70% of Workers’ Comp Billing Disputes End Badly for California Payers

A performance report on the first five years of California’s independent bill review program reveals that claims adjusters’ billing decisions rarely align with how the state workers’ comp system sees things.

By: Michelle Kerr | April 12, 2019

According to the latest report from the California Dept. of Industrial Relations’ Division of Workers’ Compensation (DWC), more than 70 percent of workers’ comp bills submitted to the state for bill review adjudication are decided in favor of the medical provider disputing the amount remitted by payers.

That means that in seven out of 10 cases, not only are payers on the hook for additional medical costs, they also have to pick up the tab for the review fee.

A look at the first five years

California’s bill review program went into effect in 20013. It established an Independent Bill Review Organization (IBRO) to resolve medical treatment and medical-legal billing disputes in which a medical provider disagrees with the amount paid by a claims administrator after the provider has requested a second review from the payer.

The DWC report covers the program’s first five years, 2103-2017, including the status of cases filed in 2017 that were resolved in the first quarter of 2018. During that time, Maximus Federal Services (the IBRO) received 9,890 applications for bill review.

But … 70 percent?

Sad but true. Approximately one of every six IBR applications is determined to be ineligible for review for a variety of reasons, including non-payment of the review fee. Of the eligible cases reviewed and decided by the IBRO, 71.1 percent were “overturned,” meaning that on top of any amount already paid on each claim, additional reimbursement was due the provider.

We’re not talking about nickels and dimes. Overturned cases resulted in $12.3 million in additional reimbursement for providers during the five-year period reviewed, which includes payer reimbursement of the IBR filing fee.

Which bills are disputed the most?

During the five-year period covered in the report, nearly half of the IBR applications (46.2 percent) were filed in relation to office visits, consultations, and nonsurgical procedures. Hospital outpatient departments and ambulatory surgical centers brought in the second-highest number of applications (17.9 percent). Psychological testing and drug screens are also among the top 20 codes cited.

The largest awards to providers, however, were connected to inpatient procedures. Of the 20 largest awards to providers in 2017, fourteen were for surgeries and other inpatient stays, such as rehabilitation services. The largest award ($136,040) was related to a musculoskeletal condition, while the second highest ($99, 421) involved a bill for a spinal fusion procedure.

Top takeaway for payers

The DWC report includes links to redacted determination letters for the 20 cases with the highest awards in 2017. These letters offer payers a glimpse into what information and resources the IBRO is using to make their decisions.

Payers can save both time and money by understanding IBRO’s decisionmaking process and proceeding accordingly in billing disputes — before a provider has filed an application for IBR.

What the report didn’t address

A deeper dive into the report’s list of the 20 highest awards in 2017 reveals a common thread that employers would do well to take note of. The majority of the billing codes used specify the inclusion of a “complication or comorbidity” or a “major complication or comorbidity.”

It’s widely understood that comorbid factors such as obesity, smoking, hypertension and diabetes can complicate illnesses and injuries, prolong disability durations and drive up medical costs.

The DWC report provides additional evidence that claims with comorbid conditions are costing employers and payers more than they bargained for. Infusing wellness into employer safety programs should be a key goal for employers, regardless of industry or company size. &

Michelle Kerr is Workers’ Compensation Editor and National Conference Chair for Risk & Insurance. She can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.