California Profile Audit Review (PAR) Reference Guide

Routine Profile Audit Unit

Labor Code Section § 129(a) provides the State authority to routinely audit compliance of insurers, self-insured employers and third-party administrators once every five years.

Claim Selection

Up to 59 claims are randomly selected from those reported in the three calendar years prior to commencement of the audit. Claims selected must have indemnity benefits paid.

Audit Categories

PAR measures compliance in five categories.

·         Unpaid Accrued Uncontested Indemnity Benefits

·         Late First Payment of TD/SC Notice

·         Late First Payment of PD and Death Benefits

·         Late Subsequent Payment of Indemnity Benefits

·         Claims with Benefit Notice Violations Involving AME/QME Language

Audit Scoring

Unpaid Accrued Uncontested Compensation

This category is scored by using four steps.

Step One Frequency Rate (FR): This is the frequency in which benefits are not being paid. This is achieved by dividing the number of cases with unpaid indemnity (IN) discovered during the audit by the total number of cases with indemnity owed.

Example

7 cases with unpaid IN / 59 cases with IN owed = .11864

Second Step Average Unpaid Indemnity per Case: This is achieved by dividing the total amount of unpaid indemnity found during the audit by the total number of cases with indemnity owed.

Example

$3,205.50 total unpaid IN / 59 cases with IN owed = $54.33 of avg unpaid IN per case

Third Step Severity Rate (SR): This shows how the audit subject compares to the industry. Each year the Audit Unit publishes the average unpaid indemnity combining all audits from the prior year. This score is achieved by dividing the average unpaid indemnity found during the audit with that of those audited in the prior year.

Example

$54.33 avg unpaid indemnity audit / $114.00 industry avg unpaid indemnity = .47833

Fourth Step Category Score: To secure the category score multiply the frequency rate (FR) by the severity rate (SR) times two.

Example

FR .11864 x SR .47833 x 2 = .11349

Late First Payment of Temporary Disability and/or First Salary Continuation Notice

This category is scored by dividing the number of violations found by the total number of claims that involved the payment of temporary disability and/or issuing the first salary continuation notice.

Example

11 violations / 47 cases with TD/SC owed = .23404

 Late First Payment of Permanent Disability and/or First Payment of Death Benefits

This category is scored by dividing the number of violations found by the total number of claims that involve the payment of permanent disability and/or death benefits.

Example

4 violations / 25 cases with PD owed = .16000

Late Subsequent Indemnity Payment

It is important to note that when scoring late subsequent payments, only one violation is marked for the sake of scoring the audit. So, if a file has three late subsequent payments, it counts as one claim violation for the Profile Audit Review. All late subsequent payments are noted on the audit sheet, but not for scoring. So, for example, the audit finds 8 files with 14 late subsequent payments, the value of 8 is used.

Example

8 claims with late subsequent payments / 40 claims with subsequent payments = .20000

Benefit Notices Advising Right to AME/QME

Just like with late subsequent payments, this category also notes the number of claims with benefit notice violations for the sake of scoring the audit. All benefits notices that are found insufficient will be noted on the audit sheet but only the claim involved is scored. The audit only measures benefit notices advising the injured worker of their right to a medical-legal evaluation.

Example

15 claims with notice violations / 59 claims requiring notices = .25423

Final Score and Passing PAR

Adding all categories together the score totals 0.96176. For audits conducted in 2025 the adjusting location must score at or below 1.57375. In this example, the adjusting location passed the Profile Audit Review. The passing score moves each year and is based on how the adjusting locations performed during audits conducted the previous year.

If the adjusting location passes PAR, all unpaid accrued uncontested compensation must be paid to the injured worker. Proof of payment must be provided to the Audit Unit upon completion of the audit.

Consequences of Failing PAR

Failing PAR will result in the Audit Unit immediately proceeding with conducting a Full Compliance Audit I (FCA1). This will include up to 138 claims being reviewed for compliance. The categories reviewed remain the same as those measured during PAR. However, once the adjusting location fails PAR, they will be subject to not only paying unpaid accrued uncontested indemnity found but also administrative penalties to the State.

If the adjusting location scores at or below 2.14192 they will pass FCA1. If the adjusting location scores above this number the Audit Unit will proceed with the third and final phase of the audit, Full Compliance Audit 2.

Consequences of Failing FCA1

Failing FCA1 results in the audit expanding to 67 denied claims as well as the claims selected during PAR and FCA1 to include all violations allowed under California Regulations. Instead of only the five categories discussed, the audit will measure multiple requirements placed on adjusting locations. Just like with FCA1, the audit will include all administrative penalties found during this phase of the audit.

Rebutting Audit Findings

It is recommended and encouraged that the adjusting location review audit sheets as they are being provided by the Audit Unit and not when the audit concludes. The adjusting location has only two working days after the receipt of the score/rating at the post-profile audit review conference to present arguments as to why the score is not correct. Doing this as the audit progresses allows for a more successful audit outcome.

Mock Profile Audit Review

Alta Claims & Insurance Services conducts mock profile audit reviews providing our valued clients with a score and tips on what they need to do to be successful during a routine audit.

Contact us today at eddy@altaclaimsservices.com to learn more on how Alta can help. Please visit our website https://betterwithalta.com to learn about all the products we are providing the workers’ compensation industry.