Rates Continue to Climb

In most of the U.S., rates for workers’ compensation insurance are continuing to climb, driven by rising medical costs, the low-interest-rate environment and the general unprofitability of the line of business.  This is in spite of the fact that many states have undertaken regulatory reform aimed at controlling medical costs and driving costs out of the system.  Despite significant investment in medical management efforts, workers’ compensation costs are consistently higher than group health costs for the same diagnosis. Why is this? Numerous studies have shown that a small percentage of medical providers are driving a large percentage of the workers’ compensation costs. Implementing treatment guidelines, drug formularies and utilization review protocols is a step in the right direction. However, until regulators find a way to remove abusive medical providers from the workers’ compensation system, high costs will always be a problem. Rather than treating the symptoms, we need to address the causes of rising costs.

The Potential Expiration of TRIPRA

Unless Congress takes action, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) will expire on Dec. 31, 2014. Carriers are now writing coverage without the backstop of TRIPRA. What does this mean to the workers’ compensation industry? Companies with high employee concentrations in certain cities are already seeing fewer options, with some carriers scaling back their writings to reduce their exposure to a potential terrorism event.  Some carriers are setting policy expiration dates to coincide with the expiration of TRIPRA or are advocating for unilateral mid-term premium increases if TRIPRA is not renewed or is materially modified.  Many workers’ compensation underwriters are pushing for higher rates because of this issue.  If TRIPRA is allowed to expire, companies in certain industries and geographic areas may have no option but to obtain future coverage from their state funds as the commercial marketplace pulls back to avoid the increased risk.  The longer it takes Congress to act, the more pronounced this issue will become.

Impact of the Affordable Health Care Act (AHCA)

There has been much speculation about the potential impact that the ACHA will have on workers’ compensation.  Some feel it will increase leakage from group health to workers’ compensation, while others feel it will have the opposite effect. One thing for certain is that with increased coverage being provided on the group health side, the overall utilization of services will go up. With a finite number of medical providers available, this means it is imperative that workers’ compensation payers identify the providers who deliver the best clinical outcomes for injured workers. The focus on workers’ compensation medical networks in the future will need to shift from fee-for-service discounts to quality of care and best outcomes. This may cost more on a fee-for-service basis, but getting appropriate and timely care will generally lead to faster return-to-work, ensure the proper treatment and ultimately lower costs.

Integrated Disability Management

More employers are realizing that the impact of federal employment laws like the Americans with Disabilities Act (ADA) and the Family Medical Leave Act (FMLA) must be considered on workers’ compensation claims. Companies are also realizing the value of managing non-occupational disability so that valued employees can get back to the workplace and be productive. As a result, companies are requesting that their TPAs develop integrated disability management programs designed to handle both occupational and non-occupational disability in a consistent and effective manner. These integrated disability management programs are the next generation of claims handing and will expand in the future.

State Legislative Issues

Several states that passed significant reform legislation in the last two years are working to implement those reforms. Passing a law is only the first step, as the rules, regulations and implementation of those laws determines if they will achieve their intended purpose. The most significant issues to watch are in California, New York and Oklahoma.

When California passed SB 863 in 2012, the expectation from the state’s legislature was that it would increase benefits to injured workers while lowering costs for employers in the state. While the benefit levels for permanent disability have been increased, the savings components are still a work in progress. Litigation and unanticipated consequences of the bill have resulted in increased complexity and continually rising insurance rates.  For example, a significant component of the intended cost savings was to result from the new Independent Medical Review (IMR) process.  However, in recent months the volume of IMR requests has been many times what was anticipated, preventing the IMR provider from meeting the required turn-around guidelines and adding significant administrative costs to the system.  Based on their analysis of the higher costs, the California WCIRB recommended an 8.7% pure premium increase for 2014. There is currently talk of potential clean-up legislation to go along with the continued efforts at implementation. We will know by the end of the year whether SB 863 will be able to produce the promised cost savings.

New York streamlined its assessment process, resulting in a significant reduction of the assessment rate for most employers. These rates are adjusted annually and have varied significantly in the past few years.  It remains to be seen if these assessment savings will continue into the future.  In addition, New York has been struggling to implement the reforms that were passed in 2007 legislation, and it was 2013 before the last of the regulations were issued for this law. This 2007 bill was another piece of legislation that promised cost savings that have yet to fully materialize.

The big news in Oklahoma is the bill that allowed employers to opt-out of workers’ compensation starting in February 2014. The Oklahoma Supreme Court recently upheld the constitutionality of the legislation, clearing the way for its implementation. However, there have been delays in developing the rules and regulations supporting the opt-out plans, and this has in turned delayed carriers’ development of policies to cover new benefit plans. It appears unlikely that everything will be in place so that employers will be able to opt out beginning in February. In addition, the Oklahoma legislation included significant reforms to the underlying workers’ compensation system, so many employers considering opt-out will wait to see the impact these system changes will have on their workers’ compensation costs before proceeding.

Vendor Consolidation

In the last few years, there has been significant vendor consolidation in the worker’s compensation industry. First on the TPA side, and most recently on the medical management side. Much of this consolidation was driven by private equity investments where the tremendous medical spend in workers’ compensation is seen as an opportunity for a profitable return on investment.

All this consolidation is making buyers of these services uneasy. They question how this consolidation will affect the quality of the services they receive and wonder how their goals of reducing costs align with private equity’s goals of increasing revenues. These are legitimate concerns, and it is imperative that buyers remain vigilant concerning vendor partners.

Analytics

Despite the huge amount of premium, exposure and claims data produced by the workers’ compensation industry, many complain about the lack of actionable information. Dashboards and many other analytic tools do a nice job pulling data together in one place, but ultimately the data is only as good as what one does with it. As an industry, we will see a continued focus on the use of more meaningful analytics that can assist in identifying savings opportunities, formulating action plans and measuring the impact of change.

Assessing Return on Investment for Medical Cost Management Efforts

In the last few years, the money spent on medical management has been steadily increasing.  Programs including bill review, utilization review and nurse case management are all necessary components of any successful workers’ compensation program. However, it is important that these programs are constantly monitored to ensure they are being utilized appropriately. If left unchecked, these “cost-saving” issues can actually become cost drivers.

Impact of Presumption Laws on Municipal Budgets

In 2013, there were a handful of municipalities that filed for bankruptcy because of large underfunded workers’ compensation and pension obligations. This trend is not only likely to continue, but could get worse. The presumption laws in most states can turn common health conditions like heart disease and cancer into workers’ compensation claims. In California and Nevada, for example, a large number of retired police officers and firefighters are collecting both their pension and the benefits from a workers’ compensation presumption claim. The statute of limitations for linking these diseases to the workplace has been extended to more than 10 years in some jurisdictions. The resulting burden for paying the costs of these benefits in the case of public entities ends up falling on taxpayers.

Medicare Set-Asides

Many felt that the passage of the SMART Act in January 2013 was the end of the battle on Medicare Secondary Payer compliance issues. In fact, this was just the beginning of the fight. Implementation of the SMART Act has been slower than expected and the legislation did nothing to address the huge costs associated with Medical Set-Aside arrangements. The rules and case law associated with Medicare are constantly evolving, and now it appears that these reimbursement rights will be expanded to Medicaid coverage, which would create an entirely new monitoring and compliance area.  This is an issue payers need to remain diligent on.

Please join me on Jan. 15, 2014, for a Marsh-sponsored webinar to discuss these issues and other potential legislative developments to watch in 2014.  Click here to register.

The report in the journal Health Affairs about PepsiCo marks the first time a major organization has been found to be losing money in a wellness program (not including the ones that my colleagues and I are exposing as frauds, like British Petroleum and the Nebraska state employee program).  Highlights are as follows:

• Disease management alone was highly effective, with an ROI of almost 4-to-1;
• Wellness alone was a money sink, with each dollar invested returning only $0.48 in savings;
• The wellness savings were attributed to an alleged reduction in absenteeism, as reported by participants.  There was no measurable reduction in health spending because of wellness.

There are many reasons to think that this result, as unimpressive as it is, overstates the value of the program.  For instance, the report doesn’t measure the time that employees spent completing the forms and getting their blood drawn.  Nor does it include staff time or the fees to Mercer, which advised PepsiCo to launch the program. Nor does the report take into account the bias caused by participants having a more engaged mindset than non-participants, or the self-reporting of data for absences, the only slightly bright spot in the report. One suspects that the author, RAND’s Soeren Mattke, pulled some punches for political reasons, to avoid having PepsiCo suppress the entire study.

So where does this result leave the wellness industry, and by implication brokers who are earning commissions from it?

First, wellness only has one supporter left in Washington, DC, the Business Roundtable, an association of chief executives of large U.S. corporations. Its vice president was quoted in Reuters as saying Roundtable members are "as enthusiastic as they have ever been about these (workplace wellness) programs," adopting them to boost employee morale and improve recruitment.  One irony is that the Business Roundtable’s Health Committee is chaired by a CEO in the casino industry, an industry which has steadfastly defended its right to expose its employees to more second-hand smoke than all other industries combined.   Hence, one suspects an ulterior motive for the Roundtable’s support, such as being able to control employee behavior and increase employee share of premiums.

The other irony is that employees usually resent and sometimes revolt against programs designed to “boost their morale."

Second, no wellness program has ever saved any corporation a nickel.  The simple sleight-of-hand of comparing participants to non-participants and/or just measuring people who were high-risk to begin with while ignoring those whose risk factors increase will show savings where none exist.  Indeed, how could it be possible to improve health, let alone generate savings by improving health, by doing the opposite of what guidelines recommend, which is what wellness companies do.  For instance, the United States Preventive Services Task Force recommends screening asymptomatic people only once every five years (except for blood pressure), whereas almost all wellness vendors insist on annual screenings.  The literature is very clear that annual checkups for asymptomatic adults are expensive and counterproductive, and yet many wellness programs are measured by how many people they send to the doctor.

Third, there is more bad news on the way.  This Health Affairs article is a start, sort of like busting Badger or Skinny Pete, but there is some investigative work that will be revealed in the weeks ahead that, to continue the analogy, will be more akin to blowing up Gustavo Fring’s whole operation, exposing wellness as possibly the biggest scam ever to be played by the healthcare industry on corporate America.  (This may seem like a strong statement, but if you doubt it, simply bookmark this column for a month or two.)

Brokers and consultants would therefore be well-advised to start backing off from these programs.  The short-term commission sacrifice will more than pay for itself in long-term client retention.   Note that I said, “back off,” not “run away.”  Your clients have in many cases staked their reputations on wellness, advocating –- possibly with your help — for steadily larger budgets for programs and especially incentives.  You need to step back from the ledge together, keeping in mind the amount of political capital they’ve invested.  They relied on you to take them here.  Now they will need to rely on you to bring them back.

Editor's Note: See also our thought leader Tom Emerick's take on the PepsiCo news.

When PhoneDog vs. Kravitz was filed two-plus years ago, it highlighted a concern at many organizations about how to protect their right to own the content that they and employees post on social-media sites about their brands, plus the data about those who read that content.  

As we move into 2014, the concern remains because PhoneDog vs. Kravitz was settled out of court in late 2012, leaving no legal precedent, and because progress on the underlying issue on other fronts has been limited. (PhoneDog sued an employee, Noah Kravitz, who took 17,000 Twitter followers with him when he quit. PhoneDog claimed he was stealing a client list and owed the company $340,000. Under the settlement, Kravitz was allowed to continue using the @noahkravitz Twitter handle, but no other terms were disclosed.)

To address the issue of who owns an organization’s social media account, here are the four questions I receive most often on the topic, along with my responses:

1. Under what circumstances does the organization have the right to claim ownership of a social-media account if it was always operated solely by the employee? 

Response:  This issue had not received a lot of attention until PhoneDog vs. Kravitz even though organizations must protect their social-media assets, especially if they use social media as part of their marketing platform.

If there is a dispute about ownership, employers are suing for trade-secret protection of these social-media accounts. Employers are also alleging common law theories of misappropriation or conversion against former employees for taking contacts or passwords upon their departure from the company.

Former employees are also using the misappropriation and conversion theories to sue their former employees. This occurred, for instance, in Eagle v. Moran, where a company gained access to a personal LinkedIn account of a former employee and replaced her name and picture with that of her replacement. The former employee soon regained control of the account and refused to relinquish it, leading to a series of claims and counterclaims. The case raised the prospect that the company might own the account even though it had been opened in the employee’s name and even though she had sole control over it—the reason being that corporate policy stated that employees needed to open and operate social-media accounts. Again, however, the case didn’t set precedent because the record from the November 2012 bench trial remains under seal.  No final decision has been entered 

2. Under what circumstances is it just too bad for the company? In other words, when does a company simply have no rights to the ownership of a social-media account?

Response: Even though terms of the PhoneDog v. Kravitz settlement aren’t known, we do know that client lists, cultivated over time on a company’s good reputation and using its resources, are company property.  The question is: What standard applies to Twitter followers, LinkedIn contacts or Facebook friends – and how does one measure the value?   

Courts may consider the following factors when determining ownership of social media accounts:

• Who set up the accounts and directed the content?
• Were the accounts set up before or during employment?
• Who had access to the accounts and passwords?
• Was the name or account associated with the employer’s name or with the brand?

3. (a) Was there a signed policy at the opening of the account?

Response: Employers should obviously implement policies and develop agreements specifically relating to the ownership of company social media accounts, but is it currently “required” by law or otherwise? No.   (The plus side of PhoneDog v. Kravitz is that the media exposure meant that, according to research by law firm Proskauer, the number of employers who now have written policies about social-media use at work has climbed to 69% in 2013 from 55% in 2012.)

For the employer:

• Accounts should be set up by the company’s management (using the company name in the handle or account name). The company should maintain the passwords, should only give access to those who need it as part of their job duties and should direct the content.
• The employer must communicate to the employee in writing that it owns the accounts and the content and that content contributed as part of the employee’s job is owned by the company. (Such specific agreements could be an offer letter, a nondisclosure agreement or a noncompete agreement.)

For the employee:

• The employee needs to discuss, at least at the beginning of employment, company policy about who owns social media accounts, including personal ones if the employee is agreeing to use those accounts to promote the company’s business. Then, any changes could be addressed by an amendment to the applicable agreement with that employee.

 (b)   If there is a signed agreement, what is legally allowed to be included? 

Response: Here are a few examples of points that should be covered (courtesy of Anthony Zeller, employment litigation attorney, VanVleck, Turner & Zeller):

• Who owns an employee’s social media accounts that will be used for business purposes, along with any restrictive terms of use of the employee’s social-media accounts during employment.
• Ownership and use of the company’s social media accounts. Who retains the right to change the passwords? Who retains the right to edit and approve content? What is the process to approve content before publishing?
• What control, if any, the company will have over the employee’s or the company’s social-media accounts after the termination of the employment relationship. Is there a timeframe after employment during which the employee cannot use his or her own social-media accounts for competitive business uses?

4. Do laws differ significantly from state to state and from country to country?

Response:

• United States: Currently, adjudication of lawsuits is at the state level, so, yes, there is considerable variance.  Companies also need to be careful that any limits on an employee’s use of social-media accounts don’t violate other laws, which also vary state by state.
• International:   Yes, there is variance from country to country.

The law is still a work in progress.  But by paying attention to the key questions you can manage some of the risk as well as the moral and ethical issues when dealing with this question of who owns an organization’s social media account.

Disclaimer: The information contained in this document is provided only as general information and may or may not reflect the most current developments legal or otherwise pertaining to the subject matter thereof.  Accordingly, this information is not promised or guaranteed to be correct or complete, and is not intended to create, or constitute formation of an attorney-client relationship. The author expressly disclaims all liability in law or otherwise with respect to actions taken or not taken based on any or all of the content of this document.

Smart is cool, especially in electronics. Smart phones answer their users' most obscure questions instantly. Computers are smart, as are iPads, some TVs and even children's toys. So why can't workers' compensation medical provider networks be smart?

If they were, what would that look like?

Portrait of a Smart Medical Network

A smart medical network contains only the best doctors and other medical providers, those who drive the best results for injured workers and their employers. Moreover, a smart network does not rely on discounts on services as the requirement for participation. Instead, demonstrated positive outcomes are the qualifier for medical provider participation and continuing excellence.

Smart Networks Are Local

A network containing thousands of doctors is of no value to the injured worker. Workers need the closest provider who will treat them effectively and return them to work. The worker’s employer likewise needs the best local provider who will return the worker to pre-injury status in the shortest amount of time at the least cost. Smart networks are composed of this kind of medical doctors.

Network Participation Qualifiers

Smart networks are built by objectively measuring the performance of physicians who have actually treated injured workers. Objective evidence of performance is found in the data. Yet, indicators of performance are typically ignored in traditional networks. They do not measure or monitor the quality of provider performance. They simply contract with any providers and add them to the network directory.

Indicators of Quality

Many indicators of performance found in the data can be used to measure the level of provider performance. In the case of medical treatment of injured workers, the most telling indicators reveal doctors’ awareness and acknowledgement of the nuances of workers’ compensation that ultimately benefit both injured workers and their employers.

Revealing data elements influenced by the treating physician include return to work, medical costs, indemnity payments, legal involvement and disability status at the close of the claim. These outcome indicators in the data are important markers of quality and legitimate criteria for evaluation. Algorithms are executed using the indicators, and providers are scored based on their performance. Performance measurement must be objective and consistent. But performance measurement cannot end there.

Continuous Monitoring

To ensure continued quality, the data must be continuously monitored. Unlike traditional medical networks that contract for discounts with medical providers and go no further, smart medical networks for workers’ compensation continue to monitor for quality. Continuous monitoring is the very definition of medical management:

Good management is making sure what you did stays done!

California SB 863

In fact, California SB 863, effective Jan. 1, 2014 (now!), mandates continuous monitoring of medical provider costs and quality performance. This progressive legislation is an excellent model for selecting and monitoring smart medical networks, regardless of geographic location.

Establishing a smart medical network is essential, and the means are clear and available. However, the transition from traditional networks to smart medical networks can be tricky.

Converting to Smart Networks

Traditional networks are tethered to their established means of revenue generation. Shifting from the discount network model to the smart medical network model is challenging. The most practical approach is initially combining the two models, then weaning from the old model over time.

If the right physicians are a part of a smart medical network, claim outcomes will improve. Injured workers will receive good medical treatment and return to work early and successfully, and costs will be significantly reduced.

Moreover, physicians and other providers who qualify for smart networks should be rewarded. They should not have their fees reduced by discounts. Based on the excellence of their past performance, they should be included in the smart network on a very long leash. Continued performance for continued participation will be monitored scrupulously.

Win-Win

Nevertheless, it should be noted, payers have an obligation to participate in the transition to, and continuation of, smart networks by recognizing and paying for value received. Networks need support and cooperation from payers to integrate and analyze their data, score provider performance and realign medical provider preferences. The benefits will accrue to everyone: payers, networks, employers and injured workers.

Data Participation

Importantly, to achieve optimum results, data must be gathered from multiple sources and integrated for comprehensive claim analysis. Data from only one source, such as bill review, is sorely deficient for accurate analysis of medical provider performance. Claim system and pharmacy data must be added to bill review data at a minimum. Shortcuts in data gathering and analysis are not defensible.

Change Momentum

Network administrators are gradually stepping up to the challenge of shifting to smart networks. Momentum toward smart networks will be exponential with payer participation, resulting in quality improvement and cost control all around.

As many organizations look to add young talent, the opportunity to develop, inspire, engage and grow these new workplace entrants is great. So is the potential to kill their motivation and drive… with just four small words.

I met a young man in his mid-20s recently who shared with me his plans to change jobs. He’d been with his current employer for a couple of years, taking on increasing levels of responsibility. He didn’t mind the additional work without a title change or more compensation; he was delighted to be learning, expanding his skills and gaining valuable experience. A position in his current organization that represented the next logical step in his career progression had recently opened up. He summoned the courage to approach his management with his interest. The response he received started with those four small words:

“You’re too young to…”

Nothing that came after mattered to – or was even heard by – this young man. He promptly activated his network, started applying for jobs elsewhere and tendered his resignation.

He reminded me of a time earlier in my career. I was a consultant and had been working with my company’s sales team and a prospective client on a sizable and fairly complex training implementation. Things had gone well, and the client was very happy with the work. The contract was signed, and I got ready to head off to Arizona. Then I heard those four small words:

“You’re too young to…”

Planning the implementation was one thing; but rolling it out… that required someone with more experience and some grey hair. I’d done a fine job, my boss told me. But I was too young to take it from there.

These four small words go far beyond answering a request or redirecting someone’s effort. They’re killer words.  They extinguish motivation, inspiration, excitement and even connection with the organization. These four small words close doors and choke off possibilities. They discourage, demoralize and drive young people away.

Now, let’s be honest. Not all young people are prepared to take on every challenge they aspire to. But youth should never be used as an excuse or reason to hold someone back. Instead, what if organizations and managers communicated a different "you’re too" message to their young, ambitious workers? What about…

You’re too talented to not keep growing… so what skills will you need to develop to be prepared to take on greater responsibilities?

You’re too valuable to not know how much we appreciate you… so thank you for your contributions and performance.

You’re too creative and innovative to not continue to be challenged… so what‘s next on the list of things you’d like to take on?

The ambition and even impatience of young workers can be a vital competitive advantage to organizations that know how to harness it. We need young employees to remain passionately engaged so we can cultivate them into the tenured contributors who will become the bedrock of our organizations. The first step is to rid your vocabulary of those four small words.  And we’re never too young – or old – to do that.

If you’re targeting prime prospects who

• don’t reply to your emails
• don’t return your calls
• or screen you through gatekeepers

Try this little-known YouTube strategy.

Imagine getting a video where someone says YOUR name in it?

 “John, I recorded this short video for you because I think I can help you…”

It’s a powerful connection builder.

Because the one-to-many approach is so easy, very few advisors use a one-to-one approach to video marketing.

However, there is a stealth way you can do this for free and open up doors that used to be closed.

Step 1: Record a video using YouTube’s “Webcam record” feature.

This will allow you to record a quick video without all the equipment and lighting. You’ll get an instant link you can copy and paste into your email.

Done.

Step 2: Give away something that will help make prospects’ lives easier.

Don’t just ask for an appointment; give them something to prove you’re an expert.

Separate yourself from the herd by sharing a secret, strategy or technique that will help them with their current insurance situation.

Use a script like this:

“Hi, Lawrence, I’ve recorded this short video because I’m helping CEOs like you in Dallas lower their risk and protect their employees.

“I’m sure your insurance advisor is great. However, there’s a little-known strategy most don’t use to help software companies like yours because it’s just too complex.

“I’ve been using it for seven years and implemented it with 28 other software companies like yours with great results.

“It’s all in my special report [Hold up a copy for them to see] called “The Five Most Critical Trends Facing Software Companies, and How to Protect Yourself from Them.”

“Just reply to this email, and I’ll send it to you, or click on the link to get access to my calendar, and I’ll review it with you over a 15-minute conversation to see if you qualify.”

Simple.

Step 3: Add a link to your online calendar to take the next step.

Sign up for a tool like Timetrade, which allows you to publish an online calendar you control. Others can sign up to be on your calendar, and it automatically populates into Outlook or Gmail. Paste that link into your email.

Brilliant.

Step 4: Send a short email.

Remember, your ONLY goal is to get them to watch the video. Don’t waste time.

Use this format:

[subject line] Lawrence

Lawrence,

I’ve been trying to reach you without success. So I recorded this short video for you.

[video link]

My calendar: [link]

Enjoy,

[your name]

At first, you’ll take a bit longer to get it all set up, but once you do you’ll be able to get each email/video done in nine minutes or less.

Remember, be yourself in your video – everyone else is already taken

Ok, let’s recap:

Step 1 – Record a short video via YouTube.

Step 2 – Give away something of value that helps your prospects.

Step 3 – Set up your online calendar for easy scheduling.

Step 4 – Write and send the email.

At a cost of more than $1.4 billion annually, narcotics and opioids have rapidly become one of the highest-cost therapeutic categories for workers’ compensation injuries.* They are also among the most difficult to manage. No employer wants to have injured workers in undue pain or discomfort – and narcotics do alleviate pain. However, there are serious issues to consider with regard to prescription abuse and misuse, especially for opioids such as Oxycontin and Vicodin.

How can employers help injured workers while ensuring appropriate use of narcotics and reducing unnecessary costs? Comprehensive, clinically based narcotic management programs can help.

Over the past 10 years, opioids, a type of narcotic, have become more commonly used to treat chronic to severe pain associated with workers’ compensation injuries. Known by the generic names of morphine or codeine, and now more frequently by the brand names Oxycontin and Vicodin, opioids are powerful pain relievers.

However, many of these medications were initially intended for end-stage cancer, not for common workplace injuries. While there is likely some benefit in some cases for the use of such medications to treat workers’ compensation injuries, clinicians note that those benefits are typically seen by just a small percentage of patients. There is little evidence to support their long-term or widespread use in standard workers’ compensation injuries. In fact, a study reported by the American Insurance Association found that only a minority of workers with back injuries improved their level of pain (26%) and function (16%) with the use of opioids.** What’s more, there is a high risk for abuse, dependency, and overutilization with this classification of drugs. Indeed, the strongest predictor of long-term opioid use was when it was prescribed within the first 90 days post-injury; that means that every prescription – especially the first one – must be scrutinized to ensure appropriate utilization and optimal benefit. Employers are also concerned about the cost of narcotics. While narcotic use is concentrated among a small percentage of claimants, per-claim costs for narcotics have increased more than 50% over the past decade

Key statistics

• From 1997 to 2007, the milligram per person use of prescription opioids in the U.S. increased from 74 milligrams to 369 milligrams – that’s an increase of 400%.
• In 2000, retail pharmacies dispensed 174 million prescriptions for opioids; by 2009, 257 million prescriptions were dispensed – an increase of more than 40%.
• Opioid overdoses, once almost always because of heroin use, are now increasing because of abuse of prescription painkillers.

White House Office of National Drug Control Policy

Managing narcotics is not about removing viable medications for mitigating pain from the therapies available to providers – it is about ensuring the best possible medications for workers’ compensation injuries are used.

As a result, claims examiners should be trained to look for red flags, such as:

• Higher-than-normal physician dispensing.
• Lower-than-average generic dispensing.
• Higher-than-average prescribing of opioids such as Fentanyl Citrate.

But prescribing medications is a complex issue – reports and percentages alone don’t tell the whole story. So, it’s crucial to look beyond simple prescribing reports to uncover additional information that could indicate why prescribers’ patterns are outside the norm. For example, use of amphetamines could indicate that a patient has a traumatic brain injury, where such medications are a standard treatment protocol.

Drugs that are not suitable for the injury type and the age of the claim need to be identified at the point-of-sale, so claims examiners or nurses are alerted before a prescription that is outside the formulary is filled at the retail pharmacy and can intercede with drug management, if needed. This is particularly useful in the acute injury stage to eliminate early narcotic use where it is not appropriate. If a narcotic is prescribed, the injured worker’s entire medical history needs to be reviewed, using both in-network and out-of-network transactions and non-occupational associated medications to evaluate actual medication use and ensure appropriate utilization.

Follow-up appointments should be required, and only a few days of treatment should be authorized initially. This helps determine whether the medication has improved pain control and function.

Another critical step to managing narcotics is to thoroughly educate employees as to the benefits, dangers, and alternatives for narcotics. The education should include:

• Training the injured workers about their medication, adverse side effects, and alternative medication options.
• Required screenings for risk of addiction or abuse (history of drug or alcohol abuse, or regular use of sedatives).
• Opioid use agreement/contract with urine drug screenings and avoidance of other sources for medication, such as emergency rooms.

A number of factors should trigger a review:

• Narcotic-class medications for the treatment of pain (Oxycontin, Demerol, etc.).
• Use of multiple medications excessively or from multiple therapeutic classes.
• Using medications not typical for the treatment of workers’ compensation injuries.
• High-cost medications.
• Receiving high doses of morphine equivalents daily for treatment of chronic pain.
• Using three or more narcotic analgesics.
• Receiving duplicate therapy with NSAIDs, muscle relaxants or sedatives.
• Using both sedatives and stimulants concurrently.
• Using compounded medications instead of commercially available products.

* “Narcotics in Workers Compensation,” NCCI Research Brief, Dec. 2009

** http://www.aiadc.org/AIAdotNET/docHandler.aspx?DocID=351901

I’m not talking Patsy Cline’s “Crazy” or even Gnarls Barkley’s “Crazy”—I’m talking Peter-Frampton-re-release-the-same-song-and-get-totally-different-results kind of crazy!  In 1975, Frampton released “Show Me the Way” on his album Frampton, and no one cared.  The song was re-released in 1976 on the album Frampton Comes Alive—and topped the charts in both the U.S. and U.K. In Wayne’s World, the song was described as “required listening for all suburbia.”  It’s all marketing, baby!

What does this have to do with private exchanges? Most are just a re-release of technology that has been part of benefits administration enrollment for years.

The following is a short list of “new” capabilities and requirements that are typical for a private exchange:

• Defined employer contribution, instead of defined benefit.
• The ability to connect electronically to insurance carriers.
• Decision support tools, to help determine employees’ best options.
• Support for core insurance products such as medical, dental and vision.
• Support for voluntary insurance products such as life, disability and accident.
• Support for multiple insurance carriers (although some exchanges are single-carrier).
• HRA and Section 125 pre-tax support.
• Premium processing and billing support.
• Support for insurance plan comparison and other employee shopping tools.

Nearly every function defined as “new” for a private exchange is not new—these functions have been part of group benefits administration systems for over a decade.  As I’ve said, the “new” private exchanges are 95% marketing hype and 5% enhanced decision support.

I have attended dozens of conference breakout sessions, read articles, talked to “private exchange” vendors and seen countless demos. The only word I can use to describe the whole group private exchange world is “crazy” — wonderful, “Show Me the Way” kind of crazy.

Given that we’ve been there and done that with the technology in the private exchanges, I can offer some informed observations about how they will play out as employees use them to select coverage under the rules established as part of Obamacare.

--It would be very difficult to move to an Expedia-type shopping model for employees’ insurance. Insurance carrier requirements for participation and underwriting through private exchanges make the disintermediation of the health insurance broker less likely than the disintermediation of the travel agent.  Few exchanges are even talking about vendor participation. It takes years to develop benefits administration systems simply because of the inherent complexity of insurance. A good technologically and customer service driven health insurance adviser is worth her weight in gold, and will continue to be.

--While Health Sherpa has been described as a somewhat functional equivalent to healthcare.gov, that claim is, well, crazy. Health Sherpa—although a great idea—has no ability to process eligibility, enrollment, carrier connectivity or anything required in a true benefits enrollment or exchange platform.  Health Sherpa is a clean front end for displaying plan options and rates but has no back end to support the followthrough required by the carriers or the federal or state governments.

--Recently, the president invited executives from a few of the nation’s top tech companies to the White House for a highly publicized meeting.  Why?  What do Yahoo and Amazon know about health insurance exchanges, enrollment, eligibility and carrier connectivity?  Exactly nothing!

If the president wanted more than a photo op, why didn’t he call Rich Gallun or Don Garlitz from bSwift or ask my company, benefitsCONNECT, to join the discussion? Between us, we accurately and electronically process many millions of enrollments—completely eliminating the need for paper. Either company could have saved this country hundreds of millions of dollars and produced a public exchange for Obamacare that actually works.

There’s actually one thing that’s new about private exchanges: While benefits administrations systems have become somewhat standardized, if you’ve seen one private exchange—you’ve seen exactly one private exchange. They are all different, from their front-end requirements to their back-end requirements.

As I said, it’s a craaaazy world we live in.

Clayton Christensen famously coined the term “disruptive innovation” to describe “simple business applications that relentlessly move up market, eventually displacing established competitors.” Disruption is not just change; it is change that gores somebody’s ox. There has never been a year like 2013 for disruptive writing about health care. Here are five “oxen” gored by the best of that writing.

Gored Ox One: The Idea That Someone Else Pays The Bills

The first salvo of the year was David Goldhill’s highly controversial book, Catastrophic Care: How American Health Care Killed My Father – and How We Can Fix It. Goldhill had the audacity to question an assumption accepted as a truism by both proponents and opponents of Obamacare: the notion that Americans can’t pay for their own health care without some kind of health coverage. Goldhill suggests that our nation’s reliance on third-party payors like health plans, Medicare and Medicaid has created – not alleviated – the burdensome problems of cost and bad quality that plague health care, and that we could run a better health care system without them. (Disclosure: Goldhill sits on the voluntary board of my nonprofit, The Leapfrog Group, though Leapfrog isn’t associated with his book).

Goldhill wasn’t the only one asking the impertinent question, “What if you paid your own medical bills directly?” Time published a powerful story by Steven Brill, Bitter Pill: Why Medical Bills are Killing Us, which points out the bizarre oddities of what goes on behind the scenes when the checks are written to pay for patient care. Bills for the same procedure vary tenfold, but few health plans actually pay the full bill. Elisabeth Rosenthal’s reporting in the New York Times pointed out the same bizarre pricing phenomena in her remarkable series on the varying charges hospitals record for their services.

The business community took note of these questions about who pays the bills, since they traditionally pay most of them. A study by S. Eappen and colleagues in the Journal of the American Medical Association found that commercially insured patients were charged an extra $39,000 every time they suffered a surgical site infection at one hospital system. Employers wondered how they missed this enormous surcharge they paid for an undesired outcome.

Where were their health plans and consultants to alert them to this waste? They were AWOL, say Tom Emerick and Al Lewis in their brilliant book, Cracking Health Costs, which all employers seem to have on their desks these days.

The book is getting attention for its strategies on how to bypass health plans and consultants and disrupt health benefits purchasing.

Gored Ox Two: Keepers Of Secrets

The health care industry has long been shielded from the candor other industries live by. Writers this year went beyond complaining about the lack of transparency in health care — now, they are successfully calling out those who want to maintain it. Respected nurse-leader Kathleen Bartholomew writes in a piece in the Seattle Times that the lack of transparency in health care is simply unethical, and she points some fingers. In a blog for the influential policy journal Health Affairs, business leader Francois de Brantes argues that our nation’s remarkable lack of progress on quality and costs is a consequence of having no feedback loops — candid information on performance that provides continuous pressure for improvement. He calls for upending the incentives that keep health care opaque and dysfunctional. A breakthrough piece reported by Charles R. Babcock in Bloomberg News exposed the political underpinnings of why we still don’t have national data on many of the most common errors, accidents and injuries happening every day in hospitals — and he discusses the ongoing movement to preserve what little data we have. Author Rosemary Gibson, one of the decade’s most influential health care writers, writes in a memorable Huffington Post blog, “The military counts its dead and wounded even though politicians would prefer to hide the truth.” When we count the dead from medical errors, she says, we could fill Arlington National Cemetery in nine months.

One writer did try to quantify the problem – John T. James, a father and NASA toxicologist who tragically lost his son to medical errors. In a widely discussed piece published by the peer-reviewed Journal of Patient Safety, he used a scientific method developed by the Institute for Healthcare Improvement to estimate how many people die each year from hospital errors. The dismaying answer: anywhere from 200,000 to 420,000 – in other words, as many people as the population of Miami.

Gored Ox Three: The Passive Patient

The Hollywood-inspired idea of the patient as quiet recipient of physician infallibility is officially over. Patients don’t just do what they are told; they expect to make choices. Beth Howard’s cover story in AARP The Magazine – the most widely read publication in the United States – launched a firestorm with its advice for patients on protecting yourself during a hospital stay, including which hospitals are safest and what to look for in a hospital room.

Crystallizing this era of the disruptive new patient is its leading sage, Dave deBronkart, coauthor of Let Patients Help! Survivor of Stage 4 kidney cancer, deBronkart has a popular TED talk and delivers speeches throughout the world arguing that patients should serve as active members of the team delivering care, a job that includes supplying the wisdom and knowledge physicians and nurses don’t have. The emergence of this new patient cannot come soon enough, as evidenced in a widely discussed report published by the nonprofit Childbirth Connection, Listening to Mothers III: Pregnancy and Birth. The report shows the results of a Gallup survey of women who had recently given birth and reveals a stunning number of maternity patients whose wishes were ignored or manipulated, to the detriment of the women and their babies.

Among the most disruptive writers of 2013 are physicians who found themselves – or their families – on the wrong side of the hospital bed. Dr. Bob Wachter told a fascinating story of his mother’s stay in his own hospital (The University of California San Francisco Medical Center), candidly weighing some of the positive aspects of the care she received with the negatives that caused his family distress. Dr. Ashish Jha talked movingly about his father’s hospital stay, recounting with alarm three errors averted only because Jha happened to be in the room.

Gored Oxen Four: Conventional Wisdom About Delivering Care

The role of the patient has changed and so has the practice of medicine and nursing. Hollywood took note of one passionate nurse writer, Sandy Summers, and her colleagues, whose blog on the fascinating website http://www.truthaboutnursing.org analyzes media portrayals of nursing practice. Summers points out how TV depicts physicians performing tasks nurses actually do in real practice and generally portrays nurses as incompetent, unprofessional and/or none-too-bright. This hurts patients, she says, since the vast majority of care patients receive comes from nurses, and we need the best people on the job. Her passion had a direct impact this year, influencing advertiser choices and prompting talks with producers of problematic programs.

Physicians, too, are raising eyebrows by asking impolite questions about their practice. Atul Gawande’s article in the New Yorker asked why providers don’t always do the right thing in their day-to-day practice. It’s not malice, he says; it’s human nature. The piece explores lessons from international public health on a specific peer-education strategy that works to change practice patterns.

Another piece of conventional wisdom stood on its head in 2013 came from the University of Michigan’s John Birkmeyer and his colleagues, concerning surgical skill and its implications for patients. The study in The New England Journal of Medicine prompted tumultuous debate in the surgical suite when it demonstrated widespread variation in the skill of surgeons performing the same surgery. The study also suggested that skill level correlated with complication rates, raising significant new questions about what surgeons and hospitals can do to improve outcomes in health care.

But it’s not enough to identify and test new innovations for delivering care better; if they work, they must be hard-wired into practice, says Paul Plsek in his book, Accelerating Health Care Transformation with Lean and Innovation: The Virginia Mason Experience. He describes how the Virginia Mason Medical Center applied principles of lean manufacturing to balance the seemingly contradictory objectives of expanding innovation and improving adherence to the routine.

Gored Ox Five: Sacred Cows Of Public Health

Almost everyone agrees that the best strategy for improving Americans’ health would be to prevent people from needing health care in the first place. But as these writers demonstrated in their powerful arguments, beware the easy answers.

Does more health coverage mean better health? Not necessarily. A study of the impact of Medicaid in Oregon found that coverage had no impact on emergency room visits or health status (though it did relieve financial stress, an important advantage).

Does employee wellness save money? Not really. That was the reluctant conclusion of Rand researchers in a shocking study: Employee wellness programs did not appear to save money nor measurably improve health status. For more thoughts on the topic, The Health Care Blog’s series by Al Lewis and Vik Khanna is also worth following. The blog posts have prompted employee backlash and even a call for revocation of the C. Everett Koop award for a wellness program with questionable outcomes.

Should we cut the fat to fight obesity? Maybe not. A summary in the British Medical Journal of the research on obesity is prodding the nutrition science community in new directions. The exhaustive research overview by science journalist Gary Taubes found that most of the assumptions and guidelines we rely on are not supported by research, and policymakers ought to rethink our approach to the problem from the bottom up. Among the surprising observations: There’s no evidence that saturated fat is the culprit, and attempts to eliminate it from the diet may have accelerated the obesity epidemic.

Optimism For The New Year

I am confident that health care is headed in the right direction as we welcome 2014, thanks in no small part to the courage and eloquence of these disruptive writers.

This post first appeared on Forbes.com.

If you are not a practicing member of the captive community, either as a professional service provider or a captive owner, and are interested in learning about captives, you will most likely turn to the Internet.  Unfortunately, the vast majority of Internet sources are designed to sell you something, or at the very least, tempt you to contact them with some sort of “teaser."

Additional sources of captive information are periodic industry-focused magazine articles and occasional pieces that appear in the likes of Forbes and Fortune magazines, along with the odd newspaper article. These are often interesting to read, but they are almost always written from a particular point of view, and because of time and space limitations, rarely present a truly balanced perspective.

You may recall a few years ago, when a financial reporter for the New York Times wrote what was intended to be an expose of captives’ presumed nefarious financial and tax doings.  The piece was ultimately discredited, its author clearly had an agenda. (For good measure, the Times, turned out to own a captive).

Given the general lack of information about captives, let’s begin with some basics.  Regardless of what you may have read, a captive is first and foremost, an insurance company.  The term “captive” denotes insurance company status.  Insurance company status means that the captive employs insurance accounting.  If the structure cannot qualify for insurance accounting, it must use deposit accounting, which renders it something other than a captive insurance company.

Insurance accounting allows the captive to deduct its loss reserves from its federal income taxes; taxes are paid on earnings, and earnings are recognized once losses for a particular period (usually a year) are no longer expected to occur or become reported.

Moreover, the captive’s contracts (insurance policies) must conform to Financial Accounting Standard (FAS) 113.  FAS 113 requires that the insurance contract provide coverage for a reasonable chance of a significant loss.

Contrary to what you may read, a captive is not a tax shelter, nor is it a bank.  It can be used, however, as an estate-planning tool (more on this later).  To qualify to use insurance accounting every captive must:

• Establish and document non-tax business objectives and purpose
• Experience insurance losses
• No parental guarantees to bail out the captive
• Have adequate capitalization
• Avoid substantial loan-backs
• Engage professional captive management
• Comply with local insurance regulations and formalities
• Follow conventional investment strategies
• Use risk-transferring insurance contracts per FAS 113
• Make sure risk sharing is sufficient based on IRS safe harbors
• Transact business at “arms length” using actuarial-based pricing
• Maintain the business, books, and records separate from the parent company and comparable to other insurers
• Not have premiums match the maximum limit of liability

The majority of the companies selling captives – not feasibility studies, just captives – sell what is known as the 831(b) captive.  Caompnies will also assist in the creation of standard captives, but their primary stock-in-trade is the 831(b).

This captive’s name is derived from the section of the Internal Revenue Code that enables their use.  Many of these 831(b) companies make little pretense of providing objective risk management advice; their advice centers on estate planning, which is the primary purpose of the 831(b) captive.  The primary benefits of the 831(B) captive are that (1) only investment income is subject to U.S. federal income taxation (income from premiums is tax-free)  and that (2) 831(b) captives are off-balance sheet.

Unfortunately, many firms have a less-than-comprehensive grasp on the rules to which all captives must adhere, to be considered bona fide insures.  Others conflate certain aspects of the 831(b) captive with captives in general, which of course causes confusion and adds to the amount of misinformation available to prospective captive owners.

Because there is so much blatant misinformation on the Internet, it was hard to pick out the best examples for this article, but I think you’ll find the following examples entertaining, if not disconcerting.

Example 1

An article appearing in a respected technical journal on taxation and accounting lists the following as three benefits of captives:

• "Asset protection from the claims of business and personal creditors” 
• “Opportunity to accumulate wealth in a tax-favored vehicle”
• “Distributions to captive owners at favorable income tax rates”

The problem is that none of the three so-called benefits apply to the vast majority of captive insurers.  They apply ONLY to the 831(b) captive, which, as noted above, is used as an estate-planning vehicle.

The vast majority of captives (non-831 (b) captives) are on-balance-sheet, risk-financing vehicles.  Their tax filings are consolidated with their parents’ filings, so they provide no asset protection from creditors.  Likewise, the vast majority of captives are not “tax-favored,” thanks to the 1986 tax law changes.

The fact that the article is actually devoted to only 831(b) captives is never revealed; the term 831(b) is not even mentioned until page three of the six-page article.

Example 2

A promoter advertises itself as offering a “new service” to help clients “take advantage of Captive structures and domiciles to meet their individual risk management needs.”

It is clear that this company has almost no institutional knowledge of captives.  Its litany of captive benefits is a recitation of the generic, non-specific “benefits” cited hundreds of times across the Internet and elsewhere.  It is obvious that this firm is, like many others, describing the 831(b) captive, but it doesn't even use the term.

This firm’s captive “sin” is tax-related.  This is ironic as according to the firm’s marketing literature, it is the leading tax services firm in North America!  Its sales material on captives states that annual insurance premiums (paid to a captive from its parent) are tax-deductible as ordinary and reasonable expenses pursuant to IRC Section 162(a).  This statement is untrue on its face.

IRC Section 162(a) does indeed provide guidance as to tax-deductible business expenses.  However, given the specialized rules (for captives) promulgated by the IRS over the last couple of decades, this firm’s lack of understanding of captives is not only annoying; it’s potentially dangerous.  The IRS has issued a raft of revenue rulings that address the tax status of captives and their parents, in a wide variety of circumstances.

The central theme of many is the notion of what constitutes risk distribution (risk sharing).  These rules are applicable to every captive, including the 831(b) variety.  Briefly, a single-parent captive (such as an 831(b) captive), must have at least 50% unrelated business to qualify as a bona fide insurer.  This means that only about half of the captive’s total annual premiums can come from the captive parent.

To add insult to injury, in the same marketing piece, this firm says that safe harbor revenue rulings provide the tax benefits.  They do indeed, but only if the prospective captive owner can qualify under them!  This firm’s message is that any company that pays taxes is automatically qualified to form a captive.  Bait and switch?

This firm’s marketing literature also says that a captive’s funds can be immediately invested in just about anything the owner wants – real estate, stocks, bonds, mutual funds, etc.  Nothing could be further from the truth.  Some captive domiciles, such as Bermuda, have specific investment guidelines designed to require the captive to hold primarily liquid investments.  In Bermuda, 75% of investments must be considered “relevant,” another way to say liquid.

Some onshore domiciles such as Vermont have no specific investment guidelines for single-parent captives, but I guarantee that the regulator (and your actuaries) will seriously discourage illiquid investments such as real estate and equities.  Bonds are the preferred captive investments.

Example 3

Another firm proclaiming captive expertise provides an exhibit that ostensibly shows captive tax benefits over ten years.  If you’ll recall, the first principle – Establish and document non-tax business objectives and purpose – doesn’t appear to be a priority with this firm.  The exhibit compares after-tax income with and without an 831(b) captive.

On its face, the exhibit shows that with a captive, if the parent company pays about $10 million into its little captive over 10 years, it earns about $5 million over the no-captive scenario.  Unfortunately, the exhibit fails to include a rather important element – captive losses.  Without losses, captives are nothing more than tax-advantaged pools of funds, upon which the IRS frowns.  This omission effectively renders the exhibit worthless.

Conclusion

Unfortunately the snake oil trade is alive and well on the Internet.  How does one guard against such shenanigans?  The only effective way to do so is to talk to qualified professionals (consultants, attorneys, etc.) who have nothing to sell but advice.  My next article will include a few more egregious examples of professional malpractice or prevarication, along with a detailed, unbiased, discussion of the 831(b) captive and its uses.  Stay tuned.