Wednesday, October 31, 2012

Legitimate Claims Delayed Are The Cost Drivers

"The seminal moment in the life of any claim is when pay day should have happened and it didn't," Tom Lynch, the founder of the Massachusetts-based cost-containment firm Lynch Ryan & Associates told WorkCompCentral when interviewed about findings by the Workers Compensation Research Institute (WCRI) that Massachusetts total claim costs have declined the most sharply compared to 15 other study states.

WCRI credits much of the decline to the speed at which carriers in the state make their first payment of indemnity.

"What drives injured workers into the arms of attorneys is not getting paid on time," Lynch said. "They have families to support and mortgages to pay, and most of them are living paycheck to paycheck.

I have heard many times in the past from many different system participants that attorneys are to blame for increased costs in workers' compensation and that they need to be removed from the system.

Of course, being an attorney myself, I respond with irrefutable competing logic - accountants and tax preparation specialists add significantly to the cost of paying taxes, yet no one calls for their removal.

And that is because attorneys are not the CAUSE of increased costs in the system. Lawyer participation is simply a symptom.

Sure, there are some lawyers that are going to take advantage of a situation such as a work injury and prey on the uninformed or those seeking redress for a perceived wrong. Heck, you see them advertise right on this blog through their Google Ads accounts.

But for the most part, injured workers get drawn to lawyer participation due to one of two simple reasons: 1) the system and accompanying paperwork is complex and frightening (how many state forms have you seen that warn the injured worker of "losing rights" if they don't do something by a certain time?); 2) someone didn't get paid on time when they felt they should have and, as Lynch noted, there's a mortgage or rent payment coming up.

In yesterday's news, it was reported that Peggy Sugarman, former chief deputy administrative director of the California Division of Workers’ Compensation, has taken over as the director of workers’ compensation for the City and County of San Francisco.

Sugarman said she believes one key to running a successful workers’ compensation program is good communications with injured workers. Employers have the ability to create their own notification letters, provided they include information that is required by the state, and in doing so can better explain how the claim process works.

“There are a lot of opportunities to improve communications, and I think as a result, litigation goes down and claims go faster,” she said.

I agree with Sugarman.

In "the good old days" (not) when I was a practicing defense attorney assigned to an injured worker's deposition I would always ask what drove them to see an attorney.

More often than not the answer was that the person got these frightening notices in the mail from the carrier/administrator that warned of dire consequences if they didn't do something - even though these notices stressed that they didn't need an attorney to represent them.

Nevertheless, these unfortunate folks would be attracted to see an attorney either because of poor reading and language skills, or because the information these forms communicated was difficult and complex (and, I might add, voluminous).

These folks, living on the edge of financial ruin - as Lynch noted, paycheck to paycheck - can't afford to pay an attorney for advice, and indeed, many state laws prohibit an attorney from charging an injured worker directly for representation or advise in work comp cases.

In order for an injured worker to get information satisfaction, they see the attorney. In order for the attorney to get paid, the attorney takes the case, takes on representation, and the litigation cycle starts.

The counter argument is that many states offer ombudsman-like services. In California it is the Information and Assistance Officer. In Texas its the Office of Injured Employee Counsel. These are great services, don't cost the injured worker anything and provide information services that the worker can not get anywhere without some cost.

But there are two problems - these services can not enter into representation of the injured worker, and a lot of folks just don't trust the government to steer them in the right direction. So the value of these services gets discounted by the injured worker and they seek the services of attorneys.

To be sure there is a delicate balance between just paying a claim and making sure that the claim is legitimate. There's no question that it is a difficult job to ensure that claim dollars aren't being thrown down the receptacle.

At the same time it may be more cost effective in the big picture to expedite delivery of indemnity dollars without penalty to the carrier/administrator until a clear investigation points to either acceptance or denial.

WCRI credits some of the cost control success in Massachusetts to expeditious claim payments and claims processing.

"The Massachusetts process of speeding dispute resolution through conciliations and conferences and fast initial indemnity payments might have played a significant role in reducing incentives for attorneys and the need for attorney involvement," WCRI said in the study.

Massachusetts law permits the carrier/administrator to make claim payments for 180 days without admitting to liability.

I think this kind of "amnesty" provision goes a long towards encouraging expeditious indemnity payments in order to curtail a negative reaction on the part of the injured worker (i.e. seeking attorney advise/representation).

California law has a similar provision, but applicable only to medical treatment for the first 90 days and subject to a $10,000 cap. This doesn't prove as effective because while medical treatment is a necessary part of an injured worker's concern, like Lynch noted, the lynch-pin (pun intended) is when that first regularly scheduled big monthly bill comes in the mailbox and there isn't cash to make the payment.

While there are those who are going to perpetrate a fraud regardless of whether a payment is early or late, in my opinion, from the Big Picture perspective, it is more cost effective to pay now, investigate later - those who are not legitimate will be prosecuted and those who would otherwise seek attorney services won't.

There is no doubt that when an attorney is involved the case value (or cost, depending upon your perspective) increases dramatically - sometimes double or triple what the claim would otherwise have cost (or been valued at). In the meantime, the typical fraud case reflects about ten or fifteen thousand dollars in payments before the fraud is stopped.

I submit there are many, many more legitimate cases where indemnity is slow in coming or denied initially, than there are fraud cases.

Those are the cost drivers.

Those claims need a) clear, easy to understand communication about the process and b) expeditious indemnity payments without penalty to the carrier/administrator in the event a mistake was made.

Tuesday, October 30, 2012

There Is No Logic Anymore

In the past I have been critical of California's SB 863 as the product of Big Self Insured Business (BSIB) and Big Labor (BL) because those constituents simply do not represent the interests of the majority of employers and workers in the state.

What was negotiated in SB 863 is good for BSIB and BL, but the impact on other employers and workers was simply not considered, or was at best dismissed as inconsequential.

And the unintended consequences of trying to control costs while simultaneously increasing benefits does extra duty against self-insured governmental agencies like the City and County of San Francisco.

Peggy Sugarman, former chief deputy administrative director of the California Division of Workers’ Compensation, has taken on the job of director of workers’ compensation for the City and County of San Francisco as of the beginning of October. Sugarman has plenty of experience with workers' compensation, having joined the Division back in 1986.

As part of her new job, Sugarman has been studying how SB 863 is going to affect San Francisco's workers' compensation program. 

Many city and county employees are higher wage earners, and the permanent disability increase will have a direct effect, she says. At the same time, she doesn’t anticipate significant savings from provisions addressing liens because the municipal program doesn’t litigate many payment disputes.

She said her biggest concern is the possible increase in workload necessary to maintain records for independent medical review and independent bill review, new administrative processes for resolving treatment and billing disputes.

That increased workload directly affects the costs of the program.

I've heard this from private insurance executives as well - that the cost the independent medical and bill review programs may not generate the savings contemplated. The expense of getting into the review, the risk of losing the review, and the result of having to pay regardless, plus penalties and interest, may mean that employers just permit treatment and pay the bills as presented to avoid any further dispute and expense.

I recall Los Angeles County Risk Management Chief, Alex Rossi, telling me one time that the difference between the workers' compensation program at the County compared to the vast majority of other employers is that when someone yells "fire" his employees run into it, when most other employers' workers flee the scene.

These are the risks that are not contemplated by BSIB or BL - their interests simply don't align with the experience of most.

I am annually tasked with editing the WorkCompCentral California Flowchart - a graphical reference to the claims process.

Every year I bemoan the increased complexity of the system, as I tweak various references, move other topical items, and introduce more legislative, regulatory and adjudicatory sources.

This year my hairline has receded considerably more - the complexity of the new sub-systems has completely altered the claims landscape and we don't even have draft regulations to plug into it yet!

These changes are cost drivers in themselves and will require significant outlays of capital and other resources to implement at the state level, at the employer level, and most significantly at the self-insured municipal level. These are costs that can not be very well spread against a larger risk category.

These are costs that are not contemplated by BSIB or BL because they don't experience these elements in their daily risk management lives.

The WCIRB projects costs and savings for the insured market. The Department of Insurance reports what self-insureds are experiencing. Self-insured governmental entities report their experience too, but their costs are related differently because most people don't equate government costs as having any direct impact other than increased taxes.

SB 863 though changed the funding for the management of governmental self- insureds from the General Fund to the Workers' Compensation Revolving Fund. In other words, instead of Joe Taxpayer paying for the cost of San Francisco's independent medical and bill review processes, the balance of the employer population pays for it even though that population derives no benefit from that program.

In other words, governmental self- insureds now have a direct impact on the cost of private insurance premiums.

I have been staring at the Flowchart every day since the end of the legislative session trying to make everything fit in a logical order. I used to believe that there was some logic behind workers' compensation.

I don't have that faith anymore.

Monday, October 29, 2012

The Supply and Demand of Work Comp

Workers' compensation reform is all about trades within the boundaries of the supply and demand of costs versus benefits. California is going through a seismic shift in the allocation of supply and demand, and a couple of other big states are feeling tectonic pressures too.

Both New York and Illinois have received considerable criticism since both states attempted to implement "reform" several years back - both states failing to realize the cost savings that were promoted as the cause 'd reform.

Now there is movement afoot since both states received unflattering cost rankings in Oregon's latest survey. 

The study showed Illinois had the fourth-highest workers’ compensation costs in the nation. In 2010, the state ranked third.

New York was ranked the fifth-most expensive in the nation for employers in the Oregon Department of Consumer and Business Services' biennial premium survey. Two years ago, New York ranked No. 13.

Illinois Chamber of Commerce President and Chief Executive Officer Doug Whitley told attendees at the chamber’s fourth annual Workers’ Compensation Conference on Thursday that the agenda includes changing the causation standard to include a primary cause of an injury standard and definitions of work-related accidents will be a major component of reform.

The Chamber feels that because a work accident does not currently have to be the sole proximate cause or even a primary cause of an injury to be compensable, too much of workers' compensation pays for issues that should be covered by general health insurance or the injured's own pocket.

I don't know if this is accurate, nor do I know of any studies or other attempts to measure whether in fact workers' compensation in Illinois is paying more than its fair share for employee health problems.

If you recall, just a few months ago Emily Spieler and retired Rutgers University professor John Burton released their report, , "The Lack of Correspondence Between Work-Related Disability and Receipt of Workers' Compensation Benefits," which was published by the American Journal of Industrial Medicine in January, found regulatory and reform efforts in recent decades have been focused on employers' and insurers' needs and are inducing systematic complexities that push workers away.

Their conclusion was that workers' compensation was cost shifting responsibility to the general health insurance market, and not the other way around.

Illinois may be different - that's certainly possible. With medical costs being the primary component to workers' compensation insurance premiums it is understandable why business would want to make sure that expenses are properly accounted for, in addition to the availability of "extras" in work comp such as indemnity and return to work costs.

Again, it comes down to what people want.

“Causation is the No. 1 issue,” Whitley said. “The Illinois standard is so minimal that most employers feel the system is stacked against them. Every employer knows the causation standard makes it practically impossible for claims to be disputed and denied."

Challenging a claim at its inception would then seem to create a culture where the first dollar is sought from the general health market - and maybe that's the way it should be, and maybe that's the way it shouldn't be...

In all honesty, segmenting the provision of health benefits depending upon delivery system seems at its heart to be inefficient and a cost driver in itself. And whether creating a new causation standard in fact would lower costs is debatable, since doing so would, in my opinion, create a new "litigation point."

Workers' compensation is fundamentally skewed in favor of the employee, with liberal interpretation the predominant standard, so making work the "predominant cause" or some other amorphous standard won't really reduce that many cases going into the system, but will greatly increase the number of friction points in the processing of claims.

Eight hundred miles away, in New York, State Workers' Compensation Board (SWCB) Executive Director Jeffrey Fenster is on the hot seat, still trying to get the 2007 reforms into place.

Fenster told WorkCompCentral that the first phase – implementing the Spitzer reforms – is now complete. He said the second phase includes overhauling the board's computer system. Finally, he said the board is discussing legislation to expand on the Spitzer reforms.

He said the board wants to address "misaligned incentives" that have delayed the imposition of duration caps imposed on permanent partial disability (PPD) benefits by the Spitzer reforms.

In February, Fenster said, SWCB analyzed its databases and identified 4,000 injured workers who appeared to have reached maximum medical improvement (MMI).

New York law requires judges to classify a worker's loss of wage-earning capacity once they have reached MMI. Fenster said the board sent 4,000 letters to carriers and self-inured employers on Feb. 1 requesting details on those cases and seeking submission of the board's "medical report of permanency" form.

So far, he said, the survey has received a 13% response rate.

Fenster said New York carriers appear to be delaying classification of PPD claims, in part, because of another piece of the Spitzer reforms – a requirement that carriers deposit the present-day value of classified PPD claims into the state's Aggregate Trust Fund.

"The response rate on those 4,000 letters is incredibly poor. The motivation to classify doesn’t appear to be out there," Fenster said. "The ATF deposits are certainly part of the answer."

Fenster said the need for workers to reach MMI in order for the PPD caps to kick in has increased litigation, while the classification of PPD cases remains slow.

"In essence, we have created a new litigation point over MMI," Fenster said. "When you start drilling down to find out the problem with MMI, fundamentally, it’s a culture of litigation. (In some states) you just don't have the heavily litigated points that we do."

It's all a trade off - which is what workers' compensation is in the first place. Business traded off some defenses and labor traded off some jury awards. Business benefitted by getting some reasonably predictable risk, and labor benefitted by getting some reasonably predictable benefits.

Costs and benefits are essentially the commodities of the workers' compensation marketplace. There are limited supplies of both.

Reform talks are all about trading within the available supply. The demand can be constricted to some extent, but at some point, in particular if the economy becomes healthy and there is an increase in employment, the pressure will task available supply, and the political power allocation at any given moment defines the supply/demand boundary.

Friday, October 26, 2012

Random Thoughts on Drugs, Penalties and Compounding

Sometimes the news is serendipitous in the confluence of unrelated events centered on the same issue or topic.

This morning the topic seemed to be drugs. From carrier denial of medication to injured workers, and penalties for doing so, to pharmaceutical misfeasance.

In Texas, carriers were given warning by the Insurance Council of Texas hat the state Division of Workers’ Compensation (TX DWC) is investigating complaints that some adjusters are improperly denying prescription drug refills.

Apparently some adjusters have been failing to distinguish between claims that are currently subject to TX DWC's closed formulary for prescription drugs, and legacy claims that are not subject to the rules.

The TX DWC adopted a closed formulary for prescription drugs, effective Sept. 1, 2011, for claims on and after that date. However, the closed formulary does not apply to “legacy claims” – those dating prior to Sept. 1, 2011, until Sept. 1, 2013.

Matt Zurek, DWC executive deputy commissioner for health care management and system monitoring, said doctors have told him some adjusters and carriers are improperly requiring preauthorization for legacy claim prescriptions. Those claims fall under the former “open” formulary, Zurek said.

The volume appears to be small according to Zurek, but nevertheless the complaints point to a likely education issue on the part of claim adjusters.

The TX DWC, Texas Medical Association, Insurance Council and other organizations have been working to educate workers’ compensation system participants on the legacy claims issue. Carriers must send letters by next March 1 to doctors who treat patients with legacy claims that might be affected by the change next year. 

In California, a recent Workers' Compensation Appeals Board panel opinion imposed the maximum statutory penalty against a carrier for what it said was an unreasonable delay in the approval of psychotropic medications for an injured worker.

In Ferro v. Edgewater Motel Inc. et al., Nos. ADJ6958585, ADJ6958588, Ferro had admitted injuries to his back, jaw and psyche due to a car accident in 2009.

The psyche complaints seem to me to be pre-existing, but if the industrial accident contributed or exacerbated them then under California law they are compensable - and frankly, I'm of the opinion that most people have some psyche component to their workers' compensation claim and that regardless of etiology it should be treated right along the physical issues (but that's another column).

Regardless, Ferro's testimony, which the WCJ deemed not entirely reliable, had corroboration with some documentary evidence in the form of medical reports and other letters. Probably the one deciding factor in the case is that the carrier offered no evidence whatsoever to dispute any claim of delay or denial in the provision of a pharmacy-full of various medications.

A split WCAB panel voted to penalize the carrier the maximum amount under Labor Code 5814 - 25% of the total cost of the medications up to $10,000. All of the drugs are of the expensive variety, so the penalty could be quite substantial.

In the meantime, news circulated around the nation yesterday that members of Congress are requesting a criminal investigation into the compounding pharmacy whose products have been linked to 24 deaths and promising legislation that would strengthen federal oversight of the compounding industry.

The U.S. Centers for Disease Control and Prevention (CDC) said as of Thursday afternoon, 328 people have been infected with fungal meningitis after receiving a steroid injection manufactured by the New England Compounding Center in Framingham, Mass.

New England Compounding Center has recalled all of its products. The Boston Globe reported that the company is expected to file for bankruptcy.

Officials in Massachusetts, Michigan and Oregon have revoked the company’s pharmacy license after finding that it ignored restrictions that allowed it to produce medications only when requested by a physician. The company was also warned in 2006 by the U.S. Food and Drug Administration that it was acting in the manner of an unlicensed drug manufacturer, rather than a compounding pharmacy.

The Massachusetts Department of Public Health on Tuesday released a report of preliminary findings from an ongoing investigation saying the compounding pharmacy produced large batches of drugs for general use rather than requiring a prescription for an individual patient. Bulk manufacturing of drugs was not allowed under the terms of its Massachusetts license.

Additionally, the Massachusetts health department said the New England Compounding Center failed to follow standards to ensure its products were sterile, and distributed two lots of medication before completing sterility testing.

According to a report by the Wall Street Journal, compounding pharmacies are regulated by the states in which they operate, with little or no oversight by federal authorities.

Legislation drafted in 2007 that would have given more authority to the FDA to regulate compounding pharmacies was killed in the face of a strong lobbying campaign launched by the International Academy of Compounding Pharmacies.

Lobbying data from the Center for Responsive Politics shows the academy has spent $1.1 million on lobbying activities between 2001 and 2012. Political spending peaked at $260,000 in 2007, according to the center’s data.

Federal legislators are now promising to return legislation to license and monitor compounding pharmacies at the federal level.

So what have we learned? Honestly I'm not sure. These same fact patterns will likely repeat over time. But we can't say we haven't heard these stories before.

Thursday, October 25, 2012

The Risk of Deviating from Guidelines - Oklahoma

Medicine is frequently cited as a major cost driver in workers' compensation systems (heck, medicine is seen as a major inflationary contributor to the overall economy).

It's been a sadly accepted fact that medical costs outpace overall inflation by several basis points for a couple of decades - and usually the blame is put on societal expectations, malpractice protection costs, and various other fundamentals that factor into the complex equation of cost generation.

We forget though that medical inflation very often isn't tied to the community physician over-billing or performing unnecessary procedures. I think that much of medical inflation can be traced back to Big Medicine.

Oklahoma is in the process of adopting treatment guidelines. The legislature saw fit to designate Work Loss Data Institute's Official Disability Guidelines (ODG) as the standard for measuring and controlling medical care. But Senate Bill 878, passed in 2011, authorized the Workers’ Compensation Court to adopt state guidelines as exceptions to the ODG.

I've opined before that the human body is no different in one state than another (or even country), and that there is no justification for deviation from well researched, scientifically established, peer reviewed, evidence-based guidelines.

The argument presented to me in rebuttal by the medical community is that such guidelines are behind the times because of the latency between introduction of a new procedure and the publication of research. I've also taken heat from the medical community because, they argue, there ARE local differences that can not be accounted for on a national (what about international?) basis, and that physicians who are on the front lines with the patients know best how to treat because of their experience and expertise.

ODG is a national standard, and though its primary competition, the American College of Orthopedic and Environmental Medicine (ACOEM) guidelines have some differences, those deviations are minor. Both are based on evidence-based medicine that has been independently peer-reviewed. Where evidence does not adequately support a procedure then either a procedure is not recommended or is advisory only subject to future research and review.

Thus, these guidelines, sometimes derided for being "cookbook medicine," provide a solid foundation for medical treatment that is supported by years of scientific research.

But sometimes legislators and regulators become subject to persuasion from outside interests that have agendas beyond "cure and relieve." And without proper independent scrutiny those at the helm can be convinced that any given procedure has validity.

So in Oklahoma the Physician Advisory Committee of the Oklahoma Workers’ Compensation Court has approved proposed spine treatment guidelines that would allow physicians to deviate from the ODG.

The committee guidelines differ from the ODG on use of cervical and lumbar discography, spinal fusion, and most notably the use of bone-morphogenetic proteins (BMPs).

BMPs stimulate bone growth in the human body. The proteins can be produced, concentrated and placed in the area of the spine where a spinal fusion is to take place.

The primary goals of using BMP in spinal fusions are to create a spinal fusion as good as or better than using the patient’s own bone and to eliminate the need for harvesting the patient's bone from the hip to avoid the potential side effects and complications of the bone-harvesting procedure.

Big biotech company Medtronic makes the Infuse Bone Graft that contains BMP. Medtronic reported revenue of $16.184 billion in fiscal 2012.

The Oklahoma committee was doubtlessly persuaded as to the efficacy of BMP and the other procedures by alleged medical research (and perhaps lobbying by Medtronic agents).

But in June 2011, The Spine Journal published two articles about Medtronic's product Infuse, one that alleged the product may increase the risk of sterility in men, and another that asserted the product’s adverse effects were not properly reported in clinical research. The publication pointed out that researchers for 12 of the product’s 13 industry-sponsored studies had multimillion-dollar “financial associations” with Medtronic.

A federal probe of Medtronic closed in May of this year without disclosure of its findings though other investigations and civil lawsuits continue. Medtronic has already settled a shareholder class-action lawsuit that was filed in 2008. The lawsuit claimed that Medtronic misled shareholders by not disclosing how much of the company’s Infuse-related revenue was derived through uses that were not approved by the FDA. The lawsuit also accused Medtronic of illegally marketing the product for unapproved uses.

I'm not saying that Medtronic is behind Oklahoma's deviation from ODG, but simply pointing out that there can be considerable conflicts of interest when an agency is permitted to deviate from an independent, published, national standard (although in other states Medtronic has been quite publicly behind liberalization of treatment guidelines - Arizona in particular of late).

Doctors don't like to be told how to practice medicine. I get that. But in reality the training of a physician IS to follow the science first. And to do no harm.

There's a reason why there are practice guidelines in the first place - to replace as much as possible "expert opinion" with factually established patterns of efficacy, and minimal harm.

This blog is opinion. Some people think I'm an expert.

Would you seriously rely on this blog to support a decision that has otherwise been the subject of scientific research?

Then why would one rely on "expert opinion" in the face of altering another's life?

Medical inflation has many causation ties to Big Medicine. Big Medicine can and does influence medical decision making and the conflicts of interest are great.

There's not a lot going on in occupational medicine that is cutting edge or experimental. Ergo, deviation from established guidelines (ODG and ACOEM) is unnecessary and has no place in workers' compensation medical treatment.

EDITED 10:14 PDT: Coincidentally  a Senate finance committee report released concurrently with this blog post takes Medtronic to task for paying about $210 million from 1996 to 2010 in consulting fees, royalties and other payments to doctors involved in outside research on Infuse.

Wednesday, October 24, 2012

What's Wrong with Comp? It's Not the System

There is no question that workers' compensation can be an emotionally charged issue for both injured workers and employers. When emotions run a claim no one wins, and the losses spread beyond the employer and employee.

Evelyn Fletcher sustained a low back injury in 2000 while she was working for Adventist Health. She underwent an unsuccessful surgery in 2004 and has been unable to work due to her pain since that time.

In the ensuing decade, several treatment disputes erupted between Fletcher, who acted as her own attorney, and Adventist, which was self-insured. The disputes were further complicated after Fletcher moved to Maryland to care for her elderly mother.

In an effort to help Fletcher live with the physical and psychological pain caused by her industrial injury and the ongoing litigation, as well as the frustrations of trying to secure treatment for her in Maryland, the Workers' Compensation Judge (WCJ) ordered that Adventist provide her with counseling and a nurse case manager.

On Adventist's petition for reconsideration the Workers' Compensation Appeals Board (WCAB) reversed.

Fletcher saw Dr. Atif Malik, a pain medicine specialist, for treatment after she moved to Maryland. She conceded that Malik failed to comply with California's reporting requirements for a treating physician and acquiesced to Adventist's demand that she select a new doctor.

Though Adventist gave her a list of five pain medicine specialists to pick from, none of the doctors would agree to treat Fletcher.

Fletcher went through several doctors, mostly acrimonious experiences. Medical reports during this period were "most unflattering" and in general not timely filed with Adventist in accordance with California law. Fletcher described the visits as a "nightmare."

Fletcher was on opioids, taking more, becoming tolerant of the medication, and developing withdrawal symptoms.

Eventually Fletcher incurred self-procured costs and sought reimbursement of $2,000 which Adventist opposed. The WCJ ordered reimbursement.

In addition, at the hearing where reimbursement was ordered, the WCJ ordered that the "unflattering" reports be excluded from the medical record that would go to the next treating physician so that the next doctor would not develop a negative influence based on the record.

"I think it would be counterproductive to send [the doctor's] report to whichever the selected physician is, and so I’m going to specifically order that they not be sent," the WCJ said.

The order was upheld by the WCAB on Adventist's petition for reconsideration.

On appeal the 3rd District Court of Appeals (3d DCA) reversed.

"That is not to say the WCAB's decision was unreasonable or unjust," the court said, but "no matter how well intentioned" the ruling may have been, the WCAB was without authority to uphold the WCJ's order compelling Adventist to pay for Fletcher's treatment and medications.

The court also determined that the WCAB was without authority to uphold the WCJ's order excising medical reports from Fletcher’s medical history.

"Despite the judge's desire to insulate the next primary treating physician from the dispute between Fletcher and [the doctor], the physician's reports contain important diagnostic assessments and a treatment plan that should remain a part of Fletcher's medical history for all succeeding medical providers to review and evaluate," the court said.

Workers' compensation is "the great compromise." It's not perfect. It isn't even just or right. It just is.

There aren't supposed to be winners and losers. Just a reallocation of capital. Sometimes allocations are de minimus. Sometimes there are cases that require great allocations - and sometimes those allocations seem either disproportionate or unreasonable.

That Fletcher remained in pro per for the entirety of this case tells me that her claim went well beyond the basic issues in workers' compensation. This claim became a cause, a reason to live. Fletcher obviously was seeking justice. The case took on a character well beyond a workers' compensation claim.

Adventist too, despite its resources and legal counsel, also took this case beyond claim status. There obviously was much tied up emotion in the case. The case also became a matter of principal for Adventist.

In my prior life as a defense attorney representing self-insureds, there were many cases where I was instructed to take a position to "make a statement" despite my advise to cut losses and close the claim. In my experience, self-insureds, because of their direct financial tie to claims, have a much more personal attachment to cases, hence much more emotional perspective.

At the upcoming National Workers' Compensation and Disability Conference in Vegas at 3 p.m. on Thursday 11/8, the panel of speakers of which I am a part will talk about "what's wrong with workers' compensation."

I'll give you a hint as to my position: There isn't anything wrong with workers' compensation. What's wrong is how people use the system - both injured workers and employer/carriers.

To read the court's decision in Adventist Heath v. WCAB (Fletcher), No. C069906, click here.

Tuesday, October 23, 2012

NJ Medical Costs Demonstrate Competing Values

Is it any doubt that both Virginia and New Jersey, states that do not have medical fee schedules whatsoever in their workers' compensation systems, were at the top of all 16 states studied by the Workers' Compensation Research Institute (WCRI) for increases in medical costs?

Is it less surprising that New Jersey also spent the most per case in cost containment expenses?

New Jersey ranked first in the growth of spending on cost-containment for claims for 2008 claims with 36 months of experience. WCRI reported the average cost for medical containment per lost-time claim was $4,889.

WCRI concluded that medical costs were the main driver of overall increases in New Jersey workers' compensation costs per claim following the recent recession and accounted for 71% of the growth in all claims costs during 2010-2011.

Of a study of 25 states released by WCRI last May, New Jersey topped the list for professional payments for surgeries. New Jersey had a price index of 265, compared to a median index of 100.

Some attribute the increase in costs to the provision of quality services.

My friend Jon Gelman, New Jersey claimants' attorney and prolific blogger, told WorkCompCentral that the WCRI report underscores the cost of quality treatment in New Jersey.

"The cost of medical treatment doesn't surprise me, because New Jersey is in the vicinity of Philadelphia and New York and a number of major medical treatment centers with some of some of the finest physicians in the country," Gelman said. "You're seeing those physicians migrate to New Jersey and set up offices."

On the other side of the coin is the ability of employers to choose physicians.

Eric Stenson, spokesman for New Jersey Manufacturers Insurance Co., told WorkCompCental on Monday that the New Jersey's largest workers' compensation carrier has been able to control costs by choosing its doctors.

"New Jersey Manufacturers historically has not advocated for a fee schedule because of the employers' ability to select the provider," Stinson said.

The Oregon Department of Consumer and Business Services recently ranked New Jersey as the seventh most costly in terms of employer workers' compensation costs, with an average premium of $2.74 per $100 of payroll. New Jersey also placed seventh in the state agency's 2010 rankings. The national median for the study was $1.88.

The tradeoff for imposing a medical fee schedule would likely be relinquishing employer control over medical - and while the high medical treatment and cost containment expenditures may be cause for concern, it seems that employer control over physician selection impacts other aspects of New Jersey claims positively.

According to the WCRI study:
  • Prescription costs per claim were 17% lower than the median for the 16 study states. The average cost was $427 − compared to a median of $512.
  • Indemnity benefits per claim averaged $12,711 per lost-time claim − compared to a median of $16,227. 
  • Defense attorney fees per claim in New Jersey were $3,328 – the lowest among the 16 study states studied. Compare to Louisiana which WCRI reported had the largest average payments to defense attorneys at more than $8,000.
  • Injured workers in New Jersey are less likely than most of the study states to receive permanent partial disability (PPD) benefits and lump-sum settlements. PPD and lump settlements combined accounted for 38% of all lost-time claims in New Jersey.
  • Injured workers in New Jersey received their first indemnity payments more quickly than most other study states. For 2010-2011 claims, 54% of injured workers with indemnity claims received their first payment within 21 days. New Jersey followed Texas and Massachusetts, which topped the list with nearly 60% of claimants receiving their first indemnity payment in 21 days.
Still, there is a nagging question as to whether higher medical costs, free of bureaucratic control, are actually responsible for lower indemnity costs, and if so, then where is all that premium money going? 

In the overall scheme of things, is it more cost effective to the employer to pay doctors a whole lot more compared to other systems in order to pay claimants a whole lot less?

I've written before in these pages about value. Value is based upon the consumer's perception, which is shaped by the consumer's goals.

In the case of New Jersey employers, it seems that their goals are a) prompt payments to claimants, b) lower indemnity payments overall, c) less litigation. If medical costs in the state are interpreted to provide those outcomes, then it is understandable that New Jersey employers do perceive good value in the cost of medical services.

And just because the Oregon comparison study ranks a state high in terms of premium costs doesn't necessarily mean that a state is in fact out of control - state cultures are different, state risks are different, employer bases are different, safety and regulatory controls are different, etc.

I think what is most interesting, though, is that, according to Lynne Kramer, general counsel for the New Jersey Advisory Council on Safety and Health, which represents claimants' attorneys and doctors who provide independent medical examinations for injured workers, the claimants' bar has growing concerns over medical costs.

"The fact that employers can tell workers what doctors they see was supposed to keep costs down," Kramer said.

"It hasn't worked out that way. It's a concern of ours that because employers end up paying higher premiums, people are going to try and cut back on the treatment, which is expensive."

At least in the eyes of the claimant's bar there is a disconnect between the value of services received and the cost of those services - the threat being that "reform" will surface at some point in time that will threaten the claimant's ability to quickly receive indemnity and resolve claims.

In workers' compensation there is always some trade off - there is never some perfect solution. Pick your values, and pay for them one way or the other.

Summaries of the WCRI report and information on buying the report are here.

Monday, October 22, 2012

OK: Costs of Adjudication Are Only A Symptom

Oklahoma Labor Commissioner Mark Costello and Lt. Gov. Todd Lamb (R) are pushing the state to adopt an administrative adjudication system for workers' compensation claims that go litigated.

Lamb says the current system is too costly, impedes economic development and forces employers and injured employees to fight rather than focus on getting workers back on the job.

His position is supported by at least ten Republican state senators and in May they requested a study on the issue through the Senate Judiciary Committee. But Committee Chairman Anthony Sykes, R-Moore, has not called a meeting of the panel to begin the work.

Costello told WorkCompCentral that he met recently with representatives of the Arkansas Workers' Compensation Commission and came away believing that modeling an Oklahoma system after Arkansas would work.

The 2012 Oregon Department of Consumer and Business Services ranked Oklahoma as the sixth most expensive state for workers’ compensation, with an average premium rate of $2.77 per $100 of payroll, compared to the median of $1.88. In the 2010 Oregon study, Oklahoma ranked as the fourth most expensive state.

Lt. Gov. Lamb told WorkCompCentral that he believes moving to an administrative model for workers' compensation would make things less adversarial.

Costello told WorkCompCentral he believes much of the higher costs in Oklahoma are due to excessive involvement of attorneys in the workers' compensation process.

While an administrative system may prove to be more efficient in handling litigated claims, it is not the single answer to lowering the expense of delivering benefits to workers.

I think Lamb gets that idea, because he also told WorkCompCentral that he is willing to consider multiple options. "The goal is to reform the system ... and we'll know it's reformed when premiums start going down," he said.

Workers' compensation is a political compromise no matter what one does with resolving impediments to the delivery of benefits. Oklahoma isn't going to get an administrative adjudication system without also making other changes that the various interest groups (don't talk to me about "stakeholders"!) deem necessary to their respective positions.

Costello, however, is mistaken in attributing all of Oklahoma's problems to "involvement of attorneys in the workers' compensation process."

I've opined this before - workers' compensation is the poor man's dispute resolution system. There is study after study confirming that the number one driver of litigation in workers' compensation is job dissatisfaction. Many litigated claims are not about the injury, but about either "justice" or "revenge." Some just can't move on without closure of some emotional issue tied to work - and that is generally categorized as job dissatisfaction.

Job dissatisfaction takes on many permutations. It could be that the worker just believes that his boss is an ass. Or the worker is disgruntled because he or she can't get the vacation time requested. Or it could be that the worker simply feels that flipping burgers for minimum wage is demeaning and there is nothing to lose with getting a little paid time off...

An administrative system isn't going to get the lawyers "out of the system" - per above, working folks need a place to air their grievances, rightly or wrongly - but I do believe that an administrative system is more efficient in resolving disputes. Sometimes rulings are right, sometimes they are wrong, but the bottom line is that the longer a dispute remains unresolved (i.e. a claim remains open) the greater risk there is for an adverse result due to increase disability duration (read "claims severity").

Another significant impact on claims adjudication is simply culture. What works in one state won't work in another state. Heck, even intra-state the same system won't produce exactly the same results. California is a prime example - just look at the issue of liens in litigated cases which are virtually not an issue in Northern California, but are a principal part of the system in Southern California.

But when one really gets down to basics, having a civil court resolve workers' compensation disputes is simply inefficient when compared to an administrative adjudication process. Civil courts deal with a myriad of issues from all segments of social interaction. Workers' compensation deals with only seven basic issues: causation (AOE/COE), medical treatment, medical billing, temporary disability, permanent disability, return-to-work/vocational rehabilitation, and medical-legal.

The bottom line is that moving to an administrative adjudication system is a good idea, but believing that it is the panacea to controlling a system is not realistic. The costs of adjudication are simply a symptom. There's a whole lot more to look at than just dispute resolution.

Friday, October 19, 2012

Explained: Price Spikes and Ill-Gotten Gains

In general, when there is an otherwise unexplained price spike, it can ultimately be traced back to criminal behavior, or in the least, manipulative behavior.

One of the big cost drivers in the past few years, especially in California, has been compound drugs.

The California Workers’ Compensation Institute (CWCI) identified compound drugs as a huge prescription drug cost driver in 2010, saying that compound medications, co-packs and medical foods accounted for nearly $1 out of every $8 paid for injured worker prescriptions in California.

The amount paid for such drugs and medical foods during the study period totaled $28,910,769, or 10.1% of the $284,662,536 paid in the total sample, according to CWCI.

The average amount paid for compound drug prescriptions went from $468 in the first quarter of 2006 to $551 in the first quarter of 2009; the average paid for co-packs went from about $300 in the first quarter of 2006 to $420 in the first quarter of 2009, and medical foods went from $160 to $233 in the same time period.

Repackaged drugs represented nearly 60% of all money spent on workers' comp prescriptions in 2006, but the Division of Workers' Compensation closed a loophole that allowed higher payments for repackaged drugs dispensed at physicians' offices. The division added repackaged drugs to its official fee schedule effective March 1, 2007, and by the third quarter of 2008, repackaged drugs were down to just 5.8% of total prescriptions.

The CWCI study showed a swift spike in prescriptions for compound drugs, co-packs and medical foods shortly after the DWC change, moving from 2.7% in the first three months of 2007 to a high of 6.6% in the final quarter of the year. That percentage eased to 4.7% by the first quarter of 2009.

CWCI offered three theories about the increased use of compound drugs, medical foods and co-packs
  • Successful marketing of the medicinal value of these substances by compounding pharmacies and distributors who assert that pain medication is better tolerated and produces fewer side effects. Those marketing co-packs and medical foods make similar claims, maintaining that their products address issues of nutritional insufficiency caused by underlying injury or disease.
  • The application of less-invasive medical treatment for back pain has prompted greater use of pain medications — including those found in compound drugs and co-packs.
  • Some medical providers, manufacturers, labelers, third-party billers and pharmaceutical distributors are using compounded drugs, co-packs and medical foods to circumvent the medical fee schedule by marketing, prescribing, and dispensing these products when less costly, safer and possibly more effective means of delivering needed medication are available.
They forgot about crime.

WorkCompCentral this morning reports that a whistleblower complaint alleging a scheme to defraud the federal government, State Compensation Insurance Fund and other workers' compensation carriers by billing for compound drugs that were not dispensed names as defendants 201 California doctors, many of whom are also qualified medical evaluators.

The complaint, filed by the owners of a medical billing company in the U.S. District Court in New Hampshire, alleges that Cyrus Sorat is a part owner of Health Care Pharmacy and Deutsche Medical Services in Tustin, Calif., and paid 208 doctors to prescribe compound drugs to injured workers needing topical analgesics. Sorat promised to pay the doctors an unreported fee for each prescription they wrote, and also agreed to handle billing and recover receivables on behalf of the physicians, according to the complaint.

Seven of the doctors named are in Florida, Arizona, South Carolina and Puerto Rico, with the rest in California.

The original complaint was filed in October 2008 under seal because of an ongoing federal criminal investigation. The complaint says the scheme yielded fraudulent bills worth tens of millions of dollars (seems that figure is supported by the CWCI study).

The complaint describes a complex scheme that I won't get into here - suffice to say that the doctors named were allegedly paid kickbacks to prescribe the drugs, and the receivables for those prescriptions were then "handled" by the mastermind through several collection/management agencies and bill review companies that were created in a sophisticated scheme of fraud.

Remember what your mom used to tell you about lying? That eventually you'll get caught in the lie because you can't remember everything you tell everyone and the details will trip you up?

That's what happened - eventually someone billed for a prescription on a patient after they died. Also, many prescriptions did not match dates of office visits. When the perpetrators were advised of the issues, they set about attempting to correct these details - rather than just letting these go they pursued collections, which became their undoing.

There's more work to be done other than the civil and criminal charges reported. WorkCompCentral found the names and addresses of 40 doctors named as defendants in the civil suit matched names and locations of qualified medical evaluators (QME) in the Division of Workers’ Compensation (DWC) online database. The names for an additional 37 defendants were also found in the QME database, but with different addresses.

DWC has lots on its hands with the implementation of SB 863, but it should move aggressively towards the investigation and discipline of the QMEs named in the complaint.

In the 2010 story Joe Paduda, president of CompPharma, a consortium of pharmacy benefit managers and industry critic, and system critic with his blog, Managed Care Matters, was interviewed and he quipped, "I think it's a highly likely driver that people are trying to make money off the comp system."

You forgot illegally Joe. Illegally.

Trust me, there's a whole lot more of this going on than just compound drugs...

On Thursday, November 8, 2012, Joe, Bob Wilson, Peter Rousmaniere, Rebecca Shafer, Mark Walls and I will be part of a panel discussion at the 21st Annual National Workers' Compensation and Disability Conference & Expo in Las Vegas at 3 pm. "Front and Center: Bloggers Speak Out on the State of Workers’ Compensation" will cover what's wrong with workers' compensation and how to fix it. Ill-gotten gains will be part of the discussion.

Thursday, October 18, 2012

Go To Texas for an Education

Reports on the performance of the Texas workers' compensation system should make other states jealous.

The latest publication from the Insurance Council of Texas shows the state workers' compensation system outperforming competing systems by wide margins. When coupled with the latest information from NCCI (which does studies for the state but is not the ratemaking agency for Texas), it is a wonder that other states are not clamoring to Texas to find out what they are doing that is different, and better, than them.

The Insurance Council (ICT) said Texas Department of Insurance (TDI) figures show the average premium rate in Texas has dropped from $2.70 per $100 of payroll in 2004 to $1.38 per $100 in 2010.

In the meantime, National Council on Compensation Insurance (NCCI) reported late last year that Texas carriers experienced a median combined ratio of 93% for policy year 2010 (up 11% from the year earlier and blamed on decreasing premium due to economic factors).

NCCI has delivered to the Department of Insurance a recommendation to reduce loss-cost rates by 3.8%, effective June 1, 2013. Last year, NCCI submitted a 0.3% rate decrease.

The Oregon Department of Consumer and Business Affairs latest biennial report shows Texas moved from the 12th most expensive state for workers’ compensation in 2010 to the 38th most expensive in 2012.

What's up in Texas?

In 2005 the Texas legislature passed HB 7 which is still being credited with ongoing system savings still. There seems to be near unanimous opinion in the state that the landmark reform bill is responsible for the ongoing savings.

I was thinking that there must be a dramatic decrease in claims frequency in the state in order for there to be such a big swing in costs - the conclusion perhaps being that the changes may be excluding otherwise legitimate claims (as well as those that are more nefarious). But I don't have the data to analyze this in the short time that I have to write this column every morning.

However, NCCI's last filing indicates that claims frequency is flat - meaning that there has been no appreciable increase or decrease in claims despite economic deterioration in the state (albeit Texas was much less affected by the last recession than most states in the nation).

NCCI's report shows that Texas lost-time claim frequency increased 1.4% in policy year 2009, after decreases beginning in policy year 2000, and a 5.2% decrease for policy year 2008. This tells me that initially HB 7 did affect frequency, but that it has likely stabilized.

Which makes the latest loss-cost rate reduction even more compelling.

According to ICT, the proportion of Texas employers subscribing to the system (as if you didn't know, Texas employers are not mandated to participate in workers' compensation) has steadily been increasing - the Texas Department of Insurance (TDI) Workers' Compensation Research and Evaluation Group showed a 44% non-subscription rate for 1993 and 1994. Subsequent studies showed a 38% rate in 2004, 33% in 2008 and 32% in 2010.

In its current filing, NCCI lists four “key observations” on conditions in the Texas workers’ compensation system:

  • Both indemnity and medical loss ratios “continue to exhibit favorable experience.”
  • Claim frequency has increased in the latest two policy years (albeit, as noted, not significantly).
  • Medical severity continues to decrease while indemnity severity has shown “a slight increase.”
  • Recent changes to the medical fee schedule and the statewide average weekly wage are estimated to increase overall system costs by 1.1%.
But NCCI says the change in experience and trend results in a 4.9% reduction in the rating formula. That reduction helps to offset the 1.1% increase and a 0.3% increase in loss-adjustment expense. The result is a 3.8% overall reduction.

What's missing from the rosy picture? There are always winners and losers in workers' compensation costs comparisons, and what's missing is an analysis of how injured workers are really doing compared to years past.

While frequency is flat, declining, or rising doesn't tell the picture - what would be of interest in a state by state comparison is whether Texas workers of particular classification codes fare better or worse than before - in other words, are they opting to seek care and indemnity under the state's workers' compensation system or are those claims being managed through other channels: general health and alternative disability systems.

I have been following Texas workers' compensation now for about 13 years - enough time to see the state go from being the bastard step-child of the workers' compensation world with allegations of inter-departmental fraud, corruption, mismanagement and other attributes not generally associated with a clean system, to being essentially the poster child for cost control in large state systems.

Clearly Texas has done something right and though there continue to be disputes in the state about how the system runs, who benefits, who loses, etc., if performance is to be based solely on the numbers, regulators and politicians from other states should be clamoring to Austin to get an education.

Wednesday, October 17, 2012

Does PDMP Interfere with Standard of Care, Or Is It The Standard?

Sometimes big issues need to be tackled in small pieces.

Florida has attained infamy in failing to control its prescription drugs distribution and physician dispensing issues, so four counties in the state are moving forward with doing the job on their own.

Osceola County, just south of Orlando, approved an ordinance on Oct. 10 that requires all state-licensed physicians − or other persons authorized to issue prescriptions in Florida − to obtain a "patient advisory report" from the Florida Prescription Drug Monitoring Program (PDMP) before prescribing controlled substances.

The state PDMP has been in effect for 13 months now.

Pinellas, Sarasota and Manatee counties along Florida's Gulf Coast have passed similar ordinances in the past two years.

While 49 states have passed laws creating PDMPs (the hold out is Missouri - see below), only four – Kentucky, Massachusetts, New York and Tennessee – require doctors to consult the databases before prescribing most drugs on the controlled substances list maintained by the U.S. Drug Enforcement Administration (DEA).

Lisa Hurley, public safety advocate for the Florida Association of Counties, told WorkCompCentral that a growing number of counties are debating whether to include a doctor mandate in ordinances that have declared temporary moratoriums on pain clinics and then established licensing procedures for the facilities.

"What we found that is counties started implementing their own pain clinic ordinances and then began requiring that doctors check the PDMP because they didn't believe the state law went far enough," she said.

The Florida Medical Association (FMA) is upset. Their position is that these local ordinances interfere with state-licensed physician practices.

There is debate among physicians in Florida as to whether county ordinances are reasonable or not. According to Assistant County Attorney Dana Crosby-Collier, who served as advisory to an Orange County, Fla. task force on prescription drug abuse, there was a 50-50 split among the doctors.

"Half of them felt that it (the PDMP requirement) was infringing on the standard of care," according to Crosby-Collier, "and the other 50% said this was a standard of care. They felt it was responsible to check the PDMP before you see a patient."

The Osceola County ordinance passed last week takes effect on Oct. 31.

In the meantime lawmakers in Missouri, as the only state to not have a PDMP, will have to try again in 2013 to join the majority.

Sen. Kevin Engler, R-Farmington, whose Senate Bill 710 to create a prescription drug program failed due to a filibuster, will be introducing the measure as Rep. Engler – since he is moving to the House of Representatives after becoming “term-limited” in the Missouri Senate.

SB 710 was targeted – and killed – by an eight-hour filibuster by a group of Republican lawmakers led by Sen. Rob Schaaf, R-St. Joseph. Schaaf is a family physician.

During the filibuster, Schaaf said the bill would allow an unwarranted intrusion by government into individuals’ privacy.

The Missouri State Medical Association does not side with Schaaf. Jeffrey Howell, legal affairs and government relations director for the association that it lobbied for SB 710 and that it will do so again in 2013.

And according to Karen Buschman, communications director for the Missouri Chamber of Commerce and Industry, the chambers big hospital members support implementation of a PDMP.

Maybe Missouri counties should follow the strategy of Florida counties and just start taking matters into their own hands by constricting the approval of pain clinics and other drug prescribing/dispensing businesses pending solicitation of some PDMP or related system.

Tuesday, October 16, 2012

Same Sandbox: Digging Hole or Building Mound?

"Stakeholder" is generally defined as a person or group that has an investment, share, or interest in something, as a business or industry.

"Special interest" is in the dictionary as a noun, "a body of persons, corporation, or industry that seeks or receives benefits or privileged treatment, especially through legislation."

Stakeholder is used quite a bit when the topic of workers' compensation comes up, in particular when the issue of "reform" is discussed.

Generally most think of stakeholder in workers' compensation as groups that have the most at stake - i.e. employers and employees. Others refer to system vendors as stakeholders - medical providers, insurance carriers, and others.

And even the government has often been declared a stakeholder since without governmental intervention, administration, regulation and participation workers' compensation could not operate.

Special interest is also used when describing the politics of workers' compensation - generally in a derisive manner or with negative connotations.

In my opinion, at any given point in time, depending upon one's perspective or position on an issue, everyone is either a stakeholder or a special interest, and visa versa - the extent of one's stake in the system, and just how much one is holding, is dependent upon the issue at hand, and the relative interest one has with respect to that interest.

California's recent reform bill, SB 863, is a perfect example. Generally regarded as being negotiated solely between two stakeholders, employers and employees, to the exclusion of special interests, the bill is being postured by the Brown Administration and supporters as a monumental breakthrough towards bipartisan, non-special interest, democratization of workers' compensation.

In reality it is far from that - special interests negotiated SB 863 and most stakeholders were excluded from the discussions.

SB 863 was the product of discussions between Big Business and Big Labor only. There were no other interests represented at the table. And SB 863 clearly represents these interests.

Most of the talk about SB 863 concerns the claims management aspect of the new laws. That is appropriate since about 80% of the bill concerns claims via the medical system, adjudication system and indemnity provisions.

What about that other 20%? That is solely the purview of special interests: Big Self Insured Business and Big Labor. About 14% of all of SB 863 deals solely with self-insurance (primarily lowering the various financial thresholds for self insurance and eliminating mountains of regulatory burden), and another 5% deals with collective bargaining agreements and alternative claims adjudication.

Big Self Insured Business is representative of less than 4% of the total employer population in California. But it is a sizable market consisting of hundreds of millions of dollars of potential insurer-able interests.

Big Labor has a much larger share of the total employee population. Unionized employment is about 11 or 12 percent of the total working population in California, but most of that population can be characterized as public service unions - i.e. government workers (be they clerical, public safety, waste management, etc.).

Are the interests of Big Self Insured Business the same as the Small Employer? Apart from the desire to save money, not really, because HOW an employer saves money is directly tied to the resources available and the Small Employer simply does not have the resources that Big Self Insured Business does.

Case in point - SB 863 provides that permanent disability indemnity payments can be deferred if the employer offers a job to the injured worker at 85% or better pay, or the injured worker takes some other job paying 100% of pre-injury wages.

The Small Employer does not have the resources to offer return to work options. If a worker is off the job for 60 days due to an injury, and returns with restrictions that inhibit performance of the particular job that was left, the Small Employer must hire a replacement to THAT job, and won't have the financial resources to create some other job just for an accommodation.

Likewise, Big Labor can not appreciate the limits of the Small Employer and their employees. The available resources are much different, the circumstances of employment are not transferable and the rules of engagement don't transfer.

The State Compensation Insurance Fund (SCIF) has taken some criticism of late (including by me) for making a motion in the WCIRB's rate making committee to not increase rates at all, and then filing for a 7% reduction in rates. Insurance executives are particularly irritated with SCIF's move.

I have been giving this SCIF thing some thought. What's SCIF's mission? Carrier of last resort. It's prime market is the Small Employer because the Small Employer doesn't have the payroll to entice Big Insurance. If SCIF CEO/President Tom Rowe's comments about the insurance industry coming together to make SB 863 work are to be taken at face value, and I have nothing to believe that they shouldn't, then in fact SCIF IS accomplishing its mission by ensuring that Small Employers have a reasonably priced product.

SCIF is simply saying that their mission is to make sure that the small employer has something reasonably priced because Big Business took care of themselves and Big Labor made sure they were covered too. Big Insurance still has a very nice market to write - medium to large employers that don't want to self-insure.

What Big Insurance should be scared of is the lower thresholds that were created by SB 863 that make it easier to self-insure. If ever there was a threat to the insure-able market, THAT is it! To stay competitive with the new self-insurance reality Big Insurance is going to have to price right, and that is going to be a real task.

Speaking of special interests, the government also ensured that its special interests were covered by putting the cost of public entity self insurance off onto the insured market.

Labor Code section 3702.5 was amended to provide that the Department of Industrial Relation's (DIR) administration of public self-insureds is paid for out of the Workers' Compensation Revolving Fund. This used to be a General Fund expense.

That's like double taxation.

Yet no one makes a stink about that.

Benefits, medical treatment, indemnity - all of that is just speculation for the stakeholders that were excluded from the SB 863 bargaining table by the special interests (note that the WCIRB AGAIN changed its cost/savings estimate re SB 863).

So don't talk to me about stakeholders and special interests. We're all in the same sand box, and whether you're one or the other just depends on whether you're digging a hole, or building a mound.

Monday, October 15, 2012

FL Taxing Costs - Irrational at Best, Unjust at Worst

Florida has an interesting provision in its workers' compensation laws that I don't think any other state has - the taxation of "costs" to the losing party in litigated cases.

Florida Statutes Section 440.34(3) provides:

"If any party should prevail in any proceedings before a judge of compensation claims or court, there shall be taxed against the nonprevailing party the reasonable costs of such proceedings, not to include attorney's fees. A claimant shall be responsible for the payment of her or his own attorney's fees, except that a claimant shall be entitled to recover a reasonable attorney's fee from a carrier or employer..."

In just two weeks the Florida 1st District Court of Appeals, where all workers' compensation cases are appealed to, has issued opinions defining the liability of losing claimants.

On Friday an opinion in Marton v. Florida Hospital Ormond Beach/Adventist Health Systems, No. 1D11-6593, was released wherein the court ordered a registered nurse, formerly employed by Florida Hospital Ormond Beach, to pay $17,894.66 in costs after pursuing her claim for benefits based on multiple injuries occurring in July 2007.

Last week the court ruled in Frederick v. Monroe County School Board, No. 1D12-0251 that an injured elementary school teacher pay her employer $11,834.35 in costs it incurred defending its denial of her petition for permanent total disability from a 2007 injury.

Though the statute does not permit the taxing of attorney's fees as costs, nevertheless, expenses for medical-legal services and other professional fees can add up quickly.

I can't help but think that this statute promotes cost shifting away from the workers' compensation system into other systems such as general health and private disability.

In particular I'm struck by the inequity of pitting individuals of limited means against much larger litigants with much greater resources - something that workers' compensation laws were originally intended to rectify.

The law about taxing the prevailing party has been the law in Florida for some time. In 2003 the statute was amended as part of the state's big reform act, SB 50a, but that affected hourly attorney fees that used to be the norm in Florida. Taxing costs existed prior to that amendment.

So it is curious to me why the 1st DCA has brought so much attention to this provision in the last couple of weeks - perhaps it is just serendipity that the issue has gone up on appeal in such a short time frame, or perhaps employers are getting more aggressive in pursuing the issue.

Workers' compensation was intended to allay the fears of workers who might get injured, or claim an injury, from seeking appropriate redress - the cost of doing so is a part of doing business in the grand scheme of employer/employee relations.

I'm sure the employer community would argue that this provision does not dissuade claimants from pursuing legitimate claims and that the statute keeps bogus matters under control.

The opposite argument could also be made though - that legitimate claims are pursued via alternative means (e.g. general health) because the claimant does not want to risk losing everything should an issue be decided against him or her and then face reimbursement of professional fees and other costs that, to most people in this country, would be financially ruinous.

I don't know the history of this provision, or if any other state has similar provisions. Perhaps someone out there can educate us all.

In the meantime, there was a study released a few months ago ( "The Lack of Correspondence Between Work-Related Disability and Receipt of Workers' Compensation Benefits," American Journal of Industrial Medicine, January 2012) by perennial workers' compensation guru/critic, former Rutgers University professor John Burton (and co-author Emily Spieler), which commented on the oversized cost shifting from workers' compensation to other systems.

That study drew some industry acknowledgment from those on the ground level.

Chief Judge of Compensation Claims, David Langham, told WorkCompCentral when the Burton study was released, that in states like Florida, it doesn't take an injured worker long to "do the math" and realize reporting an injury could result in financial losses for them.

Florida's culture would certainly seem to support this notion, and support the conclusions of Burton and Spieler:

"Injured workers are facing complex systems that are not providing benefits for all work-related conditions. The current system is irrational, at best, and unjust at worst."

Friday, October 12, 2012

Aon, SCIF, WCIRB, Dividends and Reform

Controversy over California reform, SB 863, will continue for years, and it is of no surprise that cost/benefit analysis will differ considerably until matters settle down, operational issues are finalized, and loopholes are identified and stabilized.

This last part of the equation may be a surprising statement to some - the truth of the matter is that loopholes will become known, exploited, but eventually will stabilize - meaning that the volume of cases where loopholes can be exploited will become a known quantity by which actuarial analysis can factor in a price.

International risk management and brokerage firm Aon released its “Workers' Compensation Update” which concludes that costs in SB 863 are higher than most think, and that savings in SB 863 are lower than most think - adding to the debate over the wisdom of reform.

Here's why AON says costs are going to be higher than anticipated:
  • Higher benefits begets higher utilization - AON says the relationship is non-linear and that the amount of claims increases disproportionately to the amount of benefits available.
  • Elimination of add-ons only means that other add-ons will be discovered and exploited.
  • Lien constrictions ignores current medical reimbursement rates (in my opinion, while this may be true in the short term, after a couple of years I see liens essentially disappearing for several reasons).
  • Independent medical review won't have the impact projected because, as some insurance executives have noted, it may be just as cheap to just approve a disputed procedure rather than go through the expense, and risk, of sending a matter to IMR.
  • Medical provider network changes are optimistic.
All in all, Aon believes the permanent disability benefit increase in SB 863 will drive costs up by $982 million in 2014 while the cost-cutting provisions will produce net savings of only $631 million, increasing system costs by a net of $351 million a year beginning in 2014.

In the last rate meeting of the Workers' Compensation Insurance Rating bureau, State Compensation Insurance Fund, made a motion to recommend no rate increase, essentially on the grounds that too much is unknown about SB 863 and that increasing rates at this time sends the wrong message.

This is from an entity that last year paid a a $49 million dividend. This year, they’re planning a $100 million dividend. And the State Fund filed to lower rates by 7%, contrary to most private carriers.

State Fund's projections when SB 863 was in the final draft stages showed a net savings to the system of about $540 million.

Perhaps State Fund has reason to be optimistic - it's surplus has grown by about 20% since 2007 to $5.9 billion, yet its premiums have shrunk about 54%:


net change     

Note that the ratio of surplus to premium has grown nearly 163% since 2007. To put this information into graphical context, here is a chart showing how State Fund's surplus growth compares to premiums taken in:

So, perhaps there's reason that the State Fund is optimistic about SB 863 - when rates were going up surplus increased well beyond the needs of policy holders; it's got the cash now, accumulated over the past several years despite declining premiums, to decrease rates AND pay back another dividend anticipated at $100 million.

Which by the way is paid to 2012 policy holders despite the fact that the surplus was built upon the premiums collected by employers prior to 2012 which may not be policy holders in 2012...

In other words, State Fund is sitting on $4.5 billion in excess surplus. All this they got from the unfortunate employers that couldn’t get coverage (in the main) from the private carriers during years when blame was being laid on industry vendors and attorneys for increasing costs in the system.

The $100 million (if it does get paid out) will be from a combination of current and past years. Yet, it only goes to the 2012 policy holders.

Let me wrap this all up - the estimated costs and benefits of SB 863 are basically only as good as the local fortune teller - the WCIRB, State Fund and other supporters are telling California business what they WANT to hear (with due respect to the WCIRB, the vote for no increase in rates was split and the majority of carrier representatives voted against the motion). And the State Fund is going to back up that prediction with cash back to current policy holders.

Hey, I'm in favor of dividends when warranted. Certainly if surplus is excessive then money needs to be returned to employers. But the dividend should go to those employers that paid into the surplus retrospectively.

And let's face it - I don't care what anyone says about the WCIRB's recommendation. The motion for no rate increase was made by State Fund, and looking at the numbers it's no wonder. State Fund is in a position to take on whatever SB 863 dishes out, regardless of whether its projections, WCIRB's projections or Aon's projections are accurate.

You can say that either State Fund has been skillfully managed to generate great savings, or that employers served by State Fund have been skillfully fleeced.

Either way, my only conclusion is that the politics of SB 863 go way beyond the Governor and the Legislature. Who benefits? Certainly not employers that paid too much into the system prior to reform.

Thursday, October 11, 2012

OR Study - Take It With a Grain of Salt

It's that time of year again, or I should say, every other year again.

The 2012 Oregon Department of Consumer and Business Services (DCBS) “Premium Rate Ranking Summary” was released on Wednesday and of course the survey declared winners and losers in the race to be cheapest, and reactions are predictable with winners boasting and losers bemoaning.

Oregon has been publishing its study comparing average premium rates for all 50 states and the District of Columbia since 1994.

Many folks take the survey as gospel, in particular politicians, who like anything that can convey a complex message in simple terms regardless of accuracy or context ("See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda."—G. W. Bush, May 24, 2005).

One criticism of the survey is that states' economies and mix of hazards are very different, so drawing comparisons among states would not be an accurate representation. But Oregon officials have said in the past that their survey controls for the differences in industry mix among the states by comparing premiums for identical classification codes.

What the survey can not control for, however, is the relative cost of living among states, and the huge impact payroll (i.e. the economy) has on rates, which translates to premiums.

In the summary DCBS advises that, "Rates vary by classification and insurer in each state, and actual cost to an employer can be adjusted by the employer’s experience rating, premium discount, retrospective rating, and dividends. Nevada’s index rate dropped significantly since the 2010 study, due in part to inclusion of a payroll cap adjustment in 2012"

The last sentence is very informative of how the data can be manipulated by an economic force that is not a direct class code to class code comparison - an artificial limitation on payroll adjustment put Nevada's rate much lower than 2 years ago, even though Nevada's economy remains stubbornly stuck with recessionary artifact.

In addition, the rankings are weighted against class codes that officials in Oregon have determined to be most important to that state: "Of approximately 450 active classes in Oregon, 50 were selected based on relative importance as measured by share of losses in Oregon."

What if the ranking were determined by ranking classes based on "relative importance" as the share of losses in California, or Oklahoma, or Nevada...?

I'm not saying that the Oregon survey is meaningless. Far from that. In fact the Oregon study is the only study that I know of that at least attempts to rank states on their relative workers' compensation costs. This can be good and this can be bad depending upon what argument you want to make.

Each state has a different set of workers' compensation laws that presumably are reflective of each state's different personalities, different cultures, different industries and economies (and politics). And high cost states are high cost in many other respects - e.g. Alaska just plain costs more to live in than Oregon. Same with other top ranking states: California, New York, etc.

One thing that has me most curious is that the 2012 median premium cost per $100 of payroll was $1.88, which is a drop of 8% from the $2.04 median in the 2010 study. While the high cost states get more costly, apparently that inflation is offset by the low cost states getting cheaper - at least that's my interpretation.

Even more interesting though is that the spread among the highest and lowest cost states has thinned considerably.

Mike Manley, a research coordinator for the Oregon Department of Consumer and Business Services (DCBS) and co-author of the 2012 study, said in 2004 average premiums in the most expensive state were six times what was being charged in the cheapest state.

“One thing that this tighter distribution does is make state rank values more volatile from one study to the next, particularly for the states near the middle,” he said in an email to WorkCompCentral. “There are 20 states in the latest study that are within plus or minus 10% of the median. Fairly minor differences can bounce rankings around by several places.”

What would be a very interesting study would be to match the Oregon survey numbers to carrier profitability - my guess is that we would see some very different results from state to state with not much correlation between costs and profits.

The Oregon survey is good - it just has to be taken with the proverbial grain of salt.

Wednesday, October 10, 2012

A Difficult Lesson in Substantial Evidence

Substantial - that's the evidentiary standard that governs the vast majority of workers' compensation litigation.

The standard of substantial evidence means that the evidence upon which the trier of fact relies can reasonably support the proposition for which it is raised, regardless of what other evidence is out there, and whether or not other evidence may be more persuasive.

In other words, the substantial evidence standard simply asks if the evidence relied upon by the judge is "good enough."

Which is why, in most circumstances, if one is not happy with the trial judge's decision based on the evidence, one should not make an evidentiary challenge unless one can prove fraud, bias or a clearly erroneous conclusion. Attempting to challenge substantial evidence is nearly always an expensive loser.

A Louisiana employer found that out and paid an additional penalty for doing so.

Dustin Estis claimed he injured his back when he fell down a flight of stairs while working for Ambar Lone Star Fluid Service. Estis called a co-worker to assist him after he was unable to get up after the fall. The co-worker called Estis' supervisor, who took Estis to a company physician.

Dr. Gregory Gidman noted tenderness in Estis' back, but found no bruises. An MRI showed a herniated disc and a lumbar bulge. Gidman referred Estis to a neurosurgeon. Estis also visited a physician's assistant and a doctor at Teche Occupational Medical Clinic. Both professionals observed contusions consistent with a fall. Estis chose Dr. John Cobb as his orthopedic surgeon and continued treatment for his injury.

At a contested case hearing Ambar disputed that Estis suffered a work-related injury. A workers' compensation judge found in favor of Estis and awarded $8,000 in penalties and $12,000 in attorney fees.

On Ambar's appeal, the 3rd Circuit Louisiana Court of Appeals noted that Dr. Gidman's report finding no bruises on Estis' back was rebuffed by two other medical professionals, and concluded that the judge's decision to find a compensable injury was not erroneous. In other words, the workers' compensation judge's findings were supported by substantial evidence (the appellate court does not use this term in its opinion, but it is clearly the evidentiary standard that is applied on review).

Similarly, the appellate court was not swayed by the employer's argument that Estis' claim should have been rejected because his story of events varied slightly over time, and Dr. Gidman's initial report showed no contusions, scrapes or scratches. The court said that Estis' version of events was corroborated by Ambar's safety officer, and the two medical professionals at Teche Occupational Medical Clinic found bruises consistent with a fall:

"The record reveals that Ambar has substituted suspicion and innuendo for facts and evidence. Unfortunately, neither of those imposters are sufficient to reasonably controvert Estis' claim."

Ambar was upset that the workers' compensation judge awarded Estis' attorney $12,000 in fees. Big mistake. The employer's appeal cost it an additional $16,000 in fees payable to the claimant's attorney for a total attorney fee award of $28,000.

Lesson for employers/carriers - don't mess with substantial evidence.

Case: Estis v. Ambar Lone Star Fluid Service, Nos. 12-206, consolidated with 12-207, 10/03/2012.