NOTICE OF HEARING TO CONSIDER AMENDMENTS TO THE
WORKERS’ COMPENSATION RULES OF PROCEDURE, 7 CCR 1101-3

Notice is given of a public hearing to afford all interested persons an opportunity to be heard prior to the adoption of proposed amendments to the Workers’ Compensation Rules of Procedure, 7 C.C.R. 1101-3 as described below.  The Director of the Division of Workers’ Compensation has the authority to promulgate rules pursuant to the Workers’ Compensation Act as set forth in C.R.S. sections 8-47-107 and 8-43-304(1.5)(a).

Date and Time of Hearing:	June 4, 2007
9:30 a.m. (or at the conclusion of the prior hearing on Rule 3 and Rule 5)

Place of Hearing:			2nd Floor Conference Room
					633 17th Street
					Denver, CO

The public hearing will be held in accordance with the provisions of the Colorado Administrative Procedures Act, section 24-4-103, CRS.  Any interested party is invited to appear at the hearing and testify or to submit written data, arguments or position papers to Bob Summers, Director, Division of Workers’ Compensation, 633 17th Street, Suite 400, Denver, CO 80202.  Any written submissions should be submitted to the Director prior to the hearing on June 4, 2007.   

The topic to be considered is:

Rule 4: 	Striking the current Rule 4 and promulgating a new updated rule.  While portions of the proposed rule are very similar to the current rule, proposed revisions/amendments will provide information to those responsible for adjusting claims to assist them in understanding the Division’s audit responsibilities, authority, methods and process.  Proposed revisions/amendments will specifically inform insurers of claims adjusting matters that are subject to audit and the compliance level that is considered satisfactory. The revisions/amendments also provide the circumstances under which the director may order a fine for repeated violations, and criteria for determining the amount of any fine.   

Proposed rule revisions will be available at the Department’s website on or before May 25, 2007.  Copies of the proposed rules, the proposed statement of basis and purpose, and a regulatory analysis will also be available on May 25, 2007 at the Division’s Customer Service Office, 633 17th Street, 4th Floor, Denver, Colorado, or on the website.

Bob Summers			April 19, 2007
Director              	DATE

DEPARTMENT OF LABOR AND EMPLOYMENT
Division of Workers’ Compensation
7 CCR 1101-3
	wORKERS’ COMPENSATION RULES OF PROCEDURE
Rule 4	Carrier Compliance
The entire text of Rule 4 has been stricken and replaced by the following: 
 4-1 	COMPLIANCE AUDITS

(A)	Every insurer shall submit to compliance audits of its claims by the Division of Workers’ Compensation for those injuries arising on or after July 1, 1991. The purpose of compliance audits is to examine whether claims are adjusted in accordance with the Workers’ Compensation Act and the Workers’ Compensation Rules of Procedure. Compliance audits are a method for the Division to regulate and oversee the Workers’ Compensation system. A compliance audit conducted pursuant to this rule 4 is intended to be an autonomous process.  

(1)	Identifying and underlying claim information examined as part of a compliance audit is accessible only to the insurer under review and shall not otherwise be open to any person except upon order of the director.  If the director issues an order in a specific claim the order will be sent to all parties.

(2)	Division personnel shall give advance written notice of the compliance audit to the insurer and provide an initial list of claims to be audited.  If additional information is requested for the compliance audit, it must be provided.  Unless the Division determines that circumstances warrant otherwise, the insurer will be given at least 15 calendar days notice.

(3)	The insurer shall make the claims selected for the compliance audit and any requested information, including training and procedure manuals, available to the auditor at the time and place designated by the auditor.  If the audit requires out-of-state travel by the auditor, the insurer may be required to pay travel costs.

(4)	Failure to make claims and/or information requested by the auditor available to the auditor for audit shall be considered willful refusal to comply with Division efforts.

(5)	The insurer shall indicate the dates of its receipt on all documents it files with the division as well as on all medical bills and reports. For those documents required to be exchanged, the insurer shall indicate on the face of the documents or by some other verifiable method, the date the documents were mailed or delivered and to whom they were mailed or delivered.

(B)	A compliance level will be determined for each category examined during the audit. A compliance level is the ratio of deficiencies found within a category in relation to the total number of applicable audit inquiries reviewed in that category. A deficiency is a failure to comply with statute or rule. The categories to be examined during the compliance audit may include but are not limited to the following:

(1)	Reporting of claims.
(2)	Initial positions on liability.
(3)	Timeliness of compensation payments.
(4)	Accuracy of compensation payments.
(5)	Medical benefit payments.
(6)	Termination of temporary disability benefits.
(7)	Final Admissions.
(8)	Average weekly wage.
(9)	Waiting period.
(10)	Document exchange.

(C)	For the categories listed in subparagraphs 1 through 7 in paragraph (B) of this rule 4-1, fines will be imposed for the repeated failure to demonstrate satisfactory compliance. A compliance level of 90% or higher is considered satisfactory compliance.  No fine will be imposed for deficiencies in any category in which satisfactory compliance is determined in the compliance audit.  For the categories listed in subparagraphs 8 through 10 in paragraph (B) of this rule 4-1, the auditor will comment upon the insurer’s adjusting practices but fines will not be imposed for deficiencies found on compliance audits in those categories.

(D)	After reviewing the insurer’s procedures and examining the claims selected for audit and other information requested, the auditor will provide the insurer with preliminary audit findings, including compliance levels.  Thereafter:

(1)	The insurer will have thirty (30) calendar days within which to agree in writing with the preliminary audit findings.  If the insurer does not agree with the preliminary audit findings it shall, within the same 30 calendar days, state with particularity and in writing to the auditor its reasons for all disagreements. The insurer must simultaneously provide therewith in writing all relevant legal authority, and/or other relevant proof upon which it relies in support of its position(s) concerning its disagreements with the preliminary findings.  Any disagreement not so submitted to the auditor within this 30 day period is waived.
(2)	The auditor, the auditor’s manager and the insurer shall have twenty (20) calendar days after submission of the written disagreement with the preliminary audit findings within which to resolve those disagreements and to agree to the preliminary audit findings. 

(3)	If the auditor, the auditor’s manager, and the insurer are unable to agree on the preliminary findings within the 20 day period afforded in paragraph (D)(2) of this rule 4-1, the preliminary audit findings along with the insurer’s written disagreements will be referred to the director for the director’s determination regarding the audit findings. The final determination of the relevance and/or weight given to any authority or proof submitted in connection with the insurer’s disagreements regarding audit findings is reserved to the director.
  
(4)	When a determination regarding audit findings has been made by the director, the director will thereafter cause the Final Audit report to be prepared and/or order such other action as the director may determine warranted.

(5)	When the insurer has agreed to the preliminary audit findings without disagreement, or when the insurer fails to disagree therewith in the manner provided in this rule 4-1(D) or, when the insurer agrees to the preliminary findings before the time for referral to the director under rule 4-1(D)(4) has occurred, or when the director has made a determination regarding audit findings as provided in paragraph (D) of this rule 4-1, the Final Audit report will issue. The Final Audit report will contain a summary of the final audit findings, comments on the insurer’s adjusting practices, and a determination of the insurer’s compliance levels. Fines will be ordered as determined by the director in accordance with rule 4-2.

(6)	Insurers may be required to correct deficiencies in all claims covered by the audit period if the compliance level for any identified category is below 90%.  Insurers may also be required to undergo training if indicated by audit results or for such other reasons as may be determined by the director. 

4-2	     FINES

(A)	An insurer’s first audit conducted after January 1, 2006 measures and establishes the insurer’s levels of compliance with applicable statutes and rules in identified categories.  A compliance level below 90% in any compliance category is considered unsatisfactory. A compliance level below 90% in a compliance category listed in subparagraphs 1 through 7 in paragraph (B) of rule 4-1, on consecutive compliance audits is considered repeated non-compliance.  Repeated non-compliance in any category set out in rule 4-1(B)(1) through (7) shall result in the insurer being ordered to pay a fine. 

(B)	In order for an insurer’s unsatisfactory performance to result in fines for failure to meet the 90% compliance standard in any category set out in rule 4-1(B)(1) through (7), its compliance level in that category must be below 90% on at least two consecutive audits.

(C)	Each category for which a fine may be imposed has a fine schedule. The amount of any fine will be determined in accordance with the findings in the Final Audit report and in accordance with this rule 4-2. Fines for repeated violations in any category set out in rule 4-1(B)(1) through (7)  are based on the compliance level for that category and as set out in this rule 4-2.  

(D)	The dollar amount of a fine is arrived at by first locating the insurer’s compliance level on the appropriate schedule found in paragraph (E) of this rule 4-2. The number of identified deficiencies in the relevant category is multiplied by the “per deficiency” dollar amount for the appropriately numbered finable occurrence indicated in the schedule to arrive at a fine amount for that category.

(E)	The fine schedule for each finable compliance category is as follows:

(1)	For the categories listed in rule 4-1(B) subparagraphs 1,5,7:

Fines per Audit Deficiency per Compliance Category	

Compliance        Level	
1st 
Finable Occurrence 	
2nd
Finable Occurrence 	
3rd and Later
Finable Occurrence 		

80-89%	     
$30	
$60	     
$90		
70-79%	60	90	120		
60-69%	90	120	150		
<60%	
120	
150	
180		

(2)	For the categories listed in rule 4-1(B) subparagraphs 2,3,4,6: 

Fines per Audit Deficiency per Compliance Category	

Compliance level	
1st
Finable Occurrence	
2nd
Finable Occurrence	
3rd and Later
Finable Occurrence 	
80-89%	     
$50	     
$100	     
$200	
70-79%	
100	
200	
400	
60-69%	
200	
400	
600	
<60%	
400	
600	
1000