Comp in the Capitol: Legislative Audit Advisory Council Members Assess Costs and Potential Solutions Ahead of 2015 Session

The state’s workers’ comp system and its array of expenses were in the spotlight yesterday at a pre-2015 Legislative Session meeting of the Legislative Audit Advisory Council. The purpose of the meeting was to address an audit of workers’ comp costs in the state released February 9th, 2015, and to address the recommendations therein. State agencies and stakeholders on both the labor and business sides of the question testified and were charged with facilitating discussion and making amendments to the system at the administrative level. Representatives from the Office of Risk Management, F.A. Richard & Associates Inc., (FARA) the Louisiana Workforce Commission and the Office of Workers’ Compensation (with new acting Director Patrick Robinson) were all in attendance.

Despite the small group of around thirty spectators and six legislators, the weight of the relatively recent privatization of the ORM, the state of Louisiana’s economy, and the rights and needs of injured workers at large were all felt in the small committee room over the course of the meeting. At issue on the face of the gathering were the audit’s findings, but the complicated political mix of the last several years in the aforementioned state agencies was a significant backdrop.

Back in 2010, Louisiana Commissioner of Administration Angele Davis announced the privatization of claims management and loss prevention services within the Division of Administration’s Office of Risk Management. Following a request for proposals by ORM, the adjusting and management of all property and casualty claims, notably workers’ comp, was outsourced to Mandeville-based FARA.

The process was expected to result in estimated savings of at least $20 million over five years and eliminate 85 jobs from the auspices of state government by moving them over to FARA, which was required to extend offers to the former ORM employees. As of July 1st, 2014, net savings have hit $15.9 million over the first three years of FARA operations, about 70 percent of the contract goal of $22 million in net savings over five years. The $22 million is the net savings anticipated after contract cost, claims and litigation payment savings as well as administrative and other costs savings are figured in, the actual contract goal was set at $50 million and auditors found last year an actual savings equal to $34.2 million.

However, the move to privatize was not without controversy. FARA received additional encouragement to aggressively settle workers’ comp claims in 2013, which added $13.5 million to the $34.2 million total. Further, criticism flew regarding a May 2011 request from ORM Director J.S. “Bud” Thompson to increase FARA’s contracted maximum payment by ten percent, or to $74,930,868 from a previous max of $68,118,971. The request was the result of a provision which allows a one-time contract amendment of up to ten percent by the Office of Contractual Review without concurrence of the legislature. On the heels of the increase came the news that FARA had been sold to Avizent, a national claims and risk management service provider based in Columbus, Ohio. Some have identified the possible circumvention of the legislature, the timing of the sale, andwc audit first chart several other moves as problematic.

All of this occurred under a larger efficiency motive, which has become a louder refrain in recent years as Louisiana now faces a projected $1.6 billion budget shortfall for 2015. Governor Bobby Jindal, who is largely expected to make a bid for the White House in 2016, has attracted national attention as the outright rejection of new revenue sources and heavy use of ad hoc funds in the budget face intense local scrutiny.

Yesterday, the government efficiency backdrop and state budget woes cast a shadow onto the private sector as the Legislative Audit Advisory Council met to discuss a recent audit report assessing workers’ compensation costs in Louisiana. The discussion effectively addressed not just the cost to government associated with workers’ comp claims, despite the committee’s ostensive purpose, and instead extended to larger points of contention in the comp community seeking reforms of the system at large.

The thirteen page report (plus appendices) at issue in the meeting at the Capitol was presented chiefly by Karen LeBlanc, Director of Performance Audit Services. The stated purpose of the report was: “Because of the increase in workers’ compensation costs over the last eight years, [as individual claims have decreased] the purpose of wc audit_state employee over timethis audit is to evaluate workers’ compensation costs in Louisiana and identify ways to control these costs.” The stated conclusions as to the reasons for the high costs were: “unlimited temporary total disability benefits, an increase in the amount of time workers are off the job, the use of an outdated fee schedule to reimburse medical providers, the lack of a prescription drug formulary, and a costly dispute resolution process.”

The main proposed legislative considerations in the audit were “limiting the amount of time individuals can receive temporary total disability benefits” and adopting a drug formulary similar to the Texas system.

Other recommendations to city offices were: disallowing Civil Service injured workers to earn a full salary while on comp by using annual or sick leave; urging the Louisiana Workforce Commission to update the medical fee schedule; encouraging LWC to then “revise the regulations and require that outpatient costs be reimbursed based on its updated fee schedule;” and prompting ORM to start requiring drug testing of employees and using the LWC Second Injury Fund form.

A significant portion of the meeting was spent delineating the details and jargon of the workers’ comp statute for the committee members, who pursued questions on several controversial issues, notably, whether or not TTD was in fact unlimited, whether or not WCRI data and the Oregon Premium Study were the most representative or balanced data sets to use in order to assess the system, how the fee schedule and reimbursement rates affect a worker’s access to care and, employee choice of physician.

Senator Edwin R. Murray, Senator Robert Adley and Representative Julie Stokes were especially vocal, with Senator Murray (a founder of the Governor’s Workers’ Compensation Advisory Council and the legislative policy of only considering comp bills approved by the WCAC) taking pains to point out elements of Louisiana’s workers’ comp system that were not included in the audit.

During Julie Cherry’s (AFL-CIO, WCAC member) testimony, Murray expressed a seeming contradiction in the “high cost” narrative. “The audit report leaves out a major item and that’s the refunds to employers,” Senator Murray said. “Tens of millions of dollars are refunded to employers every year in returned premium.” Cherry added, “Yes, [workers’ comp] is the second most profitable line of business in the state, second to auto insurance. I will say, we’re a very safe state.”

Committee members were also not inclined to avoid direct criticism of several practices within the LWC and ORM. Senator Murray opined, “One other item that’s not included in the audit report but that I happen to believe drives up costs is the slow, actually close to no, action on the part of the Medical Director. When a challenge is made that an employee needs certain medical treatment, it goes to the Medical Director, and in some cases there’s just a flat denial. They require these doctors to produce all kinds of information and I think it really delays the process an awful lot. We need to get the treatment that the employee needs and focus on getting them back to work. If we bring this issue back up the Medical Director ought to be in this meeting.”

The distinction between TTD and supplemental earnings benefits (SEB) and associated limitations occupied a significant portion of Joseph Jolissaint’s testimony, which followed Cherry’s. Jolissaint, a claimant attorney based in Baton Rouge, sought to clarify the relationship between the two types of benefits and address maximum medical improvement, functional improvement and the statutory limitations that exist capping SEB at 520 weeks.

Jolissaint explained, “FARA was brought on board to deal with some of these claims that had been on the books for quite some time…if you look at the projection, it shows TTD benefits, but if you look at the amount attributed to settlement, it’s very low. So it seems, when they were doing these settlements, the value of the settlement was attributed to a TTD payment when it should have been attributed to a settlement. So if you look over a short period of time once FARA got involved, the value of TTD paid seems unusually large…If you give it a few years for complete data, you’ll find that payments for TTD will get much lower.”

wc audit_private employees state to stateOn the issue of TTD and the audit’s proposed legislation of limiting that benefit by a certain number of weeks, Jolissaint explained further and urged caution. “I want to address Senator Adley’s question,” Jolissaint stated, in reference to Senator Adley’s perplexed reaction to the lack of a cap on TTD as per the report. “Temporary total disability payments do not go on indefinitely, the worker receives TTD when he is totally off of work. But he’s going to reach a point in his treatment where the doctor says, ‘this is as good as you’re going to get: MMI.’ At that point, he’s either converted to SEB or termed permanently totally disabled. With SEB…the employer of injury is the best way for the worker to have modified duty, but with the state, that doesn’t happen…the state just will not accommodate them and so they continue to receive SEB as if they were TTD, but those benefits are capped in combination at 520 weeks. What is not capped is PTD but then there’s a social security offset. That’s not shown in this report.”

While this explanation was greeted by some mumbling amongst the witnesses, both the employer/carrier and claimant sides of the aisle largely maintained their peace.

Representing employer concerns was Eddie Crawford, Risk Manager for Brookshire Grocery Company, which operates and self-administers workers’ comp in Louisiana, Texas and Arkansas. His testimony as a business leader was enthusiastically received and Crawford gave numbers to show the state discrepancies identified in the report.

“I’m mainly here just to let you know that I’ve reviewed the auditor’s report and I agree with it,” Crawford said. “We’ve been self-insured in Louisiana since 1993, and we’re self-insured in Arkansas and we self-administer our claims in Texas as a non-subscriber. We’ve got 14,000 employees and I’ve supervised workers’ compensation claims since about 1975 so I’ve been around for awhile. Our experience in average cost per claim in Louisiana has always been higher than our cost in Texas and Arkansas. I came up with the average cost per claim for us from the last four years to present here today. For Texas, our average cost is $3,484.61. Our average cost in Arkansas is $4,855.85 and that includes two of the worst years we’ve ever had for claims in that state. Our average cost per claim in Louisiana, for the same time period, is $6,826.54. About 95 percent higher than Texas. The medical expenses we’ve been talking about here: something has to be done.”

Editor’s Note: The deadline to prefile bills for consideration in the 2015 Legislative Session, which begins on April 13th, 2015 at noon, is April 3rd. Given the exchanges at the meeting yesterday, comp is set to be a contentious issue in the Capitol in the coming months despite the fact that it is a fiscal session.    

 

Image Credits: All charts and graphs above are derived from the state audit report discussed herein.

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