1. SB 863 (De Leon) Workers’ Compensation Reform What happened and why? What does SB 863 mean for us?

2. SB 863 SB 863 became the vehicle of workers’ compensation reform when it was moved from inactive file on August 7, 2012. In mid-August of 2012, the proposed language of SB 863 was criticized by a number of stakeholders in the workers’ compensation community as lacking transparency, proper analysis, and adequate input. Between August 24 th and August 30 th, SB 863 was amended several times. On August 31 st, SB 863 was passed and ordered to engrossing. On September 7, 2012, SB 863 was enrolled and presented to the Governor.

3. SB 863 - Purpose The purpose of SB 863 is to adopt a substantial increase in permanent disability benefits balanced by significant changes in the benefit delivery system to eliminate waste, inefficiency, and other loopholes that result in unnecessary employer costs that go to recipients other than injured workers.

4. SB 863 – Key Elements Permanent Disability Increases permanent disability benefits (for injuries on or after January 1, 2013) Establishes a return-to-work program funded by $120,000,000 annually derived from the Workers’ Compensation Administration Revolving Fund for the purpose of making supplemental payments to workers whose permanent disability benefits are disproportionately low in comparison to earning loss. Eliminates Future Earning Capacity arguments under Ogilvie (for injuries on or after January 1, 2013) Eliminates sleep apnea, sexual dysfunction, and psyche add- ons for purposes of permanent disability ratings (for injuries on or after January 1, 2013) Eliminates the -15%/+15% permanent disability provision (for injuries on or after January 1, 2013)

5. SB 863 – Key Elements Permanent Disability 58 yr old firefighter w/ 50% WPI class 4 coronary heart disease Current: 3.02-50-[5]64-490I-72-78 = 78% or 561.25wks @ $270/wk = $151,537.50 (1/1/2014): 3.02-50-[1.4]70-490I-77-82 = 82% or 625.25wks @ $290/wk = $181,322.50 (19.7% increase) 44 yr old ITC 25% WPI CTS Current: 16.01.02.02-25-[4]31-112H-37-39 = 39% or 194wks @ $230/wk = $44,620 (1/1/2014): 16.01.02.02-25-[1.4]35-112H-41-43 = 43% or 222wks @ $290/wk = $64,380 (44% increase)

6. SB 863 Key Elements Lien Issues Establishes $150 filing fee for liens (to address the estimate 800,000 liens "choking the workers' compensation system) Establishes a time limit for filing a lien based on SB 863 (within 18 months of service) (to address the estimate 800,000 liens "choking the workers' compensation system)

7. SB 863 Key Elements Dispute Resolution Establishes an Independent Medical Review (IMR) process to address utilization review disputes that is based on the model implemented by the Department of Managed Health Care Establishes penalties, fines, and other remedies for delaying the IMR process. There are administrative penalties not to exceed $5,000 for each day that proper notification to the employee is delayed. Such administrative penalties are paid to the WCARF. Establishes an Independent Bill Review (IBR) process to address medical billing disputes

8. SB 863 Other Key Elements Eliminates the ability to double charge for spinal hardware (surgical implants) Adopts fee schedule for ambulatory surgery centers (ASC), home care, and copy services Limits home care liability – employer not responsible for home care services provided more than 14 days prior to the employer’s receipt of the physician’s prescription Establishes stand-alone Medical Provider Networks (MPNs) that, if approved by the Administrative Director, are conclusively presumed valid Eliminates the 25% non-occupational requirement for MPNs Requires MPNs to have “medical assistance” staff to aid injured workers Establishes a prohibition on interested parties in the WC system having a financial interest in another entity to which it is referring a party for services (exemption for claims administrators) (attempts to limit profiteering)

9. SB 863 Impact on RTW Staff For injuries occurring on or after January 1, 2013, the +15%/- 15% provision under LC 4658(e) is eliminated. This means forms DWC-AD 10133.53 (notice of offer of modified/alternate work) and DWC-AD 10118 (notice of offer of regular work) do not need to be completed for injuries occurring on or after January 1, 2013. It does not mean work restriction letters will cease or that employers are not responsible to hold timely, good faith, and well documented interactive process meetings to address work restrictions.

10. SB 863 Impact on RTW Staff Currently, an injured employee is eligible for a supplemental job displacement voucher if the injury causes permanent partial disability and injured employee does not return to work for the employer within 60 days of the termination of temporary disability benefits. The employer shall not be liable if: a) Within 30 days of the termination of temporary disability indemnity payments, the employer offers, and the employee rejects, or fails to accept, in the form and manner prescribed by the administrative director, modified work, accommodating the employee's work restrictions, lasting at least 12 months. (b) Within 30 days of the termination of temporary disability indemnity payments, the employer offers, and the employee rejects, or fails to accept, in the form and manner prescribed by the administrative director, alternative work meeting all of the following conditions: (1) The employee has the ability to perform the essential functions of the job provided. (2) The job provided is in a regular position lasting at least 12 months. (3) The job provided offers wages and compensation that are within 15 percent of those paid to the employee at the time of injury. (4) The job is located within reasonable commuting distance of the employee's residence at the time of injury.

11. SB 863 Impact on RTW Staff For injuries on or after January 1, 2013 an injured worker is entitled to a supplemental job displacement voucher if they sustain permanent partial disability from a work related injury unless the employer makes an offer of regular, modified, or alternative work as defined under LC 4658.1. Requirement: The offer is made no later than 60 days after receipt by the claims administrator of the first report received from either the primary treating physician, an agreed medical evaluator, or a qualified medical evaluator, in the form created by the administrative director pursuant to subdivision (h), finding that the disability from all conditions for which compensation is claimed has become permanent and stationary and that the injury has caused permanent partial disability.

12. SB 863 Impact on WC Costs CEO-RMB staff believes the reform will be essentially revenue neutral (that may change as additional information is received), but achieve permanent disability benefit increases for injured workers (as intended) and potentially reduce litigation. Ultimate costs and savings will depend on how regulations are drafted and how the Official Medical Fee Schedule (used to determine appropriate medical fees) is established. Currently, it does not appear the cost avoidance platforms afforded in SB 863 will significantly impact workers’ compensation inflationary cost trends.

13. SB 863 ProvisionTotal Impact on Claim Cost System ($ millions) Total Impact System % * 2014 Benefit Change$570 a +3.00% Employer Funded RTW PD Enhancement $120+.63% Elimination of +15%/-%15 PD Statute($50) b -.26% Liens($380) c -2.00% Surgical Implants($40) d -.21% ASC Fees($80)-.42% Home Care($50) e -.26% IMR($150) f -.79% Elimination of Ogilvie($105) g -.55% MPN Strengthening -($65) h -.34% Total Estimated Impact 2014 Injuries($230)-1.21% SB 863 Cost Analysis * System wide benefit and loss adjustment expenses estimated at $19 B a Estimate assumes PD rating “add-ons” in the DEU database will be eliminated b Removal of +15%/-15% will result in benefit and loss adjustment expense (LAE) savings (50% of WCIRB estimate) c WCIRB impact lowered $100 M based on contract structure impacting LAE d WCIRB impact dampened pending review of proposed regulations. e Not included in WCIRB evaluation f WCIRB impact lowered $120 M based on contract structure impacting LAE g WCIRB impact lowered $105 M based on contract structure impacting LAE h WCIRB impact lowered $125 M based on CEO-RMB estimate

14. Some of the Unknowns Impact Independent Bill Review (IBR) process will have upon bill review philosophy Impact Independent Medical Review (IMR) process will have upon utilization review Adoption of a resource-based relative value scale (RBRVS)official medical fee schedule (OMFS)