MINUTES OF THE
SENATE COMMITTEE ON COMMERCE AND LABOR
Sixty-seventh Session
February 3, 1993
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Wednesday, February 3, 1993, in Room 227 of the Legislative Building, Carson City, 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, Principal Research Analyst
Frank Krajewski, Senior Research Analyst
P. K. Fredericks, Committee Secretary
OTHERS PRESENT
John Vergiels, Lobbyist, Nevada Physical Therapy Association
Jann Dorman, Physical Therapist, Nevada Physical Therapy Association
Angelo Sakelaris, Registered Physical Therapist, Nevada Physical Therapy Association
Scott Young, General Counsel, Nevada State Industrial Insurance System
(SIIS)
Teresa Rankin, Commissioner, Department of Insurance
Robert Ostrovsky, Nevada Resort Association
Jack Jeffrey, Secretary/Treasurer, Southern Nevada Building Trades
Steve Casey, Walt Casey's Culligan
Danny Thompson, Political Director, AFL/CIO
L. R. Zimmerman, President, CDS of Nevada Bill Champion, Lobbyist, Employers' Coalition
Barbara Gruenewald, Attorney, Nevada Trial Lawyers
Marc Hechter, Assistant General Manager, Administrative Services Division, SIIS
Larry Matheis, Executive Director, Nevada State Medical Association
Allan E. Hanssen, President & C.E.O., Hospital Health Plan
Senator Townsend opened the meeting by inviting the physical therapists who would be testifying to come to the witness table.
John Vergiels notified the committee he would be representing the physical therapists this session, and introduced the two physical therapists who would be testifying for the organization he represents: Jann Dorman, and Angelo Sakelaris. He stated Jann Dorman would be reading from prepared testimony, copies of which were handed out to the committee.
Ms. Dorman introduced herself to the committee and stated, "I want to thank you for the opportunity to speak on these issues and hopefully we can provide you with some assistance in developing managed care proposals for injured workers in Nevada."
Ms. Dorman then read verbatim from her prepared testimony (Exhibit C).
Senator Lowden asked Ms. Dorman what her definition of "willing provider" was.
Ms. Dorman replied if there was a negotiated rate, her organization would like all members (all "willing providers") to be allowed to participate at that negotiated rate.
Senator Lowden continued by asking, "What about utilization review, and accreditation and all the other criteria that you may have to come up with to be on that preferred provider organization (PPO) list or whatever it is?"
Ms. Dorman replied:
Those are the tools of managed care. That's the direct involvement of the buyer in the delivery of services ... and we accept and support your efforts in this direction, and we would expect our members to [be] willing, meaning being able to comply with the criteria that were set forth.
Senator O'Connell inquired how many therapists belonged to Ms. Dorman's association.
Angelo Sakelaris answered he was not positive of the exact number, but although not all physical therapists were members of the association the majority were. He maintained they, of course, were all licensed.
Senator O'Connell questioned whether this managed care proposal was agreed to by a consensus of the members of the association.
Ms. Dorman replied there was, " ... excellent consensus among our members for this proposal."
Senator O'Connell stated she asked the question because she had met with several therapists, but had neglected to ask whether they were members of the association, and the therapists she had spoken with were quite unhappy with the fee schedule. She was trying to ascertain if their feelings had changed or whether or not these people were in fact members of the association. She inquired if Ms. Dorman's association was speaking in "one voice" for all of the members.
Ms. Dorman declared, "We're speaking for the Nevada Physical Therapy Association, and therapists work in many settings. Not all therapists work for therapist owned clinics."
Senator O'Connell questioned, "These are people that have their own clinics?"
Ms. Dorman replied, "The 54 that we were speaking of are therapists who have their own clinics."
Senator O'Connell thanked the witness.
Senator Townsend stated:
I believe one of the references Senator O'Connell is making is to a couple of therapists that wrote us specifically and said that when they went into a fee schedule hearing, they felt that it was set by the department far to high and thereby creating a different problem that they could provide the service at the highest quality for a substan-tially lesser rate ... and that the premium payer was wasting his or her money by paying a higher rate. We thought that, at least the people with whom I spoke after getting this correspondence, was a very responsible thing to do and it set forth, for us, one of the problems with having fee schedules and fee hearings ... and we thought that we didn't identify whether those folks were members of your association, but it does identify a problem and we certainly appreciate their responsibility.
Senator Townsend asked Angelo Sakelaris if he had anything to add.
Angelo responded by stating:
My response is that we have been more or less capped in our fees by the State Industrial Insurance System (SIIS) and that the Department of Industrial Relations (DIR) increases have been minimal. And in fact at the last hearing we went to, as was mentioned in the testimony, we appeared and negotiated a reduced rate, to my knowledge, that was acceptable to most of the members.
Senator Townsend stated he was referring to the fee that was set before they went back in.
Mr. Vergiels pointed out the confusion over fees occurred before the fee schedule was actually set, because the fees eventually came out at $46.13 per visit.
Mr. Vergiels added he was not aware of any disagreement amongst the membership, and what they were saying was wherever that number settles ... if it was $10, the people who wanted to participate, would be allowed to participate, and those who did not, would not. He stated, if the legislature reduced the fee, the association would support some type of across the board reduction.
Senator Townsend notified the committee secretary Senator Nevin would be late arriving because he was testifying at another hearing. He then asked Mr. Sakelaris if he had anything to add.
Mr. Sakelaris reiterated the association's main concern it become a nonexclusive contractual arrangement, and anybody willing to participate, is given that opportunity.
Senator Townsend mentioned he hoped the therapists would discuss this matter at length with the assembly and the administration, and stated he thought they had their work cut out for them, and appreciated them coming forward.
Senator Townsend continued by declaring the committee had ended the previous days work on page 10, and today they would be going over things that were not in the Governor's plan and not in the consensus plan.
Senator Townsend then stated:
... and I believe we were on four, page ten ... required DIR (Department of Industrial Relations) to adopt guidelines establishing standards of care for the provisions of action and benefits to injured employees. This is the interim study [to] remove the provision that requires DIR to adopt regulations for each standard of care clarify that any provisions relating to utilization review must be adopted as guidelines, and not as regulations.
Senator Townsend inquired whether anyone from DIR was present to testify. When the answer was negative, he stated the committee would get back to anything that affects them at a later time.
Senator Townsend continued with the next topic which was Interim Study 25, on eliminating cumbersome pre-conditions of out of state treatment by allowing the insurers authorization. He stated if the out of state medical provider agrees to accept Nevada's medical fee schedule, it is a critical question regarding contracted care.
Senator Townsend asked Scott Young if he had a sense of how he wanted to deal with that. He felt the committee had been traditionally less than thrilled with sending injured workers somewhere else because the costs were sometimes too high. It also disrupted the injured worker's family life, unless they did not feel comfortable in their own communities with the kind of specialties offered. The Senator wanted to know if that was what this was attempting to address.
Mr. Young stated:
Yes in part ... in fact, a lot of the requests that we get for out of state treatment come from the injured workers themselves. And as we discussed yesterday, sometimes it is because the people come to Nevada to work and then when they get injured, they want or need to go back to their family in another state and they want to be treated there ... we don't have any opposition to that, but ... then we have to pay perhaps the full rate in the other state. We try to negotiate with the local provider but that isn't always successful. So what we like to do is still have the flexibility to be able to allow the injured worker to return to their home state, but ... attach a condition to it that the physician who's going to treat them must accept our fee schedule. That does impose some constraint on the injured worker, but ... from our standpoint it's a fair request, because otherwise the cost to the employer and to the system would have been lower had they remained here ....
This provision is also directed at that problem that we talked about yesterday of the people in the boarder areas, like Wendover or Laughlin, who want to go into Arizona or Utah and be treated ... and right now in order to allow that, even on the simplest basis, you have to get permission from one of the internal medical advisers at SIIS (State Industrial Insurance System) and then you have to get permission from a doctor outside of SIIS. So you have to get two doctors' permission just to send somebody over to Salt Lake City if they want to travel there from Wendover.
Senator Lowden commented:
Scott, if you were in a managed care PPO (preferred provider organization) or something like that though, all of them allow for those areas outside of Nevada in those boarder towns. You know in Laughlin ... half of the doctors or more are from Kingman and Bullhead and Phoenix, and so I don't see that as a major problem .... What I perceive as the problem is the injured worker who lives in Kansas ... and they want to go home ... and they want to be taken care of by their doctor back there. And then you need that second opinion ... to see if they can come back to work and you're not getting the feedback you think is correct from Kansas, say, who pays for that person to come back to Nevada to be checked out by a Nevada doctor?
Mr. Young responded if travel were required by the insurer, whether by SIIS or the self insured, the travel costs would be borne by the insurer. "They come up against that sometimes when they want to have people rated and they are in a state that does not use the American Medical Association (AMA) guide system that Nevada uses. It's actually easier to put them on a plane and have them rated by a Nevada doctor, than it is to find a doctor in their own state that is not familiar with those rating guides, to perform the ratings ... so that cost is borne by the insurer."
Senator O'Connell questioned whether this was a common practice in other jurisdictions.
Mr. Young replied he did not know a whole lot about that. He did know it had been enough of a problem in Oregon that there were some law suits that were at least threatened. Oregon had tried to make it a requirement that either everyone had to be treated in Oregon, or the Oregon fee schedule had to be applied outside of the state. He thought it was the latter position that was the subject of the threatened lawsuits.
Mr. Young continued by stating it was SIIS's proposal if a person wanted to go outside the state, he or she could, but the doctor used must abide by the Nevada schedule. If not, the person would have to travel back to Nevada to have be cared for. Therefore, the worker still had a choice, but physicians were not compelled to treat the worker, unless they had agreed in advance to accept the Nevada schedule.
Senator Townsend continued the meeting by moving the committee's attention to item number 3 on page 11: ... remove the enforcement requirements for violations of asbestos abatement statutes and regulations for district attorneys, and return them to DEISH [Division of Enforcement for Industrial Safety and Health]. Allow the division to impose administrative penalty of up to $70,000 for each willful violation, and provide limitations which would prevent principal contractors from transferring license requirements to subcontractors or employees.
Senator Townsend then asked Mr. Young if the previous item was from the interim study, and whether or not SIIS was involved with it or did it come from DIR or DEISH.
Mr. Young replied it was primarily from DIR. The only part he was familiar with was the last part that would prevent contractors from transferring license requirements to subcontractors. The issue SIIS gets into, from time to time, he stated, is when employers try to characterize workers as independent contractors or subcontractors and try to make them pick up their own workers comprehensive insurance. SIIS would support that part of the proposal because it keeps employers from shifting that part of the burden onto the working people.
Senator Townsend questioned if Mr. Young was going to be in Las Vegas during the second week of testimony, when they would be hearing all of the boards. Because he felt:
... it's important that all these contractor issues that SIIS is involved with be notified. We should have the Contractors Board there, we should have AGC [Associated General Contractors of America] there, ABC [American Building Contractors Association] and the builders, and sit them down and say here are our problems in your industry. Here's what's going on. How are we going to solve them? That should be part of our debate.
Mr. Young replied they would be happy to attend the hearings in Las Vegas.
Senator Townsend remarked the hearing would probably be on Thursday afternoon at 1:30, covering professions, occupations and businesses.
Senator Townsend then moved the committee on to a discussion of item number 5, which read:
Revise the method in the law to identify employers with high injury rates by targeting those whose actual and anticipated costs of accident benefits and compensation for their employees exceed 90 percent of the employer's annual premium in at least two of the five most recent fiscal years.
Senator Townsend queried Mr. Young if that were different from the "unfortunate five hundred", and "that kind of identification".
Mr. Young answered it was something Roger Mowbray had spoken about and even though he was not certain, he was under the impression it would target that group more so than the existing statute.
Senator Townsend asked if that was different from Mr. Mowbray's proposal, when he previously testified to the committee, which gave the right to identify the 1 percent to be put automatically into a retrospective rating plan.
Mr. Young stated he thought it was a little different aspect. He thought it was just another approach to identify those companies with the worst safety records. The mandatory retro plan would be aimed at the "worst of the worst" ... those companies that were driving most of the costs up.
Brian Davie drew attention to the fact Mr. Mowbray's proposal was under item number 6 on the sheet under discussion, and items 5 and 6 came out of the previous weeks' loss control presentation.
Senator Townsend continued on with item number 3 regarding classifications, rates and funds:
Authorize the manager of SIIS to give premium rates and revise classification subject to the review of the Commissioner of Insurance. Clarify that the Commissioner has jurisdiction over both premium increases and changes in risk classifications.
Senator Townsend asked Terry Rankin, Commissioner of Insurance, if that was the way she saw things happening if, in fact, the legislature voted to move everything.
Ms. Rankin opined:
The rate filing law for the normal insurers is prior approval with 60 days whether it's a decrease, an increase or what the change of rates is. Then for auto insurance, we do have an advocate that we do have a hearing procedures for.
Under SIIS, the employers can ask for a hearing, and the only thing that we can review is whether the rates are excessive ... if they're too high. If they're too low, it doesn't tell us what to do. In addition, it terms of the risk classifications in the current law, that's left to the manager only unless the way he classifies them doesn't bring in enough income. And if that doesn't generate a contingency fund, then maybe we could say, ' ... no, you have to go back and re-figure the classifications because you didn't bill them enough.' But it isn't tied together the way it is for the normal insurer, so that's the confusion on the law ... because we've discussed it among ourselves in terms of what should be changed.
Mr. Young agreed, and stated items number 1 and 3 were two sides of the same coin. He stated:
The insurance commissioner, under the present law, is able to review the premium increases and any change in the risk classifications. Some of the employers that attend the hearings held by the insurance commissioner want to then turn around and have an appeal to the general manager of SIIS if they don't like the change in the risk classification. The way the existing statute 392 [NRS] is set up, at least in our opinion, the employer should be able to come in and say, `I'm in the wrong classification. I should be in class 8502 instead of 8501.' But they should not be able to come and trigger a hearing in front of the Manager on whether 8501 is an appropriate class, because that's the purview of the insurance commissioner. So this is really a clarification piece to make it clear which range of issues the insurance commissioner hears and which ones the Manager hears so we don't get employers trying to have hearings before both of us.
Senator Townsend inquired of Ms. Rankin:
The focus that we're trying to get is, if we're going to have an insurance company that's going to deal with this, then we want that insurance company to ... have the same kind of relationship with your division, or your department, that any other insurer would have. At that point, where does the classification come in? Does that shift to you, or does it still stay with the general manager?
Ms. Rankin responded:
For normal insurance companies, either through a rate service organization or the insurer itself..for instance, for auto insurance territories. The insurer chooses those and files them with us for approval as either part of a rate filing, or separate for their forms and classifications, if they have that separate from a rate filing. And then we must actively approve it.
We do not do that for SIIS. If they lump electricians and plumbers together ... and it generated the proper amount of income, we would have to leave it that way even though those are totally incompatible risks ... one of them's on ladders and one of them's not .... So, it is not similar to what we are doing with insurers ....
Senator Townsend interrupted and asked, "Okay, so we should leave that then?"
Ms. Rankin continued:
Well, you can have a manager agree to set it, but if you want prior approval ... if you want it to look like an insurance company, you want it filed and approved with us like you do the other insurance companies ... so that we can look at it.
Senator Townsend stated he had no problem with that but he thought the time lag, when an employer feels he or she has been wrongly classified, makes a big difference in an immediate problem.
Ms. Rankin responded:
Well, the individual employer, just like an insurance company, if I say, `I'm really garaged in Reno and you have [me] rated in Carson', or the reverse of that, they would go to the insurance company or file a consumer complaint with us to try and get through the insurance company's system. If he says I'm not a plumber, I'm an electrician.
Senator Townsend inquired if they still had redress, and Ms. Rankin replied they should still be able to go to the manager and tell him he or she is in the wrong class, but the classes should be filed and approved with the insurance commissioner.
Senator Townsend asked Mr. Young to give some insight to item number 5: `Repeal the statutes relating to subsequent injury fund'.
Mr. Young commented several states have repealed their subsequent injury fund provisions, because they felt they were superseded by the Americans with Disabilities Act (ADA). SIIS has suggested the legislature look into the possibility that the ADA also makes Nevada's statutes unnecessary.
Mr. Young added there was a second issue addressed in the standing committee's recommendations ... an alternative provision to abolishing the subsequent injury fund because the ADA would supersede it. It would be to change the fund so SIIS would administer its own fund for its policy holders instead of it going to the Department of Industrial Relations (DIR), because if SIIS did it, it could be done much quicker than if it went through DIR. DIR would still have to administer one for the self insurers unless they came up with their own organization to do it.
Senator Brown inquired if SIIS management had looked into any other implications of ADA.
Mr. Young testified they had, particularly in the impact it might have on rehabilitation, and it appeared rehabilitation might not be necessary, because under ADA, the employer might have to make some kind of accommodations such as light duty available.
Mr. Young added they felt the ADA was deliberately written loosely, without precise definitions and qualifications, and it was anticipated many of the ADA requirements would be set through litigation. At this point, no one could ascertain what the ADA would require from either workers or employers.
Ms. Rankin stated one of the requirements of the subsequent injury fund was the employer having noticed upon hiring that the employee had a permanent disability, thus allowing access to the subsequent injury fund. The ADA would prohibit an employer from asking a worker about a disability at time of employment, but because of a clause in the ADA law, an employer may ask the worker at time of injury if he had been previously disabled, if it hadn't already been noticed.
Ms. Rankin pointed out some states had ruled the duty was on the employer to provide accommodation to injured workers, no matter what the disability. Therefore the return to work programs in these states were a part of the ADA, as seen in Oregon.
Bob Ostrovsky agreed litigation was going to resolve many issues, and stated his organization would like the subsequent injury fund to continue at least through this biennium. He added:
Until then I think it's appropriate that we continue to have the fund and I think we have some procedures to overcome the problem not being able to ask the employee about their disabilities and making requests to access the fund after the injury after we first gain knowledge of it. The proposal that Scott has to break the fund into two halves certainly we would not resist that because as it stands now, self insured employers, which make up a majority of the members of the association, have been subsidizing the system. The system has been paying in less than it actually receives in benefits at the expense of the self-insured employers. So if we wanted to split the fund, that would be fine.
Senator Townsend inquired if that were done, what would happen to the money that was left after it was phased out.
Mr. Ostrovsky replied the money that remained would return to the employers that paid into the fund as a refund. He stated there was an assessment made each year, and that was the way DIR administered the fund.
Senator Townsend continued the discussion of the second part of item number 7. He asked Brian Davie to prepare a chart showing the financial impact if the mandatory deductible is at $250, $400, $500, $750, or $1,000.
Senator Townsend moved the discussion to page 14, item number 3: Require the Nevada Industrial Insurance Act to be construed according to the "plain meaning" of the statute.
Mr. Young testified:
Yes Senator, there's a line of cases in Nevada that I believe goes back to a 1954-55 case: NIC [Nevada Industrial Commission] v. Peck, which holds that workers compensation laws are remedial and they are to be liberally construed to grant benefits rather than to deny them. And that's a common doctrine in most states that I'm familiar with. And I think it arose out of the historical fact that many of the early workers' compensation acts provided rather limited benefits ... and I think the courts felt the necessity to try and expand those benefits somewhat.
Our feeling is that in our present atmosphere, the courts are construing too liberally, and sometimes going beyond the clear legislative intent of the statute. We're recommending that a statute somewhat similar to the New Mexico one be adopted that says that workers' compensation laws aren't to be construed favorably to one side or the other, either to workers or to employers or insurance companies, but that they are to be interpreted according to the clear legislative intent.
We feel that's very important because, as we discussed with the standing committee, if you look at statutes like 616.110 [NRS], that say `No disease of the heart ... can be covered,' you'll find that at times the Supreme Court has found exceptions to that. Now you may want to argue that `110 [616.110 NRS] shouldn't be written the way it is, that there should be coverage for heart cases; and our feeling is if so, than that should be done by the legislature, not having exceptions carved out necessarily by the courts.
I think the other example we gave you was the definition of an accident or an injury. The statute says, again paraphrasing, `an accident or an injury must be an event happening suddenly and violently and producing immediate results.' And yet we frequently find the courts allowing claims to be acceptable where there was no real detectable injury, if you will, in the sense of something happening suddenly, and there was no immediate manifestation. We can have cases, particular with hernia cases, where it's three, four, five months or more later that the hernia manifests, and then we're still required to accept it. Again, it's a policy decision. If you want to have those kinds of claims accepted that's probably appropriate if you decide it ... but when a legislature makes a very stringent statute and then the courts interpret it and liberalize it, we feel that one, it's not the appropriate division of authority under our form of government, and secondly in effect what it does is it causes an evolution of benefits, and you begin to have more and more things covered that were never originally anticipated.
Jack Jeffrey declared the Southern Nevada Building and Construction Trades Council and the Nevada Trial Lawyers both opposed the proposal. he elucidated on item number 7, page 12, concluding it turned around the original intent of the law, and put the burden of proof on the employee in about every case. He stated the original intent was to have the employee give up his right to sue, in return for liberal interpretation of the statute, and the proposal had done away with that assumption.
Mr. Jeffrey also stated he had no problem with employers paying
deductibles, but he did have a problem with employers or anyone else selecting a plan where the employee would have to pay a deductible, since many employees work at low paying jobs.
Senator Brown asked if it would be feasible for a small part of the employers' premiums be required to be deposited into something like a "medical IRA" (individual retirement account). The account could be used by the employee for co-payments for doctor visits, with any amount not used reverting back to the employee upon retirement.
She asked if this would give the employee incentive to consider how much use he or she makes of the co-payment money without putting the burden on the employee to come up with the money when they are injured.
Mr. Jeffrey explained it might be difficult to administer having a separate account for each worker. It is a lot like the problem SIIS is having now with premium reporting ... it is not individualized. They get a lump sum amount.
Mr. Jeffrey repeated he was against anything that sounded like a co-payment on the part of the injured worker. He did not want the amount of money in a worker's pocket deciding the level of health care he or she received.
Senator Townsend noted Steve Casey wanted to testify from Las Vegas (the hearing was tele-conferenced).
Mr. Casey asserted if the employee had to pay a deductible, along with the employer, there would be fewer claims, thus greatly reducing costs to the system.
Senator Brown asked how the system would handle an employee who was injured, and on compensation, thus making less money, who might not be able to come up with the necessary deductible.
Mr. Casey concluded he didn't have a direct answer, but asserted if one looked at most private health plans, the person covered had to pay a deductible, and it was up to the worker to figure out how it was to be paid.
Mr. Casey continued with the assertion if the worker had to pay a deductible, it would be an incentive against injury.
Senator Lowden maintained if there was a no-fault system, it would be difficult to have deductibles for each employee. She inquired if Mr. Casey knew of any states that had employee deductibles.
Mr. Casey said he did not, but added if it was a true no-fault system, without an employee deductible, why was the committee considering an employer deductible.
Senator O'Connell questioned if they did go with employee deductibles, would the system then allow the employee to sue the employer. That seemed to be the trade off.
Mr. Casey replied he was not aware of how that would affect that, but noted if the employee had to pay a deductible, he or she would be much more safety conscious.
Senator O'Connell declared it was a tough choice.
Senator Lowden maintained if the employee was to be penalized for not following a safety program, then that same employee should have the right to sue the employer if a safety program were not available.
Mr. Casey insisted if on was going to have a true no-fault system, there should be an employee deductible as well as an employer deductible.
Senator Townsend asked Mr. Casey if he had the choice of not having workers' compensation insurance, would he drop it because he felt his work place was safe enough, assuming if he were sued, he would be cleared of any wrong doing.
Mr. Casey answered he would probably still have it, just as he has other insurance, to protect against catastrophic events. He asserted it was his understanding SIIS should be for just that ... not for little everyday aches and pains.
Mr. Casey pointed out at his company, their group health insurance had a deductible of $1,000. The company paid $500 of that to the employee who was sick or injured off the job and by raising the deductible to $1000, the company's rates had been substantially reduced. Thus costs were down and the company could pay for all of the employees' health benefits, even half of dependent coverage, after the employee had been with the company for two years.
Mr. Casey noted his last report from SIIS showed his company paid over twice what their claims had been. He stated in dollar figures, he probably would drop the workers' compensation, but for catastrophic events, he would be forced to keep it.
Danny Thompson asserted it seemed like people had lost sight of what industrial insurance was originally set up for. He claimed, "`exclusive remedy' means that an injured worker's `exclusive remedy' is to the system and not to a legal suit."
Mr. Thompson continued the implication was people were out there getting injured on purpose, and that was not the case. When workers got hurt, sometimes it was their fault, and sometimes it was the employer's fault. By requiring an employee to pay a deductible, one might as well go back to the tort system and let injured workers file suit.
He declared the AFL/CIO unequivocally opposed any deductible or co-payment by an employee, and comparing health insurance with industrial insurance was unfair ... they were two different things. He stated workers' compensation actually protected the employer more than the employee because even though the employer was at fault in an accident, the employee could not sue ... making it a true no-fault system.
Mr. Ostrovsky declared his association was not prepared to give up their "exclusive remedy" rights. He noted "exclusive remedy" has worked well across the country and was the appropriate method to handle workmens' compensation issues, in his opinion.
Mr. Ostrovsky addressed Senator Brown's question on setting up separate funds by stating:
... raises a lot of interesting issues but a lot of very difficult ones. Tax, pre-tax, qualified, non-qualified plans, 125 flex plans ... we know all of the tax issues and implications, I think off, the top of my head, because I just thought about it, it probably isn't going to work.
Mr. Ostrovsky commented on Senator Lowden's assertion that both the employee and employer should pay deductibles. He declared it was the heart of the issue ... you can't have the party that has nothing have the same exposure as the party with the deep pockets. He reiterated it came down to "exclusive remedy" and that his association was not willing to give that up.
Mr. Ostrovsky continued regarding managed care and inquired if an injured worker went outside the managed care, or network, would that person be required to pay, out of pocket, any expenses above and beyond what would have been paid by the system.
Senator Townsend answered it was a threshold question and would be tackled when the committee discussed managed care.
Senator Lowden commented regarding page 10, item 5 ... even if a doctor in another state agreed to abide by Nevada's fee schedule, there were extra fees such as transportation expenses that would have to be factored in.
Mr. Ostrovsky agreed, stating sometimes when an injured worker is sent home, they get better sooner, thus saving the system money even when the transportation expenses are factored in.
Mr. Ostrovsky continued by asserting his association supported the concept of the "plain meaning" of the law as proposed by the system. He stated it was an area of difference between business and labor, and spoke about how liberally the statutes should be interpreted on behalf of the employees. Presently, there is a liberal interpretation by the courts, and the language the system had proposed or some modified language would allow the loophole to be closed.
Mr. Casey maintained his idea of a deductible was a shared deductible ... not an either or for the employer or employee.
Senator Nevin inquired if a fireman or policeman on duty would be required to pay this deductible.
Mr. Casey asserted it was an extreme case, but if that was the way the system was set up, then the answer would be yes.
Senator Nevin noted fireman and policeman were injured everyday, thus making it not an extreme case.
Mr. Casey pointed out in that case one would have to come up with a way to identify certain groups of employees who would be exempt from the deductible. He reiterated his main point: if there were a deductible, the cost of claims would go down, and workmens' compensation would only be for catastrophic incidences, not just for normal aches and pains.
Larry Zimmerman called attention back to section 3 on page 14 regarding the "plain meaning" of the law. He stated the Nevada Supreme Court had liberally interpreted the law, as had the lower courts, the appeals officers, the hearing officers, all the way down to the hearing examiners.
Bill Champion agreed with Mr's. Ostrovsky and Zimmerman, and added that his organization wanted the "plain meaning" unequivocally supported even to the point of reversing "Warpinsky and Kelly."
Mr. Champion added his organization would not want the "exclusive remedy" eroded.
Barbara Gruenwald asserted there was a mis-conception regarding the liberal interpretation of the law. She declared it was the claimant's responsibility to convince the judge, to a certainty of over 50 percent, the claim should be accepted. Only if the judge is convinced the evidence is a toss up does "liberal construction" come into the picture. In her opinion, this probably only affected 10 percent of all cases.
Senator Townsend declared the hearing would be moving on to discuss managed care, and introduced Brian Davie.
Mr. Davie stated he would give the committee relevant figures, but it was agreed before that happened, Frank Krajewski would give an overview.
Mr. Krajewski read from prepared text (Exhibit D).
Mr. Davie asserted they had not been able to find another state that had implemented a program like the one the committee was considering implementing, and that managed care was a relative novelty in the workmens' compensation field. Mr. Davie claimed Minnesota had recently implemented a new managed care law, where policy holders could require employees to get treatment with qualified providers. However, the law had gone into effect Oct 1, 1992, and it was too early to use it as an example. He added Arizona and Utah had new laws also, but again it was too early to use them as examples.
Mr. Davie concluded an estimate for the potential financial impact of going to managed care, would be somewhere in the neighborhood of an annual savings of between 10 and 20 percent. He claimed the recent documents provided by SIIS, where they have taken the percentage figures and applied them to their situation, provided the best example he could find. The business plan estimates were revised, and the bottom line was the savings would be approximately $33 million for the remaining three quarters of the year, depending on which ideas under discussion were included in the final managed care package. He claimed this showed substantial savings could be expected with implementation of a managed care system.
Senator Lowden inquired if the $33 million was based on the 10 to 20 percent savings Mr. Davie mentioned.
Mr. Davie replied it was, and SIIS's general assumption was around 17 percent.
Senator Brown inquired whether the $33 million figure could be used to come up with an annual figure.
Mr. Davie answered it would figure out to about an annual figure of $45 million.
Senator Brown inquired how that would impact the $2.2 billion deficit.
Mr. Davie replied he had not worked out the figures, but Senator Townsend declared not to worry, because Marc Hechter, who would be testifying next, would know the answer.
Mr. Hechter stated:
The unfunded liabilities issue is attacked by the presence of managed care in the sense that it reduces the long term cost trend. As those cost trends come down, we can modify, through a simple accounting process, what the unfunded liabilities then become. That's less of a problem than the annual cash flow, and that's what managed care does its best at. As has been indicated, our preliminary estimated range from about $33 million the first year, based on three quarters implementation to anywhere from $45 million to $49 million on an ongoing basis. That directly attacks the cash flow solvency problem which is probably more critical to deal with than worrying about the future unfunded liabilities. That, in of itself, gets mitigated as the cash flow is healed.
Senator Nevin drew attention to the fact that the city of Henderson had just gone self-insured, and declared it was hard to put numbers on the problem when so many are leaving the system. He declared with so many leaving, the premiums paid by the remaining members would have to be raised, so the cash flow problem would increase again.
Mr. Hechter replied:
Well, to not mix issues, self-insurance is a problem for us only because as a result of the rate suppression during the 1980's the amount of reserves that we are holding are insufficient to pay claims that were incurred in those times. As self-insured, in the more recent years, become self-insured they obviously leave us with un-funded claims. Now clearly, that's a problem but we also have 42,000 active policy holders and there are just over 200 self-insured employers. The issue of managed care and restructuring the system is critically important, not withstanding the degradation to self-insurance. And, in fact, as the system is restructured and improved and as these things go into effect, we anticipate that some of those self-insures will return to the system. In fact we are already in negotiations with several existing self-insures to return to the system.
Senator Nevin questioned whether SIIS was talking to self-insured companies to return to the system now, with the poor shape the system is in, and inquired if they would get a "better buy" than being self-insured.
Mr. Hechter answered they were talking about having the companies return but they would not be getting a "better buy"... they would have to buy their claims back in as part of the process. He remarked that in many cases it was more efficient to return to SIIS. Certain things had to be considered when going self-insured: net worth requirements, body of capacity, retaining internal reserves, etc. He felt all self-insurance was a cash flow basis of insurance, and it would be dangerous if claims were run up in the early years. That five and seven year tail to pay (that SIIS has problems with) was still there.
Senator Lowden called attention to the fact that it was both Henderson and Sparks who were leaving the system. She also inquired if companies who had left the system and left claims behind, were assessed for those claims.
Mr. Hechter replied with an adament no. He claimed there was a misconception they would be assessed as they left, but that was not the case. He stated SIIS kept the claims at whatever their loss cost trends were and would keep paying for them until they were closed.
Senator Lowden inquired if the self-insurers paid anything into that.
Mr. Hechter answered nothing but their normal premium, and with the rate suppression that had been in effect since the 1980's, the reserves were insufficient to pay all of the claims.
Senator Townsend asserted Sparks voted to apply to the commissioner of insurance for a certificate of self-insurance, which the commissioner granted. The city of Henderson had just recently voted to apply but had not yet actually applied.
Senator Townsend requested Mr. Hechter work with the Legislative Council Bureau in getting a range of what the bill would do to SIIS's cash flow and unfunded liability, using the $2.2 billion figure.
Mr. Hechter agreed to work with Mr. Davie and Mr.Krajewski to develop the numbers the committee needed.
Bob Ostrovsky returned and declared the companies that had left the system early to become self-insured, especially in the early 1980's, had obtained a refund from SIIS in years following. He understood these companies left behind a substantial sum of money to pay the tails of the remaining claims. Regarding companies that left more recently, he declared:
I think to a large extent it depends on how long they were in the system to start with. You have to make some assumption about whether the premium weights were correct in prior years ... which were supposed to contain an element for reserve and run-out of those claims. I suppose there could be some argument if someone was in the system for a short period of time, then left the system and left behind catastrophic claims that potentially there is a liability out there of some kind. But we'd be more than happy to address those issues, at least from the Resort Association's point of view, if there are statistics and numbers to look at.
Terry Rankin stated there were statistics in the rate hearing order SIIS supplied to them, but it would be better if the committee got the figures directly from SIIS.
Ms. Rankin stated in the prior years, if the premiums were adequate, the tails left should be properly funded. It would be the same for a self-insured who returns to the system ... SIIS could work with them and negotiate to buy the tail they had as a self-insured employer, with the self-insured company paying for that; or they could carry their own deposits, and stay on the program provided by the Commissioner of Insurance for their runoff.
Senator Townsend asked who was present to testify regarding managed care, and then stated that Ms. Rankin would be providing a brief overview of the proposed reorganization.
Ms. Rankin pointed out what she did for managed care regarding existing licenses was included in her handout (Exhibit E). She proceeded to refer to Exhibit E.
Senator Townsend questioned if Ms. Rankin reviewed the Governor's managed care proposal, did it fit under any of the current titles.
Ms. Rankin answered, "The closest it would fit under is the closed panels under the health maintenance organizations, but it is not a health maintenance organization how it is structured."
Senator Townsend inquired if they would have to put in a new chapter to deal with that.
Ms. Rankin referred to the last page of Exhibit E and discussed each of the items listed therein.
Senator Townsend asked:
You will, of course, if we decide on certain organizational qualifications of a managed care organization for this purpose, you will let us know if there is something that needs to go into the insurance statutes ... right?
Larry Matheis stated his written presentation (Exhibit F) addressed the any willing provider issue, however, the context would change pending the final version of the bill. He restated the eight principles any managed care program should comport to. He noted it became increasingly important as the committee looked towards definition by request for proposal (RFP), by regulation, by statute, there be some parameters.
Mr. Matheis agreed with Ms. Rankin that Nevada's statutes did not define preferred provider organizations, except in limited contexts, the most extensive being the Blue Cross statute. He stated it might have to be addressed "head on" to avoid definitional problems. He claimed the health maintenance organization statutes might also have to be reviewed in terms of what the impact would be of "a new population that could possibly fall under them." It could have both the insurance department and the State Board of Health sharing regulatory oversight.
Mr. Matheis opined, on the any willing provider language, the issue was a balancing of someone's willingness to abide by the contractual terms and being able to offer their professional services. At the same time one would want to be able to remove someone from being a part of the contract if they did not abide by those terms, or professional standards.
Mr. Matheis then read the suggested bill language from Exhibit F, page 3 and discussed its ramifications.
Senator Shaffer stated he was concerned when he heard the term "good cause", and asked Mr. Matheis what he considered the definition to be.
Mr. Matheis answered it would have to be left up to the lawyers. He added it would have to be considered case by case.
Senator Shaffer asked:
Are we anticipating a legal decision to me made through remedies provided by existing laws in the court system where we have attorneys involved? And, you know, could this lead into that?
Mr. Matheis replied it was possible, but he hoped it would be resolved in most cases by administrative procedures. He added whatever the committee came up with would provide lawyers with more work than they knew what to do with.
Senator Lowden stated:
Larry, currently managed care providers have some kind of criteria that would purge a person from the list. I know it's not used very much, but certainly if you have willing provider language now, it may be used more than it's ever been used before. But if you agree, as a willing provider, to a managed care program, they should probably list their criteria for
purging from the list ... and if you abide by that, then that is what you agreed to.
Mr. Matheis said that was fairly well detailed in the provider agreements that health maintenance organizations (HMO) had. Less so with preferred provider organizations (PPO), because they were all over the map.
Senator Brown inquired if there were any objections to changing "suspended" to maybe 'shall be suspended' for not upholding the contract, which might include utilization review sorts of things.
Mr. Matheis responded positively.
Senator Townsend thanked Mr. Matheis, and introduced Allan E. Hanssen.
Mr. Hanssen noted the two questions on the follow-up of Tuesday's testimony were first, "Can you quantify the initial dollar savings in a managed care organization", and second, Senator O'Connell asked what the criteria were to return to work.
Mr. Hanssen answered, trying to define demonstrable evidence of cost savings was a very sordid process. He noted he had sent a letter to Marc Hechter, requesting certain data elements SIIS collected. He said he had taken that pricing data and repriced it in a managed care network to try to demonstrate cost savings. He stated managed care was a function of unit cost, and gave as an example, an office visit and the frequency of an office visit which constituted two separate elements, both of which must be controlled ... or one would violate the other.
Mr. Hanssen noted discrepancies were discovered in SIIS's data which made it impossible for him to bring to the committee the cost saving data he thought he would have available. He felt he would have it available by Friday. He added he did have a chance to review NAC Chapter 616, and felt the insurance commissioner had been correct with regards to Title 57, Chapter Zero and 695B regarding the choice element about exclusive provider organizations. He believed the committee might want to review or revise those sections of the NRS
in light of the fact they dealt with health care issues as well as workers' compensation issues.
Mr. Hanssen concluded his review of NAC Chapter 616 and noted ten important elements he believed the committee should consider in its statutory barriers consideration of managed care:
First, it is important to note that pricing and frequency are very strong elements that must be used conjunctively. In the 616 portion, I noticed prior authorizations and then a real emphasis on pricing. It didn't seem that they were coordinated in a very strong fashion.
Number two, regional pricing considerations that managed care organizations may be able to solve. Currently in 616 [NAC] you have one fee schedule for the entire state of Nevada. I would petition that there may be extreme variances in certain cost elements on your fee schedule. For example, perhaps professional fees in Las Vegas may be different than professional fees in Reno, and the potential of paying more for what the market will bear is present, and should be, I believe, reviewed in consideration of 616 [NAC] and workers' comp.
Additionally, managed care organizations would have specific provider type negotiations. For example, anesthesiologists versus pharmacists, versus orthopods. Currently in 616 there is an allowance for medicine converters, surgical converters, et al. It's the jargon and technicalities that allow specific type. I'm suggesting that maybe the managed care organizations may be able to provide even more inexpensive unit pricing per those provider types. There seems to be an annual rate review provision in 616 that may not be needed for the future. The timeliness of claims submissions by providers ... my interpretation that 90 days for a claim submitted may be a liberal interpretation. I know the industry, for example Hospital Health Plan, 60 days is the standard. Now there may be some efficiency issues and some proper attention paid to providers' concerns about SIIS properly notifying about eligibility, for example who's on first ... is this person SIIS or not; where do I send the claim; or did I send it to the commercial insurer when I should have sent it to SIIS? So there should be consideration there but it may be able to be restricted further.
It appears that an automated referral system is absolutely compelled by 616 [NAC] ... meaning a prior authorization, mandatory compliance by the provider about what has been provided in the prior authorization, and that claim being paid according to that authorization. Three visits authorized ... four visits done ... three visits only paid without appeal.
There seems to be no cost sharing provisions whatsoever ... in my previous testimony, there are, from the HMO industry and the indemnity industry in particular, concept of insurance provides for the sharing of risk. There are considerations for commercial benefits ... health care benefits and SIIS.... However, it is a tentative insurance that increasing cost sharing, number one defrays cost, number two, characterizes and causes an individual to think about how they're going to use the system because they have an out of pocket contribution. On the commercial side of the business for health care coverage you usually have co-pays, essentially deductibles, maximum allowables by service. Additionally, your employer may pay only a portion of the employee, may pay only a portion of your dependents or none of your dependents coverage and you'll have what is known as a contribution withheld from your check each and every pay period.
I was impressed by the functional, all willing provider language inherent in 616 [NAC] as it is ... anybody who accepts it will be entitled to reimbursement. I believe that the all willing provider provisions as discussed indeed impair the strength of managed care. It comes down to a very simple economic analysis: that if you're not able to direct care and seek unit pricing and compliance, it's a simple issue of economics of how many widgets can you produce ... when you buy widgets, a thousand lot versus a 10 thousand lot, your unit price is cheaper. I think the same tenant would absolutely apply to health care, and it has been demonstrated in health maintenance organizations in
particular.
The efficiency of the network to resolve functional issues is very important. I think you've heard ... some of the concerns that physical therapists have raised or others about functionality. How do I know who's the eligible claimant, when am I going to get paid, because those are two important issues. A provider will willingly say I can do this much more inexpensively if I know I will be paid timely ... I'll get the right directions and consistent answers to my questions. I think the managed care organizations can help administer that much more succinctly.
... I would suggest that if the committee is to recommend the use of managed care organizations, then any pricing they may be able to negotiate should supersede any pricing that is currently found in section in NAC 616. If pharmacy, for example, is to be able to be secured at a much more inexpensive price, there should be no obligation for the State of Nevada to pay average wholesale price plus six dollar filling fee.
In closing, then, I would like to reaffirm my prior testimony that was provided last Tuesday, and I will work diligently to provide any cost savings where I feel we can demonstrate. But the issue for the committee's consideration is one of health care and managed care, not necessarily worker's comp. They are ... we are dealing with all the same variables. Injured people or diseased people or sick people, however you like to typify them, access in the health care delivery system, and we'd like to make sure they get the most quality, cost effective medicine possible. And in order to do that, managed care, through the HMO industry in particular, as well as some of the PPO functions, have demonstrated coordination, unit pricing, and manage people to return to work sooner as well as be able to have a better result by coordinating their care and having all the care givers, for example, manage their care. That's all I have this morning in my review of 616[NAC].
Senator Townsend thanked Mr. Hanssen and asked for questions. When none were forthcoming, he noted that the committee would be discussing managed care on Friday (Feb 5). He also noted for the assemblage in the chamber as well as those present in Las Vegas that the committee would begin to vote on specific proposals on Thursday and Friday.
There being no further business, the meeting was adjourned at 10:24 a.m.
RESPECTFULLY SUBMITTED:
P. K. Fredericks,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE:
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Senate Committee on Commerce and Labor
February 3, 1993
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