New California WC law: reforms could improve broken system: California is already seeing benefits from the workers' compensation reforms, but it will take proper administration to realize full potential. All eyes will be on Ms. Hoch

Risk & Insurance, Nov, 2004 by Lawrence J. McQuillan

Former University of Texas football coach Darrell Royal observed, "Potential just means you ain't done it yet." Such is the case with the agreement to reform California's workers' compensation system, embodied in SB 899. It holds great promise for employees and employers, but its administration is crucial. Fortunately, Governor Arnold Schwarzenegger understands this.

If strictly interpreted by administrators and appeals judges, injured workers would receive better care and businesses would receive substantial relief from skyrocketing insurance premiums. Together with earlier reforms, SB 228 and AB 227, fairness, consistency and objectivity would be returned to the state's troubled 91-year-old, $17.9-billion workers' compensation system. Many of the key changes, however, hinge on the interpretation of a specific word or phrase and the enforcement of the rules.

It is no coincidence that 10 days after the bill's passage, Schwarzenegger appointed a new administrative director (AD) of the Division of Workers' Compensation, replacing Gray Davis appointee Richard Gannon. In a statement lauding the appointment of Andrea Hoch, Schwarzenegger said, "I have every confidence that Andrea will ensure the reforms ... will be implemented swiftly and properly." He should hope so because the potential savings, estimated at $4-6 billion, depend on it.

Consider the key reforms and potential trouble spots:

Last year's bill, SB 228, requires the AD to establish a medical treatment utilization schedule to reduce medical costs. This schedule guides physicians, limiting inappropriate treatment, and guides judges in the evaluation of medical and legal issues. The AD must approve a schedule by December 1, 2004. Until then, the American College of Occupational and Environmental Medicine (ACOEM) guidelines constitute the presumptively correct standard.

SB 899 mandates that the schedule the AD approves reflect "practices that are evidence-and scientifically-based, nationally recognized, and peer-reviewed." This requirement leaves room for interpretation. We hope that the AD will adopt the ACOEM guidelines, creating more consistent and objective treatment for injured workers.

Another medical reform where the AD will have discretion is the establishment of medical-provider networks for treatment of injured employees, which will reduce costly and litigious "doctor shopping." Employees will now choose a provider from a pool of qualified physicians selected by their employer and approved by the AD.

Employees are guaranteed immediate medical care, an important reform that will improve California's abysmal return-to-work rate. If an employee is dissatisfied with the quality of care after three opinions from within the network, he or she can request an independent medical review from a physician. These physicians are contracted by the AD to work as reviewers. Will reviewers be truly independent? A lot depends on AD oversight.

Lawrence J. McQuillan, Ph.D., is director of Business and Economic Studies at the San Francisco based Pacific Research Institute for Public Policy. Andrew M. Gloger is a public policy fellow at the Institute.

This article was reprinted with permission of California Journal, a nonprofit monthly magazine published by the California Journal Foundation for Research and Education in State Government. For more information on California Journal, please see www.californiajournal.org.