Altering the Workers' Comp System

Altering the Workers' Comp System
Reforms cut costs 60% in just 2 years but a loophole may be delaying necessary treatments for patients
- Tom Abate, Chronicle Staff Writer

Has workers' compensation reform gone too far?

This state-mandated workplace insurance program once gave doctors a free hand to provide injured workers any treatment at any price. The result: waste, fraud and abuse.

In 2003 and 2004, a series of reforms gave employers and insurers -- who pay the bills -- more control over how doctors treat and evaluate patients by making them subject to new rules and reviews.

Those changes have transformed the system. The overall cost of workers' comp has fallen roughly 60 percent in two years, driving down insurance rates by a comparable amount -- in large part because of a 46 percent drop in new claims for workers' compensation.

But since the changes went into effect, injured workers have complained that the new system is so snarled in red tape that doctors sometimes can't provide needed care.

Now Dr. Anne Searcy, medical director for the Division of Workers' Compensation, is echoing at least one aspect of those complaints. As the doctor-in-chief for the state agency that polices this program, Searcy fears that an enforcement loophole may give the new reviews an unfairly tight-fisted tilt.

Critics note that a central feature of the workers' comp reforms was the creation of HMO-like guidelines for what constitutes proper medical treatment for workplace injuries. Lawmakers also created a process, called utilization review, to provide an additional layer of scrutiny over treatment requests. Since the reviews started in 2005, they've been conducted under what amounts to an honor system with no specific penalties for non-performance.

"That's the piece of the puzzle we need to get in place," said Searcy, who believes some patients seeking sensible care have gotten the runaround.

"I'm hearing now where people are having shoulder surgery and not getting physical therapy and ending up with a frozen shoulder," Searcy said.

How extensive is the problem? Searcy estimated that 5 percent of treatment requests may be getting tied up in red tape. Given the size of the system -- perhaps 600,000 cases will be filed this year -- that could affect 30,000 Californians.

The division has been trying to write rules to penalize abuse of the review process but insurers and employers have resisted. State officials, poised to release new penalty proposals, anticipate getting pummeled by payers, who are likely to consider the penalties too tough, and patients, who may see them as too little, too late.

While reviews and penalties may seem arcane, these practices go to the heart of the changes that transformed workers' compensation from a system that cost employers about $24 billion in 2004 to about $10 billion today.

Before the reforms, state law said a physician treating an injured worker was presumed correct. Whatever the doctor ordered, workers' compensation had to provide. But the reforms stripped physicians of that presumption. Instead, the state designated a set of treatment guidelines -- written by the American College of Occupational and Environmental Medicine, better known as ACOEM -- the arbiter of medical necessity.

Lawmakers also created the utilization review process as a safety valve for both sides. Doctors could request treatments not in the guidelines if they had scientific evidence of their efficacy and necessity. Payers could order reviews if they questioned a request.

Mark Webb, vice president for government affairs with Employers Direct Insurance Co. said employers and insurers have opposed penalties because they are trying to defend the heart of the reform from push-back by doctors unaccustomed to being overruled.

"We're looking at this and saying (the guidelines) are presumptively correct,'' said Webb, who wants them to be as powerful as the old presumption that the doctor was right. "We're looking (at the penalties) eroding the presumption that is supposed to be in the guidelines,'' he said.

Trouble is, not everything is written in the book.

"The guidelines are ambiguous or incomplete in many respects,'' said Stanley Zax, chairman of Zenith National Insurance, who is no fan of the old days when physicians ruled.

The Division of Workers' Compensation is working with physicians to decide whether, and how, procedures like acupuncture, which are not currently covered, might be added to the approved list. Meanwhile, doctors complain that insurers and employers are taking advantage of the ambiguity and the lack of penalties in the review process to tie up requests in red tape.

"The old system was appalling,'' said Dr. Darien Behravan, 35, who opened his workers' compensation practice in San Leandro just as new rules were setting limits on fees and the frequency of treatments, things that had made workers' comp a "gravy train" for doctors.

"But the pendulum has swung too far,'' Behravan said, by giving insurers and employers too much power to send any request, however routine, off for review, often by a doctor in another state who will only see the patient's file. The absence of case-by-case penalties for foot-dragging contributes to what he considers to be stupid reviews. Behravan said he's requested epidural pain-relief injections, costing $180, which have been sent for reviews that can cost $200 per hour to process.

San Francisco physician Jerome Franz, 62, treats a few workers' comp cases in a practice dominated by regular patients.

"This (workers' compensation review process) is harder than most of the HMOs we're dealing with in terms of the amount of paperwork my office has to do to get anything done," Franz said.

A case in point is San Francisco police officer Michael Glickman, who seriously injured his back while helping apprehend a suspect in September 2005.

"I know that Mike has a real injury," Franz said.

But after 13 months of requests to see specialists and get second opinions on options up to and including surgery, Glickman has received only oral painkillers and a limited regime of physical therapy.

Shortly before showing a reporter his accumulated paperwork, Glickman got approval for an epidural injection that might shrink the swelling and reduce the pain but the OK had the wrong doctor's name on it, and he'll have to get that corrected to get the shot.

"Since there's no one to make them treat me and punish them if they don't treat me, they really don't have to,'' Glickman said.

The San Francisco Department of Human Resources, which oversees workers' comp claims by city employees, said officials were sympathetic and were working to resolve Glickman's "unique situation," while suggesting that all they'd done was to go by the book.

"The Workers' Compensation unit is required to treat everybody the same way under the laws and the rules of the system,'' said spokeswoman Colby Zintl.

Reform critics cite such examples to argue that the new system is slow and stingy and say much of the money being saved is coming out of workers' hides.

"The gravy train has not stopped," said Behravan, the workers' comp doctor. "It has just shifted from the physician side to the insurance company side."

But David Bellusci, chief actuary for the Workers' Compensation Insurance Rating Bureau -- the San Francisco nonprofit that is the system's numbers keeper -- said the savings appear to be driven by a dramatic reduction in new workers' compensation claims.

"We have 46 percent fewer claims'' after the reforms, said Bellusci. "All other things being equal, that would cut costs by 46 percent."

What would explain the drop? Payers would say the word is out that workers' comp is no longer a pushover. Critics would argue that injured workers, hearing of treatment delays, are shifting work-related injuries to regular insurance if they can.

Payers are happy. Bellusci's figures project that by the beginning of 2007, insurance premiums will have fallen 62 percent, on average, from their January 2004 peak. And despite the drop, his records suggest that insurers should be enjoying their most profitable period ever. In 2005 and 2004, the most recent years for which data are available, they paid out just 31 cents in medical and disability costs for every premium dollar collected. In the early 1990s, when the state regulated workers' comp insurance rates, 66 cents was the target payout, he said.

Carrie Nevans, acting administrative director of the Division of Workers' Compensation, is caught between a rock and a hard place. Her boss, Gov. Arnold Schwarzenegger, considers workers' comp reform his crowning achievement. Nevans echoes business and insurance leaders who say the old system was so bloated there's no way to compare outlays now and then to decide what is fair.

But she and Searcy, the medical officer, have seen evidence that the new reviews, linked to those crucial treatment guidelines, may create an unintended tilt -- unless she gets a stick to help strike the proper balance.

"There's no penalties," Nevans said. "I think we need them."

E-mail Tom Abate at tabate@sfchronicle.com.