Copy Service Fee Schedule – 40% Haircut for Copy Shops, ZERO savings for Employers

Based on the data provided in the Berkeley Research Group’s October 17, 2013 report, average applicant copy service fees have been reduced from $251.20 to $150.60 under the new Fee Schedule. That’s a significant 40% haircut for copy shops.

Conversely, in a June 15, 2015 news story, Work Comp Central reported “Workers’ Compensation Insurance Rating Bureau staff believes any savings or costs associated with the copy service fee schedule that go into effect July 1 will be too minimal to include in the upcoming 2016 advisory pure premium rate recommendation.” The Work Comp Central article quotes Dave Bellusci, executive vice president and chief actuary for the WCIRB as saying that in 2013 and 2014, payments to copy shops accounted for 0.9% of all medical payments.

I’m not making this stuff up. What this means to us on the street is that employers will see zero savings in their pure premium rate from this fee schedule, while the copy shops that supply injured workers and their attorneys with the medical and other evidence needed to navigate their workers compensation claim have been hit with a massive fee reduction.

Wait a minute, you might be thinking, I thought the fee schedule gave copy shops $180 per transaction, not $150? How do you get a 40% reduction?… I’ll prove up the average $150.60 fee in just a minute, but first let’s put these figures into perspective.

Carriers and Self-Insureds will save one-tenth of 1%:  Even though carriers may not be passing any “copy service savings” to employers through the premiums they charge, the fee schedule obviously represents SOME amount of savings to the self-insureds and the carriers themselves. The CHSWC Annual Report for 2014 shows the distribution of total system costs for 2013 on page 54, Figure 18. According to CHSWC, medical costs are 39% of total paid costs. So, taking the WCIRB public statement that copy service costs represented .9% of all medical costs in 2013, then copy service costs BEFORE the fee schedule represented less than half a percent (0.0035) of the system-wide cost of claims. The fee schedule gave those copy shops a 40% haircut, so all this work and drama and public hearings that extended 18 months past the statutory deadline represents a total cost savings for self-insureds and insurance carriers of a tenth of 1%, or .001. 

BRIEF HISTORY OF THE FEE SCHEDULE

Well, despite the fee schedule being a non-event for employers and carriers, it’s a very big deal to applicant copy shops and the Injured Workers they work for. Let’s take a minute to look back at WHY copy shops became such a political hot button, and then I’ll prove up the fees I mentioned earlier and explain the 40% haircut.

CHSWC LIEN REPORT

The Commission on Health and Safety in Workers Compensation (CHSWC) published a study dated January 2011 on what was often referred to as the LIEN CRISIS. This report argued that liens were taking up 35% of some court calendars and growing, were causing $200-million in annual loss adjustment expenses for employers and carriers (estimated at $1,000 per lien), and was expected to require 450,000 new lien filings at the District Offices in 2011.  In other words, CHSWC targeted liens as the next big area to REGULATE, and copy shops were specifically mentioned as being on that target list.

ADMINISTRATIVE DIRECTOR MORAN ANNOUNCEMENT

Later that year, on October 14, 2011, newly appointed administrative director of the DWC, Rosa Moran, told attendees of the Association of Workers’ Compensation Professionals 13th annual Workers’ Compensation Conference that her FIRST PRIORITY was to reform the copy service industry. Greg Jones, reporter for Work Comp Central quoted her as saying, “I’m going to start with something small, because we’ve got to get our house in order,”… “I randomly picked something that kind of annoys me. I picked copy services.” She may not have realized at the time just HOW small of a “problem” she was picking…

SB863 AND NEW LABOR CODE SECTION 5307.9

Administrative Director Moran was part of the DIR team that was instrumental in the passage of SB863 on September 18, 2012, less than a year after her purported comments at the AWCP conference. SB863 included the addition of Labor Code Section 5307.9 which authorized and commanded the administrative director of the Department of Workers Compensation (DWC) to adopt a schedule of reasonable maximum fees for copy and related services on or before December 31, 2013.

BRG COPY SERVICE STUDY COMMISSIONED BY CHSWC

As directed by Labor Code Section 5307.9, CHSWC commissioned a study by the Berkeley Research Group, which was published October 17, 2013. BRG suggested a “tiered” FLAT FEE schedule, whereby a flat fee per transaction would be payable to the copy shop if full and timely payment was made by the employer/defendant, OR a much higher flat fee if the employer/defendant delayed or disputed the copy service invoice. The report was discussed at length at the CHSWC public meeting on October 17, 2013, and after THREE separate voting cycles by the commissioners, it was finally sent to the Administrative Director of the DWC to be used in formulating the fee schedule.

DWC COPY SERVICE FEE SCHEDULE ADOPTED

On July 1, 2015,  eighteen months after the legislative deadline and after multiple public hearings and revisions, the industry finally had its much anticipated Copy Service Fee Schedule regulations.

HOW THE 40% HAIRCUT IS CALCULATED…

So, up in the beginning I posited that the average copy service invoice is not $180 under the new fee schedule, as many assume, but is really $150.60. This comes about because of the Certificate of No Records, or “CNR”. [While I don’t have BRG-verified numbers to back this up, I have a link below that makes the argument the average copy shop invoice is REALLY more like $129 under the fee schedule because of the SECOND SET invoices, giving copy shops more like a 49% haircut.] 

CERTIFICATE OF NO RECORDS

There are many reasons why a copy shop might not produce records from a given medical facility or other record location. The records custodian may have lost the records, or they have records but they are outside of the RANGE requested on the subpoena, or the ordering party served the wrong location for that record holder, or the records custodian may have refused to produce records under the Subpoena, and the list goes on and on. The POINT is that ordering parties need a DECLARATION from all record holders where the recorded history of the injured worker indicated there MIGHT be records at that location. See Evidence Code Section 1561(b).

The CNR rate for copy services is surprisingly high. In the footnote section of Exhibit 3(a) of the BRG study, the number of CNRs in the total DEFENSE copy service invoice inventory used in the study indicated an average RATE of 28%. These are hard numbers, not a guess. It’s fairly safe to assume that applicant copy services have a similar CNR Rate. So, we can use this important information to calculate the expected average copy service invoice under the new fee schedule.

CALCULATING THE AVERAGE FEE UNDER THE FEE SCHEDULE

Consider that out of 100 applicant copy service invoices, 28 of them will be at the lower $75 fee for CNRs as provided in CCR Section 9983(b), and the remaining 72 invoices will be at the full $180 provided in CCR Section 9983(a). Those 100 invoices will result in an average fee of $150.60. Keep in mind that the RATE or percentage of CNRs produced by any given copy shop may vary. Some copy shops are unsuccessful at obtaining the requested records more often than others, and I’ve heard that some are as high as 40%. So, the higher the CNR rate, the lower the average invoice will be for that copy service under the fee schedule (assuming a static transaction count).

$251 AVERAGE FEE PRIOR TO THE FEE SCHEDULE

BRG was given 598,342 negotiated/settled and PAID invoices from three of the largest applicant copy services in the state. I personally gathered, formulated and delivered that data to the BRG as the Legislative Chair and Board Member for the now defunct California Workers Compensation Services Association. I discussed that data and and what it represented at length and on several different occasions with the BRG experts who authored that study, and I agree with their conclusion that the MEAN PAYMENT to applicant copy shops per transaction prior to the fee schedule is $251.20 – and that includes payments for CNRs (and additional copy sets).

So, when you divide the POST fee schedule average invoice of $150.60 by the PRE fee schedule average invoice of $251.20, the “haircut” the DWC gave to applicant copy shops is a whopping 40% from what they were getting paid before. This isn’t a discount on the supposedly “padded” invoices they were sending out, but on the payments the copy shops were living on before the fee schedule. These are hard facts taken right out of the BRG report and the new fee schedule regulations. Think about your business getting a 40% haircut on what it gets paid for its services, while everything else – the volume and costs to produce those services – stayed the same.

CONCLUSION

The point of this post is that applicant copy shops took a huge hit to what they had been getting PAID for their services up to July of 2015, while insured employers are getting no savings whatsoever on the premiums they have been paying… and self-insured employers and carriers are getting just a tiny fraction of a percent in savings – a savings so small that the WCIRB has declared it inconsequential.

I’m not here to complain about the fee schedule being unfair or how accurately the DWC conformed with Labor Code Section 5307.9. I have no interest in any copy shop whatsoever and this fee schedule will have zero effect on me. I’m just providing the facts you can use to draw your own conclusions. More than anything else, I really just wanted to POINT OUT what this fee schedule represents as far as VALUE to both the copy shop and the employer/carrier communities.

I welcome your comments and observations, and please return to the Blog section of ScanFiles.com every week for more discussion about copy shops, use of technology in workers compensation, and whatever observations strike me to talk about.