California: Commissioner rejects request to increase WC cost benchmark
In April, the bureau cited medical costs and the potential impact of three decisions by the state's Workers' Compensation Appeals Board as the reasons for the increase. Many industry experts had forecasted that the decisions in Almaraz v. Environmental Recovery Services, Guzman v. Milpitas Unified School District, and Ogilvie v. City and County of San Francisco would significantly impact the amount of future permanent disability awards in the state. Poizner, however, urged the bureau to withdraw recommendation after the board announced that it would reconsider its en banc decisions. The commissioner also held hearings to garner feedback on the recommended rate increase and the rise in medical costs.
Poizner said that an increase in the cost benchmark usually leads to rising premiums, with small businesses and their employees feeling the brunt of cost increases.
"My response to this requested record increase by workers' comp insurance companies is this -- no," he said. "I will not include avoidable costs in the benchmark. Because of the faltering economy, record unemployment levels, and objections to the proposed increase from employers, I have focused on whether insurers and other parties in the workers' comp system are exhausting every available avenue to control costs before granting any increase to the benchmark."
Poizner said that while self-insured employers face the same medical inflation and other cost drivers challenging the rest of the industry, they have cut costs in other areas that have resulted in a net decrease in overall workers' comp costs. Testimony from the hearings, he said, indicated that insurers were not realizing efficiencies to bring down the costs in the system. Poizner cited insurers' failure to achieve a balance between cost and benefit with medical provider networks and utilization review, and a lack of effective communication with medical providers.
"The evidence presented at a Department of Insurance investigatory hearing provided a dramatic demonstration of the failure of insurers to adequately utilize the cost containment tools given to them by the Legislature, thereby allowing unnecessary costs to creep into the workers' compensation system," he said.
Comp system improvements.
As a result of the hearings, Poizner released an outline for areas where the workers' comp system could achieve further efficiencies. He said he expects the industry to implement many of these changes before he will consider a positive rate change to the benchmark. Among the highlights of the 27 recommendations, Poizner said the comp system must:
- Ensure that all insurers implement pharmacy networks.
- Implement regulations regarding physician dispensing of pharmaceuticals. Legislation may be necessary to deal with this, he said.
- Require the prescribing and/or dispensing of generic drug equivalents.
- Examine the utilization review process. Poizner said utilization review needs some utilization review of itself. "If a majority of medical requests are going to utilization review and are approved, it is not effective," he said. "Utilization review, as it was intended for health care, was for the outlier circumstance."
- Require billing and payment at fee schedule.
- Require the state's Division of Workers' Compensation to update the fee schedule immediately. The division, he said, must continue to update the fee schedule as an ongoing process.
- Implement regulations for electronic billing. Poizner said a standard medical bill form also needs to be created.
Poizner also announced the creation of the Workers' Compensation Costs Advisory Group. This group, which will be comprised of a cross-section of all participants in the workers' comp system, will meet on a regular basis. The purpose of the group, he said, is to keep his office informed of the key cost drivers in the system and to make ongoing recommendations to deal with them.
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August 13, 2009
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