Title: Pahos is a partner in the firm Kester/Pahos
Resume: Pahos moved to Sacramento in 1990, when he worked with Senate Democratic leadership handling press issues. In the early ‘90s, Pahos joined the Firm of George R. Steffes. Pahos worked on workers’ comp issues for many of the large-employer clients during the 1993 reforms. In 1998, he left to become a partner in Public Policy Advocates. In 2002, Pahos formed the firm of Kester/Pahos.
Schools: Pahos graduated with honors form Long Beach State University and participated in the Sacramento Semester Internship program.

Considered one of the rising stars for the insurance lobby, Pahos has argued passionately and articulately before the Legislature on such matters as solvency and self-insured groups. His clients include influential industry groups such as the Association of California Insurance Companies.

What are the top three issues in California workers’ comp today?  
I think the top three are: permanent disability benefit levels, increased costs in medical delivery, uncertainty in two en banc decisions: the Almaraz and Ogilvie cases. On the permanent disability benefit, I’m indifferent. The insurance position has been that it has been a point of contention between employers and employees. They were promised revised permanent disability schedule and they’re not getting it. That doesn’t seem right.

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?  
I think we would have been headed for a hard market except that employment is down. Because of that, there’s a big question mark over whether or not there’s a hard market coming. If it were to come, it would be coming pretty soon. If the economy heats up, it will be coming because of uncertainty of medical costs right now.

It’s no longer a question of if but when we enter a hard market, so what is in the future of State Compensation Insurance Fund? Will its market share climb back to historic levels? Do you think that further reforms are needed for the governance of State Fund, for example, does it make sense to have Senate confirmation for board members?  
I don’t know if it would go back to historical levels, but there would be a significant increase [in the State Fund’s market share.] You have a component that you haven’t had before: historic levels of unemployment, specifically in construction industry. The market’s only going to get so hard because of the low demand for workers’ comp policies. [On whether further governance is needed for State Fund’s board members:] I disagree with that. You have to let the current reforms settle down and take place and see how the State Fund operates. The past board made a lot of improvements and it’s too soon to [ask for more reforms.]

Are medical provider networks a help or a hindrance? How should they be improved?  
I consider them a help, but not necessarily because you have a medical provider network and a utilization review process that’s part and parcel to the network. They’re not a panacea: We need to strengthen medical provider networks. I think one of the things we should do is give medical provider networks greater contractual ability, give them greater oversight (over pharmaceutical dispensing, for example), and they need to create medical formulary.

How should utilization review be improved?  
I’m not sure how it should be improved. I think that the utilization review process in the market needs to mature and carriers need to feel comfortable about when to use utilization review rigorously and when not to use it at all. The group health care system got good at knowing when not to use utilization review. They got efficient because not everything needs utilization review. It’s difficult because the medical delivery system in workers’ comp changes dramatically. You have utilization review for new things or different things that they haven’t done in the past. For example, now they see drug compounding that’s replacing old drug dispensing. How do you utilization review for that? There’s nothing to do in the government to change that, we have to get adept at using utilization review.

What needs to be done to improve return-to-work?  
I think there needs to be more coordination between doctors, carriers, and [employers]. A worker is given a return-to-work application at the same time that their permanent disability is awarded and all the other benefits are offered to them. Sometimes the timing doesn’t work, the way it is now. In the state of the economy, return-to-work is more of a challenge. Jobs change more quickly, and more jobs are at small firms. That creates a real problem for return-to-work challenges. The government needs to do a better job of incentivizing new industries and having robust retraining programs. At the same time, our economy is going through massive transformation every decade, but we have less and less money for job retraining.

What do you see, other than medical, as the next big cost driver?  
I think the entire med-legal process as it relates to the en banc decisions and other indemnity questions. We did reform in 2004 but the entire indemnity level debate is being scrambled through Workers’ Comp Appeals Board decisions and a general departure from what was passed in 2004. As you have uncertainty in the cost of medical delivery, you are having an increased in indemnity uncertainty. There is also frictional cost in the legal and appeals systems.

Is it realistic to deal for more cost-cutting reforms in exchange for increasing PD benefits?  
I don’t know that you get a dollar-for-dollar exchange. You never did get that. But I do think that additional amendments to the medical delivery statutes and regulations are going to be required. I think it’s just that the desire for permanent disability awards on the part of labor that will make that happen. We have this exchange between improvement to the system and benefit increases. It’s not realistic to hope for equilibrium between those two.

Where do you see applicant attorneys focusing litigation in the future?  
I think on the opportunity presented with Ogilvie/Guzman. They look at the AMA guides and I think that they continue to pick them apart. And the uniformity that was envisioned in SB 228 and AB 227 has become a burden.

Now that the federal health care bill has become law, what impact, if any, do you see that having on workers’ compensation and do you have any concerns?  
There will be some, because, out of the box, it requires people to carry health care. Two, I think that the increase in insured lives will affect the practice of medical groups and I think that will probably affect the practice in workers’ comp. A medical provider network is just another crossover between group health and workers’ comp health. I think the changes in the delivery of care will benefit workers’ comp.

What is the effect of more than $1 billion in payroll being absorbed by the self-insured groups?  
I think it’s going to create a lot of bad volatility. There’s nothing wrong with the self-insured group model—it’s a good model—but when you superimpose that model on a significant contraction of economic activities, particularly in those sectors that have self-insured groups, you have a potential disaster in the making. We just need to take statistics to ensure that there’s adequate capital to underwrite these self-insured groups and I don’t think we know [the appropriate statistics.]

With the budget constraints, is there any appetite for major reform or simply piecemeal changes to specific challenges?  
There’s no appetite for major reform this year. That has less to do with the budget and more to do with the fact that you have an outgoing administration. Folks are waiting to see who the next administration is.

Governor Schwarzenegger signed bills allowing predesignation to continue (SB 186), tweaking utilization review (AB 361), and limiting the denial of benefits (AB 1093). There are also other bills that increase benefits moving through the Legislature, that may or may not get signed (the governor has shown a willingness to do both). What impact could these, if any, have on costs?  
Because of the bills that are going through the Legislature, if you’re a public employer there are huge cost impacts out there. For the private market, there’s nothing particularly significant, except that there is pending legislation on limiting pharmaceutical costs and I think that would have a positive impact on costs for all employers. The threat is to public employers. We’re going to put those guys out of business with the presumption bills authored by Democratic legislators. [I]f they do [get signed], they’ll have huge cost implications.