Beware of Emerging Medical Cost Drivers in Workers’ Comp
One consequence of the Affordable Care Act is the increased billing pressure applied to the workers’ comp industry. Searching to replace revenues lost in primary care, new treatment trends will reveal themselves in the comp world at an ever increasing pace. It is critical that payers have strategies in place to support claims professionals in their efforts to combat these emerging cost drivers.
An example is surgical implants. While still rare enough to befuddle a claims process, these procedures are expensive enough to have serious implications for medical losses. But medical devices are no different than the other cost drivers that came before (physician dispensing, compounding, etc.) nor the ones that will most certainly follow. These “hot-buttons” highlight the need for people and processes to be ready to respond quickly and consistently to whatever the next challenge brings.
New Treatments Mean New Jurisdictional Differences
One issue that surgical implants highlight is the vast difference in the way each jurisdiction allows payers to deal with reimbursement.
Up until recently, California allowed payers to be billed once for the procedure, at a 120 percent reimbursement rate, and billed again for the hardware or material used. In 2010, before the double-billing loophole was closed, total payments for implant device procedures totaled $67.5 million in California. A study from the Minnesota Department of Labor & Industry in 2013 found that hospitals marked up the cost of implants by 200 percent, in one case up to 500 percent. These variations arise as providers work to maximize revenue and regulators have yet to determine what is reasonable.
Jurisdictional variations create a “wild-west” approach that claims professionals have to deal with when determining what should be allowed and what should be investigated further. This creates incredible pressure for claims professionals and payers who have to determine next steps for this bill while under a jurisdictional time clock and then find ways to adjust the process for the rest of the claims professionals. More often than not, this process is too much for one claims adjuster to handle on top of their other responsibilities, and thousands of dollars can be lost as a result.
New Treatments Mean New Complexities
One complicating aspect of surgical implants is the use of “kits”. These kits contain all the components associated with a surgical implant, but not all of these components might be used in a specific surgery. Careful scrutiny of the notes is required to determine if it was appropriate to be charged for the entire kit. With components costing thousands of dollars each, there can be significant savings to be had.
These kits are simply another example of ways to potentially hide costs or increase billing opportunities.
As new treatments come to market, it is critical that payers arm their claims professionals with the training, tools and support needed to handle these new complex treatments when they arise.
National Employers Push for Comp Options
National employers already benefiting by opting out of Texas’ workers’ compensation system are now pushing for “free market alternatives” to traditional state systems across the nation.
They launched a new organization called the Association for Responsible Alternatives to Workers’ Compensation. ARAWC plans to lobby state legislators to allow employers to develop new options for delivering medical and wage replacement benefits to injured workers.
Its members include nationwide companies such as Wal-Mart Stores Inc., Lowe’s Companies Inc. and Sedgwick Claims Management Services Inc.
The employers are frustrated with being forced into “entrenched” workers’ comp systems that prevent them from adopting practices that could benefit them and their employees, said Richard Evans, executive director of Austin-based ARAWC.
“Many employers in Texas have experienced first-hand the financial savings and positive employee benefits of an alternative occupational injury benefit plan. Companies need flexibility in other states.”– Janine Kral, ARAWC president and VP of risk management at retailer Nordstrom Inc.
Traditional state systems, influenced by various interests, make it impossible to adopt medical delivery practices that can lower costs and speed employee return to work, he elaborated. State administrative burdens, for example, discourage the best doctors from treating workers’ comp cases.
“Workers’ comp is slow to change,” Evans said. “There are a lot of stakeholders involved and it’s hard to make those changes.”
Therefore, it is better to push for alternative options than to “try to come in and tinker around the edges with workers’ comp,” Evans said.
Members of ARAWC, pronounced a-rock, have succeeded in controlling costs and improving claims outcomes by opting out of Texas’ workers’ comp system.
Unlike all other states which mandate employer participation in their workers’ comp systems, Texas has long allowed employers, called “non-subscribers,” to forego participation.
Many Texas non-subscribers provide wage replacement coverage and medical benefits delivered through health plans regulated by the federal Employee Retirement Income Security Act of 1974, although they are not required to.
“Many employers in Texas have experienced first-hand the financial savings and positive employee benefits of an alternative occupational injury benefit plan. Companies need flexibility in other states to provide the best solution for their employees, and ARAWC’s mission is to help expand those opportunities,” Janine Kral, ARAWC president and VP of risk management at retailer Nordstrom Inc. said in a statement.
ARAWC member companies include employers that pushed for Oklahoma’s adoption of “option” legislation in 2013. Employers there can now provide an employee injury benefit plan as an alternative to meeting their obligation to care for injured employees through the state’s traditional arrangements.
“Some of the employers that were active in Oklahoma decided that we wanted to have a more coordinated effort as we go forward into other states to open up those states to allow employer options,” Evans said.
Texas and Oklahoma’s alternative options are significantly different from each other. While Oklahoma requires employers to provide injured workers with benefits equal to those provided under the state’s traditional system, Texas does not. But Texas employers can be sued by an injured worker.
Now ARAWC plans to assess the political landscape and workers’ comp costs in other states to identify which ones may be ripe for adopting their own alternative structures. Tennessee is said to be on a short list.
Evans said he expects other states to adopt alternatives that look more like Oklahoma’s model rather than follow Texas, although “we are not trying to come in with a one size fits all” for all states, Evans said.
Nor will ARAWC attempt to dismantle existing state workers’ comp systems.
“Workers’ comp works well for some employers and some are going to want to stay in that,” he said.
ARAWC’s effort is likely to face opposition, however. An ARAWC fact sheet states that insurers “typically resist an Option because the competition tends to drive down premiums.”
A New Dawn in Civil Construction Underwriting
Pennsylvania school children know the tunnels on the Pennsylvania Turnpike by name — Blue Mountain, Kittatinny, Tuscarora, and Allegheny.
San Francisco owes much of its allure to the Golden Gate Bridge. The Delaware Memorial Bridge commemorates our fallen soldiers.
Our public sector infrastructure is much more than its function as a path for trucks and automobiles. It is part of our national and regional identity.
Yet it’s widely known that much of our infrastructure is inadequate. Given the number of structures designated as substandard, the task ahead is substantial.
The Civil Construction projects that can meet these challenges, however, carry a unique set of risks compared to other forms of construction.
“The bottom line is that there is always risk in a Civil Construction project. If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance.”
– Paul Hampshire, Vice President – Civil Construction, LIU
The good news is that recent developments in construction standards and risk management techniques provide a solid foundation for the type and risk allocation of Civil Construction projects they are underwriting. Carriers need to be able to adequately assess the client and design and construction teams that are involved.
For Builder’s Risk Programs, a successful approach prioritizes a focus on four key factors. These factors are looked at not only during the underwriting phase of the project but also in the all-important site construction phase, under the umbrella of a Risk Management Program, or RMP.
Four key factors
Four key factors that LIU focuses on in underwriting and providing risk management services on a Civil Construction project include:
1. Resource knowledge and experience: When creating a coverage plan, carriers work to understand who is delivering the project and how well suited key staff members are to addressing the project’s technical and management challenges. Research has shown that the knowledge and experience of those key players, combined with their ability to communicate effectively, is a big factor in the project’s success.
“We look to understand who is delivering a project, their expertise and experience in delivering projects of similar technical complexity in similar working conditions, even down to looking at the resumés of people in key positions,” said Paul Hampshire, Houston-based Vice President with Liberty International Underwriters.
2. Ground conditions and water: Soil and rock composition, the influence of ground and surface water, and foundation stability are key additional considerations in the construction of bridges, tunnels, and transit systems. If a suitable level of relevant ground (geotechnical) investigation and study has not been undertaken, or the results of such work not clearly interpreted, then it’s a red flag to underwriters, who would then question whether the project risk profile has been adequately evaluated and risks clearly and transparently allocated via suitable contract conditions.
“As we all know, ground is very rarely a homogenous element within Civil Construction projects,” LIU’s Hampshire said.
“It tends to vary from any proposed geotechnical baseline specification with the consequential potential for changes in behavior during construction. We need to understand who has assessed the condition of the ground, its behavior and design parameters when compared with a particular method of construction, and all importantly, who has been allocated the ground risk in a project and the upfront mechanisms for contractual ground risk sharing, if applicable,” he said.
Knowing how much water is associated with the in-situ ground conditions as well as the intensity, distribution and adequate accommodation (both in the temporary as well as in the permanent project configurations) of rainfall for a site location and topography are also key. Tunneling projects, for example, can be hampered by the presence of too much or unforeseen quantities of groundwater.
“In major tunneling infrastructure projects, the influence of in-situ groundwater pressures and /or water inflows is a major factor when considering the choice of excavation method and sequence as well as tunnel lining design requirements,” LIU’s Hampshire said.
According to a recent article in Risk & Insurance, tunneling under a body of water is one of the most challenging risk engineering feats. Adequate drainage layouts and their installation sequence for highway projects and, in particular, the protection of sub-grade works are also important. “But under all circumstances, we need to understand how the water conditions have been evaluated,” Hampshire said.
3. Technical Challenges: This risk factor encompasses the assessment of the technical novelty or prototypical nature of the project (or more often, specific elements of it) and how well the previously demonstrated experience of both the design and construction teams aligns with the project’s technical requirements and the form of contract determined for the project. The client can choose the team, but savvy underwriters will conduct their own assessment to see how well-suited the team is to technical demands of the project.
4. Evaluation of Time and Cost: With limited information generally provided, we need to be able to verify as best as possible the adequacy of both the time and cost elements of the project. Our belief is simply that projects that are insufficient in either one or both of these elements potentially pose an increased risk, as the construction consortium tries to compensate for these deficiencies during construction.
Small diameter Tunnel Boring Machine designed for mixed ground conditions and water pressures in excess of 2.5 bar.
In the 1990s and early years of this millennium, a series of high-profile tunnel failures across the globe resulted in major losses for Civil Construction underwriters and their insureds.
In the early 2000s, both the tunnel and insurance industries worked together to create new standards for high-risk tunneling projects.
A Code of Practice for the Risk Management of Tunnel Works (TCoP) is increasingly relied on by project managers and underwriters to define the best practices in tunnel construction projects. This process ideally starts at project inception (conceptual design stage or equivalent) and continues to the hand-over of the completed project.
LIU’s Hampshire said alongside TCoP, the project-specific Geotechnical Baseline Report and its interpretation and reference within the project contract conditions gives the underwriter greater clarity as to who recognizes and carries the ground risk and how it’s allocated.
“The bottom line is that there is always risk in a Civil Construction project,” Hampshire said. “Is the risk transparently allocated or is it buried? If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance,” Hampshire said.
Paul Hampshire can be reached at Paul.Hampshire@libertyiu.com.
To learn more about how Liberty International Underwriters can help you conduct a Civil Construction risk assessment before your next project, contact your broker.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.