Bills that aim to crack down on the underground economy and rein in costs associated with compound medications are among measures that take effect in California with the start of the new year.
Gov. Jerry Brown’s actions on workers’ compensation legislation passed in 2011 surprised many stakeholders. Labor was incensed with the governor’s decision to veto measures they said would help restore benefits that were slashed by the administration of former Gov. Arnold Schwarzenegger, while business generally applauded Brown’s actions.
On Oct. 7, Brown signed Assembly Bill 378 — one of the most contentious workers’ compensation bills debated during the first year of California’s two-year legislative session — that is intended to eliminate the profit motive for prescribing compound drugs.
The bill, by Jose Solorio, D-Santa Ana, states compound medications must be billed at the ingredient level and be reimbursed at the Medi-Cal rate for each ingredient as identified by its national drug code (NDC). Ingredients without an NDC are not reimbursable under Solorio’s bill.
Ingredient level reimbursement must be equal to 100% of the reimbursement allowed by the Medi-Cal payment system and payment must be based on the sum of the allowable fee for each ingredient, plus a dispensing fee equal to the dispensing fee allowed by Medi-Cal. If a compounded drug is dispensed by a physician, the maximum reimbursement may not exceed 300% of documented paid costs capped at $20.
The bill also adds compound drugs, medical foods, co-packs, physician-dispensed over-the-counter medications and durable medical equipment to the list of goods for which physician self-referral is prohibited.
Pharmacists claimed victory, saying the bill could make it easier to get payer approval when using compound drugs. Khoa Tan Huynhn, president of Script Life Pharmacy, said he doesn’t do much compounding primarily because insurance companies reject requests for compound drugs. He said compound drugs play an important role in treating injured workers because they can alleviate pain without some of the side effects associated with opioids such as drowsiness and addiction.
Jason Schmelzer, lobbyist for the California Coalition on Workers’ Compensation, said the legislation will help control rising medical costs attributed to prescribing compound medications for profit.
Mark Sektnan, president of the Association of California Insurance Companies, said in a statement that AB 378 will “curb abuses in the workers’ compensation system.”
Brown also signed three bills intended to crack down on abuses by contractors who fail to carry workers’ compensation insurance.
On Oct. 7, he signed AB 397 by Bill Monning, D-Santa Cruz, requiring contractors to provide proof of coverage or certify that they have no employees and are exempt when applying for a contractor’s license or renewing a license. On Oct. 9, Brown signed AB 878 by Bill Berryhill, R-Stockton, requiring an insurance carrier to notify the Contractors State License Board when it revokes a license following an audit or investigation.
Brown on Oct. 9 also signed SB 459, by Ellen Corbett, D-San Leandro, authorizing the Labor and Workforce Development Agency, upon finding a person or employer willfully misclassified an employee as an independent contractor, to impose civil fines of $5,000 to $15,000 for each violation. If the development agency or a court finds a pattern of willful misclassification, the civil penalty created by the bill is between $10,000 and $25,000 for each violation.
The bill also requires an employer to display on its website or, if it doesn’t don’t have a website, in a prominent area at the physical location of the business, notification that the development agency or court found it committed a serious violation of the law by engaging in willful misclassification. The employer must also state it has changed its business practices and inform employees if they believe they have been illegally classified as a contractor.
Tom Holsman, chief executive officer of the Associated General Contractors of California, said the bills essentially guarantee a contractor must maintain a valid workers’ compensation policy and that they can’t work with a fictitious license or without insurance without facing “severe penalties.”
The governor signed a pair of bills intended to ease the burden on employers who purchase large-deductible policies or who have a few employees located outside of California.
Brown on Oct. 7 signed Senate Bill 684, by Corbett, requiring insurers to provide written disclosure to California employers if the carrier includes in the employer’s policy a provision that requires disputes to be arbitrated or resolved in courts outside of the state.
On Oct. 9, Brown signed AB 228 by Felipe Fuentes, D-Los Angeles, allowing State Compensation Insurance Fund to write policies covering the out-of-state employees of companies who have the majority of their workers located in California.
Gina Simons, communications director for State Fund, said the bill will save employers time and money because they can buy coverage for all their employees from State Fund in a “one-stop shop.”
The Association of California Insurance Companies opposed the bill saying that other carriers want to compete for the out-of-state business that State Fund will be authorized to write starting Jan. 1. Sektnan, the association’s president, said as the state-chartered carrier of last resort, State Fund is exempt from paying federal taxes on its premiums, giving it an unfair competitive advantage.
Solorio’s AB 335, signed on Oct. 7 by Brown, is another measure backed by employers.
The measure requires the administrative director of the Division of Workers’ Compensation to work with the Commission on Health and Safety and Workers’ Compensation (CHSWC) to develop regulations regarding notices to injured workers that explain the claims process in plain language. It also requires workers’ compensation notices posted by employers include the website address and contact information for the nearest DWC information and assistance officer so workers can get additional information.
Employers didn’t enjoy a complete sweep, however, with Brown signing a bill allowing the Department of Industrial Relations to borrow up to $4.3 million from an account funded by premium assessments that pays benefits for employees of illegally uninsured businesses.
Brown signed AB 436 by Solorio on Sept. 30, establishing the State Public Works Enforcement Fund to pay for efforts to monitor prevailing wage issues on public works projects.
Jerry Azevedo, spokesman for the Workers’ Compensation Action Network, said employers agreed to pay assessments so the Division of Workers’ Compensation could operate unfettered by state budget problems, and not to create a “government slush fund.”
Other bills that take effect on Jan. 1 include:
— AB 1416, signed on Oct. 2, amending California Insurance Code Section 11691 to allow workers’ compensation insurance and reinsurance companies to file mandatory deposits with banks domiciled in California, as well as national banks with a trust office located in the state.
— AB 1426, signed on Oct. 7, eliminating the court administrator position at the Division of Workers’ Compensation. Solorio, who authored the bill, said the position “creates divided lines of authority and accountability.”
Employers had much to celebrate, but labor was furious when Brown vetoed bills prohibiting discrimination in apportionment, making supplemental job displacement benefits available to workers earlier in the claims process and extending the period of temporary disability benefits for up to five years. Brown said in his veto messages that he wanted stakeholders to come together to develop reform proposals “on a broad and balanced scale.”
Similar versions of each bill were vetoed by Schwarzenegger. Jesse Ceniceros, president of Voters Injured at Work, said he was disgusted that Brown didn’t do anything to help injured workers and asked why labor supported Brown in his gubernatorial campaign.
Brad Chalk, president of the California Applicants’ Attorneys Association, said he was disappointed, but is happy to help work on a major reform package.