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

It's likely that during the next year we'll see Californians debating the merits of various revenue raising initiatives.

This week the Think Long Committee for California unveiled its "Blueprint to Renew California", sponsored by the Nicolas Berggruen Institute (See link to the full report at the bottom of this post). Assembled by Berggruen, the Think Long Committee is composed of some of the heavy hitters in California politics......Willie Brown, Gray Davis, Arnold Schwarzenegger, Robert Hertzberg...Ronald George, former California Chief Justice....Maria Elena Durazo from the L.A. County Labor Federation...Eric Schmidt of Google, Terry Semel, former Yahoo! and Warner Brothers CEO....Laura Tyson, economic adviser to Democratic presidents...Condi Rice and George Schultz...business leaders Gerald Parsky and Eli Broad...and more. Advisers included former budget directors Mike Genest and Tim Gage.

They propose "an integrated set of proposals that we believe will update and modernize the state's broken system of governance".

With billionaire Berggreuen apparently ready to donate heavily to advance the concepts, it's likely we'll see the Think Long plan in some sort of initiative in 2012.

Meanwhile, Farallon Capital Management founder Tom Steyer is proposing a plan to tax out of state firms based on California sales. According to some press reports, the plan would raise over $1 billion. Steyer, a philanthropist interested in environmental policy, has spent freely on past environmental initiatives. Funds raised through the initiative would be shared between clean energy projects and schools.

And various labor unions are likely to push another revenue proposal for the ballot.

So with California failing to meet revenue targets and with the LAO reporting a $12.8 billion gap, voters will be asked in 2012 to decide whether to raise revenues or whether to accept massive cuts to schools, universities and social services.

What's this mean for workers' comp? Maybe not much.

But tucked away in the Berggruen plan is a proposal to expand the tax base to include a tax on services.

This isn't novel. Look back at a 2010 piece in the New York Times, detailing
efforts afoot in many states to tax services....accountants, attorneys clowns, undertakers, plumbers, accountants, tailors, dry cleaners:
http://www.nytimes.com/2010/03/28/us/28 ... wanted=all

So if your yoga class is taxed and your hair stylist is taxed, will workers' comp attorney fees be taxed?

Would this tax be absorbed by applicant attorneys, or passed along to applicants by higher fee requests? Paid directly by defendants out of the stip or C&R proceeds? Or paid by the attorney? What record keeping and reporting requirements would be required?

And on the defense side, this is a cost factor to consider in assessing allocated risk adjustment numbers.

The Berggruen report proposed that the new sales tax on services would be
at a rate of 5 to 5.5% and would apply to all services, including to businesses and consumers, except for health care and educational services.
The tax would be phased in over several years.

Lest readers run out and join Grover Norquist's anti-tax group, I would urge that we all take a deep breath and look at the merits of the various proposals that emerge.

California has problems, and some shared sacrifice (which may include revenue increases along with belt tightening) is going to be required to solve them.

Here is a link to the Think Long Report:
http://berggruen.org/files/thinklong/20 ... new_ca.pdf

Stay tuned.

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

With pending layoffs, transition continues at California's quasi-public insurer, the State Compensation Insurance Fund.

With new leadership, including CEO Tom Rowe and board chair Larry Mulryan, attempting to trim staff and expenses, SCIF has been in turmoil. As with any organization going through reorganization, some long-term staff aren't happy campers.

Some have been transferred to various locations, such as from San Francisco headquarters to Vacaville. Real estate is being sold and some offices closed. Some of the employees were transferred and then subject to layoffs.

SCIF's share of the California workers' comp market shrank drastically over the past decade, leaving it with high administrative overhead.

In early 2011 the union representing most SCIF employees, SEIU Local 1000
challenged layoffs.

So what's the current status?

It seems that SCIF has agreed to pay severance packages to as many as 1,800 employees who may be laid off. Severance packages will range up to $55,000 for some employees according to a deal worked out between SEIU and SCIF.

Jon Ortiz of the Sacramento Bee has the details on the severance agreement:
http://www.sacbee.com/2011/11/19/406620 ... %20Stories

Stay tuned.

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

In several recent posts I discussed workers' comp premiums and the new methodology adopted by Insurance Commissioner Dave Jones.

I noted that the recently recommended rates continue a pattern of workers' comp rates that have been quite stable for California employers for the last five years.

Last weekend I had the pleasure of discussing this with insurance consultant Mark Gerlach. Gerlach serves as a consultant to CAAA and is widely respected in the industry for his knowledge on insurance issues.

I asked Gerlach what he thought. Here's what he offered:

"Your two posts last week regarding pure premium rates highlighted the primary problem with those rates. Specifically, the problem is that the "approved" pure premium rates don’t seem to mean anything.
As you noted, the average "charged" rate in 2011 was $2.38 while the average "filed" pure premium rate was $2.37. But what you didn’t say was that the average "approved" pure premium rate was actually quite a bit less than the average "filed" pure premium rate of $2.37. In fact, the Commissioner's Decision denying the WCIRB’s request for 2011 noted that the average "filed" rates at that time were 36% higher than the "approved" pure premium rates."

Gerlach continues:

"What this means is that insurers make independent decisions regarding rates, and movement – or the lack of movement – of the "approved" pure premium rates doesn’t have much impact on their decisions. Consequently, even if the "approved" 2012 pure premium rates were higher than the previous "approved" rates, assertions that this change in pure premium rates will lead to a major increase in employers’ insurance costs are wrong. The SCIF action – dropping its average rates by 1% – is further confirmation that changes in the approved pure premium rates just don’t impact the market."

According to Gerlach:

"So, why is this a problem? A review of the industry’s combined ratios over the 16 years since adoption of competitive rating shows a disastrous pattern of extreme fluctuation. The combined ratio rose from 95% in 2004 – the last year under the Minimum Rate Law – to 128% in 1995. That was probably a reasonable combined ratio (128%) given that this ratio does not consider investment income. But insurers instigated a price war over the next several years and the average rate consistently dropped while the combined ratio soared to 184% by 1999. Rates then began a swift climb, almost tripling between 1999 and 2003, while the combined ratio fell to a disgracefully low 55% in 2005. Rates then dropped by two-thirds by 2008, while the combined ratio rose again, reaching 128% by 2010."

Moreover, Gerlach says:

"By any measure this dismal record signifies that the system of uregulated competitive rating introduced in 1995 has been an unmitigated disaster. Several dozen insurance companies became bankrupt, wiping out a large segment of the independent California insurance market. Employers were subject to huge price swings, paying rates that swung from grossly inadequate to grossly excessive. And injured workers suffered a huge – and, in my opinion – unnecessary reduction in indemnity benefits; arbitrarily capping TTD benefits, cutting PPD benefits by almost 70%, and totally eliminating vocational rehabilitation benefits."

Concluding, Gerlach notes:

"Bottom line, the 2012 "approved" pure premium rates are higher than the previous "approved" rates, but because those rates are largely ignored by insurers that change has little or no impact on the ultimate rates that employers pay. That’s the good news. The bad news is that the unregulated pricing authority given to insurers has caused huge problems for all system participants over the past 15 years. Workers’ compensation insurance is the only Property/Casualty line of insurance that doesn’t give the Insurance Commissioner any effective regulatory authority over "charged" rates, and unless and until that is changed I believe we will inevitably experience similar problems in the future."

Gerlach makes good points. The benefits side of workers' comp is but one side of the industry equation. Policyholders need to keep that in focus as they move forward to consider further reforms.

Regulation has been a dirty word in some political circles. But at some point it may make sense to take another look at giving the Insurance Commissioner more power over rates rather than just an advisory role.

Here's the last post I did on the subject:
http://www.workerscompzone.com/index.ph ... 109-213717

Stay tuned.

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

Another interesting case has come out of the California Court of Appeals, 6th District.

The case, State Compensation Insurance Fund v. WCAB (Dorsett) was filed on 11/10/11 and is "not to be published in official reports", limiting its effect since it is not to be cited or relied upon under the California Rules of Court.

However, the case is worthy of discussion in the blogosphere.

In the case the 6th District wrestled with the concept of how to apply the Benson case where a physician opined that a period of cumulative trauma after a specific injury was a compensable consequence of the earlier injury.

Mr. Dorsett has sustained a specific injury to his neck which resulted in two spine surgeries, a discectomy and a fusion. Following the surgeries he eventually worked for another employer for almost two years.

The AME noted that had Dorsett not had the earlier injury "and had he not had the subsequent surgery that was indicated as a result of that injury and had he not had the unfortunate result of the surgery with subsequent ongoing neck symptoms, the cumulative trauma activities would not be an issue", noting that "The simple fact of the matter is that had the March 2000 injury not occurred, the cumulative trauma injury would not have occurred".

In a deposition the AME did apportion one half to the specific injury against the earlier employer and one half to the cumulative trauma at the later employer.

After a trial, the workers' comp judge ruled that the injuries created 100% permanent disability and that "the permanent disability caused by each is not reasonably capable of separation or apportionment from the combined permanent disability". The WCJ noted that :

"Though Dr. Izzo also indicates that he would apportion permanent disability equally between the two injuries, since he indicated that the cumulative injury is a compensable consequence of the first specific injury, in essence there is only one injury, with the specific and subsequent cumulative trauma injury being inextricably intertwined to the extent that there can be no apportionment under Benson".

Based on this analysis, the WCJ made a joint and several finding of 100% against the two employers.

The creative representation by legendary San Jose attorney Arthur Johnson had borne fruit.

The WCAB panel denied reconsideration. Thereafter, the matter was appealed to the 6th District.

In a decision by Justices Bamattre-Manoukian, Elia, and Duffy, the court reversed. Under Labor Code 4663 and 4664 and the Benson doctrine, each injury must be rated separately.

Alas, for Dorsett there would be no 100% award on a theory that would combine a c/t with an earlier specific so as to defeat the Benson doctrine. Two 50% awards amount to way less money than one 100% award.

Yes, the 6th District panel did note that:

"There may be limited circumstances, not present here, when the evaluating physician cannot parcel out, with reasonable medical probability, the approximate percentages to which each distinct industrial injury causally contributed to the employee's overall permanent disability. In such limited circumstances, when the employer has failed to meet its burden of proof, a combined award of disability may still be justified (citing the Kopping case)."

Brushing aside the argument that the subsequent cumulative trauma injury against another employer was a compensable consequence of the original injury at the first employer, the court noted that the AME had referenced a 50-50 causation split between the injuries.

According to the court:
"Therefore, based on the testimony of the AME, the successive injuries can be rated separately and Dorsett's joint and several award of 100 percent permanent disability must be annulled."

The decision concludes with a remand to the WCJ to make an apportionment determination. Why that is necessary if the court was convinced that the AME indicated a 50/50 split is not clear.

Stay tuned.

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