Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Labor, to which was referred S.C.R. No. 147 entitled:

begs leave to report as follows:

The purpose of this measure is to request that the Auditor conduct a management audit of the Department of Labor and Industrial Relations' Disability Compensation Division.

Testimony in support of the measure was received from the Hawaii State Chiropractic Association, the Hawaii Chapter of the American Physical Therapy Association, First Physical and Functional Rehab, Wahiawa Physical Therapy Inc., and Waianae Valley Physical Therapy Inc. The Hawaii Medical Association testified in support of the measure but asked that the measure's content be expanded to include a study of whether injured employees were receiving adequate access to medical care due to the low reimbursement rates provided under the workers' compensation medical fee schedule. First Insurance Company of Hawaii, Ltd. and the Building Industry Association testified in opposition to the measure. The Department of Labor and Industrial Relations' Disability Compensation Division submitted comments on the measure. The Hawaii Employers' Mutual Insurance Company, Inc. submitted concerns over the singling out of the Disability Compensation Division as the subject of the audit.

Your Committee finds that the Department of Labor and Industrial Relations has overall responsibility of administering the workers' compensation law through the Disability Compensation Division; accordingly it is imperative that the Division is managed efficiently in order to achieve improvements in claims processing throughout the State.

Your Committee also finds that in 1995, the Legislature enacted sweeping reforms to the State's Workers' Compensation Law. These reforms, primarily contained in Act 234, Session Laws of Hawaii 1995, set the stage for other reforms that occurred in 1996 and 1998, which resulted in the reduction of workers' compensation insurance premium rates by approximately forty to fifty percent over the ensuing five years.

As one of the cornerstones of this reform effort, the tying of the workers' compensation medical fee schedule to 110% of the federal Medicare Resource Based Relative Value Scale (MRBRVS) system was implemented to help curb rising medical costs, which were identified as being a primary component of upwardly spiraling workers' compensation insurance premiums.

Since its inception, the tying of the medical fee schedule to 110% the MRBRVS has been met with much dissatisfaction by the health care community. Each year since the enactment of Act 234, anecdotal accounts of health care providers leaving the State or refusing to accept any new workers' compensation cases due to the low cost recovery rate has been presented to the Legislature. Your Committee believes that in order to make well-informed decisions over any adjustments to the State's Workers' Compensation Law, more information on the operating efficiency of the Disability Compensation Division and the fairness of health care provider compensation under the medical fee schedule is in order.

Your Committee has therefore amended the measure by amending its title and body to include as a part of the audit, a study of the concerns raised by the Hawaii Medical Association regarding whether injured employees were receiving adequate access to medical care due to the allegedly low reimbursement rates provided under the workers' compensation medical fee schedule.

Your Committee believes that the amended measure will assist the Legislature in providing useful information to determine whether further adjustments need to be made to the State's Workers' Compensation Law.

As affirmed by the record of votes of the members of your Committee on Labor that is attached to this report, your Committee concurs with the intent and purpose of S.C.R. No. 147, as amended herein, and recommends its adoption in the form attached hereto as S.C.R. No. 147, S.D. 1.