Senate Bill 863 was enacted on August 31, 2012 and signed into law by the Governor Jerry Brown on September 18, 2012. The legislation amends Section 4 of Article XIV of the California Constitution and creates new administrative tasks including the establishment of an Independent Medical Review System and an inventory of certified interpreters for administrative law hearings and for medical-legal evaluations and treatment. It also amended or added many Labor Code Sections. The bill radically changes utilization review procedures, lien procedures and indemnity rates. Litigation should be reduced since the appeals board and court systems have been eliminated as the decision makers on medical treatment issues and medical treatment billing issues. However, at this juncture it is difficult to visualize how the IMR process will work. The following is a synopsis of some of the most pertinent changes.

Labor Code Section 139.32 was added to strengthen the already existing laws contained in Sections 139.3 and 139.31. It addresses conflicts between medical providers and other providers, parties, or representatives and defines what constitutes a financial interest. It generally prohibits cross-referrals, rebates, or financial interests in an entity to whom a referral is made. Violation of this provision is a misdemeanor and carries civil penalties. A carrier or administrator is precluded from paying a provider where there is a known conflict. A determination of compensation issues based on a prohibited referral is void.

Labor Code Section 62.5 was amended to provide funding through the workers’ compensation revolving fund liability for the return to work program established in new section 139.48. Section 139.48 importantly provides for the return to work fund of $120,000,000.00 annually out of the workers’ compensation administration revolving fund. The purpose is to provide supplemental payments for those injured workers whose permanent disability rating is low compared to their loss of earnings. The Administrative Director is charged with setting up the regulations and rules that will be applicable to the program. A determination by the Administrative Director is subject to review at the trial level of the WCAB on the same grounds as prescribed by a petition for reconsideration.

Effective January 1, 2013, Labor Code Section 139.5 requires the Administrative Director to contract with independent medical reviewers to conduct reviews on utilization review issues. The reviewers are not to be associated with any insurer or administrator that conducts business in the State of California. As a stop gap measure until January 1, 2015, the AD can utilize the contracts already in place through the Department of Managed Care. Interestingly, preference is given to California licensed practitioners, however, it is not necessary that the reviewer possess a California license. As of January 1, 2014, a reviewer cannot be a QME.

Labor Code Sections 3201.5 and 3201.7 (the alternative dispute resolution sections) have been amended to broaden those employers entitled to utilize ADR through labor management agreements. The State of California has been specifically added as have self-insureds or JPAs of certain minimum premium size.

Labor Code Sections 3700.1, 3701.3, 3701.5, 3701.7, 3701.8, 3701.9, 3702, 3702.2, 3702.5, 3702.8, 3702.10, 3742, 3744, 3745, and 3746 all entail amendments to the self-insurance provisions. The changes are not extensive but the sections should be carefully reviewed if you are representing an employer or group of employers who are attempting to become self-insured or are in some difficulty because of their program.

Labor Code Section 3702.4 is a new section that will sunset January 1, 2015, and directs CHSWC to conduct an examination of public self-insurance programs and to publish a draft of their findings by October 1, 2013 and a final report on December 31, 2013. The study is to address the costs of administration, the workers’ compensation benefit expenditures, solvency and performance.

The amendment to Labor Code Section 4061 is significant in that it changes the procedure under which a utilization review decision can be challenged. The new 4061 specifically does not apply to an employee dispute of a UR decision which will now be done in accordance with Section 4610. It also does not apply to an injured worker’s dispute of the MPN’s primary care doctor’s diagnosis or treatment recommendations. For an unrepresented injured worker where the challenge is to level of permanent disability or the need for further medical treatment, the panel QME process is the same, except that the employee and employer are allowed to request only one supplemental report each from the QME to correct errors. In the event a supplemental report has been sought by the employer, the employee’s right to start the rating procedure is deferred. Once the supplemental report is secured or the original report accepted either of the parties can submit to the Administrative Director a request for a rating. The request must be made within 20 days and the AD has 20 days to respond with a rating. Either party can request the AD reconsider the rating and the AD has the authority to send the matter back to the doctor for clarification. An administrative law judge is still responsible for reviewing the report to determine whether apportionment is or is not legal.

Under the new Labor Code Section 4062, if an employee objects to an action taken by Utilization Review, the IMR (Independent Medical Review) process, as established by section 4610.5, must be followed. If the employee objects to diagnosis or treatment provided by an MPN doctor, that dispute goes to a second, third, and possibly fourth evaluation through the MPN process pursuant to Sections 4616.3 and 4616.4. This is the process where the fourth evaluation would be by a physician chosen by the AD. All other issues would be subject to a panel.

Labor Code Section 4062.2, applicable to represented injured workers, has been amended to provide that at least 10 days after a request for an examination under Section 4060 or 10 days after mailing of the objection under Sections 4061 and 4062, one of the parties can request a panel. The objection letter need not offer suggestions for an Agreed Medical Examiner but does have to reflect the intention to request a panel. The parties can elect to go to an AME at any time. However once an AME has been agreed upon to determine certain issues, the parties may not go to a panel on those issues without a mutual written agreement to cancel the agreement. Remember that the parties may not use an AME or a panel on the issues governed by referral to the IMR. The effect of the IMR, once it becomes operable, will be to greatly reduce the interim medical issues as the cases progress and radically reduce the need for expedited hearings on treatment issues.

Labor Code Section 4062.3 altered the prior service requirements of medical reports and non-medical items as to AMEs. The new section provides for concurrent service on the opposite party when mailing things to the AME. The 20 day rule is still applicable to QME evaluations.

Labor Code Section 4063 was amended to provide that where an employer has offered a return to work as provided in paragraph 2(b) of section 4650, no advances on permanent disability have to be made by the employer until an award of PD issues. It does not appear that the injured worker has to accept the offered job in order for the delay to be applied to his/her case.

Labor Code Section 4064 requires formal medical evaluations to address all issues except medical treatment issues that are subject to IMR. The section also provides that all comprehensive medical evaluations obtained by any party shall be admissible in any proceeding before the WCAB except as provided in Sections 4060, 4061, 4062, 4062.1 and 4062.2.

Labor Code Section 4066, which provided when an employer filed an application contesting the findings of an AME or PQME the trial judge had to assess the employee’s attorneys’ fees against the employer, was repealed

One of the more important changes in SB 863 is contained in Labor Code Section 4453. Paragraph (8) begins new permanent disability rates for injuries on or after January 1, 2013. The new rates are as follow:
Under 55% – not less than $240.00 or more than $345.00;
55% but less than 70% – not less than $240.00 or more than $405.00;
70% but less than 100% – not less than $240.00 or more than $435.00.

For injuries on or after January 1, 2014, the permanent disability rate will be not less than $240.00 or more than $435.00 regardless of the level of permanent partial disability.

Labor Code Section 4600 was amended, in large part to remove any reference to ACOEM. Sections (d) (1), (3) and (4) include minor language changes that do not change the substance of the law. However, sections (f) and (g) provide for certified interpreters for medical evaluations and for treatment. Subsection (h) provides that there will be no reimbursement for home health care unless recommended by a physician or surgeon as defined in Chapter 5, commencing with Section 2000 of Division 2 of the Business and Professions Code. By definition this excludes chiropractors. Additionally the home health care must be reasonably required to cure or relieve the effects of the injury. Defendant is not liable for home health care services that are provided more than 14 days prior to the date of the employer’s receipt of the prescription.

Section 4603.2 was amended to require medical providers to submit requests for payment with an itemization of services provided and the charge for each, a copy of the report showing the services performed the prescription or referral from the PTP, and evidence of authorization for the services. The sections for processing payment and the time limits for same are not changed. Where an explanation of review was done on a billing nothing further is required where there are further submissions for the same services.

The most significant changes occur in sections (e) (1) through (4). Those sections provide that if there is a dispute about the amount paid, the service provider can request a second review within 90 days from service of the explanation of review. The AD is to develop a form for that request. If the only dispute is the amount of payment and the service provider does not request a second review within 90 days, the bill will be deemed satisfied and neither the employer or the employee shall be liable for further payment. If there is a request for a second review the employer shall respond with a final written determination on each of the items or amounts in dispute within 14 days and pay any undisputed amounts within 21 days of receipt of the request for second review. Time limits may be extended by mutual agreement. Any further dispute by the provider must go to an independent bill review as provided in Section 4606.3.

Labor Code Section 4606.3 was added to provide the procedure for an independent bill review placing the burden on the employer to provide the information regarding the billing, what was paid, the basis for any adjustment, the reason for denial, who to contact, the reviews etc. The AD is also to adopt regulations requiring the use of electronic explanations of review.

Section 4603.4 was amended in paragraph (d) to provide that payment for medical treatment provided or prescribed by the treating physician shall be made with an explanation of review within 15 working days of receipt of the electronic billing. If the billing is contested, the uncontested amount is to be paid with the explanation within 15 working days.

Added to the code was Section 4603.6. This lengthy section provides for the Independent Bill Review process placing on the Administrative Director the obligation to develop the necessary forms, and a fee schedule. Once a second bill review has occurred, if the service provider does not request an IMR within 30 calendar days of service of the second review, the bill shall be deemed satisfied. Conflicts of interest as to the Independent Bill Reviewer are established and similar to those that apply to medical providers. The findings of the Independent Bill Reviewer are final and binding on all parties unless an aggrieved party files with the appeals board a verified appeal. The appeal must be filed within 20 days of the service of the determination. The medical bill review determination is presumed to be correct. The specific grounds for appeal are contained in sections (f) (1) through (5). Interestingly, if the determination of the independent medical bill review is reversed the issue is remanded to the AD for submission to a different bill reviewer. The appeals board and higher courts are precluded from making a determination of the ultimate fact.

Section 4604 now specifies that disputes between the employer and employee are to be determined by the WCAB except as provided in Section 4610.5 (the IMR process).

Labor Code Section 4504.5 was amended making the guidelines set forth in the medical treatment utilization schedule presumptively correct. They may only be rebutted by a preponderance of scientific medical evidence establishing that a variance from the guidelines is reasonably required to cure or relieve the effects of the injury. The section reiterates the limitation on chiropractic, physical therapy and occupational therapy to 24 visits and indicates that the employer can authorize additional visits but that does not waive the limitation for any further extensions which must be expressly re-authorized. The mention of ACOEM was deleted from the section.

Section 4605 was amended to allow the employee to obtain additional consultations and attending doctors at his own expense but that those reports could not be used as the sole basis for an award. Such reports are to be addressed by the authorized treating physician or QME who is to address the reports and indicate agreement or disagreement with the opinions and give the basis for that.

Labor Code Section 4610 importantly addresses the UR process. Again any reference to ACOEM has been deleted from the section. It now provides that UR does not need to be done where the issue is compensability. Once the issue is determined the employer has 30 days to do a retrospective review and the normal statutory time for concurrent or prospective review.

Section 4610.1 now provides that a penalty on medical treatment does not necessarily flow from a decision by the IMR that previously denied treatment was reasonable.

Section 4610.5 changes the UR process. This significant section applies to any disputes over utilization review regarding treatment for injuries occurring on or after January 1, 2013. It also extends the provisions to all dates of injury where the UR decision is communicated to the requesting physician on or after July 1, 2013. All such disputes are limited to resolution through this section. If UR denies, modifies or delays treatment the injured worker can request an Independent Medical Review. The defendant does not have liability for the treatment furnished without authorization unless the IMR overturns the UR decision. The employer has the obligation of providing the IMR with the necessary information. The review can be halted if the defendant agrees to provide the treatment. The injured worker has 30 days after the service of the UR decision within which to request IMR.

Section 4610.6 provides the procedure the IMR is to follow and sets a 30 day time limit for the review to be completed. Where the treating physician or the AD certifies in writing that there is an imminent and serious threat to the health of the employee, the analysis and determination of the reviewer is to be completed within three days of receipt of the information. The determination of the IMR is binding but can be reviewed by a verified appeal filed with the appeals board within 30 days of the date of mailing of the determination. The IMR determination is presumed to be correct and shall be set aside by clear and convincing proof that one of 5 specific grounds apply. If the IMR is overturned the matter goes back to the AD for a further review by a different IMR. Once again neither the appeals board nor a higher court can issue a decision inconsistent with the IMR.

Section 4616, the MPN section, has been amended to provide that starting January 1, 2014, a treating physician shall be included in a network only if at the time he enters or renews he provides a separate written acknowledgement affirmatively electing to be a member of the network. There is also to be an internet posting for all MPNs. The MPNs are to have one or more persons serve as medical access assistants to help injured workers find an available physician of the employee’s choice. There is also a conclusive presumption that an MPN was validly formed upon showing that the AD approved it or that it is deemed approved.

Labor Code Section 4620 dealing with medical legal costs was amended to include subsection (d) providing for interpreters. Section 4622 is the medical legal billing section that has been changed to put in place the new bill review provisions with the provider requesting a second review and then an independent bill review. However, in this instance the appeals board is permitted to try the issue and make a decision.

Labor Code Section 4650 dictates the timing of indemnity payments. It has been amended to provide that permanent disability advances do not have to be made by an employer until an award issues, if the employer has offered the injured work his regular job, modified work or an alternative job within 85% of pre-injury wage. When the award issues the payments are paid retroactively to when they normally would have begun.

Section 4658.5 deals with the job displacement benefits and provides that for dates of injury on or after January 1, 2013, the vouchers will expire two years from the date it was given to the injured worker or five years from the date of injury – whichever is later. It also provides that the injured worker must submit his request for reimbursement with the necessary documentation prior to the expiration date on the voucher. Section 4688.7 provides that for dates of injury on or after January 1, 2013, the voucher has a limit of $6,000.00. It also provides that the voucher cannot be settled or commuted.

Section 4660.1 changes how permanent disability will be rated for injuries on or after January 1, 2013, indicating that there will be no increases in impairment ratings for sleep disorders, sexual dysfunction or psychiatric problems arising out of a compensable physical injury. However, treatment for those problems can be awarded. Psychiatric problems stemming from a violent act or witnessing a violent act or resulting from catastrophic injures can be compensable. It is further provided that the adjustment for future earnings is now removed from the rating string such that the only adjustments to the whole person impairment are for occupation and age. As a token toward removing the FEC adjustment, each impairment rating is to be multiplied by 1.4. The AD is charged with developing a schedule for rating under the new system.

Section 4701 increases burial expense for up to $10,000.00 for injuries on or after January 1, 2013. This doubles the prior rate.

Section 4903 removes subsection (j) that allowed a lien against compensation benefits paid by the Asbestos Workers’ Account.

Section 4903.1 contained in SB 457 was incorporated in the new legislation. It tasks workers’ compensation judges or arbitrators to determine on the basis of filed liens, whether a health care service plan, group disability plan or self-insured employee welfare benefit plan has provided benefits and to protect this interest if such payments were made.

Lien claimants will have to pay a filing fee for liens for costs filed on or after January 1, 2013, and will have to pay an activation fee of $100.00 if their lien is already on file but is addressed at hearings after January 1. No filing fees are payable by health care service plans, group disability insurers, self insurance welfare benefit plans or publicly funded programs providing benefits on a non-industrial basis. The sections covering these provisions are 4903.5 and 4903.6. Section 4903.7 provides that the defendant will pay the lien filing fee together with interest if the lien claimant prevails. The lien claimant is required to make a demand for payment 30 days before filing the lien.

The obligation of the Administrative Director to adopt and periodically revise a medical fee schedule has been augmented by amending Section 5307.1 to provide that maximum reasonable fees shall not be more than Medicare payments with an average statewide geographic adjustment factor of 1.078. There are specific amounts given for conversion factors for dates of service in 2014, 2015, 2016, and 2017. Compound drug products are to be billed at the ingredient level and reimbursed at the MediCare rate.

Section 5307.7 requires the AD to develop a new fee schedule for services provided by vocational experts. Section 5307.8 requires a schedule for the payment of home health care services. Section 5307.9 requires a fee schedule for copy costs. Section 5318 dealing with implantable medical devices, hardware and instrumentation has been repealed.

Section 5703, which addresses what can be received into evidence, has added (j) which provides reports of vocational experts are to be submitted in lieu of live testimony except upon a showing of good cause.

Section 5811 provides that it is the obligation of a party producing a witness who requires an interpreter to provide a qualified interpreter to be paid in accordance with the fee schedule propounded by the AD.

As the above synopsis reflects, many changes have been enacted which will impact daily claims handling and litigation practices. How to handle the ever changing workers’ compensation law will largely depend upon the details and the regulatory implementation of the new laws. As these areas develop we will update you with our experiences and understanding of how the laws actually impact the handling and defense of claims.