PBM Legislation Worries Workers’ Comp Payers
Legislation introduced in several states seeking to impose new regulatory authority over group health pharmacy benefit managers could harm workers’ compensation PBMs and claims payers, sources said.
Introduction of similar bills in 11 states has raised concerns among workers’ comp insurers, third party administrators, and some large employers, said Brian Allen, VP of government affairs for Progressive Medical, a workers’ comp PBM.
“We have had customers calling us every day worrying about how it is going to impact us and them,” Allen said. “These are big insurance companies … they are nervous about it and want to know how it’s going to impact them.”
Overall, it appears the bills seek greater transparency in the way group health PBMs set their pricing, said Joe Paduda, principal at Health Strategy Associates. But group health PBM practices differ substantially from those of workers’ comp PBMs and the bills seek to address issues that “have nothing to do with workers’ comp,” he added.
Yet while the bills appear aimed at practices among PBMs serving the group health industry and not workers’ comp PBMs, Allen and others say a spillover into workers’ comp is possible. So several organizations want language inserted into the bills that would clearly exempt workers’ comp PBMs.
“It appears that workers’ compensation PBMs are not the target of this legislation,” the American Insurance Association said in a statement. “That said, AIA supports efforts to include clear exemptions for workers’ compensation PBMs in these bills in order to clarify legislative intent and avoid any confusion down the road.”
“Community” pharmacies seeking more revenue from products they dispense are supporting the bills that would put PBMs under certain state regulatory agencies, such as pharmacy boards, Allen said.
State workers’ comp commissions or insurance departments already regulate workers’ comp PBMs, depending on the jurisdiction, Allen explained. But the legislation could add oversight from additional agencies such as state pharmacy boards.
Complying with regulations developed by two distinct agencies with potentially conflicting goals could cause an administrative burden for workers’ comp PBMs, Allen added.
“We want to make sure we are not swept up into crazy regulatory schemes that would be difficult to manage,” he said.
A new oversight body could also decide to impact workers’ comp PBM pricing, which is already regulated by state fee schedules, Allen said.
“If for some reason the pharmacy board said, ‘you have to pay pharmacists more money,’ that potentially would impact our customers because we would have to pass that cost onto payers,” Allen said.
Some Final Thoughts
The conference seats and stages will soon be empty. The expo booths are packed up and some attendees are already heading home.
But those of you fortunate to stay just a little bit longer will hear some thought-provoking presentations today on significant topics for anyone charged with managing claims or providing related services.
Like the conference sessions already presented over the past two days, they are the culmination of planning, decision-making, and preparation that started a year ago. The knowledge and expertise shared during those sessions began accumulating long before that, yet has been applied to address recent and emerging trends.
Similarly, planning for next year’s conference, to be held Nov. 11-13 here at Mandalay Bay, is already underway.
Requests for proposal information for anyone wanting to present in 2015 will be available very soon on the conference web site. You will want to get started on those soon, as the selection process really begins early in the year.
Don’t hesitate to call me if I can help with insight on what the selection group looks for when deciding which RFPs to pick.
Know that in our efforts to develop the best program content possible we value your input and give it careful review when deciding on topics, speakers and arrangements for next year.
You can also play a role and help us by filling out the conference evaluations. Look for those conference evaluations in emails sent to you. You can also find them on the NWC&DC 2014 Mobile App.
A big thank you to the many, many people who helped make this year’s event another success. That includes a thank you to all the speakers who spent so much time preparing to bring their best game to the show.
And thank you for attending the conference. We hope you enjoyed your time here and return home with new knowledge, strategies and inspiration to carry you through until next year when I’ll be looking forward to seeing you again.
Construction’s New World
Get off a plane at Logan Airport and cross the harbor toward Boston and you will see construction cranes, a lot of them.
Grab an Amtrak train from Philadelphia into New York and pulling into Penn Station, you will see more construction cranes, many more of them. The same scene repeats in Denver, Los Angeles, San Francisco and Chicago.
All that steel and cable in the skyline signifies a construction industry that is growing again, after having the rug pulled out from under it in the Great Recession of 2008-2010.
The cranes these days look the same as cranes looked in 2008, but the risk management and insurance environment in construction is anything but the same now.
A variety of factors are now in play that have drastically changed construction risk underwriting, according to Doug Cauti, a senior vice president and chief underwriting officer with Boston-based Liberty Mutual’s construction practice.
Doug Cauti characterizes the current construction market.
Talent and Margins
For one thing, according to Cauti, the available talent pool in construction is nowhere near what it was pre-recession.
“When the economy went into its downturn, a lot of talent left the business and hasn’t returned,” Cauti said.
Cauti said recent conversations with large contractors in Ohio and Pennsylvania confirmed once again that contractors are facing a workforce that is either aging or very inexperienced. That leads to safety management and project quality concerns at just the moment in time that construction is rebounding.
Doug identifies one of the top risk management issues facing construction firms today.
Workers compensation risks in construction, already a problematic area, are seeing an impact from that dynamic.
Contractors are also facing much more competition. In the past, contractors might have bid on 10 jobs to get one, now they have to bid on 50 or 60 jobs to get one. That’s putting pressure on margins.
“There are a lot of contractors out there competing for business,” Cauti said.
“Margins are going up but not at the same rate as the industry’s recovery,” he added.
Financing and Risk Transfer
Another factor impacting the way construction risk is being underwritten is the size of projects and the way they are being financed. Construction’s recovery from the recession might be slow and steady, but the size of projects requiring risk management and insurance has increased substantially.
In 2010, there were 85 projects under contract nationally that were worth $1 billion or more, according to Cauti. One year later, the percentage of projects of that value or higher had grown by 30 percent, and the trend continues.
A lot of those projects are design-build, a relatively new approach to construction that Liberty Mutual has grown comfortable underwriting over the years. But design-build is still an additional complication, blurring the traditional lines of responsibility.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery.”
– Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction
Given the funding demands of these much larger and more valuable projects — many of them badly needed public sector infrastructure improvements — public-private partnerships, otherwise known as P3s, are now coming into vogue as a financing option.
But deciding how risk should be allocated, underwritten and transferred in this new arrangement between contractors, the state, and private partners is a relatively new and untested science.
As a thought leader in the underwriting of the design-build approach – and the more traditional design-bid-build – Cauti said construction experts within Liberty Mutual are growing their knowledge to stay in step.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery,” he said.
That means attending relevant industry conferences like the annual IRMI Construction Risk Conference where Liberty Mutual has maintained a significant presence, and engaging in dialogues with contractors and government officials, and maintaining clear and active lines of communications with brokers.
Doug discusses emerging approaches to construction.
Legal and Regulatory
Another change that is creating challenges for construction risk underwriting, according to Cauti, stems from what’s happening in United States courtrooms.
Across the country, how a court interprets coverage can vary widely, especially in the area of construction defect.
“In the past, many jurisdictions viewed construction defect simply as shoddy workmanship and they had to go back and redo it,” Cauti said.
But now, on a state by state basis, courts are ruling that a construction defect is an accident under certain circumstances that may be covered by a contractor’s general liability policy.
In 2014 alone, according to Cauti, Supreme Courts in West Virginia, Connecticut and North Dakota ruled that construction defects can sometimes be considered accidents.
Cauti said doing business with a carrier that pursues contract clarity whenever possible – and that possesses an experienced claims team that can navigate the wide variety of state interpretations – is absolutely essential to the buyer.
Having claim teams not only dedicated to construction but also to construction defect, adds a lot of value to a carrier’s offering.
Doug outlines another top risk management issue facing construction firms in today’s booming market.
Now, as never before, contractors are relying on experienced construction insurance teams to help them address these complexities.
Insurers need to have the engineering expertise to analyze a project, to make sure the right contracting team is in place and to insure that risk exposures are being properly assessed. Another key in a construction insurance team, according to Cauti, is the claims department.
A Strategic Approach
The legal and financing changes that are taking place in the construction market, from a risk transfer standpoint, aren’t going to get ironed out overnight.
Cauti said it could be 10 years until the construction and insurance industries fully understand the complications of public-private partnerships and integrated project delivery, these approaches gain traction, and the state-by-state legal decisions that are causing so much uncertainty can be digested.
In the meantime, an engaged, collaborative approach between carriers, brokers, contractors, and their financing partners will be necessary.
Doug discusses how his area can provide value to project owners and contractors.
For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti at email@example.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.