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Department of Industrial Relations
Its Failure to Adequately Administer the Qualified Medical Evaluator Process May Delay Injured Workers’ Access to Benefits

Report Number: 2019-102


October 25, 2019

Elaine M. Howle, CPA
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814

Dear Ms. Howle:

The Labor and Workforce Development Agency has authorized me to respond to the California State Auditor’s draft report on the Department of Industrial Relations’ administration of the Qualified Medical Evaluator (QME) program (Report 2019-102), which is administered by the Department’s Division of Workers’ Compensation (DWC). The Department and DWC appreciate the professionalism and courtesy shown by your office and the time and effort your staff expended in conducting the audit of the Division’s program and operations. The Division is committed to finding ways to continually improve the program and ensure that it meets its mission to minimize the adverse impact of work-related injuries on California employees and employers.

Towards that end, the Division acknowledges and accepts the draft report’s recommendations, which it will work to implement by April 2020. Below, the Division offers specific responses to those recommendatons and provides further context for the proposed draft findings. The Division offers its comments based upon its expertise in workers’ compensation, regular meetings with stakeholders, and consideration of recent independent studies addressing various aspects of the QME program.

CSA Finding #1: DWC Has Failed to Address Its QME Shortage

CSA Recommendation: Develop and implement a plan, by April 2020, to increase the number of QMEs. The plan should describe how DWC will actively recruit for and increase the pool of QMEs, prioritizing specialties with the greatest shortages relative to demand. The plan should also use QME data trends to project the necessary QME supply to meet demand. The plan should include continuing negotiation with medical groups to allow their doctors to become QMEs, as well as establishing goals for recruiting new QMEs in specific specialties.

DWC Response to Recommendation: The DWC will create and implement a plan in accordance with the Audit recommendations in the hopes of attracting doctors to the QME program. The plan will utilize available data and will also include outreach goals to specific specialties and geographic areas. However, the DWC has seen a decrease in not only QME physicians, but also in treating physicians within our system. As the Auditor points out, the supply of primary care physicians in California is not sufficient to meet the population’s needs. Therefore, while attempts to increase the number of QMEs in our system can be made through outreach at medical and workers’ compensation conferences and in continued discussions with medical groups, the DWC faces headwinds in ending the persistent and ongoing decline.

The DWC can increase the pool of QMEs by adjusting how doctors are assigned to panels. Data, as outlined below, shows that only 50 percent of our current QME physicians are being assigned to panels. Therefore, adjusting how the panels are assigned may allow us to access 100 percent of the QMEs and prevent some QMEs from leaving the system due to the fact that they are currently not receiving medical-legal evaluations.

Further DWC Discussion Regarding Draft Findings: Below, the DWC provides responses and additional context for certain draft findings. 


While the DWC acknowledges that the number of QMEs is decreasing, the DWC disagrees that it is ignoring the decline and that there is an inadequate supply to meet demand.


First, independent studies show that a significant portion of QMEs are available but are not being used. An October 2017 study conducted for the Commission of Health and Safety and Workers’ Compensation (CHSWC study) found that 10 percent of the QME population accounts for 55 percent to 60 percent of panel assignments.1 Another study conducted by the California Workers’ Compensation Institute (CWCI study) looked at QME billing data which showed that in 2017, only 53.1 percent of registered QMEs had medical-legal billing records.2 The DWC supports a study to explore why nearly half of QMEs are not being used. The DWC also will consider changes to the method used to generate the three QME panels so that currently underutilized QMEs are provided additional opportunities to be selected.


Second, regardless of any DWC effort, the reasons for a decline in the number of QMEs may be linked to causes outside of DWC’s control. For instance, this decline may be linked to the introduction of medical management companies into the workers’ compensation industry. The CWCI study found that from the period of 2012 to 2017, medical management companies became more prevalent, with ten groups more than doubling their share of the market (going from 8.9 percent to 19.1 percent).3 The CHSWC study recommends that there should be an investigation into the role that medical management companies have played in the QME system.4 Given their potential impact, the DWC has already met with some medical management companies to develop a better understanding of their business models.


Another potential reason for the decline is the change in the practice of medicine. For instance, many physicians have left private practice to become employees of large medical practice groups. These physician employees do not have the flexibility to devote time to QME work as the business models of large practice groups limit physician work exclusively to its members or clients.5

The Audit found that between 2013 and 2018, there was a 37 percent increase in panel requests, a rise that is almost exclusively associated with cases where the injured worker has legal representation. This increase occurred, even though workers’ compensation claim filings have not increased and legislation in recent years has limited the issues that QMEs can address.


The DWC encourages studying the cause of why doctors are leaving the system and any barriers to entering the system. The study could also encompass an inquiry into the reason behind the increase in panel requests in represented cases. Such a study could help with the retention of doctors and in DWC’s recruitment efforts.


The DWC believes that there is not enough data to draw this conclusion. This finding appears to be based on the amount of time between the issuance of the first QME panel and when a request for a second panel was submitted. If this is correct, this calculation does not necessarily show there is a delay in a case due to QME unavailability. A wide number of reasons can account for the delay in requesting a second panel. Thus, access to QMEs cannot be quantified by looking at the number of replacement panels issued and when they are issued. Instead, data would need to be collected as to the reasons for the requests for replacement panels and how long a delay, if any, is caused by a replacement panel.


Moreover, the issuance of a replacement panel does not equate to a denial of access or a delay for the injured worker. If the injured worker is still being seen by the replacement QME within 60 days of the initial call for an appointment, then there is no delay. In fact, the party with the legal right to schedule an appointment can waive the 60-day requirement and the appointment should be scheduled within 90 days.6 Any assessment of access to QMEs would thus have to take into account how many injured workers are not able to schedule an appointment with the replacement panel QME within 90 days.


The DWC disagrees that replacement panels result in delays in an injured worker’s receipt of benefits and increased costs to employers.7 There are legal safeguards to ensure benefits for injured workers.


California law holds employers liable for up to $10,000.00 in medical expenses during the time period of delay while they are making a determination on liability for an injury.8 In 2018, the number of denied claims accounted for 11.3 percent of the total number of reported injuries, so the number of injured workers who may not have had access to medical care is relatively small. California also provides for disability benefits through the Employment Development Department’s Disability Insurance program. If an injured worker is off of work due to an injury or illness but their workers’ compensation claim has not yet been accepted, the worker may be eligible for disability insurance benefits. If the employer accepts or is otherwise found liable for the claim, the employer would be responsible for the reimbursement to the Employment Development Department for the disability benefits paid pursuant to California Labor Code section 4656.


Furthermore, any delay in seeing a QME should not result in a delay of permanent disability benefits to the injured worker. The first payment of permanent disability indemnity is due within 14 days after the last payment of temporary disability indemnity. If the level of permanent disability cannot be determined at that time, the employer must make payments based on a reasonable estimate of permanent disability.9

The DWC agrees that the fee schedule is due for analysis and revision and has been actively engaged in this endeavor since 2017. The effort began with the Department commissioning a RAND Corporation study10 on the medical-legal fee schedule. Thereafter, in 2018, the DWC proposed a revised fee schedule and held a public hearing regarding that proposal. In response to stakeholder feedback, the DWC solicited proposals from the industry, held stakeholder meetings, and proposed an alternative fee schedule in 2019. Currently, the DWC is engaging with representatives of all interested stakeholders to review the proposed fee schedule and address outstanding issues. The DWC intends to promulgate a new schedule in 2020.


The DWC cautions against the conclusion, however, that a fee schedule adjustment will end the persistent decline in the number of QMEs. In 2006, the DWC amended the medical-legal fee schedule providing for a 25 percent increase in payments to QMEs; however, the decline in the number of QMEs in the system continued.

As far as QME recruitment efforts are concerned, the DWC addressed this above. The DWC welcomes the opportunity to recruit new doctors into our system.

CSA Finding #2: DWC’s Practices for Disciplining Some QMEs Raise Due Process Concerns

CSA Recommendation: Develop and implement written policies and procedures, by April 2020, that define and specify DWC’s internal processes for disciplining QMEs, including timelines for taking disciplinary action and for setting hearings or responding to settlement proposals.

CSA Recommendation: Develop and implement written policies and procedures, by April 2020, that define DWC’s internal processes for reappointing QMEs and how that process should proceed if any disciplinary investigations are pending.


Further DWC Discussion Regarding Draft Findings: Below, the DWC provides responses and additional context for certain draft findings.


The DWC administers QME discipline under the Administrative Procedures Act. The DWC does not proceed with discipline based upon mere “allegations” for either an Accusation or a Statement of Issues. The DWC requires prima facie evidence of a physician’s violation of the Labor Code or Administrative Director’s regulations to proceed with discipline.

Under the Administrative Procedures Act, there are two ways to enforce discipline against a QME. If prima facie evidence of a violation is developed against the QME during their term of certification, discipline is carried out through the Accusation process. If the QME’s term of certification has expired and they have reverted to the status of an applicant, discipline is carried out through the Statement of Issues process. The DWC utilizes both processes.


While the Audit finds that the use of the Statement of Issues process could possibly result in a denial of due process, it fails to cite any legal authority to support that conclusion. It is a well-settled legal principle that when a physician occupies the status of an applicant, there is no right to a hearing before the denial of the application.11 Rather, the physician receives due process through the hearing provided after the denial of the application.12


In discussing the DWC’s use of the Statement of Issues process in discipline, the Audit finds that “we believe the violations remain allegations until later in the disciplinary process, such as when an administrative law judge files a proposed decision with the administrative director after a hearing, or the QME declined to participate in the hearing process.” However, this analysis generally describes the Accusation process. That process should not be conflated with the Statement of Issues process, which is distinct, authorized by the Administrative Procedures Act, and legitimately used by the DWC for the QME reappointment process. While Figure 5 in the Audit report reflects the dichotomy in the two processes, it fails to acknowledge the due process protections provided under the Statement of Issues track.


As to the concerns expressed about the possibility of QMEs being deprived of income during the discipline process, it is important to note that the QMEs can continue to sit for depositions, issue supplemental reports, and act as an Agreed Medical Evaluator during the discipline process and bill for those services.


The DWC received complaints from the QME community that in some instances, the first time a physician received verification that there was a complaint against them was when they received the denial of their reappointment application. In an effort to address this concern, the DWC instituted a policy of contacting the physicians early in the process to let them know the prima facie evidence that had been gathered against them. This early contact, made in an effort to mitigate adverse consequences for the physician, has led to settlements of overbilling complaints prior to the physician’s reappointment anniversary and without the need for any litigation. While the Audit suggests that this proactive effort by the DWC may reflect a violation of the Accusation discipline process, there is no mandate to initiate litigation via an Accusation for documented violations of applicable statutes or regulations. Moreover, there is no prohibition on informal resolutions, which ultimately lowers enforcement costs.


Upon the service of the initial litigation pleading on the QME, the physician is required to return a “Request for Hearing” form to preserve his or her right to have a hearing. The return of this form is not a request to schedule a formal hearing; rather, it prevents the DWC from proceeding to a decision based on the pleadings and without holding a hearing.

In most cases, the parties will attempt to settle the violations enumerated in the litigation before setting a hearing. If those attempts are not fruitful, the parties will then typically agree that a formal hearing needs to be set. The parties to the action, the agency and the physician, must follow the procedures outlined in California Code of Regulations, title 8, section 1018 in order to set a hearing at the Office of Administrative Hearings.


Although mere recitation of a timeline in a case may give the impression that the setting of the hearing was delayed, a review of the actual facts of any given case would indicate that the DWC has not used the setting of a hearing as a tactic for negotiation, nor has the DWC refused to set a hearing for a physician.

CSA Finding #3: DWC Has Failed to Comply with State Law to Ensure that QMEs Produce High-Quality Reports

CSA Recommendation: Create and implement a plan, by April 2020, to continuously review the quality and timeliness of QME reports, including time frames for review, methodology for selecting reports to review, and the minimum number of reports to be reviewed annually.


CSA Recommendation: Develop and implement a process, by April 2020, for annually reporting to DWC’s administrative director its findings on the quality and timeliness of QME reports and recommended improvements to the QME system.

CSA Recommendation: Create written policies and implement, by April 2020, a consistent process for ensuring that workers’ compensation judges or the Appeals Board inform DWC or QME reports they rejected for not meeting minimum standards.

CSA Recommendation: Create written policies and implement a process, by April 2020, for tracking QME reports rejected by workers’ compensation judges and the Appeals Board for not meeting minimum standards. DWC should consider and include these reports in its annual review of report quality and recommend improvements to the QME system.

CSA Recommendation to the State Legislature: Amend state law to specify that DWC review and, if necessary, update the medical-legal fee schedule at least every two years based on inflation. DWC’s review of the medical-legal fee schedule should be separate from its review of the Official Medical Fee Schedule.

Revise state law to increase the number of QMEs on the panels DWC provides. Specifically, unrepresented employees should continue to choose from a panel of three QMEs, and represented employees should be provided with a panel of five QMEs of whom the employee and the employer can each strike one, leaving both parties with the same numbers of QMEs to choose from as unrepresented employees. The party that did not request the panel would select the final QME. If the selected QME is unavailable, the parties would then select from among the two remaining QMEs until they find one that is available.

The DWC agrees with the recommendation that the medical-legal fee schedule should be reviewed every two years by the Administrative Director. The imposition of an automatic increase in the schedule tied to inflation could lead to negative consequences for the overall costs of medical-legal services in the workers’ compensation system. Between 2007 and 2017, the average cost of a medical-legal report increased by 64 percent,13 even though fees were not increased. In addition, one study found that the actual rates did not necessarily need to be increased when compared with the Official Medical Fee Schedule and other states.14 These findings suggest that there are a myriad of factors that should be considered when reviewing the medical-legal fee schedule for a possible adjustment. Whether or not to adjust the fee schedule up or down at any given time should be left to the discretion of the Administrative Director, and not tied to an automatic increase.

Thank you for the opportunity to provide this response.


George Parisotto
Administrative Director
Division of Workers’ Compensation

cc: Julie A. Su, Secretary, California Labor and Workforce Development Agency
     Victoria Hassid, Chief Deputy Director, California Department of Industrial Relations

1 Neuhauser, F. Qualified Medical Evaluators: Updating Trends in Evaluations, Availability, and Equity,p. 27. Available at

2 Jones, S. Changes in the QME Population and Medical-Legal Trends in California Workers’ Compensation, p. 17. Available at

3 Jones, S. Changes in the QME Population and Medical-Legal Trends in California Workers’ Compensation, p. 19.

4 Neuhauser, F. Qualified Medical Evaluators: Updating Trends in Evaluations, Availability, and Equity,p. 31.

5 This is based on DWC’s discussions with medical provider groups in their initial recruitment efforts.

6 California Code of Regulations, title 8, section 31.3.

7 The draft findings did not explain how delays could increase costs to employers.

8 Labor Code section 5402.

9 Labor Code section 4650.

10 Wynn, B. California Workers’ Compensation Medical-Legal Fee Schedule, RAND Corporation, October 2018. Available at

11 Cases finding there is no right to pre-deprivation hearing for applicant: Board of Regents v Roth (1972) 408 U.S. 564, 575; Paramount Convalescent Center, Inc. v. Department of Health Care Services (1975) 15 Cal.3d 489, 500.

12 California Government Code section 11504.

13 Jones, S. Changes in the QME Population and Medical-Legal Trends in California Workers’ Compensation, p. 6.

14 Wynn, B. California Workers’ Compensation Medical-Legal Fee Schedule, p. 16.



To provide clarity and perspective, we are commenting on DWC’s response to our audit. The numbers below correspond to the numbers we have placed in the margin of DWC’s response.


Notwithstanding its comments to the contrary, the evidence we obtained demonstrates clearly—as our results summarize in the Audit Results of our report—that DWC has not adequately ensured that California has enough QMEs to keep up with demand for their services. In its response, DWC mentions two studies that describe the underuse of certain portions of the pool of existing QMEs. However, as we state here, QMEs who operate out of fewer than six zip codes accounted for more than half of all panel replacements because of unavailable QMEs. Moreover, DWC cited the CWCI study’s results that only 53.1 percent of registered QMEs had medical-legal billing records. However, it failed to disclose that CWCI calculated the percentage based on billing data for only the first six months of 2017 and that the study noted that this percentage will likely increase as the data matures beyond the initial six months of 2017.

As we mention here, the increasing number of replacement panels because of unavailable QMEs means that the current QME supply is not meeting the demand for their services. Furthermore, despite DWC’s denial that it ignored the decline of QME supply, we mention here that it does not have an established process for recruiting QMEs. Therefore, we stand by our findings, conclusions, and recommendations regarding QME availability.


DWC’s comment regarding outside causes for a decline in the number of QMEs deflects the reader’s attention away from its lack of action regarding this decline. Although we acknowledge that other factors can contribute to the decline in QME numbers, such as the drop in the number of primary care physicians as we state in the Audit Results, we believe DWC is responsible for taking actions within its control to mitigate the decline. For instance, as we discuss in the Audit Results, DWC has not updated the rates on its medical-legal fee schedule as state law requires, which could help it attract and retain QMEs.


As the entity responsible for overseeing QMEs and administering the QME selection process for California’s workers’ compensation system, we would expect DWC to have proactively studied or engaged a contractor to study why doctors are leaving the QME process, rather than merely encouraging such a study.


Contrary to DWC’s assertion, DWC’s data is sufficient to demonstrate the linkage between replacement panels and delays in resolving workers’ compensation disputes and injured workers’ access to benefits. As we state in the Audit Results, if a workers’ compensation case required one replacement panel because of an unavailable QME, the case was delayed by more than two months nearly half of the time. Therefore, these injured workers are not able to see a QME within 60 days of their initial panel request, thus delaying resolution of their disputes.


DWC’s disagreement with our conclusions regarding the effects of replacement panels is misplaced. As we mention in the Audit Results, replacement panels may delay injured workers’ access to their workers’ compensation benefits and increase costs for employers. DWC argues that because the number of denied workers’ compensation claims accounted for 11.3 percent of total reported injuries, the number of injured workers who may not have access to medical care is relatively small. However, in each case when an injured worker does not have access to medical care, the health impact on that injured worker can be significant.

We also disagree with DWC’s argument that delays in seeing a QME should not result in a delay of permanent disability benefits. When an injured worker disputes a treating physician’s finding regarding the existence or extent of permanent disability and QME unavailability delays resolution of this dispute, the final resolution of the permanent disability status can also be delayed.

Further, as we mention in the Audit Results, the acting president of an attorneys association stated that some workers postpone treatment until they make it through the initial QME process because of the uncertainty of eventual benefit payouts or reimbursements. We also state that we are concerned that delays of medical treatment could lead to greater temporary or permanent disability and that a prolonged process may increase overall costs to employers.


DWC appears to mischaracterize our report: we do not conclude that updating the fee schedule will end the persistent decline in the number of QMEs. As we indicate in the Audit Results, updating the rates of the medical-legal fee schedule could help DWC attract and retain QMEs.


We disagree with DWC’s assertion that it currently has policies and procedures in place for both its reappointment and discipline processes. Early during our audit when we asked it for relevant policies and procedures, DWC told us that its staff accomplished QME appointments and reappointments, as well as appeals of denials, pursuant to the department’s regulations, but it did not provide us with policies and procedures. It was not until nearly six months later when DWC provided us with written policies and procedures for investigating and disciplining QMEs. Because DWC provided these documents well after we had concluded fieldwork for the audit and because DWC told us that its staff followed the department’s regulations, we did not assess whether DWC staff actually followed these policies and procedures. Moreover, DWC did not provide us with written policies and procedures regarding appointing and reappointing QMEs. We therefore stand by our recommendations that DWC should develop and implement written policies and procedures regarding its reappointment and discipline processes.


We disagree with DWC’s statement that it does not take disciplinary action based on allegations. As we mention in the Audit Results, we believe violations remain allegations until an administrative law judge files a proposed decision or the QME declines to participate in the hearing process.


DWC’s comment that we failed to cite any legal authority to support our conclusion that its use of the reappointment process to impose discipline could result in the denial of due process is wrong. As we indicate in Figure 5, state statutes and DWC’s own regulations for investigations and discipline and for reappointments include due process steps for QMEs. We also state in the Audit Results that DWC in effect used the reappointment process to impose discipline on QMEs without a hearing.

Furthermore, we believe that the Roth and Paramount cases that DWC cites do not conclusively support its argument that an applicant does not have a right to a hearing before DWC denies a QME application. In both cases, the courts found that because neither plaintiff had a vested property interest, those plaintiffs were not entitled to due process. However, state law imposes on DWC a mandatory duty to reappoint QMEs if they meet specific legal criteria. In our view, this mandatory reappointment right may trigger due process rights and require DWC to provide a QME with notice and a fair hearing before it strips the QME of his or her right to reappointment because of alleged regulatory violations DWC identified during the QME’s term.


We agree with DWC’s statement that its accusation process and statement of issues process, which it should use for discipline and reappointment, respectively, should not be conflated. However, as we depict in Figure 5, DWC conflated its investigation and discipline process and its reappointment process in certain instances. We specify in the Audit Results that DWC denied QME reappointments on six occasions based on allegations of misconduct during their terms; neither had an administrative law judge yet heard their cases nor had the QME declined to participate in the hearing process.


DWC’s statement regarding activities that former QMEs can perform is misleading. DWC’s regulations only explicitly authorize former QMEs to issue supplemental reports for unrepresented employees. DWC’s interpretation that its current regulations authorize former QMEs to both issue supplemental reports for represented employees and sit for depositions is unsupported by the plain language of its regulations. Even if DWC’s interpretation of its regulations is appropriate, these two activities make up less than 40 percent of a QME’s activities. According to the 2018 annual report of the California Commission on Health and Safety and Workers’ Compensation, the testimony and supplemental reporting activities made up only 0.6 percent and 37 percent of statewide QME activities, respectively. We therefore stand by our conclusion that DWC’s denial of reappointments limits QMEs ability to earn income.


 Contrary to DWC’s statement, our report takes no issue with DWC’s proactive efforts to settle alleged violations with QMEs. In fact, we point out in the Audit Results that, of the 13 billing-related cases we examined from 2017 and 2018, DWC issued warnings or settled the complaints for nine before the QME was due for reappointment or soon thereafter. However, we also point out on that page that we identified four other instances from that time when DWC denied the QMEs’ reappointments based on alleged overbilling violations, which did not adhere to its regulatory process for disciplining QMEs.


DWC’s comment that the “return of a ‘Request for Hearing’ form is not a request to schedule a formal hearing” is incorrect. This form, which the QME signs and dates, states clearly, “I hereby request a hearing … to permit me to present my defense to the charges contained in said Accusation.”  Submission of such a request should be sufficient for DWC to begin the process of scheduling a hearing.


DWC misinterprets our report: we do not say that it used the setting of a hearing as a tactic for negotiation or that it refused to set hearings for physicians. As we discuss in the Audit Results, DWC was slow to request and schedule hearings QMEs requested after it denied their reappointment appeals, or it did not schedule requested hearings at all. We also state that QMEs had an incentive to settle with DWC so they could resume providing QME services and earn income from those services.


DWC’s comment that it “will assess and update the existing process as appropriate” is misleading. As we state in the Audit Results, state law requires DWC to continuously review the timeliness and quality of QME reports by reviewing a random selection of reports and those reports alleged to be incomplete or inaccurate. It also requires DWC to submit an annual report that summarizes the results of the reviews and recommend improvements to the QME system. DWC’s failure to perform the reviews or prepare the annual reports in the 12 years since 2007, as required by law, clearly demonstrates it has no such process to comply with this law.

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