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PBMs Under Scrutiny

PBM Legislation Worries Workers’ Comp Payers

Legislation to regulate group health pharmacy benefit managers could impact workers' comp payers.
By: | February 5, 2014
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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.”

Brian Allen, VP of government affairs for Progressive Medical

Brian Allen, VP of government affairs for Progressive Medical

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.

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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.

Roberto Ceniceros is senior editor at Risk & Insurance® and co-chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at rceniceros@lrp.com. Read more of his columns and features.
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Drug Screens

Post-Accident Drug Testing Prompts ADA Questions

A jury will have to decide whether an employer's post-accident drug testing constitutes a "disability-related inquiry" in violation of the ADA.
By: | September 19, 2014 • 5 min read
urinalysis

A window manufacturer could be forced to pay a large jury award and punitive damages because of its drug testing policies. A U.S. appeals court has sent the case back to a lower court to determine whether the employer’s tests violated the Americans with Disabilities Act.

The case, Bates, et al. v. Dura Automotive Systems Inc., presents a cautionary tale for employers seeking to prevent workplace injuries through drug screening. While the federal District Court had ruled in favor of the plaintiffs, the appellate court’s decision leaves the fate of the employer in the hands of a jury.

The Case

Testing the boundaries of what constitutes a medical examination or disability-related inquiry, Dura’s drug testing policy requiring disclosure of prescription medications raised questions that should be decided by a jury, the 6th U.S. Circuit Court of Appeals said. In reversing the ruling by the U.S. District Court, Middle District of Tennessee that the ADA prohibited the testing, the appeals court said the key issue was whether Dura’s test was designed to reveal an impairment or information about the employee’s health. Determining that a jury could go either way on the question, the appeals court sent the case back to District Court.

Specifically, the higher court reversed, vacated, and remanded the portion of the lower court’s judgment on employees’ ADA Title I claims against Dura related to testing for legal prescriptions that had machine-operation warnings. The higher court reversed the district court’s conclusion that the drug-testing protocol was a medical exam or disability-related inquiry and vacated a related punitive damages award, with one judge dissenting (see box).

According to the appeals court, it was for a jury to determine whether the testing would reveal medical conditions or was narrowly focused enough to avoid discriminating against employees who take prescription drugs.

Under Equal Employment Opportunity Commission definitions, a “medical examination” is a procedure or test that seeks information about an individual’s physical or mental impairments or health. One of the factors bearing on this determination is whether the test is designed to reveal an impairment or information about employees’ physical or mental health.

The appeals court saidit was not clear whether Dura’s testing to find out whether employees were taking machine-operation restricted prescriptions was a medical exam.

“The urine test itself revealed only the presence of chemicals,” the appeals court held. “No one suggests that the consumption of prescription medications containing these chemicals constitutes protected medical information (or even an ‘impairment’).”

Nonetheless, there was evidence of inconsistencies between Dura’s written and actual drug testing policies. The appeals court cited reports of Dura’s alleged disparate treatment of individual employees, which it said could “evince a pernicious motive.”

“For instance, one plaintiff … claims that [Dura] asked her directly about her prescription medications and fired her for not reporting them, and [Dura] allowed another plaintiff to return to work despite testing positive,” the appeals court explained.

There were also lingering questions about whether the testing amounted to a disability-related inquiry.

Weighing in Dura’s favor was how it used a third-party contractor to conduct the tests. Specifically, the appeals court explained that the test, which required positive-testing employees to disclose medications to the contractor who then relayed only machine-restricted medications to Dura, did not have to reveal information about a disability.

“[Dura’s] third-party administered test revealing only machine-restricted medications differs from directly asking employees about prescription-drug usage or monitoring the same,” the appeals court explained. It noted that EEOC guidance defines a “disability-related inquiry” as a “question (or series of questions) that is likely to elicit information about a disability.”

The employees argued that the test was designed to seek information on possible weaknesses in workers and then exclude them from the workplace. But the appeals court held that a jury could conclude that Dura was trying to avoid gathering information about employees’ disabilities. Still, it noted that the testing went further than what the ADA’s drug test exemption for illegal drugs permitted.

Throughout its five-year history, the case has tested various provisions of the ADA.

In 2010, the appeals court held that only individuals with qualifying disabilities under the ADA could pursue a claim under a provision that prohibits employers from using qualification standards, employment tests, and other selection criteria that screen out individuals with disabilities.

In other words, employees in the case without disabilities could not establish that they came under the protections of that section of the law, and the appeals court held that the district court incorrectly classified their claims under that provision.

The Dissent

One appeals court judge in Bates, et al. v. Dura Automotive Systems Inc.,disagreed with the majority’s view of medical exams and disability-related inquiries.

“Some of the terminated employees provided [Dura] with doctor’s notes stating that the use of their prescription medication did not affect work performance,” Circuit Judge Julia Smith Gibbons wrote. “[Dura], however, refused to allow these employees to return to work unless they discontinued their medications regardless of whether the medications had any real likelihood of affecting their ability to perform the job safely.”

In Gibbons’ view, this tipped the scales toward a finding of discrimination because it disregarded medical advice.

Additionally, Gibbons felt that the majority took a “cramped view” of EEOC guidance on whether a test is designed to reveal an impairment of physical or mental health.

“An employer’s purpose in using a particular test must be considered in its ‘larger factual context,’” she explained. “In this case, that larger factual context includes how [Dura] used the test results.”

Gibbons also maintained that the tests had to be considered alongside Dura’s blanket-firing policy.

She questioned why the manufacturer would disregard the employees’ doctors who stated that the employees could perform their jobs safely in spite of their prescriptions.

Nancy Grover is co-Chair of the National Workers’ Compensation and Disability Conference and Editor of Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at riskletters@lrp.com.
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Sponsored: Liberty International Underwriters

A New Dawn in Civil Construction Underwriting

Civil construction projects provide utility and also help define who we are. So when it comes to managing project risk, it's critical to get it right.
By: | September 15, 2014 • 5 min read
SponsoredContent_LIU

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.

SponsoredContent_LIU“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.

SponsoredContent_LIU“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.

SponsoredContent_LIU
Small diameter Tunnel Boring Machine designed for mixed ground conditions and water pressures in excess of 2.5 bar.

New standards

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.

LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
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