Thursday, May 31, 2012

New CA Lien Regs May Provoke Unwanted Activity

There has been a lot of grumbling in California since the new lien regulations were released last week, in particular about new Title 8, section 10582.5.

In short, what I have been hearing is that lien claimants are spooked that if they do not request hearings on their liens prior to the effective date of that section, August 1, 2012, that they may be subject to summary dismissal.

One business owner that I know personally, whose business operates primarily on a lien basis, told me that he is ramping up to file 4,000 Declarations of Readiness (DOR) prior to 8/01.

For those unfamiliar with California workers' compensation practice, a DOR is the document that requests the Workers' Compensation Appeals Board (WCAB) district office set a hearing.

So if only one business in California files 4,000 DORs, how many more will follow?

Another lien based business told one of my employees that they are preparing 10,000 DORs to file prior to the August 1 implementation date.

Between only two lien based businesses district offices will all of a sudden be overwhelmed with hearing requests. How does this extrapolate to all of the other lien based businesses? I think it doesn't bode well for the system.

This can have several effects from the obvious, taking up hearing dates that otherwise should be devoted to resolving cases-in-chief, to overburdening the computer network that accepts filings and sets the court calendar (EAMS).

Certainly there are some of you who have no empathy for lien claimants and certainly none is being sought in this editorial - but the possible impact on the California adjudicatory system can be devastating; the exact opposite consequence of what was intended by this new rule.

Section 10582.5 permits the dismissal of liens for lack of prosecution. The problem is that the section does not provide guidance as to what a lack of prosecution is.

Does it mean that the claim has not been brought to hearing? Does it mean that there have been no collection efforts by the lien claimant? What kind of evidence is necessary to satisfy a judge that a lien claimant has been diligent in seeking payment?

The new lien regulation was promulgated to deal with a unique, and despicable practice - namely the resurrection of liens that had lied dormant primarily because the underlying lien claimant had already been paid fee schedule for medical services.

The lien stays on the court records because there is no withdrawal of it. Unscrupulous businesses then either "buy" the liens or fish through WCAB files to find these dormant liens then seek to extort money from defendant carriers/employers on the liens.

These unscrupulous operators will "settle" the liens for pennies on the dollar because there is no real expense behind the lien claim since the underlying vendor has already been paid fee schedule and has written off the balance of the claim; there is no underlying expense behind the lien any longer. When told that they can get a few more pennies out of the claim the original vendor capitulates because it is, essentially, "free money".

The carrier/employer, having already closed its file and released reserves, does not want to go back through the process to reactivate the claim and hire counsel to defend against the practice, so they too "settle" to get the file finally and fully closed.

This practice has come to be known as "zombie liens" - they are "zombie" because they lay dormant for years only to come back to life at some point to inflict injury or death to an unsuspecting victim.

The intention of 10582.2 was to dispose of this practice.

The unintended consequence is that those with legitimate claims may also get entangled in the process and this has them spooked into action.

The one way to ensure that a legitimate claim does not get subject to summary dismissal is to immediately request a hearing, lest it be deemed that the lien claimant has not sought to prosecute its claim. Thus the intention of the two businesses I write of above filing 14,000 DORs - if a DOR is filed it can not be argued that there is a lack of prosecution.

But a DOR instigates adjudicatory action taking up time and resources of the adjudicatory body.

I don't know what the numbers are, but if only two lien claimants are going to seek 14,000 hearings, imagine what the numbers are going to be. I can only believe that the system will soon be overwhelmed with requests for hearings by lien claimants and with all the myriad "good cause" excuses the judges are going to have their hands full trying to figure out what is a legitimate claim and "good cause" and what is a zombie attempt at new life.

Another unintended consequence is the continued full employment of defense attorneys. The amount of billable work that can be churned spitting out Petitions for Dismissal is going to be too tempting to resist.

10582.2 spells out the documentation that is required for a Petition for Dismissal. From my prior defense days I can say with some authority that most carriers will not have properly complied with this documentary requirement, which means that defense counsel will gladly provide this service.

The flood of paperwork that will be forthcoming will put a New York City ticker tape parade to shame.

These new lien regs didn't appear out of thin air. They were proposed many, many months ago and were subject to some public comment. There was comment provided that predicted what I explain in this editorial but maybe the WCAB has something else in mind. Maybe they are prepared for this reaction.

I hope so. At a time when California is actively talking about "reform" again, this would be a serious distraction from what the conversation should really be about.

Wednesday, May 30, 2012

NFL CTE Cases Uniquely American

As the various lawsuits concerning allegations of misrepresentation and violation of safety protocol against the National Football League (NFL) progress, one element that is going to provide some very interesting legal fodder is whether the teams themselves, and their carriers, will be able to subrogate for workers' compensation benefits against the NFL suits.

The cases are maturing. In May, 558 players filed 13 complaints in federal courts in Georgia, Louisiana, Pennsylvania and Texas and in district courts in Los Angeles and Fulton, Ga. More than 2,200 former players have filed 80 lawsuits against the league since Aug. 17, 2011.

The basic allegations in the lawsuits say the NFL withheld from players evidence linking multiple concussions to chronic traumatic encephalopathy (CTE), a progressive and degenerative disease that causes headaches, dizziness, dementia, depression and possibly Alzheimer’s disease.

Certainly many of those players filed for and received workers' compensation benefits against their teams. The past several years have seen quite a bit of legal, legislative and public relations maneuvering by the NFL and the player's union concerning jurisdictional issues since many players preferred to use the loose jurisdictional rules of certain states, most notably California, to take advantage of more liberal laws - primarily concerning recognition of continuous trauma injuries.

Player's head injuries fall within that category.

The civil cases appear headed for consolidation and/or class certification status. On April 26, Anita Brody, a U.S. District judge in Philadelphia, ruled that plaintiffs must submit a master administrative complaint by June 8 compiling common statements in the growing number of lawsuits filed at the federal and state level against the NFL.

The timeline for managing this litigation in Philadelphia will take the master case through the balance of the year to get to the first ruling regarding consolidation and class status:
  • Plaintiffs must submit the master complaint by June 8.
  • NFL and Riddell can file briefs on the master complaint by June 19.
  • Motions to dismiss filed in response to the master complaint are due Aug. 9.
  • Plaintiffs’ response to the motions to dismiss are due Oct. 10.
  • Replies to plaintiffs’ motions are due Nov. 26.
According to experts, if the Philadelphia case rules favorably towards players, the courts where the complaints were originally filed will determine damages.

Someone with more expertise on NFL team workers' compensation policies will have to educate me here, but my guess is that most of these policies are high deductible policies meaning that the teams have quite a bit of subrogation potential in these cases and whether or not to join the suits is going to be more of a political decision between the owners rather than a legal decision.

But certainly the carriers for the teams have no obligation to the NFL, and the decision of whether or not to join in these suits to recover payments made in related workers' compensation claims is a more pure business decision.

Whether or not the teams can exert influence on their carriers presents an interesting ethical dilemma due to the inherent conflict of interest.

The NFL concussion cases are nothing dramatic in my opinion, and reach newsworthy status only because this country loves its football. If this were some other industry there would be hardly any notice at all.

Indeed some of the sports commentators have ridiculed the lawsuits and the publicity they are drawing, stating that the players knew they were getting into a dangerous, violent game and that they are paid well to do so - basically assumption of the risk.

For legal wonks though, this is a very interesting situation because the NFL is owned by its member teams setting up a closed network that can five rise to conflicts of interest such as this potential subrogation issue.

It will be a couple of years before this all gets sorted out. I suspect eventually the game of football is going to undergo some "reform" in both equipment and rules. 

In the meantime the uniquely American appeal of football extends to the legal playing field too.

Tuesday, May 29, 2012

Cash vs. Insurance - Lessons to be Learned

On Sunday the Los Angeles Times ran an article about the huge discounts available to patients who pay cash for medical services.

The discounts documented by the Times were astounding - in one case for a CT scan the cash price was ten times (10 X) less than what the insurance price was, and 20 times (20 X) less than what the "list" price was.

This correlates with my personal experience. In the past, when I was covered by Blue Cross, which required I pay a deductible for annual health checkups, I paid cash to my physician - the cost of paying cash was less than the deductible!

I have to say, however, that while I knew cash based physician services cost less than insurance covered services, the disparity highlighted in the Times article alarmed me. While insurance is about spreading the risk to a larger population set so that those who otherwise could not afford services could, the Times article begs the question: is insurance administration so inefficient that vendors can charge ten times less for a procedure than if paid through insurance?

What goes into the economics of the pricing of medical services when comparing cash versus insurance? How does the fact of insurance derail the pricing model?

The Times article does not go into why this occurs and perhaps the complexity of medical economics will be addressed in future articles.

It's easy to blame insurance for the high cost of medical treatment, and the war between insurance carriers and medical vendors gets played out every time there is an attempt to regulate the cost of services.

That's not the point here though. What intrigues me is that medical service vendors must have plenty of data which allows them to price services based upon different payment methodologies. They obviously have worked out what the costs are given a certain set of payment criteria - these are all smart business people that must have crunched the numbers to justify a discount ten times less than what insurance pays.

In other words, they have studied the inefficiencies attendant with the different reimbursement sets, have quantified the various costs, and can price their services accordingly.

What would fee schedules look like if those in charge of these pricing decisions shared with payers and regulators all of the data that identified each friction point in insurance based reimbursement schedules versus getting paid cash?

It seems to me that this same sort of cash disparity analysis would also be applicable to the cost of workers' compensation medical treatment services.

If medical vendors have the data to figure out their cash discounts, it seems to me that they know best where the friction points are and that would be invaluable data to the regulatory community - perhaps our laws play an oversized role in the cost of medical services.

It is nearly universally accepted that the cost to the medical vendor is much higher going through the workers' compensation system than general health, which per above, is higher than a cash for services system (at least for the more routine, non-iterative procedures) otherwise services could just be paid for at Medicare rates rather than a multiple as in most states.

I can accept that.

When we ask why medical vendors point to the increased regulatory hassle, increased paper work and other elements - but these are all generalities.

What specifically are the steps along the way that create that extra friction cost? What can regulators learn from those who give cash discounts as to system efficiency?

I suspect that there are service points that either can be eliminated entirely, consolidated with other service points or at least modified to be more efficient than they currently are.

It's a complex equation for sure, but it seems to my simplistic way of thinking that studying medical vendor pricing would yield some valuable insight into system efficiency. By understanding how certain legal, regulatory and insurance imposed constrictions or requirements add to the cost of services maybe overall system costs can be addressed in a meaningful fashion rather than the customary top end debate over reimbursement sets.

Perhaps medical and insurance executives could explain these economics to us and give us the insight that allows such deep discounting in the non-insurance payment model.

Friday, May 25, 2012

UR Debate Has No Foundation

As reform rhetoric heats up in California, one area is creating battle lines - utilization review (UR).

Recently it was revealed by WorkCompCentral that there is no good data on UR. And it may be that there really isn't any way to get it, at least at this point in time with the current systems in place.

Regardless, business interests and insurance interests continue to support UR as a way to monitor and manage care which they say is necessary to protect injured workers from treatment requests that aren't supported by good medical or scientific evidence.

Those in opposition to UR, primarily the applicant's attorneys and injured worker lobbying groups, say that UR is used to deny necessary necessary treatment and to delay cases and/or put savings in the system onto the backs of injured workers.

Some UR companies do have some data, albeit incomplete - the reason the data is incomplete is because not all treatment requests are sent to UR, and those that are sent to UR aren't subject to follow up data so we don't know the true efficacy of UR approvals or denials. There's no way to make comparisons or see what the outcomes are.

In my view UR is a necessary component in workers' compensation. From my observations, most injured workers put way too much trust in the professionals managing their claims, be it physicians, attorneys, claims adjusters, whomever. Most injured workers do not take the time or have the expertise to research their conditions and make health choices on their own. They rely on professionals to steer them in the right direction.

This really is no different that what is found in the general health population - although trends do seem to be shifting now that most people use the Internet. Still, researching medical issues can be daunting for the everyday person and people in general put, in my opinion, way too much trust in professionals to make decisions for them.

When you really get down to it, the medical component of workers' compensation these days is just a more liberal managed care system. It is managed care to the extent that there are rules in place to direct how medical care is to be delivered. But it is more liberal than general health managed care because there is much flexibility in the rules regarding choice of care and outcomes control.

I'm a fan of managed care. I am a Kaiser Permanente member and our health plan is through Kaiser. The service is fantastic - I actually get into the exam room when scheduled, my records are on computer for instant reference and notation, pharmaceuticals and other prescriptions are handled instantly and seamlessly, and I get status on virtually everything as soon as it happens on the Kaiser website. I have the opportunity to see another physician if I don't like what my doc has to say or do.

I must admit though that it is rare for me to go to the doctor because I take care of myself - I ride my bicycle every day, I eat organic foods from the local farmer's market, my weight is under control, with the assistance of statins my generically high cholesterol is managed, and I try not to drink alcohol too much (I like good wine; hey, a man's got to have some vices!). I probably don't sleep enough though (got a blog to write every morning...).

Not all managed care is created equal though and not all patients are as interactive with their health issues as I am. I will also admit that I may not be a managed care fan if I were going through a medical supply entity that wasn't as organized, sophisticated and well run as Kaiser. It was only 20 years ago that "Kaiser" meant the worst care possible...

And of course there are failure points - that happens in any service supply business. In the medical world a failure in a service point has significantly higher negative impact on a patient's perception of service than in other worlds, perhaps because the service affects the patient in a most personal, and life threatening manner.

Not all UR is the same, just as not all managed care is the same.

So really the debate about UR is not whether it should or shouldn't be a part of the workers' compensation system. UR serves a good and useful purpose and should still be a part of the system.

The debate about UR in California is really about the meteoric rise in the cost of the service and the problem is that we don't know why (frequency or severity or both) the cost of the service has risen so dramatically in just the last five years.

Everyone has their theories - profiteering, conflicts of interest, increases in unsubstantiated treatment requests, etc. - but everyone is just guessing.

Someone will figure out how to study the efficacy and cost/benefits of UR. Until then, the debate on UR has no foundation and should not be a part of the reform discussion.

Thursday, May 24, 2012

Rx Testing the New Source for Regulation

The rapid rise in spending for drug testing over the past couple of years raises more questions than answers.

Yesterday the California Workers’ Compensation Institute (CWCI) released a report estimating that carriers and self-insured employers paid $98 million for drug testing in 2011, 192 times the $509,000 paid in 2004.

CWCI estimated total system costs for drug testing was $177.3 million over the past eight years, but $98.7 million of that was paid in 2011 and $51.4 million was paid in 2010. Spending on drug testing in 2011 accounted for about 2.5% of all system medical expenses that year.

Whats more, CWCI said that the average amount paid per date of service increased 315% to $147.55 in 2011 from $35.51 in 2004.

These results seem to point towards two trends that can be described using insurance vernacular: an increase in frequency (the amount of testing being done) and an increase in severity (the cost of each test).

Of course these are conclusions and what is driving both frequency and severity is an unknown, but there are calls for more regulation to provide guidance on when drug testing should take place and how much drug testing should cost.

Some will lay blame on testing labs because of evidence of impropriety, with allegations that drug testing labs have caught on to the opioid trend and are capitalizing on the situation.

In April, WorkCompCentral ran a story about drug testing labs accusing other labs of gaming the situation by inflating testing bills by up to 1500%, and by recoding or bundling services.

In addition labs and drug testing companies are alleged to provide doctors with marketing and promotional materials showing them how they can bill not just for a $20 point of care, but also for multiple office visits, patient consultations and preparing reports.

One possible contribution to the rise in drug testing frequency and severity in workers' compensation cases may be due to an increase in enforcement efforts against labs that are intentionally overbilling by the Centers for Medicare and Medicaid Services.

Prosecutors in Massachusetts announced in April that Calloway Laboratories agreed to pay $20 million to settle state charges that it defrauded Medicaid with a kickback scheme and excessive urine tests.

In February, the U.S. Attorney’s Office in Michigan announced that three labs in Troy, Mich., agreed to pay $6 million for improperly billing about $900 worth of urine drug tests for patients regardless of what the physician ordered.

In May 2011, Quest Diagnostics paid $241 million to settle a whistleblower lawsuit accusing it of overcharging Medi-Cal and paying kickbacks to doctors, hospitals and clinics that referred patients to its labs.

And in November 2010, Ameritox Ltd. agreed to pay $16.3 million to settle allegations that it made cash payments to physicians in exchange for referrals for drug-testing services.

So perhaps the increase in workers' compensation drug testing is the result of a shift by the labs from the Medicare system to the more fractured, less onerous, state workers' compensation systems with the myriad of 50 different sets of rules and regulations making it easier to hide.

Perhaps part of this meteoric rise in testing costs is due to pure profiteering. There certainly is evidence of this.

In March Dr. Gerald Pearlman accused his former employer, Accatur Diagnostics, of performing unnecessary tests to inflate bills and submitting invoices to payers using codes in the Official Medical Fee Schedule that are supposed to be used only by the laboratories that perform the tests, resulting in bills for tests that were between $1,000 and $3,000 when the cost of the testing was only $70.

I guess that this trend should be expected. The substantial increase in opioid cases around the country, in and out of workers' compensation systems, would result in increased testing. Capitalism being what it is, there is a natural tendency to take advantage of the situation while it still exists.

One thing is for certain, this too shall pass and the next cost driving trend will take its place - we just don't know what that will be ... yet.

In the meantime, prepare for increased regulation and rules adding yet more complexity and costs.

Wednesday, May 23, 2012

LA Bill Eliminating Liberal Construction is Bad Policy

"Disputes concerning the facts in workers' compensation cases shall not be given a broad, liberal construction in favor of either employees or employers; the laws pertaining to workers' compensation shall be construed in accordance with the basic principles of statutory construction and not in favor of either employer or employee."

This is the preamble to Louisiana Senate Bill 763 by Sen. Jack Donahue, R-Covington.

In addition, SB 763 states that the provisions of the workers' compensation law "are based on the mutual renunciation of legal rights and defenses by employers and employees alike; therefore, it is the specific intent of the Legislature that workers' compensation cases shall be decided on their merits."
The statement of legislative intent is, of course, since this is politics, a trade for an increase in some benefits for injured workers, increasing burial benefits by $1,000 to $8,500 and providing an earlier start to payment of lost wages – beginning two weeks after injury rather than six weeks..

But in my view this is a dangerous exchange and one that is not being given well thought out consideration by the employer community.

On its face employers might think that they are just righting 100 years of wrong - that workers' compensation laws are liberally construed in favor of the injured worker and unfairly penalize employers.

What happens when they are not liberally construed however leads to troublesome results for employers.

Missouri demonstrated that following a 2005 amendment that mandated courts to "strictly construe" the law. Consequently Missouri courts concluded that injured employees could sue coworkers for negligence, even if the injured worker received workers' compensation benefits, and that occupational diseases were not covered under the workers' compensation system thus opening up employers to civil liability for those claims.

The purpose of workers' compensation laws is to keep claims of work injury out of the civil courts and cap damages. This provides stability and predictability so that businesses can properly plan their budgets and can spread the risk of claims over a broad base.

The Louisiana Association of Business and Industry (LABI)urges support for the bill, stating on its website that the bill, "is a LABI-sponsored measure to eliminate some of the friction and excessive litigation from Louisiana’s workers compensation (WC) system. The bill (1) requires courts to apply the WC statutes according to their clear provisions and not in favor of one party over another, (2) establishes a procedure for resolving indemnity benefit calculation errors and disputes without resorting to court, (3) allows payors to avoid penalties and attorney fees by continuing benefits while disputing a claim, and (4) clarifies that a dispute over medical treatment cannot proceed before the medical director rules on such treatment pursuant to the medical treatment guidelines."

LABI urges, "If you want an improved and less costly WC system in Louisiana, please contact your representatives to urge their support for SB 763."

Jennifer Barber Valois, an attorney with the Barber Law Firm in Lafayette and a member of the Louisiana Association for Justice, told WorkCompCentral that the change is likely to increase litigation, require more workers’ compensation judges and create higher costs for the system, adding, “I think it’s bad for everyone.”

Seems to me that LABI is backwards on its vision in this case, and in contradiction to the organization's goal of ensuring the best interests of business in the state. SB 763 will do more harm to business than good. It is a shortsighted position by the business lobby to reverse the current interpretation of Louisiana's workers' compensation laws. Unintended consequences will certainly prevail and Louisiana business is not going to be happy.

I agree with Valois - SB 763 is bad for everyone except perhaps carriers in the state which will be able to deflect costs onto other systems and society in general which will not necessarily result in lower

SB 763 was approved by the House Committee on Labor and Industrial Relations Monday on an 8-6 vote and is ready for a vote by the full House.

Tuesday, May 22, 2012

Iowa Tax Case Should Bring Employer Jail Time

How do you deal with workers' compensation scofflaws? By busting them on tax issues.

But just seeking money in a civil tax action won't do the trick - jail time is necessary. That takes commitment of law enforcement. The question is whether law enforcement deems the evasion of workers' compensation obligations sufficiently criminal to seek justice.

In Iowa, James L. Watts, owner of Watts Trucking Service and numerous trash and waste-hauling companies that operate in the Midwest, owes more than $30 million in payroll taxes and has failed to pay more than 14 judgments since 2008 related to injured workers’ claims, according to court records and news reports.

Watts, 69, has ignored tax obligations and opened and closed numerous corporations over the past few decades as tax and workers' compensation issues emerged, court records and officials said. He has formed and run at least 23 different companies, many of which accrued the sizable employment and unemployment tax debt, according to federal prosecutors. Collection efforts have largely failed, officials told WorkCompCentral.

Watts is being sued by the Internal Revenue Service in Federal court. The complaint accuses Watts of "pyramiding" employment taxes by opening new companies to avoid tax obligations associated with existing companies and trying to "stymie" IRS collection efforts.

Until the IRS case Iowa officials had no idea of how egregious Watt's actions have been.

And Iowa has no method to provide for injured workers of uninsured employers, unlike most states, so the victims of Watt's maneuvering have no recourse.

According to state officials, Watt's is just one example of an extensive problem in the state - employers skirting the workers' compensation requirement and, frankly, it seems to me the problem is the product of disinterest by Iowa prosecutors.

Dave O'Brien, a Cedar Rapids attorney who represented an injured worker in a case against one of Watts' companies in 2010, told WorkCompCentral that, "It's criminal under Iowa law (to not cover employment-related injuries), but there's really no history of the state enforcing that."

Now that the IRS is seeking Watt's money, O'Brien says his client will probably never be able to get his injuries addressed.

Chris Godfrey, head of the Iowa Workers' Compensation Division, said there is no state fund in Iowa to pick up the costs for injured workers when uninsured employers do not.

O'Brien's client, 45-year-old Jeffrey Carter, was forced to wait two years and be qualified for state-subsidized health insurance before he could get his needed back surgery, providing a stark example of the cost shifting that occurs when employers fail their legal obligations.

The IRS case did give workers' compensation officials a better idea of how many companies Watts was operating in recent years and how extensive his unpaid financial obligations are, said Andrew Mertens, spokesman for the Iowa Association of Justice.

Attorneys for injured workers in Iowa are hoping for criminal charges to be prosecuted against Watts to set an example.

According to Jeff Thompson, an Iowa deputy attorney general, the state is considering both civil and criminal remedies for dealing with Watts' workers' compensation violations.

The civil federal tax case, meanwhile, seeks an injunction, judgments on the tax debts and foreclosure of a few residential properties Watts owns.

We have seen in other venues that civil penalties are typically not very effective against white collar criminals because they amass so much wealth and become so adept at hiding it that damages just become a cost of doing business. In fact this was Watts' strategy - incurring obligations then starting a new company to avoid payment. Watts obviously understands how to avoid civil penalties.

So the way to deal with egregious scofflaws is jail time - protracted jail time.

Perhaps now that the IRS has demonstrated just how flagrant Watts was in flouting the law, Iowa law enforcement has the information needed to permit the Department of Corrections to provide him with room and board.

"(Watts' companies) don't really seem to have a system for taking care of their workers after an injury," Mertens told WorkCompCentral. "But they're not alone. It's a pretty wide problem and there are examples all across Iowa and the country of corporate lawbreakers who aren't paying for workers' compensation insurance. The workers are paying the price."

Martens is only partially correct. Law abiding companies, and the rest of society, bear these costs too.

I submit that Iowa's failure to seek criminal redress against Watts is a failure of the state to protect its citizens. Now that the IRS has laid out the case for them, the Iowa Department of Justice and Office of the Attorney General have no choice but to move forward with a prosecution of Watts.

Monday, May 21, 2012

Talk About UR in CA Has No Basis in Data

Good information is the precursor to good decisions.

In order to get good information one must have good data, or at least some data.

In California, it appears that some important decisions are pending without requisite data by which to determine if the information behind decisions is good.

In this case I'm talking about the current debate as to the cost/benefit discussion concerning utilization review (UR).

I have been critical of the industry regarding the cost of cost-containment services. Utilization review, the process of obtaining third party review of medical treatment requests, is partially a cost-containment service. I say partially because theoretically utilization review should also benefit the patient to ensure that unnecessary or ill-conceived medical procedures are not foisted upon him or her without demonstrable efficacy.

Regardless, according to the latest information from the Workers' Compensation Insurance Rating Bureau (WCIRB) cost-containment services now comprise 47% of all loss expenses, estimated to total $370 million in 2011.

The question being examined now by the California legislature is whether the system is seeing value but it seems that question can not be answered with the data that is, or rather is not, currently collected.

Pending is AB 1687, by Paul Fong, D-Cupertino, that would authorize attorney fees when an injured worker with an award of future medical treatment successfully appeals a utilization review denial.

The legislative analysis to the bill gives a broad estimate as to how many utilization review requests are denied - between 6% and 20%.

Tracing this incomplete estimate backwards to its origin - from legislative analyst Julie Salley-Gray who is a consultant to the Assembly Appropriations Committee, to bill sponsor California Professional Firefighters, to the Division of Workers’ Compensation DWC - we come to find out that DWC doesn't track this data.

The vague estimate blame then gets passed on to the Commission on Health Safety and Workers' Compensation (CHSWC).

DWC spokesman Peter Melton said in an email to WorkCompCentral that the division does not track or keep UR statistics.

“It seems these numbers are from a January 2011 CHSWC lien report,” Melton wrote.

The CHSWC lien report, however, provides only the percentage of medical liens that were filed as a result of a UR denial. CHSWC reported authorization for treatment was in dispute in 70% of liens surveyed.

Utilization review was the reason treatment was not authorized in 6% of the liens filed with the Workers' Compensation Appeals Board, according to CHSWC. The reason treatment was denied in 20% of cases was unknown or not stated.

"'Authorization,' as used in the lien report, is not the same as 'authorization' as used in UR," Melton wrote. "The 6% only means that of all medical dispute liens filed with the WCAB that did not involve a fee schedule dispute, only 6% involve UR denials. The 20% is in the 'other' category and cannot be logically related to UR denials."

So it turns out that between 6% and 20% of utilization review requests aren't really denied; they are just lien disputes and 20% of lien disputes do not have a relationship to UR denials.

The California Applicant's Attorneys Association (CAAA) has been critical of UR and on May 15 a statement saying delayed and denied treatment is a significant cost driver.

Barry Hinden, legislative chair for the CAAA and the association’s past president, said during a telephone interview for the WorkCompCentral story on Thursday that based on his personal experience he thinks that 80% or even 90% of treatment requests are denied.

Hinden's experience is going to be much different than an overall number because the cases he is managing necessarily will involve dispute - but whether it is 6, 20, 80 or 90% is still alarming because the bottom lien is that nobody knows.

Nobody knows ...

Consequently the conversation about the costs and benefits of UR is premature. We can't discuss this topic because we don't have the data to make intelligent decisions.

For that reason AB 1687 needs to be deferred. The industry doesn't really know what it is spending its money on and whether value is being created, destroyed or remaining inert.

Friday, May 18, 2012

Immigration Status and Home Care Reimbursement

Do you think that a non-citizen immigrant should be reimbursed for the value of care that she provides to her severely injured husband who received a big stipulated award for workers' compensation benefits?

Everest National didn't think so.

But the California Workers' Compensation Appeals Board (WCAB) did. And the 4th District Court of Appeals didn't disagree.

In Allgreen Landscapes et al. v. WCAB et al., No. G046627, Teodora Mota asserted a lien for homecare services for her husband.

Mota's husband was involved in a car accident in August 2001, which left him comatose for over a month and permanently disabled. He sustained injuries to his head, neck, jaw, low back, right leg, right shoulder, left wrist, chest, liver, nose, eyes, gums, urinary tract and gastrointestinal system, which affected his sense of smell, hearing and psyche, and rendered him impotent.

He received an 89% stipulated award for permanent disability and future medical care.

Teodora Mota filed a lien for home care 2 years later.

At trial she testified without contradiction that she had cared for her husband 24-hours a day since his discharge from the hospital. Mota said she regularly fed him, took him for walks, administered his medications, and placed his catheter.

The trial judge awarded Mota reimbursement for services at the median rate for a licensed vocational nurse in Orange County.

Everest argued that the Immigration Reform and Control Act of 1986 barred Mota's claim since she was an illegal alien and was not eligible to work in the United States. 

In a panel decision this January, the WCAB noted that Mota undisputedly provided care to her husband for which Everest did not deny liability.

The WCAB reasoned that had she elected to move to Mexico for medical treatment and rehabilitation for her husband and provided the exact same care for him there, her employment status or right to reimbursement would not be an issue. That she chose to stay in the United States should not change this result, the panel said.

This is a difficult situation but I think the WCAB got the result right. It is not so much about "working" in the United States as it is about providing proper compensation.

I don't know the immigration status of Mota's husband but as we know that is irrelevant to the payment of compensation in a work injury in California. Immigration status is only relevant to vocational status post injury.

In Mota's case, that she is providing for her husband 24 hours a day, according to the facts, removes her from the labor pool in which she could otherwise generate income for the family - be it illegally in the United States, or legally in Mexico.

Everest would otherwise have had to pay for Mota's husband's care, so when one really gets down to brass tacks Everest didn't lose anything - it was responsible for the care regardless of the provider, and potentially even more expensive care.

Thursday, May 17, 2012

On the Street Corner - Do You Need a Beer?

Yesterday I smelled a rat.

Bill Cobb, VP Business Development for CompMetrics, has helped ferret out that rat in a blog post he put together along with cool charts, graphs with numbers and things that help explain the madness of the California rate making process.

What Cobb's report tells us is why carriers still write business in California despite all of the "sky is falling" rhetoric year after year (or in this case, mid-year) - because they make money even if their expense ratios are deplorable and investment returns are pathetic for professional money management. More on that below.

I asked yesterday what the big deal was about cost containment expenses. To me that is an internal operational issue and should not be cause to raise rates and premiums on employers. If a carrier can not exercise the discipline to keep its costs under control then that is the carrier's problem - that's a cost of doing business.

Cobb confirms this. Note in his analysis that medical expenses have essentially remained flat since the last "reform". The big cost driver for carriers is how much they spend keeping those medical costs down.

Bill Mudge, president of the Workers' Compensation Insurance Rating Bureau (WCIRB) blamed some of the increases on the difficulty of establishing and maintaining medical provider networks. I don't buy that - MPNs have been around since 2004. Why all of a sudden are they costing more? The MPN industry in California is now mature with known entities and players.

Mudge also postulated that some of the cost increase could be blamed on an increase in continuous trauma (CT) claims - where are the statistics to support that? And why do CT claims cost more to cost-contain? Again, I don't buy that. This does not seem logical to me. CT claims have been around since the beginning of [workers' compensation] time.

The WCIRB seeks a rate increase on ESTIMATED increases in costs. Is this not a self-fulfilling prophecy?

I know that reserving requires a bit of art to perform properly and much of this art involves the skillful estimation of future expenses. But I'm wondering why projections of cost-containment services can't go DOWN.

I said yesterday that the numbers don't make sense to me, but that is not unusual because when it came to math I was not gifted with the right set of genes to develop those skills.

But even I can see when numbers don't appear to add up.

For instance, Cobb has a three great graphs demonstrating accident year increases in Estimated Ultimate Costs of an indemnity claim, increases in Indemnity Costs per indemnity claim and Allocated Loss Adjustment Expense Costs (ALAE) per indemnity claim.

In the first two instances it is absolutely clear that since 2008, after the system adjusted to the 2004 reforms, there essentially was stabilization in both medical costs and indemnity costs.

What continued to inflate, well past wage basis levels, is the ALAE costs, with a inflation rate of 11.9% per year. ALAE, as a percentage of combined costs, rose from 23% in 2004 to 46% in 2011.

Now as to those profits. According to Cobb's analysis, by the end of 30 years, due to the magic of modern day finance and the power of compound interest, carriers still put over thirty cents of every premium dollar in their pockets even after paying out 100% of claim costs. This can explain why Tokio Marine was interested in Delphi Financial and Delphi's workers' compensation holdings, including Advantage Insurance.

Compared to the average publicly traded company, workers' compensation insurance has a poor rate of return - but it's that long term cash flow that keeps the clocks ticking and why carriers won't flee California. The world's seventh largest economy just has too much available opportunity to abandon.

I don't have a problem with carriers making a profit - even an outsized profit (I'd invest!). Profitability of the line is necessary for carriers to participate and for a health distribution of the risk (we saw what happened when capacity dried up and the State Fund ended up with nearly half the market).

However, lack of transparency when the hand is out creates mistrust and uneasiness. Kind of like the homeless person on the street corner - are you going to give your money to the person whose sign says they can get a job, or the one that says "Let's be honest, I need a beer"?

Wednesday, May 16, 2012

Cost Containment Expenses - I Smell a Rat

"If cost containment tools are not working but cost more than they benefit the system, we need to know why."

That's what California Insurance Commissioner Dave Jones was quoted as saying yesterday at the Department of Insurance (DOI) rate making hearing, expressing concern that medical prices are increasing in spite of the rise in spending on cost-containment programs, such as medical provider networks and utilization review. Jones said it might be appropriate to study whether the programs are worth what they cost.

Perhaps he should initiate review, utilization and fee schedules for cost containment services...

For those of you less sensitive to sarcasm in print, a healthy guffaw is applicable now.

The Workers' Compensation Insurance Rating Bureau (WCIRB) estimates that carriers spent $350 million on medical cost-containment programs in 2010. The estimate for 2011 is $370 million.

WCIRB's Chief Actuary Dave Bellusci said the overall impact of reform measures passed between 2002 and 2004, including cost containment, a cap on the number of physical therapy visits and treatment guidelines based on evidence-based medicine were overall "tremendously effective in controlling medical costs."

According to Bellusci, using the medical inflation rate for the years leading up to 2005 to project costs through 2011, the average cost per medical claim would be $88,092. Because of the 2004 reforms, the actual projected cost is $43,308.

If we use only the volume of litigated claims in California (generally about 300,000 filed per year) that means the industry saved about $13.5 billion.

Seems to me that if the goal of cost containment services is to actually contain costs, then the extra $20 million spent last year is still producing a good return on investment. Maybe I'm not reading this right though. These insurance guys are a lot smarter than I am - I have never been good at math.

Bellusci also noted that the WCIRB is seeing a shift in the percentage of indemnity and medical-only claims. Between 2005 and 2007, 71% of all claims were medical-only and 29% were indemnity. By 2010, only 66% of claims were medical-only.

I didn't see the estimate for 2011 in the report on the meeting.

NCCI noted a similar spike in indemnity claims in its Annual State of the Line report delivered just last week, and also noted that the 2010 spike appeared to ameliorate in 2011 - so this "trend" may not be a trend at all, but some statistical anomaly that has yet to be identified.

In large part because of these alleged out-of-control expenses, the WCIRB recommended to the Insurance Commissioner a pure premium rate hike of $2.51 per $100 of payroll.

That would be 9.1% higher than the rate that took effect Jan. 1 and 7.7% higher than the $2.33 recommended by the Rating Bureau in its Jan. 1, 2012, filing. The recommended pure premium rate is also 4.15% higher than the industry average charged rate of $2.41 as of Jan. 1, 2012.

Rating Bureau President Bill Mudge said he believes that some of the cost-containment expenses can be attributed to regulations that make it difficult to establish and maintain a medical provider network.

I suggest that perhaps some cost-containment expenses can be attributed to profiteering and over-utilization of these services. It isn't rocket science, and not even actuarial science - just follow the money. Who owns utilization services? Where does that money flow? Who is dictating policies about cost containment services?

Not all medical treatment needs to be subjected to utilization or bill review and my guess is that most treatment requests don't require this level of oversight.

But the anecdotes I hear point towards nearly mandatory review by most companies of almost all treatment requests. To me that's a utilization issue that the carriers need to address with their internal policies, not some external priming of the pump to extract more cash from the insured base.

Let's look at another issue with these dog and pony show rate making hearings - how many of the state's carriers are really operating at such high loss ratios and high combined ratios? Are these statistics skewed by just a few of the state's carriers? How many carriers are operating at levels that are much rational?

And since the last rate hike recommendation, just how many carriers actually increased rates?

Maybe I'm just naive, uneducated, or just plain stupid (don't pick one - this is theoretical) but it just seems to me that we're not getting the whole story. I can't make sense of these numbers.

And it seems that the Insurance Commissioner buys into the gloom and doom, in part because he doesn't study workers' compensation history very well - he is quoted as stating that the current trajectory of the market is not sustainable and one doesn't have to look back far to "see the ground littered with the bodies of 35 workers' compensation carriers" that the Insurance Department had to liquidate.

Those 35 carriers were the subject of inadequate rates, not because of inaction by the DOI, but because of irrational exuberance based upon the availability of irrational reinsurance deals that went bust - deals that the rest of the market knew was a fantasy - following revocation of the minimum rate floor in 1995.

If the sky is falling then why isn't everyone running for cover? If doing business in California is such a huge burden and such a money losing proposition, then why do carriers remain in the state and write coverage for California business? Why not just cede all that risk to the State Fund and let them worry about it?

I smell a rat. But I don't have the bait or a big enough trap to catch it.

Tuesday, May 15, 2012

Not Medical Fee Schedules Again...

I know I'm stepping into hot water with this topic, but okay, I've got the flak jacket on.

The topic is medical billing - and before all you physicians and medical industry lobbyists start putting finger to keypad and sending me all sorts of nasty emails, hear me out.

We all know we have a medical cost issue in the United States. It has been repeated so often, for so long, that it is getting not just old, but decrepit and a sign of ridiculousness that this nation, with all its ingenuity, genius and creativity, can not deal with it.

Just in one publication cycle this morning, WorkCompCentral News posts two top stories about medical costs: New Jersey is (finally) dealing with balance billing (physicians suing injured workers outside the comp system to collect the balance of any billing the carrier won't pay) and instituting a medical fee schedule, and Arizona is talking about tweaking its fee schedule drawing all sorts of objection from the medical community with dire prognostications of a mass exodus of providers from the state's system.

I'm not going to debate whether doctors will flee the system - I'll be inundated with statistics proffered to demonstrate that docs say they won't take work comp patients when reimbursement is set too low and other statistics demonstrating no impact on access to care. I've gone there before.

Nope - what I am going to say though is that the debate continues to be all about the wrong things.

The debate always centers on cost and procedure. Specifically, medical fee schedules are all about assigning a dollar figure to a procedure. Some procedures are reimbursed at higher rates than other procedures, presumably on the basis that those are either more difficult to perform and thus require greater expertise, or are inherently more expensive to deliver for some underlying reason.

The natural reaction to this type of service regulation is that the incentive is to push for the more highly reimbursed procedure, or set of procedures and not necessarily within the patient's best interests.

Regulating the cost of procedures ultimately fails because value is not rewarded.

In a prior post I mentioned the September, 2011 issue of Harvard Business Review (HBR) with the headline story, "How to Solve the Cost Crisis in Health Care," a scholarly, high-level, business oriented analysis of the health care management system by noted health care scholars Robert S. Kaplan and Michael E. Porter.

The bottom line of Kaplan and Porter's article is what is missing in the medical cost debate is a discussion about value.

Dr. David Deitz, Medical Director for Liberty Mutual, defines medical care delivery value in workers' compensation as quality divided by costs. Quality is defined as the health outcome following treatment of the injured worker.

Kaplan and Porter would enhance that value proposition by stating that medical providers need to be compensated based on the totality of services as a whole, based on diagnosis, rather than on a per procedure basis. This requires significant work analyzing data to determine statistically relevant expectations on outcomes.

Dietz would argue that this is possible in the workers' compensation system because of the huge quantity of data that is gathered on each case, but that the industry does a terrible job of marrying this data to real-world policy application.

The value debate does not have to be an entirely subjective determination. As Dietz notes, there is plenty of data that will allow definitions of value to almost any particular diagnosis and prescribed treatment regiment. We have to be willing to spend the time and money to analyze and study it.

My guess, though I could be wrong, is that the medical community at large would not be opposed to the value discussion. I think most medical providers want to do the right thing, and make great sacrifice to stay within the bounds of the system. But they also wanted to be adequately compensated.

However, like any other vendor to a highly regulated industry like workers' compensation, one tends to get beat down in the daily struggle for existence as the various forces at large tug and pull in different directions - thus there becomes an almost monocular vision towards the medical cost debate with no consideration for the delivery of value by either side.

I understand why the medical community responds to attempts to change medical fee schedules or reimbursement rates in the manner in which they do - because they are otherwise left out of the debate on value. And carriers are not the ones that should be driving the debate because they are just vendors too.

The debate should be driven by the stakeholders - workers and their employers - and moderated by regulators who have the information and data. Workers want to be fixed. Employers are willing to pay for that if they deem the costs to be reasonable. Somewhere in there is value.

Monday, May 14, 2012

Alternatives to Work Comp and Long Term Issues

I had a couple of interesting conversations last week at the NCCI Annual Issues Symposium about alternative risk management in workers' compensation, instigated by discussions on what I thought would be disruptions to the marketplace should Oklahoma non-subscription take hold.

As you likely are aware, it is my opinion that non-subscription represents a real threat to the workers' compensation insurance market and will constitute significant competition for the risk management dollar should the idea spread to other states. Indeed, Stephen Klingel in his State of the Line address acknowledged that many states were watching Oklahoma to see what happens and that this could represent a challenge for the industry to compete against.

One issue with non-subscription that I presume would need to be dealt with if this option were to be a viable alternative to traditional workers' compensation insurance and stay within the Oklahoma mandate that it provide the same or better benefits to injured workers is the life time medical provision - under ERISA plans there are no guarantees of continuing medical beyond the employment period.

In workers' compensation, medical treatment for the condition deemed to have arisen out of and in the course of employment is covered for the life of the injured worker unless compromised by a settlement agreement. I am unclear how ERISA plans would provide for this requirement but I suspect that those who put together such systems have this worked out.

One aspect of non-subscription that plays well to the work force though is the tendency of non-subscribers to become completely obsessive with safety.

In conversations I had at NCCI with people that have been studying the option, employers that do non-subscribe in Texas with ERISA plans are vigilantly safety-conscious because a failure of safety by the employer exposes the employer to big civil damages.

As for the impact on the industry - that is a big unknown. I talked with several actuaries at NCCI. They expressed that the concern over reduction of insured base upon which to spread risk was voiced when large deductible programs were introduced, but the experience was just the opposite.

However, non-subscription is different. Non-subscription takes an employer completely out of the risk pool, while large deductibles keep an employer in the risk pool, albeit at a different loss level.

Another matter of concern should be financial fundamentals of the entire risk management scene - i.e. what happens when a non-subscriber folds, becomes insolvent or otherwise is unable to take care of its obligations.

The one beauty of the workers' compensation system is that an intermediary, i.e. insurance company, takes the financial risk and pays fees and taxes into state systems that guarantee performance if the insurance company can no longer function. Self insureds likewise make payments into guarantee systems to protect injured workers over the long term.

This backstop was beautifully played out in the late 1990s when so many insurance companies fell victim to the intoxication of Unicover brew and laid so many claims into the hands of state insurance guarantee associations.

The risk is playing out now with self insurance groups (SIGs) finding all sorts of financial issues with their programs.

For instance the Healthcare Industry Self Insurance Program of California is encouraging former members to rejoin to help secure the long-term solvency of the self-insured group by offering them the option of paying their liabilities in installments after seeing membership decline in 2009 and 2010 making funding the long-term liabilities of the group a challenge.

One of the oldest self-insured groups in Nevada, the Nevada Restaurant Self-Insured Group, was winding down at the end of 2011after deciding it is no longer financially practical to continue taking on risks, forcing more than 1,700 employers to find a new source for workers' compensation insurance, some who have been covered by the group since it was founded in 1995.

And all of us have seen the mess that has been created by the failure of Compensation Risk Managers and the ongoing litigation and financial aftermath of those programs.

This is all brought home by the recent announcement that the Orange County Board of Supervisors in California adopted a resolution that its self-funded workers' compensation program is to be brought back up to 80% funding of estimated losses over the course of the next five years, moving $2 to $3 million in departmental budgets into the work comp fund.

So where does all this lead us?

Every employer that is part of a SIG, a captive, a Retro Plan, a High Deduct, or has coverage with an A- carrier needs to take a look at the financial underpinnings. We assume that smart people know what they're doing when entering into alternative risk propositions to cover the mandated obligation towards those in the employ of the company.

But we made bad assumptions about those people in many past instances of failed pension plans. Workers' compensation, when one gets down to the basics, is nothing different - it's all about conservative and robust financial planning.

I'm still intrigued by Oklahoma style non-subscription. I think it brings significant market competition to the workers' compensation insurance industry. But these long term issues need to be addressed.

And my guess is that if such optional plans take off in the future, some smart insurance people will put together new specialized products that put all the elements together and address the long term risk issues.

Friday, May 11, 2012

NCCI - "Conflicted"


NCCI's president and CEO, Stephen Klingel, is famous for his single word descriptors of the industry that he has been doing since he began delivering the State of the Line address at the NCCI Annual Issues Symposium, and I think this carefully chosen adjective is a good and accurate one for the industry at this juncture.

I opined that I thought Klingel would tell us that the industry is still perilous, but that stability is coming into play as the economy, albeit tepid, appears to be improving. That appears to have been an accurate view.

Klingel said that the fundamentals have stopped declining and are improving and while other fundamentals are either not to a desirable or are at a neutral level, are nevertheless improving.

Here's what's good:

Lost time claim frequency - While 2010 saw the first increase in 13 years, this appears to have been an anomaly. For the past 2 decades there has been a prominent negative trend in claims frequency. Last year's numbers were up 3% which was considered "significant" and challenged the long held belief that the decline would continue. 2011 data shows that the downward trend is continuing, albeit at a lower pace than in previous years.

Net written premium increased for first time in 5 years, and by 8% - Dissecting that number shows that what drove it was not wage increase (contributing a very small factor to the premium increase) or prices. The increase was an audit return premium phenomenon meaning that payroll audits showed more payroll than originally reported by employers.

Accident year combined ratio improved by 2 points - However this third positive is tenuous depending upon overall economic improvement.

Finally, medical inflation is stabilizing growth, with no high spikes noted in medical inflation.

Here's what's bad:

Calendar year combined ratio of 115% for 2011 - This was troubling because, while it is the exact number as the prior year, 3 points in 2010 was attributable to one carrier adding so much to their reserves, so actual;ly this represents an overall deterioration in industry combined ratio.

Reserve deficiency - Each of past 4 years the industry reserve deficiency has increased and it is now 5 times higher than in 2007. While this number does not set off any major alarm, the trend could be problematic if it continues.

Residual markets in the first quarter of 2012 saw the premium grow 47% - This not a positive, said Klingel, because the major growth was seen in the premium sector exceeding $100,000, and as residuals grow there is tendency that they become less self-sustaining, and it becomes difficult to maintain pricing differentials to meet the growth in risk inherent in a growing residual market.

Finally low interest rates and investment income is not there to support underwriting. Net profit of carriers this past year was the product of capital gains realized on bond sales. While this produced some investment profit, the downside is that these bond positions are being replaced by bonds with lower returns which may serve to depress net investment income in the future.

As I predicted in yesterday's column, California distorted some of the statistics about the health of the industry, but I was surprised that the influence was not as outsized as it had been in the past.

One part of the various presentations that I thought was interesting was the analysis of the economic recovery. Several speakers all agreed that manufacturing is returning to the United States - in a big way. Manufacturers have discovered that it is now costing more to make things in China, because of Chinese wage inflation, shipping, distribution and other costs, than it would just to manufacturer in the United States.

But, US manufacturers have learned to become so efficient in the manufacturing processes that this return to American soil is not resulting in increased jobs.

I take that essentially as a very good thing. Sure, employment isn't jumping right back up post recession because of the return of manufacturing, but what this means to me is that we are building a much tougher, more resilient economy that we had in the past, and much less susceptible to base employment export.

In other words, the jobs that are being created now by the return to manufacturing are going to be here for quite a while, and this base will continue to expand as the US returns to being the world's largest manufacturer (we're not that far behind China at this point anyhow). Imagine living in China and looking at the Made In The US tag on the product! That likely is not that far off into the future as China goes through its current socio-economic transformation.

And of course the construction sector, usually a major contributor to premium, remains in the doldrums. There is growth in industrial construction (see increase in manufacturing!) but residential construction and municipal/state construction continues to contract.

One area of observation that was interpreted differently by NCCI than my interpretation was the return of growth to the residual market. I said that this was a positive attribute, because the base for residual markets are new employers and businesses that are high risk (e.g. construction). So an uptick in residual markets means that the base employment numbers are going up which reflects positively on the economy. Several underwriting executives that I talked to agreed with my interpretation - time will tell which prognostication proves correct.

For those who are concerned about the impact of the AMA Guides on indemnity, for the first time there has been an apples to apples comparison between the 5th and 6th editions (the 5th and 6th editions of the AMA Guides have been adopted in 15 states since introduction, while 14 states don't use any edition).

In a pre-recorded video by Jeff Eddinger of NCCI, displayed during NCCI's Chief Actuary Dennis Mealey's presentation, a comparison was done for Montana, Tennessee and New Mexico. NCCI data showed that impairment ratings consistently dropped between 25 and 30 percent across the board when states moved from the 5th to the 6th edition.

Oklahoma was mentioned in passing, and NCCI acknowledged that there are many states looking closely at what happens in Oklahoma with great interest in bringing a non-subscription model to legislatures if there is success there. There was not much conversation though about what could happen to the comp market should a wave of non-subscription start spreading across the states. 

Those close to the work comp industry derided the Oklahoma plan because it circumvents the "grand plan" since there would be no protection for workers over the long term - if an injured worker leaves the employ of an ERISA planned employer medical benefits would then cease. I am not sure this is really the case, as this in my opinion would be a violation of the Oklahoma compromise which requires that a non-subscription system match what would be available under work comp.

There was acknowledgment, however, that if the Oklahoma plan bears fruit and spreads to other states that the industry would face significant obstacles in the same manner that were predicted with the invention of large deductible policies - the difference being however that large deductible policies still are workers' compensation policies bringing in premium revenue to support claims and operations. Non-subscription would wholesale remove that premium base.

Vermont also got honorable mention as that state continues to look at including workers' compensation in a single payer medical system.

In the end, it was noted that the work comp market is on the upswing, demonstrating the largest line increases out of all property/casualty lines, demonstrating the cash flow stimulation that the insurance industry craves.

Now if the investment market would just cooperate to deliver returns to take advantage of all that incoming cash...

There's more in this morning's WorkCompCentral story by Senior Editor Jim Sams.

Thursday, May 10, 2012

At NCCI's Annual Issues Symposium

I made one of my biannual pilgrimages to Orlando, Florida, yesterday - man that's a long travel day!

I'm in Orlando this morning for the National Council on Compensation Insurance (NCCI) Annual Issues Symposium 2012 (the other trip is in August for the FWCI conference).

For those of you unfamiliar with NCCI, it is the largest workers' compensation rate making association in the nation, managing rates, data, and other vital services for most of the nation. Because of this unique position, NCCI has the most comprehensive data for state by state comparison as well as for spotting trends.

This is a long trek for only a couple of days, and each year I wonder whether the trip is worth it, and then each year I go away affirmed that I have to return the next year.

If you want to understand the macro-view of the workers' compensation industry the NCCI Symposium is the place to get that view in one day as they cover not only what the insurance industry is doing, but the overall economy with a forecast, overall medical trends and other issues that are not work comp specific but which impact the industry.

In addition the Annual Symposium is a great place to catch up with colleagues, regulators, executives and other industry notables.

Last year NCCI's president and CEO, Stephen Klingel, opened the event as he does every year with an overview and his State of the Line Report in 2011 described the industry's experience as "deteriorating", with increasing combined ratio, decreasing premium base (due to lower payrolls), poor investment returns, and a trend upwards in claim frequency and severity.

This year I expect Klingel to tell us that the industry is still perilous, but that stability is coming into play as the economy, albeit tepid, appears to be improving.

One of the key components to industry health is the residual market. For those unfamiliar with this concept a residual market serves the "last resort" market in those states that don't have a state fund - in order to write in a non-fund state carriers must offer coverage for those employers that don't qualify for the best pricing and rates.

What NCCI's data is showing is that residual market participation is increasing. This is a positive indicator because the base for residual markets are new employers and businesses that are high risk (e.g. construction). So an uptick in residual markets means that the base employment numbers are going up which reflects positively on the economy.

Tempering this is an increase in claim frequency which was not forecast earlier. The traditional thinking is that claim frequency is tied to the economy and that high unemployment coincides with low claim frequency because there are fewer people working that could get hurt.

The poor economy should not generate more claims, but the data is refuting that assumption. The adjusted results (adjusted for statistical anomaly) demonstrate a 3% increase in frequency. It will be interesting to see if NCCI has any insight into this phenomenon.

NCCI does not see broad based reform initiatives across the nation because it is an election year, but the one state that impacts workers' compensation in a disproportionate manner is California which is not an NCCI state, and while California may not push through something in 2012 it is obvious that something will occur at the latest by 2013. I expect the speakers to address the outsized influence of California's reform efforts on the nation - every year NCCI does national comparisons with California included and without in order to demonstrate the state's influence on the market but usually that is from an underwriting perspective. With California's reform focus on the benefit delivery system there may be residual influence on other states.

Another aspect that may be touched on would be the Oklahoma non-subscription effort - clearly that is a potential trend that is just starting and has obvious implications for the industry. Does NCCI think this is just an isolated incident, or do they see this as a potential national trend? I'm going to "ask the experts" during a break, which NCCI encourages.

One thing that must always be understood about NCCI's data and forecasting is that, while pretty accurate, it always changes because of the "long tail" nature of workers' compensation so as new data comes in on prior policy years the folks who analyze this information make alterations to their reports.

For instance, NCCI notes that the premium growth that was observed in 2010 is actually larger than previously reported, offering as an explanation that carriers over-compensated for audit returns experienced in 2010 and are actually seeing additional premium booked through those audits (i.e. payroll was more than first reported).

Other presentations will cover the overall economy, the coming impact of implementation of the Federal Patient Protection and Affordable Care Act, Dodd-Frank Act and recommendations that may come out of the new Federal Insurance Office. We'll hear about the impact of the aging work force, changes trending in international labor markets and legislative/regulatory trends.

I don't know what word Klingel will use to describe the State of the Line this morning but I expect it to be a bit more optimistic than last year's dismal forecast.

Stay tuned!

Wednesday, May 9, 2012

IL & Discipline - the Causation Argument

A new reform fight in Illinois is of particular interest to me because the fight is all about the causation standard of proof (attorney Robert Rassp and I are co-authors of a chapter in the Second Edition of the AMA Guides to the Evaluation of Disease and Injury Causation, to be release either late 2012 or early 2013).

If you have been following "reform" in Illinois you know that the past couple of years have been contentious with some new laws put on the books that changed many elements of the Illinois system.

In 2011, Democrat Gov. Pat Quinn signed House Bill 1698, which ungraded requirements for utilization review, changed fee schedules and instituted caps on wage-loss benefits and carpal tunnel syndrome awards. The bill also required the use of the American Medical Association Guides to the Impairment of Permanent Disability, authorized preferred provider programs for employers and revised requirements for the appointment of workers’ compensation arbitrators.

But the one element that did not change to the chagrin of business was the burden of proof standard for an injured worker to be eligible for benefits.

Under existing Illinois law, a work accident is compensable even if it aggravates a pre-existing condition, and the employer is then liable for workers’ compensation benefits and must incur the costs of all resulting care and disability even for the pre-existing condition.

This is sometimes called the one percent rule - if even one percent of an injury or disease was caused by work then it is a workers' compensation claim.

I don't know specifically how many states employ this standard, but my educated guess is that this is the majority rule.

While some claimants take unfair advantage of this liberality, an underlying purpose of the rule is simply administrative efficiency. Contesting causation on standards that employ degrees of proof requires judicial intervention to interpret facts into the law.

SB 2521, by Sen. Kyle McCarter, R-Lebanon, would amend Section 1 of the state's Workers' Compensation Act with the following language change in the definition of "accident" and "injury":

(e) The term "accident" as used in this Act means an occurrence arising out of the employment, resulting from a risk incidental to the employment, and in the course of the employment at a time and place and under circumstances reasonably required by the employment.

(f) The term "injury" as used in this Act means a condition or impairment that arises out of and in the course of employment. An injury, its occupational cause, and any resulting manifestations or disability must be established to a reasonable degree of medical certainty, based on objective relevant medical findings, and the accidental compensable injury must be the major contributing cause of any resulting
injuries. For the purposes of this Section, "major contributing cause" means the cause which is more than 50% responsible for the injury as compared to all other causes combined for which treatment or benefits are sought. "Injury" includes the aggravation of a pre-existing condition by an accident arising out of and in the course of the employment, but only for so long as the aggravation of the pre-existing condition continues to be the major contributing cause of the disability.

(1) An injury is deemed to arise out of and in the course of the employment only if:

(A) it is reasonably apparent, upon consideration of all circumstances, that the accident is the major contributing cause of the injury; and

(B) it does not come from a hazard or risk unrelated to the employment to which employees would
have been equally exposed outside of the employment.

(2) An injury resulting directly or indirectly from idiopathic causes is not compensable.

It is unlikely the bill will make it out of committee this year - it was referred to the Senate Committee on Assignments on April 26 - but the Illinois Chamber of Commerce is going to push for causation reform in 2013.

The sticky part in my opinion is the definition of "major contributing cause" - that there be some factual determination that at least 50% of the accident be responsible for the injury "as compared to all other causes combined".

Most cases won't have to tread on the causation standard determination. But it's the 20% that take the 80% of resources that will, in my opinion, increase expenses for both the evidence to prove or disprove causation and the judicial resources necessary to make these determinations.

And I won't get into the legal technicalities that will put holes into this causation standard. But there certainly are going to be problem cases where judicial interpretation will undermine the Chamber's intent with this restrictive language.

California employed a similar tactic in the mid 1990s on psychiatric claims - requiring a heightened burden of proof for mental injury cases. Labor Code 3208.3 was instituted and used language very similar to the proposed Illinois standard.

The purpose of the California law at that time was to undermine the medical-legal mills that were generating ridiculous claims of psychiatric injury where there was clearly no injury but where medical bills for both preparation of evidence and treatment were disproportionately large.

Discipline was lacking in the California system necessitating this law change.

Even after the passage of 3208.3 it took some time for the new standard to be accepted into the system but the demise of the medical-legal mills churning out bogus psychiatric claims was more the result of concerted efforts on the parts of payers and the judiciary than any change in the law.

Illinois defense attorney and outspoken critic of the state's system, Eugene Keefe, told WorkCompCentral that he thinks changes to causation can be made by forcing hearing officers to use common sense.

Keefe also said he thinks House Speaker Michael Madigan, the father of the attorney general, is already talking to hearing officers telling them to stamp out some of the claims that appear to be abusive and that Madigan doesn’t want to see reports about the problems with Illinois’ workers’ compensation system, so he will try to make changes without pursuing legislation.

“It will not happen in the open and it won’t be on the news,” Keefe said. “It will all be very quiet, but I think it’s going to happen. I think we’re going to keep seeing changes.”

In other words, Keefe believes that discipline will be instituted into the Illinois system which will obviate the need for legislative action.

Tuesday, May 8, 2012

PDMPs and Privacy

According to a report this morning, Missouri remains only one of two states (New Hampshire is the other) that will go into 2013 without a prescription drug monitoring program (PDMP).

Senate Bill 710 (Engler, R-Farmington), which would have created a prescription drug-monitoring database for Missouri, ended its chances yesterday, the victim of an eight-hour filibuster by opponents of the proposed legislation.

Sen. Rob Schaaf, R-St. Joseph, a family physician, led opponents of the proposal.

Engler told WorkCompCentral on Monday that Shaaf has opposed similar legislation in past legislative sessions. He said the prescription database initiative is dead for this session, but he expects another attempt  to be made in 2013.

John Eadie, executive director of the PMP Center of Excellence, in Rensselaer, N.Y., which tracks prescription drug-monitoring programs, told WorkCompCentral on Monday that 48 states have approved PDMPs and 40 programs are operational. Only New Hampshire and Missouri have not yet approved drug-monitoring programs.

Schaaf issued a column on Friday to constituents in which he said that “the people don't want the government tracking what medications they are taking -- that is private information that should stay between a patient and a doctor,” and during the filibuster, he attacked the legislation as a violation of individual privacy, calling it “outrageous that bureaucrats would be able to track our medications that we legally obtain.”

Schaaf said the legislation “intends to prevent doctor-shopping … (by people going) from physician to physician obtaining prescriptions to either fuel their addiction, or to sell the drugs illegally. However, just because these individuals are breaking the law and making poor choices, why should everyone else have to give up their liberty and privacy?"

So just because someone is breaking the law and making poor choices by racing down the freeway at 85 miles per hour we should not be subjected to radar enforcement of the speed limit because that invades my liberty and privacy?

The reason we have to implement laws that seem invasive of rights to law abiding citizens is because of those few individuals that "are breaking the law and making poor choices".

Most of us, I presume, don't give a hoot about whether someone else knows that I'm taking Oxycontin, or Lipitor for that matter. If that is in some public database (which a PDMP is not - it is accessible only by licensed physicians and pharmacists) then whoop-de-doo. I just don't have a problem with that.

Heck, Rush Limbaugh seemed to overcome the public disclosure of his Oxycontin habit just fine. Plenty of other public figures go through the initial embarrassment of public disclosure of their drug habits and recover their careers without much of a hiccup.

Privacy advocates argue the slippery slope theme and perhaps they're right. Perhaps a PDMP does represent an erosion of privacy, and erosion of individual's ability to hide and keep to themselves.

My guess is that most people don't worry about that sort of thing because most people don't have anything to hide.

And frankly, in the age of the Internet, there isn't a whole lot of privacy anyhow. In particular with social networking, most people volunteer unbelievable information about themselves that is made wholly public in a completely unwitting manner. If people really understood how information consolidators can take disparate pieces of data and make surprisingly accurate composites for marketing purposes they might be squeamish about posting in public forums.

But they are not - because most people just don't have a lot to hide. And the benefit of being accurately marketed with either goods or services is a benefit to most people - it saves time and money for most everyone.

My guess is that the opposition to PDMPs really has very little to do with privacy and has more to do with something of a monetary nature.

In the grand scheme of society, individuals give up certain privileges for the benefit of the whole as a means of furthering the species.

Eadie said that a 2011 study by the Massachusetts Department of Public Health found doctors frequently were not aware that their patients were seeing multiple doctors and obtaining prescriptions from them. According to the study, only 8% said they were aware, and only 9% said they believed there was a medical basis for the patients’ actions.

To me, that is much more alarming than if Pfiser knew that I was a prime marketing candidate for the next generation of satins.

Monday, May 7, 2012

Head Injuries and Cruel Behavior

The National Football League is big business, big entertainment, big athletes, big everything.

Its workers' compensation issues are big too.

The American football watching public takes for granted the hazards frequented by professional football players since the dazzle of big screen LED and pageantry of spectacle that surrounds every game cloud the reality of the sports dangers.

But the occupational hazard of protracted physical contact is becoming more and more public, and with the recent suicide death of San Diego darling, Junior Seau, and news of coach suspensions in the New Orleans Saints "bounty program" case, more pressure is on the league than ever before to provide a "safe" workplace for the players.

Traumatic brain injury is little understood by the public, until someone close sustains it, then one realizes how much life changes.

I had a friend who committed suicide by jumping from a bridge following a very difficult number of years post traumatic brain injury.

My friend was a very successful businessman, and a very gifted athlete. He lived life big - everything he did was outsized and he took as much from life as he could.

Then he fell on his head on a motocross track and sustained a very serious concussion.

After he recuperated his wife noticed he wasn't the same. His friends also noted the he behaved differently. He was moody, thought processes became cloudy, decision making was ineffective, questionable and prolonged.

The depression brought about by traumatic brain injury eventually took over his life and he decided to end it.

I can't help but think that this was went through Junior Seau's mind. Head injuries accumulate, and alter thought processes.

Junior knew his mind wasn't right - that must be why he shot himself in the chest. If he shot himself in the head then science would not be able to study his brain.

Seau's death followed the suicide of former Falcons safety Ray Easterling on April 19 of what police called a self-inflicted gunshot wound. He was one of the plaintiffs in a class action concussion lawsuit brought by a large group of former NFL players.

Just one year ago Boston University researchers issued a report on the autopsy of former Chicago Bears defensive back Dave Duerson. Duerson months earlier had shot himself in the chest – like Seau – and wrote a note to his family, asking that his brain be sent to doctors for study.

The report came back that Duerson had brain damage common to chronic traumatic encephalopathy, head trauma also found in more than 20 other deceased players.

In the meantime teams combat workers' compensation claims by players seeking to minimize the financial damage of claims being filed in "liberal" states, such as California, which recognize injuries through continuous trauma (CT), rather than just single injury incidents.

Many in business denigrate California's liberal recognition of CT claims because, like many legal issues, the scope and context of a CT injury gets blown out of proportion and abused by people who should not be entitled to benefits.

But there is legitimacy to the CT theory - at least in the game of football and for chronic traumatic encephalopathy.

The NFL has been making a lot of news lately by fining and suspending players, coaches and support staff for illegal hits and other damaging play activity. This is offensive to many fans, who complain that football is by its nature a violent sport, that players are paid a lot of money to engage in the sport and that they should stop crying.

The collective bargaining agreements that the players sign contain jurisdictional clauses for workers' compensation purposes to limit forum shopping so that players can not avail themselves of California law or other liberal work comp state laws.

WorkCompCentral legal editor, Sherri Okamoto, this morning writes about this jurisdictional wrangling and points to the fight between Maryland and Virginia as the Maryland Court of Appeals heard oral arguments in Pro-Football Inc. et al. v. McCants, No. 116, on Thursday. The case involves a claim by former Washington Redskins wide receiver Darnerien McCants against the franchise, which is incorporated in Virginia as Pro-Football Inc.

It is the second case brought by a former Washington Redskins player against the team in Maryland. Last February, the Court of Special Appeals ruled that the Maryland workers' compensation system had jurisdiction over a claim filed by punter Thomas Tupa Jr. for an injury sustained at FedEx Field in Landover, Md.

In February the California Workers' Compensation Appeals Board ruled that Labor Code Section 3600.5(b) foreclosed its ability to take jurisdiction over Vaughn Booker's claim for cumulative injuries allegedly caused, at least in part, by his one professional football game in California.

Booker had signed a contract with the Bengals covering five football seasons. An addendum to this contract provided that Booker "promise(d) and agree(d) that any workers' compensation claim, dispute or cause of action arising out of (Booker)'s employment with the (Bengals) shall be subject to the workers' compensation laws of Ohio exclusively."

After signing the contract, Booker played three seasons with the Bengals. Of the 48 games he played with the team during this time, only one was in California. Booker later filed a claim for workers' compensation benefits in California, claiming to have suffered cumulative injury to various body parts that resulted, at least in part, from the game he played in California.

The Cincinnati Bengals also used Labor Code 3600.5(b) to obtain two panel decisions in 2010 rescinding administrative decisions favoring former wide receivers Eddie Brown and Wesley Carroll.

Legal arguments aside, former Saints and Browns offensive lineman LeCharles Bentley dramatically brought the issue home on Twitter shortly after Seau’s body was found:

“Any other smart ass player want to question why the league is cracking down? One of the baddest dudes may have just killed himself …

“And saved his brain so it can be studied to save future generations from suffering same fate. Yeah, y’all real tough. Life after football is REAL … grown ass men struggle emotionally … young boys don’t see the end … it’s coming. Life lesson today."

These football cases are no different than the one I pointed out several posts ago about the Herman Blair case and the shameful shenanigans Erie Indemnity Co. engaged in to deny this man his benefits because his traumatic brain injury prevented him from remembering the circumstances of his fall from a ladder.

Depression, suicide, bizarre behavior, episodic amnesia - head injuries, specific OR cumulative, produce serious cognitive and emotional issues that can't be taken lightly and unfortunately suicide seems to be a common way out for those who suffer the trauma. Employers and carriers selfishly seeking to limit their monetary obligations when verifiable head injury claims are presented show how cruel mankind can be.