The Antithesis of Robin Hood

A lot of general media attention in the past year has been about how the workers' compensation industry absorbs money that could otherwise go towards medical or indemnity benefits to injured workers.

Implicated in the data and anecdotes are lawyers, doctors, brokers. Cost containment services such as utilization and bill review are targeted. Insurance companies and third party administrators have been taken to task.

Virtually any provider of goods or services in the workers' compensation world has come under attack for diverting funds from injured workers into the Industrial Injury Complex without returning any meaningful value to the system.

Except the government.

Yet, the government itself perversely profits from workers' compensation, the antithesis of Robin Hood by taking from the rich ... and keeping it.

The unfortunate story of Charles Romano acutely demonstrates the perversity of this arrangement.

Romano, if you recall, sustained an industrial injury and during the course of treatment incurred the infectious methicillin-resistant staphylococcus aureus that shut down his lungs and kidneys and paralyzed him below the shoulders.

The adjuster for third party administrator, Sedgwick Claims Services, overrode physician requests and a judge's order to provide appropriate medical care, and Romano died as a result.

The case sparked outrage. I blogged about it mid-2013, after the Workers' Compensation Appeals Board issued a scathing opinion:

“We have rarely encountered a case in which a defendant has exhibited such blithe disregard for its legal and ethical obligation to provide medical care to a critically injured worker. Sedgwick CMS, acting as claims administrator for the Kroger Co./Ralph’s Grocery Co., demonstrated a callous indifference to the catastrophic consequences of its delays, inaction and outright neglect. In light of defendant’s repeated, unreasonable delays and denials, and its willingness to ignore a 2006 finding and award issued by the Workers’ Compensation Appeals Board, we will refer this case to the Audit Unit of the Division of Workers’ Compensation.”

Indeed, the case was referred to the Audit Unit, and last week Sedgwick and the state entered into a $1.129 million settlement, along with agreeing to post-settlement review of procedures at the office where the claim was handled.

It's bad enough that an innocent injured worker succumbed to the IIC, and Sedgwick learned a very valuable, albeit painful, lesson.

But no one questions where that $1.129 million goes...

The answer is in California Labor Code section 129.5(i): "All moneys collected under this section shall be deposited in the State Treasury and credited to the Workers' Compensation Administration Revolving Fund."

What's wrong with that picture?

Everything.

Because even the State of California (and most other states because they too have similar penalty provisions for sloppy claims practices) takes money from injured workers and their families.

The state has two jobs: make the rules, and then enforce the rules.

That costs money, for sure, but those costs are paid for already by employers through insurance policy assessments and self insurance deposits. The Audit Unit is funded through those assessments and deposits.

The penalty payment in the Romano case is simply a pure windfall to the state. There is no value returned by the state with that money to the injured worker's family. Presumably, the system's benefits are sufficient...

Sure, the TPA got a bruising and embarrassing punishment. But the Romano family lost a husband, father, provider and community member. They got some relief from the death benefit and perhaps a bit more (that settlement is confidential), and while a million dollars isn't going to bring him back or make the pain of loss any easier, the fact that the state itself capitalizes from claims strikes me as irreverent, scandalous, and downright plain wrong.

The workers' compensation system is a creature of statute. What the Legislature giveth, the Legislature can taketh away.

And the Legislature can giveth back....

California's lawmakers need to revisit the entire administrative and civil penalty process, and in the least ensure that money collected from violators gets to the victims of the wrongdoing that led to the penalty.

The state makes all sorts of laws and regulations to keep intermediaries from wrongfully profiting off the backs of injured workers. 

That the state also profits is the height of hypocrisy.

Conspiratorial Profiteering

Does the amount of kickbacks for patient referrals in a specific geographic area correlate to higher medical utilization and severity costs in that region?

Recall that in past studies over just the last couple of years, the California Workers' Compensation Institute pointed out that the Los Angeles metropolitan area was responsible for an inordinately high amount of medical costs in the state.

Also, recall that certain medical vendors, some who have been in the workers' compensation business for quite some time, have admitted to participating in a referral kickback scheme in connection with Michael Drobot, Pacific Hospital of Long Beach, and others related to what has been called the biggest fraud scheme in California.

It turns out that, yes, there is a correlation between kickbacks and higher medical utilization and severity.

WorkCompCentral conducted an analysis of liens in the California Electronic Adjudication Management System and determined that Philip Sobol, MD, who recently admitted to participating in Drobot's scheme, alone was responsible for 13,766 liens filed under his company name since 2005, with a total claimed value of $85.6 million.

Another $1 million was filed under his name personally.

Over the same 10-year period, at least 1,505 liens were filed under the name of Griffin Medical Group, owned by chiropractor Alan C. Ivar, with a claimed value of $6.7 million. Ivan also admitted to participating in Drobot's game.

Both Sobol and Ivan have agreed to plead guilty to conspiracy charges.

The combined $93 million represents a big chunk of the $580 million that prosecutors say was fraudulently bilked from the work comp system over the years by the Drobot cartel.

Interestingly, the plea agreement between prosecutors and Sobol included a statement that the stipulated facts are not intended to indicate that he provided any patients with "substandard medical care or that any treatment he provided or prescribed was not medically necessary."

Who are they trying to fool? Sounds to me like lawyerese nonsense intended to downplay the incredible greed of someone addicted to $70,000 to $130,000 per month in "fees" from Drobot-controlled entities.

My guess is that Sobol is trying to protect some of his ill-gotten gains from sure to follow patient lawsuits for malpractice.

A little bird told me the other day that Sobol was also the number one source of Independent Medical Review antagonism, writing on average 9 letters per day contesting the utilization review denials of his treatment requests.

Nope - no substandard or unnecessary care.... Sure.

The National Council on Compensation Insurance just recently released a study across its covered states on medical treatment utilization noting wide disparity in geographic zones for specific injury codes under a "common fee" analysis to account for fee schedule (or none) discrepancies.

NCCI found that certain states had much higher utilization than other states.

The study authors don't offer any explanation, but speculate that treatment guidelines have something to do with this phenomenon.

Certainly, based on California's experience, conspiratorial profiteering by unscrupulous medical vendors should also be entertained as a reason.

Profit Before People

I wrote yesterday about reality and perception, yet we, the industry, continue to be our own worst enemies creating negative realities to match the negative perceptions.

The industry got a bee in its collective bonnet when ProPublica and OSHA issued reports and stories with anecdotes about how the workers' compensation system failed injured workers.

Countless injured workers who have dared to speak out publicly via forums, blogs, social media, television, radio and other media outlets, are castigated and marginalized by the industry as wacky complainers who don't have a life so they focus on claims.

Poor Bowser...

Industry insiders are afraid to blow the whistle for fear of retribution, or worse.

Attorneys representing injured workers are vilified for taking advantage of the system's alleged "no fault" design to erode the protections afforded employers.

Our own governmental agencies tout statistics reflecting decreased claim frequency and severity, lowered medical costs, but improved outcomes, but anecdotes keep appearing challenging the rosy stats.

But, as we see in Kelly Tinsley vs. Vertis Communications; ACE USA/ESIS, the system is NOT balanced, is greatly skewed against injured workers and without representation people would die, victims of The System.

Tinsley had an admitted industrial injury to his neck, spine, neurogenic bowel, neurogenic bladder, internal organs and psyche employer as a machinist arising out of an incomplete C6 spinal cord injury on January 10, 2010.

After being hospitalized, Tinsley was released home, and started having active suicidal ideations. He began treatment with Dr. David Patterson through the Casa Colina Transitional Living Center Residential Program Post-Acute Physical Rehabilitation with One on One Supervision (whew!)

He attempted suicide on 8/31/2011 by carbon monoxide poisoning. When he failed to show for an appointment a friend checked on him and found him lying on the garage floor. He was airlifted to a hospital, and after three days of inpatient care was released home and thereafter admitted back to Casa Colina on 9/2/2011.

Eventually Tinsley was seen by a Panel Qualified Medical Examiner who opined that Tinsley's active suicidal ideation was real, was a problem, and that he should not be released back to the care of a family member because the suicide hazards could not be managed properly.

The claims adjuster requested that the Requests for Authorization for Casa Colina be submitted one month at a time. Dr. Patterson complied.

According to the Workers' Compensation Judge's report on reconsideration, "There was no conflict or disagreement between the applicant's primary treating physician, Dr. David Patterson and the Panel QME, Dr. Greils as to the reasonableness of the treatment prescribed and provided."

For whatever reason, the claims adjuster (who had been on the case from the outset according to the WCAB opinion) decided to submit the 9/28/2014 RFA to utilization review, without any of Dr. Greil's medical reports, his depositions, or the deposition of Dr. Patterson.

As you might guess, UR denied the treatment, and the claims adjuster stopped paying Casa Colina.

"The court found the failure of ESIS to send the relevant medical reports and depositions to the doctor performing the Utilization Review to be troubling. There are few cases where the issues of life and death are truly before us. This is one of those rare cases. In the 10/7/2014 Utilization Review, Dr. O'Brien refers to the Medical Treatment Utilization Schedule [MTUS] for neck and upper back complaints and treatment for chronic pain. Dr. O'Brien does not address the fact that the basis for the recommended one on one care is due to the opinion of his treating and evaluating physicians that he will kill himself if this care is not provided.
...

"Mr. Tinsley therefore continues to be a resident at Casa Colina although it is represented it was about to discharge him due to non-payment of his treatment provided since October 2014. No doctor has been able to find a better alternative..."

When ESIS stopped payting Casa Colina, treatment was paid through Tinsley's own funds.

The issue that really brought this case to the WCJ was not the egregious behavior of the claims adjuster and ESIS, but that they couldn't even follow The Law with respect to service and timeliness.

Listen, the law and regulations are SO stacked in favor of the payer community right now, a failure in procedure is inexcusable. If you can't get it right, then don't try...

"The WCJ correctly found that the UR was invalid because defendant did not show that it was timely communicated to Dr. Patterson...," the Board wrote. "The WCJ also properly relied upon the holding in Dubon II to award the treatment at issue because it s reasonable and supported by substantial medical evidence."

The failure in compassion and humanity in this case is beyond inexcusable and, frankly, nearly criminal.

The Board chastised ESIS and the claims adjuster for not even being able to follow procedures (procedures that were fomented mostly by the defense community in recent reforms) and then still trying to claim a defense against DOING THE RIGHT THING.
In a separate concurrence, Commissioner Sweeney hit upon the real issue: "However, it is important to note that there is no evidence in the record of any change in applicant's condition or circumstance that reasonably supports the initiation of UR to evaluate the ongoing treatment as (sic) Casa Colina that had been routinely approved and successfully provided for several years."

And, had the case been Commisioner Sweeney's to adjudge herself, she would have thrown the proverbial book at the defendants, "In this case, there is no evidence that defendant made any effort to reach an agreement on a care plan with applicant's treating physician before it terminated payments to Casa Colina. The absence of an agreed care plan to address the consequences of discontinuing inpatient care at Casa Colina as part of the UR could be considered a neglect or refusal to provide reasonable medical treatment [citations]."

Perception derived from reality: too often it seems the claims community would rather an injured worker DIE instead of paying for a lifetime of treatment because it is cheaper - the mighty dollar is, indeed, more important than human life in Corporate America.

The only logical conclusion I can draw is that the payer would rather Tinsley kill himself instead of having to deal with this claim, and its expense (reportedly $40,000 per month), for the rest of his, frankly, miserable life.

Does work comp have a bad image? You bet. This case demonstrates why. And frankly that image is deserved when this kind of behavior occurs.

I hope applicant's attorney takes the defendants to the cleaners on this case, and moreover, I hope that the emasculated Audit Unit imposes the harshest of the now castrated penalties on the payer.

Not that it will teach anyone a lesson.

You know why this world needs lawyers? Because there are still way too many who put profit before people.

My team at WorkCompCentral work really hard to highlight the good in workers' compensation.

Cases like this make communicating that message difficult.

A copy of the Opinion and Order Denying Defendant's Petition for Reconsideration is here.

*************

Post script from the applicant's attorney, Keith More:

Awesome - thank you for  understanding the plight of the injured worker. Timeliness,  REALLY !!!  That is the only way I could get this to the Judge. Not the simple fact that the Labor Code and Rules and Regs REQUIRES the appropriate medical records be reviewed by a UR physician within the same specialty or area of practice. This is why Dubon II must be overturned. The WCAB found it "troubling" that the PQME report was not submitted for review or why the 2 volumes of the PQME's depositions were not sent by the adjuster for review, What about the FACT that the UR doctor chosen by Ace/Esis this time, was an internist who does not have an outside office and does not see patients for treatment purposes. Mr. Tinsley did not have an internal issue. Why and how could anyone in compliance with the law choose an INTERNIST for this review. It's not like the adjuster had not seen this request 28 days before. It's not like the adjuster did not see the same request 28 days before that. None of the other requests had been sent to an INTERNIST. 

The request for medical care was not for chronic pain (the basis for the denial). Troubling is the best they, the WCAB could do since they overturned Dubon I. It's not troubling it's alarming. It's abusive. It's punitive. This system is called "Worker's Compensation" not "Insurance Profits"! Ace/Esis through its adjuster Cheryl Brownlee who we personally served to appear at trial has already told Casa Colina they will appeal the Decision. 

Why not? Well, the WCAB while using strong language failed to issue sanctions on its own for the "troubling" behavior. "Every life is worth saving", a brave firefighter said after 9/11. Why not Kelly Tinsley, a 27 year dedicated employee of Vertis who was severely injured on the job.  

Insurance Linked Securities

Below the clouds is a runway ... we hope.

"Although California is always one bad court ruling or piece of legislation away from disaster, we think the current environment is quite healthy."

That's what Jerry Azevedo, a spokesman for the Workers' Compensation Action Network, said to WorkCompCentral in response to the latest California Department of Insurance market share report.

238 workers' compensation carriers combined to write $11.43 billion in premium in 2014, up 10.97%, compared to $10.3 billion in 2013, and is the fourth consecutive double-digit increase.

Written premium has increased a cumulative 65.5% since 2009.

Premium growth lately is more a reflection of increasing payrolls rather than rates, as those have held rather steady in the last few years.

But another, more insidious, reason for premium growth lately is the pathetic returns that Chief Financial Officers are able to lock in using traditionally safe investments because of the historically moribund interest rate environment.

Investors can't make much if they have only a one or two percent spread to work with buying Treasury Bonds, so they are looking to alternative investment vehicles.

History doesn't look kindly to that kind of activity - the last time "interesting" financial assistance came into the California (and subsequently national) market was in the mid-1990s when the Unicover/Craigwood reinsurance scheme was being pitched to minimize carrier risk ... and dozens of carriers folded.

Now we have a new investment vehicle that is picking up steam, and I think it portends future trouble if not kept in check: ILS.

In aviation, ILS is Instrument Landing System - a way for aircraft to find the runway under a layer of clouds and fog.

In insurance ILS is Insurance Linked Securities.

The most common ILS, and what brought this alternative to note, are CAT bonds.

Catastrophe bonds are risk-linked securities that transfer a specified set of risks from a sponsor to investors. They were created and first used in the mid-1990s in the aftermath of Hurricane Andrew and the Northridge earthquake.

Wikipedia has a good explanation:

"An insurance company issues bonds through an investment bank, which are then sold to investors. These bonds are inherently risky ... and usually have maturities less than 3 years. If no catastrophe occurred, the insurance company would pay a coupon to the investors, who made a healthy return. On the contrary, if a catastrophe did occur, then the principal would be forgiven and the insurance company would use this money to pay their claim-holders. Investors include hedge funds, catastrophe-oriented funds, and asset managers. "

But the creativity of Wall Street is ceaseless, and at least one insurance investment observer indicates alarm at the "convergence" of the insurance and capital markets.

Michael Moody, MBA, ARM, in ‘Rough Notes’ magazine (April 2015 issue – page 54) writes about "Capital Market Convergence" and describes the rise of ILSs.

The money behind the capital structure of the insurance industry is increasingly being collateralized and sold off to investors with the single intent of increasing yield on capital invested: "With interest rates continuing at historically low levels, most institutional investors are looking for better yields. Currently, many of the ILS products are producing results that are 5% to 6% higher than traditional investments."

Here's the issue - there will be many investment people who know nothing about the insurance product providing the capital. Financial instruments such as Credit Default Swaps (CDS) and Collateral Debt Obligations (CDO), and other fancy named financial "treaties" created by Wall Street will move capital out of the insurance industry to the detriment of the insured public, and this includes workers' compensation.

Moody understatedly writes:

"Agents and brokers who have accounts that utilize significant amounts of reinsurance need to be aware of the advancements that are being made in the ILS market. The old days of competing on price are disappearing. Capital market professionals believe it is only a matter of time before reinsurance and ILS will be used in the same manner that reinsurance is purchased in layers today. It will not be uncommon to find excess limit programs that are made up of a combination of reinsurance and ILS. The genie is out of the bottle, and the capital markets appear to be willing to embrace the convergence with the insurance/reinsurance concept. As a result, agents and brokers who are interested in a long-term view of the insurance industry would be well advised to monitor this situation closely as it will remain extremely fluid for some time."

Certainly departments of insurance will protect us, right? After all it is their job to regulate the insurance market and ensure a safe, healthy, and vibrant industry.

Well, that didn't happen when Unicover/Craigwood came around, and there's no reason to believe that any regulating agency is going to be proactive; traditionally regulators are reactive. By the time they are alerted and take action, it's too late - carriers disappear, guarantee associations are swamped, and state funds take up the slack (as in 2000 when The State Fund covered 50% of the California market).

Blaming one bad court decision or lousy piece of legislation is looking at the finger pointing at the moon; the truth is California, and the nation's work comp market, is one bad ILS away from disaster. Carriers won't be looking for the runway under the clouds - rather they'll be looking for insolvency relief.

Proof In The Penalty

Last week I wrote about the Texas Supreme Court closing the door on civil actions against workers' compensation insurance companies, giving them the same protection of exclusive remedy that their insureds' enjoy.

I said:

"Making the Texas Department of Insurance and Division of Workers' Compensation administrative penalty process the only remedy is the proverbial fox in the henhouse situation. Administrative penalties are a cost of doing business.

"Sure claims payers don't like administrative penalties, but nothing gets the attention of shareholders, Wall Street and the investment community like a nice big award of punitive damages - that's when behavior changes."

This morning, WorkCompCentral journalist Joey Berlin reported that Ace American Insurance Co. was fined $250,000 for for failure to timely pay benefits and other infractions related to the death claim of the widow of Wayne Davis who was killed in a 2012 traffic-accident while working as a sales, profit and operations coach for Burger King.

The case was highlighted in the Texas Tribune series last year called “Hurting for Work” about the industry - part of a growing string of negative press concerning the workers' compensation industry and the laws and regulations that govern it.

After Wayne Davis was killed in the crash, Ace American, Burger King’s insurer, denied and delayed death benefits, arguing that Davis was not in the course and scope of his employment at the time of the crash.

Davis was driving a Burger King vehicle to a company-related appointment, and his supervisor at the time believed he was “definitely in his workday,” according to the Tribune.

Crystal Davis defeated Ace in dispute-resolution proceedings and began receiving benefits, but Ace sued Davis and her two children, ages 6 and 2 at the time, to stop the payments, dropping the action less than a week after the Tribune series first featured the Davis story.

The division’s Feb. 18 enforcement order cited Ace for failing to timely pay death benefits and accrued interest on death benefit payments, failing to timely take action on a request for burial benefits, and failing to timely and accurately notify the division of actions taken on a claim.

$250,000 sanction included:

• A $100,000 administrative penalty.
• Required adoption of an enhanced compliance plan and a minimum investment of $50,000 to implement that plan.
• Establishment of a Texas branch of the charity Kids’ Chance, which provides scholarships to the children of injured workers, with an initial donation of $100,000.
• Participation in all division audits for a three-year period.

Ace Insurance 10 year stock price

This is all super-dee-duper, but is an ineffective solution in my mind.

I'm glad that Crystal Davis and her children are NOW, finally, getting benefits that they are statutorily entitled to, particularly when the EMPLOYER said Wayne Davis was working at the time.

But they were subjected to unnecessary, humiliating action by Ace, and while I don't know their financial condition, my bet is that they are one of the many "paycheck to paycheck" families where that bi-weekly benefit check is the difference poverty and turning on the heat in the winter.

Ace American is a multi-billion dollar company that publicly trades on the New York Stock Exchange that reported record operating income of $3.3 billion in 2014, up 4.7 % per share.

It's stock price has gone from $95 per share to a close of $110 yesterday, and a high of $115, over the past year. In 10 years the stock price has grown from about $45 per share.

It's a highly diversified insurance company, with international operations.

Trust me that this little administrative fine won't even make news up to the C-suite.

And it's nice that as part of their penalty the company gets a tax deduction.

As I said in my earlier piece about Texas' Supreme Court's ruling in In Re Crawford & Co. , don't get hurt in Texas.

And invest in Texas workers' compensation carriers and administrators.

The proof is in the penalty, and the stock price...

A Drug Testing Rebuttal

Last Friday I blogged a title, "Urine Is Big Money."

What I opined was that the very public lawsuits and jury verdicts in the cases between Ameritox, Ltd. and Millennium Laboratories, Inc. revealed unsavory marketing tactics that incentivized physicians to do drug testing and that there was a lot of money involved.

I called this "nonsense" because you and I pay for this surreptitiously through higher fees and greater utilization.

Specifically I said, "Drug testing may have its place in certain situations, but the incentives these companies throw at providers of care to initiate services is offensive to me, and should be to you."

Michael Gavin is president of Prium, a medical intervention firm that has particular expertise in providing tools for drug management.

He called me the other day to tell me that he a) enjoyed WorkCompCentral's new adaptive newsletter format (I know, shameless self-promotion) and that b) he had written a blog post rebuttal to Urine is Big Money but decided to run it past me rather than publish it publicly to deter the wrath of a potential counter-point.

Heck - I think dialogue is good! So with Michael's permission, I took the easy way out today and am posting his opinion with just a little editing for format and readability:

_________________________________________

When Ameritox purchased PRIUM, I did my own due diligence on the Ameritox management team.  I believe I'm working for the good guys and we're genuinely trying to do the right thing.

I like David DePaolo.  A lot.  He is a voice of reason in our industry and I've enjoyed his musings, both personal and professional, for years.  

But on the issue of urine drug monitoring, I think he's off the mark.  On the one hand, I'm coming at this from an admittedly self-interested perspective (PRIUM is a wholly owned subsidiary of Ameritox), but on the other hand, the context and conclusions of David's recent post on drug monitoring beg for someone to clear up the confusion.  

What did he miss?  Nowhere in his piece did he mention several key facts.  David knows all of these things, but critical context is missing from his view on Urine Drug Monitoring.  Namely, he didn't mention that: 

• People are dying.  Overdose deaths from prescription opioids now outpace deaths from traffic accidents and have tripled since 1990; 
• The CDC has identified the opioid crisis as an epidemic, a term the CDC does not use lightly; 
• More than 12 million people reported using prescription painkillers nonmedically in 2010; 
• Urine drug monitoring technology is relatively new.  David's quote from the CWCI data that suggests 192X growth in spend on urine drug monitoring in CA doesn't recognize the point at which the health care community sat on the adoption curve for this technology in 2004.  Nor does it recognize that we still didn't realize the enormity of the opioid crisis in 2004.  And don't tell me we knew in 2004 how bad this was going to get.  I came into this industry in 2010 and spent my first two years here at PRIUM trying to convince payers there was an opioid problem in the first place.   
• There's a distinction between point-of-care testing in a doctor's office and reference lab testing. Failing to make this distinction leads the reader to conclude that all inappropriate behavior rests with reference labs and fails to recognize that some physician practices are by themselves driving inappropriate utilization.  Physicians who partner with experienced and capable reference labs that understand payers' perspectives and expectations can help align stakeholders (injured worker, physician, lab, and payer).   
• There are guidelines for the appropriate use of urine drug monitoring and these guidelines are based on risk stratification of the patient.  We follow these guidelines.  We help payers follow these guidelines. Testing beyond the guidelines is as inappropriate as not testing patients that should be tested.  
• Even in light of these guidelines, WCRI data tells us that less than 25% of injured workers on long term opioid therapy are being tested at all.   David states "we know [the guidelines] are specific case recommendations particular to a certain set of medical facts, not to be applied universally."  Agreed.  Perhaps David doesn't realize how many injured workers fit that "certain set of medical facts."  A lot more than he apparently realizes.  
• Not all companies offer direct financial incentives to physicians.  He lumps an entire industry together and does so just a couple of paragraphs after he details that Millennium's practices were found by a jury to be illegal and that all counterclaims against Ameritox were dismissed.  Perhaps David missed the most important take-away: there's at least one company trying to do it right. 

Bottom line: what David blithely dismisses as "nonsense" is, in fact, a critical patient safety tool, a mechanism for effective claims management, and a necessary application of clinical technology that isn't going anywhere. To suggest otherwise in light of the largest man-made epidemic in the history of the world is simply irresponsible.  

Michael

_________________________________________

So I agree that drugs are a public health concern. I agree that drug testing can be an important part of patient care. And that Ameritox was found clean of engaging in questionable marketing tactics is comforting to me.

But Michael misses the theme of my post.

The point I was making was that the Millennium/Ameritox case simply provided insight into how medical supply businesses work, and how much money is involved. 

This occurs inside, and outside, workers' compensation. And not just drug testing companies, but nearly all medical supply businesses have some marketing systems that provide physicians incentives to use and/or promote their products.

Marketing practices that improperly cause physicians to prescribe specific products or services should not be tolerated without full disclosure to the patient and the payer as to the nature of the incentives to the doctor. 

That's the bottom line.

That Gavin's company, Prium, and it's parent Ameritox, don't engage in "direct financial incentives to physicians" is a good start. Next would be disclosure as to what incentives are placed in front of physicians so the people can make informed choices about whether prices and utilization are appropriate for any given case.

Thank you Michael for taking the time to write a rebuttal.

Urine Is Big Money

Not only is there big money in drugs, but there is big money in drug testing, as evidenced by a recent jury verdict against San Diego, CA based Millennium Laboratories Inc.

The jury verdict handed down June 16 resolves three cases dating back to 2011 that were consolidated before the U.S. District Court in Tampa, Florida, and brings to an end all litigation between the rival drug-testing companies Millennium and Ameritox Ltd., based in Baltimore, MD.

The jury ordered Millennium to pay $2,755,000 in compensatory damages and an additional $12 million in punitive damages to Ameritox for violating federal anti-kickback statutes with a program that provided physicians with free point-of-care specimen cups in exchange for referrals.

The 2011 complaint by Ameritox alleged that Millennium marketed a “revenue-based billing model” promoting drug testing as a way to increase income for physician practices. An exhibit attached to the complaint − purportedly Millennium marketing materials − claims a doctor can make $45,021 a year performing a single drug test per day, $225,108 a year performing five tests per day and $900,423 performing 20 tests per day.

The company further claimed that Millennium provided point-of-care testing cups for free or at prices below market rates on the condition that the providers agreed not to bill for the use of the cup, used it only for an initial urine screening and sent the specimen to Millennium for confirmation testing.

The jury determined the cup program, which Millennium says it has discontinued, constitutes remuneration under the federal Stark Law, which took effect in 1992, and prohibits physicians from referring patients to companies with which they have a financial interest.

Bowzer doesn't pee in cups.

The jury further said that the cup agreement constituted remuneration in violation of the federal anti-kickback statutes.

The jury also found that Millennium tortiously interfered with Ameritox's business relationships and engaged in unfair competition in Florida, awarding it $1.625 million in compensatory damages and $7.08 million in punitive damages, interfered with business relationships in Texas and Tennessee, awarding $575,000 in compensatory damages and $2.52 million in punitive damages for Texas, and $555,000 in compensatory damages and $2.4 million in punitive damages for Tennessee.

Inversely, the jury rejected Millennium’s counterclaims that Ameritox interfered with its business in California, Florida, New York, Oregon, Tennessee, Texas and Washington, and rejected Millennium's allegations that Ameritox violated the Stark law.
Millennium failed to prove that Ameritox:

• Assigned specimen collectors to physician offices to perform receptionist and other clerical duties unrelated to drug testing in exchange for referrals;
• Provided below fair market prices for point-of-care test cups for testing that the doctor can bill for in exchange for referrals;
• Entered into lease agreements with doctors that were not at commercial reasonable rates in exchange for referrals;
• or provided non-monetary compensation to physicians such as paying for Christmas parties and giving gift cards in exchange for referrals.

Though Millennium is asking for a new trial on the grounds that Ameritox was improperly allowed to introduce inflammatory evidence to the jury, the fact that this litigation continues demonstrates the huge margins that drug testing must produce, and the cost of such aggressive tactics on health systems, in particular workers' compensation.

The California Workers’ Compensation Institute reported that carriers and self-insureds paid $98 million for drug testing in 2011, 192 times the $509,000 paid in 2004.

Lon Wagner, a spokesman for Ameritox, told WorkCompCentral, “What we were looking for is a level playing field, and we feel this is a first step toward achieving that.”

How about leveling the field for the consumers, the people that pay for this nonsense? Drug testing may have its place in certain situations, but the incentives these companies throw at providers of care to initiate services is offensive to me, and should be to you.

And such tactics are not isolated - my bet is that these are, unfortunately, normal tactics within the medical supply industry across nearly all medical fields.

Physicians in workers' compensation in particular are vulnerable to such marketing and sales tactics because the actual fees paid to doctors have become increasingly restrictive, and the amount of time bills remain unpaid lengthens, creating impetus for revenue enhancement opportunities.

Some docs of course are unscrupulous and would engage in such revenue enhancement programs regardless, but the motivation for doing so increases the more actual fees for services that provide value to workers' compensation claimants are constricted.

Maybe Millennium and Ameritox are a bit more level now, but when it comes to those of us who actually pay the bills at the end of the day, the case is just one more example of end point consumer gouging.

While medical guidelines recommend drug testing for compliance purposes and to help ensure that drugs aren't being diverted to the black market, we know those are specific case recommendations particular to a certain set of medical facts, not to be applied universally.

But the way medical suppliers stimulate sales with physician gifting and revenue enhancement programs tests the ethical and moral qualities of the individuals on the front lines, and physicians should not be placed in those positions, and we should not be placed into positions of having to pay for it.

Sometimes drug testing is warranted. Most of the time it is not.

I'm sick of it. You should be too. Then we can all go to the doctor, get our drugs, and pee in cups (unlike Bowzer) so we're all in this together...

Drugs, Testing, and Incentives

In workers' compensation, if there's a cost to contain, then there are enterprising people willing to sell something to contain that cost which in itself ends up being a cost to contain.

Such it seems with drugs and drug testing.

WorkCompCentral reports this morning the California Workers’ Compensation Institute is preparing to release a report documenting that drug testing is one of the top cost drivers in the state’s workers’ compensation system.

Drug testing became popular not too long ago in response to issues with opioid and other pharmacological abuses.

So popular that it’s become one of the most frequently billed codes in the past one to two years.

Treatment guidelines include drug testing as part and parcel of opioid prescription to monitor use.

For instance, the chronic pain section of California's Medical Treatment Utilization Schedule recommends urine drug testing before and after drugs have been prescribed and the proposed opioid guidelines that the California Division of Workers’ Compensation is contemplating recommend doctors begin regular urine screenings when using opioids beyond the four-week “sub-acute” phase.

As part of this, CWCI has found that in 2012 carriers and self-insured employers paid nearly $98 million for drug testing in 2011, comprising about 2.5% of all medical spending that year. In 2004, employers spent just $508,000 on drug testing.

The sad part of the story is that much of this testing is likely unnecessary if physicians followed guidelines.

CWCI has found that many prescriptions for Schedule II painkillers are for relatively minor injuries, such as sprains and strains, conditions for which the use of opioids is not recommended.

“What our data routinely shows is a large proportion of Schedule II opioids are being used for injuries that really fall outside of the evidence-based guidelines,” Alex Swedlow, president of CWCI, told WorkCompCentral. “Now you’re compounding the issue by testing for the presence or absence of these drugs.”

The WorkCompCentral story also points out that the major drug testing laboratories are in a spitting match in Federal court over allegations that they are incentivizing physicians to use drug testing to maximize profits.

The common denominator in both the escalation of opioid frequency and drug testing is the single point of reference - the physician treating the injured worker.

There are many competing interests for the physician's attention in workers' compensation.

Payment for physician services is tightly regulated and puts stress on medical practices because it is more expensive to deliver work comp care (due mostly to the regulatory burden) but payment rates can be among the most conservative.

Vendors, be they pharmaceutical firms or drug testing laboratories, use this dichotomy to market physicians by offering legal, albeit ethically questionable, ways of recouping or supplementing revenues.

In the middle is the doctor who has to make hard decisions based on experience and business realities as to whether any particular individual is prescribed pain medication (and whether that is delivered via the doctor's office or via a pharmacy) and then followed with testing.

It's not just in workers' compensation that these competing interests exist.

At the heart of the Federal case cited above are allegations that Medicare data shows clinical laboratories accounted for 42 of the top 50 providers in terms of how much money they were paid by the federal government in 2012.

The companies involved in the Federal case both allege that the other used financial incentives to encourage physicians to maximize billings for drug tests.

It's easy to blame physicians because they are the control center. Physicians have the patient, have the control over prescriptions, have the control over drug testing.

It's also easy to blame the drug and the drug testing companies for putting incentives out there to encourage the use of their various products.

This is capitalism working - financial incentives work well most of the time to drive the market to efficient choices.

But in the delivery of medical treatment, where lives and lifestyles are at stake, such incentivizing can be counter-productive. And that's what the data seems to show.

Follow the UR Dollars

The Workers' Compensation Insurance Rating Bureau's latest report, released Thursday, on SB 863 shows just how difficult it is to estimate human behavior.

While savings from the bill's lien constrictions and payments to ambulatory surgery centers are better than expected, initial projections for Independent Medical Review were way off.

The WCIRB had initially said that IMR would save $390 million a year, including $230 million in losses and $160 million in loss-adjustment expenses.

A total of 870 IMR requests were filed in the first six months of the year when the alternative process for resolving disputes about utilization-review decisions was limited to 2013 dates of injury, but 4,410 applications were filed in July, and increased to 15,731 in August and 14,990 in September.

If this trend continues the number of IMR requests will be more than three times what the WCIRB had projected in its initial cost estimates, “potentially eliminating any savings in administrative costs due to IMR and also potentially negatively impacting medical treatment costs.”

What wasn't anticipated by WCIRB actuaries was how the time limitations and lack of risk for injured workers would drive requests. Also unaccounted for were unnecessary (which perhaps are driven by some other independent profit motives) utilization reviews, as had been pointed out in the past by Christine Baker, director of the California Department of Industrial Relations.

Last month at the California Workers' Compensation Forum in San Diego Baker noted that some IMR requests are for unusually small amounts, which she attributed to overaggressive adjusters who were too quick to deny treatment.

"We had some cases of Salonpas pads rejected that were $15, go onto IMR for $500," she said. "In that sense, we really need to be careful and provide the care and request when needed."

In that example Baker isn't appreciating human behavior, and in the case of workers' compensation, the compulsory nature of the beast which some participants use to drive mandatory, thus profitable, procedures even when unwarranted.

I am reminded of when I was a young lawyer. Our firm was retained by a large self-insured non-profit entity to help them negotiate the next contract with their third party administrator.

This was at a time when bill review was starting to come into its own as a "maturing" sub-industry of work comp.

Everything on the TPA's menu of services was negotiable. We secured concessions in nearly every aspect of the claims management process except for one - bill review.

The TPA would not budge on bill review one iota. Their rules mandated that every singe provider bill go through the bill review process, and the fees for bill review were likewise non-negotiable.

It got to the point that we told them we did not want ANY bill review and that we would accept it if medical treatment bills were just paid at face value - we had calculated that we would in fact see savings if the bills were just paid on time rather than go through review, appeal, etc.

Even that was non-negotiable. This TPA had such a huge profit center built into the bill review process (as it turns out the bill review company was owned by the TPA) that any attempt to mess with that revenue system was off the table.

The TPA would have rather lost the account than negotiate its bill review policies.

So it lost that account, and likely made up for it with other, more gullible contracting entities to continue feeding the bill review food chain and whatever profit system the TPA had in place.

Utilization review now is not unlike bill review was (or perhaps still is) back then. There is nothing in the Labor Code that mandates that all treatment requests go through UR. The only mandate is that carriers and administrators have an UR process in place.

But it is a) easier to mandate that everything go through UR because that eliminates the cost of decision making at the adjuster level; b) the cost of UR isn't borne by the carrier or administrator - it gets passed on to the employer; c) there is no downside in mandating that all requests go through UR (except to the injured worker who's treatment is unnecessarily delayed and the physician who's expertise is second guessed); and d) perhaps there are new profit centers built around UR.

So peel back the onion a bit. There are many layers that contribute to the results of any particular measure of workers' compensation costs. Human behavior is complex. We can't assume that just because one hole has been plugged that others won't spring.

My suspicion is that part of what's driving IMR volume is UR over-utilization by profit-minded administrators. I don't think there would be any surprises if we followed the UR dollars.

Why Equity Likes Comp

The common thinking when big money private equity moves into workers' compensation is that they are either trying to diversify portfolios to minimize risk exposure to other health care related investments or that they see profit in being able to deliver more efficiency to service delivery.

But these altruistic notions ignore the basic premise behind PE investment in my experience: short term profit regardless of obstacles.

Pharmacy benefit managers Progressive Medical and PMSI announced Wednesday that they have finalized their merger.

The deal will see H.I.G. Capital, a private equity firm, sell its interest in PMSI to private equity funds managed by Kelso & Co. and StoneRiver Group, the controlling shareholder of Progressive Medical.

According to Joe Paduda, managed care consultant and industry observer, this merger will create the largest pharmacy benefit management company in the industry with a market share of 30% to 35%.

Paduda had also blogged that MedRisk, a managed-care organization, purchased MDIA, a medical-imaging company. Paduda said that the move will allow the new entity to challenge industry leader One Call Care Management for market dominance in their sector.

In addition to these deals, other acquisitions and mergers have been happening in the past 12 months that indicate interest in workers' compensation by Big Private Equity.

KKR & Co bought Mitchell International's software business on Sept. 5. In 2012. Healthcare Solutions acquired ScripNet. One Call Care Management last year announced a deal that Reuters reported to be worth$1.5 billion to buy MSC Care Management. Harren Equity Partners closed a deal to buy MedLegal copy services earlier this year.

Some believe that these moves presage a fear in private equity firms who are vested in the health care space to diversify portfolios because of the uncertainty of the impact of the Affordable Care Act as it comes into play.

Some think that the profit motive of these companies is that based on taking advantage of basically archaic industries, reformulating the delivery of services to wring out efficiencies and profit as a consequence.

Still others believe that this money is chasing new opportunities in the consolidation of services across similar product/service lines in health care and workers' compensation.

I think that all of these arguments, while perhaps having some scintilla of accuracy, largely miss the big picture because there is a misunderstanding of private equity motivation:

Short Term Profit.

I am not a student of private equity, nor of Wall Street's ways, other than reading the Wall Street Journal every day and successfully acquiring an MBA some 17 years ago (and my interest area was marketing; finance was flummoxing to me).

And there is one theme that has constantly withstood the test of time whenever I have gone back to look at what private equity does and how they accomplish it.

There is a general formula and a short term time frame for BPE. The formula is to "purchase" a firm for an astoundingly high value, but that purchase is highly leveraged, and much of the purchase price gets tied up in an escrow account pending certain conditions and covenants.

The conditions and covenants that are contained in the purchase contracts usually are very difficult to fulfill which causes the escrow money to default back to the purchaser.

So a deal that would be worth, say, $100M on paper, after all is said and done may be worth net only half of that.

In the meantime there is management shake up, employee turn over, service interruption, and destruction of the base value upon which the business was built.

The pressure to continue with short term profit on a gutted platform is intense, and there typically is no new investment in the core of the purchased business.

I'm not saying this is the deal with the companies cited above, only that this is how money moves through The Street.

I don't believe that there is any altruism whatsoever by these firms to create a better system, or a better model or a better anything. There is no allegiance to workers' compensation or the social and economic benefits the system delivers.

And I'm not saying this is either bad or good for workers' compensation.

But it is validation that workers' compensation has a profit value to Big Money. It takes BM to move things and get action in work comp. At the same time BM can be debilitating by taking the focus away from the primary mission of the system.

Efficiency, diversification - these are just empty terms to describe another way in which people profit off of workers' compensation.

Let's just call these investment moves what they really are - complex deals calculated to derive short term profits by interests with no commitment to the long term health of the industry. Again, I'm not saying this is good or bad - it is just reality.

Letters? Whoop-De-Doo

Well you KNEW this was going to happen, and I'm sure you can also predict the outcome.

A couple weeks ago the Los Angeles Times ran a front page, blockbuster, story about its investigation of Purdue Pharma.

Purdue manufactures the popular pain medication Oxycontin.

In short, the LA Times revealsed that Purdue kept a list of 1800 doctors who were highly suspect of over-prescribing the drug.

The list was kept for the company's sales team. Purdue attorney Robin Abrams told the Times in a series of interviews that the company created the database to steer its sales representatives away from risky doctors. Policing physicians, she said, was not Purdue's responsibility.

Abrams told the Times that Purdue had alerted law enforcement or medical regulators to 154 of the prescribers — about 8% of those in its database.

And she gave an example of one case in San Fernando where a physician made $1.5 million a year prescribing OxyContin and other painkillers. That physician is now serving a 25 year sentence after being tied to the deaths of six patients.

But otherwise, Purdue did not provide this information to any governmental authority.

Maybe it should have, maybe it shouldn't - that's a tough ethical decision to make.

Of course there's going to be argument that the company's profits (Purdue purportedly has made $27 billion off Oxycontin since 1996) overrode the company's morals.

Certainly there is suspicion that profits overrode the morals and ethics of 1800 physicians.

Now California state Sen. Ted Lieu, chairman of the Committee on Business, Professions and Economic Development, and Nevada state Sen. Richard “Tick” Segerblom, chairman of the Judiciary Committee, have both sent letters asking Purdue to turn over its list of doctors.

“If Purdue Pharma is going to sell a highly potent, highly addictive narcotic in California, then the company has a duty to inform authorities in California of those doctors the company believes may be irresponsibly prescribing OxyContin,” Lieu wrote. “This duty may not be a legal one, but at the very least, the company has an ethical duty to let authorities know about dangerous drugs.”

Segerblom said during an interview with WorkCompCentral on Wednesday that if Purdue, which has a vested interest in selling OxyContin, has deemed some doctors too risky to do business with, then that would be a good indicator that state regulators should also take a look at the prescribing patterns of those providers.

“If the company has identified people it thinks are a problem, then the state should, too,” he said. “I’d like to see if our monitoring program is actually working.”

Will something actually come of this or is this just political grandstanding?

And even if something actually comes of the list disclosure, is it really going to make any difference?

In 2007, Purdue agreed to pay $634 million to settle a federal lawsuit accusing it of fraudulently promoting the time-release formulation of OxyContin as being a less-addictive alternative to short-acting opioid painkillers - claims the U.S. Food and Drug Administration did not approve.

That settlement represents 0.03% of Purdue's sales of the drug...

In May 2012, the U.S. Senate Finance Committee sent letters to Purdue, Endo Pharmaceuticals and Johnson & Johnson requesting information about the companies’ ties to medical groups and physicians, saying it was exploring the possibility that organizations such as the American Pain Foundation, American Academy of Pain Medicine and American Pain Society, have “promoted misleading information about the risks and benefits of opioids while receiving financial support from opioid manufacturers.”

Committee members have not reported the results of their investigation and have not responded to phone calls and emails from WorkCompCentral asking whether the drug makers even responded to the request for information.

The response to the Times article is easily predicted. The outcome perhaps less so, but my guess is that nothing really substantive will come of this. Perhaps Purdue will pay its way out of this little public relations mess, maybe publish some advertising somewhere in the guise of a public service announcement.

The politicians will get some good press and be able to cite action against big business when they go to the voters.

And business will carry on as usual.

Trace the Pill

The medical profession has been experiencing an image problem for some time though it seems it has been getting worse.

When I was a kid, doctors were very well respected, intellectually superior members of society seen as above reproach because they saved lives.

My uncle was a physician.

My dad was a dentist.

I grew up admiring these professionals and their colleagues who spent so much of their lives learning, teaching, healing, looking after mankind and making sacrifices to better the human race.

Now it seems that these professionals get no respect, or at least not the amount or kind of respect that existed when I was a kid.

There are fee schedules restricting what can be billed for. There are practice guidelines dictating what can be performed. There are utilization reviews and independent reviews second guessing medical decisions.

And then there are the folks that just end up corrupted by the money and heaping further bad image upon an already targeted group.

Drugs provide an incredible source of corruption motivation - just follow the money.

The U.S. Attorney's Office announced the other day that a federal jury last week convicted two South Florida doctors of conspiracy to commit money laundering in connection with an investigation of pain clinics operating as "pill mills" in Broward and Palm Beach counties.

U.S. Attorney Wilfredo A. Ferrer, along with others connected to the investigation, said in a press release that a West Palm Beach, Fla., jury ended a two-month trial last week and convicted Dr. Cynthia Cadet, 43, of Parkland, Fla., and Dr. Joseph Castronuovo, 73, of Key Largo, Fla.

Sentencing has been scheduled for Nov. 4, 2013, before U.S. District Court Judge Kenneth A. Marra.

In August 2011, a federal grand jury indicted Cadet, Castronuovo and 30 other defendants targeted in Operation Oxy Alley, a federal/state probe of pill mills. Twenty-eight defendants have entered guilty pleas and been sentenced in the case.

According to the August 2011 indictment and a superseding indictment, Christopher and Jeffrey George, twin brothers, operated and managed four pain-management clinics that distributed an estimated 20 million oxycodone pills from 2007 to early 2010.

Prosecutors said the scheme made more than $40 million from the illegal sales and distribution of controlled substances. Thirteen of the 32 defendants were doctors.

The George brothers were highlighted in an article published in Bloomberg Businessweek last year.

It notes that the pain clinics the Georges established didn't discriminate against pain patients - if you went in, you came out with pills.

And each operation was bigger than the other.

Christopher George even invested in pharmacies and opened clinics in Georgia, Missouri and Texas.

From 2008 to 2010, according to the federal agents, the George twins were the largest illegal dispensers of oxycodone in the U.S.

In the fall of 2011, Jeffrey George pleaded guilty to one count of racketeering conspiracy and is serving a 15½-year sentence.

Christopher George pleaded guilty to one count of racketeering conspiracy and is serving 17½ years in prison. The twins’ mother, Denice Haggerty, pleaded guilty to one count of conspiracy to commit wire fraud and received a 30-month sentence.

What do the George twins have to do with bad doctors?

Christopher's interview with Businessweek gives a clue: he says not a single doctor ever turned down a job offer. "The hours were good. The pay was good.”

The pay was really good.

Doctors at Georges' clinics were paid a flat fee for each opioid prescription they wrote—typically, $75 to $100 for each prescription. To maximize efficiency, doctors were given prescription stamps they could use quickly, over and over.

It was common for physicians at one of Georges' clinics, American Pain, to see 100 patients a day, according to the interview. Extrapolated, a doctor would earn roughly $37,500 a week—or $1.95 million a year, directly dispensing medication.

The Georges made their money in part by charging patients consultation fees of $200 for the first visit, and $150 for each visit thereafter. They made another part of their profits by buying drugs wholesale (they had to do a lot of work to find wholesalers that could meet the demand and do so with minimal restrictions) and marking them up, sometimes dramatically as we have seen in the workers' compensation system, in direct physician dispensing.

The interview with Christopher George is fascinating to me because it is classic anti-social behavior.

He says he was targeted for doing nothing wrong - he followed the law and the law was loose so he profited from it. And he admits that as the law was tightened, then moving to another jurisdiction where the law was still loose provided for continued business operations.

“Really there’s no way to stop someone from getting pain medication,” says George. “If you limit it because there are drug addicts out there, you’re going to hurt the people who really need it. People are good liars. They can say they’re in pain, and you can’t prove otherwise. There’s no way to stop them from getting their medication.”

Whistle Blower Suit Isn't About What's Right

Salacious.

That's the best word to describe this morning's news about a whistle-blower complaint unsealed July 24 in Sacramento Superior Court by Judge Raymond Cadei in which it is alleged that was a massive conspiracy involving more than 90 defendants in Southern California and hundreds of millions of dollars of greatly inflated prices on counterfeit spinal hardware installed needlessly on unsuspecting workers' compensation claimants.

Some of the names in the complaint are familiar, like Drobot, Randall, Pacific Hospital of Long Beach, Tri-City Regional Medical Center.

Some of the names are new to the media.

The allegations range from counterfeit implant hardware, to use of cappers and runners, and hugely inflated billings for unnecessary and dangerous procedures and cross/counter-espionage.

Some of the defendants that talked with WorkCompCentral reporter Greg Jones, of course, deny that they did anything illegal or wrong, and counter that the whistle-blowing plaintiffs have ulterior motivations ranging from eviction for failure to pay rent, retaliation for not acquiescing to a quarter million dollar shakedown, and a reverse law suit in response to revengeful non-payment of medical bills.

And all of this would be too dramatic for reality if it weren't real itself.

According to the complaint, the defendants cashed in on the pass-through for medical equipment used in fusions “through the unlawful employment of ‘runners, cappers and steerers,’ overbilling, illegal kickbacks to doctors and counterfeiting of medical implant hardware.”

The medical hardware pass through provisions were eliminated in SG 863.

“This scheme has led to patients receiving dangerous medical implants that have a substantial likelihood of failure,” the complaint says. “Many patients received spinal fusion surgeries that utilized counterfeit screws and rods, placing patients’ lives at risk and subjecting them to further surgeries to replace the counterfeit hardware.”

At least one defendant says that the suit against him is stayed by a bankruptcy proceeding.

Another says it was someone else who was doing money laundering and that there was nothing wrong with the business practice under his watch.

And yes it all is about money. Allegedly hundreds of millions of dollars in ill-gotten gains.

And none of it is about the spinal surgery patients - the workers' compensation claimants that were likely duped into having dangerous, unnecessary surgery that has altered their lives completely - introducing much higher levels of impairment and disability, much higher levels of pain an discomfort, ruining any chance of a return to work, than would have existed without surgical interference.

Those are the people that are the real story. The defendants and plaintiffs have their own reasons for fighting. In reading the complaint and the news story about this case it is clear that the well being and interests of the injured workers, who were the subjects of this conspiracy, were not a factor.

The plaintiffs seek to cleanse the dirt off their hands by "blowing the whistle" but if the defendants interviewed for the story are to be believed, there is plenty of mud left to sling around making this case more of a distraction than a correction of social wrong.

Because of medical privacy laws we may never know the story of the hundreds or even perhaps thousands of unsuspecting victims of these, likely criminal, acts (the state Attorney General's office has declined to participate in the case which is when the suit was unsealed).

At the end of the day, all things considered, the money involved isn't that much.

But the lives involved amount to a great deal of social burden that you and I will pay for, for the rest of their lives.

MEMIC and Success

It's not often that there's a positive story to tell in workers' compensation. We are usually consumed with what's wrong, cost pressures, political turmoil and what not.

Every once in a while, though, there is a story about something going right.

MEMIC is one of those stories.

Maine Employers Mutual Insurance Co. was established through state legislative action on Nov. 13, 1992, to replace Maine’s workers’ compensation residual market pool.

Unlike other state funds, MEMIC does not enjoy tax-exempt status, contradicting the argument by some standard market carriers, who believe the resulting exemption from federal income taxes provides the funds an unfair competitive advantage that allows them to build up their surpluses.

Despite being subject to income taxes, MEMIC has grown a $350 million surplus, and continues to serve as a guaranteed fund in Maine, with approximately 96% of its 2012 premiums from Maine accounts. MEMIC also controls about a 62% share of the commercial market in Maine.

The company's 2012 combined ratio, after dividend amounting to more than 10% of premium, was 96.3%.

In addition, the company has grown aggressively outside of Maine.

In 2012, MEMIC reported direct written premiums of $202 million. Subsidiaries, MEMIC Indemnity Co., which was formed in New Hampshire in 1999, and the Vermont-domiciled MEMIC Casualty Co., accounting for business income from Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania and Vermont.

In April, the company opened an office in Tampa with the goal of driving up new business in Florida.

The company focuses on the hospitality industry, light manufacturing, colleges and schools, and health care.

Michael Bourque, senior vice president for external affairs, tells WorkCompCentral, "We are not a traditional state fund.”

No kidding.

“We’ve taken the experience we’ve had here in terms of injury prevention and service and made that model come outside of Maine. While we’re not going to have anywhere near the dominant market share we have in Maine, we know that for a certain percentage in almost every market, service is going to matter,” said Bourque.

That's the key - service. Pricing may matter to employers that wrongfully focus on the premium bill once a year, but account service is what makes the difference for employers over the long term.

Much of the industry has lost the touch for proper account service and that may indeed be where MEMIC's competitive advantage lies. Slipping out of the bureaucratic state fund role and into a competitive mindset of a mutual insurance company, where the policy holders are also essentially the share holders, seems to have made a difference for this company.

I like business success stories, particularly in our industry. We don't get to read or hear many. It's gratifying to know that there is an insurance company that meets its obligations and does so efficiently in an insurance environment so many others find challenging.

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.

FL Repackaged Drugs - People Are The Losers

As I've mentioned before, in particular with the Florida repackaged drug bill that is circulating the legislature there, compromise means that somebody isn't going to be happy.

And that's the case with Florida school districts, and other public entities, that relied on Florida Statute 440.13(12) (c).

The provision allows carriers and employers to pay for drugs at the discounted rate for which they have contracted, even if an injured worker elects to obtain the drugs through a provider that is not a party to the contract.

According to Scott B. Clark, risk and benefits manager for the Miami-Dade Public School District, that provision of law has saved the school district $3 million since November 2009.

Not an insubstantial amount of money when public funds for education are squeezed tight.

Florida state lawmakers continued toward passing the repackaging bill on Monday. The House Health and Human Services Committee held an emergency meeting Monday morning and amended HB 605, filed by Rep. Matt Hudson, R-Naples, to reflect the compromise included in SB 662, which eliminates 440.13(12)(c). The Senate passed its version of the bill by a vote of 39-0 on Monday.

The legislative staff of the Florida Senate said in an analysis released last Thursday that eliminating the ability to pay the discounted rate also will cost the state Division of Risk Management $210,337 a year.

Though te National Council on Compensation Insurance (NCCI) has not released an official report on the compromise, interest groups were told last week that the bill should reduce overall workers' compensation costs by 0.7% and save about $20 million a year.

The deal was negotiated by the Florida Insurance Council, the Florida Chamber of Commerce and Associated Industries of Florida on one side and the Florida Medial Association and Automated Healthcare Solutions on the other.

Interestingly, the states pharmacies aren't opposed to this deal.

"We feel that it's better than the status quo at this point," said John Fleming, communications director for the Retail Federation, which represents Florida's major pharmacy retail chains.

This could be because of the increased competition against pharmacies represented by well-financed direct to patient marketing ability of physician dispensing outlets.

And it could be that retail pharmacies are just tired of the whole argument.

As part of the compromise, proponents also added language that would require doctors to pay for repackaged drugs within 60 days in order to retain a supply of the drugs. The amendment would prohibit dispensing physicians from possessing any repackaged drugs for which payment hasn't been made to the "supplying manufacturer, wholesaler, distributor or repackager within 60 days of the doctor dispensing the drugs.

This provision was added to encourage doctors to pay repackagers in situations when the drugs aren't dispensed within 60 days.

Of course there isn't any enforcement or inspection mechanism, so this provision has no reality to it and won't make any difference on the street. It's just malarky language - there to appease someone with no real chance of having any effect on behavior.

Where does insurance stand?

Sam Miller, executive vice president of the Florida Insurance Council, said business groups and insurers saw the compromise as the only way to get a price cap on repackaged drugs written into Florida law.

"This is a big issue and NCCI is saying we're going to save $20 million," Miller said. "With a vote of 39-0 in the Senate, it's fairly clear they're going to bring this home for landing."

I called this Ali Law in an earlier post; - where a special interest plays "rope a dope" and is obstinante for so long, that eventually everyone else gets tired and just gives up, so they work up something to make the issue go away. Clearly, that is the case with this bill.

Usually in a compromise everyone walks away with something - not everything they want, but at least a tidbit to ease the pain of what was given up in return.

But in the case of the Florida repackaged drug war, there are only losers - the people of the State of Florida.

It's a bad law, but it will be the law because those in the ring punching it out are tired.

Anecdotes and Extrapolations Paint Troublesome Picture

The workers' compensation system is obsessed with costs. Reform legislation around the country is nearly uniformly about controlling costs.

The driving mantra behind California's last monster reform bill was costs were out of control.

High medical costs are blamed on unscrupulous profiteers. High indemnity costs are blamed on litigation and the claimant attorneys milking the system.

Ancillary vendors, such as interpreters and copy services, receive the heat as much as the more major cost contributors.

We read, hear and watch numerous reports every day about some claimant fraud, vendor fraud, employer fraud and once in a while some insurance company fraud. None of this compares, even cumulatively, to what I would characterize as outright system manipulation - intentional or not - by claims payers, which include the now publicly confirmed rumors about claims payers yanking the chains of lien claimants over filing fees.

Here are a couple of anecdotal vignettes recently posted in the WorkCompCentral Forums - they may not be typical (though as you will read below I believe that this is more representative than not) but they demonstrate some BIG issues. I have edited them for readability, but otherwise the factual contentions are as posted by the original authors.

After these short vignettes, employer consultant Bill Cobb gives us some real food for thought that demonstrates the enormity of the issue - and of course this would not be MY blog if I didn't opine one way or the other.

First Anecdotal Post:

Topic: Unrep PQME - Inappropriate Authoization Denial (California)

An unrepresented  applicant sets a Panel Qualified Medical Examiner (PQME) appointment and the cover letter is sent by the adjuster. The PQME sees the applicant and asks for a "consultation" from a specialist to help determine severity of damage and recommendations for further care. The PQME sends out the initial report explaining the need for the consult - not for treatment.

The insurance company adjuster does not respond to the requests for authorization for a consult - the one time he does answers his phone we explain the need for consultation arising from the PQME. The conversation goes like this:

Adjuster wants to know why we are treating...

We say we are not treating, need consult for PQME.

Adjuster states you cannot treat, you are not in the MPN...

We say we are not treating, we need authorization to consult for the PQME.

Adjuster states the consulting doctor is not in the MPN...

We say we are not treating, we need authorization to consult for the PQME.

Adjuster asks why does the doctor need a consult?? 

We say see his report.

Adjuster says, NO you explain to me why the doc needs a consult...

We say we cannot due to exparte communication rules -- please see report and send your questions to the PQME in writing.

Adjuster faxes note to us stating: Not authorized due to not in the MPN and UR did not approve.

Applicant was seen by the PQME in 11/2012 - adjuster has been delaying as above since then.

Second Anecdotal Post:

Topic: UR Timeframes vs. IMR (California)

Patient burned, had treatment elsewhere, then was referred to us by an occupational medical group where he was treating. We contacted adjuster at the TPA, who authorized the consult. Burn needs grafting. We sent a detailed narrative PR-2 with a Request For Authorization, but now, two weeks later, we have no response. [emphasis original] After the first week, I called and spoke with the adjuster, who said that because it's going to cost so much they have to think about it!!!!!  

Now it's been two weeks, and the poor guy is still doing dressing changes.  This is not life-threatening, but he will have a much higher risk of scarring and need for scar revision down the road, and in the meantime, he cannot return to work because of risk of infection, which grows every day.  That has all been explained to the adjuster.  Patient so far is not represented.

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Now that you've read, in my opinion, two alarming anecdotes about egregious claims behavior (and there's plenty more in the WorkCompCentral Forums), Bill Cobb comes along with some troubling conclusions based on extrapolations from actual Workers' Compensation Insurance Rating Bureau (WCIRB) and Division of Workers' Compensation (DWC) data.

By Bill Cobb:

Every year the DWC does an audit of the entities that do claims handling (self-administered carriers, self-insured employers and third party administrators). The results of the 2011 audit are published on the DWC web site. I’ve been following the results of the audits since 2003. It has always been a major shame and disgrace on the work comp carriers and their agents. But, for some reason, no one has given it much attention.

At the heart of the results (as you will see) is one of the primary reasons why injured workers litigate their claims. [Editor's note - from the data analytics standpoint; anecdotally see the two examples above.] 

Based on figures published by the WCIRB:

·        California has approximately 550,000 employers.

·        There are approximately 16.5 million workers.

·        Each year there are over 500,000 workplace injuries.

·        Med-Only claims account for 79%.

·        Indemnity Claims account for the other 21%.

·        The average Med-Only claim costs $713.

·        The average Indemnity claim costs $6,728 – UNLESS it litigates, then it costs $62,700.

·        Litigated claims make up 43% of all indemnity claims.

·        Litigated claims account for only 9% of all claims, yet they take up 82% of the costs.

The outcome is a main driver that causes the cost of work comp for employers to go up.

Let’s go over the figures:

·        The DWC audited 3,410 files – out of 200,000+ open files.

·        Of these, 444 (13.02%) had compensation that was owed to the injured worker, but was not paid.

·        The average amount owed was $1,468.87. That represents 3 – 4 weeks of indemnity payments not paid on each of those claims.

I’m assuming the DWC chose only 3,410 files to audit because their statisticians thought it was representative of the entire population of claims.  [Editor's note - the process of selecting audit subjects is found in Title 8, Regulation 10106.1 and the actual procedure is in Regulation 10107.1.] If we extrapolate those figures out over the entire indemnity realm, here’s what we would find:

·        Total indemnity paid in 2011 was $2,957,000,000 – that’s accrued, not actually paid.

·        That would leave $176,264,400 (yes, millions) in owed, but unpaid, benefits in the files of the carriers and TPA’s.

This is money that is owed to the injured worker, but the payer is sitting on it. This causes a tremendous hardship on injured workers that are living from paycheck to paycheck. [Editor's note - also may be vendors seeking payment on legitimately owed bills but are being ignored or delayed as in the example anecdotes.]

So, let’s take a look at what the enforcement arm of the DWC did to punish the offenders:

·        The 444 files produced 4,465 violations.

·        The total dollar value of the violations cited was $1,411,128.

·        Of that figure, $1,209,325 was deemed ‘Not Subject to Assessment’.

·        The violators paid $201,803.

As you (or anyone for that matter) can see – it pays to cheat. They will get their hands slapped with only a small financial penalty and reporting in an obscure DWC filing.

Bill's idea is to:

·        Beef up the Audit Department so that EVERY file gets audited once a year.

·        It would be a ‘self-funding’ program based on a small premium surcharge to fund the initial startup.

·        Make EVERY violation subject to assessment and make them pay – or shut them down!

·        That should bring in $50 million to $100 million in assessments which can be used to fund the program.

·        Over the years, not only would the violations and assessments gradually reduce, so would litigation and, ergo, the amount of indemnity associated with litigation. The size of the audit unit could be reduced accordingly.

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Radical? Yes. Objectionable by the claims community? Certainly. Effective? Beyond anyone's imagination, would be my guess.

As suggested by Bill's data, the two anecdotes above are certainly more representative than not.

So what have you Industry? Ready to put your money where your mouth is? 

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 Table of data:

	Total Audited - 2011			All Indemnity Paid - 2011
Total Files	3410	100%		Total Indemnity	$  2,957,000,000
Files with unpaid Indemnity	444	13.02%
Total Unpaid	$        652,178			Total Unpaid	$      176,264,400
Average Unpaid	$      1,468.87
Unpaid TTD	622.36	42.37%		Unpaid TTD	74,683,226
Unpaid PD	693.60	47.22%		Unpaid PD	83,232,050
Penalties	152.47	10.38%		Penalties	18,296,245