NOVEMBER 16, 2015: With carve-out programs on the rise in California, a report by a carve-out administrator aims to show that alternative dispute resolution lowers litigation rates along with the delays in care and inflation of costs they entail.

Elite Force Management, a Westlake Village company that creates carve-out programs, released a white paper last week that showed low litigation rates when claims were involved in alternative dispute resolution. According to data from the Division of Industrial Relations and the Commission on Health and Safety and Workers’ Compensation, 1.4% of claims in carve-out programs in 2011 involved litigation. The highest rate of litigation in the eight years prior was 6.5% in 2007.

While a direct comparison outside of carve-out programs wasn’t available, the white paper says that 38.1% of all lost-time claims in California from 2005-2010 involved claimants who had legal representation.

According to Elite Force, the avoidance of litigation is a benefit for employers, payers and injured workers. Lost-time claims where the injured worker had an attorney cost an average of $30,000 versus $6,000 for unrepresented claimants, according to statistics from the California Workers’ Compensation Institute presented in the report.

Meanwhile, according to carve-out administrator Chris Reinhardt, injured workers avoid a court system that can move slowly and therefore delay resolution of claims and the payment of benefits.

“From our perspective, what we feel the big advantage … is that we’re not going through the WCAB, which is tremendously bogged down with cases,” said Reinhardt, who works with construction unions to run carve-outs.

While not quite as separated from the rest of the state workers’ compensation as the Texas and Oklahoma opt-out programs, ADR nonetheless keeps cases out of court.

“Some programs actually deny attorney participation until arbitration,” Reinhardt said. “Others recognize that attorneys are going to be involved and we try to keep them at a friendly distance.”

According to the Elite Force Management white paper, the average cost of a claim in a carve-out program during the eight-year study period was $13,940.

The concept appears to be growing in popularity, Reinhardt said. While carve-outs have existed in California for more than 20 years, they’ve mostly gained ground in the construction industry.

“Almost every unionized construction trade has an ADR program,” Reinhardt said in a Friday interview.

But in 2003, Senate Bill 228 opened up carve-outs to any unionized industry. These days, Reinhardt said, he’s seeing increased interest in other industries.

“We believe they’re becoming more popular,” he said. “We’re seeing a gradual (uptick) in activity, and what I mean is, we’re having more inquiries, more participants signing into the ADR programs, and we’re seeing more programs come onto the scene, particularly … outside construction.”

One area that has seen some growth is among grocery stores, Reinhardt said. In 2013, the Division of Workers’ Compensation approved a carve-out agreement between Albertson’s, Vons and seven local grocery worker unions in Southern California. The agreement covered about 20,000 employees.

“(Grocery stores) have a large employee base, they also have the labor-management agreements that usually have to be negotiated,” he said.

He also noted some growing interest among public entities. In July last year, the Orange County Fire Authority struck a carve-out agreement with the Orange County Professional Firefighters Association.

The number of carve-out programs has grown since the early 2000s, according to a studyfrom the Division of Workers’ Compensation. In the fourth quarter of 2004, there were 13 construction industry carve-outs. By the first quarter of 2011, there were 24 programs in the construction industry and four outside the construction industry. During that quarter, 38,968 full-time equivalent positions were covered through carve-outs.

However, there are some barriers in the way of more unions and employers pursuing carve-outs. Only unionized workers are eligible for alternative dispute resolution under California law. From an employer’s perspective, the process of setting up a program involves up-front costs, negotiation with labor unions and approval from the DWC. And while the program can offer faster dispute resolution, it doesn’t necessarily lower an employer’s insurance rates right off the bat.

“You may have other carriers that are pricing their product below where we’re able to price it as an ADR carrier,” he said.

Some are willing to offer discounts to employers participating in carve-outs because of the lower cost of litigation, he said. That means lower claim costs, and therefore lower insurance rates over time.

“We find that the experience (modification rating) has been proven in many cases to drop dramatically, 30 or 40% over three or four years,” he said.

But there’s also a lack of knowledge among many about how the programs work, Reinhardt said. The Elite Force Management white paper pointed to many shortfalls in the data available that prevents a better understanding of whether the programs are doing what they’re meant to. The Workers’ Compensation Insurance Rating Bureau and DWC don’t collect the same information for carve-outs that they do for other types of claims, which prevents direct comparison, according to the report.

“We find that there are many agents and brokers out there that really aren’t that familiar with it still,” Reinhardt said.

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by Ben Miller, Work Comp Central