Title: Director, California Department of Industrial Relations (DIR).
Resume: Duncan has had a distinguished career in both state and federal service, including an appointment as special assistant to former U.S. Secretary of Defense Caspar Weinberger. He assisted the secretary in writing Fighting for Peace, an autobiographical account of the secretary’s years at the Pentagon.
Schools: University of California, Berkeley; Harvard University, John F. Kennedy School of Government
Awards: Secretary of Defense Award for Outstanding Public Service
Boards: Duncan is a board member of the Yosemite National Institute and immediate past president of the Industrial Relations Association of Northern California, and former chair of the California Employment Training Panel. He is also an ex officio member of the State Compensation Insurance Fund Board of Directors. Prior to his current appointment, he was chair of the Public Employment Relations Board (PERB) from March 2004.

Duncan is the current director of the Department of Industrial Relations. He has an expansive career in both state and federal service, having served in DIR previously as chief deputy director from 1995 to 1999. In this position, Duncan has considerable input into the workers’ comp rules and regulations as well as health and safety. He is the face of the administration on such issues as the permanent disability rating schedule and health and safety enforcement.

What are the top three issues in California workers’ comp today?  
Rising medical costs, consistency and proper application of the law. By proper application of the law, I mean that the challenges to the permanent disability system and the WCAB Almaraz/Guzman and Ogilvie decisions have conflicted with the legislative mandate for a consistent, uniform and objective permanent disability rating schedule. Specifically, Labor Code Section 4660 (d) clearly mandates that “the schedule shall promote consistency, uniformity, and objectivity.”

Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?  
Employers have saved over $50 billion from the WC reforms, and it is difficult to imagine what the market would have looked like for employers without those reforms. We are beginning to see prices and costs go up again, although certainly not at the pre-reform level. We need to maintain the cost savings that were established by the reforms, or we may see a hard market. Especially in this economy, this would be particularly difficult for businesses.
As part of our efforts to secure savings and further reduce costs, I recently announced our 12-point regulatory plan targeted at identifying and containing the principal medical-related cost drivers in the WC system. This plan will assist in preventing an increase in costs at the level that occurred in the past. Highlights of this plan include:

• Improve electronic medical billing.
• Streamline the utilization review process.
• Simplify medical provider network rules.
• Create pharmacy networks to control drug costs.
• Address the pass-through that allows hospitals to bill insurers and employers for the full cost of spinal-fusion hardware.
• Update the ambulatory surgery center fee schedule.
• Adopt a resource-based relative value scale (RBRVS) medical fee schedule.
• Tighten the Official Medical Fee Schedule.

What is the future of the State Compensation Insurance Fund? The governor says that $1 billion of its assets are to be sold. Will it happen? If it does, what will this mean for the carrier and the market as a whole?  
State Compensation Insurance Fund plays a vital role in the California economy and the WC system in particular. But for State Fund, during the period of major insolvencies, California employers would not have had a place to get insurance. High-risk employers continue to obtain coverage from State Fund. Yes, State Fund can improve delivery, but so can many of the insurers. I do not see State Fund going away.

Are Medical Provider Networks a help or a hindrance? How should they be improved?  
Medical provider networks (MPNs) have been an improvement to the WC system. Over 60% of all care in workers’ compensation is now handled through networks, which have been instrumental in containing the rising medical costs. But network care needs constant evaluation and monitoring to improve and make adjustments when necessary. Further streamlining is probably needed. We recently revised regulations for health care organizations to make them more comparable to medical provider networks and to provide a competitive option for network care for employers. Those regulations become effective January 1. Some additional technical and legislative improvements may be needed now that we have experience with networks.

How should utilization review be improved?  
Utilization review can be improved by ensuring that the networks [comprise] the best physicians who follow the treatment guidelines. We have continuously supported the establishment of utilization review best practices that allow claims administrators to approve appropriate levels of care for injured workers at the lowest possible levels within the claims organization, without having to send those requests through a third-party process. In other words, only formal utilization review should be done when it is necessary.

What needs to be done to improve return-to-work?  
More workers need to be returned to their at-injury employer. The system also needs to be simplified. Right now, there are too many unnecessary deadlines that cannot be met on technicalities. The goals of the reforms — prompt and effective medical treatment and early return-to-work — should be the primary focus of the system. Definitely, return-to-work processes can be streamlined for the benefit of the worker and employer.

What do you see, other than medical, as the next big cost driver?  
Medical is clearly the biggest cost driver. In addition to that, we have unnecessarily large administrative costs to deliver benefits and, of course, the ongoing problems stemming from recent WCAB decisions in the Almaraz/Guzman and Ogilvie cases in particular.

Is it realistic to negotiate more cost-cutting reforms in exchange for increasing permanent disability benefits?  
In the current bad economy, employers cannot absorb increased benefits without some corresponding cost containment. The Legislative Analyst’s Office recently released a report suggesting possible approaches to addressing this challenge that we could look at this year. They provided three alternatives:
Do nothing. Clarify the statute to specify which portions of the Permanent Disability Rating Schedule (PDRS) are rebuttable. Modify the PDRS to change the amount of permanent disability compensation. Clearly the most feasible alternative would be to clarify the statute.

Where do you see applicant attorneys focusing litigation in the future?  
The applicants’ attorneys may shift their emphasis to FEHA and ADA compliance, which are outside of workers’ compensation. They also may continue to challenge the PDRS as a means to increase benefits.

What role, if any, do you see WC playing in the Obama administration’s health care debate?  
We are monitoring the debate and tracking any mandates. There may be opportunities to integrate non-occupational with occupational care.

What is the effect of more than $1 billion in payroll being absorbed by SIGs?  
Obviously, there is that much less payroll for insurance companies. SIGs account for approximately 1% of all state payroll, 3% of all self-insured payroll and 6% of private self-insurers. This last number is most important because SISF stands as a backstop to any group failure. The magnitude of total liabilities of each SIG is smaller than the largest or midrange private self-insurers. The requirements for reserves on open cases are rigorous, with deposits equaling 135% of open cases. SIGS must also carry excess insurance for individual cases that reach over $500,000. If a self-insurer has a deficit, it must report the deficit and a plan to cure that deficit. Currently, all SIGs with a deficit have submitted a plan to correct their deficit.
To further ensure the strength of SIGs, we are considering the following regulations:
Allow SISF to have access to financial and actuarial reports from SIGs on a routine basis. Have group administrators and forensic accountants on contract on an as-needed basis. Broaden the power to appoint a conservator to include refusal to provide requested information or when there is evidence of wrongdoing and not just when the self-insurer admits it is underfunded. Institute qualifications for group administrators. Change investment regulations to make clear that SIGs may invest in multiple certificates of deposit in several banks to ensure that their surplus funds are fully insured. All in all, SIGs offer a very competitive and, if properly regulated, a good alternative to the traditional insured market for workers’ compensation.

Governor Schwarzenegger signed bills allowing predesignation to continue (SB 186), and tweaking utilization review (AB 1093). What impact, if any, could these bills have on costs?  
We do not believe SB 186 will have a large impact. We believe it provides access to quality care that employees already had available in their health care. In fact, there is little usage of predesignation in the system. The Public Policy Institute of California did a study and it showed that compared to employer choice, when workers chose a prior provider (predesignation), costs and outcomes were about the same.

What are the top three regulatory challenges facing the workers’ comp system?  
We are working actively with WC stakeholders to identify areas that can be streamlined and improved. The challenges of almost any change are the issue of unintended consequences. We will proceed with research and discussion to develop informed decisions.