-u ... 0311.story

Julius Young
www.workerscompzone.com
www.boxerlaw.com

Governor Brown announced today that he has appointed current WCAB commissioner Ronnie Caplane to be the chairperson of the California Workers' Compensation Appeals Board.

Caplane, who has been on the board since 2003, will now serve as chair of the WCAB, succeeding former chair Joe Miller. Miller, a Schwarzenegger appointee, will soon be termed out unless reappointed by Governor Brown.

Currently there are two open slots on the WCAB, one vacated by the retirement of james Cuneo and one open after former commissioner Greg Aghazarian. Unless Miller is reappointed, there will be three slots open and only 4 commissioners at the board.

Here is the text on Governor Brown's website announcing Caplane's appointment:
"Ronnie Caplane, 63, of Oakland, has been appointed chair of the Workers Compensation Appeals Board, where she has served as a member since 2003. She was a freelance writer and columnist for the Piedmonter and the Montclarion from 1992 to 2006. Caplane was a partner at Bruynell and Caplane from 1983 to 1985 and a trial attorney for the U.S. Department of Justice’s Civil Division from 1979 to 1982. Caplane received her Juris Doctor degree from the University of California, Hastings College of the Law. This position does not require Senate confirmation and the compensation is $132,179. Caplane is a Democrat."

Those who know Caplane know her as bright, funny, and energetic. She has been a fixture at many industry conferences over the past several years, attending as a speaker and ambassador for the Appeals Board.

With many thorny legal issues still lingering after the 2003/2004 reforms, and with the possibility of significant new regulatory or legislative reforms on the horizon, Caplane will be in a position to exert leadership at the WCAB.

Congratulations to Ms. Caplane.

Julius Young
www.workerscompzone.com
www.boxerlaw.com

Like it or not, the trend in California is toward increasing usage of medical provider networks (known as MPNs).

That trend is confirmed in the findings of research by the California Workers Compensation Institute, which issued a November 29 bulletin documenting network usage from 2004 to 2010.

Network utilization rates for all "first year medical services" increased from 51.1% in 2004 to 75.3% in 2009. In accident year 2009 networks had an 81% share during the first 30 days and a 71.4% during the first year after the first 30 days. "First year medical services" was defined to include evaluation and management, anesthesiology, surgery, medicine, lab and pathology, radiology, physical medicine, chiropractic, special services, othotics/prosthetics, pharmacy, med-legal reports and other miscellaneous categories.

The trends were similar when CWCI looked at the percent of first-year workers' comp physician-based outpatient service payments to network providers for all services. By accident year 2009 the percent for the first year was 65.5% (i.e. 74.5% for services during the first 30 days post-accident and 61% for services post 30 days).

The CWCI broke out results in several categories. Take surgery for example.
Network usage for surgery climbed from 56% in accident year 2004 to 75% in accident year 2009.

But increased usage of medical networks has not kept medical treatment costs from outstripping other system costs. Along with medical cost containment expenses, treatment costs have escalated sharply.

And since indemnity costs have been relatively stable, this raises the question: if indemnity benefits can only be raised by systemic cost reductions (a position apparently being taken by the Brown Administration), then how can medical costs be tamed while ensuring worker access to prompt and adequate medical care?

One would think that any "grand bargain" type of comprehensive reform that does not look at this issue is doomed to failure.

Former Insurance Commissioner Poizner noted during several rate hearings that insurers had achieved only limited success with cost reduction tools at hand, i.e. medical networks and UR. At the time, he refused to endorse
requests for a substantial increase in the workers' comp advisory premium rate.

This is the conundrum with faces employers and labor, insurers and applicant attorneys, doctors and hospitals. How can we deliver quality medical care at a reasonable price to California's injured workers and still have money left over to adequately compensate injured workers who have had their earning capacity diminished?

Julius Young
www.workerscompzone.com
www.boxerlaw.com

Never one to shy away from brash comments, Republican presidential hopeful Newt Gingrich asserted in an interview this week with ABC's Jake Tapper that he will be the GOP nominee.

What does Gingrich think about workers' comp?

Longshore workers, federal employees and some defense contractor workers are covered by federal workers comp programs.

But in a speech to the November 18, 2010 Republican Governor's Conference, Gingrich outlined his ideas about where state workers compensation laws should go.

Gingrich urged that Governors should seek to:
"Replace litigation-focused workers compensation with a rehabilitation and capabilities focused program that maximizes the speed of helping people medically, and focuses on retraining and focusing on what they can do rather than on what they can't do."

California has moved in the other direction, of course, nixing vocational rehabilitation in favor of a small and unwieldy "retraining voucher" system that is underutilized and untimely for most workers who need it.

Here is a link to the text of Gingrich's speech so you can see his prescriptions in context:
http://www.aei.org/article/politics-and ... ssocation/

Stay tuned.

Julius Young
www.workerscompzone.com
www.boxerlaw.com

It's fascinating to read the California Watch investigative report on the behavior of some California hospitals.

Reporters at California Watch looked at Medicare billing data and determined that some hospitals were billing for expensive treatments at far above the state average. For example, Chino Valley MedicalCenter in San Bernardino billed for cardiac failure treatments for 35.2% of its Medicare patients.

Medicare now gives bonus payments for treating patients with complications. California Watch determined that Chino Valley Hospital went from almost no acute cardiac failure billings to 1,971 after the Medicare rules were changed.

Other hospitals with high percentages of cardiac failure billings were Paradise Valley Hospital in National City, Huntington Beach Hospital, Sutter Coast Hospital in Crescent City, Centinela Hospital in Inglewood, Desert Valley Hospital in Porterville, San Leandro Hospital, La Palma Intercommunity Hospital, Montclair Hospital Medical Center, and West Anaheim Medical Center.

Predictably, some of the hospitals dispute that they have done anything improper.

But if the billings are fraudulent, is it hospital policy to miscode treatments or action by physicians? Where in the management chain do these policies start?

We'll likely see much more on this story.

The relevance for workers' comp? Could there be a similar phenomenon in workers' comp, where some doctors or hospitals pad treatment bills or upcode?

Inquiring minds would love to know.

The California Watch piece by Lance Williams, Stephen K. Doig and Christina Jewett, "Heart Failure Cases Surge Among Prime Hospitals" can be found here:
http://californiawatch.org/health-and-w ... ents-13703

Julius Young
www.workerscompzone.com
www.boxerlaw.com