MINUTES OF THE

SENATE COMMITTEE ON COMMERCE AND LABOR

Sixty-seventh Session

February 16, 1993

The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Tuesday, February 16, 1993, in Rooms 207-208 of the Cashman Field Complex, Las Vegas, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Sue Lowden, Vice Chairman

Senator Ann O'Connell

Senator Mike McGinness

Senator Raymond C. Shaffer

Senator Leonard V. Nevin

Senator Lori L. Brown

STAFF MEMBERS PRESENT:

Brian Davie, Senior Research Analyst

Linda Krajewski, Primary Secretary

Sheri Asay, Committee Secretary

Frank Krajewski, Senior Research Analyst

OTHERS PRESENT:

Keith Ashworth, Lobbyist, Nevada Power Company

Scott Young, General Counsel, Nevada State Industrial Insurance System

L. Scott Walshaw, Commissioner, Nevada Department of Commerce, Financial Institutions Division

Senator Townsend opened the meeting by introducing Frank Krajewski, Senior Research Analyst, Legislative Counsel Bureau.

Mr. Krajewski expounded on permanent partial disability (PPD) benefits, by referring to his memorandum to the committee (Exhibit C).

Senator O'Connell asked how Mr. Krajewski's proposals were similar to those of other states.

Mr. Krajewski declared in states that use impairment, as Nevada does, in rating unscheduled PPDs, there was a tremendous disparity in the doctors who did the ratings. He also noted various editions of the AMA (American Medical Association) Guide, resulted in variances in costs, and the fourth edition, scheduled out in July, would result in considerably more cost.

Mr. Krajewski continued by stating he believed there were some inherent inequities in a system that based PPD awards solely on impairment. He also declared he found it hard to determine why the PPD award computation figure was raised from point five to point six, in the early eighties.

Senator Townsend asked Keith Ashworth, Lobbyist, Nevada Power Company, if he remembered why the PPD award computation figure had been raised from point five to point six.

Mr. Ashworth stated he did not remember the specific reason.

Senator Townsend asked Mr. Krajewski if he had found any states that rated income benefits for scheduled injuries the same as Nevada.

Mr. Krajewski declared Montana was as close as they were going to get. He also noted there was a great deal of disparity in which guides the various states used to make their ratings.

Senator Townsend noted the committee wrestled last session, and during the interim, on the use of either the third or fourth editions of the AMA Guide, not for PPDs, but for a medical fee schedule. He felt they had decided to inform the agency to use the latest guide available, but counsel had ruled it was unconstitutional for the legislature to delegate that type of authority in statute.

Senator Townsend concluded there should be consistency in determining what edition of the AMA Guide was used throughout all decisions regarding workmens' compensation, not just PPD award decisions.

Mr. Krajewski declared the DIR (Department of Industrial Relations) was notified they were required, by statute, to use the latest edition of the AMA Guide. He further asserted, "It would be my assumption that a managed care organization, and the authorization of managed care, could preclude the use of those guides, if it were so stipulated in statute. That's only an assumption on my part, and we could probably check that with legal counsel."

Senator Townsend felt the committee would be comfortable with that type of approach.

Senator O'Connell inquired whether any states had set into law the criteria from which a doctor must judge a PPD, and the rating of such a settlement.

Mr. Krajewski noted in most cases, the doctors were allowed a great deal of latitude. He added it was his assumption that within a managed care organization, there would be a great deal more control.

Senator O'Connell queried what had been done among the states regarding the criteria for re-evaluations; specifically, as to the times set in law when each one of the criteria had to be re-evaluated.

Mr. Krajewski maintained he had not come across that information in the limited research he had done.

Senator Brown asked if it were out of the question to do comparisons between what was done in other states and what should be done in Nevada regarding PPD ratings.

Mr. Krajewski answered it was not out of the question, and it had actually been done for a Southwest Gas case between California and Nevada. He then, again, referred to Exhibit C, to denote the variance of payment of awards from state to state.

Senator Townsend noted in Utah, a worker qualified for rehabilitation only if the injury was not covered under the ADA (Americans With Disabilities Act), and this would lend itself to a substantial reduction in costs. He wondered how rehabilitation would be balanced against PPD, and what would the public policy be as to PPD versus rehabilitation. He queried if they were in conflict with one another, did they go hand in hand, or were they mutually exclusive of one another.

Mr. Krajewski pointed out he had tried to contact officials in Utah, but he was still waiting for an answer. He stated the difficulties in assessing the impact of the ADA were twofold: first, it was very broadly written, and second, it was very recent, and therefore, " ... it is going to be difficult to predict exactly what the consequences of the ADA are."

Mr. Krajewski added it was erroneous to think the state was trying to save money at the expense of the injured worker. He maintained they wanted to streamline the system to save money, but at the same time ensuring workers' benefits were equal or better than what they were receiving now.

Senator Townsend stated it was easy to measure some of the various items involved in rehabilitation and thus save costs, but, " ... the ones that are harder to measure, of course, are the personal and social impact ... and that's where we have to balance it. There is no point in spending $75 thousand on a rehab (rehabilitation) for an individual, if it is of no benefit to that particular person long-term in their life."

Senator Townsend noted the state paid the same for a pianist who lost a finger and might have his career ruined, as a businessman who lost the same finger and would have little or no effect on his future earnings. He wondered if this was fair.

Senator Lowden introduced the 8th grade class from St. Viator School in Las Vegas.

Senator O'Connell noted SIIS was a hidden tax on everything purchased in the state.

Senator Townsend explained teleconferencing to the students.

Senator Townsend then introduced Scott Young, General Counsel, Nevada State Industrial Insurance System.

Mr. Young explained the information contained in the "DIR Assessment" memo (Exhibit D).

Senator Townsend and Mr. Young participated in a discussion regarding the figures contained in Exhibit D.

Senator Nevin asked what percentage of cases went to hearings.

Mr. Young replied he did not have the figures, but he noted approximately 15,000 hearings were held each year.

Senator Nevin noted even when hearings were held, the losing side more often than not appealed, dragging the process on. He concluded something had to be done to streamline the process.

Senator Townsend queried if an injured worker lost at the hearing level, did he lose his compensation while the case was appealed.

Mr. Young acknowledged there were times when injured workers could be without benefits.

Senator Townsend referred to the subsequent injury fund figure contained in Exhibit D. He wondered whether the passing of the ADA made this fund obsolete, and if it did not, how would the fund be phased in to meet the standards of the ADA.

Mr. Young asserted as SIIS became more experienced with ADA, there might be a substantial reduction or perhaps the total abolition of the subsequent injury fund.

Mr. Young noted both the self-insured and SIIS companies paid into a common fund administered by DIR. Sometimes SIIS withdrew more money than they put in because they tended to be more aggressive in pursuing subsequent injury claims.

Mr. Young continued, if the procedure was changed to allow SIIS to make its own determinations on subsequent injury claims, they would not pay $11 million into the fund, and the money would stay in SIIS' own account, earn income, and SIIS would then issue credits to employers' accounts, if they were insured with SIIS.

Senator Nevin questioned how the guidelines would be set up to make sure the public had faith that SIIS was handling the money correctly.

Mr. Young concluded they would have to solicit from the employer documentation that showed they were aware the employee had a prior condition, or that they kept the worker on after an injury. He continued, " ... and if the worker was then reinjured, we would then have the rating performed that we now have to see how much the cost of the injury went up as a result of that prior injury ... and that would be the credit issued to the employer."

Senator Nevin declared there were, "... too many cooks in the kitchen." This caused unnecessary paperwork and delays.

Mr. Young asserted if they could eliminate the interaction between the two agencies (SIIS and DIR) they could make their credit determinations within a very short period of time.

Senator O'Connell asked if Mr. Young was aware of any states where the governor did not appoint the hearings and appeals officers.

Mr. Young stated he was aware some states handled it differently, but he was not sure of the details. He noted he had heard some states had a pool of administrative law judges that either served initially at the appointment of the governor or they were appointed to the pool and served fixed terms, unless they were removed for misconduct.

Mr. Young added these judges sometimes served a group of different agencies, and he concluded Nevada's system was better because one set of judges heard workers' compensation cases exclusively and thus developed expertise in the field.

Mr. Young continued, the hearing officers in the present system should be declassified, so if there were problems with their performance, they could be held accountable. He noted the appeals officers were already appointed for a 2 year term, and could be removed for cause.

Senator O'Connell asked how Oregon handled the problem.

Mr. Young asserted he had not specifically studied Oregon, but he did remember them having an "expedited hearing section," whereby if the amount of money involved was $1,000 or less, no hearing was held. The worker simply wrote a letter describing the situation, and mailed that in to the hearing officer. The hearing officer made a decision within 30 days based, on this letter plus written material received from the insurer.

Senator O'Connell queried if this could be considered some type of small claims court.

Mr. Young concluded it could be, but wherein small claims court allowed one appeal, he recommended this hearing would be the last stop for the case, due to the small amount of money involved versus the amount of money it would cost to hold appeals hearings.

Senator Nevin noted the hearings and appeals process should not be considered a court, it should be considered a relaxed forum where both sides could come and put forth their arguments.

Mr. Young agreed and said the original goal of workmens' compensation was to have a true "no fault" system where there would be no litigation.

Senator Nevin asserted he had heard from many people who believed they were actually going to court when they were, in fact, only going for hearings. This made many of them feel they needed attorneys.

Mr. Young stated he, too, noticed that, and SIIS tried to educate the workers as to the informality of the hearings.

Senator Brown asked if binding arbitration might be a good alternative.

Mr. Young commented it had been discussed, and thought maybe the PPD ratings would be a good place to institute arbitration.

Senator O'Connell asked if there was a threshold on the PPD ratings.

Mr. Young answered there was none, and the ratings could go from zero to 100 percent.

Senator O'Connell clarified she had meant to ask if there was a threshold on the type of cases that were rated.

Mr. Young explained, " ... under the law, any time there is a possibility of some permanent impairment, a rating is supposed to be scheduled." Ergo, there is no threshold.

Senator Lowden mentioned binding arbitration was very rarely used at present, but she opined it would be used more frequently if PPD awards were given through managed care; and that is why, she believed, managed care could become more costly.

Senator Lowden also declared if both sides were forced to come up with one doctor to decide the PPD award, they would.

Mr. Young concluded the best case scenario would be for a mechanism to be set up whereby the parties would jointly select the ratings physician. He acknowledged problems might occur with workers who were not represented, and who might not know who an appropriate doctor was. In that case, a rotating panel of doctors might be necessary.

Senator Lowden asked if the panel would be selected out of the PPO (preferred provider organization), within the managed care system as it is now.

Mr. Young asserted it could be done either way. The system could have a list of rating physicians that was separate from the PPO, but in most cases the physicians would be the same.

Senator Townsend commented to keep rates down, the rating physicians would have to be chosen from within the managed care group.

Mr. Young agreed. However, if the system did not cover all employers, a backup method would have to be available.

Senator Nevin asked if a person went back to work, was he, in fact, permanently disabled ... even if it was only a partial disability. He wondered if maybe the classifications should be changed to total and partial disabilities and do away with the PPDs totally.

Mr. Young replied, technically, it meant the difference between a disability rating and an impairment rating. He stated a disability rating looked at whether the injury impaired the worker's ability to earn an income while the impairment rating

would be something like if the worker lost a finger, it might not affect his future earnings ability, but he would still be compensated for the loss of the digit because his body had become "impaired." If this example was rated under a disability rating system, the worker would probably not receive compensation.

Senator Brown noted other things, such as hobbies, would be looked into in a tort system, when considering compensation.

Mr. Young agreed and said, " ... in a tort system you would look not only at the loss of earnings, but you would look at the quality of life ... perhaps the disfigurement and the emotional aspect of that. In a workers' compensation system, those are all excluded, even under an impairment based rating ... you simply, basically, have a schedule that ... for the loss of a finger at this joint it's so much money based upon my age and my income."

Senator O'Connell asked if Mr. Young were aware of any objective criteria that PPD ratings could be based on as opposed to varying physician's subjective ratings.

Mr. Young answered only in states that had true schedules of ratings. For instance, in a given injury, like the loss of a thumb, it would be so many dollars or so many weeks of compensation. He noted in the AMA Guides, there were some components of that. As an example, he stated, if a worker had a disc removed, it constituted, automatically, a 5 percent disability. He added where the subjectivity came in would be the rating for loss of sensation and the loss of range of motion.

Senator O'Connell wondered how it was handled in Oregon.

Mr. Young replied he was not familiar with their system, but he could attempt to find out.

Senator Shaffer recessed the meeting for 5 minutes and then reconvened at 10:45 a.m.

Senator

MINUTES OF THE

SENATE COMMITTEE ON COMMERCE AND LABOR

Sixty-seventh Session

February 16, 1993

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Sue Lowden, Vice Chairman

Senator Ann O'Connell

Senator Mike McGinness

Senator Raymond C. Shaffer

Senator Leonard V. Nevin

Senator Lori L. Brown

STAFF MEMBERS PRESENT:

Brian Davie, Senior Research Analyst

Linda Krajewski, Committee Secretary

Sheri Asay, Committee Secretary

OTHERS PRESENT:

Frank Krajewski, Senior Research Analyst, Legislative Counsel Bureau

Keith Ashworth, Lobbyist, Nevada Power Company

Scott Young, General Counsel, Nevada State Industrial Insurance System

L. Scott Walshaw, Commissioner, Nevada Department of Commerce, Financial Institutions Division

Senator Townsend opened the meeting by introducing Frank Krajewski, Senior Research Analyst, Legislative Counsel Bureau.

Mr. Krajewski expounded on permanent partial disability (PPD) benefits, by referring to his memorandum to the committee (Exhibit C).

Senator O'Connell inquired of how Mr. Krajewski's proposals were similar to those of other states.

Mr. Krajewski declared in states that used impairment, as Nevada did, in rating unscheduled PPDs, there was a tremendous disparity in the doctors who did the ratings. He also noted various editions of the AMA (American Medical Association) Guide, resulted in variances in costs, and the fourth edition, scheduled out in July, would result in considerably more cost.

Senator Townsend asked Keith Ashworth, Lobbyist, Nevada Power Company, if he remembered why the PPD award computation figure had been raised from point five to point six.

Mr. Ashworth stated he did not remember the specific reason.

Senator Townsend asked Mr. Krajewski if he had found any states that rated income benefits for scheduled injuries the same as Nevada.

Mr. Krajewski declared Montana was as close as they were going to get. He also noted there was a great deal of disparity in which guides the various states used to make their ratings.

Senator Townsend noted the committee wrestled last session, and during the interim, on the use of either the third or fourth editions of the AMA Guide, not for PPDs, but for a medical fee schedule. He felt they had decided to inform the agency to use the latest guide available, but counsel had ruled it was unconstitutional for the Legislature to delegate that type of authority in statute.

Senator Townsend concluded there should be consistency in determining what edition of the AMA Guide was used throughout all decisions regarding workmens' compensation, not just PPD award decisions.

Senator Townsend felt the committee would be comfortable with that type of approach.

Senator O'Connell inquired whether any states had set into law the criteria from which a doctor must judge a PPD, and the rating of such a settlement.

Mr. Krajewski noted in most cases, the doctors were allowed a great deal of latitude. He added it was his assumption that within a managed care organization, there would be a great deal more control.

Senator O'Connell queried what had been done among the states regarding the criteria for reevaluations; specifically, as to the times set in law when each one of the criteria had to be reevaluated.

Mr. Krajewski maintained he had not come across that information in the limited research he had done.

Senator Brown asked if it were out of the question to do comparisons between what was done in other states and what should be done in Nevada regarding PPD ratings.

Mr. Krajewski added it was erroneous the state was trying to save money at the expense of the injured worker. He maintained they wanted to streamline the system to save money, but at the same time ensuring workers' benefits were equal or better than what they were receiving now.

Senator Lowden introduced the 8th grade class from St. Viator School in Las Vegas.

Senator O'Connell noted SIIS was a hidden tax on everything purchased in the state.

Senator Townsend explained teleconferencing to the students.

Senator Townsend then introduced Scott Young, General Counsel, Nevada State Industrial Insurance System.

Mr. Young explained the information contained in the "DIR Assessment" memo (Exhibit D).

Senator Townsend and Mr. Young participated in a discussion regarding the figures contained in Exhibit D.

Senator Nevin asked what percentage of cases went to hearings.

Mr. Young replied he did not have the figures, but he noted approximately 15 thousand hearings were held each year.

Senator Nevin noted even when hearings were held, the losing side more often than not appealed, dragging the process on. He concluded something had to be done to streamline the process.

Senator Townsend queried if an injured worker lost at the hearing level, did he lose his compensation while the case was appealed.

Mr. Young acknowledged there were times when injured workers could be without benefits.

Mr. Young asserted as SIIS became more experienced with ADA, there might be a substantial reduction or perhaps the total abolition of the subsequent injury fund.

Mr. Young noted both the self insured and SIIS companies paid into a common fund administered by DIR. Sometimes SIIS withdrew more money than they put in because they tended to be more aggressive in pursuing subsequent injury claims.

Mr. Young continued if the procedure was changed to allow SIIS to make its own determinations on subsequent injury claims, they would not pay $11 million into the fund, and the money would stay in SIIS' own account, earn income, and SIIS would then issue credits to employers' accounts if they were insured with SIIS.

Senator Nevin questioned how the guidelines would be set up to make sure the public had faith that SIIS was handling the money correctly.

Senator Nevin declared there were, "... too many cooks in the kitchen." This caused unnecessary paperwork and delays.

Mr. Young asserted if they could eliminate the interaction between the two agencies (SIIS and DIR) they could make their credit determinations within a very short period of time.

Senator O'Connell asked if Mr. Young was aware of any states where the governor did not appoint the hearings and appeals officers.

Mr. Young continued the hearing officers in the present system should be declassified, so if there were problems with their performance, they could be held accountable. He noted the appeals officers were already appointed for a 2 year term, and could be removed for cause.

Senator O'Connell asked how Oregon handled the problem.

Mr. Young asserted he had not specifically studied Oregon, but he did remember them having an "expedited hearing section", whereby if the amount of money involved was $1,000 or less, no hearing was held. The worker simply wrote a letter describing the situation, and mailed that in to the hearing officer. The hearing officer made a decision within 30 days based on this letter plus written material received from the insurer.

Senator O'Connell queried if this could be considered some type of small claims court.

Senator Nevin noted the hearings and appeals process should not be considered a court, it should be considered a relaxed forum where both sides could come and put forth their arguments.

Mr. Young agreed and said the original goal of workmens' compensation was to have a true "no fault" system where there would be no litigation.

Mr. Young stated he, too, noticed that, and SIIS tried to educate the workers as to the informality of the hearings.

Senator Brown asked if binding arbitration might be a good alternative.

Mr. Young commented it had been discussed, and thought maybe the PPD ratings would be a good place to institute arbitration.

Senator O'Connell asked if there were a threshold on the PPD ratings.

Mr. Young answered there was none, and the ratings could go from zero to 100 percent.

Senator O'Connell clarified she had meant to ask if there was a threshold on the type of cases that were rated.

Mr. Young explained, " ... under the law, any time there is a possibility of some permanent impairment, a rating is supposed to be scheduled." Ergo, there is no threshold.

Senator Lowden also declared if both sides were forced to come up with one doctor to decide the PPD award, they would.

Senator Lowden asked if the panel would be selected out of the PPO (preferred provider organization), out of the managed care

as it is now.

Mr. Young asserted it could be done either way. You could have a list of rating physicians that was separate from the PPO, but in most cases the physicians would be the same.

Senator Townsend commented to keep rates down, the rating physicians would have to be chosen from within the managed care group.

Mr. Young agreed. However, if the system did not cover all employers, a backup method would have to be available.

would be something like if the worker lost a finger, it might not affect his future earnings ability but he would still be compensated for the loss of the digit because his body had become "impaired". If this example was rated under a disability rating system, the worker would probably not receive compensation.

Senator Brown noted other things, such as hobbies, would be looked into in a tort system when considering compensation.

Senator O'Connell asked if Mr. Young were aware of any objective criteria that PPD ratings could be based on as opposed to varying physician's subjective ratings.

Senator O'Connell wondered how it was handled in Oregon.

Mr. Young replied he was not familiar with their system, but he could attempt to find out.

Senator Shaffer recessed the meeting for 5 minutes and then reconvened at 10:45 a.m.

Senator Shaffer then introduced L. Scott Walshaw, Commissioner, Nevada Department of Commerce, Financial Institutions Division.

Mr. Walshaw detailed his division's duties and responsibilities.

Mr. Walshaw then highlighted his recent testimony before Senator Bryan's Banking Committee.

Senator O'Connell asked how the proposed chartered, free standing bank would be different from any other bank.

Mr. Walshaw declared it would not be a bank, per se, but a free standing financial institution that would be capitalized by the banking industry, public utilities, certain large private corporations, and hopefully gaming.

Mr. Walshaw added this institution would be making loans to firms, both startups and existing, that commercial banks could not make due to regulatory problems.

Senator O'Connell queried what type of security bond would be given for each depositor's account. She wondered if the state's income would be used as a guarantor for these accounts.

Mr. Walshaw reiterated there would be no depositors, just investors.

Mr. Walshaw declared his division had reached an agreement with the FDIC (Federal Deposit Insurance Corporation) , " ... that for any bank which is not considered a problem bank, that we will do, in the future, independent examinations in lieu of doing joint examinations as we are doing now, with examiners from the Federal Deposit Insurance Corporation."

Senator McGinness inquired whether the federal government would be reimbursing the state for this program.

Mr. Walshaw asserted the additional money would come from increased assessments to state chartered banks.

Senator O'Connell asked how many new people the Financial Institutions Division was going to be hiring to do this extra work.

Mr. Walshaw responded they would be hiring one employee in each of the next two fiscal years.

Senator Shaffer inquired if Mr. Walshaw had any further testimony.

Mr. Walshaw noted since the state had no financial institutions that could be considered "problem institutions", their number one problem dealt with independent escrow companies, several of which were already in receivership.

Senator O'Connell questioned whether any thought had been given to lowering requirements for minority loans.

Mr. Walshaw asserted it was a very complicated issue. He acknowledged there were problems with the two largest banks, First Interstate and Bank of America, but he had been told that the problems had been ironed out. He noted there was a "minor flap" with U. S. Bank, but he was hopeful that, too, was going to be ameliorated.

Senator Shaffer asked Mr. Walshaw if he had any pending legislation.

Mr. Walshaw noted they had four or five pieces of legislation waiting to be introduced. He characterized them as technical changes or housekeeping bills, most of which were generated through the Attorney General's Office.

Senator Shaffer queried if Mr. Walshaw's testimony had been completed.

Mr. Walshaw answered in the affirmative, and there being no further business, Senator Shaffer adjourned the meeting at 11:08 a. m.

RESPECTFULLY SUBMITTED:

P. K. Fredericks,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE:

Shaffer then introduced L. Scott Walshaw, Commissioner, Nevada Department of Commerce, Financial Institutions Division.