The biennial study on workers’ compensation premium rates issued by the Oregon Department of Consumer and Business Services (DCBS) was released last week, and, as always, is worthy of a review by those of us entrenched within the industry. The study ranks all 50 states and Washington, D.C., based on rates that were in effect Jan. 1, 2014. This year’s results show that major reforms don’t always gain the results that were intended or marketed to the industry; and while the results may not accurately reflect legislative intentions of the past, the report may be a better predictor of major reforms to come. The study shows that, despite extensive reforms designed to lower costs, California now has the most expensive rates in the nation, followed by Connecticut. North Dakota had the least expensive rates. In the Northwest, Idaho’s rates were the 14th most expensive, followed by Washington. Oregon researchers also compared each state’s rates to the national median (midpoint) rate of $1.85 per $100 of payroll -- California, for instance, was almost twice the median According to Mike Manley, one of the co-authors of the survey, “We continue to see a trend in the distribution of state index rates in our study clustering in the middle of the distribution. A record 21 states are within plus or minus 10% of the 2014 study median. This makes the rank values more volatile from one study to the next. I would recommend that states look also to their ‘Percent of study median’ figure for comparisons over time.” Because states have various mixes of industries, the study calculates rates for each state using a standard mix of the 50 industries with the highest workers’ compensation claims costs in Oregon. Details about how the study was conducted can be found here. A summary of the study was posted Wednesday, Oct. 8; the full report will be published later this year. The summary report, available here, provides the complete ranking of the states premium rates. I have taken that data and added a comparative column that shows at a glance how far up or down the scale a state has moved since the last report in 2012. The table presents an interesting view, particularly juxtaposed with the knowledge of what states have undergone significant reforms in the past few years. We can see that there were major drops in premium rank for both Kentucky and Wisconsin. Kentucky moved from 22nd-highest in the nation to 40th, improving by 18 positions. Wisconsin moved down 11 spots, from 12th-highest to 23rd. While Wisconsin did enact some changes in 2012, neither state is considered to have been a major reform state over the last few years. For a couple of those states undergoing dramatic reforms, Oklahoma and Tennessee, it is too early to tell the effect, as they are just implementing changes this year. Others, however, including California and Kansas, saw premium costs as a comparative rise despite reforms intended to do otherwise. Illinois, another reform state, did see some positive movement, but it is probably not statistically significant given the weight of the costs and issues in that state. I would postulate based on this report that people in New Mexico, Hawaii, Missouri and Delaware may be thinking of what changes should be in order, because they had dramatic negative movement on the scale this year. Even if past reforms overall are not creating significant improvement in these numbers, I am pretty sure they will be a better predictor of what states may be facing reform in the future. Oregon has conducted these studies in even-numbered years since 1986, when Oregon’s rates were among the highest in the nation. The department reports the results to the Oregon legislature as a performance measure. Oregon’s relatively low rate today reflects the state’s workers’ compensation system reforms and its improvements in workplace safety and health. Here are some key links for the study/workers’ compensation costs: • To read a summary of the study, go here. • Prior years’ summaries and full reports with details of study methods can be found here. • Information on workers’ compensation costs in Oregon, including a map with these state rate rankings, is here.

The California Workers’ Compensation Institute (CWCI) has added its voice to the growing national consensus that greater controls are needed over the use of Schedule II medications in workers’ compensation medical treatment and disability management. But the CWCI research must be analyzed in a broader context. First, we continue to view the abuse of these medications in a “going forward” context – we focus on, how can we stop over-prescribing these medications on claims from the effective date of such reforms? Second, we inevitably take these recommendations out of the context of the state being analyzed -- can we say that the Texas closed formulary will work in any state whose system otherwise doesn’t bear any resemblance to the Texas system? One body of work and thought proclaims the overuse of Schedule II medications to treat industrial injuries is “bad medicine” and should be stopped as soon as possible. Guidelines from Ohio, Texas and Washington, however, recognize the need for prescriptions to relieve acute and chronic pain and provide detailed guidance on moving from acute to chronic pain management. Encompassed within that guidance is recognizing when weaning from these medications, or other early interventions, is appropriate and how to taper dosages to maximize clinical effectiveness and minimize adverse consequences to injured workers. Many of these concepts are embodied in proposed guidelines from the California Division of Workers’ Compensation (DWC) and the Medical Board of California (MBC). It is encouraging that on Sept. 29 of this year the DWC presented its work to the MBC’s Prescription Task Force at a public hearing and that both agencies are moving forward with compatible guidelines. As seen in other states, notably Washington, inter-agency cooperation is critical so as not to create conflicts between the regulatory agencies that oversee benefit delivery systems and licensing agencies that oversee providers. To take advantage of the potential cost savings in California’s complex workers’ compensation system identified by CWCI and the Workers Compensation Research Institute (WCRI), however, more needs to be done than adopting a closed formulary. That aspect of the Texas system requires prior authorization before prescribing an “N” drug, which includes Schedule II pain medications. After all, the California system already has: (1) claims administrators’ authority to direct medical care though the medical provider networks (MPNs); (2) the ability to adopt formularies through the MPN; (3) utilization review; (4) a medical treatment utilization schedule (MTUS) that sets forth presumptively correct guidelines for treatment, and; (5) post-Senate Bill 863 (DeLeón), independent medical review (IMR) for resolution of treatment disputes. We are continuing to have the discussion  regarding Schedule II medications because over the past decade the controls that have been put in place to manage the care and cost of medical treatment more efficaciously and efficiently have not produced the desired results. Some of this can be attributed to the pre-SB 863 environment where the MTUS was regularly subverted through the med-legal process. Claims where high level of opioids and other medications were approved for continuing treatment are still in the system and are now subject to IMR. While the adoption of IMR may be viewed as beneficial from a payment standpoint, it is not automatically beneficial in terms of patient care. As the actions of other states have shown, for those who have become addicted or incapacitated because of their overuse of these medications – at the direction of their treating physician – necessary care means more than saying you shouldn’t have had these, or as much of these, so we’re cutting you off. Also, more needs to be understood about the universe of claims that will be most immediately affected by a closed formulary – long-term, open claims and claims where compensability has been denied, whether completely or whether there is a dispute over a consequence of an accepted claim. As the DWC moves forward with its new Guideline for the Use of Opioids to Treat Work-Related Injuries, there needs to be more specific treatment of legacy claims or any claim where the liability of the employer is in dispute. The MBC’s Pain Management Guidelines, currently under revision, are applicable to all practitioners regardless of the nature of the injury or illness or the mechanism by which a provider is compensated. The DWC would do well to incorporate that work product into the MTUS as a reminder to all providers that, even if the claim is not accepted, it is not “off the grid,” and the MBC requirements still apply. Finally, the claims administration community needs to take a long hard look at how we review these cases. There is a universe of claims where Schedule II medications are being approved that would not seem to be supported by best medical evidence. Payers are an integral part of the close monitoring of claims where pain management is indicated and determining when it is appropriate to start tapering use of opioids with a goal of returning the injured worker to employment. As noted by the MBC in its draft revised Pain Management Guidelines, when referring to workers’ compensation: “The use of opioids in this population can be problematic. Some evidence suggests that early treatment with opioids may actually delay recovery and a return to work. Conflicts of motivation may also exist in patients on workers’ compensation, such as when a person may not want to return to an unsatisfying, difficult or hazardous job. Clinicians are advised to apply the same careful methods of assessment, creation of treatment plans and monitoring used for other pain patients but with added consideration of the psycho-social dynamics inherent in the workers’ compensation system. Injured workers should be afforded the full range of treatment options that are appropriate for the given condition causing the disability and impairment.” As payers, we have the ultimate leverage to make certain treatment of injured workers meets this standard. But if we simply want to find a quicker, better way to say “no” when a request for authorization is faxed in, then a closed formulary will only be yet another attempt at lowering medical treatment costs that failed to meet expectations.

The “consumer-ization” of healthcare and threats to the long-established business model of the life insurance industry are just two examples of how traditional players are facing intensifying pressure to be more purposeful about their digital strategies. No doubt about it, digital investments will continue to grow. To turn these investments into marketplace advantages, insurance brands can  embrace what has worked in other sectors. As one of my favorite CEOs used to say, “steal shamelessly.” I am constantly struck by how well the tried and true techniques of seemingly old-fashioned direct marketing can be applied to uncover how to make digital investments work harder. The discipline of direct marketing is all about having a continuous learning process that allows you to identify the leverage points for any brand engaging with its constituents. This applies to both B2B and B2C relationships. Such continuous learning leads to better focus on putting resources where the business payoff can be achieved. It also creates a fact basis for important, often high-stakes decisions. These same processes can be applied with strong impact to digital investments, including mobile and social. The processes are relevant across sectors. Skilled direct marketers have been adapting a proven toolset for digital decisions for at least the past decade, so there are well-validated ways to do this with discipline and control. Of course, digital experience is like direct marketing on steroids – there is lots more data and lots more complexity, and, of course, everything happens a lot faster. By integrating on to your team capabilities in (1) how to develop hypotheses, (2) how to set up effective test-and-control experiments, (3) how to conduct those experiments and (4) how to integrate learning for continuous improvement, you will be amazed at the progress that can be made, even over a few quarters, to understand where your digital leverage really lies. To make the point, I’d like to share a story of how a major credit card company, over the course of just a couple of years, set up a structured process to do exactly what I am advocating. As a result, the company enabled the complete transformation of its sales and service model from being almost entirely mail- and phone-based, to having a true omni-channel model with robust digital capabilities. In the course of doing this, the company effectively maintained its relevance as customers embraced developing digital channels. It also recalculated the economics of the business for all of the key consumer behavior drivers of financial performance. Here’s the story: Most executives in this business knew that digital was going to bring changes to the customer relationship but also questioned whether there would be positive financial impact. Was this just a financial sinkhole? Would it be justified as a growth story, or was it just about playing defense? How would existing distribution channels for sales, servicing and relationship management be affected? The digital team was full of believers. They saw digital as a big opportunity to improve all aspects of the customer experience. They saw opportunity to differentiate through the customer experience, to improve business economics and to redefine how new accounts were attracted and booked. But they lacked the evidence to justify scaling digital programs or to accelerate the pace of change. The team decided to borrow from their accumulated expertise as direct marketers. Leverage the past, but not be bound by it. Present familiar approaches to colleagues in the organization, as a means of building internal engagement and buy in. Here are the key steps the team took to get moving:

1. The head of digital created a senior role leading “profit enhancement” within the team. This signaled to the organization that, indeed, a connection existed between digital and financial performance. There was focus and accountability to enhance profits with digital technology, and to measure what was happening.
2. The team created a process that engaged cross-functional teams of thought leaders in brainstorming sessions to formulate hypotheses of how digital technology, tools and experiences might affect customer behaviors that were P&L drivers.
3. Hypotheses were prioritized and tested in-market, or through off-line simulations, depending upon the complexity of the tech support required for live testing. Regulatory considerations also affected the live testing priorities.
4. Results were continuously monitored, communicated throughout the organization and used to refine and advance further tests and decisions.
5. Focus was placed on two specific areas of inquiry: first, identifying the unit profit model behind a particular hypothesis and, second, finding the path to scaling positive results.

Over the course of the next three years, but beginning with results generated within the first several months of establishing the profit enhancement team and process, the team was able to discover, test and validate the impact of digital applications on all of the core customer behaviors that drove the income statement and balance sheet of this significant business, including attracting and booking new accounts, statement delivery, self-service, payments, relationship management and even collections of past due balances. What drove the success of this approach:

1. A high level of rigor. The process borrowed from direct marketing practices, but always with an overlay of openness and flexibility to allow for the unexpected, unanticipated, surprising results that can easily be missed when an experienced team gets too caught up in past success. I call this “rigor, but not rigor mortis.”
2. A collaborative and transparent mindset. This attitude fostered support and reduced resistance. By including people from all over the organization, particularly in the brainstorming and hypothesis-vetting stages, the digital team got new recruits to the “army of the willing.” The team started to make believers out of fence-sitters, and to reduce the impact of nay-sayers. Of huge importance was a tight collaboration built between the digital team and thought leaders in both risk management and decision management. These two teams were the analytic talent who drove modeling, pricing and product structures.
3. Tapping into the culture of test-and-learn. By following frameworks familiar to a traditional direct marketing organization, people had an easier time relating to the digital efforts. This further contributed to winning people over to the cause.
4. CEO sponsorship: necessary but insufficient. Winning the popular vote was a matter of the points I’ve made above regarding ways to get people on board. It was about everyday process, relationships, communications … and, ultimately, showing results.
5. Acknowledging and assembling the right mix of skills. Essential skills, activated with the right leadership wiring, enabled the everyday process to be effective. A team of digital natives with limited business knowledge would have been alienating (and unhappy) in this very traditional business that was proud of its legacy. A team of traditionalists might have found it really difficult to separate from the status quo. Building a team with real diversity of thought, background, approach – with a common denominator of a belief in collaboration – enabled progress and ultimately tremendous success.

On Sept. 17, California Gov. Jerry Brown signed into law AB 2293 (Bonilla) regulating insurance coverage for  transportation network companies (“TNCs,” such as Uber, Lyft and Sidecar). Two purposes of the bill were: (1) to fill a possible gap in coverage caused by an exclusion in personal automobile policies and (2) to allocate responsibility between TNCs and personal automobile insurers for insurance coverage issues. The statute attempts to achieve its purposes by creating a “firewall.” When a driver is logged on to the TNC network, the insuring responsibility is on the TNC policy.  When a driver is logged off, responsibility is on the personal automobile insurer. Think of “Log On” and “Log Off” as bookends. One might expect this statute to become a model for other states struggling with similar issues. Unfortunately, some infelicitous language in the statute may undermine the desired clarity. The mischievous phrase is “in connection with.” Once a driver logs on, but before being matched with a fare (referred to as Period One), the statute requires a TNC policy of 50/100/30 (in other words, $50,000 of coverage for bodily injury per person, $100,000 for bodily injury per accident and $30,000 for property damage). The statute also requires an additional policy of $200,000 to cover any liability arising from a participating driver “using a vehicle in connection with a transportation network company’s online-enabled application or platform within the time periods specified in this subdivision . . . .”  [Emphasis added in all cases]. Assume a driver, while logged on, decides to drive over the river and through the woods to his grandmother’s house. A TNC could legitimately argue that this driving is no longer “in connection with a transportation network company’s online-enabled application or platform.” By taking a detour, the driver has abandoned the TNC work. If so, does the personal automobile insurance cover an injury caused on the way to grandma’s? Apparently not. Section 5434(b) of the new statute says the TNC policy covers the period from Log On until Log Off, or until the passenger exits the vehicle, whichever is later. For ease, think of this as the bookends again. Subdivision (b)(1) then provides that the personal auto policy “shall not provide any coverage” unless the policy expressly provides for that coverage “during the period of time to which this subdivision is applicable.” So, personal auto cannot provide “any coverage” within the bookends. These provisions may have created a gap within the bookends large enough to drive an SUV through. What about driving outside the bookends? Is that clearly covered only by the driver’s personal auto policy? The statute requires the TNC to advise the driver “that the driver’s personal automobile insurance policy will not provide coverage because the driver uses a vehicle in connection with a transportation network company’s online-enabled application or platform.” Thus, the statute permits (and perhaps mandates) personal automobile policies to exclude coverage for driving “in connection with . . . .” When is driving “in connection with?” The “Case of the Yoga and Yoghurt” provides a good analogy. The basic rule is that collisions that occur while “coming and going” to and from work are not the responsibility of one’s employer. Simple commuting is not within the “scope of employment.” When, however, a person uses her automobile for work purposes, the rule completely changes. Judy Bamberger, an employee of an insurance company, used her car during work to visit clients and carry out other work-related chores. On her way home, she decided to stop for yoga and yoghurt. As she made a left turn, she collided with a motorcyclist. Is the employer responsible? “Yes.” In Moradi v. Marsh USA, Inc., 210 Cal. App.4^th 886 (2013), the court of appeal held that her driving fell within the scope of her employment because, since she used her car in her work, going to and from work conferred an “incidental benefit” on the employer. Put another way (although the court did not use these words), it was in connection with her employment. It would seem to follow that if one must use a car in an activity (such as TNC driving), then going to or from that activity is “in connection with” the activity. Because Period One (Log On) is part of a TNC’s “online-enabled application or platform,” driving to a surge zone with the intention of logging onto the app upon arrival is driving “in connection with” driving during Period One. If this analysis is correct, it again undermines the clarity of the App On/App Off bookends. It seems clear what the drafters had in mind, so this ambiguity could be remedied by clearly defining the meaning of “in connection with” – perhaps next legislative session. In the meantime, those considering using California’s law as a model may want to avoid importing this ambiguity.

The 2014 International Association of Industrial Accident Boards and Commissioners (IAIABC) Annual Conference in Austin offered a forum for regulators from around the country to discuss common issues and potential solutions. At this year’s conference, held Sept. 29  to Oct. 2, regulators highlighted a variety of complex issues that they are currently facing. Top issues include: 1. Hospital-Fee Schedules In states that do not have hospital-fee schedules, the standard for payment is usually “reasonable and customary” charges. The question becomes, how do you determine what is reasonable? Healthcare providers push for billed charges to be the standard, but payers feel that this is an unfair standard because the charges are significantly higher than what providers ultimately accept as payment. Payers are pushing for paid charges to be the standard, but providers argue that preferred provider organization (PPO) contracts heavily influence average charges and that those contracts are based on volume. Providers do not believe that those without contracts should get the benefit of that volume discount. 2. Benefits for Illegal Aliens Nearly all states extend benefits in some form to illegal alien workers. In some states, benefits are limited to medical benefits, while other states limit benefits to medical and total disability. In most states, there are no limitations to what benefits these workers can receive. The concern is that some states are awarding these injured workers permanent total disability benefits because their status as illegal aliens means they cannot be put through vocational rehabilitation and returned to work. Attorneys argue that total disability benefits should continue when a light-duty release is obtained because that person cannot legally return to work. States are trying to find a balance that protects the illegal alien workers but doesn't award them additional benefits simply because of their inability to legally work in the U.S. 3. Ride-Sharing Services The explosion of ride-sharing services such as Uber is causing concern with regulators around the nation. The big concern from a workers’ compensation standpoint is whether these drivers should be classified as employees of Uber or whether they are independent contractors. Owners of taxi companies argue that allowing these drivers to be classified as independent contractors creates an unfair competitive advantage. States are challenged with whether they can classify these drivers by statute or whether this should be done by courts interpreting current statutes. 4. Treatment Guidelines Several states, including Washington, Texas and Colorado, have pushed out treatment guidelines for issues such as opioids and lower back injuries. These guidelines have resulted in significantly lower medical costs on claims. The medical community tends to resist implementation of such guidelines as they feel this impedes their ability to render appropriate medical care based on the specifics of the patient. Those that argue for treatment guidelines point to significant research on the effectiveness of certain treatment methods and the dangers associated with opioids above certain dosage levels. 5. Large-Deductible Policies Regulators feel that there is confusion on the differences between large-deductible policies and self-insurance, with many employers assuming that the two are interchangeable. In some states, courts have ruled that employers under a large-deductible policy cannot have influence over the claims-handling process, so they cannot access items like adjuster files. The carrier is ultimately responsible for payment of the claims and compliance with the statutes. If the carrier is unable to collect the deductible from the employer, the regulators do not have jurisdiction over the issue. The deductible agreement is outside the parameters of the insurance policy.

The claims operation poses a vital opportunity for insurance organizations to drive efficiency, cost savings and customer satisfaction. A modern claims platform—native to the Internet—is key. However, many insurance organizations still use outdated systems that are sluggish, lack contemporary claims-handling capabilities and cannot easily adapt to the industry’s evolving business needs. In this article, we’ll discuss: the drivers that are leading more organizations to modernize; key criteria for a modern platform; strategies for successful implementation; key considerations for configuration; and the importance of user training. Finally, we’ll review the benefits that organizations can achieve by leveraging modern infrastructure. Drivers to Modernize An organization’s claims strategy is the cornerstone to its competitive advantage. The claims process represents a major touch point with customers, and the quality of the service provided during these transactions has the potential to make or break long-term customer relationships. An investment in modernizing claims will go a long way toward not only improving customer service but also boosting the bottom line. Claims currently cost the property and casualty industry $40 billion just to administer, and it’s a process that would significantly benefit from an investment in IT infrastructure improvements. A typical claims department has more work and increasingly more data to manage. The sheer volume of transactions and a lack of automation tools have prevented staff from being able to focus on key tasks that would truly improve costs and outcomes. In addition, these departments are hampered by traditional bottlenecks in efficiency, including manual, paper-based operations and disjointed workflow. Many organizations still have legacy system, which are slow and frequently crash. Maintaining these outdated platforms is not only expensive—consuming as much as 80% of IT budgets—but they also force organizations to resort to labor-intensive workarounds to process claims and to get the data they need. These systems are resistant to change and integration with other solutions. Outdated systems also make the analysis of claims data cumbersome. Organizations spend significant time and IT resources to develop data queries, but oftentimes the resulting reports don’t contain the information required, so organizations have to start over. A modern platform leverages sophisticated data mining tools, so organizations don’t miss vital opportunities to reduce costs and improve their operations. Within insurance, organizations must continually respond to new regulatory requirements as well as launch products and service capabilities. Organizations must be able to implement changes on the fly, preferably at the direction of business users rather than at the mercy of busy IT staff. This type of flexibility empowers organizations to continually rethink and reengineer workflow to meet compliance and business needs. Many organizations dissatisfied with legacy systems rushed out to obtain browser-based applications, not realizing that first-generation solutions grew out of their legacy counterparts. Many first-generation systems still possessed an ineffectual design and faced significant performance issues. Today’s next-generation, browser-based solutions are truly modern and native to the Internet, offering more flexibility and capability. Building a Strategic Plan With continual expansion and increased transactions, more organizations are outgrowing their current IT infrastructure. As a result, many are beginning to outline a plan to modernize. Such plans must project claims management needs, along with strategic business objectives, so organizations can support not only near-term goals but also a long-term vision. These plans must consider the selection and implementation of new systems, as well as configuration, integration and optimization of new and existing systems to optimize the overall enterprise. Criteria for a Modern Platform A modern platform must support an organization’s ability to grow and expand, and accommodate changing system and business needs over a period of five to 10 years. In addition, a modern platform must meet two critical requirements—in-depth claims-handling and extreme flexibility—both of which can help organizations align the system to their evolving claims and business strategy. From an architectural standpoint, a modern platform must scale well, handling both a large volume of transactions and a large number of users. Modern platforms are capable of tightly integrating data, systems and people to facilitate streamlined workflow and enhanced decision-making. The platform must offer a wide range of integration options, including pre-built connectors, batch processing, Web services and other custom interfaces. Integration is essential to connect claims with other internal and external systems and stakeholders. Modern solutions have a track record of innovation, continually investing in new features, tools and capabilities. Newer solutions also incorporate business intelligence (BI) and data mining tools. BI has the power to revolutionize the way organizations analyze data and predict trends. These tools deliver the information needed to improve results and minimize risk. They often use data cubes to pre-aggregate information and generate reports at amazingly fast speeds and with dynamic viewing capabilities, helping organizations make critical business decisions. Strategies for Implementation Success Implementing a new system can be expensive, resource-intensive and disruptive to day-to-day operations. Not surprisingly, many projects fail—while others fall behind schedule, go over budget or don’t provide the anticipated benefits. An experienced solutions provider will outline an in-depth implementation plan and walk organizations through the process to avoid common missteps. Many vendors use an agile implementation process, which is iterative and incremental, thereby enabling the vendor to expedite the delivery of requirements, incorporate client-requested changes and reduce the risk of project delays or going over budget. A typical implementation can take six to 18 months, depending on the scope of the project, the lines of business affected and the number of systems being replaced. Many organizations have chosen to utilize a phased implementation approach, so they can deploy the solution sooner—perhaps with one or two lines of business. This allows them to reap an immediate return, while also gaining hands-on experience with the system to better configure it for the next phase of implementation. Key Considerations for Configuration Time and consideration should be given to configure a new system to meet unique claims workflow and process needs. An organization must consider what screens are important, as well as whether it may need to collect unique information through customized screens and data fields. Business rules should be set up to manage and automate workflow, as well as to trigger alerts for events that require supervisory review. In addition, reports should be configured, so, once the system goes live, they’ll be ready and automatically delivered to the relevant stakeholders. Establishing user rights and restrictions also helps facilitate quality control in the claims process. Management may want to restrict user rights and access within the system, according to the type of user. For example, management could assign full, partial or read-only access. One organization granted nurse case managers access to only the case management portion of claim files. Another restricted inexperienced adjusters from setting high reserves or significantly increasing reserves. Instead, such actions required a supervisor’s review and approval. A Commitment to Training Another key factor for success is extensive and thorough system training for users. Organizations should consider scheduling training two months before the go-live date to begin to familiarize users with the look and feel of the system, and a second training immediately before “go live” to ensure users are comfortable with the claims workflow within the new system environment. Certainly, technology cannot replace the intuition, analysis or personal service that claims professionals provide. Claims staff should understand how the technology will help them to better apply their expertise. For example, by automating administrative functions, they can focus on knowledge-based and service-oriented tasks. Business users who will be responsible for updating the system to accommodate new requirements must be trained on a continuing basis. These users will define system changes—whether it’s for a new report, workflow or supervisor alert—so they must understand the system logic. Organizations must commit to keeping these users up to date, especially as new versions and tools become available. Key Benefits and Cost Savings As more organizations modernize, they’re beginning to realize the extensive business benefits that can be achieved, including the following:

• Reduce claims costs. Modernization enables an organization to better manage claims costs and outcomes. Organizations will have the reporting tools they need to identify high-cost areas and take advantage of opportunities for savings.
• Leverage data. With dashboards, business intelligence tools and reporting platforms, modern systems help facilitate both a big-picture and granular view of claims. With this understanding, organizations can make business decisions that improve the bottom line.
• Introduce products. When organizations introduce insurance policy products, they must configure operations to handle incoming claims. A modern system can help make updates to the claims side quickly and easily.
• Enhance customer service. A modern platform helps organizations facilitate the delivery of timely, responsive and personalized service.
• Improve operational efficiency. Organizations have increased the efficiency and productivity of claim departments, particularly with the use of business rules for task automation and document management for paperless claims processing. With these improvements, organizations have seen a significant return on investment.
• Leverage IT benefits. Because of the superior design of modern systems, IT departments benefit from the ease of maintenance, security and upgrades. Staff member are freed to spend more time on projects such as process enhancements.
• Ease the burden of compliance. Continuing to comply with new and emerging regulations can be an administrative and financial burden. Compliance is complex, but modern systems automate, streamline and facilitate the compliance process.

Keeping Pace for the Future Insurance leaders are striving to continually improve their claims operation. Today, leveraging modern technology is a primary means to that end. The IT strategies discussed in this article are making it easier to administer and automate complex claims transactions, which involve multiple parties, multiple systems and various regulatory concerns. As adopters have found, the more complex and cumbersome the claims transaction, the greater the opportunity for modern systems to improve efficiency, savings and service. Modern platforms also incorporate data mining and reporting to enable organizations to obtain insights to further drive performance. In the end, there is no blanket solution, but, above all else, organizations need infrastructure capable of accommodating the ever-changing insurance market.

My real estate clients have seen their share of fires, especially in apartments, and I have seen first-hand the devastating impact of a fire on an apartment complex. Often, these fires happen because of tenants' carelessness, especially with fires that start in the kitchen. So, in the spirit of Fire Prevention Week this week, I wanted to share information about a device that can prevent many fires from ever starting. The product, called Fire Avert, simply plugs into the wall socket behind an electric stove, and the stove is then plugged into the Fire Avert device. If a smoke alarm sounds in the apartment, the device hears the alarm and shuts off the stove. This simple step will prevent the many fires that start because someone forgets that the stove is on (perhaps even leaving the apartment), steps outside for too long and leaves the stove untended, etc. There are subtleties to the device (which the inventor describes here), but that's the basic approach: cut off the source of many fires before they ever start. A fire loss is disruptive and time-consuming. It hurts tenants and places hardships on the local property manager, who has to deal with the fire marshal, cause and origin experts, contractors and consultants hired by the insurance carrier. It affects the corporate insurance manager, who is often responsible for working with the insurance adjuster, documenting all costs, navigating through coverage disputes and providing extensive information to the forensic accountants to assist with calculating the loss of rents. Reconstruction can takes weeks, months or even more than a year. If law and ordinances increasing the cost of construction apply, the rebuilding is delayed further.  When all is said and done, the insurance carriers then scrutinize losses and often raise the premiums on renewal. Suffice it to say, a fire loss is an exhausting and costly endeavor for apartment owners. Just ask anyone who has been through one. After recently tracking a property owner that installed the Fire Avert device in all its units, I have become a true believer in its ability to prevent fires. There are many devices being sold today that "stop" a fire, but this is the only product that prevents the fire from ever starting. Don't get me wrong: The devices that "stop" a fire are better than no protection. Products that "stop" the fire often reduce the impact substantially. Instead of burning the entire building down, a fire might only take out the kitchen.  An $8,000 to $20,000 loss is better than a $250,000 to $1 million loss. However, no loss is the best outcome. Fire Avert can make that happen. I know many property owners that incur two to four kitchen fires a year. These fires have cost $60,000 to $2 million. Had the owners not had these kitchen fires, their portfolios would be loss-free. I am confident the premiums for these owners would be at least 30% less without kitchen fires. All property owners budget capital improvements each year. The cost of the Fire Avert (listed on the website for $196 a unit) can easily be rolled in over a two- or three-year period. If the current success of these devices is an indication, Fire Avert will pay for itself through future insurance premium savings. I have no stake in this company. I am just a fan of the product and the owner/inventor, Peter Thorpe, a firefighter. His inspirational story and more about this remarkable device can be found at http://www.fireavert.com. If all apartment owners installed this product, placing insurance would be much easier, insurance premiums would be substantially less, insurance carriers would pay less in claims and, most important, lives would be saved.

In aviation, a concept was developed in the 1970s known as Crew Resource Management. The idea is that best practices require a team approach: While tasks may be delegated and shared, and one person does have command of the ship, other crew members should act as backup, and clear communication should occur. Before the research funded by NASA that led to CRM, the captain was indisputably in command of the aircraft. NASA's research uncovered that the culture that developed around this concept prevented other crew members from speaking up when something was missed or wrong with the captain's actions or decisions. This culture -- that the captain was not to be questioned -- led to failures by other crew members to question the actions of the captain even though flying an airplane is complex, and details are critical. Miss a speed, an altitude, a bank indication, and bad things happen. It took time, no doubt, for CRM to become standard practice because the old guard that flew under the captain-in-command convention had to retire. Eventually, attrition pretty much removed the captain-in-command mindset of flight crews. Some countries, however, have a culture where a captain-in-command mentality is deeply embedded, and generational change is not enough to shift the culture. Vanity Fair in this month's issue ran a lengthy article on the crash of Air France 447 in 2009. One of the conclusions of the author is that CRM was thwarted by the French aviation culture, as evidenced by in-flight cockpit recordings. One of the reasons Air France 447 crashed into the Atlantic was that the crew working beneath the captain (there were two subordinate pilots) did not speak up, or do so with sufficient authority or alarm, to make the captain question his decisions. Cockpit recordings reflect that the captain also failed to communicate in clear, concise language, which increased the confusion in the cockpit as the plane plummeted from the sky in an aerodynamic stall. Contributing to the cultural devolution was the high state of automation of the aircraft. My former next-door neighbor retired as a captain for United Airlines after flying B-1 bombers for the Air Force. He commented on occasion that the big commercial jets were more like flying computers. Ninety-eight percent of the time, flying computers is much safer than flying manually -- the dynamics of flight are so complex and change so frequently that a computer can do the job better than a human can. Most of the time. Until something occurs that is outside the machines pre-programmed ability to deal with the situation. Then a human who is skilled at what is called "stick and rudder" flying (how it was done in the old days before auto-pilots) does a better job because the human mind can deal with anomalies. Unless that human's skills have degraded from overreliance on automation. Flying is a depreciating skill -- if one does not do it constantly the ability to actually "fly" the airplane degrades. And this is one of the things that contributed to the Air France 447 disaster -- the crew used all the wrong inputs manually flying the airplane because they had become overly reliant on the machine's taking care of itself. The crew was inadequately prepared to actually hand fly the airplane in a CRM environment. By the time the captain had resumed authority, panic in the cockpit interfered with communication, decision making and execution of commands. I tell people that learning to fly should be mandatory education for professionals and executives because there are three basic skills in flying that are directly applicable to business: planning, decision making and communication. A failure in any one of those skills means disaster. Air France 447 demonstrates what happens when all of those occur simultaneously. “We now have this systemic problem with complexity, and it does not involve just one manufacturer," Nadine Sarter, an industrial engineer at the University of Michigan, said in the Vanity Fair article. "Complexity means you have a large number of subcomponents, and they interact in sometimes unexpected ways. Pilots don’t know, because they haven’t experienced the fringe conditions that are built into the system. I was once in a room with five engineers who had been involved in building a particular airplane, and I started asking, ‘Well, how does this or that work?’ And they could not agree on the answers. So I was thinking, If these five engineers cannot agree, the poor pilot, if he ever encounters that particular situation . . . well, good luck.” Workers' compensation suffers from complexity that begets poor communication, decision making and planning. When laws are created to "reform" the system, subcomponents are introduced that interact in sometimes unexpected ways, and system "pilots" don't know how to deal with these changes. This results in poor communication -- different forms are introduced to handle various subsystem requirements that may conflict with the overall direction of the case; poor decision making occurs because variables aren't recognized as potential outcomes; stakeholders (workers and their employers) can't plan because system degradation obscures destination. At the same time, we seem to have become overly reliant on automation in workers' compensation -- not in the machine production sort of way, but in a "follow the rules" sort of way. Decision making authority is more removed from the front lines than ever before in favor of pre-programmed, automated responses. Consequently some cases end up catastrophic when otherwise the outcome should have been routine -- something happens along the claim history where the automated systems fail, but the "team" has not been routinely training for those failures, and autocratic controls are too deeply embedded in either culture or practice. The result is disaster. This industry does a lot of training on new issues, on new laws, on new techniques. But we don't do a whole lot of recurrent training on the basics, and there are barriers in the way of challenging autocratic rule that interferes with quality decision making. The good news is that most of the time cases, just like airline flights, terminate successfully and without damage to person or machine. The bad news is that when something does go wrong, we aren't well-equipped to deal with the situation before the case degenerates into catastrophe. When an emergency occurs in aviation we are taught to aviate, navigate and communicate -- in that specific order. Fly the airplane first. That keeps you from getting killed. Figure out where you're going next, so you can land that plane. Then tell someone on the ground (usually air traffic control) what is happening so they can muster as many resources as possible to help out. The crew of Air France 447 clearly violated all of those basic tenets. I submit that most "disaster" claims could likewise be avoided by following those basic tenets, if our culture bends to allow that to happen, and we train outside of automated systems on a regular basis.

Republicans are primed to take over Congress. A new FiveThirtyEight.com projection gives the GOP a 60% chance of winning the Senate this fall. And, according to RealClearPolitics, there's virtually no chance Democrats will take the House. If the GOP succeeds, public displeasure with Obamacare may be why. A recent poll from Bankrate.com found that more than two-thirds of voters say that Obamacare will play a role in how they vote in the coming election. Nearly half said it would influence them "in a major way." Of course, the next Congress has little hope of repealing Obamacare outright. The president would just issue a veto. Overriding it — though technically possible — would be difficult with an intransigent Democrat minority. A GOP majority should instead focus on incremental reforms with bipartisan support — like tax cuts, regulatory reforms and repeal of some of Obamacare's most unpopular mandates. That's the most effective way for lawmakers to move our health care system toward one that puts markets and patients at its center. Step one? Repeal Obamacare's medical-device tax. This 2.3% excise charge on all device sales is expected to collect $29 billion over the next decade, according to government data. Device firms are compensating by cutting jobs. Stryker, for instance, has cut 5% of its workforce — about 1,000 people. Zimmer Holdings has chopped 450 jobs. In total, Obamacare's device tax could kill 43,000 jobs, according to Diana Furchtgott-Roth, an economist at the Hudson Institute. Getting rid of the tax is a no-brainer. In March 2013, 79 senators — including 34 Democrats — approved a non-binding resolution calling for its repeal. It's time to make that vote binding. Second, a GOP-controlled Congress should strengthen health savings accounts. These financial vehicles allow patients to stow away money tax-free for medical expenses. HSAs are typically coupled with high-deductible health insurance. Patients bear the cost of routine care, and coverage kicks in when needed, like in the event of a medical emergency. HSAs give patients a financial incentive to avoid unnecessary medical expenses. Converting someone to HSA-based insurance drops her annual health expenses by an average of 17%. This year, 17.4 million people are enrolled in HSA-eligible plans — a nearly 14% increase over 2013. Among large employers, 36% now offer HSA/high-deductible plans, up from 14% five years ago. Annual HSA contributions are currently capped at $3,350 for an individual and $6,550 for a family. Congress should raise them to $6,250 and $12,500, respectively. And patients with HSA coverage through the exchanges should be eligible for a one-time, $1,000 refundable tax credit to be deposited directly into their account. Third, the new Congress should reform medical malpractice. Frivolous lawsuits and the threat of baseless litigation are increasing health costs and degrading quality of care. Excessive malpractice suits drive "defensive" medicine, in which doctors order unnecessary procedures and tests simply to shield against accusations of negligence. This practice costs the country an estimated $210 billion every year, according to PricewaterhouseCoopers. Injecting common sense into the medical tort system would bring down that bill. Earlier this year, the House Energy and Commerce Committee passed a bill that restricted lawsuits against doctors by, among other things, limiting non-economic damage judgments to $250,000. It was effectively ignored once it moved out of committee. Republicans should dust it off and pass it. Finally, the GOP should repeal Obamacare's employer mandate, which slaps midsize and large companies with a fine if they don't provide sufficiently "robust" health coverage to full-time employees. The mandate is destroying jobs. Employers are holding off on hiring and ratcheting back workers' hours to avoid additional insurance costs. A Gallup poll found that 85% of businesses are not looking to hire. Nearly half cited rising healthcare costs. There's ample political support for repealing the employer mandate. The administration has already unilaterally — and maybe illegally — delayed its implementation. Several prominent backers have openly called for repeal. All of these reform ideas are imminently actionable. They could find broad bipartisan backing and avoid a veto. Most importantly, they would move U.S. healthcare closer to a consumer-driven system, with patients empowered to control their own spending and market forces pushing costs down.

A divided Workers' Compensation Appeals Board has issued its long-awaited en banc decision to the defendant’s appeal in Dubon v. World Restoration and substantially modified its prior en banc holding to limit the ability of the WCAB to decide medical issues only in cases where utilization review (UR) is untimely. In doing so, the WCAB completely retracted its prior holding that UR decisions that were “procedurally deficient” were subject to WCAB jurisdiction to address medical issues. In reversing itself, the WCAB effectively disagreed with its own rule ADR 10451.2 to the extent it made such procedural issues the subject of WCAB review. The new holding of the WCAB, decided on a 4-1 vote, with Commissioner Lowe concurring and dissenting and Commissioner Sweeney dissenting, is set out as follows: 1. A utilization review (UR) decision is invalid and not subject to independent medical review (IMR) only if it is untimely. 2. Legal issues regarding the timeliness of a UR decision must be resolved by the Workers’ Compensation Appeals Board (WCAB), not IMR. 3. All other disputes regarding a UR decision must be resolved by IMR. 4. If a UR decision is untimely, the determination of medical necessity may be made by the WCAB based on substantial medical evidence consistent with Labor Code section 4604.5 The decision provides a substantial change from the former broadly worded opinion giving wide discretion to trial judges to find UR defective based on multiple defects beyond timing. Workers' compensation judges (WCJs) in the interim had a field day finding such perceived “procedural defects” -- some of which, based on WCAB panel decisions, appeared to be very minor -- a basis to assume jurisdiction over medical care. The WCAB, in removing the ability to review UR-based issues other than untimeliness, emphasized the language in SB 863 that medical issues should be decided in UR and IMR and not by WCJ: “Commissioner Sweeney suggests that a UR decision that does not comply with the mandatory requirements of section 4610 is not a decision subject to IMR. (See § 4610.5(c)(3).) We disagree. The legislative intent is clear. IMR is the sole mechanism for reviewing a UR physician’s opinion regarding the medical necessity of a proposed treatment. Consistent with this, we hold that where a UR decision is timely, IMR is the sole vehicle for reviewing the UR physician’s expert opinion regarding the medical necessity of a proposed treatment, even if the UR process did not fully comply with section 4610’s requirements….With the exception of timeliness, all other requirements go to the validity of the medical decision or decision-making process. The sufficiency of the medical records provided, expertise of the reviewing physician and compliance with the MTUS are all questions for the medical professional….” The WCAB, however, has also concluded that IMR is limited to resolving medical disputes and is not authorized to address timeliness issues. Only the WCAB can decide if UR is timely in the absence of some statutory authority for IMR to consider the issue. SB 863 did not specifically address this issue; the board’s decision continues to rely on the decision of the California Supreme Court in Sandhagen v. WCAB, which held the WCAB had authority to resolve medical disputes where UR was timely: "Sections 4610.5 and 4610.6 limit IMR to disputes over 'medical necessity.' Legal disputes over UR timeliness must be resolved by the WCAB. (§ 4604 ('[c]ontroversies between employer and employee arising under this chapter shall be determined by the appeals board, … except as otherwise provided by Section 4610.5' (italics added)); § 5300 (providing that 'except as otherwise provided in Division 4,' the WCAB has exclusive initial jurisdiction over claims 'for the recovery of compensation, or concerning any right or liability arising out of or incidental thereto'); see also Cal. Code Regs., tit. 8, § 10451.2(c)(1)(C).)" The WCAB continued to emphasize that, on those occasions when the WCAB determines UR was untimely and therefore subject to decision of the WCAB, the decision is not automatically to award the disputed medical treatment but to require the decision to be based upon substantial medical evidence, with the applicant having the burden of proof. Dissenting Opinions There were two additional opinions in this matter. In a concurring and dissenting opinion by Commission Lowe, she agreed with the majority's analysis and holding in this matter but would have dismissed the entire appeal as moot because the applicant’s surgery has since been authorized based on further review. Commissioner Lowe noted that while she would “unequivocally concur in the majority holdings, I maintain that it was not necessary to reach the merits here.” Commissioner Sweeney, however, issued a strongly worded dissent indicating she would uphold the initial decision in Dubon I. Making essentially the same arguments that were outlined in the original decision she argues for WCAB jurisdiction to review medical issues on the much broader scale than the majority opinion. Comments and Discussion This decision essentially leaves the state of the law much the same as it had been before the first en banc decision in this case. While some defendants would occasionally raise the issue of WCAB jurisdiction to decide medical issues where UR was untimely, the issue did not come up nearly as often as the “procedural defects” the WCAB identified as a basis for the WCAB to decide medical treatment. Issues that had been raised to the WCAB included completeness of the medical record in UR, adequacy of the UR physician’s discussion, UR physician specialty, signature of UR by a physician (as opposed to the actual decision being made by a physician) and delay notices issued by a nurse rather than a physician. Based on the new WCAB decision, all of those issues are the kind that can be addressed in IMR when the full and more complete review of medical necessity is made. It will be interesting to see if this case is appealed further. Certainly, there is very little reason for the applicant attorney to take this case up as his client has received the requested treatment, and should he do so the argument for mootness of the decision would probably convince an appellate court that this case is no longer ripe for dispute. For defendant, the decision must be considered a substantial win. The WCAB has significantly pulled back on the very expansive decision of Dubon I, returning the worker’s compensation community to the status quo before Dubon I. It is probably worthwhile for the employer community to attempt to obtain appellate review of the issue of WCAB jurisdiction over untimely reviews, the urgency of that issue is not as great as the potential chaos that Dubon I caused and was continuing to develop. Whether the commissioners were influenced by the flood of hearings challenging UR on every conceivable issue, real or not, is something only the majority knows. Certainly, the potential for reversal at the next level with the very thin justification for the original decision must, and should have, played a role in the reversal. The new decision of the WCAB is one that is certainly much easier for the WCAB to defend in the event the case goes up. The argument that the WCAB gets to decide timeliness of UR is probably supportable on the basis of the statutory scheme. The question of whether the WCAB’s remedy for such untimeliness, that a WCJ can then decide the issue, is probably still open to question at the next level but is certainly decided at this level for now. The takeaway from this decision is clear: UR needs to be timely!