Canadian Underwriter

Demise of the DAC

October 1, 2005   by Craig Harris

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Since 1994, Designated Assessment Centres (DACs) have provided neutral opinions on injuries and treatment plans in Ontario auto insurance. The Liberal government plans to eliminate what is sees as a bureaucratic step in the dispute resolution process. Insurers generally support this move, while others in the health care field are fighting to keep this assessment system alive in the province. To paraphrase Mark Twain, it appears that news of the DAC’s demise is not exaggerated at all.

Are Designated Assessment Centres a costly and unnecessary part of the injury dispute resolution process or a vital form of neutrality, providing consumers and insurers with an unbiased source of medical expertise? The answer to this $54-million question depends largely on your perspective in the insurance industry or health care profession.

The current Ontario Liberal government is doggedly pursuing its agenda to eliminate the DAC system, intent on realizing a campaign promise it made during the election of 2003. After extensive consultations on what a post-DAC world should look like, the Ontario government released draft regulations at the end of June calling for a complete dismantling of the current system of neutral assessments.

Insurers have praised the Liberals for their pragmatic approach. Some in the health care industry, on the other hand, say the decision to eliminate DACs “blatantly favours” the insurance industry and is “disastrous” for consumers. Premier Dalton McGuinty has called DACs “a costly relic of the NDP’s failed auto insurance reforms.”

“We are the only auto insurance jurisdiction in Canada that has had this form of neutral assessment parked in the middle of the process,” says Wayne Arthurs, MPP and parliamentary assistant to the minister of finance, who is now responsible for guiding the draft regulations through to Liberal cabinet. “It started out well-intentioned, and it likely served the system well for a period of time. But it became increasingly adversarial in its own way, and it was not having the broad support of all the stakeholders involved.”

The Insurance Bureau of Canada, which set up a working group of member company representatives to provide input on the reform process over the past 20 months, generally supports the decision to remove DACs from the equation, according to IBC vice president, Ontario Mark Yakabuski.

“There is no doubt in our minds that DACs are very expensive, very time-consuming and do not achieve the objective of providing cost-effective examination of services in cases of dispute, ” Yakabuski says. “Quite simply, the model did not work.”

Health care providers with a stake in the DAC process take a very different stand on the Liberal decision to quash neutral assessments. “In our view, it is disastrous for the government to abandon the DAC system, which is not only the most timely and cost-effective option but one that ensures neutrality, fairness and a level playing field for both the insurance industry and consumers, ” says Susan Filuk, president of the Association of Designated Assessment Centres (ADAC), which represents DACs across Ontario. “The proposed model is an inherently biased system that favours the insurer over the claimant.”

John Dumas, project manager for the Ontario Brain Injury Association, adds that the Liberals’ proposed system will actually cause more problems than it solves. “We don’t see any adequate forms of consumer protection out there right now through FSCO or the new regulations,” he argues. “No-fault insurance is based on the principle that injured persons will receive timely medical and rehab treatment regardless of fault. These changes are only going to delay that treatment.”

DACs were created in 1994 by the then-NDP provincial government as part of its broader reforms to the auto insurance system. The DACs were established for insurance companies and claimants to use when they needed a neutral, third-party opinion about claimant injuries. The goal was to get auto accident victims medical and rehabilitation benefits as quickly as possible without the need for legal squabbling.

Currently the Ministry of Finance and Financial Services Commission of Ontario (FSCO) regulate 103 DACs, which have a mixture of private and public ownership. The Liberals declared in a 2003 white paper on auto insurance reform that DACs cost $100 million per year, but the real figure is probably closer to $40-50 million annually (the numbers vary according to the source). In 2003, DACs handled about 21,000 referrals at a cost of $45 million, according to ADAC. FSCO, however, reports that DACs cost $59 million that year.

“The DAC system has come to be more time-consuming, more costly and more bureaucratic in its own way, “says Arthurs. “We felt it would be more effective to look at a strategy whereby the claimant could get the decisions made quicker. We wanted to take a layer of the bureaucracy out of play.”

After a lengthy consultation process, the Liberals in June released draft regulations on replacing the DAC system. The government made it clear it would not consider any significant change to the proposed regulations, which would replace DACs with independent medical examinations (IMEs). The regulations are expected to go to Liberal cabinet before the end of October, with a tentative implementation date of February 1, 2006.

Under the proposed system, claimants will have access to their own health care providers (a doctor or other specialist) for assessment and a proposed treatment plan. That health care professional would comment on whether the claimant is eligible for weekly income or other benefits. Insurance companies can require claimants to attend a medical examination by a professional of their own choosing. If there is disagreement between the two assessments, the claimant may, in some circumstances, order a “rebuttal” assessment for which the insurance company will have to pay. If there is still disagreement, claimants can seek mediation or arbitration through FSCO, an existing process under the DAC system.

“The regulations are trying to open up more lines of communication so that these things can be resolved early on,” says Willie Handler, senior manager of FSCO’s auto insurance policy unit. “This is expected to save more money in the claims process and the bottom line goal is to provide people with quicker and better access to treatment.”

“We hope it will be a fair system for all parties at the end of the day, ” notes Arthurs. “There is the capacity for claimants to first seek out their own service provider and then get a subsequent rebuttal opportunity if they are unhappy with the insurer assessment. And then there is the capacity to seek out more formal mediation and arbitration strategies. It leaves the claimant a lot of room to be able to get the kinds of benefits they are entitled to.”

Not surprisingly, health care providers involved in the DAC system strongly disagree with the proposed changes. “What is most disturbing about the government’s proposed system is that instead of having a disputed health claim decided by a neutral, third-party health professional, it will be done by a health professional chosen by the insurance company,” says Filuk. “And if (the claimant) doesn’t agree, the option is to go through mediation, arbitration or the court system.”

Filuk argues there is no proof that the new system will be any more cost effective. Her group, ADAC, commissioned Ernst & Young to perform an actuarial costing of eliminating the DAC system. The report stated last January that “the bottom line annual costs . . . will be about $35 million more than those in the current Ontario auto insurance environment.” The Ontario government has disputed these numbers.

Filuk says the number of cases heading to mediation and arbitration – which she believes will likely increase when the regulations are passed – could result in even more delays for claimants. “Access to benefits will be delayed. By the time treatment is approved, it will be ineffectiv
e. Or victims will abandon their efforts to get treatment, resulting in more complex and debilitating conditions,” she notes.

Dumas concurs that some claimants may actually give up their right to entitled benefits under the new system. “The insurance industry has a history of delay, which is part of their business plan,” he says. The more delays or hurdles claimants must face, he added, the more likely the claimants will simply go away. “The injury doesn’t get better just because claimants go away,” he cautions. “It means they will fall on to the public health care system.”

Yakabuski says these allegations of potential insurer abuse “have no foundation whatsoever. These claimants happen to be our customers, first of all; I cannot believe it is in the interest of any claimant to drag him or her through a very lengthy examination process. These regulations are designed above all things to reduce the timelines. If we can make progress on these fronts, the benefits will flow to claimants more than anyone else. We will be only too happy to see that happen.”

In fact, he maintains that DACs “eviscerated themselves because they were so costly. The DAC system engendered all kinds of additional costs related to a claim by virtue of the fact that it took so long to arrange the DAC and then get the DAC report. It meant that often people were getting benefits that ultimately they were not eligible for.”

Insurers also say the DCA system fostered an aggressive, “pay me now or pay me more later” approach. “Because the insurer knows that a DAC will cost it more down the road, the system leveraged substantially increased med/rehab costs for no purpose whatsoever,” says Yakabuski. “In other words, the claimant was no better off.”

On the issue of “neutrality,” several sources question whether DACs were actually seen as an unbiased source – particularly the privately run assessment centres.

“DACs were originally set up to provide neutral assessments and help make the system more efficient by resolving disputes early on so that people would avoid mediation and arbitration,” says Handler. “There doesn’t seem to be any evidence that actually happened. The fact that insurers and claimants had their own assessments done seems to suggest people didn’t have total confidence in the DAC system.”

Yakabuski says the key to the proposed assessment system is the ability to get good-quality, timely assessments and to turn around disputes in a much more effective way – for both insurers and claimants. “We have really got to expedite the way assessments happen in the Ontario auto insurance system, ” he says. “In any new regulation, you have to get the details right.”

In this case, the “details” will likely involve setting fair limits on costs of assessments insurers are required to pay, carving out realistic geographical limits from which to draw qualified medical examiners and creating sound yet flexible timelines for assessments to be completed.

“I think any good regulation has to recognize there are instances where exceptions are entirely appropriate, such as recognizing circumstances [in which] extending the timeline might be a good idea, ” says Yakabuski. “We think if the government is ready to provide that kind of flexibility where necessary, it will contribute to the good operation of these regulations.”

This discussion of details won’t bridge the philosophical divide between regulators and insurers on the one side, and health care providers who believe in the importance of neutral assessments on the other. Filuk believes several key principles for dispute resolution were brought to light during the consultation process – for example, when the “Expert Assessor Network” model was proposed in March 2004 – and then shelved. These principles – including neutral assessment, standardization, quality assurance processes and consolidation of assessment – are supported by many groups, Filuk says.

“Of these, the only thing DACs did not provide was consolidation of assessment, and we are on record as supporting that direction,” Filuk says. “We do not see any of these principles in the proposed regulatory changes. And we still have not heard any good explanations as to why.”

Dumas says his brain injury association was “invited to the table when they (regulators) were looking for fine-tuning. But we couldn’t offer anything because it was a done deal. As far as we’re concerned, all the tweaking in the world won’t bring back the consumer protection that the DACs tried to offer. The elimination will be a real loss for consumers in this province.”

“This government has come to a conclusion on how we are prepared to move forward,” says Arthurs, with an air of finality. “And the DACs we see as an impediment, quite frankly, to being able to get things done more effectively and more fairly in the interest of the claimant and in fairness to the insurer.”

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