Privatize Workers’ Comp System, Wachs Urges City : Government: L.A.’s scandal-plagued claims setup wastes millions of dollars, the councilman says. Program’s supervisor says the plan is premature.

Saying that bureaucrats have allowed reforms to languish for too long, Los Angeles City Councilman Joel Wachs on Wednesday proposed that a private firm take over the city’s dysfunctional and scandal-plagued workers’ compensation system.

Wachs scheduled a hearing for early next month to begin discussions of his plan, which would remove the handling of worker injury claims from the city Personnel Department.

The city’s workers’ compensation system has been under increasing fire since early this year. A mayoral task force in May estimated that the city spends $32 million more a year than it should on worker injury claims. In June, a high-ranking Personnel Department official was accused of heading a ring that bilked the city out of nearly $1 million in fraudulent claims.

Thelma Bowman, a principal compensation analyst, was fired and is under police investigation for allegedly conspiring with doctors and private investigators to defraud the city.

A Times report showed that the workers’ compensation system for years had remained impervious to change, despite repeated warnings from auditors inside and outside city government.

“The city’s workers’ compensation system is scandalous,” Wachs said Wednesday. “It is totally out of control. The administration of the system simply has to go to the outside. That will save tremendous sums of money.”

City Controller Rick Tuttle also urged faster action to reform the workers’ compensation system, although he did not endorse Wachs’ call for an outside firm to take over the operation.

Tuttle said the improvements are urgent because auditors have found the Workers Compensation Division books in such disarray that they could not even say how much liability the city might face. Without corrections, the city’s bond rating could suffer, he said.

“It could cost the taxpayers more when we go out to borrow money, if we don’t take appropriate corrective action,” Tuttle said. “It’s important to get reforms done.”

Faye Washington, who took over as head of the Personnel Department this year, said that Wachs’ proposal is premature and that she is moving ahead to clean up the workers’ compensation program. A consultant has been hired to redesign the system and another outside firm has been hired to begin reducing a caseload of 40,000 claims--which is the equivalent of nearly one claim for every municipal employee. Many are outdated files susceptible to overbillings if not closed, audits have shown.

Washington has said she would like to have another outside firm handle some of the workers’ comp claims, to test whether it can do the job more efficiently. But she said it is premature for the city to divest the entire program.

“What we are doing is more prudent than just blatantly reallocating the function,” Washington said, adding that she would take very aggressive steps to cut workers’ compensation costs. The city paid out $86 million for worker injuries and related costs in 1992-93, more than 2 1/2 times the amount of a decade earlier.

Wachs acknowledged that Washington has done more than past administrators. But he said that in-house reform efforts inevitably have proven “piecemeal and wimpy and designed to mollify the critics, not to make real change.”

Wachs’ Governmental Efficiency Committee will discuss the issue Oct. 5. The City Council has a standing policy requiring that public hearings be held before any city function is turned over to a private firm. A hearing has not yet been set.