Was Motorcycle Accident Within Course of Employment?
A superintendent of the parks and recreation department for the City of Spartanburg died in a motorcycle accident while on his way from his mother’s home to one of the city’s recreational centers. The city’s aquatics director had called the superintendent and asked him to meet her at the city’s swim center to sign some forms and retrieve a key from the department’s recreational center. The aquatics director said that the superintendent told her he was going directly to the recreational center to get the key and then going to the swim center.
The superintendent’s supervisor said the superintendent’s job duties involved traveling between the various recreational centers and parks. The supervisor said it was not unusual for the superintendent to retrieve keys and sign forms.
The superintendent’s mother said that he went to her home to pick up his motorcycle, which he stored at her home. While he was at her home, he had two business-related telephone calls. When he left, he told her he was on his way to work.
The superintendent’s widow sought workers’ compensation benefits. The single commissioner concluded that the superintendent did not suffer a compensable injury because the accident did not arise out of and in the course of his employment as he was not working at the time of the accident. The appellate panel affirmed the single commissioner’s findings. The widow appealed.
Was the commissioner correct in denying benefits for the superintendent’s death?
- A. Yes. The superintendent’s accident did not fall within an exception to the going and coming rule.
- B. No. The superintendent was performing a task given to him by the aquatics director that was of value to the city.
- C. No. The superintendent was embarking on an errand to retrieve a key for the aquatics director.
How the Court Ruled
B is incorrect. The court found that the duty or task exception to the going and coming rule did not apply. The primary purpose of the superintendent’s travel was a personal objective to travel to the recreational center when he performed his work. The court pointed out that the superintendent was not charged with any work-related duties at the time of the accident.
C is incorrect. The court found that the special errand exception to the going and coming rule did not apply. The superintendent was on his way to work to perform his typical job duties of retrieving keys and signing forms, and he did not perform a special errand by driving to the swim center.
A is correct. In Wofford v. City of Spartanburg, No. 5369 (S.C. Ct. App. 12/09/15), the South Carolina Court of Appeals held that the superintendent’s death in a motorcycle accident did not occur within the course and scope of his employment.
Generally, an employee going to or coming from the place where he works is not engaged in performing a service growing out of and incidental to his employment, and therefore, an injury from an accident at such time does not arise out of and in the course of employment. Here, the court found that no exception to the going and coming rule applied.
Editor’s note: This feature is not intended as instructional material or to replace legal advice.
Formularies Rise in Popularity
Texas, Oklahoma, Washington, and Ohio have them. California and Tennessee are creating them. And a slew of other states are looking to drug formularies as a way to address pharmaceutical issues in the workers’ comp system.
Since adopting its formulary more than four years ago, Texas has seen significant reductions in the percentage of injured workers receiving inappropriate medications, along with dramatic cost reductions for new claims. Likewise, Ohio regulators report decreases of 74 percent for skeletal muscle relaxants, 25 percent for narcotics, and a reduction in total drug spend of 16 percent since its formulary took effect. Despite the impressive results, experts say formularies are not necessarily a panacea, and care is needed to ensure they are effective and avoid unintended consequences.
“Some pretty significant states in terms of size and geography are looking at this and saying, ‘this may be something we want to do,’ as another tool in helping to control utilization and costs in workers’ comp,” said Kevin Tribout, executive director of government affairs for pharmacy benefit manager Helios. “It creates a speed bump. It creates some regulatory teeth for a physician.”
“A formulary is a list of medications that are approved and deemed appropriate for treatment,” explained Joseph Paduda, principal of Health Strategy Associates and president of CompPharma, an association of PBMs. “There’s some methodology used to develop that list and put drugs on that list or exclude drugs from it. … That’s the most basic process.”
Many jurisdictions have open drug formularies for workers’ comp, for example, that allow any medication to be approved as long as the physician writes the prescription. Closed formularies, on the other hand, are lists of specific medications that require prior approval for reimbursement.
“In a closed formulary such as the one used today in Texas and Oklahoma, it’s a binary, yes/no decision,” Paduda said. “Regardless of the diagnosis, disease state, or patient need, a physician can order [the drug], the pharmacy can dispense it, but the payer can refuse to pay for it saying ‘it’s not appropriate for that particular workers’ comp injury or illness.’ But a payer cannot stop the pharmacy from dispensing it.”
Formularies are — or should be, according to the experts — developed in an open, transparent process using robust, scientifically valid evidence. Developed and implemented effectively, formularies can be a game changer for the workers’ comp system.
“If you are policymaker thinking about it, ask yourself: Is your goal to save money or improve outcomes? The answer is going to determine how you approach the formulary.” — Phil Walls, chief clinical officer, myMatrixx
“In the vast majority of states, whatever medication is prescribed is filled,” said Dr. Robert L. Goldberg, chief medical officer for PBM Healthesystems. “There’s absolutely no control over the selection of the medication, let alone brand name vs. generic, let alone what is medically necessary, let alone the cost.”
Formularies, Goldberg said, can define what is appropriate for a particular condition or diagnosis, or phase of treatment. “So you create boundaries and narrow the choices based on what is reasonable and what is necessary. As you start to narrow that down, by definition you have a great opportunity to get the right drug to the patient and also control cost — partly from avoiding overutilization or the dispensing of medications that are much more expensive but don’t provide any significant benefits.”
The overprescribing of some medications, notably opioids, is expected to decrease when a drug formulary is in effect. Evidence out of the states with formularies show that to be true.
There is also research indicating that treating physicians change their prescribing patterns because of drug formularies and are more inclined to prescribe medications they know will be approved.
“If I were a physician, I would know what medications are on the list that require prior authorization,” Tribout said. “So, if I write a script, I know more than likely it will come back requiring prior authorization and I would have to justify why; or I can simply write a prescription that doesn’t require prior authorization, my patient can get the prescription filled, and there are not three or four phone calls to be made. So injured workers are still getting care, being treated and returning to work, and physicians are changing their prescribing patterns — not reducing care, just changing their prescribing patterns to potentially provide more efficacious treatment.”
Formularies also empower physicians by giving them a reason to deny unnecessary medications to a patient without fear of losing the patient’s trust.
Both the Official Disability Guidelines created by the Work Loss Data Institute and the American College of Occupational and Environmental Medicine have formularies that can serve as a basis for the design of a formulary. A proposed formulary in Tennessee, for example, is a hybrid of the ODG and the state Department of Health Chronic Pain Guidelines.
The widely used ODG Appendix A includes a list of approved and unapproved medications. Those on the “Y” list are deemed acceptable and reimbursable while “N” medications require pre-authorization.
Texas, which uses the ODG formulary, has a more inclusive list of drugs not requiring pre-authorization, and all other medications are included. Formularies in Washington and Ohio consist of preferred medication lists, and providers prescribe off that list.
ODG recently moved some opioids on its formulary — morphine extended release, Embeda and Fentanyl patches — from the “Y” list to the “N” list. Texas is slated to make that change next month.
“This decision by the ODG means that two of the most commonly prescribed long-acting opioids for chronic pain will now require prior authorization. That means that tramadol ER will be the only long-acting opioid that can be prescribed without requiring prior approval or, in other words, has ‘Y’ status,” said Paul Peak, director of clinical pharmacy at third-party administrator Sedgwick. “It’s a big change. … It seems that the Work Loss Data Institute is updating their formulary to show what the clinical data supports, which is that long-acting opioids should not be seen as the first line options for chronic, non-malignant pain. We’re making adjustments on our end so injured workers in Texas are aware and what that means for them.”
The ACOEM-based formulary launched in late 2015. Proponents say is more robust than other formularies in that it addresses a person’s disease state.
“It’s an injury-based formulary and so far, it’s based on each of the chapters of the ACOEM Occupational Medicine Practice Guidelines,” said Goldberg, who was the primary developer of the ACOEM formulary. “For example, we took low back pain. That chapter has multiple conditions. For each condition we looked at each class of medication and broke it down into each medication within a class. So you have a stair stepping that narrows the selection.”
Goldberg said the formulary also addresses acute vs. chronic phases of treatment. Each condition is searchable by both the ICD-9 and ICD-10 diagnostic codes and includes cost information for each medication.
“The whole idea was to primarily guide physicians but also payers, other medical and health care professionals, and ultimately regulators in terms of what are the best choices and what are the evidence-based recommendations for a treatment and a condition and do it by class and by individual medication,” Goldberg said. “So it’s a very deep and broad formulary with great specificity and has a very strong evidence base.”
What makes one formulary better than another depends on a variety of factors, especially the policies within a particular state. However, the evidence used as a basis is key since this is the reason for the formulary.
“If you are policymaker thinking about it, ask yourself: Is your goal to save money or improve outcomes? The answer is going to determine how you approach the formulary,” said Phil Walls, chief clinical officer for PBM myMatrixx. “When I look at ODG there is a significant focus on cost containment. There is nothing wrong with that. We should save money. But if your focus is not just on getting rid of expensive drugs, it changes the whole dynamic — to a clinical rather than financial approach. Oftentimes, they go hand in hand but not always.”
All Eyes on California
Many eyes are on California as it develops a drug formulary. Legislation requires a plan to be in place by the summer of 2017.
“It’s a really crucial state in the workers’ comp world,” Peak said. “I believe California’s decision to move forward with a formulary because of its large impact in workers’ comp will be a big impetus for other states to consider.”
The formulary created in California must be in sync with state rules and policies in order to be effective. Despite the success of Texas’ formulary, that is not necessarily the best model for other states.
“The ODG formulary works in Texas because of Texas’ statutes,” Walls said. “The regulations they have around utilization review and retrospective denial makes the formulary work … but ODG is not a one size fits all.”
In fact, adopting the Texas-style formulary verbatim could end up costing extra in other states. As Walls explained, Texas’ formulary allows for a variety of medications that address conditions not typically associated with occupational injuries and illnesses. Once the medication has been prescribed and paid for, payers can retrospectively review the claim and deny payment.
“Most states don’t allow that. So when someone wants to adopt ODG, they really want to adopt a portion of ODG,” Walls said. “If you look at the top drug categories in comp — opioids, NSAIDs, anti-convulsants, etc., — yes, follow ODG. But don’t add anti-hypertension medications or you’ll pay for group health claims. I call it ‘ODG with common sense.’”
UR needs to go hand-in-hand with a formulary for it to be successful. As one expert said, a formulary without UR lacks enforcement capability; whereas UR without a formulary lacks something to enforce.
“A formulary is analogous to a speed limit,” Paduda said. “You can put speed limit signs up and you can hope people will obey, but that’s not a strategy. What you really need, along with a formulary, is a UR program that is tied to ensuring that medically necessary, safe drugs are approved quickly, drugs deemed not medically necessary are not approved, and there is a quick and appropriate and medically sound decision-making process when a drug is initially not approved and the treating physician appeals it.”
States considering formularies need to carefully evaluate their own policies to see what they want to include and how it should be implemented. Otherwise, they risk unintended consequences.
“Kudos to Texas for jumping in quickly; however, it has had a dramatic impact on the volume of opioids paid for in the workers’ comp system,” Paduda said. “But what happened to those patients on opioids? That’s the great unknown. … You can’t just pass a formulary and say ‘we’re in good shape here.’”
Making It Work
Creating a formulary is just the first step. Also imperative is getting medical professionals to adhere to it.
“If physicians don’t want to comply, they say ‘I don’t have to do it; they are just guidelines,” Walls said. “In workers’ comp, more than in group health, it needs to go beyond the list of drugs; it needs to support what guidelines say.”
Educating physicians on the formulary is imperative. “That is huge,” Walls said. “There is not nearly enough of that.”
A formulary that is well-founded on scientific evidence and can be accepted and understood by prescribing physicians will be more effective, experts say. “The whole idea of any set of treatment guidelines or formulary is it should cover 80 percent to 90 percent of cases so everybody knows what’s in play,” Goldberg said.
7 Questions to Answer before Choosing a Captive Insurance Domicile
Risk managers: Do your due diligence!
It seems as if every state in America, as well as many offshore locations, believes that they can pass captive legislation and declare, “We are open for business!”
In fact, nearly 40 states and dozens of offshore locations have enabling captive insurance legislation to do just that.
With so many choices how do you decide who is experienced enough to support the myriad of fiscal and regulatory requirements needed to ensure the long term success of your captive insurance company?
“There are certainly a lot of choices,” said Mike Meehan, a consultant with Milliman, an actuarial firm based out of Boston, Massachusetts, “but not all domiciles are created equal.”
Among the crowd, there are several long-standing domiciles that offer the legislative, regulatory and infrastructure support that makes captive ownership not only a successful risk management tool but also an efficient entity to manage and operate.
Selecting a domicile depends on many factors, but answering these seven questions will help focus your selection process on the domiciles that best fit your needs.
1. Is the domicile stable, proven and committed to the industry for the long term?
The more economic impact that the captive industry has on the domicile, the more likely it is that captives will receive ongoing regulatory and legislative support. The insurance industry moves very quickly and a domicile needs to be constantly adapting to stay up to date. How long has the domicile been operating and have they been consistent in their activity over the long term?
The number of active captive licenses, amount of gross premium written in a domicile and the tax revenue and fees collected can indicate how important the industry is to the jurisdiction’s bottom line. The strength of the infrastructure and the number of jobs created by the captive industry are also very relevant to a domicile’s commitment.
“It needs to be a win – win situation between the captives and the jurisdiction because if not, the domicile is often not committed for the long term,” said Dan Kusalia, Partner with Crowe Hortwath LLP focused on insurance company tax.
Vermont, for example, has been licensing captives since 1981 and had 589 active captives at the end of 2015, making it the largest domestic domicile and third largest in the world. Its captive insurance companies wrote over $25 billion in gross written premiums. The Vermont State Legislature actively supports an industry that creates significant tax revenue, jobs and tourist activity.
2. Are the domicile’s captives made up of your peer group?
The demographics of a domicile’s captive companies also indicate how well-suited the location may be for a business in a particular industry sector. Making sure that the jurisdiction has experience in the type and form of captive you are looking to establish is critical.
“Be among your peer group. Look around and ask, ‘Who else is like me?’” said Meehan. “Does the jurisdiction have experience licensing and regulating the lines of coverage for other businesses in your industry sector?”
3. Are the regulators experienced and consistent?
It takes captive-specific expertise and broad experience to be an effective regulator.
A domicile with a stable and long-term, top-tier regulator is able to create a regulatory environment that is consistent and predictable. Simply put, quality regulation and longevity matter a lot.
“If domicile regulators are inexperienced, turnaround time will be slower with more hurdles. More experience means it is much easier operating your business, especially as your captive grows over time,” said Kusalia.
For example, over the past 35 years, only three leaders have helmed Vermont’s captive regulatory team. Current Deputy Commissioner David Provost is one of the longest tenured chief regulators and is a 25-year veteran in the captive insurance industry. That experienced and consistent leadership enables the domicile to not only attract quality companies, but also to provide expert guidance on the formation process and keep the daily operations running smoothly.
4. Are there world-class support services available to help manage your captive?
The quality of advisors and managers available to assist you will have a large impact on the success of your captive as well as the ease of managing the ongoing operations.
“Most companies don’t have the expertise to operate an insurance company when you form a captive, so you need to help build them a team,” Jeffrey Kenneson, a Senior Vice President with R&Q Quest Management Services Limited.
Vermont boasts arguably the most stable and experienced captive infrastructure in the world. Many of the leading captive management companies have their headquarters for their Global, North America and U.S. operations based in Vermont. Experienced options for captive managers, accountants, auditors, actuaries, bankers, lawyers, and investment professionals are abundant in Vermont.
5. Can the domicile both efficiently license and provide on-going support to your captive as it grows to cover new lines of coverage and risks?
Licensing a new captive is just the beginning. Find out how long it takes for the application to get approved and how long it takes for an approval of a plan change of your captive’s operations.
A company’s risks will inevitably change over time. The captive will need to make plan changes which can include adding new lines of business. The speed with which your domicile’s regulatory branch reviews and approves these plan changes can make a critical difference in your captive’s growth and success.
The size of a captive division’s staff plays a big role in its speed and efficiency. Complex feasibility studies and actuarial analyses required for an application can take a lot of expertise and resources. A larger regulatory team will handle those examinations more efficiently. A 35-person staff like Vermont’s, for example, typically licenses a completed application within 30 days and reviews plan changes in a matter of days.
6. What are the real costs to establishing and managing your captive?
It is important to factor in travel costs, the local costs of service providers, operating fees, and examination fees. Some states that do not impose a premium tax make up for it in high exam fees, which captives must be prepared for. Though Vermont does charge a premium tax, its examination fees are considered some of the least expensive options in the marketplace.
It is also important to consider the ease and professionalism of doing business with a domicile in the ongoing operations of your captive insurance company.
“The cost of doing business in a domicile goes far beyond simply the fixed cost required. If you can’t efficiently operate due to slow turn-around time or added obstacles, chances are you have made the wrong choice,” said Kenneson.
7. What is the domicile’s reputation?
Make sure to ask around and see what industry experts with experience in multiple domiciles have to say about the jurisdiction. Make sure the domicile isn’t known for only licensing certain types of captives that don’t fit your profile. Will it matter to your board of directors if your local newspaper decides to print a story announcing your new insurance subsidiary licensed in some far away location?
Are companies leaving the jurisdiction in high numbers and if so, why? Is the domicile actively licensing redomestications — when an existing captive moves from one domicile to another? This type of movement can often be a positive indicator to trends in a domicile. If companies of a particular size or sector are consistently moving to one state, it may indicate that the domicile has expertise particularly suited to that sector.
Redomestications made up 11 of the 33 new captives in Vermont in 2015. This trend is a positive one as it speaks to the strength of Vermont. It reinforces why Vermont is known throughout the world as the ‘Gold Standard’ of domiciles.
Asking the right questions and choosing a domicile that meets your needs both today and for the long term is vital to your overall success. As a risk manager you do not want surprises or headaches because you did not ask the right questions. Do the due diligence today so that you can ensure your peace of mind by choosing the right domicile to meet your needs.
For more information about the State of Vermont’s Captive Insurance, visit their website: VermontCaptive.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with the State of Vermont. The editorial staff of Risk & Insurance had no role in its preparation.