In September, Governor Brown signed Senate Bill (S.B.) 863, legislation intended to address steadily increasing workers' compensation costs in the state. The new law, which has been in the works for 3 years, was supported by an unusual coalition of California businesses and workers' groups.

The law increases permanent disability benefits, which declined by 26 percent under the 2004 workers' compensation reforms. But it also provides solid savings for employers, which saw the costs of workers' compensation insurance creep upward from $14.8 billion to $19 billion over the past 2 years. An estimated 12.6 percent increase was projected for the near future.

The new law also addresses other problems that arose out of the 2004 reforms by minimizing delays in medical treatment and improving access to care.

Practice tip

Employers are required to notify workers of their right to obtain independent medical review (IMR); penalties will be assessed against employers that don't do so or don't implement IMR decisions that favor the injured worker.

Reforms under the new law

With the new workers' comp reform law, which takes effect January 1, 2013, permanent disability benefits for employees will increase substantially. The increase is balanced by significant changes in the benefit delivery system that are intended to eliminate costly waste, inefficiencies, and loopholes.

The bill's major reforms address:

Permanent disability. In one of its most important provisions, the law increases aggregate permanent disability (PD) benefits by approximately $740 million per year. The increase will be phased in over a 2-year period and adjusts the formula for calculating the benefit amount so compensation amounts more accurately reflect the loss of future earnings. Other provisions ensure that injured workers will not receive smaller awards than under the existing system.

The new law limits the determination of the extent of permanent disability to the consideration of the nature of the physical injury or disfigurement, the injured employee's occupation, and his or her age at the time of the injury. It eliminates consideration of the individual injured worker's diminished ability to compete in the open labor market or diminished future earning capacity.

These changes to the PD system are not intended to overrule Milpitas Unified School District v. Workers' Comp. Appeals Bd. (Guzman), the new law states. That case established that the presumption that an American Medical Association Guides impairment rating is correct can be challenged.

Independent medical reviews. The law addresses the medical review process, which had become expensive and unwieldy and led to long delays in injured workers obtaining treatment as well as poorer outcomes than necessary.

Under the existing system, when a disagreement about medical treatment issues arises, each side obtains its own medical opinion and argues for its position in front of a workers' comp judge. The new law implements an Independent Medical Review (IMR) process—patterned after the long-standing IMR process used to resolve medical disputes in the health insurance system—to provide independent medical review of healthcare disputes by physicians.

Under this system, an independent medical expert will evaluate medical issues and make a decision about treatment based on standards drawn from the health insurance IMR process, with workers' compensation-specific modifications.

The decision from the IMR process is final and binding on the parties. A review process is available, but it does not allow the second-guessing of medical expertise. Rather, the appeal is limited to circumstances in which there was fraud, conflict of interest, discrimination based on protected classes, or clear mistakes of facts that don't involve medical expertise. The Workers' Compensation Appeals Board will not have the authority to adjudicate medical treatment disputes that are directed to the IMR process.

Medical Provider Networks. The bill streamlines the process of approval for Medical Provider Networks (MPNs) and eliminates some requirements that applied to them. It also limits the reasons employees can use to avoid obtaining treatment within an MPN.

Physicians outside an MPN who know that a patient suffers from an occupational injury will be required to notify the employer within 5 days that the worker is being treated outside an MPN. Failure to notify an employer will affect physicians' eligibility for payment.