WSI did ratchet up denials of claims, consultant's report says

BISMARCK -- In 2006-07, Workforce Safety and Insurance's executives told the staff to more aggressively probe injured workers' claims for past injuries and pre-existing or degenerative conditions.

In other words, look harder for ways to avoid paying claims.

That "change in philosophy," combined with state laws that tilt the scales in favor of WSI, led to more claims denials and longer waits for decisions, consultants report in the latest evaluation of the agency.

"The denial trend supports the fact that the increased rigor of the initial investigations resulted in additional denials," according to the draft report, and from 2003 to 2007, the average time it took WSI to make its first decision on claims rose from 11.4 days to 16.4 days.

While this may sound unfair and essentially confirms what injured workers' advocates and WSI skeptics have long suspected, WSI's lawyers said last week that they felt vindicated by the report.

That's because there is actually nothing wrong with what WSI was doing.

"None of the claims evaluated appeared to have been denied inappropriately based on what appears to be conservative state law, administrative code and supporting WSI claim policies (relating to) definition of 'compensability,' " the consultants wrote.

Berry, Dunn, McNeil & Parker, or BDMP, headquartered in Maine, was hired earlier this year by the state Auditor's Office to do a biennial performance evaluation required by state law. BDMP's report, now in draft form, will be final in time for an Oct. 20 legislative committee meeting.

Gordy Smith, audit manager for the Auditor's Office, said BDMP's conclusion about claims handling can be compared to traffic enforcement: If cops begin ticketing all drivers going 26 mph in a 25 mph zone, that would be completely legal -- and would surely boost the number of speeding violations recorded in that town, not to mention complaints.

Sylvan Loegering, an injured workers' advocate from Fargo, read the draft report and said it "absolutely" confirmed what he and others believe -- that there has been a push at WSI to deny more claims.

"It says it right there," he said Saturday.

Last year, an internal audit manager at WSI, Kay Grinsteinner, also raised alarms about trends she suspected in the claim denial rate. Some months after sending information to the state auditor, she was fired, despite having asked the attorney general for whistleblower status. A different consulting company concluded in March that the way she had acted was improper.

Law 'conservative'

BDMP's report says that, around the country, the way workers' compensation agencies and private insurers handle claims involving old injuries and pre-existing conditions "is driven almost entirely by the language of the statute(s)" in the individual states.

And North Dakota law seems purposely stingy.

"The North Dakota statute is conservative, and it provides adjusters with a greater ability to deny claims with pre-existing injuries and/or degenerative conditions than most other jurisdictions," BDMP writes. "Given the unusual but explicit permission given by the North Dakota statute to deny compensability based on a work-related injury acting as a trigger for a prior injury or pre-existing condition, the denials reviewed by BDMP appeared reasonable."

For example, other states or insurance companies might pay without question for someone whose old football injury was reactivated or aggravated at work decades later. WSI would more likely not.

Or an older worker who develops on-the-job pain is diagnosed as having arthritis or another degenerative condition and WSI can deny or limit coverage because it doesn't attribute the arthritis to job-related activity. In other states, it would be OK'd.

Needs fresh look

BDMP recommends the law get a fresh look.

"A study group formed of all the stakeholder groups (should) be brought together to review how other jurisdictions' statutes handle these important workers' compensation issues," the consultants write.

Rep. George Keiser, R-Bismarck, who heads a workers' compensation issues legislative committee, said WSI's tough stance on pre-existing conditions is something the 2009 Legislature may address.

"There are several recurring themes" he's seeing in testimony by workers to his committee, he said. "And this is one of them. Those are the kinds of concerns that have been raised."

Sen. Tracy Potter, D-Bismarck, said he'd like to see a change considered, too.

"I think it's quite a problem. And if that's the problem, you find a majority to fix it," he said.

Initiative issues

A few of BDMP's conclusions agree with the goals of initiated Measure 4 on next month's ballot.

If passed, Measure 4 returns WSI's CEO to the governor's cabinet instead of being under an independent board. And WSI would no longer have the power to overrule administrative law judges' orders it disagrees with. The measure also requires the state Office of Administrative Hearings, not judges WSI hires and trains, to conduct WSI administrative hearings.

Relating to governor-versus-board, BDMP looked at how and why WSI's financial condition went from a $10.7 million deficit in 1996 to a $467 million surplus on June 30, 2007. The Legislature created the board to be independent of the governor in 1997.

BDMP considered seven factors and ranked them in order of positive fiscal effect. Seventh and last was having the board reign over the CEO.

"We did not identify any direct or indirect correlation between the change in the reporting structure and the increase in the fund surplus during the 10-year period ending June 30, 2007," BDMP wrote.

The No. 1 reason WSI has a huge surplus now is that its fund has made a killing in its investments compared with assumptions, averaging a 7.2 percent rate of return instead of the conservative 2.5 percent used for projections, BDMP says.

As for administrative law judges, BDMP said North Dakota is the only place in the country where the "payer" (state agency or private insurance) gets to reject a judge's decision when an administrative hearing verdict favors the worker.

"This can create the perception that final administrative decisions issued by WSI are biased toward the employer," the consultants wrote.

Look hard at fraud

Among other findings, BDMP's report says WSI needs to do more to find and prosecute cases of employer and medical provider fraud.

Smith, the Auditor's Office audit manager, said this is the third consecutive time WSI's biennial evaluation has said the same thing, citing consultant Octagon Risk Services' 2004 and 2006 reports. He said financial recovery or savings through provider and employer fraud investigations would almost certainly be more than what is realized from prosecuting claimants.

WSI, in prepared responses to BDMP's recommendations, said it concurs and is working on new processes that was begun in May.

BDMP also criticized WSI for lax practices in awarding and tracking safety grants to businesses or business groups.

"Improve the consistency and credibility of the grant approval process," BDMP recommends, and also, "determine how grant outcomes will be measured" and "improve the grant monitoring program."

WSI writes that it concurs with all three recommendations.

In all, of BDMP's more than 40 recommendations, WSI concurs with all but five. It partially concurs with three, does not concur with one and found one recommendation invalid.

Cole reports for Forum Communications Co., which owns the Herald.