The event drew little fanfare and scant attention last week, but it still rocked the healthcare world.

The headline I wrote for Forbes was an attempt to capture the full effect, but headlines are tough that way. On the one hand, you have to grab a reader quickly. On the other, headlines have to be accurate and truthful. In this day and age -- where everyone has a keyboard and a Wordpress (or LinkedIn) account -- it can be hard to separate the wheat from the chaff and too easy to discount headlines that scream "disruption." I elected to run with the popular technique of using a question as the headline:

Could This Pricing Tool for Consumers Disrupt Healthcare?

The fact is -- this particular pricing tool is very disruptive -- and not for the reasons that are readily apparent. The first reaction by many was, so what? There are tons of consumer pricing tools already on the market. I highlighted three that are "consumer facing."

1. Health Care Blue Book
2. Fair Health
3. ClearHealthCosts

These are all great examples in their own right, of course (and there are many others), but they are all attempts to circumvent the mechanism that keeps true "in-network" provider pricing from becoming transparent. They're mostly designed with the fervent prayer that consumers will influence pricing by shopping with their feet.

But that's not the full effect of the new pricing tool -- by a long shot. One of the key pricing targets is the providers that Blue Cross Blue Shield of North Carolina (BCBSNC) negotiates with. In the course of one short week (since launch), one provider has already called BCBSNC to ask that its prices be lowered.

In. One. Week.

Full credit goes to BCBSNC for its bold vision. This cannot have been easy. For decades, in-network pricing (hotly negotiated between payers like BCBSNC and their various networks of providers) has been a closely guarded secret. Prices were considered proprietary -- and serious legal effort was expended to ensure their secrecy -- often including non-disclosure agreements, with serious penalties for breach.

That changed this month, and I posit it will have a profound impact on the healthcare system as a whole. Why? Because it's a Blue Cross Blue Shield organization (one of 37 around the country), and because the footprint for the Association of Blues is enormous. Not just in North Carolina (lives covered by BCBSNC equal about 40% of the population in North Carolina): The association either administers or provides health coverage for about 1/3 of the entire U.S. population (roughly 105 million Americans).

It will be hard for other Blue Cross Blue Shield plans to ignore this precedent-setting move by BCBSNC.

Will this be the impetus that forces payers to disclose in-network contract pricing more broadly? That's a big unknown, of course, but the pressure is enormous and growing. BCBSNC was the first, but I doubt it will be the last.

I ended the article on Forbes this way: "Some said this could never happen. Others said it never would. The fact is -- it just did. I'm betting other payers (every color stripe) will follow."

At the very least, the pressure of true, in-network contract pricing transparency is clearly evident... and mounting. The whole healthcare industry needs as much disruption as everyone can create. The surprise here was the source. Way to go, Big Blue!

The 2014 WC Benchmarking Study by Rising Medical Solutions depicts a claims industry with nowhere to hide and a lot to answer for. This very detailed and intelligent survey deserves some serious attention.

The survey is particularly revealing because it boldly juxtaposes four critical topics rather than focus on a single issue. The covered topics are:

1. Core competencies
2. Talent development and retention
3. Impact of technology and data
4. Medical performance and management

Surveying these four topics together prevents industry excuses. By contrast, any single-topic survey leaves the industry with room to equivocate and retort with presumptuous hope about the holistic system. For example, a survey on talent management might conclude that there is a woeful lack of investment in recruiting and training new adjusters, yet the editorial response might assert that efforts in work-flow technology can take up future slack. Further, a single-topic study showing a higher cost for WC medicine vs. non-occupational care might evoke an editorial response touting the latest strides in "managed care" that surely hold hope for future corrections to this problem.

Well, when a side-by-side evaluation of the four survey topics show consistent deficits in all areas among more than 400 responders I don't think there is enough fresh coffee in any PR department to conjure up a reassuring response.

High-level findings include:

- Claim providers can easily cite the critical core competencies for adjusters: return to work, medical management and compensability investigations, etc. However, many do not measure performance based on these competencies, nor support active efforts to develop these talents. Only half of responders report using positive or negative reinforcement of core competencies.

- Regarding adjuster training, 48% of responders have no or "unknown" budgets. Only 36% have formal training for new hires, most of which is 40 hours or less.

- Fewer than 40% of responders use outcome-based claim measures.

- Fewer than 30% measure medical provider performance, indicating that the network discount is all important and that the care itself an afterthought.

- The IT/data areas indicate no clear focus or vision or investment in workflow, cross-system integration or predictive modeling. (Only 25% report using predictive analytics. Being a proud skeptic of this folly, that is fine with me, but hold that thought for a future article.)

There is creative cross-referencing one can do among this survey's sections, which I believe shows responders' disregard for outcome in favor of profit. For example, one section measures the use of cost-containment applications, while a separate section asks for ranking of cost-containment applications based on how critical they are. Nurse triage is listed as having the third most critical impact on outcome yet is in 7^th place among tactics responders use. In contrast, bill review is number one in use, by 95% of responders, yet ranks as only 6^th on scale of impact on outcome.

I conclude that, in spite of bill review's low impact on outcomes, many claim-service providers deem the "percentage of savings" cash flow stream as most important. Let's not forget there is a huge IT investment in bill scanning and processing centers. So, despite pressure on other aspects of IT, there apparently is an IT budget available when it supports cash flow.

Bottom line, claim providers do little to invest in long-term improvement, while focusing on short-term savings and cash-flow streams.

My suggestion for future studies by Rising Medical is to totally split for-profit insurers and TPAs from in-house, self-administered responders. The former chases profit; the latter chases outcomes. I predict a very telling dichotomy among this split.

Bernard Marr is one of the big voices to pay attention to on the subject of big data. His recent piece "Big Data: The Predictions for 2015" is bold and thought-provoking. As a P&C actuary, I tend to look at everything through my insurance-colored glasses. So, of course, I immediately started thinking about the impact on insurance if Marr's predictions come to pass this year.

As I share my thoughts below, be aware that the section headers are taken from his article; the rest of the content are my thoughts and interpretations of the impact to the insurance industry.

The value of the big data economy will reach $125 billion

That's a really big number, Mr. Marr. I think I know how to answer my son the next time he comes to me looking for advice on a college major.

But what does this huge number mean for insurance? There's a potential time bomb here for commercial lines because this $125 billion means we're going to see new commerce (and new risks) that are not currently reflected in loss history - and therefore not reflected in rates.

Maybe premiums will go up as exposures increase with the new commerce - but that raises a new question: What's the right exposure base for aggregating and analyzing big data? Is it revenue? Data observation count? Megaflops? We don't know the answer to this yet. Unfortunately, it's not until we start seeing losses that we'll know for sure.

The Internet of Things will go mainstream

We already have some limited integration of "the Internet of Things" into our insurance world. Witness UBI (usage-based insurance), which can tie auto insurance premiums to not only miles driven, but also driving quality.

Google’s Nest thermostat keeps track of when you're home and away, whether you're heating or cooling, and communicates this information back to a data store. Could that data be used in more accurate pricing of homeowners insurance? If so, it would be like UBI for the house.

The Internet of Things can extend to healthcare and medical insurance, as well. We already have health plans offering a discount for attending the gym 12 times a month. We all have "a friend" who sometimes checks in at the gym to meet the quota and get the discount. With the proliferation of worn biometric devices (FitBit, Nike Fuel and so on), it would be trivial for the carrier to offer a UBI discount based on the quantity and quality of the workout. Of course, the insurer would need to get the policyholder's permission to use that data, but, if the discount is big enough, we'll buy it.

Machines will get better at making decisions

As I talk with carriers about predictive analytics, this concept is one of the most disruptive to underwriters and actuaries. There is a fundamental worry that the model is going to replace them.

Machines are getting better at making decisions, but within most of insurance, and certainly within commercial lines, the machines should be seen as an enabling technology that helps the underwriter to make better decisions, or the actuary to make more accurate rates. Expert systems can do well on risks that fit neatly into a standard underwriting box, but anything outside of that box is going to need some human intervention.

Textual analysis will become more widely used

A recurring theme I hear in talking to carriers is a desire to do claims analysis, fraud detection or claims triage using analysis of text in the claims adjusters' files. There are early adopters in the industry doing this, and there have emerged several consultants and vendors offering bespoke solutions. I think that 2015 could be the year that we see some standardized, off-the-shelf solutions emerge that offer predictive analytics using textual analysis.

Data visualization tools will dominate the market

This is spot-on in insurance, too. Data visualization and exploration tools are emerging quickly in the insurance space. The lines between "reporting tool" and "data analysis tool" are blurring. Companies are realizing that they can combine key performance indicators (KPIs) and metrics from multiple data streams into single dashboard views. This leads to insights that were never before possible using single-dimension, standard reporting.

There is so much data present in so many dimensions that it no longer makes sense to look at a fixed set of static exhibits when managing insurance operations. Good performance metrics don't necessarily lead to answers, but instead to better questions - and answering these new questions demands a dynamic data visualization environment.

Matt Mosher, senior vice president of rating services at A.M. Best, will be talking to this point in March at the Valen Analytics Summit and exploring how companies embracing analytics are finding ways to leverage their data-driven approach across the entire enterprise. This ultimately leads to significant benefits for these firms, both in portfolio profitability and in overall financial strength.

There will be a big scare over privacy

Here we are back in the realm of new risks again. P&C underwriters have long been aware of "cyber" risks and control these through specialized forms and policy exclusions.

With big data, however, comes new levels of risk. What happens, for example, when the insurance company knows something about the policyholder that the policyholder hasn't revealed? (As a thought experiment, imagine what Google knows of your political affiliations or marital status, even though you've probably never formally given Google this information.) If the insurance company uses that information in underwriting or pricing, does this raise privacy issues?

Companies and organizations will struggle to find data talent

If this is a huge issue for big data, in general, then it's a really, really big deal for insurance.

I can understand that college freshmen aren't necessarily dreaming of a career as a "data analyst" when they graduate. So now put "insurance data analyst" up as a career choice, and we're even lower on the list. If we're going to attract the right data talent in the coming decade, the insurance industry has to do something to make this stuff look sexy, starting right now.

Big data will provide the key to the mysteries of the universe

Now, it seems, Mr. Marr has the upper hand. For the life of me, I can't figure out how to spin prognostication about the Large Hadron Collider into an insurance angle. Well played.

Those of us in the insurance industry have long joked that this industry is one of the last to adopt new methods and technology. I feel we've continued the trend with big data and predictive analytics - at least, we certainly weren't the first to the party. However, there was a tremendous amount of movement in 2013, and again in 2014. Insurance is ready for big data. And just in time, because I agree with Mr. Marr - 2015 is going to be a big year.

The insurance industry is in the midst of a historic shift. That might sound like an overstatement, but Strategy Meets Action's research and observations from working with insurers back up this claim. For the past six years, SMA has been tracking and supporting the industry's evolving maturity - by doing research and providing services - for insurers and the entire insurance ecosystem. For the first time, SMA's research is revealing significant shifts in company modes; strategic investments; and project priorities that reflect success, maturity and a positive momentum across the industry. These shifts are resulting in a bifurcation of the industry, with a gap emerging and expected to widen between the leaders and the laggards.

Leaders and Laggards

The general state of insurers, what SMA calls the "company mode," has changed dramatically. For many years, SMA research revealed that 3% to 5% of North American insurers were just surviving " struggling to be profitable. Today, 11% of insurers define their company mode as struggling, up from 4% in 2014. When combined with insurers in “sustaining mode,” the result is that one-third of the industry is not doing well. On the other hand, two-thirds of industry participants are growing or transforming. In fact, the percent that are transforming has grown from 13% back in 2010 to 34% in 2015. This supports what SMA and others have been saying - that the companies investing in technology and innovation are separating from the pack and positioning for higher growth.

Customers and Agents

Business drivers for strategic technology investments have typically been related to growth, cost management and business optimization. Now, for the first time since SMA surveys have tracked the drivers, customer demands and expectations and agent expectations are both in the top five on the list of business drivers. This is leading to a shift in technology investments. The way this manifests in individual IT projects is that they are grouped and integrated to support the major strategic initiatives. Customer experience, enterprise analytics and new product initiatives are examples of major initiatives that often require multiple supporting IT projects.

Investments will continue in core system modernization, but, as insurers complete their modernization, the shift in type and amount of spending will accelerate to these new strategic initiatives that address customer and agent needs and enable insurers to respond to new marketplace realities and opportunities. As a result, in 2015, customer engagement and experience is the number one strategic initiative for insurers. These types of investments beyond core systems are aimed at winning in the areas where traditional industry boundaries are fading, and in the digital world at large. Many insurers have arrived at the inevitable conclusion that becoming a digital insurer is mandatory.

Innovation and Transformation

The technology investments taking place by leaders today are not just step-changes aimed at improving operational efficiencies. They are positioning the company for major business strategy changes - launching new business models, partnering with companies outside the industry and venturing into new product and service areas. To accomplish this, insurers must create agile technology platforms and harness the power of emerging technologies, tasks that require innovation. And, as it turns out, innovation is sweeping the industry. One-third of insurers now have active, formal innovation initiatives, and the number is growing daily.

2015 promises to be an exciting and eventful year for the insurance industry. Every insurer has a choice to make. Embrace innovation and aggressively transform to capture new opportunities - or just continue with business as usual and run the risk of becoming a casualty in the new competitive battle.

For more, read SMA's new research report, 2015 Strategic Initiatives: Making Sense of the Shifts.

Pharmaceuticals remain a large component of both total claims and medical costs in treating workers' compensation injuries and illnesses. On the plus side, pharmaceuticals lower medical costs by decreasing demand on other health resources, improve health outcomes, including treatment safety, and provide earlier opportunities to return to work. On the negative side, prices can be very high.

States have been trying to address that negative through numerous efforts for many years, yet costs keep climbing. A study finds that a solution exists, if claims administrators become aware at the most granular level about the sources of medications and the prices that suppliers charge.

Background

Pharmaceutical pricing in the U.S. is unregulated. Pharmaceuticals are manufactured through two sources, (1) the originator (i.e. the inventor) of the medication and (2) the generic manufacturer. The originator markets the medication through a brand or trademark name and has sole marketing rights for a period. This period varies from country to country, but the norm is from five to 10 years. On expiration, generic pharmaceutical manufacturers are allowed to produce the medication and introduce price competition into the market. Pharmaceutical Research and Manufacturers of America (PhRMA) reports that generic medications account for 80% of dispensed medications in the U.S.

In an effort to control pharmaceutical pricing in California workers' compensation, a number of legislative changes were introduced.

2002 - Claims administrators could use pharmacy benefit managers (PBMs) and pharmacy benefit networks (PBNs) to establish contract prices below the maximum price established by the legislature and to scrutinize prescribed medications at the time of dispensing. A reduction in pharmaceutical costs was expected, yet a report prepared by the California Workers' Compensation Institute (CWCI) in October 2014, titled "Report to the Industry: Are Formularies a Viable Solution for Controlling Prescription Drug Utilization and Cost in California Workers' Compensation?" showed the average pharmacy cost for the first year of treatment for an indemnity claim increased from $390 in 2002 to $430 in 2003 (an increase of more than 10%).

2004 - The pharmacy formulary (i.e. list of medications) established by California's Medicaid welfare program, called "Medi-Cal," was introduced into workers' compensation. The formulary and price schedule are based on the state’s negotiated price with suppliers. By contrast, most other workers' compensation jurisdictions use schedules based on the supplier's average wholesale price (AWP), with a plus or minus percentage adjustment to establish the maximum price (e.g., AWP + 10% or AWP - 5%). Both the Medi-Cal price and the AWP are established before any off-invoice discounts, rebates or other incentives are applied by the pharmaceutical supplier. Price differences between Medi-Cal and the AWP can vary significantly. For example, paying the lowest Medi-Cal price of 4 cents per unit for the generic medication Meloxicam 7.5mg tablet, instead of paying the AWP, provides a saving of as much as 98%. Once again, expectations for a significant reduction in pharmaceutical costs were anticipated, but, according to the CWCI, the cost only dropped from $321 in 2004 to $282 in 2005 (a reduction of 12%), before increasing to $352 in 2006 (an increase of almost 25%).

2005 - In an effort to control total medical costs, claims administrators in California were allowed to establish their own medical provider networks (MPN). The intent of this legislation was to curtail the adversarial relationship between the medical profession and claims administrators and also provide an opportunity for establishing contract rates with physicians, below the mandated maximum prices, for both services rendered and medications dispensed. This time, the expectation was to see a reduction in costs for both medical treatments and medications dispensed by a physician. Instead, the CWCI showed an increase from $282 in 2005 to $352 in 2006 (almost 25%) and then to $412 in 2007 (a further increase of 17%).

2007 - Legislation was enacted to require that the maximum price paid for a supplier's medication that was not listed in the Medi-Cal formulary be equivalent to similar medications listed in the Medi-Cal formulary; the prior practice was to use the supplier's AWP to calculate the price.

The Medi-Cal formulary includes a number of suppliers providing the same medication. PBMs, PBNs and physicians dispensing medications also have formularies that may have different suppliers to Medi-Cal, especially where a large number of suppliers are involved. For example, Gabapentin is available from more than 55 suppliers, which may include the originator, the generic manufacturers and companies that repackage others' medications in various package sizes. Hydrocodone-Acetaminophen is available from at least 45 suppliers in different strengths and package sizes.

Again, the legislation was expected to lead to a significant decrease in costs, because a number of physicians were dispensing medications from suppliers that were not listed in the Medi-Cal formulary. The cost, however, increased by almost 7%, from $412 in 2007 to $440 in 2008. This percentage increase is baffling. The National Council on Compensation Insurance (NCCI), in its September 2013 report titled "Workers' Compensation Drug Study: 2013 Update," ranked Meloxicam as the highest physician-dispensed medication by dollars paid. By applying the Medi-Cal price, instead of the AWP, cost savings should have been as high as 98%. The savings for Tramadol HCL, the second highest ranked physician dispensed medication by dollars paid, were 89% based on the Medi-Cal price of 9 cents per unit.

So, legislation enacted in California from 2002 through 2007 provided all the means to control and curtail pharmaceutical costs. Yet, according to the CWCI, the average first year pharmaceutical cost per indemnity claim reached $953 in 2012 from $390 in 2002 (an increase of 144%).

The Study -- Huge Range in Prices

This paradox initiated an independent study into pricing based on the medications listed in the NCCI report. The study identified that prices offered by manufacturers of generic medications varied significantly, and that a lack of awareness by claims administrators could be a leading factor in the high cost of pharmaceuticals in workers' compensation. The study excluded repackagers' prices, which are often associated with physician-dispensing. The report published from this study listed the following medications:

• Meloxicam 7.5mg tablet -- prices ranged from four cents through to $5.73.
• Gabapentin 300mg capsule -- six cents through to $1.75.
• Lidocaine 5% transdermal patch (30 patches) -- $102.98 through to $258.97.
• Hydrocodone-Acetaminophen ("APAP") -- from 22 cents through to $2.69 per unit, depending on the strength. The price for Acetaminophen with Codeine ranged from 15 cents through to 90 cents per unit.
• Omeprazole 20mg -- from 29 cents through to 65 cents.
• Cyclobenzaprine HCL 10mg tablet -- from four cents through to $1.13.
• Oxycodone HCL -- from 23 cents through to $1.57 depending on strength.
• OxyContin -- a brand name extended release or long acting Oxycodone HCL, only manufactured by Purdue Pharma and currently under a protection period, ranged from $2.27 through to $14.51 per unit based on strength.

The Solution

For claims administrators to influence a downward trend in pharmaceutical costs associated with pricing, consideration should be given to the following initiatives:

1. Know the suppliers of the medications in the PBM/PBN's formulary.
2. Compare the suppliers of the PBM/PBN's formulary to the Medi-Cal formulary to ensure at least the lower prices available from Medi-Cal suppliers are being paid.
3. Pay only the "no substitute allowed" price when a prescribed medication is not included in the PBM/PBN's formulary.
4. When an MPN's physician dispenses medications, ensure that (a) the "no substitute allowed" price is not paid and (b) the lowest available price is paid for a medication from a supplier listed in the Medi-Cal formulary, unless a lower contracted rate is already in place within the MPN.
5. Analyze the paid price for pharmaceuticals on at least a monthly basis to ensure the lowest price for a medication has been paid regardless of supplier and monitor medications most frequently dispensed along with their quantities to ensure PBMs/PBNs and physicians are dispensing the lowest cost medication identified in the Medi-Cal formulary, unless a lower contracted rate is already in place.

A claims administrator's processes and technologies to manage the pharmacy vendor relationships, pre-authorizations and bill reviews must be seamlessly integrated and be able to capture data at the most granular level, which in the case of pharmaceuticals in the U.S. is the National Drug Code (NDC). Without this detailed integration, pharmaceutical costs associated with pricing will continue to increase, as illustrated in California, regardless of legislation changes enacted in the future.

The report relating to this study is available in PDF format from the website managingdisability.com under the Dialogue tab.

Well, the Oklahoma experiment was fun while it lasted.

Dramatic reforms there in 2013 were intended to move the state workers' compensation system from a court-based model to an administrative one. The experiment established Oklahoma as just the second state where employers can "opt out" of workers' comp entirely, although they are required to offer alternate, privately managed plans.

However, thanks to a court decision a week ago, employers may be opting out of comp a lot more than they intended or even desire. That is because a Pottawatomie County district judge ruled that an injured tire worker can sue his employer for negligence because the injury was "foreseeable."

While courts in the past have allowed tort action based on extreme negligence, the concept of a "foreseeable" accident doesn’t necessarily come close to that standard. The judge's decision certainly risks broadening the definition of when an employee may be entitled to damages. After all, it might be "foreseeable" that a prison guard could get injured in an exercise yard fight, but that doesn't mean his employer was negligent.

Injured tire worker Darrell Duck sued his employer, Hibdon Tire Plus, for injuries to his neck and back that he sustained while using equipment to try to loosen a bolt on a wheel. Workers' compensation attorney Bob Burke, who is representing Duck, said the court "has issued a monumental ruling that challenges the foundation of Oklahoma's workers' compensation system." He says, "The sloppy drafting of that law in 2013 has caused so many problems. It has really created a crisis now.”

A number of attorneys have raised constitutional challenges to the new Oklahoma laws. I have to give them credit. When Florida underwent significant reforms in 2003, it took attorneys in that state more than 10 years of whaling away at it before they tore a few holes in the system. The Oklahoma boys seemingly have done it in less than a year.

At stake here, of course, is the future of "exclusive remedy," not just in Oklahoma but across the nation. There has been some discussion on this over the years, but only recently have court decisions started giving urgency to the dialogue. There are several key elements playing into this new melodrama:

1. The assigning of guilt, or blame, in a no-fault system.
2. The erosion of benefits provided injured workers' to the point they are no longer adequately protected by the system.
3. Increasing burdens on employers, now responsible for co-morbidity and social issues not of their making.

The first item listed, in my view, offers the greatest potential threat to exclusive remedy. I've talked about this before. The case I have cited in Tennessee is a terrific example. An electrical lineman was successfully denied benefits because he failed to follow established safety rules. Employers and insurance people I know loved that decision - after all, if it is the fault of the worker, why should we have to pay? Except, the "grand bargain: and “exclusive remedy” in workers' comp are double-edged swords. When they swing back the other way and start allowing negligence claims that include pain and suffering awards, employers will be singing a different tune. Bottom line: You cannot assign guilt in a no-fault system, either to the employee or the employer, or the entire concept will come crashing to its knees.

The Padgett case in Florida is a good example of item number two, the erosion of benefits. In that case, a judge with very little exposure to workers' comp declared the entire system unconstitutional. The decision was largely based on what he viewed as the continuing degradation of benefits in Florida over many years since the grand bargain. He declared that the erosion undermined the original intent of the program, and that the system no longer serves Florida's injured workers in a fair and constitutionally sound manner. While the case itself will have limited impact for jurisdictional reasons, it is a major shot across the bow for legislators and businesses in that state.

The third item I listed is not one normally cited when discussing threats to exclusive remedy, but I think it is a mistake to ignore it. Employers today are being asked - make that required - to pay for conditions and health issues that have nothing to do with a claim; and social demands along with increasing beliefs of entitlement are pressuring employers to cover much more than they would have had to do 40 years ago. As we all get old, fat, diabetic and mentally unstable, this situation will only get worse. Employers forced to pick up the tab for these significant, yet unrelated, conditions are getting fed up with the system, and are more open to its eventual demise. For these employers, cases like our Tennessee lineman are almost seen as "payback" for what they increasingly view as a lopsided and unjust system.

The fact that their injured workers also feel it is lopsided and unjust should be telling us something.

While it is true that our process-intensive, complex and confusing system has lost its way on some fronts, people anxious to return to the days of unending litigation and open liability should rethink that position. For the vast majority of employers and their injured workers, workers' comp has worked for more than 100 years, and the statistics bear that out. There was a reason both sides worked together to create this mess in the first place; the mess it replaced was even worse.

So we should fix workers' compensation (starting, of course, by calling it workers' recovery) and protect the concept of exclusive remedy for another 100 years.

As for our friends in Oklahoma, appeals to the state Supreme Court are sure to manifest themselves. That story is just beginning. No one can clearly see where this trend will take the nation. Alas, while apparently injuries are "foreseeable" in Oklahoma, the future of exclusive remedy is not.

After 18 states enacted reforms to limit the prices paid to doctors for prescriptions they write and dispense, a new study from the Workers Compensation Research Institute (WCRI) finds that physician-dispensers in Illinois and California discovered a new way to continue charging and to get paid two to three times the price of a drug when compared with pharmacies.

"When prices are reduced by regulation, the regulated parties -- in this case physician-dispensers -- sometimes find new ways to retain the higher revenues they had prior to the reforms," said Dr. Richard Victor, WCRI's executive director. "Although this study uses data from two large states, it raises questions for all states where physician-dispensing prices are regulated."

The study -- Are Physician-Dispensing Reforms Sustainable? -- identifies the mechanism that allows doctors in Illinois and California to dispense drugs from their offices at much higher prices when compared with pharmacies. It involves the creation of an opportunity to, once again, assign a much higher average wholesale price (AWP) to a physician-dispensed drug - a practice targeted by the earlier reforms enacted in many states using language limiting reimbursement to a price based on the AWP assigned by the manufacturer of the original drug.

Consider a drug where the most common strengths are 5 milligrams and 10 milligrams. If a new strength, say 7.5 milligrams, comes to market, the manufacturer of that new strength can assign a new AWP. According to the report, the AWP of the new strength was much higher than the 5-milligram and 10-milligram AWPs set by their original manufacturers.

In Illinois, the average prices paid for cyclobenzaprine HCL of 5 and 10 milligrams ranged from $0.99 to $1.74 per pill. Before 2012, 7.5-milligram cyclobenzaprine HCL was rarely seen in the market. The 7.5-milligram product was introduced in 2012, and almost all were dispensed by physicians at an average price of $3.79 per pill in post-reform Illinois. The market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0% in the third quarter of 2012 to 21% in the first quarter of 2013.

Similarly, in California, before 2012, 7.5-milligram cyclobenzaprine HCL was rarely seen in the market. The average prices paid for 5- and 10-milligram cyclobenzaprine HCL, the two common strengths, ranged from $0.35 to $0.70 per pill. Since the introduction of the 7.5-milligram product in 2012, the market share of physician-dispensed cyclobenzaprine HCL of 7.5 milligrams increased from 0% in the fourth quarter of 2011 to 47% in the first quarter of 2013, when it became the strength of the drug most commonly dispensed by physicians. The average price paid for the new strength was $2.90 to $3.45 per pill.

From these patterns, the study's authors infer that the shift in strength was unlikely to be driven by new evidence about superior medical practices. Rather, it is likely that financial incentives drove some physicians to choose the strength for their patients. The study cites several reports that provide evidence of behavioral changes in response to price regulations.

For more information about this study, visit http://www.wcrinet.org/result/are_phy_disp_reforms_sustainable_result.html.

The data used for the report came from payers that represented 46% for California and 51% for Illinois. The detailed prescription transaction data were organized by calendar quarter so that, for each quarter, all prescriptions filled for claims with dates of injury within 24 months of the observation quarter were included. On average, for each of the quarters reported, WCRI included 219,572 prescriptions paid for 60,448 claims in California. The same figures were 43,034 prescriptions paid for 12,714 claims in Illinois. The detailed prescription data cover calendar quarters from the first quarter of 2010 though the first quarter of 2013.

 

Last week, I had the pleasure of working with a national retailer whose leadership team has established some bold goals to transform the culture and reinvent the customer experience. It’s a heady vision that, given their size and structure, will likely prove to be ambitious. Yet, given the distance this organization must travel and the importance of the initiative, it's not calling in the brass band, turning the organizational chart on its head or asking associates to ceremonially sign on to the new mission. Rather than taking big steps in the direction of the goals, the organization is consciously and deliberately taking small steps. The first step leaders have chosen to take is modest and simple: They’re preparing store managers to have 10-minute conversations with their associates. That’s it. And they are banking on those small steps driving significant change. The Small Step Advantage The natural assumption that too many leaders make is that big change requires big steps. And certainly that’s one strategy. But the history books and business journals are littered with stories of audacious, big, visible change efforts that failed miserably despite elegant execution and colossal investments of time and money. Small steps are a powerful and effective alternative for a variety of reasons.

• They are doable. Leaders and employees alike operate in a time-starved environment where every minute matters. Give them a 17-step process, and it will likely be discarded before step 4 is even read. Undoable, unrealistic requests breed ambivalence and resistance, which create their own inertia to change. But suggest a small action that can be embedded into the workflow, and implementation is far more likely.
• They are sustainable. Most change requires a long-term commitment on the part of management and employees alike. Genuine transformation doesn’t occur quickly. As a result, everyone must pace themselves. Big requests, extensive demands and complicated actions may be implemented briefly; but people quickly tire, burn out and turn their attention to other matters. By contrast, smaller, incremental steps can be maintained over time, enhancing the chances of ultimate success.
• Missing one or taking a break isn’t a showstopper. When what’s expected of others to support change is substantial, it becomes a bigger piece of the puzzle. Lose a few pieces, and the picture becomes much less clear. But when more people are contributing in smaller ways over time, missing pieces create less significant gaps.
• The effect is cumulative and reinforcing. Small steps beget more small steps, with each building on the other. When leaders or employees take action and experience positive results, the satisfaction creates an upward energy spiral and encourages more of the same behavior. Over time, these small steps can contribute to a self-reinforcing tornado of commitment and action in support of the desired change.

So the next time you’re faced with implementing an ambitious change, challenge the natural inclination to think big. Instead, think small – doable and sustainable. And consider: How do you eat an elephant? One (small) bite at a time.

There are many definitions of risk, with most coming pretty close to each other. Interestingly, most of these definitions put "risk" well beyond the point of "expected losses" (think of the high point on the actuarial loss curve that trails off into infinity as loss becomes less and less likely to occur but more and more severe; see figure 1 below). But are expected losses and those that fall to the right on the loss curve below really "risks?" If risk is the effect of uncertainty on objectives (one common and simple view of risk), then "expected losses" would not be materially "uncertain;" they would be "expected" (though not certain).

[caption id="attachment_7817" align="aligncenter" width="550"] insurance thought leadership managing risk along a curve[/caption] Figure 1

This issue has perplexed many risk professionals, especially those who lean into the traditional realm, which bases risk management on insurance. These professionals perform a very necessary function but, by focusing on managing expected losses, may be limiting their influence and, in some cases, upward mobility. After all, senior managers are typically interested in the unexpected and uncertain potential for disruption to the organization, its strategy and its plans that define success. As one CEO I worked for would say: "Tell me what I don’t know and can’t foresee." That is an understandable interest because the CEO is the person ultimately accountable for success, both short and long term.

Can expected losses prevent that success? The answer is generally "no," assuming these losses have been accounted for in budgets, whether they are funded as retained losses or transferred to others through insurance or contract. Now, budget shortfalls do occur, and some claims may not be paid under certain insurance or contract conditions, but these are typically one-off variances that are typically well within risk appetite (whether defined formally or not) and thus usually wouldn't prevent accomplishment of most objectives.

So, the obvious questions are two: 1] How does your organization define risk, and is it the right definition, which all stakeholders understand, agree upon and can manage to? and 2] Where on the loss curve do you want to manage risk to?

Other questions will emerge in trying to get to the second question, in particular. For example, do you assign more importance to likelihood or impact? I would suggest they are not of equivalent import and get their relative importance from a well-defined risk strategy and the risk culture that undergirds it.

Another question that quickly becomes critical is: How far out on the likelihood axis is relevant to your risk strategy? This is the ultimate question that will define where you focus along the x-axis (likelihood or frequency), what your resource needs are, the level of sophistication of tools and techniques necessary to manage risk effectively, etc.

I urge you to get your key risk stakeholders together and vet these issues to ensure you have the right priorities and focus for managing risk within your organization. Absent this, you'll be flying blind along a curve that presents an infinite number of combinations of likelihood and impact. Can you afford to fly blind in the face of the potential of catastrophic uncertainty?

Baltimore Ravens Coach John Harbaugh complained that Patriots Coach Bill Belichick used deceptive tactics in a playoff game last weekend, after a novel, efficiently executed series of third-quarter plays disoriented the Ravens defense and helped power the Patriots to AFC championship game. But the complaint is short on Henry Wadsworth Longfellow and Ralph Waldo Emerson and overlarded with Edgar Allan Poe.

Everything about the Patriots resounds with innovation, resourcefulness and the persistence celebrated by Longfellow and Emerson.

In "Paul Revere's Ride," Longfellow expressly celebrates those virtues achieving independence against a stronger adversary:

"In the books you have read,

How the British Regulars fired and fled,

--How the farmers gave them ball for ball,

From behind each fence and farmyard-wall,

Chasing the red-coats down the lane,

Then crossing the fields to emerge again

Under the trees at the turn of the road,

And only pausing to fire and load."

Individual and organization, player and team, succeed when all embrace innovation, as Emerson says in "Self-Reliance": "Power...resides in the moment of transition from a past to a new state…. This one fact the world hates, that the soul becomes; for that forever degrades the past.... [A] man or a company of men, plastic and permeable to principles, by the law of nature must overpower and ride all cities, nations, kings, rich men, poets, who are not."

The Patriots' clever disguise of which players were eligible receivers and which ineligible presented a new way of reading, a fresh legibility executing so quickly that the Ravens could not read the play until it had transpired.

The play was simply another of Belichick's irrepressible innovations. A decade or so ago, in two Super Bowls, linebacker Mike Vrabel deployed on offense and caught touchdown passes in both games.

Ravens Coach John Harbaugh's choice of words after last week's deception captures his frustration. "It's a substitution type of a trick type of thing," Harbaugh told journalists. "They don't give you a chance to make the proper substitutions.... It's not something that anybody's ever done before…. They...announce the ineligible player, and then Tom Brady would take them to the line right away and snap the ball before we had a chance to figure out who was lined up where. That was the deception part of it." A complaint got nowhere with the league. Celerity trumped incumbent legibility.

In effect, Coach Harbaugh is perseverating Poe.

Poe portends as much in the team's namesake, the poem "The Raven":

"Prophet!" said I, "thing of evil!-prophet still, if bird or devil!-

Whether Tempter sent, or whether tempest tossed thee here ashore,

Desolate yet all undaunted, on this desert land enchanted-

On this home by Horror haunted-tell me truly, I implore-

Is there—is there balm in Gilead?-tell me-tell me, I implore!"

Quoth the Raven "Nevermore."

Of course, no one is saying "nevermore" about the Ravens or the coach, whose team did well in a competitive game and won a Super Bowl but two years ago.

But immersive reading in Emerson and Longfellow charts the Colts' best shot prepping for the AFC championship game against the Patriots. Colts coaches and players would find few other drills as efficient or effective as they get ready to challenge New England champs.

Comprehension of Emerson's and Longfellow's insights shows how to innovate in a highly competitive game.