Tom Mundy, president of Arleta aerospace supply firm Superior Thread Rolling Co., believes pending workers’ compensation reform will cut off fraudulent claims that are costing his company tens of thousands of dollars in premiums each year.

In particular, he welcomes a provision that would require all disputed claims to go before an independent panel.

“Just having an independent panel can maybe put a stop to some of the fraud that’s hitting us and other firms, where a simple hand or foot injury suddenly mushrooms into a massive injury,” he said.

Mundy is one of hundreds of thousands of local employers who hope that the reform package, which passed the Legislature on Aug. 31 and is awaiting Gov. Jerry Brown’s signature, can put a substantial dent in accelerating workers’ compensation premium increases.

The reform package was hammered out between major employers and organized labor. The goal was to crack down on expenses wrung out of the $17 billion-a-year workers’ compensation system by physicians, outpatient surgery centers, plaintiff attorneys and a host of other middlemen.

Besides setting up the review panels, the package limits medical offices’ ability to collect on old workers’ comp bills and makes it more difficult for injured workers to go outside medical networks.

The reforms also ban the practice of adding on injuries and illnesses to existing claims, such as sleep disorders or sexual dysfunction.

In exchange, workers who have been permanently injured will get higher weekly checks. The total amount of checks would rise by $740 million annually with the first phase of the increases kicking in next year.

Also, the workers’ comp system would set aside $120 million each year for additional benefits to workers who are unable to return to their jobs due to severe injuries.

Labor groups, long unhappy over previous reform under Gov. Arnold Schwarzenegger, had insisted on those provisions.

Higher costs

The previous reforms resulted in reduced premiums, which remained stable for years. But premiums skyrocketed this year, driven by a sharp rise in medical and legal costs for claims.

Claims costs have been rising since a series of court rulings undermined provisions of the 2004 reforms that reduced payouts to permanently disabled workers. Also, medical providers and attorneys for injured workers found ways to exploit loopholes in the system.

For several years, insurance carriers priced premiums below the cost of claims as a way to win new clients, said Jim Scanlon, chief executive of SGB-NIA Insurance Brokers in Woodland Hills. But this year, the continual rise in claim costs became too big to ignore.

Scanlon said companies with low workplace injury claims are now seeing their rates go up between 10 percent and 25 percent, while companies with more claims are seeing rates more than double.

“These huge jumps all hit rather suddenly, starting with July policy renewals,” he said.

Employer groups say there’s a chance this reform package could head off more such dramatic increases.

“What we hope will happen is that the reforms will start immediately to bend the cost curve, making it less steep,” said Jeremy Merz, lobbyist with the California Chamber of Commerce.

But much still has to happen before employers will see significant premium relief. Assuming Brown signs the bill as promised, state agencies will need 12 to 18 months to craft new regulations. The degree of savings in the system will likely depend on how those regulations are crafted.

And there may be legal challenges to the reforms, especially from doctors and attorneys for injured workers.

“The ultimate success of this reform package depends on regulatory implementation and judicial adherence to the intent of the reforms,” Merz said.

One of the most significant reforms attempts to rein in the tremendous growth in the filing of liens. With the Schwarzenegger reforms capping treatment costs for many workplace injuries, doctors’ offices were only getting paid a fraction of their customary treatment bills. In the last three to four years, collection agencies have gone to doctors’ offices, taken over these unpaid bill differences and sought to collect from insurance companies. Rather than spend thousands of dollars fighting these bills, many insurers paid them, tacking on the added cost to employer premiums.

The new reforms impose a $150 filing fee for each lien and another fee for liens on cases that had previously been closed.

“This should eliminate much of the trolling for cash that we’re seeing now with these collection agencies filing all these liens,” said Doug Simons, senior vice president with SGB-NIA. “That in turn should help drive down premium costs.”

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