Audit Penalties Increase, Unpaid Benefits Fall to All-Time Low

Originally published by WorkCompCentral. Authored by Greg Jones

Although claim shops throughout California had the lowest amount of unpaid compensation since the Division of Workers’ Compensation started doing annual audits nearly two decades ago, penalty assessments still increased in 2017.

The division fined four claims shops that failed the preliminary profile audit review a combined $722,182 in 2017, a 63% increase over the $442,547 in penalties handed out to four shops that failed the PAR in 2016.

Total unpaid compensation fell, to $237,186 from $238,502, according to the 2017 Audit Report the DWC published Tuesday. It was the lowest amount of unpaid compensation identified since the profile audit review process started in 2001.

The report also shows little change in the proportion of penalties for late payment of temporary disability benefits, failure to comply with qualified medical evaluator notice requirements and not paying or objecting to medical bills as required.

Penalty assessments increased in 2017 largely as a result of only one company passing the full compliance audit, compared with two companies that passed in 2016. Companies that pass the full compliance audit are assessed penalties only for late or unpaid compensation. Those that fail are assessed all penalties.

The Travelers Cos. Inc. failed the profile audit review, scoring a 1.69697 when a score of 1.51082 or less was needed to pass. The shop scored a 1.43464 on the full compliance audit, for which a score of 1.6788 or lower was considered passing. The company was ordered to pay $11,894 in unpaid compensation and $32,752 in penalties.

Kern County was fined $97,044 and ordered to make good on $41,339 in unpaid indemnity benefits. The county scored a 2.15524 in the PAR and a 1.80517 on the first stage of the full compliance audit. During the second stage of the full compliance audit, Kern County scored a 1.80517.

The division’s report notes that Kern County is appealing the findings. The county’s risk management department didn’t return calls about the audit results on Wednesday.

Corvel Corp. had $31,282 in unpaid compensation to go along with a $225,416 penalty for violations at its adjusting shop in San Diego uncovered during the audit. Corvel scored a 2.00405 on the profile audit review and a 1.88865 during the first stage of the full compliance audit. It scored a 1.92865 during the second stage of the full compliance audit.

Corvel didn’t respond to calls and emails seeking comment Wednesday.

Tristar Risk Management was ordered to pay $47,711 in unpaid benefits and fined $366,970 for violations at its Santa Ana location. The shop scored a 2.80994 during the PAR, a 2.54482 in the first stage of the full compliance audit and a 2.54482 in the second stage of the enhanced review.

That result is in sharp contrast to the audit result for Tristar's Rancho Cordova shop, which scored a 0.58571 during the profile audit review, the eighth-best score in 2017.

Jim Kerr, vice president of claims operations for Tristar Insurance Group, said it was the company’s shop in Santa Ana that failed the audit. He said the Santa Ana office was primarily responsible for handling claims the company picked up with the 2012 acquisition of Risk Enterprise Management, also known as REM.

Kerr said files the DWC audited were mostly transferred to the Santa Ana office from the old REM claims shop in Brea. The claims were still being processed using REM’s software, which Kerr said wasn’t as robust as Tristar’s program.

“It should be noted that about the time of the audit, the files were moved on to our CStar system and into our best practices model, but obviously, the damage was done,” he said in an emailed statement. “The (Santa Ana) adjusting location has been assumed by our Signal Hill Office and therefore no longer exists.”

The division’s report also shows very little change in the percentage of some commonly cited violations, including not complying with QME notice requirements, not issuing timely objections to medical bills and not making a timely first payment of temporary disability benefits.

A review of 2,638 claim files during the 2017 audits identified 1,251 violations of the QME notification requirements. This is down compared to 1,569 violations in 2016 and 1,527 in 2015, but still accounts for about one violation for every other claim file reviewed.

The division has not identified any need to tweak the rules to make it easier for adjusters to comply, spokesman Peter Melton said in an email Wednesday.

He said this category of violations covers several errors with notices that claims adjusters are required to send out. There were several reasons for the violations, he said — mostly claims administrators not complying with changes that went into effect Jan. 1, 2016.

The revised Employee Benefit Manual that went into effect at the start of 2016 includes a sample notice adjusters can use that complies with all the new regulations.

Violations for claims adjusters not objecting to medical bills or paying them on time rebounded after a sharp drop in 2016. The DWC cited 720 violations relating to paying medical bills during the most recent audit, nearly three times the 273 violations cited in 2016 but about on par with the 775 from 2015.

At the same time, the new report shows a moderate drop off in citations for late first payment of temporary disability benefits. However, about one in five of the claims reviewed in each of the last three years had such a violation.

In 2017, the 486 cases in which the first TD payment was late accounted for 18.42% of the files reviewed. In 2016 there were 523 cases with late-paid TD, but the DWC reviewed 2,843 claims that year, meaning the violation was present in 18.4% of files that were audited. DWC auditors found the first TD payment was late in 20.6% of files reviewed in 2015.

Applicants’ attorney Alan Gurvey, managing partner of Rowen, Gurvey & Win in Sherman Oaks, said the statutory maximum 25% penalty on the delayed benefit amount that employers face appears inconsequential.

“In my view, this has undermined the whole system, as there is absolutely no motivation to get things right,” he said. “In fact, there’s probably an argument that it is more cost-effective to get things wrong than right. As interest rates go up and the stock market increases, the insurance companies and self-insured employers can probably make more money out of just not paying benefits or delaying them and holding onto the money than what would ultimately have to be paid after court hearings and a judgment or order to pay.”

Gurvey said that without the motivating factor of stiffer penalties, he doesn’t see much value in the annual audits. He said no one seems to care if one in five benefit payments are delayed or if injured workers don’t receive the advance of permanent disability benefits when they haven’t returned to work within 104 weeks, when TD benefits are automatically terminated.

He said he understands that there are cases with disputed issues in which the question of whether benefits are payable might hinge on conflicting medical reports. But he said that in the absence of legitimate disputes, there’s no good reason to pay late.

“The fact that we have to go to court on both sides to fight these issues is an egregious commentary on the system, and a colossal waste of court time and valuable resources,” Gurvey said. “If I had a dime for every time we go to court and the defense attorney says, 'I don’t know why they didn’t pay the benefits when they should have,' I would be able to compensate all of my clients in a very considerable manner.”