• We identified 339 instances (involving 818 claims) in which employees filed more than one claim in one year and 165 instances (involving 378 claims) in which multiple claims were filed by one employee in different years at approximately the same time of year. Further, we identified 168 instances (involving 421 claims) in which multiple claims were filed by one employee for the same type of injury. The high incidence of these various occurrences indicates that the workers compensation system is being abused by certain employees.

DPT"s Plan to Control Workers Compensation Costs

For FY 1998-99, DPT developed a Workers Compensation Cost Containment Plan, with the objective of reducing workers compensation costs by 15 percent over the next three fiscal years. The main components of this plan are as follows:

• Return to Duty Program: Through this program, DPT would attempt to return injured employees to work as soon as possible. The Program would include the establishment of a Job Bank to match eligible injured employees with available assignments within the Department and/or in the Citywide ADA Transfer Program. In addition, DPT would establish policies on the length and terms of modified duty.
• Quarterly Claims Review: In conjunction with DHR"s Workers Compensation Division (WCD), DPT would review and provide case management for the 100 to 150 most serious claims. DPT would pay for one additional Claims Adjuster position to handle these cases. In addition, this Claims Adjuster position would be responsible for coordinating the investigation of suspicious claims.
• Worksite Ergonomic Analysis: DPT would conduct a worksite ergonomic analysis for certain job classifications to determine the safety problems that contribute to DPT"s high workers compensation costs. According to DPT, DPT is not in compliance with the California Ergonomic Standard, which was passed in 1997, or with ADA requirements.
• Safety Analyst: DPT would hire a full-time Safety Analyst to assist in the implementation of DPT"s Safety Program and related training, the eradication of safety hazards, and the development of new programs and initiatives dealing with safety and the prevention of workplace injuries. DPT advises that, according to OSHA standards, DPT should have three Safety Analysts for a department its size. DPT currently has one 0.5 FTE Safety Analyst, which is funded through a work order with the Department of Public Health.
• Recruitment and Selection Program: Job descriptions for the classifications with the highest risk of injury would be revised in order to incorporate the physical, psychological and ergonomic demands of such positions. The screening process would be improved to facilitate DPT"s ability to measure an applicant"s literacy skills, common sense, verbal communication skills, physical agility, etc.
• Staff Development and Training: DPT would develop mandatory training for all managers and supervisors that would include courses in workers compensation, ADA, safety, discipline, and related topics. DPT advises that supervisors need to be more actively involved in preventing claims by abiding by any medical restrictions imposed upon their employees, and must be held more accountable if they fail to do so.

DPT"s Workers Compensation Cost Containment Plan also delineates the roles and responsibilities of DPT managers and staff which must be carried out in order to ensure the successful implementation of the plan, and contains follow-up activities for evaluating DPT"s progress.

DPT requested $316,607 in additional funding in its FY 1998-99 budget in order to implement the above components of the Workers Compensation Cost Containment Plan. However, this request was denied by the Mayor"s Office.

Despite the denial of funding for its Workers Compensation Cost Containment Plan, the Special Assistant to the Executive Director, who has been assigned to work on workers compensation issues on a part-time basis, has made some efforts to control workers compensation costs. For example, she has drafted a Return to Duty Program, which has been under review by the City Attorney"s Office, and a Department-wide Policies and Procedures Manual, which is still in development. She has also revised several WCD forms. Changes have been made to the recruitment process in order to improve the screening of job applicants and provide them with more detailed information on job requirements. A management report has been developed to identify the most serious workers compensation claims. Desk reviews are now performed of all Enforcement Division employee claims before they are sent to the Workers Compensation Division. Two management training sessions have been conducted for Enforcement Division managers, and bimonthly workshops with WCD staff are planned for the future.

Other Opportunities for Improvement

DPT still faces many challenges before it can gain control over its workers compensation costs. We have identified the following areas where improvements are still needed.

Workers Compensation Claims Administration

As noted above, in its FY 1998-99 budget, DPT requested additional funding for one new Claims Adjuster position in order to (a) provide case management for DPT"s most serious claims and (b) pursue the investigation of suspicious claims identified by the WCD, thereby enabling DPT to identify potential fraud and gather the evidence needed to resolve such cases.

We support the addition of one new Claims Adjuster position in DPT"s budget dedicated to claims involving DPT employees. In addition to the duties noted above, a Claims Adjuster would be able to conduct thorough initial claim processing in order to determine whether the City is financially liable for certain claims. A Claims Adjuster could also conduct utilization reviews of the medical treatment provided to injured workers in order to control medical costs. In addition, a Claims Adjuster could dedicate time to monitoring the disability determinations made by individual physicians. This is necessary because:

• Physicians may rely on an employee"s subjective complaints, rather than objective medical evidence, to determine whether an employee can return to work;
• In order to avoid incurring professional liability themselves, physicians may prefer to grant disability leave rather than to make a potentially erroneous decision to return the employee to work, where the injury could be aggravated;
• A physician may authorize disability leave in order to extend medical treatment for a longer period, in order to profit financially.

DPT advises that the employees" selection of excessively lenient physicians has been problematic at DPT, and employees often learn from each other which physicians are more likely to grant disability leave. A new Claims Adjuster position could evaluate physicians" performance in granting disability by (a) monitoring the percentage of injured workers who are found to be temporarily disabled by certain preferred providers, and refer claimants to other providers for second opinions; (b) examining the quality of medical evidence provided to support disability determinations, and obtain a second opinion, if necessary; and (c) monitoring the level of improvement after disability leave has been authorized for an extended period, and obtain a second opinion or a finding of permanent disability, if necessary.

The annual salary, including fringe benefits, for one 8141 Workers Compensation Claims Adjuster position would be approximately $68,412 annually. We recommend that this position be approved as a limited tenure position for the three-year period FY 1999-2000 through FY 2001-02. The approval of continued funding for this position should be based on DPT"s ability to demonstrate the effectiveness of this position in reducing workers compensation expenditures.

Expanding DPT"s Modified Duty Program

An employer is not responsible for compensating an employee for lost wages if the lost wages result from a refusal to accept available employment, rather than the disabling effects of the injury. Therefore, one way to reduce workers compensation costs is to make alternative employment available to the employee, which takes into account any medical restrictions that are imposed by the treating physician. A modified duty assignment can limit the City"s loss of employee productivity, by having the employee perform limited services, rather than none at all.

In addition, modified duty programs can also significantly reduce employee incentives to file new workers compensation claims. An employee faces different incentives to file a claim when he/she expects to perform services in a modified duty capacity, rather than to receive paid time off from work.

As noted earlier, in the past, only a small percentage (8.3 percent) of reported injuries have resulted in modified duty assignments. As of the writing of this report, 23 DPT employees had been deemed eligible for modified duty assignments, of whom 18 had been placed in a modified duty assignment. DPT advises that it has had trouble in identifying potential modified duty assignments because of the lack of funding needed to create such assignments.

As such, we have the following recommendations for improving DPT"s Modified Duty Program:

• DPT managers and supervisors will have to assist in the development and monitoring of modified duty assignments. As such, in order to ensure the full participation and cooperation of managers and supervisors throughout the Department, managers and supervisors should receive training on workers compensation, modified duty, and related issues. The estimated cost of training, based on $300 per staff member for the approximately 95 management and supervisory staff, would be $28,500. This would provide sufficient funds for between three and eight training classes per employee.
• DPT requested, but was denied, $107,650 in its FY 1998-99 budget for temporary salaries for the Modified Duty Program. This funding would enable DPT to create temporary modified duty positions for injured employees who have reached the Civil Service Commission"s six-month limit for working out of class. This would allow the City to hire new employees to fill injured employees" old positions. We therefore recommend that DPT request, and that the Mayor and Board of Supervisors approve, the amount of $107,650 per year for temporary salaries for the Modified Duty Program.
• In order for physicians to make an appropriate determination regarding an employee"s disability status, physicians should receive specific information concerning an injured employee"s job duties. In the absence of detailed information, physicians cannot fully evaluate whether or not an employee is capable of performing at least some of the required job duties. Thus, the existence of an injury may result in a physician"s approval of disability leave, whereas the employee may in fact be able to return to work in a limited capacity.

Industrial Disability Retirements

Any City employee who is permanently disabled may be eligible to retire on the basis of disability. After a physician has determined that an injured worker has sustained a permanent impairment as the result of an injury, WCD Claims Adjusters must "rate" the injury according to factors such as the nature of the injury, the employee"s occupation, and the employee"s age. Once the disability has been rated, the employee may (a) qualify for payment of permanent disability benefits due to the inability to compete in the employment market; and/or (b) submit a request to the Retirement Board for an Industrial Disability Retirement.

Pursuant to the Charter, applications for disability retirements are evaluated by independent hearing officers who are retained under contract to the Retirement Board. Employees who retire for disability receive disability retirement "allowances" or pensions. The amount of an employee"s disability retirement allowance is based on (a) the employee"s job classification; (b) the employee"s years of service with the City; and (c) whether the disability resulted from a work-related injury. On the basis of these factors, a miscellaneous employee"s disability retirement allowance will be in an amount which is between 33-1/3 and 70 percent of the employee"s final compensation on the effective date of retirement. The vast majority of employees who receive an Industrial Disability Retirements are sworn personnel in the Police and Fire Departments.

The Charter requires that an employee who becomes incapacitated for the performance of duty because of a disability of extended and uncertain duration "shall be retired." According to the City Attorney"s Office, this means that if a modified duty assignment is not available for a disabled employee, the employee is deemed to be "incapacitated for the performance of duty", and under the Charter, must be retired.

As such, if DPT is unable to identify a modified duty assignment for a permanently disabled employee, that employee should be able to receive a disability retirement. One advantage of an Industrial Disability Retirement is that it creates an option for employees who may not be suitable for a modified duty assignment. In addition, since the City cannot fill a position occupied by a permanently disabled employee for as long as that employee remains in the workers compensation system, retiring an employee on the basis of a disability creates a vacant position for which the City can hire a new, fully productive employee. Furthermore, Industrial Disability Retirements allow the City to separate employees for whom the City may incur substantial indemnity and medical expenditures through the workers compensation system. These costs, or a portion thereof, would be transferred to the Employees Retirement System. There may be a cost savings associated with the use of the Charter"s disability retirement provisions to grant early retirements to employees who are unable to perform their usual duties. To determine whether such savings could be realized, the City should perform an analysis comparing the cost of disability retirements with the costs and benefits of utilizing injured employees in a modified duty capacity.

Nonetheless, in the past, it has been the Retirement Board"s policy to be very conservative in awarding industrial disability retirements partially because of the existence of modified duty programs in many departments. Thus, for example, the Retirement Board has approved significantly fewer disability retirements for police officers, since the Police Department has generally made concerted efforts to place disabled officers in available light duty assignments, than for firefighters, since the Fire Department has maximized the use of the disability retirement provisions of the Charter by not making light duty assignments available.

The Mayor and the Board of Supervisors should direct the Workers Compensation Division and the Retirement Board to establish revised protocols for determining whether an employee has been "incapacitated for the performance of duty" and should therefore be granted an Industrial Disability Retirement. Upon the development of such protocols, City departments, including DPT, could make greater use of the Industrial Disability Retirement provisions of the Charter.

Other Recommendations

• DPT should implement several recommendations made by the Special Assistant to the Executive Director. For example, in order to hold managers and supervisors more accountable for work-related injuries, performance standards should be developed in order to evaluate the performance of managers and supervisors in controlling workers compensation expenditures. Workers compensation claims and expenditure information should be distributed to managers and supervisors on a regular basis so that they are made aware of the extent to which the employees within their divisions or sections are contributing to DPT"s escalating workers compensation costs. In addition, DPT should develop an incentive program to reward managers and supervisors for reducing workers compensation costs.

• DPT should request additional funding to hire a full-time Safety Analyst to coordinate the comprehensive implementation of DPT"s Safety Program, eradicate safety hazards, conduct training, and perform other related duties. The additional cost to increase DPT"s existing 0.5 FTE Safety Analyst to full-time status would be approximately $47,921 per year. Continued funding for this position at full-time status beyond FY 2001-02 should be based on DPT"s ability to demonstrate the effectiveness of this position in reducing workers compensation expenditures.

• Given the escalating workers compensation expenditures citywide, the Mayor and Board of Supervisors should evaluate and consider improvements to the City"s current strategies for controlling workers compensation costs.

Estimated Costs and Savings

In summary, in order for DPT to gain control over its escalating workers compensation costs, we are recommending that DPT implement its Workers Compensation Cost Containment Plan starting in FY 1999-2000. DPT should continue to dedicate the existing Special Assistant to the Executive Director to coordinating and implementing the Cost Containment Plan, in addition to performing her other duties.

The Cost Containment Plan would involve expenditures of between $231,822 and $288,483 annually in the first five years and on-going expenditures of approximately $266,022 annually thereafter. We believe that the implementation of our recommendations would enable DPT to reduce its workers compensation expenditures by $2,776,341 over the first five years. This would be offset by expenditures of $1,265,601, resulting in a net savings in workers compensation expenditures of $1,510,739 over the first five years. The on-going net savings would be approximately $1,451,080 annually. Our recommended expenditure plan and projected cost savings are shown in Table 2.3 on the following page.

As shown in Table 2.3, growth in DPT"s workers compensation expenditures would slow from the current average growth rate of 15 percent annually to an average of approximately 5.0 percent per year. After the third year, the approval of continued funding for this program should be based on DPT"s ability to demonstrate reductions in its workers compensation expenditures.   Table 2.3 Recommended Workers Compensation Expenditure Plan and Cost Savings

Notes:

1. Projected Workers Comp. Expenditures without a Cost Containment Program are based on DPT"s historical growth rate of 15 percent per year over the past three years.
2. Projected Workers Comp. Expenditures with a Cost Containment Program assume reductions in the growth rate as follows:

   FY 1999-00: Stabilize growth rate at FY 1998-99 rate of 12%

   FY 2000-01: Reduction of 3% in growth rate to 9%

   FY 2001-02: Reduction in growth rate of additional 2% to 7%

   FY 2002-03: Reduction in growth rate of additional 2% to 5%

   FY 2003-04 and thereafter: Growth rate of 5% per year

3. Assume 3.5 percent annual growth rate starting in FY 2000-01. Continued funding for this position beyond FY 2001-02 should be based on DPT"s ability to demonstrate the effectiveness of this position in reducing workers compensation expenditures.
4. Assume 3.5 percent annual growth starting in FY 2000-01.

Conclusions

DPT ranks third behind the Fire Department and Muni in workers compensation expenditures per employee. Actual expenditures have increased by 24 percent per year over the past five fiscal years. Projected FY 1998-99 expenditures are $2,143,948, or $420,359 more than budgeted expenditures. Currently, DPT spends an average of $7,063 per claim, and 44 percent of DPT"s workforce has at least one active workers compensation claim.

Additionally, 86 percent of work-related injuries result in lost workdays. Work-related injuries have resulted in 20,836 lost workdays over the past nine years. This corresponds to lost productivity of nearly $4.2 million in salaries and benefits, or an average of $465,867 annually. In addition, this lost productivity negatively impacts service levels, thereby contributing to increased traffic congestion, reduced parking turnover, reduced revenues, and increased complaints from the public.

Employees missed an average of 66 workdays each, with 91 employees missing more than three months of work, including 15 employees missing more than one year of work. One employee missed over three years of work as a result of an injury. We also identified numerous instances of employees filing multiple claims in one year, in successive years at the same time of year, or for the same type of injury, indicating potential abuse of the workers compensation system.

DPT has developed a Workers Compensation Cost Containment Plan. We support the funding and implementation of this plan, including improved case management and claims administration. In addition, we recommend that DPT expand its Modified Duty Program and the use of Industrial Disability Retirements in order to improve worker productivity and reduce workers compensation costs.

The implementation of our recommendations would enable DPT to reduce its workers compensation costs by $2,776,341 over the next five years. This would be partially offset by additional costs of $1,265,601, resulting in net savings of $1,510,739 in the first five years, with on-going net savings of $1,451,080 per year thereafter.

Recommendations

The Executive Director should:

Costs and Benefits

Our recommended Workers Compensation Cost Containment Plan would involve expenditures of between $231,822 and $288,483 annually in the next five years and on-going expenditures of approximately $266,022 annually thereafter. The implementation of our recommendations would enable DPT to reduce its workers compensation expenditures by $2,776,341 over the first five years, offset by expenditures of $1,265,601 during this period, for a net savings in workers compensation expenditures of $1,510,739 over the next five years. The on-going net savings would be approximately $1,451,080 annually. We estimate that growth in DPT"s workers compensation expenditures would slow from the current average growth rate of 15 percent annually to an average growth rate of approximately 5.0 percent per year.

Other benefits would include (a) increased worker productivity resulting from improved attendance and the use of modified duty assignments; and (b) improved administration of workers compensation claims. In addition, the greater utilization of the Industrial Disability Retirement provisions of the Charter would enable the DPT to (a) create an additional option for permanently injured employees who may not be suitable for modified duty; (b) fill positions currently occupied by permanently disabled employees with new, fully productive employees; (c) separate employees for whom the City may incur substantial indemnity and medical expenditures through the workers compensation system; and (d) potentially realize savings in workers compensation costs by transferring a portion of these costs and savings to the Employees Retirement System.