Deal Struck On Calif. W.C. Reform

Gov. Gray Davis said at a press conference that the "bipartisan [committee] agreement adopted most of our recommendations." He appeared with Insurance Commissioner John Garamendi, conference committee members and California business representatives. The business community included executives from Costco, which collected 150,000 signatures in support of reform from its customers.

Gov. Davis continued: "Make no mistake, this legislative agreement is not tinkering. It is a major overhaul of the workers' compensation system."

Mr. Garamendi said that "fully 20 percent and as much as 30 percent of the cost of workers' compensation will be eliminated by this reform."

He continued that the workers' comp system has grown exponentially over the last several years, with the major elements being in the medical cost arena, "which has had a 17.6 percent annual inflation rate."

The legislation, he said, "goes directly at that problem."

He said the reforms should save between $5 billion and $6 billion annually beginning next year. In addition, he said, there will be more than $5 billion in one-time savings.

The ongoing savings, he said, are in the pure premium rate?the cost of claims and of administering those claims.

The other sections of the law deal with the past history of workers' comp, which is where the one-time savings are, he said. "Those savings will have a direct impact on the health of the insurance companies, and that will in turn have an impact on premiums," he noted.

Mr. Garamendi said the bill will encourage new insurers and new capacity to enter the state. "In other words, competition will once again return to the California market place, and that, in and of itself, will have a downward impact on rates."

Gov. Davis said his highest priority is jobs, and that the savings from the reform package will encourage more hiring. "Skyrocketing premiums have discouraged employment," he said.

The workers' comp package, he said, will expand use of managed care, create an independent medical review approach for spinal surgeries, and prohibit a doctor from referring a patient to an outpatient surgery center where the doctor has a financial interest.

These are all ideas that came from laws passed in 1999, he said.

Gov. Davis said the committee also accepted recommendations to set outpatient surgery fee schedules; a reduced payment deadline from 60 to 45 days, and penalties for those who do not pay within that period of time.

The reforms, he said, will result in "$3.2 billion in one-time savings in outpatient surgery fees and $900 million in ongoing savings." They will reduce costs directly to employers by $400 million by creating a pharmaceutical fee schedule and the use of generic drugs, he added.

He said the reforms also crack down on fraud, providing more information to "root out those who would scam the system" by certifying medical review companies and claims adjusters. Reforms also will expand the use of alternative dispute resolution by "broadening the number of carve-outs to other industries and encouraging them to find more cost-effective ways of resolving disputes within the workers' comp system."

He added that a list of rates of the top-50 workers' comp insurers will be posted on the Department of Insurance Web site to "encourage consumers and employers to shop around for bargains."

The package was due to go to the Assembly and then the Senate.

"They cannot make any amendments on the floor without it going back to the conference committee," noted David Corum, assistant vice president for the American Insurance Association in Washington.

Mark Sektnan, assistant vice president of AIA's Western Region, said the conference committee was made up of three members from each body?two from the majority party and one from the minority party. The bill went to the committee about three weeks ago.

He said parts of the package are consistent with a plan Mr. Garamendi laid out in April, although this is a first step. Other issues will be hammered out at a later date.

On Tuesday, "many members suggested they would be doing more work on this, including work on the permanent disability system, which is the other cost driver in the system," he said.

He noted that the committee indicated it would like to examine the subjective nature of the system, making sure that people with the same injuries are treated in the same manner.

Nicole Mahrt, AIA director of public affairs, said the association is still sifting through the language but that "we think this is a good first step."

She continued: "We're hopeful that this package is going to bring some relief to employers, and also give insurers the tools they need to properly price the product and to bring costs under control while providing good medical care for injured workers."

According to the Department of Insurance, some of the reforms of the proposed legislation include:

? Establishment of an official medical fee schedule for outpatient surgical centers, indexing it to 120 percent of Medicare.

? Mandatory adoption of interim utilization guidelines governing medical treatments.

? Limits on chiropractic and physical therapy treatments to no more than 24 per claim.

? Dispensation of generic drugs unless a brand name has been specifically prescribed.

? Repeal of the existing vocational rehabilitation statute, replacing it with a new supplemental job displacement benefit for injuries occurring on or after Jan. 1, 2004.

? Increasing the maximum fine for workers' comp fraud from $50,000 to $150,000.