SACRAMENTO, CA — As the legislature prepares to debate broad ranging reform of the state’s ailing Workers’ Compensation system, surgery centers, chiropractors and insurers — opposing fee schedules, premium oversight, and other reforms — have contributed over three hundred thousand dollars to Davis’ anti-recall effort:

– On August 21, the state’s second largest private workers’ compensation insurer, gave the “Governor Gray Davis” committee $100,000 and on June 4 Zenith gave $100,000 to the “Taxpayers Against the Recall” committee.

– On August 18, the California Association of Oral & Maxillofacial Surgeons PAC contributed $5,000 to the Californians Against Recall committee.

– On July 25, the Pacific Chiropractic Clinic gave $2,500 to the Governor Gray Davis committee and the Physicians Healthways Medical Corp. gave $5,000.

– On July 21, the Nations Surgery Centers gave $40,000 to the Governor Gray Davis committee and the Pacific Hospital of Long Beach contributed $50,000.

Dramatically increasing workers’ compensation premiums and rampant fraud have led the state legislature to establish a conference committee — scheduled to meet this week — to review nineteen reform proposals.

Key aspects of the workers’ compensation reform debate include: 1) whether cost controls, such as pre-determined fee schedules for outpatient surgeries, will be required; 2) whether alleged fraud, especially due to over-prescription of chiropractic and physical therapy services, will be reined in; and, 3) whether workers’ compensation insurance premiums will be regulated.

“Skyrocketing health care costs are crippling the states’ economic recovery. Oversight of excessive insurance premiums and appropriate cost controls on all players is the key to stability,” said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights. “Special interest surgery centers and insurers are attempting to derail meaningful reform.”

Key reform issues:

Regulation of Workers’ Compensation Insurance Premiums

Under some pending proposals, workers’ compensation insurers are facing oversight of the premium rates they charge to employers. Existing law requires insurers to file their workers’ compensation insurance rates with the Insurance Commissioner and that rates must be adequate to cover an insurer’s losses and expenses. There is no requirement under existing law regarding the minimum or maximum amount at which a rate must be set.

For example, the gross workers’-compensation premiums written by Zenith, the state’s 2nd largest private insurer, increased about 50 percent in the second quarter compared with a year ago. During the same time period, the company reported a net income of $18.4 million during the period, versus $6.5 million in 2002.

SB 191 (Senator Richard Alarcon, D-Sun Valley): This bill requires the Insurance Commissioner to deny workers’ compensation premiums deemed to be excessive. The bill specifies that rates are excessive if they are likely to produce profit that is unreasonably high for the insurance provided or if expenses are unreasonably high in relation to the services rendered.

Fee Schedules

Unlike other physician services under the workers’ compensation system, no fee schedules exist for lucrative outpatient surgery centers. Outpatient surgery center fees are estimated to range from between 300% to 900% of the fees prescribed in the Medicare payment system for the same services. Physician fee schedules under the workers’ compensation program are approximately 117% of Medicare rates. The California Medical Association (CMA) estimates that if physician and outpatient fee schedules were all brought into 120% of Medicare rates, the California workers’ compensation system could save $1.5 billion annually.

Bills to Watch

AB 227 (Assembly Member Juan Vargus, D- San Diego): This bill requires the Administrative Director of the Division of Workers’ Compensation to develop a fee schedule for outpatient surgery services.

SB 228 (Senator Richard Alarcon, D- Sun Valley): This bill repeals fee schedules but mandates that all physician fees, including outpatient surgeries, shall not exceed 120% of Medicare reimbursement rates.

SB 899 (Senator Charles Poochigian, R- Fresno): This bill prohibits physicians from referring patients to outpatient surgery centers in which they or a family member have a direct financial interest.

Utilization Review and Independent Medical Review

Several bills would require the adoption of new utilization review (UR) and independent medical review (IMR) guidelines by which insurers and state oversight agencies would approve, modify or deny requests for treatment of patients by physicians. UR is a system that bases treatment on clinically accepted practice guidelines, generally before a procedure has been rendered. IMR provides a process for which denials of care and other disputed services can be resolved quickly by a panel of independent physicians. Both UR and IMR were adopted by the legislature in 1999 as part of HMO reform.

Bills to Watch

SB 354 (Senator Jackie Speier, D- Hillsborough): Among many other provisions, this bill requires IMR for more than 15 visits to a chiropractor or physical therapist.

SB 757 (Senator Charles Poochigian, R- Fresno): This bill calls for the development of an official system wide utilization schedule.

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