The Division of Workers’ Compensation (DWC) has issued a notice of public hearing to revise various provisions of the Official Medical Fee Schedule (OMFS). The public hearing has been scheduled for 10 a.m., November 14, 2014, in the Auditorium of the Elihu Harris Building, 1515 Clay Street, Oakland, CA 94612. Members of the public may also submit written comment on the regulations until 5 p.m. that day. The proposed amendments are as follows:

1) Amend the fee schedules provisions in Article 5.3 and section 9790 in Article 5.5, to reiterate the applicable dates of fee schedule provisions. The Division has become aware of the misapplication of the effective dates of various fee schedule provisions.
2) Amend the inpatient hospital fee schedule provisions that address the operating disproportionate share hospital (DSH) adjustments. The proposed amendments are necessary as a result of changes made by Medicare to their operating DSH adjustment methodology.
3) Amend the inpatient hospital fee schedule provisions that address the outlier payments for eligible transfer cases. The Division has become aware of the need to clarify that hospitals transferring an inpatient to another hospital or post-acute care provider are eligible to receive an outlier payment for qualifying cases. The proposed amendments provide the methodology for determining whether a case is eligible for an outlier payment, and if so, how the payment amount would be calculated. The proposed methodology conforms to Medicare’s payment methodology.
4) Minor amendments that are required to conform to the proposed changes, to update, or to clarify various sections of the Official Medical Fee Schedule.

The notice, initial statement of reasons, and text of the regulations can be found on the proposed regulations webpage.

The Insurance Journal reports that California’s Department of Industrial Relations Director is taking a bit of umbrage with a study released last week that showed the state was ranked as the most expensive in the nation for workers’ compensation. Despite major workers’ comp reforms signed into law in 2012 California topped the 2014 Oregon Workers’ Compensation Premium Rate Ranking Summary, a list of average premiums paid by employers that the Oregon Department of Consumer and Business Services puts out every two years. Premium rates in the report ranged from a low of 88 cents in North Dakota to $3.48 in California. Premiums paid were 61 cents lower in Connecticut, the next state with a wide margin behind California. Oregon ranked 43rd, reportedly its best performance since the report was first put out in 1988.

The report was seized on by the Workers’ Compensation Action Network as an example of how tough it is to be an employer in California. “Try as we might to reform California’s workers’ compensation system, employers here continue to bear the heaviest cost burden in the nation – by a wide margin,” WCAN spokesman Jerry Azevedo said the day the report was issued.

But on Monday DIR Director Christine Baker called out some issues she had with the study. “It’s good for Oregon, but it isn’t fair to California,” Baker said. A detailed reply to the study put out by DIR notes the Oregon study has “inconsistencies and methodologies that skew the ranking.” Baker said the report compares different occupational classes, and it fails to include adjustments resulting from the application of deductible plans or the return of policyholder dividends. “It is such a completely different distribution,” she said, adding that the industrial mix and the size of California’s employment ranks are not comparable to other states in the study. “It’s a good study for Oregon,” Baker added. “It makes Oregon look really good, but it’s apples-to-oranges for California. It’s just not comparable.”

According to Jay Dotter, who put together the Oregon study, anyway you slice it the report doesn’t bode well for California’s workers’ comp system. The report takes 50 business classes and compares losses over a three-year period. “That’s going to vary a little bit state by state,” Dotter acknowledged. “But you can look at top 10 by payroll and you’re going to see the same top 10 (in terms of premium ranking) probably in every state.” He added: “What that’s saying is the industry mix really doesn’t have that big of an effect on it.”

Also not taken into account in the report are the reforms to California’s workers’ comp system ushered in by Senate Bill 863 in 2012, many of which have yet to take effect, Baker said. Projections indicate that without SB 863, workers’ compensation costs would have spiked more sharply in 2013 and 2014, and that insurance prices had already begun to rise in 2012. SB 863, which initiated an independent medical review and a utilization review process, has already had a positive impact on workers’ comp, according to DIR. Medical expenses appear to be under better control, according to preliminary data from the Workers’ Compensation Insurance Rating Bureau of California. The data indicates that the estimated ultimate medical loss per lost-time claim is down 1.3 percent from accident year 2012 to 2013.

SB 863 also reduced ambulatory surgery center facility fees from 120 percent to 80 percent of Medicare’s hospital outpatient fee schedule, according to DIR, which stated the average amount paid per ASC episode in the first six months after the change in fee schedules was 26 percent lower than in the year before the change took effect.

Yet another aspect of SB 863 repealed the separate reimbursement for spinal hardware, after which the average amount paid per episode of the spinal surgery involving implantable hardware fell by 56 percent, according to DIR.

Finally, perhaps the biggest SB 863 change was a lien filing fee. During the first year the filing fee was in effect, 213,092 liens were filed, down from 469,190 in 2011, a greater than 50 percent reduction, according to DIR, which estimates the lien filing fee is saving California employers and insurers $270 million per year in litigation and settlement costs. “I think there are a lot of things happening at the same time,” Baker said of the ongoing SB 863 reforms. “We’re hearing from the judges that cases are settling a lot quicker. It will take time to balance all of this out. It will take another two to three years I think.”

Dotter acknowledged that the report, which looks at data up to Jan. 1, 2014, does not reflect SB 863 reforms. But, he added, “We’ll have some idea of that when we do the 2016 study.”

Workers compensation experts explained how to control workers comp costs related to opioid management and the aging workforce during Business Insurance’s fifth annual Workers Comp and Safety Virtual Conference.

In his keynote speech, William Zachry, vice president of risk management for Safeway Inc., talked about the top 10 cost drivers for workers comp claims. Mr. Zachry’s recommendations included connecting utilization review and bill review processes for comp claims, using pre-employment screenings to avoid placing workers in jobs that they are physically unfit to perform, and reducing litigation in comp cases by showing an interest in injured workers. “Calls from the supervisor or owner of the company asking if the injured worker understands his or her benefits, if the benefit notices were confusing or if the medical care is good, and if there is anything that the employer can do the for the employee (can have) a massive effect on reducing litigation,” Mr. Zachry said.

In another presentation, Kimberly George, senior vice president and senior health care advisor for Sedgwick Claims Management Services Inc., talked about the challenges and opportunities that go hand-in-hand with the Patient Protection Affordable Care Act.

In a presentation on controlling the use of opioids in workers comp, speakers discussed guidelines for prescribing such medications and the use of prescription formularies to prevent overprescribing. Dr. Steven Feinberg, chief medical officer for Feinberg Medical Group in Palo Alto, California, said the use of opioids may be appropriate for some patients, but it’s best to avoid long-term use of such drugs.

Alex Swedlow, president of the Oakland, California-based California Workers’ Compensation Institute, and Vennela Thumula, policy analyst with the Cambridge, Massachusetts-based Workers Compensation Research Institute, presented evidence that closed prescription drug formularies, which have been successful in reducing workers comp medical costs in Texas and Washington state, could help reduce workers comp medical costs in other states.

While older workers are less likely to be injured on the job, those who are hurt often take longer to return to work at full capacity, presenters said in another session. David Barry, senior vice president and national technical director for casualty risk control for Willis North America Inc., said older workers made up 26% of all fatal accidents in 2005, yet they represented only 16% of the workforce at the time. During the session, Debbie Villegas, human resources manager for Jordan Foster Construction L.L.C., said it’s difficult to replace knowledgeable older workers, so some employees who have retired from the company have actually returned to manage projects as consultants.

Lance Perry, senior ergonomist and professional engineer for Zurich Services Corp., said ergonomics is key to keeping older workers safe and healthy. He added that safety managers, productivity managers and quality managers have to work together to identify solutions that will accommodate the physical, physiological and psychosocial changes of an aging workforce.

Nearly 900 risk managers, safety managers, human resources and benefit managers, brokers and third-party administrators, among other attendees, registered for the free online event. You can view the event on demand online at BusinessInsurance.com/CompCosts.

A list of state rankings for workers’ compensation premiums shows a slight drop in premiums in the last two years, and that a number of states are close in terms of how much employers are paying.The list put out by the Oregon Department of Consumer and Business Services once every two years, and analyzed in an Insurance Journal article, shows the 2014 median value of workers’ comp premiums paid was $1.85 per $100 of payroll, a drop of 2 percent from the $1.88 median in the 2012 study.

National premium rates range from a low of 88 cents in North Dakota to a high of $3.48 in California, the report shows.

The list also shows 21 states within 10 percent of the median and the range from highest and lowest rankings has been shrinking, according to Jay Dotter, who put the report together. The effect is that it makes the list more “volatile,” Dotter said, adding that it’s important to note that volatility because some states use the list to measure the performance of their workers’ comp system. “A small change in the index rate can give you a larger change in ranking,” he said.

As an example of a state that relied on the list to make changes Dotter pointed to Hawaii’s workers’ comp administrators, who noted their top 15 ranking in the 2006 report and put notice of the poor performance on a state’s website and publicized it to help champion reforms that were eventually passed. The state was ranked 27th on the latest report.

Oregon’s workers’ comp system was in sad shape when the state began to compile the list in the 1980s in order to evaluate itself and push for reforms that were eventually passed. The state went from 6th place on the list and was 43rd on this year’s list, its best performance to date, according to Dotter.

The study puts states’ workers’ comp rates on a comparable basis using a constant set of risk classifications for each state. This study used classification codes from the National Council on Compensation Insurance. Following California’s $3.48 per $100 in payroll was not even close to Connecticut ($2.87) at No. 2 on the list, coming in it at 155 percent above the national median workers’ comp premium. New Jersey ($2.82), New York ($2.75), and Alaska $2.68) rounded out the top five.

North Dakota (88 cents) was at the bottom of the list, which makes is the cheapest state for employers. It has traditionally ranked lowest, and the state retained it’s ranking from the 2012 list and also saw a drop in premiums from $1.01. Other states where workers’ comp is far below the national median for workers’ comp premiums are Indiana (at 50 percent of the national median), Virginia (61 percent), Arkansas (64 percent) and Massachusetts (68 percent).

Despite major workers’ comp reforms signed into law in 2012 California easily tops the 2014 Oregon Workers’ Compensation Premium Rate Ranking Summary.

It’s an unacceptable position to be in considering all the reforms that were made two years ago, said Workers’ Compensation Action Network spokesman Jerry Azevedo. “Try as we might to reform California’s workers’ compensation system, employers here continue to bear the heaviest cost burden in the nation – by a wide margin,” Azevedo said. Azevedo noted that the same study has consistently ranked California among the most expensive states for more than a decade. In the 2012 report California was third on the list with $2.92 per $100 of payroll, so in the two years since Gov. Jerry Brown signed into law the reforms of SB 863 premiums have jumped 56 cents.

A new California Workers’ Compensation Institute study shows that adopting a state-mandated workers’ comp prescription drug formulary such as those used in Texas and Washington State could reduce California workers’ compensation pharmacy payments by an estimated $124 million to $420 million a year while simultaneously raising the quality of care and reducing frictional costs in the system.

Drug formularies, which are widely used in group health, Medicare, and other federal health care programs are lists of approved drugs that define the scope, and in some cases, limit the variability in prices for certain types of drugs. Unlike California, states such as Texas, Washington and Ohio have mandatory formularies that apply uniform standards and drug lists for all injured workers in those jurisdictions.

To measure the potential effect of using a state-mandated formulary in California, the authors created a dataset of 1.6 million California workers’ compensation prescriptions filled between January 1, 2012 and June 30, 2013 and applied the Texas and Washington State formularies to these prescriptions. The results showed that applying the Texas formulary in the California workers’ compensation system would exclude 17 percent of the prescriptions and 29 percent of the payments, while Washington State’s more exclusive formulary would exclude 39 percent of the prescriptions and 70 percent of the payments. The study also estimated that using the Texas and Washington formularies in California would reduce brand-name drug payments between 42 and 95 percent, and reduce the use of controversial Schedule II opioid painkillers by 36 to 45 percent, reducing the associated payments for these drugs by 65 to 78 percent.

The study notes applying either formulary in California would sharply reduce workers’ comp prescription drug payments from current levels. When compared to current prescription drug utilization patterns and costs, the study estimated that the additional controls provided by a formulary could reduce total pharmaceutical payments in the system by 12 percent to 42 percent, which translates to a potential savings of $124 million to $420 million a year. The use of a state mandated formulary also would clarify the rules for drug selection, reduce the volume of ancillary services such as drug testing, and reduce administrative expenses for utilization review and independent medical review.

CWCI President Alex Swedlow said he is “aware of discussions” among officials within California’s workers’ compensation system over whether to adopt a mandated formulary.

According to the Insurance Journal, establishing such a formulary in California would not require action from the state Legislature. Instead, it could be done through regulatory changes by the state Division of Workers’ Compensation. Mark Walls, vice president of communications and strategic analysis at Safety National, said insurers are interested in adopting a formulary as a way to drive down costs and stem opioid misuse. However, the system could face opposition from prescription drug manufacturers.