Workers’ Comp Forecast for 2014
1. Predictive Analytics.
Using predictive analytics effectively is the holy grail for any large company.
If you are a staffing company, oil field service operation, or retailer working on tight margins, getting this right can mean the difference between a profitable year or needing to increase liability accruals to account for ever-increasing long tail development.
There is a need to not only develop models for making predictions but to be able to provide actionable information that can be used to quantify the cost/benefit of taking very specific actions. If this could be accomplished, insurers and large self-insured companies could efficiently allocate resources to the areas likely to provide the most meaningful benefit.
2. TRIA is Non-Renewed.
The Terrorism Risk Insurance Act (TRIA) or Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to expire on Dec. 31. Even now, as we are without a decision, insurers are being exposed to unlimited terrorism-related workers’ compensation liability (based on an annual policy period).
TRIA has been in place since 2002, when Congress acted to ensure that there was a market-based solution for insurance losses arising out of terrorist acts. It is generally agreed that the sponsors of that Act suggested that it could one day be phased out, and throughout its life, the protection has been diminished. However, what remains are clear limits that comfort investors and others in the financial community.
While the Act remains unrenewed, it is the witching hour for insurers. Consequently, insurers are in the process of preparing their position with respect to the issue.
3. Loss Costs in California Deteriorate.
When California Gov. Edmund “Jerry” Brown signed the workers’ compensation reform legislation into law Sept. 18, he said that it would reverse a four-year trend of rate increases. According to the data made available to us, the insurance market clearly disagrees.
As a matter of fact, California is the state producing the highest rate increases. Possibly, the reform medicine is slow acting and good news for employers in California is on its way.
The problem in California is not a new one. At one point, the state insurance fund was writing more than 50 percent of the workers’ compensation market. That
is the fund that was created to be the market of last resort as it is a government enterprise.
What is clear is it is becoming more common for insurers to place limitations on the amount of California workers’ compensation they will write. The concern is that in the current environment it is simply impossible to be profitable. It is a subtle movement to avoid a head-on clash with regulators.
4. IRS Focuses on Insurers and Captives.
The uniqueness and secret to success for the insurance industry is its favorable tax treatment. Money comes in, expected future losses are deducted and cash is available for investment and growth. The big difference is that expenses do not need to be paid but only accrued to reduce taxable income. That leaves more cash for investment.
There has been discussion about scrutiny of taxation for insurance companies and captives, the alternative risk tool of choice. Captives are on the short list for IRS auditors and if captives are not properly structured, there is more risk that those captives will now be challenged.
5. Trial Attorneys to Target Non-Subscription.
Approximately one-third of the employers in Texas are non-subscribers. Why? Because it makes sense. It saves on frictional costs, quickly provides benefits to employees who are injured and eliminates much of the soft fraud. It has been so successful that Oklahoma enacted its own reform effort, and Tennessee is considering legislative initiatives to enhance opportunities for non-subscription.
Even without a survey, we can safely assume that the majority of plaintiff’s attorneys are not big fans of non-subscription. Benefits for non-subscription are paid out via the Employee Retirement Income Security Act. There is no need for a legal process. There is no waiting period. There are clear definitions that are subject to arbitration.
In contrast, workers’ compensation commonly requires a legal process. Should an attorney become involved in a case where there is an injury within the course of employment, the attorney’s share, although not as large as in a tort case, is for all intents and purposes no-fault. For legal firms, workers’ compensation is high volume, low risk and considerable reward.
Consequently, we would think that should non-subscription become popular in Oklahoma and be signed into law in Tennessee that it may become a target of the bar.
6. Medicare Set Asides Become Increasingly Difficult.
MSAs, as they are called, are a complicated thing. In general, money is set aside to pay benefits for costs that otherwise would be funded by Medicare. It applies only to certain classes of individuals. With an aging workforce, it has become a big and expensive issue for insurance companies.
The problem is that claims can’t be settled quickly and efficiently as government sign-off is required. The impact has been a substantial increase in large claims severity. Further, it has helped to create longer tail development. What this means is that all companies will end up with longer periods of loss development in the form of greater IBNR (Incurred but not reported losses). It translates into more collateral, higher costs and higher liability accruals.
7. Bond Yields Plummet.
Nothing has had a greater impact on the insurance market than the change in bond yields post-2008. It required underwriters to make a profit underwriting. That changed the dynamics of the marketplace and the way the big insurers look at their business.
While it is hard to imagine, it is possible that rates of return on bonds could get much lower. Should there be a European meltdown, recession in Asia or the refusal of China and others to continue to fund our deficits, rates will fall. Should this happen there will be no escaping the need for rate adjustments across all lines of insurance as the dynamics of the current market will be left smoldering once again.
Attitudes Shift on Medical Marijuana
The tide is turning towards paying workers’ compensation claims involving medical marijuana, but many payers remain reticent.
Industry professionals would prefer that the federal government stop classifying the drug as an illegal controlled substance before paying such claims.
Four states — Connecticut, Maine, Minnesota and New Mexico — approved workers’ comp reimbursement for the use of medical marijuana, at least publicly, according to Mark Pew, senior vice president at PRIUM in Duluth, Ga.
Courts in New Mexico ruled that carriers must pay for marijuana if a doctor in that state recommends it as part of a claimant’s treatment.
However, some carriers are defying the state court’s order, arguing that it’s illegal under federal law. Still, there seems to be an ongoing shift in risk management and insurance toward paying claims that involve marijuana use.
“I think increasingly, more people with whom I’ve spoken are open to the possibility — that includes physicians, nurses, claims adjusters, and those that influence decisions,” he said.
“They will review based on the clinical efficacy for that particular patient.”
However, not everyone is convinced, as the studies conducted on marijuana are not as definitive as those for FDA-approved drugs, Pew said.
Moreover, professionals still point to the fact that marijuana is classified as illegal by the federal government.
Paying claims for its use could create a legal quandary.
“I think those that not convinced are still the majority of the workers’ comp industry,” Pew said.
“It is a loaded question, because marijuana is a divisive and partisan issue, and personal biases of individuals within the workers’ comp system influence their perceptions on it.”
On top of this, payment decisions based on utilization reviews (UR) are problematic because there are no medical guidelines for medical marijuana, Pew said. In some states UR is the arbiter, in other states UR is but an opinion, and in still others, UR is not supported.
Within workers’ compensation, the two treatment guidelines most used by states are Official Disability Guidelines and ACOEM, although some states have created their own. None currently recommend the medical use of marijuana, regardless of condition.
As such, if UR decisions rely on those guidelines, “the answer would be ‘no’ ” on payment for the drug use, Pew said.
But when reimbursement decisions are made outside of UR, individual biases on the subject of marijuana could have an impact, he said.
“Some will absolutely not consider marijuana as medicine and refuse reimbursement,” Pew said.
“Others may have personal experience or know someone that cannabis helped and be willing to consider it.”
“At no time in our history has a state government required the reimbursement for use of a substance that is illegal under in the eyes of the federal government.” — Nichole Wilson, director, pharmacy product development, Coventry Workers’ Comp Services
When it comes to evaluating the clinical efficacy of medical marijuana, practitioners should look at whether benefits exceed the risks, level of function and activity, quality of life, and whether the addition of medical marijuana could help discontinue the use of such dangerous drugs such as OxyContin, Alprazolam, Xanax and Soma, he said.
“In other words, evaluate the appropriateness of cannabis as you would any other drug or treatment — does it work or not for that specific patient? That has been the case in the four states where reimbursement is being done, and the way in which the tide seems to be turning,” Pew said.
The use of medical marijuana for chronic pain is growing more and more popular — as of February 2016, 26 percent of all registered medical cannabis patients in New Mexico usde it for chronic pain, Pew said.
Moreover, 46 percent of registered patients use it for PTSD.
These numbers include all registered patients, not just injured workers, but those conditions are obviously applicable to workers’ comp.
Chronic pain is typically included as a qualifying condition for medical cannabis programs around the country, with Minnesota adding a very narrowly defined “intractable pain” to its list of approved uses as of Aug. 1.
“All of this means that medical cannabis is a burgeoning issue, with evolving science and opinions, and is absolutely pertinent to workers’ comp both now and into the future,” Pew said.
“And if marijuana is ever made legal and/or rescheduled at the federal level, the conversation changes dramatically.”
Lisa Anne Forsythe, senior consultant, regulatory business consulting and analysis, at Coventry Workers’ Comp Services in Sacramento, Calif., said “the tide is definitely turning.”
She has been working on the issue from a regulatory, legal and financial/billing perspective.
There were no medical marijuana claims whatsoever until after the recent appellate rulings in New Mexico, the first state in the country to allow medical marijuana as a compensable benefit.
“It simply wasn’t an issue from a legal, regulatory and financial standpoint until then,” Forsythe said.
Paucity of Evidence
Don Lipsy, Coventry’s manager, pharmacy regulatory communications in Tucson Ariz., said there are “burgeoning pockets” of utilization of medical marijuana related to workers’ comp injuries. While Coventry has not had claims, they’ve heard secondhand of claims being paid by others.
“We’re seeing an expansion of use as an alternative to opioids, and my concern is that we might be trying so hard to address the opioid epidemic that we are treating medical marijuana as a silver bullet,” Lipsy said.
“I’m not so sure we aren’t trading one issue for another.”
From a clinical perspective, there are still a lot of people on the fence on whether or not marijuana is useful, said Nichole Wilson, Coventry’s director of pharmacy product development in Omaha, Neb.
“The evaluation of benefits versus risks are on most clinicians’ minds,” Wilson said.
“Since it’s still classified by the federal government as an illegal Schedule 1 controlled substance, there is not a preponderance of clinical evidence evaluating the drug, and that is a challenge to the medical community.”
“The tide is turning towards public acceptance of medical marijuana, with 169 million people living in the jurisdictions that have legalized it.” — Gregory McKenna, vice president and counsel for governmental affairs, Gallagher Bassett Services
Moreover, there’s a lot of concern about possible interactions of medical marijuana might have with other treatments as well as its potential benefits, Forsythe said.
“But there is also comparatively little discussion on the practical, legal and financial implications associated with the adoption of medical marijuana as a compensable benefit at this time, and that is something that really needs to be talked about,” she said.
“That was definitely one of the larger topics within the New Mexico bill. When we tell an insurance company that medical marijuana is a mandated covered benefit, this is precedent-setting — at no time in our history has a state government required the reimbursement for use of a substance that is illegal under in the eyes of the federal government.”
The Federal Conundrum
The liability implications of paying for an illegal substance need to be more thoroughly examined, experts said.
For example, the use of the federal banking system to pay for the illegal drug could that trigger federal criminal action under the Racketeer Influenced and Corrupt Organizations Act (RICO), Forsythe said.
“Financial institutions are loathe to potentially run afoul of RICO and have avoided doing business with dispensaries, etc., due to liability concerns,” she said. “Insurance companies face a similar exposure.”
Gregory McKenna, vice president and counsel for governmental affairs for Gallagher Bassett Services in Itasca, Ill., said the TPA’s workers’ comp resolution managers “are on the front line,” since they decide whether medical marijuana is a compensable treatment.
First, since federal banking restrictions make it illegal for providers of medical marijuana to use FDIC-approved banks, payment to them has to be made in cash, McKenna said. As such, the claimant needs to pay the provider in cash, and then the claimant has to be reimbursed by check.
“Payors have to make decisions to proceed with a reimbursement to the claimant, which is further complicated by a series of federal criminal statutes related to marijuana transactions,” he said.
“This is out of the realm of what we do normally, so it is a new frontier.”
Another significant challenge lies in the fact that the industry has few decision-support tools for medical marijuana, such as clinical intervention to alert workers’ comp decision-makers to potential interactions between medical marijuana and other medications or medical bill review processes to ensure proper dosage or utilization.
“However, the tide is turning towards public acceptance of medical marijuana, with 169 million people living in the jurisdictions that have legalized it,” McKenna said.
“Because of that volume of people, now the DEA and other federal agencies are taking a very careful look at reclassifying medical marijuana to make it legal.”
The agencies are also looking at naming very specific components of marijuana, to determine whether there may be some additional benefits to those components. That could open up additional research to take a clinical look at the efficacy of medical marijuana.
“This and decriminalization could lead to more workers’ comp payments within the industry,” he said.
Compounding: Is it Coming of Age?
The WC managed care market has generally viewed the treatment method of Rx compounding through the lens of its negative impact to cost for treating chronic pain without examining fully the opportunity to utilize “best practice” prescription compounds to help combat the opioid epidemic this nation faces. IPS stands on the front lines of this opioid battle every day making a difference for its clients.
After a shaky start cost-wise, prescription drug compounding is turning the corner in managing chronic pain without the risk of opioid addiction. A push from forward-thinking states and workers’ compensation PBMs who have the networks and resources to manage it is helping, too.
Prescription drug compounding has been around for more than a decade, but after a rocky start (primarily in terms of cost), compounding is finally coming into its own as an effective chronic pain management strategy – and a worthy alternative for costly and dangerous opioids – in workers’ compensation.
According to Greg Todd, CEO and founder of Integrated Prescription Solutions Inc. (IPS), a Costa Mesa, Calif.-based pharmacy benefit manager (PBM) for the workers’ compensation and disability market, one reason compounding is beginning to hit its stride is because some states have enacted laws to manage it more effectively. Another is PBMs like IPS have stepped up and are now managing compound drugs in a much more proactive manner from an oversight perspective.
By definition, compounding is a practice through which a licensed pharmacist or physician (or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist) combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.
During that decade, Todd explains, opioids have filled the chronic pain management needs gap, bringing with them an enormous amount of problems as the ensuing addiction epidemic sweeping the nation resulted in the proliferation and over-consumption of opioids – at a staggering cost to both the bottom line and society at large.
As an alternative, compounded topical cream formulations also offer strong chronic pain management but have limited side effects and require much reduced dosage amounts to achieve effective tissue level penetration. In fact, they have a very low systemic absorption rate.
Bottom line, compounding provides prescribers with an excellent alternative treatment modality for chronic pain patients, both early and late stage, Todd says.
Time for Compounding Consideration
That scenario sets up the perfect argument for compounding, because for one thing, doctors are seeking a new solution, with all the pressure and scrutiny they’re receiving when trying to solve people’s chronic pain problems using opioids.
Todd explains the best news about neuropathic pain treatment using compounded topical analgesic creams is the results are outstanding, both in terms of patient satisfaction in VAS pain reduction but also in reduction potentially dangerous side effects of opioids.
The main issue with some of the early topical creams created via compounding was their high costs. In the early years, compounding, which does not require FDA approval, had little oversight or controls in place. But in the past few years, the workers compensation industry began to take notice of the solid science. At the same time, medical providers also were seeing the same science and began writing more prescriptions for compounding – which also offers them a revenue stream.
This is where oversight and rigor on the part of a PBM can make a difference, Todd says.
“You don’t let that compounded drug get dispensed when you’re going to pay for it without having a chance to approve it,” Todd says.
Education is Critical
At the same time, there is the growing, and genuine, need to start educating the doctors, helping them understand how they can really deliver quality pain management to a patient without gouging the system. A good compounding specialty pharmacy network offering tight, strict rules is fundamental, Todd says. And that means one that really reaches out to work with the doctors that are writing the prescriptions. The idea is to ensure that the active ingredients being chosen aren’t the most expensive sub-components because that unnecessarily will drive the cost of overall compound “through the ceiling.”
IPS has been able to mitigate costs in the last couple years just by having good common sense approach and a lot of physician outreach. Working with DermaTran Health Solutions and its national network of compounding pharmacies, IPS has been successfully impacting the cost while not reducing the effectiveness of a compounded prescription.
In Colorado, which has cracked down on compounding profiteering, Legislative change demanded no compound could be more than $350.00 period. What is notable, in an 18-month window for one client in Colorado, IPS had 38 compound prescriptions come through the door and each had between 4 and 7 active ingredients. Through its physician education efforts, IPS brought all 38 prescriptions down 3 active ingredients or less. IPS also helped patients achieve therapeutic success (and with medical community acceptance). In that case, the cost of compound prescriptions was down to an average of $350, versus the industry average of $788. Nationwide IPS has reduced the average cost of a compound prescription to $478.00.
Todd says. “We’ve still got a way to go, but we’ve made amazing progress in just the past couple of years on the cost and effective use of compound prescriptions.”
For more information on how you can better manage your costs for compound prescriptions, please call IPS at 866-846-9279.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with IPS. The editorial staff of Risk & Insurance had no role in its preparation.