Savings of Work Injury Reform Bill in Question

Architects of California’s latest attempt to shore up the crumbling workers’ compensation system trumpeted their efforts Wednesday as the most sweeping reform of the program in its 90-year history. But in the eyes of some, the numbers don’t add up.

Observers say the bill that emerged from a bipartisan conference committee late Tuesday contains language virtually identical to that in a preliminary measure circulated last week, except for one key difference: The projected annual savings have mysteriously doubled to a range of $5 billion to $6 billion.

“The numbers being tossed around by the conference committee seem to be grossly exaggerated,” said Charles Bacchi, legislative advocate for the California Chamber of Commerce. “We’d really like to get to the bottom of it. We don’t want people operating under the mis- perception that it is bigger than it really is.”

Jack Stewart, president of the California Manufacturers & Technology Assn., said his trade group also wasn’t sure the savings claims would pan out. For example, he said, reform backers have claimed that eliminating vocational rehabilitation training for injured workers would save $1.2 billion a year. But the program’s costs previously have been estimated at $600 million, he said.

“We’re still trying to evaluate and figure out what the savings are,” Stewart said. “You can’t blame us for being skeptical.”

The reform measure, which is expected to speed through the Assembly and Senate and be signed by Gov. Gray Davis by the end of the week, promises to wring as much as $6 billion in costs annually from the $29-billion system by slamming the brakes on runaway medical costs and rolling back premiums for businesses.

Key lawmakers who had a hand in drafting the legislation defended the integrity of the numbers. Sen. Richard Alarcon (D-Sun Valley), co-chairman of the workers’ compensation conference committee, said he was confident the reform package would generate the targeted savings.

California Insurance Commissioner John Garamendi also said he was comfortable with the figures cited in the measure, saying they were based on “intelligence, hard analytical observation” and the work of credible sources -- the Workers’ Compensation Insurance Rating Bureau, the California Commission on Health and Safety and Workers’ Compensation and the Department of Insurance -- as well as information from big self-insured companies.

Besides questioning the numbers, some in the employer community said that although the bill contained some substantive reforms, just as significant was what it didn’t include. Although legislators aggressively tackled some of the system’s spiraling medical expenses, they didn’t address some of the biggest cost drivers, including costly litigation and swelling permanent disability payments to injured workers.

Moreover, experts said that even if the current reforms delivered the promised savings, California would probably remain the most expensive workers’ compensation market in the country, and one that insurers -- burned by the system’s exploding costs -- may be wary of returning to anytime soon.

“There were clearly some sacred cows that didn’t get touched,” said Robert Hartwig, chief economist with the Insurance Information Institute and a nationally recognized expert on workers’ compensation insurance. “I would say it’s going to take another round of reform for insurers to be convinced that this is going to work.”

Officials admitted as much in Sacramento on Wednesday, where members of the bipartisan committee appeared for a news conference after a late-night scramble to finalize the deal so it could be enacted before the legislature adjourned Friday for a nearly four-month break. The legislation had the backing of the committee’s four Democrats and one of its two Republicans.

“We didn’t get into this mess in one year and we’re not going to get out of it in one year,” said Assemblyman Juan Vargas (D-San Diego), a member of the committee. “There is a lot of work yet to be done.”

Indeed, California’s workers’ compensation system, which protects more than 14 million California workers in the event they are injured on the job, is said to be so large, complex and dysfunctional that even veteran observers say it’s hard to know where to start to fix it. Hit by rising costs, more than two dozen private insurance carriers have gone belly up in the last few years. That has scared off other insurers, pushed the state’s insurance guaranty fund to the brink of insolvency and forced California’s nonprofit insurer of last resort -- the State Compensation Insurance Fund -- to write coverage for more than half the companies in the state.

Meanwhile, premiums for California companies have exploded, doubling or tripling for some firms within the last couple of years alone. The state’s employers pay far and away the highest premiums in the nation, an average of $5.85 per $100 of payroll compared to less than $3 in most states.

Compared with their counterparts in other large states, California workers are off work longer and have higher rates of temporary and permanent disability, even though their injuries aren’t any more severe. In addition, the state’s supposedly “no-fault” system is said to be choked with litigation and riddled with fraud and abuse.

The legislators chose to focus mainly on medical costs, garnering much of the projected savings by capping fees paid for some services and limiting injured workers’ usage of others.

One of the most unexpected areas to take a financial hit was outpatient surgical centers, which would see their fees capped at 120% of the Medicare reimbursement rate, a move that is projected to save the workers’ comp system more than $900 million a year. The industry, a big campaign contributor, had lobbied hard in the Legislature, leading many to believe that surgical centers would be spared.

They and other medical providers Wednesday uniformly expressed disappointment with the reforms, predicting California’s injured workers would be denied treatment and prescriptions.

California’s chiropractors are especially concerned about a 24-visit cap per injury included in the new reform. At present, there are no limits on the number of times injured workers can visit a chiropractor. The result is that workers’ comp patients in California visit their chiropractors an average of 34 times, twice as often as injured workers in other large states.

“We are very disappointed with this cap on chiropractic care,” said Wayne Whalen, a chiropractor in Santee and past-president of the California Chiropractic Assn., a trade group with 4,000 members. “We are very concerned for the thousands of injured workers who cannot tolerate medication and are not surgical candidates [and] who rely on chiropractic care to keep them on the job, such as firemen and police officers.”

Although injured workers would be able to receive more than 24 chiropractic treatments if insurers approved the visits, Whalen believes that is problematic. “We are concerned that insurance companies will be calling all of the shots,” he said.

Pharmacists also are worried, because prescription drug reimbursements would be capped at Medi-Cal levels. “We’re really disappointed with this,” said Bill Bradley, spokesman for the California Pharmacists Assn., a trade group with 5,500 members.

Bradley said workers might find it difficult to get prescriptions filled, as studies done by his group show that 65% of independent pharmacists would be unable to fill prescriptions at such low prices.

But the industry group taking the biggest hit is the vocational rehabilitation industry, whose piece of the workers’ compensation pie is effectively being wiped out under the proposed legislation.

While lawmakers inside the Capitol congratulated themselves on the creation of workers’ comp reform package, several hundred injured workers and their retraining counselors protested on the Capitol steps.

They came from all over the state, some boarding buses in Los Angeles at 3:30 a.m., to urge the Legislature to vote down the bill because it would seek to save $1.2 billion by eliminating the vocational rehabilitation program that gives injured workers as much as $16,000 to use for counseling, retraining and living expenses.

The legislative proposal would instead give workers a voucher based on the severity of their injuries. A worker classified as being less than 15% permanently disabled, for example, would get a $4,000 voucher and a worker determined to be more than 50% permanently disabled would get $10,000.

Ingrid Quinonez, president-elect of the Organization of Bilingual Rehabilitation Assn., whose members help non-English-speaking workers, said the rally was organized to show lawmakers “this is who they’re hurting when they pass legislation without enough information.”

She said the proposed voucher would be useless to workers because they wouldn’t have the guidance of counselors.

“What they’re doing is shifting these individuals to ... welfare lines,” she said, scanning a big crowd that carried a “Voc Rehab Works” banner. “These people already have the benefit. But if they didn’t think it was important, they wouldn’t be here.”

The crowd included a security guard who hurt his knee falling down stairs, a raisin picker whose ankle was run over by a truck and a 64-year-old man who hurt his back packing oranges.

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Highlights of reform bill

The proposed legislation to reform California’s workers’ compensation system is projected by its authors to save $5 billion to $6 billion annually. The key components of the bill:

Outpatient surgical centers: New fee schedules that would pay the Medicare reimbursement rate plus 20%. Annual savings: $932 million

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Pharmaceuticals: Fee schedules linked to the Medi-Cal reimbursement rate. Annual savings: $407 million.

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Chiropractor and physical therapists: Visits to each capped at 24. Currently there are no limits. Annual savings: $1.1 billion.

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Utilization reviews: Adoption of guidelines for how much care is appropriate for any given injury. Annual savings: $1 billion to $2 billion.

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Vocational rehabilitation: Repeal of program that gives injured workers as much as $16,000 for counseling, retraining and living expenses. Annual savings: $1.2 billion.

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Physician pay: Procedures for which doctors now get paid more than the federal Medicare reimbursement must be reduced overall by 5%. Annual savings: $100 million.

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Spinal surgery: Second opinion on spinal operations. Annual savings: $141 million.

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Fraud: Penalties for employer fraud boosted from $50,000 to $150,000. Agencies permitted to share data in investigations. No estimate of savings.

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Treatment decisions: Revocation of so-called physician’s presumption of correctness for claims filed prior to Jan. 1, 2003, which made it virtually impossible for insurers and employers to successfully contest the treatment decisions of an injured workers’ primary care physician. One-time savings: $2.2 billion.

Sources: Workers’ Compensation Insurance Rating Bureau, Commission on Health and Safety and Workers’ Compensation, legislative conference committee

Los Angeles Times