Commentary…

Los Angeles Cost Creep

By: Mark Webb

On July 8th, Los Angeles Mayor Eric Garcetti signed an ordinance submitted to him unanimously by the City Council to raise the minimum wage for certain healthcare workers to $25 per hour.

According to the Mayor, the ordinance will benefit approximately 20,000 healthcare workers in the city of Los Angeles. The healthcare workers who will receive this increased wage are more than professionals who provide direct patient care. According to the ordinance, “Healthcare Worker” is defined as a clinician, professional, non-professional, nurse, certified nursing assistant, aide, technician, maintenance worker, janitorial or housekeeping staff person, groundskeeper, guard, food service worker, laundry worker, pharmacist, nonmanagerial administrative worker and business office clerical worker. The term does not include a manager or supervisor.

The ordinance will become effective August 13th and will be adjusted annually for inflation. The swift action by the Mayor and Council forestalled an initiative proposed by SEIU-United Healthcare Workers West which had qualified for the November ballot. Unlike statewide initiatives, the City of Los Angles allows proponents to file a petition requesting adoption of an ordinance by the City Council. Had the Council had not adopted the ordinance, it would have been submitted to the voters.

On July 1st, the general hourly minimum wage in the City of Los Angles increased to $16.04. For minimum wage workers in the applicable healthcare facilities, this means roughly a 55 percent salary increase in mid-August.

The healthcare facilities subject to this ordinance are privately owned acute care hospitals, acute care psychiatric hospitals, and dialysis clinics. It also applies to integrated healthcare delivery systems (IDS) in which there are hospitals. It does not apply to public facilities.

Proponents of the ordinance claim the increase is the solution to the problems of staffing shortages in the healthcare industry and to ease the effects of inflation on low-wage healthcare workers. In fact, the ordinance makes this finding: “Adequate compensation will help address the burnout, retention challenges, and worker shortages affecting healthcare workers in Los Angeles.”

Of course, no pro-labor action would be complete without pointing out these private hospitals and clinics made huge profits during the pandemic and, per the ordinance, “The healthcare industry needs to use some of its profits to fairly compensate workers who are sacrificing every day to care for their patients.”

So, what does this have to do with workers’ compensation? Certainly, the increase will affect the workers’ comp premium and claim costs of the healthcare facilities.

But, more importantly, it will also impact the underlying costs of these entities. That, in turn, will impact the reimbursement rates they are entitled to under the Official Medical Fee Schedule (OMFS) or, potentially, under contract rates negotiated with entities that provide network services for medical provider networks (MPN).

And that will increase costs for everyone doing business in Los Angeles.

 

Note: The opinions expressed herein may or may not be those of Workers’ Comp Executive. Mark Webb is a former Arizona insurance regulator, insurance company chief compliance officer, and is an expert in corporate governance, risk and compliance. He is the owner of Prop 23 Advisors.