August 2011
This is the first article in a two-part series on utilization review. Part 2 of the series can be found here.
Mandatory Utilization Review was a part of a package of Workers' Compensation reforms in California that were intended to reduce costs and make Work Comp more affordable for California employers. There were other noble objectives in addition to purely cost reductions, of course. It was intended to ensure that proven techniques were utilized in the treatment of injured workers in order to facilitate recovery and prevent protracted and unnecessary medical treatment. It would prevent abuse by physicians and would prevent the delays in approving treatments that support speedy recovery and return to work.
Often this is exactly what happens. In the right cases, Utilization Review serves the purpose for which it was designed. It encourages the use of proven techniques and promotes prompt decisions and authorizations for needed treatment. It provides some needed consistency in treatment protocols and has dampened the momentum of some rogue physicians and run away billings.
But as with all things, there are tradeoffs that do come with a cost.
The Unintended Consequences
Can there be too much of a good thing? The answer here is a definite "yes." While Utilization Review can be used to ensure that medical treatment for injured workers is based on evidence-based protocols, it definitely comes at a cost — sometimes a very high cost. Too much Utilization Review can have several unintended consequences that impose "costs" — both monetary and otherwise. These include:
Recently, we have received a number of questions from business lawyers and their clients regarding the responsibilities of the parties in an acquisition transaction (i.e., a stock sale or an asset sale) under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). As you probably know, COBRA requires many group health plans to offer to current participants and their beneficiaries the ability to continue coverage under the plan after certain qualifying events occur that would otherwise result in the termination of an individual's coverage. Here is an overview of how the COBRA rules work in an acquisition.
Questions That Need To Be Asked
In general, these are the questions that need to be asked and considered:
- Has there been a stock sale or an asset sale?
- If so, who (if anyone) has had a COBRA qualifying event?
- If there has been a COBRA qualifying event, which employer is responsible for providing COBRA continuation coverage?
Stock Sale Or Asset Sale?
The Treasury regulations governing this area are phrased in terms of stock sales and asset sales. A stock sale is a transfer of stock in a corporation that causes the corporation to become a different "employer" taking into account the controlled group rules. For example, if Corporation A owns 100% of Corporation B and sells its stock in Corporation B to Corporation C (that is not related to Corporation A), a stock sale has occurred because Corporation B ceases to be a member of Corporation A's controlled group and becomes a member of Corporation C's controlled group. An asset sale is a transfer of substantial assets, such as a plan or division or substantially all the assets of a trade or business.
M&A Qualified Beneficiaries
If either a stock sale or an asset sale has occurred, we must identify the group of individuals who must be offered COBRA continuation coverage — the so-called "M&A qualified beneficiaries." An "M&A qualified beneficiary" is a qualified beneficiary whose qualifying event occurred prior to or in connection with the sale and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was associated with:
- The acquired organization in the case of a stock sale; or
- The assets being sold in the case of an asset sale.
In the seven years since Governor Arnold Schwarzenegger signed the sweeping reforms of Senate Bill 899 (SB 899) into law, the applicant's bar has been actively lobbying to roll them back. Most recently, through Assembly Bill 947 (AB 947) introduced this spring by Assembly Member Jose Solorio (D - Anaheim, Garden Grove, and Santa Ana), applicants' attorneys have targeted SB 899's 104-week cap on total temporary disability (TTD) benefits.
Before SB 899 became law, total temporary disability benefits which were intended to provide two-thirds of the average weekly wage could go on indefinitely thanks to legislation signed into law in 1978 by then- and now-Governor Jerry Brown, eliminating the previous 240-week cap. Under SB 899, applicants injured after April 19, 2004 will receive 104 weeks of temporary disability within five years of the date of injury unless they meet one of the exceptions for long-term injury such as severe burns, amputations, or chronic lung disease.
Advocates for AB 947 have argued that it often takes longer than two years for an applicant to recover from surgery or obtain necessary medical treatment. AB 947 would require that applicants who need treatment that could not be medically completed within 104 weeks can receive up to 240 weeks (approximately 4.6 years) of total temporary disability benefits within five years of the date of injury.
Temporary disability benefits are one of the highest cost drivers for carriers and employers and the maximum rates have expanded considerably from $490 per week in 2002 to $1,010.50 in 2012. According to the Senate Appropriations Committee, which reviewed research from the Commission on Health and Safety Workers' Compensation (CHSWC), in increasing the period of temporary disability, AB 947 could increase per-claim temporary disability benefits by up to $137,000. In total, the legislative analysts have predicted an annual increase of $188 to $238 million in total temporary disability benefits. This does not include the medical evaluation and treatment costs that will be required to justify and sustain applicants for extended periods of total temporary disability.
Such Decisions Are Entirely Separate From Your Reasonable Accommodation Process Under Disability Discrimination Laws
The evaluation employers must make regarding an employee's potential return to work under the workers' compensation system is fundamentally different from the reasonable accommodation analysis mandated by the Fair Employment and Housing Act (FEHA). A precedent-setting decision in Cuiellette v. City of Los Angeles reinforces that even when a workers' compensation claim is managed and resolved perfectly, employers may still be at risk for a discrimination lawsuit when they fail to follow the separate Fair Employment and Housing Act process requirements.
A Los Angeles Police Department officer was injured and placed on disability leave. His workers' compensation claim was resolved with 100% disability rating. He later expressed interest in returning to the police department to work in fugitive warrants unit, where he was uniquely qualified by prior experience. His treating physician wrote that he could perform "permanent light duty — administrative work only."
The note did not specify any restrictions. The City assigned him to the court or renditions desk in the fugitive warrants unit. At that time, the City had an "informal" policy and practice of allowing sworn officers to perform "light duty" assignments that did not involve several of the essential functions of a peace officer. The City decided to send him home when a workers' compensation claims examiner advised that the Los Angeles Police Department could not reasonably accommodate an officer who was designated through workers' compensation as "100% disabled."
He sued under the Fair Employment and Housing Act, alleging failure to engage in a good faith interactive process and failure to reasonably accommodate.
Is the catastrophe market firming up or not? What will happen to my renewal in November? What did the Japan Earthquake do to the market?
Agents and brokers who work in the Catastrophe (CAT) insurance market field these questions every day and give many different answers. I will try and break this down looking at three main variables that may have the greatest impact on pricing with a focus on West Coast Earthquakes (EQ).
Losses
The fact is that catastrophe losses and their impact on pricing need to be looked at from a global perspective. In other words, even if we have not suffered a major earthquake in California for twenty years, we are subject to changes in the marketplace due to all insurable catastrophe losses worldwide. There are primarily two reasons for this.
First, many of the largest carriers and/or their affiliates write business in Asia, South America, and Australia, and the reinsurance treaties purchased by these carriers are also provided by international markets that are exposed to those events.
Second, most carriers purchase catastrophe reinsurance treaties on a combined basis that incorporates the perils of Earthquake, Wind and Flood. So a large earthquake in Japan, a flood in Australia, or an earthquake in New Zealand can impact Earthquake pricing in California.
Early in 2010, the thought was that it would take insurable loss amounts higher than the 2005 Hurricane Season to "harden" the catastrophe market (estimated insurable losses are at $75 billion for the three largest hurricanes — Katrina, Rita and Wilma). In the last twelve months, total insuranble losses from earthquakes, floods, wind/hail storms, tornadoes, etc. are estimated to be in excess of $85 billion and will likely exceed $100 billion as losses develop
I believe it is very important that agents fully understand the mechanics of America's healthcare delivery system, why it is broken and what it might look like if it's successfully overhauled.
The fundamental problem with the American healthcare system is that we hardly spend any money on basic, general care which causes us to spend a whole bunch of money on specialty care. The fact is that five chronic diseases account for 70% of our country's $2.6 trillion annual healthcare expenditures. Those diseases are coronary artery disease, congestive heart failure, diabetes, depression and asthma. The status quo of the way we deliver healthcare is conducive to inadequate management of chronic illness.
There's not a lot of money in educating a family on what brings on an asthmatic attack and what to do in case a child suffers from one. But there's a whole lot of money spent when an asthmatic is admitted to the hospital. The lack of proper care and management of diabetes can lead to very expensive care including amputations, dialysis at $10,000 a day and maybe even a new kidney at $250k. Outreach programs to help diabetics methodically check their blood chemistry, see their doctors regularly and gain access to nutritionists are generally poorly funded, if they exist at all. So it's no wonder that diabetes alone accounts for 35% of Medicare expenditures.
Shortages in access to primary care due to lack of financial incentives (why be a general practitioner when you can make three times the money being a specialist?) cost our system hundreds of billions of dollars a year. Unless our country does more to encourage chronic disease management, the healthcare cost curve will continue upward and ultimately drive our country off the edge of an economic cliff.
Having said this, our system appears to be in the early stages of changing for the better.
Author Arthur Bloch is credited with observing, "Every clarification breeds new questions." This sentiment has perhaps never been better epitomized than via last week's release of Ogilvie!
With lightning speed, the First District Court of Appeal issued its opinion in Ogilvie on July 29th, a mere seven weeks after that court heard oral arguments on (a) whether the diminished future earning capacity (DFEC) modifier in the 2005 Permanent Disability Rating Schedule (PDRS) can be rebutted, and, if so, (b) how the diminished future earning capacity may be rebutted.
What's at stake?
There is a great deal at risk here.
First, if an applicant is permitted to rebut the scheduled diminished future earning capacity modifier, how is the claims adjuster to set reserves until the so-called "diminished future earning capacity experts" have rendered their opinions and the Workers' Compensation Judge has weighed-in?
Answer: it's virtually impossible to accurately set reserves with so many unknown variables!
Practice Pointer:
Adjusters should assume that the diminished future earning capacity will not be rebutted and set reserves based on the scheduled diminished future earning capacity modifier. The scheduled modifier (and the entire permanent disability rating schedule) is prima facie evidence of the correct permanent disbility percentage, after all!
Second, if individual applicants can create their own diminished future earning capacity modifier, what happens to the legislative mandate that the 2005 permanent disability rating schedule "shall promote consistency, uniformity, and objectivity." (See Labor Code 4660(d))
Answer: The 1st District Court of Appeal thinks this isn't a problem, though I have serious reservations! (Don’t you?!)
The Envelope, Please:
Question A: Can the diminished future earning capacity modifier be rebutted?
Recently I was reading about the challenging environment of a nuclear aircraft carrier. Here are some of the characteristics:
- Manned by a bunch of 20-year olds
- Deadly jet engines that can suck a person into the jet intake if too close
- Jet exhausts that can severely burn a man or blow him overboard
- Jet fighter take-offs that reach 150 mph in 2 seconds
- Landings that essentially are controlled crashes
- Fueling aircraft with engines running
- Handling of explosive materials
Yet, for all the hazards, accidents on flight decks are surprisingly rare. Because so many things could go wrong but almost never do, experts consider this a "high reliability organization." The clarity about responsibility for one's performance as well as interfacing with team members is astounding. The communication and heads-up performance is crucial for success. Success is dependent on each person understanding what is expected of him, and understanding how what he does complements the work of the rest of the team. Makes sense, right?
Many of us have participated in this level of preparation and attention to detail when the stakes have been high for the specific project we have been involved with. But think of what is needed to enable this level of performance every day!
Does your Prescription Benefit Manager contract deliver the actual pricing printed on its pages?
Can you verify the actual pricing?
If you can't accurately benchmark your pricing, how can you competitively analyze your program or implement any meaningful predictive strategies?
The majority of large employers today do not have the necessary tools at their disposal to decipher and use to their advantage the key relationship between the actual Prescription Benefit Manager (PBM) claims pricing received and the contract language that supports those claims.
It is all well and good to negotiate an average wholesale price (AWP) less 72% for a certain tier of drugs from your Prescription Benefit Manager, but how do you verify that is in fact what you are getting? Your contract may back up and document that discoun,t but does that mean you are receiving it? It is critical for the purchaser of prescription benefits to understand that what they believe they agreed to in contract negotiations and what appears to be supported by the Prescription Benefit Manager contract is not necessarily what they are receiving. In fact, discounts are often inflated making contracts look great on paper but not so good in reality.
The distractions of the Prescription Benefit Manager procurement process sidetrack most employers, which shifts their focus in the wrong direction giving way to perception and not reality. Terms like pass-through, transparency, rebates and average wholesale price, combined with the presentations of the competing Prescription Benefit Managers, leave most employers with more questions then when they began. Even Prescription Benefit Manager executives become confused when comparing their own proposal to that of a competitor.
What Else Will Go Wrong With our Economy?
Just as most of us thought things were improving and as the Dow was seemingly stabilizing with all of us hoping for a strong recovery, it happened. The elongated and painful negotiations regarding the debt limit, the downgrading of the US credit, and then a tumultuous stock market drop. What's next? The recent Health Affairs article from the CMS Office of the Actuary suggests that we are now faced with higher than average health care cost increases.
One of the "hoped for" outcomes of health care reform, known as PPACA or Obamacare, was reduced health care trends and more controlled healthcare costs. Although filled with controversy, the general understanding of the overarching and primary objective for reform was the goal of achieving health care cost savings.
The forecasts are not encouraging. The impact of rising health care costs on the federal budget and deficit is concerning at best, when at the same time the value of Treasury securities is declining in the financial markets. Perhaps one of the most disappointing predictions is the table below.
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Dave Dias
David Axene
Jeff Pettegrew
Jennifer Weathersbee
Mark Webb