California Code of Regulations › Title 8 - Industrial Relations › Division 1 - Department of Industrial Relations › Chapter 4.5 - Division of Workers' Compensation › Subchapter 1.5 - Injuries on or After January 1, 1990 › Article 3 - Auditing › Section 10107.1 - Notice of Audit; Claim File Selection; Production of Claim Files; Auditing Procedure

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
For audits conducted on or after January 1, 2003:
(a) Once a subject has been selected for an
					 audit, the Audit Unit shall serve a Notice of Audit on the claims
					 administrator. The Notice of Audit shall inform the claims administrator of its
					 selection for audit, and may include a request to provide the Audit Unit with a
					 claim log or logs. If the Audit Unit has requested claim logs, the audit
					 subject shall provide two copies of each requested claim log within 14 days of
					 the date of the receipt of the Notice of Audit. Only one copy of the requested
					 claim log or logs shall be provided within 14 days of the date of the receipt
					 of the Notice of Audit by the claims administrator if the copy is provided via
					 electronic submission to the Audit Unit mailbox at DWCAuditUnit@
					 dir.ca.gov.
(b) At least 14 days
					 before the audit is scheduled, the Audit Unit shall send the audit subject a
					 Notice of Audit Commencement identifying the claims to be audited. The audit
					 shall commence no less than 14 days from the date the Notice of Audit
					 Commencement was sent, unless the audit subject and Audit Unit agrees to
					 earlier commencement. Claims selected for audit that are administered at the
					 home of a telecommuting adjuster must be presented for audit at a California
					 office location of the administrator, at a California location of the self
					 insured employer, an Audit Unit office, or a Workers' Compensation Appeals
					 Board district office. Other arrangements may be made as agreed between the
					 audit subject and the Audit Unit.
(c) For profile audit reviews conducted
					 pursuant to Labor Code section
					 129(b)(1),
					 the Audit Unit shall randomly select samples of indemnity claims from the most
					 recent three years of the audit subject's claim logs or from the list of claims
					 for those years as reported to the Division of Workers' Compensation pursuant
					 to Labor Code section
					 138.6 as part
					 of the Workers' Compensation Information System. Claim samples randomly
					 selected under this subdivision shall not include claims with a single
					 indemnity payment that cannot be classified under the profile audit review
					 performance standards set forth in subdivision (c)(3)(A) through (C)(3)(E). If
					 any of the years have been the subject of a previous audit, claims will be
					 randomly selected from the most recent unaudited year(s).
(1) The initial number of indemnity claims
					 randomly selected for audit will be determined based on the following table:
Population
Sample
								Size
5 or less
all
6-10
1 less than total
11-13
2 less than total
14-16
3 less than total
17-18
4 less than total
19-20
5 less than total
21-23
6 less than total
24
17
25-26
18
27-29
19
30-31
20
32-33
21
34-36
22
37-39
23
40-41
24
42-44
25
45-48
26
49-51
27
52-55
28
56-58
29
59-62
30
63-67
31
68-72
32
73-77
33
78-82
34
83-88
35
89-95
36
96-102
37
103-110
38
111-119
39
120-128
40
129-139
41
140-151
42
152-164
43
165-179
44
180-197
45
198-217
46
218-241
47
242-269
48
270-304
49
305-346
50
347-399
51
400-468
52
469-562
53
563-696
54
697-905
55
906-1,272
56
1,273-2,091
57
2,092-5,530
58
5,531 +
59
(2) In addition to the randomly selected
					 indemnity claims, the Audit Unit may audit any claims for which it has received
					 a complaint or information over the past three years that indicate a failure to
					 pay indemnity, including any companion claim needed to ascertain the extent to
					 which benefits have been provided. Claims with complaints that are randomly
					 selected will be audited as part of the random sample and included in the
					 performance rating.
Complaints not involving a failure to pay indemnity will
						be provided to the audit subject, if confidentiality has not been requested,
						for review and corrective action, if warranted. Within 30 days of receipt of
						the report of audit findings issued pursuant to subdivision (f) of this
						section, the audit subject shall provide a written response to the Audit Unit,
						stating its review findings and corrective actions, if any.
(3) After reviewing the claims selected
					 pursuant to subdivision (c)(1), the Audit Unit shall calculate the audit
					 subject's profile audit review performance rating based on its review of the
					 randomly selected claims. The profile audit review performance rating will be
					 calculated as follows:
(A) The factor for the
					 failure to pay accrued and undisputed indemnity shall be determined by:
1. Dividing the number of randomly selected
					 claims with violations involving the failure to pay indemnity [pursuant to
					 California Code of Regulations, title 8, section
					 10111.2, subdivisions (a)(1),
					 (a)(2), (a)(3), (a)(4), and (a)(10)] by the number of randomly selected claims
					 with accrued and payable indemnity, to produce a frequency rate.
2. Dividing the total amount of unpaid
					 indemnity in randomly selected claims by the number of randomly selected claims
					 with accrued and payable indemnity, to produce an average amount of unpaid
					 indemnity per file with the obligation to pay indemnity.
3. Dividing the average amount of unpaid
					 indemnity per randomly selected audited claim with the obligation to pay
					 indemnity for the audit subject by the average amount of unpaid indemnity per
					 randomly selected audited claim for all audit subjects for the three calendar
					 years before the year preceding the year in which the current audit was
					 commenced, to produce a severity rate.
4. Multiplying the frequency rate by the
					 severity rate by a modifier of 2 to determine the factor for the failure to pay
					 accrued and undisputed indemnity.
(B) The factor for the late first payment of
					 temporary disability indemnity shall be determined by dividing the number of
					 randomly selected claims with violations involving the late first payment of
					 temporary disability indemnity [pursuant to section
					 10111.2, subdivisions (a)(5),
					 (a)(8), and (a)(10)], or in claims that involve salary continuation, failure to
					 comply with the requirements for first notices advising the injured employee of
					 the provision of salary continuation in lieu of first temporary disability
					 payments [pursuant to section
					 10111.2, subdivisions (b)(8)(B) and
					 (b)(8)(C)], by the number of randomly selected claims in which temporary
					 disability payments or first notices advising the injured employee of the
					 provision of salary continuation in lieu of first temporary disability notices
					 were required. In any claim that involves the payment of both salary
					 continuation in lieu of first temporary disability payments and temporary
					 disability payments, each benefit type paid will be considered in calculating
					 this factor.
(C) The factor for the
					 late first payment of permanent disability indemnity, vocational rehabilitation
					 maintenance allowance, and death benefits [pursuant to section
					 10111.2, subdivisions (a)(6),
					 (a)(7), (a)(8), and (a)(10)] shall be determined by dividing the numbers of
					 randomly selected claims with violations involving late first payments of those
					 benefits by the numbers of randomly selected claims with payments for those
					 benefits. In calculation of this factor, claims shall be counted for each type
					 of exposure and late first payment.
(D) The factor for late subsequent indemnity
					 payments [pursuant to section
					 10111.2, subdivisions (a)(8),
					 (a)(9), and (a)(10)] shall be determined by dividing the number of randomly
					 selected claims with violations involving late indemnity payments subsequent to
					 first payment by the number of randomly selected claims with subsequent
					 indemnity payments.
(E) The factor
					 for failure to comply with requirements for notices advising injured employees
					 of the process for selecting Agreed Medical Examiners and/or Qualified Medical
					 Examiners, and for injured workers with injuries prior to January 1, 2004,
					 failure to comply with the requirements for notices advising injured workers of
					 potential eligibility for vocational rehabilitation, or for injured workers
					 with injuries on or after January 1, 2004, failure to comply with the
					 requirements for notices advising injured workers of the right to the
					 supplemental job displacement benefit, shall be determined by dividing the
					 numbers of randomly selected claims with violations involving the failure to
					 comply with the applicable requirement to issue the notices by the numbers of
					 randomly selected claims with the requirement to issue the notices. In
					 calculation of this factor, claims shall be counted for each type of exposure
					 and violation.
(F) The audit
					 subject's profile audit review performance rating will be determined by adding
					 the factors calculated pursuant to subdivisions (c)(3)(A) through
					 (c)(3)(E).
(4) If the
					 audit subject's profile audit review performance rating meets or exceeds the
					 worst 20% of performance ratings for all final audit reports issued for audits
					 commenced the three calendar years before the year preceding the year in which
					 the current audit was commenced, the Audit Unit will issue Notices of
					 Compensation Due pursuant to California Code of Regulations, title 8, section
					 10110 but will assess no
					 administrative penalties for violations found in the profile audit
					 review.
(5) If the audit subject's
					 profile audit review performance rating fails to meet or exceed the rating of
					 the worst 20% of performance ratings as calculated based on all final audit
					 findings as published in the Annual DWC Audit Reports over the three calendar
					 years before the year preceding the year in which the current audit was
					 commenced, the Audit Unit will conduct a full compliance audit by randomly
					 selecting and auditing an additional sample of indemnity claims pursuant to
					 subdivision (d). Written notification of the Audit Unit's findings from the
					 profile audit review, the calculation of the profile audit review performance
					 rating, and intent to proceed to a full compliance audit, will be provided to
					 the audit subject in time for the timely filing of an objection. The audit
					 subject may dispute whether or not a full compliance audit is merited under
					 this subdivision at a post-profile audit review conference. Unless the audit
					 subject demonstrates that the factual basis for the Audit Unit's calculation of
					 the profile audit review performance rating is incorrect within two working
					 days of the receipt of the rating or at the post profile audit review
					 conference, the Audit Unit may complete the full compliance audit. The audit
					 subject may appeal the issues pursuant to California Code of Regulations, title
					 8, section 10115.1 following the issuance of
					 the final audit report. Failure of the audit subject to raise factual issues
					 related to failing to meet or exceed the profile audit review performance
					 standard within two working days of the receipt of the profile audit review
					 performance rating or during the post-profile audit review conference shall
					 constitute a waiver of appeal on those issues.