By Lisa G. Hannusch, CEO, UniMed Direct & Founder, UR Nation
The Golden State, like Texas, has taken a long and winding road in its quest to control workers’ compensation costs and in its use of utilization review (UR) as a cost containment tool. This article will examine that route, identifying what we’ve learned from that journey that can and should be applied in other states.
California’s Long and Winding Road
After more than 70 years of relative calm on the workers’ compensation front, California legislators and employers were rocked by an earthquake of rising costs in the mid-1980’s. Over the next several decades, a series of reforms were implemented to try to rein in these costs and improve the business climate in the state.
The first reform bill occurred in 1989, when the legislature passed the Margolin-Greene Workers’ Compensation Reform Act. Important for the future of UR was the provision that the primary treating physician had a presumption of correctness in his or her evaluation of the injured worker with respect to matters of medical treatment.
The Introduction of Utilization Review
Yet despite these reforms, California continued to have one of the most expensive delivery systems for its workers’ compensation program in the nation. In addition, between 1993 and 2003, the average ultimate medical cost per indemnity claim in California more than tripled, from $8,876 to $27,197.
A large part of these costs related to the treating provider’s presumption of correctness, which was expanded in 1996 to all claims issues with the Minniear decision. CWCI reported that the impact of this decision caused medical costs to rise even faster.
Consequently, the practice of utilization review was introduced to aid in controlling medical costs. This first go-round in the 90’s took the form of giving general guidelines to claims administrators to include a process that the state could review; have criteria for making decisions; keep to a turn-around time of seven days; and have physicians review treatments before any denials were made.
Although the goal of the early UR program was to avoid medical-legal disputes, unfortunately, this process led to more administrative disputes and lien filings that complicated the system. Employers could challenge the medical necessity of treatment through the administrative dispute process, which put the medical decisions ultimately in the hands of administrative judges.
The overwhelming feeling was that this was an ineffective, expensive, and weak process in overcoming the presumption of the treating physician, especially after the 1996 Minniear decision. In fact, in 1998, The Czarnecki decision held that a utilization review physician report is not admissible and there was no statutorily-established utilization review process.
A 2001 study of the UR process revealed that 36 percent of the payors utilized out-of-state services, 41 percent used in-state services and the remainder was unknown. In addition, the study examined expedited reviews submitted to the Workers’ Compensation Appeals Board (WCAB) and found that 76 percent of the denials were overturned.
The results of this analysis documented considerable variability in the plans and the criteria used by payors and revealed that the current system had significant gaps. Additional components needed to be added, including:
- Focused utilization management;
- Use of explicit evidence-based criteria and availability of guidelines/criteria to providers and patients;
- Ongoing evaluation of effects on costs (including provider burden) and outcomes;
- Clear appeals process; and
- Decreased variability (and increased standardization) in the UR process
Research Studies Also Show Need for Change
In January, 2003, the Workers’ Compensation Research Institute (WCRI) reported that workers’ compensation costs per claim in California continued to grow rapidly, increasing 10 percent per year over the three-year period from 1997 through mid-2000. This growth rate outpaced the seven percent per year increase during the previous three-year period. It was time to go back to the legislative reform drawing board.
In 2004 came new Governor Arnold Schwarzenegger’s challenge in his State of the Union Address, “We must fix the state’s business climate. And we must start with workers’ compensation reform.”
Workers’ compensation costs were once again skyrocketing and perceived as negatively impacting the state’s economic growth. Schwarzenegger threatened that if a meaningful workers’ compensation reform bill was not presented to him by March of 2004, he would take his case directly to the people.
Here Comes a New Industry and More Changes
SB228 was a major step forward that defined UR more extensively as a mandated rather than voluntary process, and created evidence-based guidelines as a standard of presumptiveness. Thisbill was followed quickly by SB899, which introduced MPNs and put the guidelines of the American College of Occupational and Environmental Medicine (ACOEM) in place until the Administrative Director could adopt guidelines.
This change was a significant departure from the treating physician’s presumptive opinions. Now, the law inserted evidence-based clinical guidelines into the decision process. In addition, to ensure timely decisions, the UR process now had to be completed within five days, with few exceptions, or face potential fines.
A key component of this reform was that instead of payors simply having a written process for UR, each payor must file a plan with the state to document compliance with the new rules. Companies raced to get their plans filed and doors opened to support the upcoming flood of UR requests. To date, over 120 plans have been filed in California. Most of these came in in those first few years; however only about half remain active either through consolidation, outsourcing, or no client support.
California-specific guidelines (MTUS) filled in some of the ACOEM gaps in 2007 with its first MTUS edition, using part of ODG to supplement ACOEM. In 2009, it was updated again to include evidence for chronic pain management. ACOEM along with the cap on physical therapy was quite effective in controlling costs. In fact, in 2008 CWCI reported a dramatic decrease in both physical therapy and chiropractic care of over 60%.
The UR process has from the beginning given the option to claims administrators on whether to offer an internal appeal process prior to administrative appeal. Not all companies utilized an internal appeal process; some allowed decisions to go directly to the WCAB. These challenges to a UR determination were heard before the administrative law judges at the WCAB. In addition to being costly and time consuming, this process also produced inconsistent results. After all, workers’ compensation judges were former lawyers, not doctors. They were usually the first ones to state that they did not like having to make medical determinations.
Confusion remained on the role of UR until the pivotal Sandhagen decision came down in 2008. The Sandhagen case made it clear that UR decisions must be done in a timely way to be admissible and that the UR process must be followed before accessing 4062’s dispute resolution. The Sandhagen decision also emphatically endorsed the use of ACOEM not just as presumptive weight but also stated that its intent was to improve the quality of care of injured workers.
The Latest Chapter: Inconsistent Results and SB863
The most recent California workers’ compensation legislation, SB863, created a process of Independent Medical Review (IMR) to replace the process of administrative judges handling appeals. Now, all disputes to a UR determination would be decided by a program set up by the Administrative Director. While it is still too early to tell just how much savings or what improvements, if any, SB863 will bring to the California workers’ compensation system, there have been a few trends worth noting.
The January 2014 report of the California Workers’ Compensation Institute (CWCI) on Medical Dispute Resolution shows that the early effects of MTUS and UR are apparently wearing off, with medical costs on the rise again. The implication is that inconsistent decisions at the WCAB level were driving these costs. It is unknown at this time whether the WCAB was the real driver, or if there is another underlying cause of losing control of medical costs.
The CWCI study did report that 75 percent of all requests for authorization are approved at the initial review level. However, it is not known if this high approval rate is due to providers requesting authorization for care that simply and obviously needs to be performed, or if the process itself is contributing to the high approval rate. More importantly, when a UR case is elevated for review by a physician, the rate of approval is even higher at almost 77%. This means that 93 percent of all treatment requests are approved, leavin only a small percentage of all requests eligible for the IMR process.
Once cases are reviewed by the IMR, 20% are overturned as approvals. With 13,000-15,000 IMRs going through the system, their costs are undoubtedly going to drive up medical cost containment. Each IMR costs the claims administrator between $475 and $740. With the expenses solely borne by the claims administrator whether upheld or not, this kind of volume may have a deterrent effect in denying medical treatment. These decisions will be closely monitored to ensure the intent of the reform is not being overturned through administrative challenges. The costs may outweigh the effects of so many of the cases being upheld, and eventually trend the appeal rates back down.
What’s the Verdict?
Overall the California system appeared to be working in mitigating workers’ compensation costs (especially compared to the projected cost if SB863 was not implemented), yet pain points do remain.
- Mandated UR – Although the process is mandated in California, it is wide open to any procedure that the provider wants to request for authorization. This provision has built in an administrative process with layers for claim handlers and nurses and physicians; however, the CWCI’s most recent study shows that most treatment submitted for review is approved.
- Enforceability – If approval is given upfront, the payors must enforce that approval by paying for the treatment. However, since providers decide what should go through utilization review prospectively, there is still a requirement retrospectively to determine whether treatment was either reviewed prospectively or requires retrospective review.
- Evidence-Based Guidelines – California’s adoption of ACOEM was an important step in gaining consistency in reviews and having an evidence-based clinical guideline for presumption of care. California continues to refine its guidelines by combining multiple evidence-based sources keeping up with treatments under review.
- Clinical Decision Making – Having providers able to seek approval for any treatment and the regulations requiring every request to be tracked against a UR process, increases costs and allows medical decisions to be made by non-clinical staff.
- Shared Administrative Hassles – A system that creates balance for all parties is important in ensuring processes make sense. The California system introduced forms for both providers and claims administrators.
Finally, three important lessons can be learned from the California experience regarding the importance of the following for a successful utilization review process:
- Process. Rules must be established and participants must follow those rules by either filing plans or approving organizations.
- Guidelines. California adopted ACOEM, plus other guidelines, to define evidence-based standards from a clinical research perspective. It taught providers and payors alike what evidence-based decisions meant. If MTUS does not address the treatment, then other evidence that meets this standard must be used.
- Presumption. Guidelines are only good if they are followed throughout the decision-making process. California realized early on that treating physician’s presumption must be replaced with an evidence-based standard. The legislature was concerned that the previous administrative process may not be upholding the standard and inserted an independent process to ensure that this was occurring.
As next steps in the evolution of its utilization review process, California must assess the drivers of growing medical costs and the corresponding high approval rates of utilization review. A system cannot implement administrative burdens and increase costs without realizing a cost benefit. The CWCI warns that system participants should not immediately jump to remove UR, because the sentinel effect of having a control process in place is known to be a cost savings. With strong evidence-based guidelines now in place, ongoing evaluation is needed to ensure that claims administrators are following these evidence-based guidelines and are not falling back into perceived “best practices.” Likewise, more evaluation is needed to determine if providers are simply overburdening the system with unnecessary requests for authorization.
About Lisa Hannusch
Lisa G Hannusch is the founder of UR Nation (www.URNation.org), the industry’s only free resource dedicated to UR discussions and regulatory information. She is also the CEO and owner of UniMed Direct (www.UniMedDirect.com), which provides managed care services to a national customer base including Fortune 100 companies. Under Lisa’s leadership, UniMed Direct has become the leading developer of utilization review workflow software and evidence-based support for managed care operations.
Prior to UniMed Direct, Lisa spent more than 25 years as a health care reformer, insurance executive, and managed care entrepreneur. She has shared her vision and ideas for improving the economics of health care delivery by serving on several boards and committees, including Vice Chair of the American Insurance Association’s Claim Technology Committee. She also serves as an expert witness on health care billing and reimbursement and received national commendation from Louis Freeh, FBI Director, for her work.
Lisa has a unique background over the last 30 years where she has been a part of each facet of the healthcare industry: provider, injured worker, carrier, fraud investigator, software and managed care vendor, insurance regulator and state agency rule and guideline author. She has worked in the medical field within a hospital, urgent care center, pharmacy, and EMS. She has developed drug formularies, fee schedules, UR rules, treatment guidelines and even created the first programs in Texas for compliance audits of health care providers and insurance companies. She furthered her career working at an insurance company managing the medical operations and all back office medical and claim policies, with all supporting technology implementations and maintenance. Her technology background enabled her to design bill review, claim, state reporting, and utilization review systems. She now enjoys putting all of that experience together in supporting her clients at UniMed Direct.
About UniMed Direct
UniMed Direct, the industry’s most qualified and experienced experts support your managed care operations with software and service solutions that drive efficiency through automation and evidence based decisions. Our software, ReviewStat®, the only end to end medical management software for integrated workflows, automated rules, and dynamic reporting tools keeps you compliant, efficient, and poised with information at your fingertips. URAC accredited since 2007, UniMed Direct’s proprietary national peer review panel ensures you can count on us for comprehensive evidence based Decisions that Stick and the Experts to Back You Up®. To learn more about UniMed Direct, contact us at info@unimeddirect.com or visit www.UniMedDirect.com.