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April 15, 2004

Dear John:

Over the past year I have sent you many emails and letters to give you the most up to date information on Workers’ Compensation reform.  As you know, we have reached a critical point in the reform process and things are changing on a daily, if not hourly, basis.

The Workers’ Compensation Conference Committee met and unanimously passed  (6-0) legislation that is now being sent to the Legislature for vote.  The members of this committee are Senate President Pro Tem John Burton, Assembly Speaker Fabian Nez, Senators Richard Alarcn and Charles Poochigian and Assembly Members Juan Vargas and Rick Keene.  I have attached the Conference Report Committee Analysis for the reform package that has just been released.  My team and I have not completed a full analysis, but upon initial review I believe that this legislation, in its current form, follows many themes in “The Garamendi Plan: Bridging the Gap Between Workers and Employers”.  We will be working today and tomorrow to analyze the language and will send our thoughts to you as soon as possible. 

As you know, I’ve worked hard to keep reform of workers’ compensation a priority for California. This issue was driven with substance and knowledge. Now that a solution is near, I want to acknowledge you and the many other people who have worked on the reform process.  Any agreement reached cannot be attributed to just one person.  Without everyone’s input, we could not have moved forward at all. 

Should you have any questions, please feel free to contact Pam Neifert, Deputy Commissioner of External Affairs, at [email protected] or at (916) 492-3611.



Insurance Commissioner


Bill No:          SB 899
Author:          Senator Poochigian

RN:                408533
Report date:   4-14-2004

Workers’ Compensation - SUMMARY 

Restores user funding and specifies use of funding for return to work program; specifies eligibility for return to work program; repeals duplicate supplemental job displacement benefit language; restores vocational rehabilitation program for pre-2004 injuries; authorizes collectively bargained projects on health care integration; requires impartial findings of fact; fully eliminates rebuttable presumption for predesignated personal physician; specifies payment procedures for medical care; revises procedure for obtaining qualified medical evaluation; authorizes provider medical networks, implemented under regulations of Administrative Director of Division of Workers’ Compensation; partially repeals spinal surgery second opinion program; establishes system of independent medical review; deems approval as medical provider networks of health maintenance organizations and health care organizations exhibiting competency in occupational and nonoccupational medicine; limits most temporary disability payments to 104 weeks; provides for capped medical lien filing fee from those filing liens; provides for immediate authorized medical treatment to all workers filing claim forms for occupational injury; revises penalty amounts in cases of unreasonable delay or denial of care or benefits; provides for administrative penalties of up to $400,000 for employers knowingly violating delay/denial laws as general business practice; requires that insurers conduct review of injury and illness prevention program of all new insured employers with experience modification factors of 2.0 or more; replaces present law on apportionment with statement that apportionment of permanent disability is based on causation; requires physicians evaluating permanent disability to assess percentage of disability due to work; makes employer liable only for portion of disability directly caused by injury, restricts accumulated percentage of disability for any body region to 100% over lifetime; requires study of insurance marketplace and rate effects from legislative reform; allows for predesignated physician within group health network

Specifically, the conference committee amendments:

1) Give immunity to entities that appropriately report suspected fraudulent activity

2) Restores User Funding and allows for cost of return to work program to be funded out of user funding. Language prohibits total amount of employer surcharges to exceed amounts reasonably necessary to administer the workers’ compensation program and implement workers’ compensation reform

3) To extent funds are available, and operative as of July 1, 2004, allows eligible small employers (up to 50 employees) to apply for reimbursement for workplace modifications necessary to return injured workers to work.  Program funded from user funding and administrative penalties collected for patterns of unreasonable behavior in delaying or denying workers’ compensation payments. 

4) Repeals duplicate program of supplemental job displacement benefit created in 2003.  (Statute has identical sections in Labor Code 139.5 (repealed herein) and in LC 4658.5, which remains.)  Re-institutes vocational rehabilitation program for injuries occurring on or before December 31, 2003, subject to sunset in 2009

5) Authorizes parties in collectively bargained alternative dispute resolution programs to negotiate occupational and non-occupational health care integration projects involving delivery of medical benefits and delivery of disability benefits.

6) Requires that all workers’ compensation findings of fact be interpreted in an impartial and balanced manner in order that all parties are considered equal before the law

7) Eliminates the rebuttable presumption of correctness for a comprehensive medical evaluation by a predesignated personal physician.

8) Except under allowed contracts, would limit the amounts paid for medical services to the reasonable maximum amounts in the official medical fee schedule in effect on the date of service.  Medical providers would submit an itemization of medical services provided and payment would be made accordingly.

9) Would authorize employers, beginning in 2005, to establish medical provider networks.  States that by providing networks, legislature intends to improve medical care for injured employees by providing them a choice of physicians.  Networks are to be established consistent with standards detailed in the bill, and that were certified by the administrative director, and establishes procedures for injured workers to get care through the networks. The standards would incorporate patient protection provisions from existing health and safety code and labor code, such as adequate numbers and types of physicians and sufficient access.  Networks would be required to provided treatment in accordance with utilization controls established by the DWC.  Provides for disclosure of policies of economic profiling policies, and its uses in utilization review, peer review, incentive and penalty programs, and in provider retention and termination decisions.  Provides that physician compensation may not be structured in order to achieve goals of reducing, delaying or denying medical treatment or restricting access to medical treatment.  Provides that in developing a medical provider network, an employer or insurer shall have the exclusive right to determine the members of their network.  Requires submittal of continuity of care policy to administrative director, and to employees, including in written form if requested.  Requires procedures for continuity of care, including completion of covered services, and procedures for termination of providers.  Provides that establishment of networks would be implemented  under regulations established by Administrative Director, in consultation with the Department of Managed Health Care, and that procedures for making medical provider network modifications are done under AD regulations.

10) Establishes system of independent medical review for requesting resolution of disputed health care service issues.  Provides that independent medical review could be requested by injured workers who have had three physician opinions in the medical provider network that dispute the worker’s request for a medical service.  The standard to be used for independent medical review is identical to that established in ACOEM guidelines or the utilization schedule established by the Administrative Director.  Establishes procedure for applying for IMR review, process for getting assignment of reviewer, and giving applicant discretion of whether reviewer must conduct a physical examination of the injured employee.  Reviewer shall determine whether requested health care service was consistent with injured employee’s specific medical needs, consistent with ACOEM or the Administrative Director’s guidelines.  Where the reviewer finds that the disputed health care services are so consistent, the injured employee may seek the services from a physician of his or her choice, from inside or outside the network. 

11) Health care service plans (Knox-Keene plans) and certified health care organizations shall be deemed approved if they have reasonable numbers of physicians with competency in occupational and non-occupational medicine, as determined by the Administrative Director. 

12) Provides that when the last payment of temporary disability has been made, and regardless of whether the extent of permanent disability can be determined at that time, the employer shall begin payment of reasonable estimates of permanent disability. 

Provides that for single injuries occurring after effective date of bill, that aggregate temporary disability benefits shall not extend more than 104 compensable weeks within a period of two years from the date of commencement of temporary disability payments.  This would not apply for specified conditions for which temporary disability benefit would be capped at 240 weeks within period of five years.  Such list includes: acute and chronic hepatitis B and C; amputations; severe burns; HIV; high-velocity eye injuries; chemical burns to the eyes; pulmonary fibrosis; and chronic lung disease. 

13) Provides that $100 lien filing fee currently charged for each initial lien filed by providers would also be collected from those filing on behalf of providers.

14) Provides that within one day after employee files claim form for occupational injury under Labor Code section 5401, the employer must authorize medical treatment, consistent with ACOEM guidelines or the treatment utilization schedule adopted by the Administrative Director, for the alleged injury and shall continue to provide the treatment until the date that liability for the claim is either accepted or rejected by the employer.  Until the date the claim is accepted, liability for medical treatment shall be limited to $10,000.

15) Present 5814 penalty statute would become inoperative on June 1, 2004 and be repealed on January 1, 2005.  New section would provide that penalty of unreasonable delay or denial would be 25 percent of amount of payment delayed or denied, or $10,000 whichever was less.  In any proceeding under this section, the appeals board shall use its discretion to accomplish a fair balance and substantial justice between the parties.  If, prior to an employee claim of such unreasonable behavior, the employer discovered the practice, the employer could pay a self-imposed 10 percent penalty on the delayed payment, and avoid the larger penalty.  Upon approval of a case settlement document, or upon submission of any issue for determination at a regular trial hearing, it is conclusively presumed that any accrued claims for penalties for unreasonable delay or denial have been resolved unless that issue is presented in the settlement or statement of issues for the trial.  Any increased penalty for unreasonable delay or denial, not including the self-imposed penalty, shall be offset by any automatic increase for late payment under section 4650.  The bill provides for a two year statute of limitations for claiming penalty after payment due date.  Any employer who knowingly violates this section with a frequency indicating a general business practice is liable for administrative penalties of up to $400,000.  Penalty amounts are deposited in the Return to Work fund.

16) The requirement that every workers’ compensation insurer conduct a review of the injury and illness prevention program of each of its insureds within four months of the initial insurance policy term is restricted to those employers with an experience modification factor of 2.0 or greater and extended to within six months of the policy term.  The review may be done by a licensed California professional engineer, certified safety professional, certified industrial hygienist, or another person working under the direction of such professionals. 

17) Present law replaced by language that apportionment of permanent disability is based on causation.  Each physician preparing report on issue of permanent disability must address issue of causation.  For report to be admissible on issue of PD, physician must determine approximate percentage of the PD that was caused by the present work-related injury, and what portion was caused by other factors, including prior industrial injuries.  Employee claiming industrial injury must disclose all previous permanent disabilities or physical impairments. 

18) Employer is only liable for portion of disability directly caused by injury.  Any prior PD awards to employee are conclusively presumed to exist at time of subsequent injury.  Accumulation of all permanent disability for any region of the body shall not exceed 100% over employee’s lifetime except if injury or illness is deemed to be total in character per Labor Code 4662.  Body regions include: hearing; vision; mental disorders; spine; upper extremities; lower extremities; head, face, cardiovascular, respiratory and all other systems.  No single injury may accumulate more than 100% disability. 

19) Completes repeal of treating physician presumption, regardless of date of injury.

20) Requires administrative director to contract, after consultation with Insurance Commissioner, in order to study insurance market and effect of 2003 and 2004 reform legislation on workers’ compensation insurance premium rates.  Final report due January 1, 2006.  Governor and Insurance Commissioner review the results of the study and make recommendations as to appropriateness of regulating insurance rates.  If they determine that rates do not appropriately reflect the savings and timings of savings associated with reforms, they may submit proposals to the Legislature.  Proposals shall take into consideration how rates should be regulated and by whom.  Cost of study up to $1 million paid by insurers on proportionate share of market.

21) Provides that SB 796, the private right of action for enforcement of labor code violations, does not apply to Division 1 and Division 4.

22) Contains severability clause. 


By: Senate Labor and Industrial Relations Committee

Glenn Shor, Principal Consultant

John Garamendi became California’s first elected Insurance Commissioner in 1990.

After serving as Deputy Secretary of the Interior in Washington D.C., he returned to California and was re-elected as Insurance Commissioner in 2002. 

Contact the Commissioner by e-mail: [email protected] or by mail addressed to:  Insurance Commissioner John Garamendi,

California Department of Insurance, 300 Capitol Mall, Suite 1700, Sacramento, CA  95814.

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