TX Innovates With Specialty Networks

Some may dispute this, but Texas continues to be a leading innovator in workers' compensation concepts, and not just because it is the home of non-subscription.

Prior to September 1, 2005, before the Texas Workers' Compensation Commission (TWCC) became the Division of Workers' Compensation (DWC) and the agencies duties were reorganized under the Department of Insurance, Texas was fodder for derision and criticism over the management of its workers' compensation system.

Since reformation and reorganization in 2005, however, Texas has led the way in establishing one of the most robust workers' compensation insurance markets in the country, with profitable underwriting for carriers, and affordable coverage for employers.

Employers opting into the state's system, rather than providing alternative benefit plans or going completely bare, has been increasing and carrier participation in the system has also been increasing.

The process has not been without pain, for sure. Injured workers' benefits are not the most generous, and medical coverage issues in the vast rural areas of Texas remain. Many physician and other medial vendors still feel that the Texas system lacks fairness in reimbursement for services, but participation rates remain steady.

One of the innovations that Texas brought to the workers' compensation market was medical management networks, and idea that has spread across the country with variations, but with the essential features mirroring those pioneered in Texas.

Texas is innovating again with new laws that would further the ability to create provider networks that don't easily fit within the certified network system created in Texas.

The certified network system in Texas requires application, interview, review, certification, maintenance and all sorts of other mandates to ensure that the network is operating properly and providing services without discrimination, and to ensure that physicians are properly paid.

With certification, however, comes cost and for small providers of specialty services or equipment, joining a network was prohibitive.

Texas is on the verge, however, of creating a method for these small specialty providers to become sub-networks, and thus create the ability to join larger networks that are certified.

This should in theory increase business for the small providers, decrease costs for networks, and offer more choice to payers.

Texas state Sen. Leticia Van de Putte, D-San Antonio, had little trouble moving Senate Bill 1322 through the state Legislature during the legislative session that ended on Monday. The bill passed the Senate with a 30-0 vote and won House approval with a 145-3 vote. The bill is now on Gov. Rick Perry's desk for his veto or final approval.

SB 1322 will allow home health care services and durable medical equipment providers to voluntarily create informal "specialty" networks. Before this bill, the legal requirements made it too costly for home health care and DME providers to form "certified networks."

The benefit to these specialty providers is consolidation of resources and operations - in particular billing and collection functions.

In addition the bill will allow home health care and DME networks to contract with certified networks and payers directly, which should increase business volume, in exchange for the discounted rates that a network will command.

Smaller vendors, who might be overlooked by some of the large health care networks, will now have opportunities for business and informal specialty networks can also provide services to underserved, rural areas.

Nothing is perfect, and nothing is set in stone - I'm sure there are downsides to this development. It is an untested concept and the idea still needs to get to the regulatory stage, assuming Gov. Perry signs the bill.

Nevertheless, they do things different in Texas, and managing workers' compensation is one of them. We'll see in a few years whether this idea pans out as expected.

NY's Failure in Leadership

Robert Beloten, chairman of the New York State Workers' Compensation Board (SWCB), issued a highly critical bulletin on the non-scheduled permanent partial disability (PPD-NSL) rating process Tuesday that blames carriers, claimants' attorneys and treating physicians for "bad faith" delays that slowed implementation of a key piece of the 2007 reforms signed into law by former Gov. Eliot Spitzer on March 13, 2007.

The bulletin notes that prior to 2007, PPD-NSL benefits were considered "lifetime" benefits. Approximately 8,700 injured workers were classified as having a PPD-NSL claim each year, the bulletin states, which accounted for approximately 40% of the lost wage benefits paid annually. The average time from date of injury to maximum medical improvement (MMI) was 4.8 years.

The Spitzer reforms of 2007 put caps on the PPD-NSL process and was expected to save about $1 billion per year - but this didn't happen.

While the SWCB took some time to introduce new guidelines for the determination of benefits (the 2012 NYS Guidelines for Determining Permanent Impairment and Loss of Wage Earning Capacity, aka 2012 Guidelines) along with a new process effective January 2012, SWCB is expressing its disappointment with the lethargy the industry in adopting and utilizing the 2012 Guidelines and processes.

Beloten says private insurance carriers are the worst because they lose control over the funding of the PPD-NSL benefit:

"Data shows that despite these efforts, carriers have not achieved the level of PPD-NSL classifications that were expected. As of March 13, 2013, only 2,062 claims with accident dates from March 13, 2007 – March 12, 2008 have been classified, compared to 6,102 claims from 2002 at the same five year point. Private carriers are slowest – perhaps deterred by the requirement to deposit the present value of the PPD-NSL benefits into the Aggregate Trust Fund (ATF) if they cannot settle the claim within six months of classification. While increased Section 32 settlements prior to classification may account for some of the reduction in classifications, it is not sufficient to account for all of it. The average time from accident to classification has been increasing steadily and is now 6.4 years."

Taking aim at physicians, Beloten's bulletin says:

"The classification process has been plagued by non-compliance and bad faith delays. Many providers fail to provide the required medical documentation using the Form C-4.3, even when specifically directed and despite the significant fee payable to the provider. In some cases, parties have delayed classification by falsely claiming that they are in settlement discussions or by disputing that the claimant has reached MMI many years after the injury. These claims are based on alleged new injuries or the possibility of surgery, when none exists. These tactics result in prolonged temporary disability and forestall the classification process and imposition of caps, thereby driving up the cost of workers' compensation for all employers and undermining the legislative bargain on the 2007 Reform."

And with respect to attorneys introducing new injury claims or other tactics designed to prolong TTD status, Beloten says, "These tactics result in prolonged temporary disability and forestall the classification process and imposition of caps, thereby driving up the cost of workers' compensation for all employers and undermining the legislative bargain on the 2007 reform."

Beloten didn't criticize his own board, however, for taking 5 years to figure things out - Spitzer signed the reform law in 2007, and SWCB didn't issue its new guides and procedures until 2011, effective January 2012. That is a shame, because if Beloten wants any credibility at all with the participants in the New York system he must also accept part of the blame for the system failing to respond to legislative mandate.

In response to these delays, SWCB has issued a new program to speed up the process of impairment ratings, including the creation of "specialized parts in each district to handle the classification of PPD-NSL claims."

But some think that this process may violate another part of New York law that requires judges to handle cases from cradle to grave - I don't see it that way because the bulletin makes it clear that this is a voluntary program for the parties.

While SWCB chastises doctors on reporting, doctors say that the form, C 4.3, is unreasonably complex and difficult to complete.

This is a problem that is common in workers' compensation system in the bigger states - the complexity of the forms that are required to be used by participants increases errors, decreases compliance, and generally makes a mess out of things, not to mention that complex forms just take more time to complete.

But let's get to the heart of the matter - leadership. Beloten's bulletin points to a significant problem: delays in resolving disputed claims on PPD-NSL claims increased, rather than decreased, following the Spitzer reforms and this has created additional burden and expense on the system.

While it may be true that SWCB "has diligently enforced the duration caps since their enactment" the fact remains that the Board did not act diligently in the balance of its obligations under the act, and failure to accept part of the blame in a public manner is a failure in leadership.

New rules, new guides, new forms, new processes - all are great. But if SWCB can not accept responsibility for taking so long to implement these actions, how can it, after only one year, blame others for non-compliance?

If SWCB wants to be taken seriously, it must also look at itself, accept that it failed in its primary responsibility of timely issuing guidelines and procedures, THEN lay the foundation for others to follow the path towards improvement.

The Board should not blame others for a failure in the system to correct a deeply ingrained culture where the leadership itself didn't change.

DSM-V and the Wussification of America

A bit of a controversy is arising in psychiatric and psychological circles with the release of the 5th edition of the Diagnostic and Statistical Manual of Mental Disorders (DSM-V).

Many workers' compensation systems rely on earlier editions of the DSM for diagnosis and medical legal reporting of industrial mental health issues in arriving at indemnity equations.

While much of the controversy over DSM-V is the elimination of the Global Assessment of Functioning scale (GAF) which some states, notably California, uses as part of the whole person impairment percentage for determining a permanent disability rating, the more problematic issue with DSM-V is that there are more diagnosable conditions with lower thresholds for meeting diagnostic criteria.

This is part of a wider problem that America faces - the disease-ification of our population; making mountains out of mole hills.

In other words, more people are now being diagnosed with some condition that in the past would not have been an issue.

I'm not sure why this has occurred - perhaps it is our legal system which tries to find ways to pay people for wrongs they have experienced; perhaps it is our insurance system that won't pay for services unless there is some diagnosis; perhaps it is because of our social benefits system (Social Security, etc.) that won't provide benefits unless a physician has made a certain diagnosis.

I don't know - but one thing is for certain, if we are to believe all of these guides and manuals directing the health care community, we are all a lot more sick than we used to be.

Maybe this is a big part of what is driving up medical costs. My psychiatrist brother-in-law quipped once that in medical school they teach that 3/4s of what is wrong with a person is in their heads...

The authors of DSM-V seem to have good intentions.

Dr. William Narrow, the research director of the DSM-V task force and a psychiatrist who works for the Arlington Va.-based American Psychiatric Association (APA), defended the new tome to WorkCompCentral, stating that the new manual moves away from the GAF because it was too easy to game.

Narrow said the APA put the World Health Organization Disability Assessment Schedule Version 2.0 (WHODAS ) in the DSM-V for review and consideration by the mental health community.

Narrow said he felt the WHODAS "does a better job of assessing disability" than the GAF and is "very reliable." The GAF, he explained, "is not a measure of disability" but rather a "measure of overall functioning" that "mixes disability and symptomatology" in a way that the WHODAS does not.

Fair enough, but this unilateral reconstruction of a tool does not take into account myriad and complex systems that already make use of the earlier model.

And while Narrow may be correct about gaming GAF, the fact is that GAF has been in use for many, many years and is a standard without too much objection by those who use it.

Changing standards without legal authority or precedence is not just expensive, it is time consuming and difficult to do because of competing interests and politics.

But, regardless of the elimination of GAF, the fact remains that, as Paul D. Godec of Kissinger & Fellman, a labor and employment attorney in Denver, remarked to WorkCompCentral, "virtually every one of us is going to have some diagnosable condition under the DSM-V."

The broadening of diagnostic criteria just adds to the wussification of America - the removal of personal responsibility in society.

Wussification starts at a young age, with such otherwise benign events as organized sports that recognize every child with an award even if they are a loser.

It continues into adulthood with no-fault systems, such as workers' compensation or divorce, where no one is accountable for their own behavior because they are going to be taken care of regardless of how or who caused an accident or situation.

It seems that nearly everywhere one turns there is no personal responsibility anymore - it's always someone else's fault, or no one's fault. Everyone's a victim...

Whether DSM-V may or may not have an impact directly on workers' compensation systems is irrelevant - DSM-V makes more people ill when they were previously considered to be normally functioning.

We don't need more ill people in this country. We need people that are strong, healthy, vibrant, productive AND WHO TAKE RESPONSIBILITY FOR THEMSELVES. We do this by not recognizing illness when there really isn't any.

Remember the best selling self-help book from the 70's, I'm OK, You're OK, by Thomas A Harris MD? The emphasis of the book is helping people understand how their life position affects their communications (transactions) and relationships.

There are four states according to Harris:

1. I'm Not OK, You're OK
2. I'm Not OK, You're Not OK
3. I'm OK, You're Not OK
4. I'm OK, You're OK

The most common is number one: As children we see that adults are large, strong and competent and that we are little, weak and often make mistakes, so we conclude I'm Not OK, You're OK.

DSM-V emphasizes that I'm not OK: I'm a wussy and a victim so take care of me...

We need medical manuals that emphasize number four, where people gain the maturity to engage in Adult to Adult dialogue and stop with the victimization mentality that has become so prevalent in American society.

Let's stop the wussification of America and refuse to recognize trite diagnosis that do nothing other than give physicians and other health care providers something new to put on their bills to insurance companies for reimbursement.

The Profile and Why Federalist Expansionism is Alarming

“My dad fought a war so this can never happen in America. I will not dishonor my father’s memory by giving up what he fought for. No, sir. With all due respect, I will not consent to a search without a proper warrant.” - Larry Gaines, private pilot to a Customs and Border Protection (CBP) agent seeking an unlawful, warrantless search of Gaines' aircraft because his flight fit a "profile" of “from west to east, from California.”

Coming off the Memorial Day holiday weekend, where the nation pays tribute to those who have fallen in the name of our country, I'm struck by the perversity of our collective sentiments versus an incongruous police state that has been evolving since terrorism was declared a national threat.

If you follow any sort of politics at all outside the workers' compensation arena you might have noticed an alarming trend over the past decade - expansion of the federal government's willingness to disregard individual Constitutional rights and the use of its mighty resources to quell individual dissent.

This started with the creation, funding and expansion of the Department of Homeland Security (DHS) and its more familiar agency, the Transportation Security Agency (TSA). Despite billions of dollars in funding for personnel and fancy machines, there has not been a single case of terrorism that has been thwarted by this massive bureaucracy.

We get a false sense of security as backscatter machines prob our bodies with electrons and we take our shoes and belts off and remove lap top computers from brief cases - while questionable TSA employees rifle through our bags committing theft (and we all know that the few that were actually caught are only representative of a much bigger problem).

But we all accept TSA like apathetic sheep because the federal government said we have to in order to ensure orderly travel, despite the fact that there is not one scintilla of evidence that TSA has ever made travel safer. None.

Then we get to Larry Gaines. His plight is not unique at all now in the general aviation community. It seems that a couple times per month some completely law abiding private pilot is detained and essentially searched, without warrant, and without legal authority, in the name of terrorism, despite the fact that general aviation has never been identified as a credible terrorism threat - it's simply much, much easier to plant a bomb at the Boston Marathon than it is to learn how to fly a plane and rig it as an explosive device.

And, by the way, these reports of aircraft and pilot interceptions do not involve the ONLY governmental agency that has ANY authority whatsoever over an aircraft and its pilot - the Federal Aviation Administration (FAA). The FAA, from what I have read thus far, disassociates itself completely from the police activity of these rogue federal agencies.

The fact is that neither DHS, TSA, CBP or any local police agency has any authority WHATSOEVER to detain, search, investigate, confiscate, prosecute, etc. any violation of any aviation law or regulation - NONE. They can not conduct "ramp checks" (inspecting an aircraft on the ground as a matter of course); they can not confiscate pilot certificates; they can not search an aircraft or detain a pilot for anything that occurs in the air, or at an airport once past security fencing.

And yet that does not keep these entities from using their police authority to engage in these unlawful activities because they have money, ergo power, and will use that ostensible authority because they have the resources and know that in order for YOU to muster sufficient resources to protect your rights you need to spend a lot of money in a short period of time, and by then these autocrats have had their way - they've made their point.

Other recent, glaring, and despicable examples of the federal government's disdain for the People's Constitutional Rights are the Justice Department's recent actions against journalists - unprecedented, and unfounded activities that are designed for no purpose other than to stifle the ability of The Media to keep a check on government.

There is the warrant against Fox News reporter James Rosen where the Justice Department with the blessing of the Attorney General of the United States, Eric Holder, obtained his Google account emails in which he corresponded with a State Department analyst suspected of leaking classified information about North Korea. Rosen was doing his job - he did not violate any laws, he did not engage in illegal activity, he did not create a security threat or a breach of safety for the public.

Investigators routinely search the e-mails of suspected leakers, but Congress has forbidden search warrants for journalists’ work product materials unless the reporter committed a crime - and Rosen committed no crime. His activity is Constitutionally protected and this very same issue has come before the United States Supreme Court many times in the past and on each occasion the government has lost.

But because the government deemed Rosen's activity against its own interests - SECRECY - they have engaged in a tactic designed to quell his First Amendment right of freedom of the press and have used him as an example to make sure that other journalists don't start investigating things the government doesn't want you to know. 

The federal government knows that they have resources, and that it takes lots of money to fight them.

And of course there is also the FBI's seizure of Associated Press reporter's phone records in the name of ferreting out who leaked information about a potential terrorist plot.

The issue isn't a direct threat to The Press - but the result has been to chill sources, and without sources news can not be responsibly reported. 

So while The Press experiences some legal challenges, the practical effect is that people are no longer willing to talk to The Press for fear that the federal government is going to come after them by the flagrant disregard of the Constitutional rights of journalists.

What does this have to do with workers' compensation?

Maybe nothing. And, maybe - everything.

We're in our own little cocoon of the workers' compensation world. We fight about benefit rates, about reimbursement to vendors, about waiting periods and presumptions. We alter standards for causation, carve out separate rules for psychiatric issues, develop formulas for indemnity, research risk rates and actuarially determine which business classes deserve our underwriting attention.

But once the federal government encroaches on the rights of the people, and the rights of states to govern as they please, none of what we do in work comp will matter. States won't need to distinguish themselves, or build systems to fit their unique cultures, because the Feds will take over for us.

The increasing power of the federal government in all respects of our lives should be alarming to you. If you recall there have been attempts to expand the powers of the federal government in insurance regulation, there have been attempts to create a federal net for workers' compensation, and perhaps the most invasive federal involvement to present is the aggressiveness of the Centers for Medicare and Medicaid Services to go after Medicare funding from awards.

And don't forget that we now have federally mandated health insurance...

Is the federal government going to interfere with workers' compensation trends because they might fit the "profile" - going from west to east from California? It's been proposed before and if we don't keep a check on federal power then we may one day wake up to a rude, new, reality.

postscript: see this article on targeting general aviation and the growing police state by The Atlantic writer James Fallows: http://www.theatlantic.com/national/archive/2013/05/annals-of-the-security-state-even-more-airplane-stories/276239/.

Why I Don't Believe in Presumptions

A recent Oregon case provides an interesting perspective on statutory presumptions, and is demonstrative of why I generally don't believe in these statutory creatures.

Alan Hull worked as a fire district chief for the Estacada Rural Fire District.

In June 2007, the Clackamas County Sheriff's Office informed him that it suspected one of his long-term employees had embezzled $1.9 million from the fire district during the course of several years. The sheriff's office asked him to go undercover and gather evidence against the employee.

Hull agreed to do so, and the employee was later arrested.

The embezzlement, however, became the subject of public concern and anger. Some members of the public demanded that Hull be removed from office.

He suffered a heart attack in October 2007, shortly after asking his wife if she had overheard a comment by a nearby individual about the embezzlement.

Hull filed a claim for benefits, contending his heart attack was the result of stress from his undercover work and the community anger directed at him.

An administrative law judge ruled that Hull was not entitled to benefit from the statutory "firefighter's presumption," which provides a rebuttable presumption that a firefighter's cardiovascular condition is a compensable occupational disease.

The judge reasoned that since Hull's heart attack was caused by his stress, his claim was for a "mental disorder" and not a cardiovascular condition. The judge then proceeded to apply the heightened standard of proof for the compensability of mental disorder claims and denied Hull's request for benefits.

After the Workers' Compensation Board reversed the Court of Appeals Court of Appeals said it read Oregon's statutory scheme as providing that when a cardiovascular disease is caused by a stress-related mental disorder, the firefighters' presumption does not apply.

Since it was undisputed that Hull's heart attack was caused by his work-related stress, his heart attack had to be treated as a mental disorder, the court said.

In my mind, and I'm no doctor obviously, stress from fighting fires and saving lives, dealing with death, doom and destruction on a regular basis is no different than stress from engaging in a job activity that is generally outside the scope of defined duties but nevertheless results in considerable damage to the heart.

I'm no expert on Oregon work comp law, but Hull's claim wasn't for psychiatric or psychological injury - it was specifically for a heart attack and the Workers' Compensation Board's decision was the correct application of the law.

The applicable statutory presumption, ORS 656.802(4) reads:

"Death, disability or impairment of health of firefighters of any political division who have completed five or more years of employment as firefighters, caused by any disease of the lungs or respiratory tract, hypertension or cardiovascular-renal disease, and resulting from their employment as firefighters is an occupational disease. Any condition or impairment of health arising under this subsection shall be presumed to result from a firefighters employment. However, any such firefighter must have taken a physical examination upon becoming a firefighter, or subsequently thereto, which failed to reveal any evidence of such condition or impairment of health which preexisted employment. Denial of a claim for any condition or impairment of health arising under this subsection must be on the basis of clear and convincing medical evidence that the cause of the condition or impairment is unrelated to the firefighters employment."

In comparison, the Court of Appeals found that Hull's myocardial infarction was a physical event that was the product of a mental disorder under 656.802(1)(b), and thus applied 656.802(3) dealing with "mental disorders":

Notwithstanding any other provision of this chapter, a mental disorder is not compensable under this chapter unless the worker establishes all of the following:

"(a)The employment conditions producing the mental disorder exist in a real and objective sense.

"(b)The employment conditions producing the mental disorder are conditions other than conditions generally inherent in every working situation or reasonable disciplinary, corrective or job performance evaluation actions by the employer, or cessation of employment or employment decisions attendant upon ordinary business or financial cycles.

"(c)There is a diagnosis of a mental or emotional disorder which is generally recognized in the medical or psychological community.

"(d)There is clear and convincing evidence that the mental disorder arose out of and in the course of employment."

The Court said that the mental disorder provision was an exception to the firefighter's presumption and said that the legislative history supported this interpretation.

Because there was no dispute factually that Hull's heart attack was either induced or aggravated by mental stress, the Court said the injury must be analyzed under the mental stress statute.

My suspicion is that had Hull and his attorney anticipated that stress would trump the heart attack presumption that the case would have been worked up differently and that there would not be case law on the issue.

This is one of the reasons why presumptions lead to increased litigation, perhaps unfair denial of benefits, and are just plain troublesome.

Had Hull known that his case would be analyzed as a mental case rather than a physical case he would have presented sufficient evidence that such was the case. Rather, Hull relied up on a presumption that turned out to be inapplicable.

But it makes no sense because it is undisputed that Hull's heart attack was cause by work issues!

Perhaps technically the Court of Appeals is correct, but in the application of this case the analysis is backwards. One way or another it is undisputed that Hull's heart attack was industrially caused but for an incorrect application of the evidence.

The case was remanded, presumably for further work up. In the meantime a firefighter who went above and beyond call of duty suffers not only indignity, but a real injury, real disability, and further delay. 

And the employer may get to pass the buck onto other social systems for its ultimate responsibility.

AL Needs Comp Modernization

An Alabama appellate court was pitched the troubling conundrum of who pays for an industrial injury pending a resolution of liability between two different employers - and whiffed.

Apparently there is no law in Alabama directing what would seem to be a relatively common problem.

In the meantime the injured worker ends up facing the same sort of delays one would have faced without workers' compensation in place.

In Office Max Inc. v. Academy, No. 2110861 and Office Max v. Richey, No. 2110862, 05/17/2013, Sandra Richey filed a civil suit against her employer, Office Max, alleging that she had suffered injuries to her knees in 2002 and to her shoulders in 2005, during the course of her employment.

On three occasions – in June 2008, March 2010 and July 2010 – Richey requested the issuance of orders directing Office Max to provide her with medical care from the treating physician it had authorized.

Trial judges granted each of her requests.

In arguments presented to the trial court at a hearing on Richey's second request, Office Max pointed out that Richey had left and taken a job with Academy Ltd. Office Max contended that this subsequent employment had caused or contributed to Richey's knee and shoulder problems and so Academy should be held liable for her benefits.

Office Max then filed a motion, which was granted, to implead Academy as a party (implead is simply adding another party to a civil case to adjudicate liability).

Academy moved for summary judgment in its favor on Office Max's claim that it should be liable for Richey's benefits, stating that any injuries Richey might have sustained in the scope of her employment with Academy were merely recurrences of injuries she had originally sustained in the course of her work for Office Max.

A trial judge granted Academy's motion and granted Richey's FOURTH (emphasis added) motion to compel Office Max to pay for additional medical care.

Office Max appealed both decisions and the appeals were consolidated by the Court of Civil Appeals.

The court found that summary judgment in favor of Academy was improper because even Ritchey's treating physician said that her employment with Academy may have contributed in some part to her condition.

Presiding Judge William Thompson in a concurring opinion agreed that the summary judgment had to be reversed, but he wanted to highlight the problem Richey was having in obtaining medical care.

"There needs to be a rule of law, preferably a statutory one, that enables an employee situated like the one in this case, where the injuries are compensable and there is a question only as to which employer is liable for the benefits, to obtain necessary medical treatment as expeditiously as possible while the two employers litigate who is ultimately responsible for payment of the medical benefits," he opined. "I encourage our legislature to amend the Workers' Compensation Act...and to grant a trial court, in cases involving disputes where two or more employers are potentially liable for benefits for one or more compensable injuries, the authority to order each employer to pay a proportionate share of the employee's medical expenses pending a final determination of liability or, especially in cases involving application of the 'last-injurious-exposure rule,' to order the employee's former employer to pay the medical expenses pending a final determination of liability."

Reform is in the air and a number of states have passed substantial changes to their systems this past legislative season.

Alabama's lawmakers can easily deal with this issue by allowing the injured worker to make an election and then let the employer/defendants battle out the liability apart from the injured worker's claim.

Workers' compensation is supposed to be about providing medical treatment and indemnity to injured workers efficiently, expeditiously and without question of negligence or liability. Failure to direct who pays for what in the pendancy of a dispute between employers obstructs this mandate.

The Timing of Pain & IMR

Ezekiel J. Emanuel, an oncologist and former White House adviser, is a vice provost and professor at the University of Pennsylvania. He is a contributing opinion writer for The New York Times on a range of topics including health and health policy.

Earlier this month Emanuel opined that some interesting research on pain revealed that it's not the pain itself that is definitive of the perception of the quantity of pain experienced, but the timing of the pain.

More precisely, "the pain at the end — whether it is getting better or worse — plays a disproportionately large role in determining how we remember an experience."

I think this general statement on the perception of pain is also applicable to workers' compensation and the myriad of processes that have been devised over the years as systems go under constant "reform."

The past couple of days I briefed over the complex nature of workers' compensation and just how much coordination of disparate interests is necessary in order for the system to work.

But we always seem to go back to ground zero - that is the feeling and criticism that workers' compensation doesn't work very well for either the employer or the employee.

Is that always the case? Or is it just that the most recent pain is the pain we remember most?

There has been a lot of pain recently in workers' compensation. Pain that can not be numbed with opioids or narcotics. We've seen struggles with repackaged drugs and over-prescription. There have been issues with vendors seeking reimbursement, claimants being denied care and dying, employers facing tighter insurance markets, physicians facing pay cuts, carriers with poor investment opportunities - all sorts of pain in the work comp system.

Emanuel uses remodeling a house as a metaphor for understanding the pain perception studies reflecting accurately that remodeling, regardless of how well it goes during the process, never ENDS well because there are always some irritating, niggling problems that cast a shadow on the overall experience.

This is workers' compensation - the experience of going through the system is painful because there is always something at the end that imparts some discomfort to those involved.

A wave of states have passed reformation laws this past year - some, like California, were massive undertakings involving untested but optimistic programs.

One of the programs instituted in California is the Independent Medical Review (IMR) system - a program borrowed from Texas but with some interesting twists.

WorkCompCentral reviewed the published reports of the new IMR process, albeit an immature process with only 34 results published to date. 

While there might be some alarm that nearly three out of four treatment requests that were denied by utilization review were also deemed medically unnecessary, what this means to me is that nearly one out of four treatment requests denied by UR were in fact deemed proper at the IMR level.

Reasons cited by reviewers in upholding treatment denials included a lack of documentation to justify a request, requests for treatments not supported by the Medical Treatment Utilization Schedule (MTUS) or any other peer-reviewed evidence-based treatment guideline or requests for treatments that guidelines say should be pursued only after attempting other therapies.

What is encouraging in these denials is that the IMR process is giving clear guidance to the medical community dealing with workers' compensation injuries that there needs to be some documented justification for the request. Speculation, tradition, or the "I'm the doctor" reason, no longer are sufficient.

Obviously one quarter of the requests were properly documented, were properly requested, and UR was found to be wrong.

And the parties didn't have to wait for a year to find out that UR was wrong - this is a huge boon to injured workers seeking treatment and should dramatically increase efficiencies.

Would IMR have helped Charles Romano get the treatment he needed instead of the delays and denials experienced that resulted in his death? Perhaps not, based on the facts in Romano and the apparent disregard for authority demonstrated by the Sedgwick claim examiner in the case.

But perhaps IMR would have helped avoid this disastrous case. We'll unfortunately never know.

IMR in California is contracted out to Maximus Federal Services, which has been providing similar services to the California Department of Health for some time (in addition to many other state and federal programs).

General health is different from workers' compensation - the laws are different, the variety of treatment is different, the operating environment is different, the exposure by the payer is different, and the market is huge (work comp is only 2% of the overall health market).

Nevertheless, comparison to Maximus' work in the general health field is compulsively inviting.

Data on the Department of Managed Health Care’s website shows that between 2007 and 2011, Maximus approved a group health plan’s decision to deny treatment in 44.2% of the 8,529 cases it reviewed. In 36.6% of cases, Maximus overturned the decision to deny a procedure or treatment, and in 19.2% of cases the group health plan agreed to approve the procedure before the IMR process was completed.

The sample of cases above is much, much larger than the 34 cases published in work comp IMRs so one can't draw any definitive conclusions in such a comparison at this time.

But it is important in my mind that Maximus, in the general health setting, overturned a carrier's denial in 1/3 of referred cases, and nearly 1/5 were approved before a Maximus opinion was rendered.

Maybe I'm just a glass-half-full kind of guy, but I find these statistics encouraging because they demonstrate neutrality and independence.

Or, perhaps what the statistics are saying is that there has been significant adjustment in the prescribing practices of physicians.

Because general health is far larger than workers' compensation and the fact that only 8,529 cases were reviewed over a period of 4 years indicates that the vast majority treatment requests don't generate controversy or dispute - if this translates to workers' compensation then the system will become much more efficient.

Our perception of pain is based on the timing of the experience - will IMR reduce our pain? Obviously it's too early to say yes or no in any definitive manner, but the early results are encouraging.

Workers' Compensation Finance 101

I wrote yesterday about the "front end" of workers' compensation - bringing money in - and the "back end" of the system - paying money out.

Some challenged me that I had things backwards; that claims should be the front end because that is the ultimate focus of work comp.

Front end or back end - I don't really care which order you place the two. The point that I was making is that there are two distinct processes involved in the worker's compensation game that are extraordinarily complex and require a good degree of coordination, forecasting and soothsaying in order to operate reasonably efficiently.

Another point that I was making is that workers' compensation is a cash flow system.

By this I mean that money comes into the system through employer assessments; and money flows out of the system by benefit distribution.

Along the way all of us (i.e. those whose jobs are to perform some element of administration) take a little money out for our services and products.

Hopefully when all of the math is done, everyone along the path of the cash has received fair pay for their work and the net result is efficient use of a limited resource in a net sum zero game where no one takes an unfair advantage of the cash flow.

The reason workers' compensation administration is inexorably focused on costs is because it is an expense item on the balance sheet of the employer and each step of the way, from policy procurement and inception to benefit delivery, involves paying someone or for something to make the event happen and the system work.

Workers' compensation is never on the asset or income side of the balance sheet regardless of the value provided to either employer or employees. Much like an employer sponsored health or retirement plan, despite the obvious competitive advantage to the employer in attracting qualified employees, coverage is a cost. Except work comp is a mandatory cost.

The costs start at the very beginning of an employer's participation with obtaining insurance.

Employer seeks broker or agent for insurance needs, and of course one of those needs is the mandated coverage for employment related injury or illness claims. Brokers and agents don't work for free, so there is a fee attached to their service. Sometimes it is a commission, sometimes it is a flat procurement fee, sometimes it is a blend of the two - but regardless, a few cents out of every policy dollar is extracted immediately.

Cash then flows to the insurance company (or if the employer is self insured to the administration company or administrating department). The job at this juncture is to aggregate the employer's policy cash with cash from other sources (i.e. employers or is self-insured, departments) so that there is some investment leverage.

At this stage there are administration expenses - wages of insurance workers to handle paperwork, calculate risks, determine investment market status, gather statistics, provide telephone service, etc. A few more cents get extracted from the dollar to pay for these necessary elements, and a couple more cents are set aside to put into the investment kitty.

The investment portion of the workers' compensation cash flow is not without cost - there are brokerage fees, document administration fees, asset management fees, salaries, commissions and bonuses along the way.

Then a claim comes along. When this happens more than a few pennies are set aside. This is called reserves. The reserve pool consists of money that is to cover the various costs of administering the claim and to support the payment of benefits.

As the claim makes its way through the system little bits of that reserve pool are released back into the general economy in the form of indemnity and payment for medical services and products, and sometimes other ancillary services or products (such as rehabilitation).

Sometimes the flow of the claims dollar encounters some obstacles which diverts the flow - a Medicare issue or child support order. A few more pennies are shed from the dollar's migration through the system.

This is where a lot of the perceived friction in workers' compensation comes along and gets emotions a little more tested because the value does not appear to flow back to the employer or the injured worker. The dollar sheds like a dog in Spring and it sometimes is difficult to account for all of the hairs. Sometimes all we see is a big mess, and sometimes we are allergic to the material shed.

But probably (my guess) by the time the dollar gets to this stage it has already sloughed off at least half of its purchasing power, so things get a bit miserly at this stage.

Eventually the dollar makes its way out of the claims process. By this time many people have had their way with her. The dollar has been yanked through policy procurement commissions and fees, wended its way through the carrier management and administration process, diverted for investment, and filtered to pay for that claim.

If everything works right, there isn't much left over from that cash flow, and if there is then the employer gets the last penny or so in the form of a policy dividend.
And don't forget about taxes - the government has expenses in the administration of workers' compensation: insurance department salaries and costs to monitor carrier and self-insured behavior; dispute resolution system administration costs; research and public policy formulation; and of course the political costs too.

Taxes are extracted all along the cash flow, from policy surcharges to carrier fees and investment gains.

Sometimes there are elements extracting pennies during the dollar's flow through the system that are unreasonable, don't provide any return value or are simply stealing. When this happens there are other processes and services that extract a few pennies to pay for enforcement, with or without repatriation or collection.

Since no one likes to experience a pay cut, any time there is an attempt to reel in the cost of workers' compensation there is protest and/or rebellion from some interest group that is affected - but as you can see, there are many, many opportunities to save money as it goes down the work comp river of cash.

When all the math is done, if there is a deficit then the employer has to pay more for the same product than last year. And if there is a credit then presumably the employer pays less.

There are a lot of moving parts to workers' compensation, each with an attendant cost. Because it is so complex we can not, in general, deal with all of the costs of all of the parts at once so we pick and choose according to our understanding and how "soft" a particular cost element is.

So there you have it - Workers' Compensation Finance 101. This is why we need really smart people to run this thing!

It's Not Rocket Science, But Close

After the NCCI Annual Issues Symposium (AIS) I received an email from Peter Rousmaniere, a noted columnist who covers the workers' compensation industry for Risk & Insurance Magazine.

Peter was at AIS and I was fortunate enough to share a couple moments with him, though not enough. I've always considered Peter's observations on workers' compensation to be sharp and insightful - considerate of the many interrelations necessary to make the system work.

In an email to me after AIS, Peter said: "I am repeatedly struck when I come to this conference how all consuming, for professionals in it, is the work behind the sustainability of insurance enterprises, which is such a hugely complex undertaking, which branches out into brokerages, the delivery of insurance throughout the complex economy, the demand that not a single claimant be left holding the bag (almost), and the recruitment of the next generation of leaders for the task."

Peter makes a very poignant observation.

Most of the time we deal in the claims environment. For instance, most "reform" legislation and regulation deals with benefit delivery, i.e. claims.

In claims we focus on the friction between the payer (be it insurance company, self-insured/administered employer or self-insured/third party administered employer) and the recipient (injured worker or vendor).

The claims process is complex and requires coordination of many moving parts to successfully accomplish the conflicting goal of resolving expenses and rendering medical services and indemnity to the claimant.

When done right we can say that the claims process has delivered value to all constituents, particularly if the process executes timely and efficiently.

Most of us lack much understanding of the complexity of gathering, maintaining, and protecting the resources that are necessary in order to meet the delivery promise of claims.

At AIS, as Peter observed, one comes to a much better understanding of what the "front end" (policy procurement) of workers' compensation requires in order for the "back end" (claims fulfillment) to meet obligations.

To say that the hugely complex process on the front end is tenuous and frail is accurate - there are so many moving parts to the front end of the insurable obligation that it is a wonder that the workers' compensation industry is able to stay right side up.

When working the front end, consideration needs to be taken of the general economy - and not the present general economy, but forecasts of economic trends overall, and within industries, and even within sub-industries.

Complete understanding of the market risk being undertaken is absolutely necessary - sort of a micro-risk analysis - because the ability to manage anything requires detailed knowledge of the subject.

Corollary to understanding the micro-risk is understanding the investment risk. Underwriting profits (premium minus claims) is virtually unheard of in workers' compensation. The lure of workers' compensation insurance business is cash flow to place into investments that theoretically will beat inflation and return a profit.

Typically insurance cash (gross premium less reserves and less operating expenses and losses) is placed into relatively safe, albeit benign, investments - bonds.

As we know, there are all sorts of different bonds with different maturities and different rates of return. Insurance financiers have their hands full now as older bonds that were purchased years ago with good yields (when inflation was relatively high compared to today's environment) are maturing and need to be replaced - but historically low interest rates don't give bond purchasers many options for returns.

So the long term portfolio of carriers is not going to generate the same returns as in years past, which puts pressure on rates and premiums in order to keep cash flow sufficient to meet the legal obligation of paying claims.

What a conflict of resources versus market acceptance to manage.

Then there is the risk management part of the front end - reinsurance.

Reinsurance is simply insurance for insurance - protecting the really big downside to prevent complete catastrophe. The reinsurance game is insurance on a much larger scale, involving much bigger money, much bigger investments and much bigger claims.

Reinsurance is that funny sort of dichotomy where insurance companies find themselves as insureds, paying premiums and making claims. The complex financial instruments that are used to manage this relationship can sometimes back fire (see Unicover) and then there is complete disaster because of cash flow impingement on insurance companies - and particularly in insurance, cash is king.

Then there's the whole cadre on the sales end of insurance - brokers and agents.

The complexity of the broker relationship in the industry is completely under valued and misunderstood; talk about potential conflicts of interest!

The broker's obligation is to place the employer with the most satisfactory insurance product available for the employer's particular risk. Most of the time this is dictated by cost, aka premium. Some of the time, though, this is dictated by service quality and risk management techniques and systems. Some of the time there simply isn't a market for an employer's risk. And some of the time brokers need to come up with creative, sophisticated contractual relationships in order to get the best value for an employer.

But the broker is paid in commissions - so there is this tension in the relationship that is dictated by the conflict in getting the best value for the employer versus the amount of money that a commission is going to generate off a particular policy.

Going to AIS is going to a different workers' compensation world - one where the language is different, and the concepts are complex and difficult. It is an objective world.

I look at the front end as the more objective side of the workers' compensation industry. The front end is highly consumed with lots of numbers because it is the numbers that ultimately drive the financial ability of the system to work. When it all is considered we're really just talking numbers on financial statements. There's not a whole lot of fuzziness when just numbers are involved.

I see the back end of the industry, claims, as largely subjective. We have numbers to track costs and efficiencies, but ultimately we're dealing with the feelings of the end-subjects of the claims processes - the injured worker and to some extent the employer. Because of the emotions that are part of claims there's quite a bit of fuzziness involved - it is much more subjective.

That workers' compensation even works is amazing and testament to social intelligence. I spend a lot of time in this blog criticizing "the system." But every once in a while it's good to pull back and take a look at everything that needs to come together in some coordinated fashion for the system to work.

Workers' compensation is amazingly complex and sophisticated which is why it is so hard for those not in the industry to understand it. It's not rocket science, but darn close.

And most of the time the system does work.

Boulders and Making A Life Better

Bolders bring out the best in us, and boulders consequently bring out the best in life - our relationships with others.

That was the message that Aron Ralston delivered to an enraptured audience at NCCI's Annual Issues Symposium (AIS) yesterday.

Coincidentally I had read his book - Between a Rock and a Hard Place - several years ago on a transcontinental flight traveling to and from Florida for a conference (might have even been an NCCI conference).

Ralston is the outdoorsman who was hiking the Utah badlands when a rock slipped as he was climbing down into a crevasse and pinned his hand so he couldn't move - and after 6 days he cut his hand off to escape.

Wow - what a tremendously powerful speaker and story. It was one of the most awe-inspiring speeches I had ever heard: lively, engaging, dramatic, comical, with a powerful, powerful message that he dramatizes in the most extraordinary manner. 

I started a standing ovation for him when he was done, I was so moved by his speech.

The boulder that had his hand pinned became his metaphor for obstacles in life.

His primary message - boulders, when confronted and dealt with directly, bring out the best of us and as a consequence, of life. 

Everyone encounters boulders in life. Some are small, some are large. Some are personal, some are institutional. 

The challenge in life is not to avoid boulders, because that is impossible, but to confront boulders directly and to deal with them. Only in taking on the boulders can we grow and appreciate what life truly is about, and thus appreciate and deal with our own limitations.

Survivalists are taught an acronym - S.T.O.P.: Stop (i.e. slow down, don't panic, so that you can...), Think (get a clear head, you have to be able to examine the...), Options (there are always options and some are better than others, but until you stop and think you can't see the options, and once you have identified the options you....), Plan (set up the plans to extricate one's self from the boulder that has you pinned).

The message - don't panic. Take the available time necessary to examine the situation so you can craft the best possible solution.

Sometimes that solution isn't very palatable, but it may be the only solution and so we need to plan the execution of that solution carefully and understand the consequences of our action.

In Ralston's case, his only solution was to cut off his arm. He faced smaller boulders though - his knife wasn't sharp so he had to stab with it. But then he encountered bone ... forgot about that detail ... so he had to use his body weight to leverage against the boulder to break the bones to finish cutting.

He improvised a tourniquet, and had the good fortune to time his exit just as a family of hikers was in the area and could summon help.

In the face of extreme adversity, Ralston came up with solutions that ultimately, with a little luck, saved his life.

Indeed, changed his life.

Ralston unwittingly made a direct correlation to the workers' compensation industry in his personal observation about our Purpose in Life: it is simply to enrich the lives of others to make their lives better.

So simple.

And when we get down to the very basics of workers' compensation, that is the fundamental purpose of our jobs - to enrich the lives of others to make their lives better.

This is the Zen of workers' compensation.

At the NCCI AIS there was plenty of actuarial talk, lots of numbers, statistics, data, big picture overview stuff that insurance wonks love to describe with big, confusing, multi-syllabic terms.

But what all of these numbers and statistics actually mean are the real world is the business side of making the lives of those who get into bad situations better.

Of course Ralston didn't know that his interpretation of the purpose in life was such a powerful metaphor for the workers' compensation industry. Ralston was talking about relationships and how, when he was recording what he thought would be his last words, his focus was on saying good bye to family and friends - the things that really matter in life and for which there is little appreciation until one faces death while still living.

I always learn a lot at the NCCI AIS every year. This year I learned much more than I usually do.

Today, forget about the costs, the utilization review or treatment guidelines. Forget about rates, premiums, fraud, opioids, liens.

Instead, make someone's life better. That is your job.

Who's To Blame?

I've written about Derek Boogaard, chronic traumatic encephalopathy (CTE) and Toradol several times in the past in this blog. Boogaard is the National Hockey League player who died at age 28 in 2011 from a prescription drug overdose and the autopsy showed that he had CTE, which is a a degenerative brain disease seen in people with a history of multiple concussions.

The estate of Derek Boogaard on May 10 filed a wrongful death lawsuit against the NHL in the Circuit Court of Cook County, Ill. In addition to alleging that the league failed to warn Boogaard about the risks of concussions and the drug Toradol, the complaint also says the league failed to monitor the prescribing practices of team doctors in the dispensation of prescription pain killers.

This is a new twist to the professional athlete lawsuit trend and in particular those brought by National Football League players against the league seeking compensation for CTE and the mis/over-use of Toradol.

Boogard's estate alleges, essentially, medical malpractice at the direction of the NHL and the teams Boogaard played on.

Some of the allegations:

1. After fracturing his tooth during a fight in October 2008, Boogaard received 19 Vicodin prescriptions from nine different physicians, dentists, trainers or staff with the Minnesota Wild. According to the complaint, he received a total of 432 pills for the fractured tooth.

2. On April 14, 2009, Boogaard underwent nasal surgery and was prescribed 40 pills of oxycodone. On April 21, 2009, he had shoulder surgery and was prescribed an unknown number of oxycodone pills.

3. During the 2008-2009 season, Minnesota Wild team doctors wrote Boogaard more than 40 prescriptions for more than 1,000 narcotic painkillers, the complaint says.

4. Boogaard sought treatment for an opioid addiction in September 2009 at an inpatient facility in California and enrolled in the league’s mandatory substance abuse and behavioral health program and aftercare program. He was told to refrain from taking opioids in the future, and that he could be suspended or kicked out of the league if he relapsed.

5. In the summer of 2010, after he signed a contract with the New York Rangers, Boogaard started asking team trainers for Ambien and Vicodin. According to the complaint, while Boogaard was supposed to refrain from taking painkillers and Ambien under the league's substance abuse policy, New York Rangers doctors wrote him five prescriptions for hydrocodone and 12 prescriptions for Ambien or a generic equivalent.

6. Boogaard relapsed in 2011 and was placed in an inpatient facility in California after he showed up for practice so impaired that he could not stand up. While he was in treatment for the second time, Boogaard made plans to attend his sister's graduation from college.

While his doctor advised him not to attend and the league was aware of this, it did not provide Boogaard a chaperone or explain to him the risks of leaving the treatment facility in California, according to the complaint. Boogaard was released from the facility on May 12 and was found dead the next day. The cause of death was an accidental drug overdose.

Besides the jurisdictional challenges that the Boogaard case faces, the allegations of intentional delivery of narcotics not only plays off the current national consternation over opioid abuse and physician prescription, but I think gets to the very, very deep core of the entire opioid debate - and that is responsibility.

Obviously workers' compensation is supposed to be a "no fault" system - under the ideal operating environment, a worker who is injured gets medical treatment and some money regardless of who was ultimately responsible for the claim.

Tort litigation is all about blame, and pinning responsibility on someone other than the claimant.

One of the arguments we hear from those who have an addiction problem, particularly in litigation of course, is that the addict is not responsible for his or her fate - it was the physician, or the insurance company, or the employer, or the drug company, or the pharmacy, or the government who created this monster of a problem.

But it is never the addict's fault.

One of the first tenets in addiction therapy is the removal of blame in the addict's lexicon. Only when the addict does so and takes responsibility for his or her own self can there be any recovery. Until then, any type of therapy is useless.

Time after time, interview after interview, I have heard former addicts who have successfully beat their addictions repeat over and over again that there was no one to blame other than themselves for getting into trouble.

It is the ownership of the problem that is the core to a) recovery and b) successful long term sobriety.

The issue of who is to blame for opioid addiction and exploitation is a complex problem for sure and one that will torture the social, legal and medical systems for some time to come. It is not an issue that can be swept under the rug.

Certainly Boogaard, and those similarly situated, must share in the responsibility of getting into that situation in the first place. And just as certainly those who aided and abetted also share the blame.

One of the trend workshops at the NCCI Annual Issues Symposium that I am attending here in Orlando, FL deals, of course, with prescription drugs and NCCI's statistical research on the issue. I don't think anything surprising will be unveiled or that there will be any breakthrough information provided - we will get plenty of statistics and facts that will be scary for sure.

Regardless, I don't expect the statistics and research that will be presented today by NCCI Chief Economist Harry Shuford and Senior Actuary and Practice Leader Barry Lipton to provide any comfort or insight and certainly no direction on responsibility or correction.

Off To Florida For A Pulse Check

I'm on my way to the National Council on Compensation Insurance's (NCCI) Annual Issues Symposium (AIS) in Orlando, FL.

The AIS is particularly interesting because it provides a national perspective on the health of the industry away from the outsized influence that California's mammoth system imparts. Because NCCI is the rate maker for the vast majority of this country's state systems, it has a broad collection of data to interpret and compare.

Just a few weeks ago NCCI issued its annual report. In summary, NCCI sees claims frequency and severity (i.e. the number of claims filed and the total cost of such claims) as moderating while the overall underwriting market is starting to harden. In general this is good news for insurance companies writing this line of business - less money going out, more money coming in...

In addition, noted insurance economist Robert Hartwig, PhD says in the report (and I'm sure will present at AIS) that while the economic recovery isn't robust, there is still a recovery and this means increased payrolls, ergo increased premiums, for carriers.

The payroll increases are not necessarily going to be the product of an increase in the number of people actually employed though. Hartwig is optimistic on employment figures but I didn't see him mention the large number of people that are no longer reflected in the government's unemployment statistics - the "lost unemployed" or those people who have been unemployed for so long that they will never return to the employment roles.

Indeed, recent anecdotal evidence published in business tomes reflect that, for example, while domestic manufacturing is on the increase in the United States, much of this production is due to technology gains and investments in robotics.

Even Hartwig notes that the Great Recession decimated the construction industry (which has a outsized influence on some states such as California, Florida and Nevada), which shed 2.3 million jobs - or one-third of the construction industry employment rolls - as a consequence of the recession. Though the construction industry is picking up steam, and is expected to continue to grow (albeit tepidly) for the next few years, there's a lot of jobs still on the side lines.

And Hartwig notes that the recovery is not treating all states the same. Nevada, California, Florida and a couple of other states are still in or very near double digit unemployment percentages, while North Dakota has almost no unemployment.

The bigger the state, and the more reliance to real estate for economic activity, the slower the recovery.

So basically, while the economy is recovering, it is still slow and not across the board in either job sectors or state lines.

But overall, the expectation if you're an insurance company is that the workers' compensation market is heading towards black ink, which is delightful news to underwriters and brokers.

That sentiment was apparently echoed at the 12th Annual JMP Securities Research Conference in San Francisco where the chief financial officers of Amerisafe and AmTrust both expressed that it was their belief that the trend is pointing to a hardening market.

Albeit, both of these companies do not represent the average workers' compensation insurance company - both are in niche markets.

Still, this means to me that employers in all of the states that have passed reform laws this past couple of years may not see all of the savings that were predicted.

Data from the Council of Insurance Agents and Brokers shows that in the first quarter of 2013 more than 80% of workers' comp policies had rate increases. In comparison, during the third quarter of 2010, more than 80% of work comp policies had no change or rate decreases

While the insurance market hardens, the big challenge for carriers is still getting a return on cash flow sufficient to keep investors satisfied.

Investment returns have been, and are staying, comparatively low, so the industry's underwriting profits will show a pretax loss of 1% for 2012 according to NCCI's report.

The common thinking is that in order to maintain a consistent return on equity, a 1% decline in the investment yield means companies need to improve their combined ratio by 5.7%. That's nearly impossible in the short term unless some law drastically slashes benefits (either medical or indemnity or both) - for example when SB 899 in California was passed, carrier combined ratios plummeted.

But these ratios increased rather quickly in California as SB 899 worked its way through the courts and the various parts of the workers' compensation machine refined their systems and operations to take advantage of new areas of vagaries and opportunities.

I interpret all of this to mean that employers in general will be seeing bigger premium bills, regardless of competition and reform, on a consistent basis for the next few years as the industry cycle continues to revolve.

One of the elements that keeps me interested in workers' compensation is this omnipresent tension between carriers, employers and workers. It's interesting to me going to different events and seeing how insurance executives, or business owners and risk managers, or injured worker's attorneys, or physicians all react to the same news in different ways.

Because if carriers can't make a reasonable profit on the workers' compensation line of insurance then they will get out of the market.

If premiums paid by employers get too high, then employers change their business models, get out of business or move somewhere else that is cheaper or isn't regulated (Bangladesh anyone?).

And if workers aren't protected and don't get the benefit of the "great bargain" then there are lawsuits, protests or other social unrest that will challenge society, or at least legislators.

This tension is what drives the continual cycle of reform, adjust, inflate, complain, and reform.

So off to Florida I go to take the pulse of the nation's workers' compensation insurance market and to see just where we are in the overall cycle of the industry - at least from the insurance company perspective.

Chasing the Herring

Senate Bill 36 passed out of the California Senate Appropriations Committee on Monday.

The proposed law would require the California Department of Insurance (CDI) to publish on its website various financial information about workers' compensation carriers.

The bill was introduced by Assemblyman Ben Hueso, D-San Diego, who said in Senate testimony Monday that based on a recommendation Rand Corp. made in a 2009 report titled, “California’s Volatile Workers’ Compensation Insurance Market: Problems and Recommendations for Change.”

Rand at that time was responding to a request by the Commission on Health and Safety and Workers’ Compensation (CHSWC) pursuant to legislative request to determine the cause of carrier failures leading up to the meteoric rate increases in the early 2000s.

One recommendation was to post annual and quarterly financial statements on the Insurance Department website so more people can view the reports.

The problem as identified by Hueso and supporters is that carrier information, while publicly available, is not easily accessible or identifiable.

Carriers were against it because the bill is over-broad and discriminates against workers' compensation when the same sort of requirements aren't made on other lines of insurance.

Apparently those objections were quieted when Hueso amended the bill when it came out of the Senate Insurance Committee.

The bill would add section 901 to the Insurance Code, and as amended would read:

The department shall include on its Internet Web site a dedicated Internet Web page that includes workers' compensation data, statistics, and reports covering both insurers and self-insurers, including, but not limited to, claims loss data, expenses, and financial reports. The department shall only use data already collected by both the department and the Department of Industrial Relations. Nothing in this section shall be construed to authorize the release of information protected by other applicable law.

To implement the bill it will cost taxpayers somewhere between $65,000 to $128,000 in one time expenses and ongoing annual expenses of $24,000 to $40,000 - all depending on how the data is obtained and maintained.

That's not a whole lot of money in the grand scheme of things.

But that doesn't make the bill any more appealing.

When we really get down to it, this is much to do about nothing.

Having this financial data published so that it is more easily accessible isn't going to create any better oversight of the insurance industry because, bottom line, the public doesn't care and doesn't know how to read insurance financial statements.

There might be a few brokers and consultants that would benefit from easier access to this information, but there's not guarantee of that, and there's no guarantee that this information is going to create any better oversight or enforcement activity.

In addition, the CDI's job is to review company financials on a regular basis and call into question irregularities of other elements that set off alarms on a carrier's or self insured's health.

CDI had that power in the late 1990s and early 2000s, but that didn't provoke the agency into amelioratory action until it was too late and carrier carnage had been passed off on to policy holders, even while there were calls to action by industry experts as reinsurance treaties were passed up the food chain with ever lower strike points upon which primary carriers relied in underpricing their product.

Financial statements would not provide the insight into such activity, and in fact might even hide such activity because the cash position of carriers would actually look healthier than in practice and anticipated liabilities would be offset by reinsurance assets.

When the primary carriers that bought into this reinsurance scheme (see "Unicover Partners") they didn't think that reinsurers would deny their claims - it was the denial of reinsurance claims and attendant delay inherent in litigation of billions of dollars of liability that put these carriers out of business because cash flow was shut off.

Carrier information would have done nothing to prevent that crisis.

The effort to get SB 36 into law would be better put to use beefing up claims enforcement and oversight via either the Division of Workers' Compensation's Audit Unit or reinstating stronger penalties for private action against recalcitrant claims payers either ignoring their duties or willfully failing to adhere to the law.

We don't need information. We need enforcement action.

OK Opt Outs - Hold Your Horses!

While there is quite a bit of attention being paid to Oklahoma and the opportunities that its new opt-out program may bring to employers with the resources to participate, a recent case out of Texas is a reminder that if you are going to have an alternative work injury protection plan in place you had better have all of the details accounted for, otherwise that plan is for naught.

PM Leasing hired Rita Murdock to work as a nursing assistant at Park Place Care Center in Georgetown, Texas, on April 21, 2003. She signed a binding arbitration agreement as a condition of her employment with PM Leasing.

Murdock later became an employee of Trisun Healthcare, which provided professional and licensed staff to the nursing home.

In August 2005, Trisun called its employees into a meeting and informed them that it had elected not to purchase workers' compensation insurance but was instead implementing the Trisun Healthcare Associate Injury Protection Plan. Murdock signed an acknowledgment that she had attended the meeting and received copies of the plan and an arbitration agreement.

The acknowledgment form that Murdock signed notes that she accepted the plan's arbitration agreement, but the documents that Murdock received are not included in the court record and the acknowledgment form does not summarize or provide the terms of the plan's arbitration agreement.

Of course Murdock gets injured, seeks benefits and files suit for negligence. And of course Trisun files a motion to compel mandatory arbitration.

Trisun lost.

The court said that under the Federal Arbitration Act, in order to compel arbitration, a party must establish that there is a valid arbitration agreement and that the claim in question falls within the scope of that agreement.

It all comes down to the evidence:

Trisun did not attach the plan's arbitration agreement to its motion to compel. The acknowledgment form that Murdock signed does not prove her consent, according to the opinion, because the arbitration agreement it references is not in the record and that form also does not make any mention of the prior PM Leasing arbitration agreement.

The court noted that prior case law has established that Texas employees can consent to an arbitration agreement if they continue working for an employer after being informed of its contents, but such notice must be proved through evidence. Trisun had not requested an evidentiary hearing and submitted no documents that even summarized the arbitration agreement that Murdock had purportedly consented to.

"The absence of these material terms raises issues about the existence of a mandatory arbitration policy effective at the time of Murdock's injury covering the claims at issue," the court said. "Trisun's summary proof does not include any evidence that resolves those issues, such as evidence of communications occurring at the Plan announcement meeting notifying Murdock of the material terms of the Plan or other proof of the contents of the referenced summary plan description book, highlights brochure, or arbitration agreement."

A non-subscribing, opt-out employer needs to keep accurate, timely records and be prepared to produce those records when litigation arrives challenging the alternative work injury plan.

The case is Murdock v. Trisun Healthcare Inc., No. 03-10-00711-CV, 05/09/2013.

Of Regulation, Social Responsibility and Opt-Out

Once I survived being a teenager and began making my way through college, my political and social sentiments went decidedly conservative. As far as I was concerned, if I was able to work my way up through the evolutionary vagaries of adolescence to adulthood, get an education while working 30+ hours a week, and actually get into law school, then anybody else could too.

And if they didn't that was their own problem - not mine.

This was during the Reagan era - the man who shut down federal funding for mental in-patient facilities, fired all of the air traffic controllers, took on Leonid Brezhnev and the Berlin Wall, and survived an assassination attempt.

I was full blown Republican (or at least as Republican as a Southern California surfer could be). Less government. Free enterprise. Reduced regulation. Trickle-down economics.

Then those professors at law school warped my sensibilities. And this was at Pepperdine University School of Law - known to be a conservative institution (imagine if I had gone to Boalt Hall at Berkeley)!

I began to see the other side of the story and understand that the reason we have laws and regulations is because there is a minority of the population that can't behave themselves, or don't fit well into society, and they need guidance.

Or sometimes they just need to be outright controlled.

Because this minority of population can make life miserable for the rest of us.

Recent events, some having to do with work comp, some not, have really brought this home to me.

The Rana Plaza garment factory building collapse in Dhakah, Bangladesh, where the death toll is now reported to be over 900 people, is a current example (and just yesterday there was yet another garment factory fire in Bangladesh where at least 8 have perished).

The average wage of a garment worker in Bangladesh is 3000 taka a month. To put this into perspective, this equates to about twenty-one CENTS per hour if extrapolated to a 40 hour work week.

U.S. garment wages range from $8.25 (573.38 taka) to $14.00 (973 taka) per hour, based on production. And this does not include healthcare, vacation, holidays and other benefits.

So basically a garment worker in Bangladesh works an entire month to make the same as an American working about 4 hours. I know prices are lower in Bangladesh, but we're still talking extreme poverty and, when you consider that the garment worker's bosses "ordered" them to work despite concerns with building safety, it is in my mind essentially slavery.

Yet Bangladesh is the third largest exporter in the world of garments to the U.S., following only China and Vietnam, shipping $3.41 billion worth of garments to the U.S. in 2009. You can bet that only a handful of people in Bangladesh benefit from those export numbers.

According to the LA Times, "The Bangladesh garment industry, a national golden goose, is politically well-connected. Clothing accounts for a whopping 80% of the country’s $24 billion in annual exports and employs 4 million people, with dozens of lawmakers closely linked to factory owners."

Not to mention there's no workers' compensation to take care of the families devastated by the loss of income from a now dead garment worker.

Closer to home, the West Fertilizer Co. explosion in Texas further serves to remind us that sometimes there's a reason for regulation, and enforcement.

"It's rare for Texas to require insurance for any kind of hazardous activity," Tyler lawyer Randy C. Roberts told The Huffington Post. "We have very little oversight of hazardous activities and even less regulation."

Roberts expects West Fertilizer Co. owner, Adair Grain Inc and its owner, Donald Adair, to ask the court, in response to the various lawsuits coming its way, to divide the paltry $1 million in insurance and then seek bankruptcy protection against all other claims.

Adair's public statement says nothing about making people whole, but proudly announces that his church is offering grief counseling.

Grief counseling through his church - that's all he can offer? I can only assume that Adair's safety and risk management consisted solely of prayer based on the abysmal safety record (so abysmal there really isn't much of a record) of the plant.

Even closer to home is the case about the death of Charles Romano at the hands of Sedgwick Claims Services.

These are just recent examples.

When SB 30 was signed into law by California Governor Pete Wilson in 1992, I was still more to the right. I believed that this free market maneuver was the best thing for the state and that the carriers that couldn't survive without an artificial rate floor didn't deserve to be in business.

Boy, was I wrong on that one - the fact is that workers' compensation is a captive market, and anytime a market is captive it is subject to gross abuse.

And that's exactly what happened as the small specialty carriers that actually did provide good, well managed, claims services were wiped out by the big multi-line carriers that price competed and systematically destroyed employer's experience modifications with sloppy, inadequate claims handling.

What does all of this have to do with this week's extended rants?

Regulation - of safety, of financial responsibility, of the treatment of fellow human beings. Most of us, likely anyone that reads this blog, have a sense of social norm and etiquette.

I know YOU are offended by Raza Plaza, by West Fertilizer, by Sedgwick. Yet we are bound by the same regulations and laws that get created when this minority of luddites make the lives of others miserable.

Because without regulation these people can't behave themselves.

At my semi-advanced age I'm understanding that laws and regulations exist for a reason - so that the majority of the population is protected from that small minority of arsholes that ruin our lives and livelihoods.

We bemoan what we deem excessive regulation but I have come to ask myself, particularly over these past few months when so much misery and social expense could have been prevented with some strong regulatory action, "would I trade our regulatory environment for death or life ruination at the hands of some non-caring, contemptible anus?"

I'd like less regulation. I'd like the freedom of being able to conduct my life as I see fit because I'm a conscientious, responsible person.

But there's a cadre of society without conscience, or lacking etiquette, or just so selfish and narcissistic that common decency escapes them and the rest of us need protection from them.

Which is why there's so much excitement about Oklahoma opt-out. This gives employers with the resources the ability to create their own regulation and customize compliance to fit with their employment culture.

Sure, saving money is a prime motivator but when you talk to employers that have good non-subscriber systems in Texas and why they are excited about Oklahoma's option, it is because they can escape the rat's maze of regulatory burden that otherwise wouldn't be applicable to them, and can devise their own systems to do what is right.

In opt-out, regulatory mandate won't drive employer compliance and safety, the insurance market will because employers won't be able to cover their risks if they don't comply with underwriting requirements.

Peter Rousmaniere, a workers’ comp consultant who published a study on opt out last year, notes that only employers that can document and commit to three important changes to their practices will be able to obtain coverage: employers must have an ERISA (Employee Retirement Income Security Act) plan that specifies benefits for occupational injuries, separate mandatory arbitration provisions, as well as an effective safety and loss-prevention program aimed at mitigating negligence liability risk.

Opting out in the Oklahoma system requires a commitment beyond regulatory compliance - a company's cultural is going to determine success for both employer and employee.

There's going to be a couple of anal fissures, to be sure. But in Oklahoma, there is no "going bare" like there is in Texas, so Adair probably won't be interested in moving operations there, and certainly no Bangladeshi garment factories will be opening in that state.

I'm hoping my conservative roots get vindicated and that the market serves Oklahoma right. But as we have seen, it takes only one to ruin it for the rest of us.

How a Claim Goes Catastrophic

Yesterday I wrote about Martha, an emotionally trying case that warranted the most expeditious claims handling that could be mustered, and was successfully jettisoned from the claims process to the betterment of her, the employer, my client and the system in general.

About 12 years after that I was doing defense work at another young law firm that was growing rapidly and aggressively. Those qualities fit my legal style too, so I fit right in to the culture for my short duration there.

Early on I was assigned a "catastrophic" case file.

Those of you in who are in claims know what a catastrophic file is - where certain qualities denote very high expenses and very high indemnity values, typically where there is a very real possibility of a 100% award.

This particular file had been around the block several times. The file itself was about 3 feet thick, literally, and the claim had, from my point of view, been mismanaged from day one.

Over the five year life of this claim, prior to my arrival, there had been no less that ten claims adjusters.

My initial review of the file astounded me as I saw a very basic soft tissue back injury claim morph beyond all reason to include nearly every part of the body imaginable, with surgery to something or the other nearly every 6 months.

The claimant himself was described as a nice man who was not fraudulently taking the system for a ride, but who experienced complications at every turn of treatment - nothing went right for this gentleman.

Obviously this raised my eyebrows - in my mind we weren't dealing with someone who actually had physical maladies, but for the malfeasance exacted upon him by non-caring physicians interested only in using this man as a billing statement.

No, we were dealing with someone who would be more appropriately be categorized with a mental health issue.

It was clear to me that we were dealing with some sort of a somatoform disorder and why no physician dealt with this head-on (pun intended) was akin, in my mind, to malpractice.

Regardless, it became my job to deal with this mess.

The claimant didn't start out all that injured or all that disabled. But after surgery upon surgery, and disability upon disability, this claimant truly was physically disabled. Now the issue became how to extract this individual from the workers' compensation system that had done him so much harm, in as expedient manner as possible.

And, I might add, at whatever short-term cost. At least in my mind. Because it was clear to me that whatever the closing price of this case was going to be, it would be a whole lot cheaper than maintaining this gentleman on the disability roles and subjecting him to more medical treatment.

Fortunately the claims adjuster that was on the file at the time I was assigned the matter had the good sense to put a nurse case manager on the file, and the nurse case manager had the good sense to coordinate all of the physicians so that they were actually cooperating towards some reasonable medical goal for this guy.

A good start.

I got that nurse case manager and the claims adjuster on the phone for a strategy talk and we came up with a game plan that incorporated the medical and the legal aspects. I then prepared for my client, in order for her to run the matter up the bureaucratic flag pole for approval, a very lengthy and detailed litigation plan, including estimated costs and a return on investment profile.

Honestly, this far down memory lane, I don't remember what that plan entailed, but I do recall that it received approval from as far up the totem pole as was necessary for such expenditures.

I had the nurse case manager behind the plan and I had the adjuster behind the plan. Ultimately I would start to get the cooperation of the applicant attorney and his client behind the plan too (though of course the plan they received did not contain sensitive attorney work product or attorney-client communication).

For the first time in the history of this claim it appeared that we had some control over the situation - the applicant was actually starting to get better! We targeted towards a permanent and stationary date and it looked like that was going to happen.

I worked that file religiously, making sure everything that needed to get done happened - whether it was medical reporting, timely payment of bills, communication with the treating physicians - I had that claim under control and I could smell file closure getting close.

Then one day I made a call to the adjuster for some authorization for something or the other. Gone. Reassigned. Never to be heard from again.

I asked for a supervisor - tough luck. Even the supervisor's supervisor couldn't (or wouldn't) help me.

The case floundered for a couple of weeks - the worst thing that could happen to a case like this in my mind. This was the type of case that required constant attention because any little excuse for this claimant to get to a doctor for more treatment would result in catastrophic consequences.

The somatic personality is not one to mess with!

Eventually a new claims adjuster made it on the file. The last thing this adjuster wanted to do was pour through a 3 foot thick file.

And, as I came to find out, apparently didn't want to even read my claim management plan.

Suffice to say, after getting this claim under control over the course of about 5 months, and seeing the light at the end of the tunnel, the entire claim blew up.

I had lost control.

It reminded me in my early bicycle racing days at the Manhattan Grand Prix - circa 1984 or so. The peloton was 130 strong, but I was at the peak of my skills, strength and endurance. I was CONTROLLING that race. Every preme sprint, every block, every move was mine. The race was in the bag.

Until with about 10 laps to go I found myself mid peloton on the inside of a right hand sweeper thinking to myself, "this is a bad position and I need to move out of ..." BAM! CRASH! OUCH! followed by lots of bodies and bicycles on the ground and on top of each other - me included.

My bike was bent. I was bloodied. And I was out of the race and of couse mad at myself because I KNEW I was in a bad position and I had let myself get there.

Bicycle racing is an odd combination of cooperation and competition. Everyone relies on the other to conserve energy and build speed, and this requires everyone to work together and also to be alert to conditions to minimize the risk of disaster. But everyone is competing against each other too.

On the bicycle on that day at the Manhattan Grand Prix from my point of view it was my error, my fault, for being in a position of disaster.

But in the world of claims administration, there was nothing I could do. I managed the case as best I could, but it required the cooperation, and coordination, of several other people and if they weren't interested in maintaining safety then there was going to be a crash - and indeed, that is what happened.

I left that firm shortly after to start WorkCompCentral but remained in communication with the attorney who took over the case. Four or five years after I left I asked that attorney what was going on with the case.

It was still ongoing, and had been through another three or four adjusters - all just as complacent and disinterested as the one that took over after I got on the case.

The billings must have been tremendous...