MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session April 11, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:50 a.m., on Tuesday, April 11, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Vance Hughey, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Edward F. Barnard, P.T., President, Nevada Physical Therapy Association Douglas Dirks, General Manager, State Industrial Insurance System (SIIS) Ron Swirczek, Administrator, Department of Industrial Relations (DIR) Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS) Alice Molasky, Commissioner, Division of Insurance, Department of Business and Industry Edward F. Barnard, P.T., President, Nevada Physical Therapy Association, discussed Exhibit C and read his testimony to the committee. He stressed the importance of keeping track of the "days, dollars, and disabilities" which are so important in the workers' compensation program. He stated, "Focusing just on dollars, I am very afraid that the system will discount efficiency of treatment and wind up losing, in the long run, with having an increase in days off work, and increase disability." Senator Townsend asked Mr. Barnard if he would recommend there be an advisory panel to offer advice about the requirements to be listed in the next requests for proposals (RFPs). Mr. Barnard responded professional input is very important to alleviate problems. He commented that in the work session held during the previous week, there were proposals to address the problems with managed care organizations (MCOs) requiring pre- authorization before a claim is accepted. He stated if there had not been physical therapists present at the meeting, there would be more problems in the future. He suggested the professional associations be charged with finding someone who they will make the official representative. Senator Townsend asked Mr. Barnard to put together an advisory group to draft ideas for Douglas Dirks, General Manager, State Industrial Insurance System (SIIS). Senator Townsend asked how the therapists' relationship is with the MCOs. Mr. Barnard stated, generally, things are becoming more clear as the process continues. He commented that at first, the relationship was not as clear, but communication is improving. He stated there is still a problem with judgements, which are medically sound, being authorized on a tight time scale. He indicated the therapists' biggest concern is in regard to paneling; "who gets chosen, who gets de-paneled." He stated there is a hardship for those therapists who are in private practice. Senator Townsend indicated there was a study done in 1989 which illustrated that from 1980 to 1990, lost-time claims went from an average of 9 1/2 weeks to 23 1/2 weeks in Nevada. He stated from 1990 to 1995, there is some evidence that this trend is reversing itself, slightly. He stressed the need for better control of return-to-work programs without affecting the quality of the treatment. Mr. Barnard stated that "outcome" based criteria is the most efficient way, in tandem with the "financial" based criteria, to judge an injured worker. He stated it costs SIIS more in the long run to reopen a case than it does to treat the worker initially and do it completely. He stated if provider "A" is judged a better provider because it sees people less and gets them back to work faster, but the people are not receiving the care needed, then that provider is not, in reality, the best provider. He commented if provider "B" takes more time and is responsible for a better outcome for the patient, it may save the system more money in the long run. He stated functional outcome must be tied with financial outcome. He said there is a danger in looking just at the dollars spent. Mr. Dirks discussed Exhibit D, a presentation by SIIS of the different costs incurred by the system between 1990 and 1994. Mr. Dirks discussed in detail each graph in the exhibit. Senator Townsend asked if there has been a proportional drop in claims to the drop in number of employees with the departure of the self-insureds from the system. Mr. Dirks stated they do not track the number of employees. He explained they may lose one large account, but they may gain a hundred small accounts. He stated the number of claims relative to the number of employers is actually falling. Senator Townsend stressed there has been a lot of time spent on safety. He commented Nevada has 2 1/2 times the average of other western states in claims. He said it is important to compare the number of claims to the number of employees covered by the system. Mr. Dirks stated some of the accounts that have left the system, were those with higher risk factors than some of the accounts replacing them. Ron Swirczek, Administrator, Department of Industrial Relations (DIR), stated he will supply the committee with a compilation of information of Fiscal Years of 1992 through 1994. He stated there is a significant drop in the lost-time claims which is proportional with the self-insureds and SIIS. Mr. Dirks continued with his discussion of Exhibit D. Senator Townsend questioned if the figures on page 1 of Exhibit D under Fiscal Year 1994 includes the $25 million in administrated capitated costs. Mr. Dirks explained it did not. He stated the MCO cost is charged as an administrative expense. Mr Dirks commented "you want to take some portion of the $25 million administrative cost and incorporate it into the Temporary Total Disability (TTD) number... I would not allocate all of the $25 million of the MCO costs purely to the medical category." Mr. Dirks explained page 2 does not include MCO costs. It is purely the cost of health care. Senator Townsend asked if the improvements can be attributed to better management of care or if SIIS is getting control of many things which were not being properly handled in the past. Mr. Dirks explained both are true. He stated that in the past there had been some overutilization. He pointed out that MCOs have made a positive change. The development of self-insureds has contributed to the lowering of expenditures. Senator Townsend stated the usage of chiropractors is for 31 treatments or more. He asked when do the MCOs change from chiropractic treatment to medical treatment. Mr. Dirks explained that prior to MCOs, SIIS would authorize in 15 treatment blocks. If a person needed 16 treatments, they would be authorized for 30 treatments. He stated MCOs tend to authorize for four treatments at a time. Mr. Dirks discussed page 15 of Exhibit D, the SIIS spending by TTD. He discussed page 16 which shows a slight decrease in Temporary Partial Disability (TPD). He stated there has been more early intervention after an injury which changes the impact on TPD. He stated there is a 21 percent reduction in Permanent Partial Disability (PPD). He explained that previously some of the claims had been listed under incorrect categories which inflated the costs under some areas. Senator Lowden asked if Permanent Total Disabilities (PTDs) are ever revisited. Mr. Dirks explained they are revisited because the PTDs are the most seriously disabled. He explained that SIIS is able to request an annual physical examination of anyone who is receiving this benefit. Senator Lowden explained there are people who are able to return to light duty work even though they are permanently disabled. Mr. Dirks explained the PTD category is where there is most likely to be fraud, and where there are the most needy people. He stated SIIS is going to develop a program to make certain that they are getting annual medical evaluations where SIIS believes it is necessary. He stated if people are quadriplegic SIIS will not require them to have ongoing examinations. He said in some cases where the injury is less obvious, then SIIS will ask for periodic examinations. Senator Lowden suggested that even though a person is a PTD, that person may be able to work at a light duty job, which is better, emotionally, for the worker. She illustrated the case of a blind employee who is working and feeling better about himself because he feels productive. Senator Neal asked for an explanation of the last two lines on page 18 of Exhibit D. Mr. Dirks explained there was a backlog of 200 cases waiting to be declared by SIIS as PTDs. He stated that once the decision was made, and the people were approved, they were all put into the PTD category so the expenditures were artificially increased. He pointed out they have taken care of the backlog. Senator O'Connell asked if they could take the industry which is showing the majority of claims and compare them to the industry which has the best safety records then find out what those businesses are doing right, the others might learn from those successes to improve their own records. Cecilia Colling, Assistant General Manager, State Industrial Insurance System (SIIS), commented that the injuries are coded into groups of similar type. This grouping of the injuries allows SIIS to better track what needs to be done to improve the safety records of various industries. Senator Townsend stressed the need to evaluate those industries which are successful in keeping down their accident claims and finding out why they are successful. He asked Ms. Colling to evaluate the programs which work and to see how those successes can be replicated in other industries where they have high injury rates. Senator Neal asked if any companies whose reports show excessive numbers of injury of specific body parts have been targeted by SIIS for safety programs. Mr. Dirks explained the SIIS loss control departments look for employers with the worst history of injury and look at their claims for specific types of injuries. Those companies are evaluated for safety programs by loss control specialists. Mr. Dirks explained page 26 of Exhibit D. He stated the page is devoted to explaining Temporary Total Disability (TTD) duration. He stated the average is 19 weeks. He explained they reviewed a claim and looked at it in the same time frame each year. He stated the claim is used for comparison only as in "apples and apples." He stated to look at a TTD for 1994, it is too early to evaluate. He stated the duration is of the TTD only. He said he needs 3 to 6 months to make an accurate comparison. Senator Townsend referred to page 28 of Exhibit D and asked if Nevada has more construction projects, or if there are more claims because we are less safe than the other states listed. Mr. Dirks stated it is important to look at the economic cycles of the state to accurately determine the answer to that question. Senator Townsend commented in 1990 when the audit was done, Nevada had 2 1/2 times the number of claims than did Washington, Oregon, and Idaho. He indicated the current report shows, that even though the claims are still higher than those states, the ratio has dropped considerably. He asked to track the ratio from the original audit through 1993-1994 to see how the numbers of injuries had changed. Senator Townsend pointed out that page 29 of Exhibit D indicates there are certain things which cannot be paid within 60 days. He asked Mr. Dirks to respond if he is comfortable with the direction SIIS is taking. Mr. Dirks responded the target is to pay 90 percent within 60 days. He indicated 10 percent will always be problem claims. He explained some of the problems in paying bills had been due to the new computer system and the lack of experience in Nevada of the MCOs. He stated those problems are being worked on and this year should be better than last. SIIS has eliminated the problem with the computer system, and the MCOs are becoming more familiar with SIIS regulations. He explained his target is to pay provider bills within 30 days. He explained the new claims system is much more efficient in catching duplicate and triplicate payments. Senator Townsend discussed Exhibit E. He explained the committee has always defined "soft tissue as being range of motion, loss of sensation, or loss of strength. It is defined here, as inflammation of the joint or tendon, and/or a sprain or strain regardless of body location." He asked if different jurisdictions deal differently with soft tissue injuries than they do with remaining portions of PPD. Ms. Colling explained some jurisdictions set up schedules where they do not look at range of motion or soft tissue inflammation. She indicated they use the American Medical Association (AMA) guide which gives percentages of loss in those categories. She indicated the chart in Exhibit E shows the ongoing PPD costs. Senator Townsend asked how much of the $59 million paid is on a schedule and how much has attorney involvement. Ms. Colling stated sometimes the attorney asks for the lump sum to be sent to his office, then he distributes the funds to the injured worker. Mr. Dirks explained SIIS gets a power of attorney signed by the injured worker which directs SIIS to make the payment to the attorney. He confirmed they can only send it to an attorney when they have that power of attorney. Senator Townsend asked if the 1995 figures are available. Mr. Dirks explained he has the February figures. Senator Townsend pointed out that soft tissue awards are two-thirds of the costs of PPD. Mr. Dirks explained the system will not separate the percentage of PPD related to a soft tissue injury. He stated he will have to break those claims apart from a sample of claims to determine what percentage is paid for soft tissue injury. Senator Townsend asked how attention can be focused on the prevention issue. Senator O'Connell asked Mr. Dirks to keep the committee up to date on the backlog situation as it pertains to the injuries revisited, payments, and any other area which may be experiencing backlog. Mr. Dirks explained the backlog in the area of medical payments has been resolved, and the PTD area has been resolved. He explained there has never been any intent on the part of SIIS to delay payments to artificially inflate the cash flow report. He stated he encouraged everything be current before the end of the fiscal year, so that the financial statements had validity to them and did not reflect timing differences. Senator Neal commented about the library of safety material which is available in the Las Vegas office. He asked how often it is updated. Mr. Dirks stated the publications were updated within the past 3 to 6 months. He commented some of them were outdated. He is not aware how often the films are updated. Senator Neal pointed out many of them are very old. Senator O'Connell asked Alice Molasky, Commissioner, Division of Insurance, Department of Business and Industry, about the group- self regulations. Ms. Molasky stated they are working on the draft of the regulations and they are working on a notice of hearing. Senator O'Connell commented: ...on how important it is for us to have the hearings during the times we are in session so that we know what those regulations are, prior to the end of session. Ms. Molasky explained it is the intent to have those hearings and they are required to give a 30-day notice of hearing. Senator O'Connell stressed there is an urgency in having those regulations prior to the end of the legislative session. Senator Townsend commented the notice of hearing should be posted quickly. He recommended that room 119 be used. Ms. Molasky commented she understood the need to schedule the hearing quickly because the room is usually busy. She stated she preferred teleconferencing over holding the hearing in two locations. Exhibit F and Exhibit G were handed out to the committee for information and were not discussed. There being no further business, the hearing was adjourned at 10:30 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor April 11, 1995 Page