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Winning the War Against Opioid Addiction and Abuse

We have come a long way in the battle against opioid addiction in a relatively short time, and a better long-term solution could be just around the corner.|

As we move forward with winning the war against opioid addiction, it can sometimes be challenging to read the daily headlines and stay positive, especially around the holidays. A December article titled "Drug Abusers May be Injuring Pets to Get Pain Killers" shared how police officers and community leaders informed the Ohio attorney general’s office that people have been abusing drugs rightfully prescribed to pets. The US News HealthDay story titled "Secure Your Prescription Drugs When Hosting Holiday Parties" warned readers about the importance of securing prescription drugs in a safe location before guests arrive. When stories deteriorate to addicts intentionally harming their dogs and to people worrying about holiday guests raiding medicine cabinets, rock bottom isn’t far away. However, 2013 positioned us well for achieving improved results during 2014. Some of last year’s positive developments include:

1.   State law changes establishing clearer standards of care, reporting and tracking of controlled narcotics, bans on abused narcotics, etc.

2.   State and federal agencies aggressively prosecuting individuals who prescribe opioids illegally or  operate “pill mills,” revoking registrations of some pharmacies and compelling healthcare providers and pharmacies to surrender or forfeit their medical licenses to state medical/pharmacy boards

3.   Physician-led education efforts like the Physicians for Responsible Opioid Prescribing

4.   Medical boards actively addressing the inappropriate and illegal dispensing of drugs

5.   Heightened awareness of the neonatal abstinence syndrome crisis in the U.S.

6.   Workers' compensation insurers leveraging advanced analytics, physician education efforts, evidence-based pain diagnoses and utilization reviews to reduce injured worker reliance on addictive prescription drugs

7.   The Food and Drug Administration’s Risk Evaluation and Mitigation Strategy

8.   The issuance of the October 2013 Trust for America’s Health report titled “Prescription Drug Abuse: Strategies to Stop the Epidemic”

9.   Continuing prosecution and sentencing of healthcare providers

10. Efforts by national medical organizations

The first eight developments were addressed in the authors’ first quarter 2013 Physician Insurer magazine article titled "The Opioid Abuse Epidemic, Turning the Tide" and our Dec. 2, 2013 Property Casualty 360 Claims Magazine article titled "10 Strategies to Combat the Rx Abuse Epidemic – An Insurers Perspective." This article will expand on the last two developments and share some thoughts on what may be in our future when it comes to winning the war on opioid addiction and abuse. Prosecution and sentencing of healthcare providers 2013 was marked by the successful prosecution and sentencing of healthcare professionals involved in various forms of prescription drug diversion. Arguably the most notable of these was the 39-year prison sentence given to David Kwiatkowski, the former New Hampshire hospital technician who caused dozens of people to become infected with hepatitis C when he injected himself with pain killers using syringes that were then used on patients. Kwiatkowski admitted in August to stealing the drugs and leaving used syringes for hospital use for years, despite knowing he was infected with hepatitis C. His case drew national attention to the problem of prescription drug diversion among healthcare workers; caused a number of institutions to finally take a fresh look at their human resource policies and systems being used to detect diversion; and, has, we hope, sent a strong message of deterrence to all healthcare drug diverters -- it is only a matter of time before you get caught! Efforts by national medical organizations (NMOs) On an extremely positive note, we are beginning to see NMOs join the fight to help stem the opioid epidemic. On Dec. 10, 2013, the American College of Physicians released a position paper titled "Prescription Drug Abuse: A Policy Position Paper From the American College of Physicians." The goal of the paper was to provide physicians and policy-makers with 10 recommendations to address the significant human and financial costs related to prescription drug abuse. The recommendations include support for additional education, a national prescription drug monitoring program, establishment of evidence-based nonbinding guidelines regarding recommended maximum dosage and duration of therapy, consideration of patient-provider treatment agreements and the passage of legislation by all 50 states permitting electronic prescription for controlled substances. In turn, in January 2014, the American Academy of Pediatrics (AAP) Committee on Drugs and Section on Anesthesiology and Pain Medicine issued a report titled "Recognition and Management of Iatrogenically Induced Opioid Dependence and Withdrawal in Children." The clinical report recommended guidelines for prescribers to follow when weaning children from opioids. As noted by lead author Jeffrey Galinkin, MD, "[t]he key reason the AAP was keen to publish this paper and go forward with this guideline is that people are unaware that patients can get drug-specific withdrawal symptoms from opioids as early as five days to a week after having been on an opioid chronically." This recommendation was immediately followed by the Centers for Medicare and Medicaid Services (CMS) Jan. 10, 2014, Federal Register Volume 79, Number 7 publication of proposed rules revising the Medicare Advantage (MA) regulations and prescription drug benefit program (Part D) regulations to help combat fraud and abuse in these programs. The proposed rules include requiring prescribers of Part D drugs to enroll in Medicare, a feature that CMS believes will help ensure that Part D drugs are prescribed only by qualified individuals. As reported by Medscape Medical News, CMS is also seeking the authority to revoke a physician's or eligible professional's Medicare enrollment if:

• CMS determines that he or she has a pattern or practice of prescribing Part D drugs that is abusive and represents a threat to the health and safety of Medicare beneficiaries or otherwise fails to meet Medicare requirements; or

• His or her Drug Enforcement Administration certificate of registration is suspended or revoked; or

• The applicable licensing or administrative body for any state in which a physician or eligible professional practices has suspended or revoked the physician or eligible professional's ability to prescribe drugs.

Furthermore, CMS proposes employing data analysis to identify prescribers and pharmacies that may be engaged in fraudulent or abusive activities. In Table 14 of Federal Register Volume 79, Number 7, CMS’ Office of the Actuary estimates the savings to the federal government from implementing its proposed provisions will be $83 million in calendar year 2015, $132 million in 2016, $171 million in 2017, $364 million in 2018 and $589 million in 2019. Source: CMS Innovation in our future In addition to the above efforts, companies continue to innovate and research new ways to address historical challenges. Vatex Explorations is building a real-time individual-dose monitoring system called Divert-X to reduce drug trafficking, misuse and addictions that result from routine medical care. Divert-X monitors a patient’s individual doses through the electronic transmission of data identifying the time of dose access, location and other measures. The analysis of the data in real time helps physicians and pharmacists identify drug-taking behaviors that fall outside of norms, allowing early intervention before misuse or addiction set in. In 2012, the Food and Drug Administration approved an ingestible sensor that can be used to track real time data about your pill consumptions habits. The sensor, developed by Proteus Digital Health, was first approved for use in Europe before coming to the U.S. The ingestible sensor is part of the digital health feedback system, which includes a wearable sensor and secure app and is largely focused on serving the transplant population and patients with chronic illnesses. The authors could envision a day when the system could help in the battle against opioid addiction. Insurance companies are doing a better job of leveraging advanced analytics to understand their opioid-exposed population and the prescribing habits of the physicians treating their injured workers. Through the review of medical bills (e.g., date and types of service and payment, ICD-9 diagnosis codes, CPT-4 procedure codes, etc.) and pharmacy data (e.g., bill frequency,  aggressive refills, NDC drug codes, quantity used, generic vs. brand, supply days, use of prescriber, pharmacy name, etc.), insurance companies can identify usage and treatment patterns that fall outside of expectations using cluster analyses, association rules, anomaly detection and network “link” analyses. Law enforcement continues to push the envelope in finding innovative ways to combat drug diversion. Take, for example, the strategy developed in consultation with the National Association of Drug Diversion Investigators and Oklahoma Bureau of Narcotics to curb false reporting of the loss or theft of prescription drugs in Stillwater. According to a police spokesman, most physicians in Stillwater require patients to obtain a police report before they will write a replacement prescription for lost or stolen medications. This requirement resulted in an increase in the number of police reports filed, but a new problem emerged. How could anyone determine whether those police reports were legitimate? In response, the Stillwater police department created a database to record the names of any individual who reported the loss or theft of a prescription drug. The department now requires the individual to take a polygraph test before it will accept any subsequent report of a lost or stolen prescription drug. Fail that polygraph, and criminal prosecution may follow. Query: If this strategy were employed nationwide, would the medicine cabinet at home be guarded more closely? Conclusion There is no doubt we have come a long way in the battle against opioid addiction in a relatively short time. Although there is a lot of road left to travel, 2014 is well-positioned to carry forward the effective efforts from last year. Given the innovative spirit of the U.S. and passion of everyone involved in winning this fight, a better long-term solution could be just around the corner.

Kevin Bingham

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Kevin Bingham

Kevin Bingham, ACAS, CSPA, MAAA, is the chief results officer of subsidiary initiatives at Chesapeake Employers’ Insurance. He has over 27 years of industry experience, including 21 years of consulting.

Healthcare Reform's Effects on Workers’ Compensation

While effects will be uncertain until the ACA has been fully implemented, employers can take steps now to lessen any negative impacts and increase the value of the positives.|

Since its passage in 2010, the Affordable Care Act (ACA) — commonly referred to as healthcare reform — has been the subject of intense political debate and a source of anxiety for many employers. Although most employers have focused on the law’s health benefit requirements, the ACA is also expected to affect how they manage their workers’ compensation costs. Employers should understand how reform will affect the quality of care available to their employees, the calculation of workers’ compensation premiums and claims filings — and what employers can do to manage those effects. Workers' Health Proponents of the ACA say it will lead to a healthier society. Because more people will have access to healthcare, advocates say, there will be a reduction in comorbidities — additional diseases or disorders that individual patients often have along with a primary disease or conditions. For example, diabetes and hypertension are typical comorbid conditions of obesity. These comorbidities can frequently complicate workers’ compensation claims. Consider that a California Workers’ Compensation Institute analysis of claims from 2005 to 2010 found that average benefit payments on claims for employees with obesity as a comorbidity were 81% higher than those without. There is, however, no significant evidence to support the contention that an employee is less likely to file a workers’ compensation claim simply because the employee is insured. For example:
  • A recent Assured Research study examining health insurance penetration rates and workers’ compensation loss ratios in individual states from 1999 to 2011 showed little correlation between the two measures.
  • Data from the Centers for Disease Control and Prevention indicate that heart disease remains the leading cause of death in the U.S. and that the percentage of Americans with a high body mass index has steadily climbed over the last 50 years — two trends that are not confined to the uninsured population.
Cost Shifting Employers have long been concerned that injuries from non-work-related causes will be shifted to workers’ compensation. Doing so is tempting because of workers’ compensation’s combination of higher reimbursement rates for medical providers and lack of deductibles and copayments for employees. There is significant evidence to show that treatment for the same diagnosis costs more under workers’ compensation than under group health insurance because of higher reimbursement rates and greater utilization of services. A recent Workers’ Compensation Research Institute study of 16 large states, for example, showed that workers’ compensation payments for shoulder surgeries were often significantly higher than group health medical payments for the same procedure. Some have speculated that the greater access to health insurance promised by the ACA will reduce this shift to workers’ compensation. However, it has become clear that the law will not result in all Americans having health insurance coverage. With the ACA requiring that employers offer coverage to all employees working 30 or more hours per week starting in 2015, one in 10 large companies are planning to cut back on hours for at least a portion of their workforce, according to Mercer’s National Survey of Employer-Sponsored Health Plans 2013. Other employers are using higher copayments and deductibles to help offset cost increases. It appears, therefore, that the financial incentive for employees to shift treatment toward workers’ compensation will continue under the ACA. Access to Care Probably the most predictable outcome of the ACA is that it will increase the number of individuals in the U.S. with health insurance coverage. Despite the potential benefits, this could put additional stress on a health are system that is already short on doctors. Among the 34 member nations of the Organisation for Economic Co-Operation and Development, the U.S. ranks 27th in physicians per capita (see Figure 1). And this problem does not appear to be going away: The Association of American Medical Colleges forecasts that physician demand will dramatically outpace supply over the next decade, leading to a shortage of more than 90,000 physicians in the U.S. in 2020. This is particularly troubling as it relates to specialists — for example, orthopedic surgeons — and the potential for delays in obtaining diagnostic tests and scheduling elective surgeries and other procedures. Longer periods of disability and complications as a result of such delays would ultimately drive workers’ compensation costs up. With this added pressure on a limited number of medical providers, it becomes more important than ever for employers to develop medical networks that focus on quality of care and outcomes — even if it means paying more on a fee-for-service basis. Employers that pay their medical providers fairly and quickly will have more timely access for their injured workers and should ultimately have lower workers’ compensation costs. Standards of Care Traditionally, the healthcare industry’s focus has been on volume; more patient admissions, tests and procedures translated to higher revenues. Post-reform, however, the industry has shifted its focus to improving standards of care and achieving better patient outcomes. If this transition results in less emphasis on costly procedures, which often produce questionable results, workers’ compensation costs could be reduced. Although it remains to be seen whether the standards of care developed under the ACA for group healthcare would be enforced under workers’ compensation, this is a promising development for employers. Premium Refunds The ACA provides for insurers to rebate premiums to employers that have better than expected performance with their healthcare programs. Employers can either refund such premiums back to their workers or use them to offset future premiums. The National Council on Compensation Insurance (NCCI) has indicated that if premium refunds are given to employees, this would be considered payroll under workers’ compensation premium calculations. In other words, having a good performance on its group health program could increase an employer’s workers’ compensation program costs because premium calculations are tied to payroll. Employers should keep this in mind when deciding what to do with healthcare premium rebates that may be received. Managing the Effects of Healthcare Reform There is little doubt that healthcare reform will have an impact on workers’ compensation costs and claim trends. And while the extent will not be known until the ACA has been fully implemented, employers can take steps now to lessen any potential negative impacts, and increase the value of the positives. For example, employers should:
  • Increase efforts to identify medical providers that can provide the best quality care for injured workers and take the necessary steps to ensure the workforce has access to these providers.
  • Carefully manage the approach to healthcare premium rebates, which could affect how payroll is calculated under workers’ compensation.
  • Closely monitor any shifts in injury claims to workers’ compensation. Despite the ACA’s promise of greater access to health insurance coverage, there remains a financial incentive for employees to seek treatment under workers’ compensation rather than group health.
  • Remain committed to loss-control efforts. Don’t let concerns over the ACA cause a loss of focus on this key area.

Five Workers’ Compensation Myths

It doesn’t surprise me that many employees believe that merely feeling pain at work makes for a compensable claim. What is surprising is how many business owners believe this same myth.

Travelers Insurance, which recently passed Liberty Mutual to be the largest workers' compensation insurance carrier in the U.S., published a list of five common workers' comp myths, from a small employer's perspective:

  1. “I only have a few employees, so I don’t need comp insurance.”
  2. “My employees won’t sue me.”
  3. “Comp insurance is too expensive, so I’ll just pay out of my pocket if an injury occurs.”
  4. “I provide a safe workplace, so my employees won’t get injured.”
  5. “Medical costs in the workers' comp system are just too high.”

While these myths are prevalent, I often see an additional five beliefs from my perspective as a workers' comp defense attorney that are as mythical as a mermaid:

1. Every injured worker needs an attorney.

While it is true that many injured workers do need to hire an attorney, there is certainly no need for most to obtain counsel. Most states have systems to resolve the claim directly with the injured worker without the time and expense associated with the claimant's hiring an attorney and filing a formal claim.

The complaint against injured workers representing themselves is what gave rise to that old joke: "A person who acts as his own attorney has a fool for a client.” I agree that most claimants don’t know as much comp law as does the average claimant’s attorney. That shouldn’t come as a shock to anyone.  But that doesn’t mean every injured worker needs an attorney. 

Most comp claims are compensable, so the only issue is the nature and extent of impairment. 

Is the final settlement for an unrepresented claimant always the same as for those who retained counsel? Obviously not, but that doesn’t mean the claimant gets less money. Remember that, in most jurisdictions, the claimant’s attorneys take between 20% and 33% of the final settlement as a fee. Add in a few thousand dollars for an IME report and discovery costs, and you can see how the fees and expenses go up faster than the winnings on Wheel of Fortune. If the claimant resolves the permanent partial disability portion of the claim on his own, he can still take home roughly the same amount as if he had retained counsel and paid fees and expenses out of a larger final settlement.

There is also the time value of money to consider.Claims where the injured worker is represented often take years to resolve, not weeks or months. Which is better to receive: $10,000 today or $12,000 three years from now? Most people would chose the former, and injured workers who don't hire an attorney are virtually guaranteed to get their money faster than if they retain counsel.

2. Injured workers are entitled to compensation for any painful condition that arises during working hours.

While this may be somewhat true in a few states (New York, California, Illinois), in most states this is simply false.

There are various philosophical theories that underlie the workers compensation statutes of a particular state, such as the “positional risk doctrine,” the “mutual benefit doctrine” and the “scope and course of employment” doctrine. Nevertheless, in most states there must be some connection between the injury and the employment for a claim to be compensable. Merely feeling pain at work is not enough.

It doesn’t surprise me that many claimants believe otherwise. What is surprising is how many small business owners believe this same myth.

I often talk to business owners who tell me stories that generally follow this path: “My employee says his arm hurts, and he wants me to take care of it. That’s all I know.” One doesn’t have to be that sunglasses-wearing guy from CSI: Miami to ask a few questions of the claimant, such as, “How did you hurt your arm?”; “Did the pain start while you were doing something in particular?”; or “When exactly did the pain start?”

3. The jurisdiction for a comp claim is where the carrier wants it to be.

This is a myth that is pervasive among adjusters and safety directors.

If employee works in State A but is in State B for a work-related purpose and is injured in State B, which state has jurisdiction over the claim? In most instances, the employee can choose to file his claim in either State A or State B, or even both! Yet, I have a conversation almost weekly with claims professionals who tell me: "Brad, I want this claim to be in State A, so please have the claim dismissed from State B."

If a state says it has jurisdiction over a claim, the basis for asking for a dismissal cannot be: “Judge, my adjuster simply doesn’t want the claim to be here.” I would obviously have a more reasoned position upon which to base my request, but the result is often the same: The judge denies the request.

4.  Employers have workers' comp insurance so they can let the carrier worry about their claims.

This is basically the same as believing that if I stick my head in the sand bad things can’t happen to me. Employers should manage and monitor comp claims as if the money being paid to the claimant is their own money. Wanna know why? BECAUSE IT IS THEIR MONEY!

Comp insurance works just like automobile insurance -- more claims always equates to increased premiums. Sure, an employer may have one or two claims that won’t affect premiums. However, with the cavalier attitude toward claims that underlies this myth, it’s only a matter of time before the premiums get higher than a surfer locked in a medical marijuana facility. 

5.  Most workers comp claims are fraudulent.

For claims professionals who handle comp claims on a daily basis, it often seems as if most comp claims are fraudulent. However, statistics simply don’t support this conclusion. A recent study from the University of Michigan concluded that only 2% of claims are fraudulent. I would think that the actual number is a bit higher than 2%, but certainly a far cry from 100%.

The danger in believing that most claims are fraudulent is that employers and carriers can face steep penalties for failing to provide legally required comp benefits in the absence of a valid reason to deny the claim. Additionally, employers and carriers that develop a reputation for denying claims without a valid reason often face higher awards from judges and arbitrators.

I like the approach used during the missile reduction talks with the Soviet Union during the 1980s: “Trust, but verify.” If we treat most claims as compensable while always being on the lookout for evidence of fraud, it creates opportunities to prevail at trial rather than opportunities to reinforce an employer stereotype as one that denies all claims.

The Truth About Treating Low Back Pain

There is overwhelming medical evidence that many diagnostic tests, treatments and surgeries for low back pain are ineffective and waste many billions of dollars a year in the U.S. alone.|

There is overwhelming medical evidence that many diagnostic tests, treatments and surgeries for low back pain are ineffective and waste many billions of dollars a year in the U.S. alone. Yet treatment appears not only to be continuing but seems to be growing and becoming more aggressive. The aggressive treatment of low back pain has become epidemic.

Medical studies on the problem of low back pain were widely reported in the mainstream media in 2007 and 2008. The Wall Street Journal, New York Times and other national publications like Time magazine reported on the Journal of the American Medical Association (JAMA) study that said Americans, "were spending more money than ever to treat spine problems, but their backs were not getting any better."

The study documented common mistakes doctors make when treating back pain, including:

  • Ordering excessive X-rays , MRIs and CT scans
  • Performing invasive surgery too soon
  • Failing to educate patients about surgical alternatives
  • Failing to address underlying mental health issues

Also released in 2007 was The State of Health Care Quality report published by the National Committee for Quality Assurance (NCQA). It stated, "back injuries often undergo aggressive treatment when less costly and less complicated therapy may yield similar or better results."

The NCQA report said that the vast majority of patients with low back pain have no identifiable cause of their symptoms and that less than 1% of X-rays provide useful information regarding the diagnosis of low back pain. Similarly, MRI and CT scanning usually fail to shed light on the causes of low back pain, except when there are red flags such as trauma or indicators for specific diseases. The authors stated that, "Needless tests and procedures that provide no real benefit to the patient can't do anything but harm."

The JAMA study also noted the widespread use of needless testing and found that 25% of the patients covered by private health insurance had an inappropriate imaging study, costing, in the aggregate, billions of dollars each year.

There is a wealth of medical evidence that most back and neck pain should be treated sparingly. An editorial in Spine Journal suggested that more than 200 treatments for chronic back pain are currently available in the clinical marketplace and that many of those "do not have a definitive track record in scientific studies."

The authors of the JAMA study concluded: "If we keep our diagnostic and treatment efforts within well-proven limits, and emphasize the importance of activity and self-care, we suspect we would see better outcomes."

Yet the total number of some spine treatments -- e.g., spinal fusion surgery, spinal injections and the prescription of opiates -- has skyrocketed in recent years, according to medical researchers.

There are many potential reasons for this spurt in back treatments, including the heavy commercialization and direct consumer marketing of treatments both old and new. It is hard to read a newspaper, watch TV or surf the Internet without seeing a commercial pop up for the latest treatment for low back pain.

Obviously, there is a lack of definitive evidence regarding many popular treatments, which allows them free rein in the marketplace before the risks and benefits can be scientifically studied and documented.

The JAMA study stated that 60% or more of initial back surgeries have successful outcomes. I am pretty good at math, so that means 40% DO NOT!  The study's authors estimated that the 40% equates to 80,000 "failed back surgeries" a year.

The researchers also observed that the surgical success rate drops to 30% after the second surgery, 15% after a third and 5% after a fourth. The authors believed that many patients were under the care of physicians, "who are unfamiliar with the conditions leading to back surgery, the types of back surgery available and the best approaches to diagnosis and management."

The annual medical cost to American businesses because of low back pain was estimated to be $90 billion in 2008.  This does not include the cost of related workers' comp or disability benefits, which also are in the billions, nor indirect costs such as lost productivity.

The medical studies have confirmed what I have known and studied for the past 33 years: Much of the money spent on healthcare -- approximately one-third -- is wasted on medically unnecessary and potentially harmful procedures.

What has changed in the treatment of low back pain since the release of the studies in 2008?

My bet: Not so much.

In fact, some medical researchers have stated the situation has gotten worse, not better, and that they have not been able to keep up with all the latest trends and back treatments available today.

Is That Opportunity Calling in the 'Sharing Economy'? (Part 2)

Start-ups in the car-sharing economy are attracting major interest among investors and consumers. There is one area where the start-ups have not gained traction—insurance.

Last week, we looked at the potential of the sharing economy and some of its top performers.This week, we’ll explore how insurance fits into that picture.

Start-ups in the car-sharing economy are attracting major investors who believe in their business model. There is, however, one area in which start-ups have not been able to gain traction—insurance. Many tell of cold calling insurance companies; some have reached out to insurance executives via LinkedIn. A few have been successful. For example, Getaround, a car-sharing service, was able to work closely with insurers to secure coverage by delivering a solid risk model. Further, the company is collecting information on its consumers to help start providing the data that insurance companies need to underwrite car-sharing activities. However, success is not the norm.

One major insurer, for example, specifically rewrote its personal auto policies to exclude car-sharing. A company spokesperson for another large insurer stated that, “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle. And, by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.”

Legislators have also gotten into the game. A few states have started to make inroads into the insurance challenge. For example, California and Oregon both state that a personal auto policy cannot be considered commercial, even if the owner participates in car sharing. However, the law also declares that the auto-sharing company, not the owner’s insurer, is responsible for any damage caused during car-sharing activities. In other states, legislation has not been as supportive. For example, New York state issued a cease-and-desist order against RelayRides when its insurance coverage was declared “illegal and inadequate.”

A few innovative companies are experimenting with different insurance models. MetroMile, for example, lets drivers pay for insurance by the mile. Drivers simply plug a device, called the Metranome, into the car’s onboard diagnostic switch to count miles driven. A UK-based company, jFloat, allows consumers to buy into a “collaborative consumption self-insured pool” through the Web. A reinsurer backs the pool when claims reach over the maximum amount. While these particular models do not directly apply to the car-sharing business today, they are heading in the right direction. It’s companies like these that are thinking about how to combine insurance with emerging technologies that may provide a disruptive insurance model for the sharing economy.

In the meantime, car-sharing enthusiasts are not idly sitting by waiting for insurance companies to respond. Instead, they have been reaching out to insurers and legislators to help them better understand the business and risk models. The goal is to provide insight into the needs of the car-sharing market and work with insurers and legislators to develop solutions. While it is to be expected that companies like RelayRides and Getaround would be proactive, a new consumers group has also emerged. Called Peers, it represents the renters’ side of the equation, advocating for their needs and their protection. Even universities are getting into the mix to help create solutions. For example, the University of California at Berkeley’s Transportation Sustainability Research Center regularly publishes a report on the auto-sharing industry. Its conference on the topic will host a session on "Insuring Shared-Use Mobility Services."

Investors, consumers, governments and legislative bodies are all weighing in on the car-sharing market. The only industry that has remained relatively silent is insurance.

Next week, we’ll look at how insurance companies can evaluate the sharing economy opportunity in light of their individual business models and risk appetites.

How to Optimize Nurse Case Management in Workers' Comp

NCM must computerize and standardize its process and measure and report outcomes, just like any other business in today’s world. 

Traditionally, in workers’ comp, nurse case management (NCM) services have been widely espoused yet misunderstood and underutilized. The reasons for underutilization are many. Tension between NCM and claims adjusters is one. Even though overburdened, adjusters often overlook the opportunity to refer to NCM.

Also to blame is the NCM process itself. In spite of professional certification for NCM, the process is poorly defined for those outside the nursing profession. More importantly, NCM has difficulty measuring and reporting proof of value.

Underlying issues

Continuing to do business as usual is not acceptable. NCM needs to address several issues to qualify as legitimate contributors. First, NCM needs to articulate its value. To do that, NCM must computerize and standardize its process and measure and report outcomes, just like any other business in today’s world.

Too often, computerization for NCM is relegated to adding nurses’ notes to the claim system. However, such notes cannot be analyzed to measure outcomes based on specific nursing initiatives. 

In most situations, an individual NCM interprets an issue, decides on an action and delivers the response. The organization’s medical management is thereby a subjective interpretation rather than a definable, quantifiable product. 

Granted, the NCM is a trained professional. But when the product is unstructured, variables in delivery cannot be measured or appreciated. A process that is different every time can never be adequately defined.

It's crucial to establish organizational standards about what conditions in claims require referral to NCM—without exception. This will remove the myriad decisions made or not made by claims adjusters to involve the NCM. The referral can be automated through electronic claims monitoring and notification. NCM takes action on the issue according to organizational protocol, and the claims adjustor is notified.

Measure

When the conditions in claims that lead to intervention by NCM are computerized and standardized, the effects can be measured. Apples can legitimately be compared with apples, not to oranges and tennis balls. Similar conditions in claims are noted and approached the same way every time, so the results can be validly measured.

Results in claims such as indemnity costs, time from DOI to claim closure or overall claim cost can be compared before and after NCM standardization. Comparisons can be made across different date ranges for similar injuries going forward to measure continued effectiveness and hone the process.

Measuring outcomes is the most essential aspect of the process. Value is disregarded unless it is defined, measured and reported.

For non-NCMs, the dots in medical management must be connected to see the picture. Describe what was done, why it was done and how it was done the same way for similar situations and in context with the organization's standards. Then report the outcome value. Establish a continuing value communication process.

NCM constituencies should be informed in advance of the process and outcome measurements. Define in advance how problems and issues are identified and handled and how results will be measured. Then proceed consistently.

Recognized NCM value

Even as things now stand, NCM's value is being recognized. American Airlines recently reported it is adding NCM to their staff and will refer all lost time claims. The company cited a pilot project where nurse interventions were documented and measured, proving their value in getting injured workers back to work. 

Christopher Flatt, workers’ compensation Center of Excellence leader for Marsh Inc., wrote in WorkCompWire (http://www.workcompwire.com/), “One option that employers should consider as part of an integrated approach to controlling workers’ compensation costs is formalized nurse case management. Taking actions to drive down medical expenses is an essential component to controlling workers’ compensation costs.”1

Industry research and corporate or professional wisdom regarding risky situations can supply the standardized indicators for referral to NCM. American Airlines uses the standard that all lost time claims should be referred to NCM. But there are many, sometimes more subtle, indicators of risk and cost in claims that can be identified early through computerized monitoring and referred for NCM intervention.

Another example of developing standard indicators for referral is based on industry research that shows certain comorbidities, such as diabetes, can increase claim duration and cost. These claims should also be referred to NCM. Yet another example is steering away from inappropriate medical providers who can profoundly increase costs. 

As a long-ago nurse and a longer-time medical systems designer and developer, I believe the solution lies in appropriate computerized system design. The elements need to be simple to implement, easy to use and consistently applied. Only then can NCM offer proof of value.

1 Christopher Flatt: The Case for Formalized Nurse Case Management

A Real Checklist for Real Disasters

Everyone must evacuate at once. The danger zone is currently 50 miles in radius. You can't get a cell signal. What about your wife? Your kids? Your staff? What if? What now? What next?

In a fraternity, they’d call this hell week. At your agency, this is the one week each year when you deliver renewals to your four largest accounts. 

Renewals might be a misnomer this year because you are moving all of the accounts to a market that is better for you and them. Two of the accounts were being non-renewed, and you are not renewing the other two with the existing carrier. 

Its midnight, and you’ve just left your office. Miss Hathaway is still there putting the final touches on the renewal proposals. They’ll be on your desk in the a.m. as you begin this market marathon. In 48 hours, you’ll have worked your magic on 32% of your book – these most important accounts will be laid to rest for another 12 months. 

The staff thinks you’re crazy for waiting until the last minute. You’ve had these offerings in house for the past three weeks. But you think strategically. If you delivered these renewals when you received them, a ruthless competitor would have delivered a better quote a day later. Instead, you’ll be picking up deposit checks from four clients in three cities in a day and a half.

You need gas, but you need sleep more. You can fill up in the morning. Your wife and daughter are out of town, and your son is staying somewhere across town with a classmate. You can’t even remember who or where. Your wife will call in the a.m. and catch you up on the details.

You hit the bed for a few hours of rest. At 3 a.m., you’re awakened by police chatter. Your first thought is that you left the TV on in the den. As your head clears, you realize a police cruiser is driving through the neighborhood announcing an emergency evacuation. The announcement is garbled, but the message is clear – everyone is to evacuate at once. 

You throw on your clothes, grab your smart phone and iPad and head to the garage. As you open the car door you remember the gas you didn’t buy. As you approach the interstate's entrance ramp, you see chaos – total gridlock. You look west to see the sky aglow. This is near the nuclear reactor that has been the region’s source of electricity for decades. Just when you think your situation can’t get any worse, you hear explosions that remind you of the bombing raids in Vietnam. You realize the chemical and oil storage tanks in the industrial corridor north of town must be exploding – the sky is lit up like it’s noon.

The Emergency Broadcast channel’s message is clear – mandatory evacuation – everyone must be out at once. The danger zone is currently 50 miles in radius – you try to call your wife, but the cell phone signal is not adequate or jammed by too much traffic – what about your son? Your wife and daughter? Miss Hathaway? What if? What now? What next?

This is what a real disaster looks like.

As a public service, I offer this initial list of worries for you to consider in advance of a disaster. More serious problems will follow.

  1. Can you reach your wife and kids and find a place to join up with each other?
  2. What about your employees and their families – can they get out safely?
  3. What about your friends, clients and their families, and the community – what about them?
  4. What about the work on your desk? Your renewals? Miss Hathaway has been encouraging you to go paperless, but you’re old school – you still use paper files – a rolodex – a written calendar. You need your office and your desk? You couldn’t get there now if you owned a helicopter.
  5. What about your agency? These are busy weeks. How do you connect with everyone? What if you can’t get back to town for two weeks? What if there is a radiation leak – could two weeks become two months? – two years?
  6. It’s taken an hour to go two miles – you need gas. Your phone isn't working. You’ve got to pee!
  7. An agent friend in New Orleans told you the most important thing to do in a disaster requiring you to evacuate is to get a temporary office and temporary housing so your team and their families can recreate your agency wherever y’all land. How will they know where to go and what to do?  What will this cost? What if the team can’t or won’t get there?
  8. Reality grabs you – electricity failed for four hours in your office last week, and many of the staff couldn’t cope. How will they deal with a real emergency? What if they can’t? What if some quit?
  9. Wait – your four biggest accounts have coverage expiring in less than 48 hours, and they don’t even know the terms of the renewals. The carriers have to be notified. You dial your cell again only to realize there is no signal. Will a connection return?
  10. You look to the right to see your agency billboard with your tag line -- “We’re at our best when your problems are at their worst!" You were so proud of that theme when you first heard it. Will this prove to be a lie displayed on a billboard? What about claims? What next? 
  11. The radio reports are now catching up with the disaster and evacuation – all motel rooms are now filled in the first 40 miles outside of the evacuation perimeter. Nearest available housing is at least 90 miles away. It’s now 5:30 a.m.
  12. Suddenly, your worst fears are realized – the governor is announcing that radiation leakage has occurred and that no civilians will be allowed back into the evacuation zone for at least 30 days and probably 60.

You start preparing a “to do list” in your brain – not for 60 days but for the next 24 hours. Is this too little too late? It’s the best you can do, but it is the wrong time to be doing it. If only you had done this sooner. 

Got the picture?

Here’s a “to do” list that might help mitigate damage by future disasters if you plan ahead:

  1. Understand that disasters (s_ _ _) happen – disaster awareness, preparation and planning can mitigate the damage for you, your family, your agency and team and your clients.
  2. Disasters are events – the planning and plan implementation are a process – a critically important process.
  3. Don’t plan in secrecy – engage your team, your clients/prospects, community, experts and carriers. This involvement may prove to be logistic and marketing genius.
  4. Don’t dictate the process – engage all in the discussion – find the best ideas.
  5. Be certain that your operations are not location- or paper-dependent – be virtual, with access from afar. The good news is that this is now doable – years ago, it wasn’t. Back up systems always.
  6. Visit with carriers to build strategies to mitigate the shared challenges all will face. What works best for the insureds, the carriers and your team? If a catastrophe doesn’t force you to evacuate, offer hospitality and kindness to the storm troopers in your communities – they need it.
  7. Create a crisis communication plan and identify who can speak for the agency – what the message is and what the media needs to hear - even if it is just signs in the windows of your office. Remember, electricity and phones may not work for days or weeks.
  8. Give clients a policy ID card (or a thumb drive with their policy info) and carrier contact information to carry in their vehicle. A policy in the safety box at an unoccupied home is of no value.
  9. Establish contingency plans with a fellow agent to facilitate their relocation to your office or your relocation to theirs in a worst-case scenario. Discuss plans to find temporary housing, phone and computer and Internet access for the families and team of the displaced agency. Remember that there will be “No Vacancy” signs quickly appearing after an evacuation.
  10. As you and your team begin recovery and claims handling – allow time to comfort (group hugs) each other and pray (there are no atheists in foxholes).  Constantly monitor your team, too, for post-traumatic stress disorder – some can handle disasters, some can’t – assign work according to cope-ability.

This is far from a complete list, but it is an adequate starter kit – the process and the engagement of others will lead you down the path you need to go – “the road less traveled.” Godspeed!

How to Purchase Cyber Insurance

Selecting and negotiating the right insurance product can be a challenge because of the lack of standard language and issues with "off the shelf" policies.

Cyber insurance can be an extremely valuable asset in an organization’s strategy to address and mitigate cyber security, data privacy and other risks. But selecting and negotiating the right insurance product can present a significant challenge, given, among other things, the lack of standardized policy language and the fact that many “off the shelf” policies do not adequately match the organization’s risk profile. The following five tips will help to facilitate a successful cyber policy placement.

#1. Get a Grasp on Risk Profile and Tolerance

A successful cyber placement is facilitated by having a thorough understanding of an organization’s risk profile, including the scope and type of personally identifiable information and confidential corporate data maintained by the company and the manner in which (and by whom) such data is used, transmitted and stored. A complete understanding of the risk profile also entails evaluation of the organization’s IT infrastructure and practices and assessment of potential threats to the organization’s (and its vendors’) network security. An organization should also consider the pervasiveness and manner of use of unencrypted mobile and other portable devices. There are many other factors that may warrant consideration. An organization should also assess its potential exposure in the event of a data breach or network security incident. When an organization has a grasp on its risk profile, potential exposure and risk tolerance, it is well-positioned to consider the type and amount of insurance coverage that it needs to adequately respond to identified risks and exposure.

#2. Look at Existing Coverage

The California federal district court’s recent decision in Hartford Casualty Insurance Company v. Corcino & Associates et al. 1 -- upholding coverage under a commercial general liability (CGL) policy for a data breach that compromised the confidential medical records of nearly 20,000 patients -- underscores that there may be valuable privacy and data breach coverage under “traditional” insurance policies, including under the “Personal And Advertising Injury Liability” (Coverage B) of a typical CGL policy. There may also be valuable coverage for data breach and network security liability and network security failures under an organization’s commercial property, D&O, E&O, professional liability, fiduciary, crime and other coverages.

#3. Purchase Cyber Insurance As Needed

As recently described in Law360,  2 in response to decisions upholding coverage for data breach, privacy, network security and other cyber risks, the insurance industry has added various limitations and exclusions purporting to cut off the “traditional” lines of coverage. By way of example, Insurance Services Office, Inc. (ISO) 3 recently filed a number of data breach exclusionary endorsements for use with its standard-form primary, excess and umbrella CGL policies. These are to become effective in May 2014. By way of example, one of the endorsements, titled “Exclusion - Access Or Disclosure Of Confidential Or Personal Information And Data-Related Liability - Limited Bodily Injury Exception Not Included,” adds the following exclusion to Coverage B:

This insurance does not apply to:

Access Or Disclosure Of Confidential Or Personal Information

“Personal and advertising injury” arising out of any access to or disclosure of any person’s or organization's confidential or personal information, including patents, trade secrets, processing methods, customer lists, financial information, credit card information, health information or any other type of non public information.

This exclusion applies even if damages are claimed for notification costs, credit monitoring expenses, forensic expenses, public relations expenses or any other loss, cost or expense incurred by you or others arising out of any access to or disclosure of any person's or organization's confidential or personal information. 4

Although the full reach of the new exclusions ultimately will be determined by judicial review, and it may take some time for the new (or similar) exclusions to make their way into CGL policies, the exclusions provide another reason for companies to carefully consider specialty cyber insurance products. Even where insurance policies do not contain the newer limitations or exclusions, insurers may argue that cyber risks are not covered under traditional policies.

As far as data breaches are concerned, cyber policies usually provide some form of privacy coverage. This coverage would typically provide defense and indemnity coverage for claims arising out of a data breach that actually or potentially compromises confidential personally identifiable information. By way of example, the AIG Specialty Risk Protector® specimen policy 5 states that the insurer will “pay … all Loss” that the “Insured is legally obligated to pay resulting from a Claim alleging … a Privacy Event.” 6 “Privacy Event” includes:

  1. any failure to protect Confidential Information (whether by “phishing,” other social engineering technique or otherwise) including, without limitation, that which results in an identity theft or other wrongful emulation of the identity of an individual or corporation;
  2. failure to disclose an event referenced in Sub-paragraph (1) above in violation of any Security Breach Notice Law; or
  3. violation of any federal, state, foreign or local privacy statute alleged in connection with a Claim for compensatory damages, judgments, settlements, pre-judgment and post-judgment interest from Sub-paragraphs (1) or (2) above.7

​“Confidential Information” is defined as follows:

“Confidential Information” means any of the following in a Company’s or Information Holder’s care, custody and control or for which a Company or Information Holder is legally responsible:

  1. information from which an individual may be uniquely and reliably identified or contacted, including, without limitation, an individual’s name, address, telephone number, Social Security number, account relationships, account numbers, account balances, account histories and passwords;
  2. information concerning an individual that would be considered “nonpublic personal information” within the meaning of Title V of the Gramm-Leach Bliley Act of 1999 (Public Law 106-102, 113 Stat. 1338) (as amended) and its implementing regulations;
  3. information concerning an individual that would be considered “protected health information” within Health Insurance Portability and Accountability Act of 1996 (as amended) and its implementing regulations;
  4. information used for authenticating customers for normal business transactions;
  5. any third party’s trade secrets, data, designs, interpretations, forecasts, formulas, methods, practices, processes, records, reports or other item of information that is not available to the general public[.] 

A policy offering the privacy coverage will often offer coverage for civil, administrative and regulatory investigations, fines and penalties and, importantly, will commonly offer “remediation” coverage (sometimes termed “crisis management” or “notification” coverage) to address costs associated with a security breach, including:

  • costs associated with post-data breach notification
  • credit monitoring services
  • forensic investigation to determine cause and scope of a breach
  • public relations efforts and other “crisis management” expenses
  • legal services to determine an insured’s indemnification rights where a third party’s error or omission has caused the problem. 

The sublimits typically associated with remediation coverage warrant careful attention. Cyber insurance policies often offer other types of coverages, including:

  • network security coverage (often in the same coverage grant as the “privacy” coverage discussed above), which generally covers liability arising out of security threats to networks, including, for example, transmission of malicious code and DDoS attacks;
  • media liability coverage, which generally covers liability arising out of, for example, infringement of copyright and other intellectual property rights and misappropriation of ideas or media content;
  • information asset coverage, which generally covers an insured for the cost of recreating, restoring or repairing the insured’s own data or computer systems;
  • network interruption coverage, which generally covers an insured for its lost revenue due to network interruption or disruptions resulting from a DDoS attack, malicious code or other security threats to networks; and
  • extortion coverage, which generally covers an insured for the costs of responding to “e-extortion” threats to prevent a threatened cyber attack.

In addition to the main coverages, insurers increasingly offer complimentary pre- and post-loss risk management services, which can be valuable in preventing as well as mitigating attacks.

#4. Spotlight the “Cloud”

Cyber risk is intensified by the trend in outsourcing of data handling, processing and storage to third-party vendors, including “cloud” providers. The Ponemon Institute’s 2011 Cost of Data Breach Study, published in March 2012, found that more than 41% of U.S. data breaches are caused by third-party errors, including “when protected data is in the hands of outsourcers, cloud providers and business partners.” 8 Many “off the shelf” cyber policies, however, purport to limit the scope of coverage to the insured’s own acts and omissions (not the acts and omissions of third parties) and to network security threats to the insured’s own network or computer system -- not the networks / computer systems of third parties. This may result in illusory coverage. As recently described in Law360, 9 the recent high-profile attack on the New York Times homepage, during which users who tried to access  www.nytimes.com were directed to a website apparently maintained by a group called the Syrian Electronic Army, may not be covered under many “off the shelf” policies because the attack was not on the New York Times “system” as defined in many policies, but rather on the system of a third-party domain name registrar.

#5. Remember the Cyber Misnomer

Keep in mind that many data breaches are not electronic -- they often result from non-electronic sources. Data privacy laws do not distinguish between a breach resulting from a network security failure or a breach on account of stolen paper records from a closet. Neither should a cyber insurance policy. A solid policy will cover non-electronic data, such as paper records. 10 Likewise, a policy should also provide coverage for physical breaches resulting from, for example, the theft of a laptop or loss of a USB drive.

There are many other considerations and points to focus on. There is a dizzying array of cyber products on the marketplace, each with their own insurer-drafted terms and conditions, which vary dramatically from insurer to insurer—even from policy to policy underwritten by the same insurer. Because of the nature of the product and the risks that it is intended to cover, successful placement requires the involvement and input, not only of a capable risk management department and a knowledgeable insurance broker, but also of in-house legal counsel and IT professionals, resources and compliance personnel—and experienced insurance coverage counsel.

This article first appeared in FC&S Legal, The National Underwriter Company on October 17, 2013.

1 No. CV 13-3728 GAF (JCx), Minutes (In Chambers) Order Re: Motion To Dismiss (Oct. 7, 2013). The two underlying class action lawsuits alleged that Stanford Hospital and Clinics and the insured, medical consulting firm Corcino & Associates, violated the privacy rights of numerous patients by providing confidential personally identifiable medical information to an individual who posted the information on a public website. In particular, the claimants alleged that “the private, confidential, and sensitive medical and/or psychiatric information of almost 20,000 patients of Stanford’s Emergency Department appeared on a public website and remained publicly available online for almost one full year.” Id. at 2 (quoting the Second Amended Class Action Complaint in Springer, et al. v. Stanford Hosp. and Clinics, et al., No. BC470S22 (Cal. Super. Ct., filed May 12, 2012)). The underlying complaints contained causes of action for violations of the claimants’ constitutional right of privacy, common law privacy rights, the California Confidentiality of Medical Information Act (CMIA) and the California Lanterman Petris Short (LPS) Act. The suits sought, among other things, statutory damages of $1000 per person under CMIA and statutory damages of up to $10,000 per person under LPS.

2See Roberta D. Anderson, ISO's Newly-Filed Data Breach Exclusions Provide Yet Another Reason To Consider “Cyber” Insurance, Law360 (Sept. 23, 2013).

3ISO is an insurance industry organization whose role is to develop standard insurance policy forms and to have those forms approved by state insurance commissioners.

4CG 21 07 05 14 (2013). “Electronic data” is defined as “information, facts or programs stored as or on, created or used on, or transmitted to or from computer software, including systems and applications software, hard or floppy disks, CD-ROMS, tapes, drives, cells, data processing devices or any other media which are used with electronically controlled

equipment.” Id.

5See AIG Specialty Risk Protector® Specimen Policy Form 101014 (11/09), Security and Privacy Coverage Section.

6Id. Section 1. 

7 Id. Section 2.(d). “Security Breach Notice Law” includes “any statute or regulation that requires an entity storing Confidential Information on its Computer System, or any entity that has provided Confidential Information to an Information Holder, to provide notice of any actual or potential unauthorized access by others to Confidential Information stored on such Computer System, including but not limited to, the statute known as California SB 1386 (§1798.82, et. al. of the California Civil Code).” Id. Section 2.(m).

82011 Global Cost Of Data Breach Study, Ponemon Institute LLC, at 6 (Mar. 2012).

9See Lon Berk, Takeaways From Recent Cyberattack On New York Times, Law360 (Sept. 17, 2013)

10  See Richard S. Betterley, The Betterley Report, Cyber/Privacy Insurance Market Survey, at 18 (June 2013).

Solvency 2: An Outcome Very Different Than Planned

While the intent was to restore trust, the outcome was to force insurers to undertake massive programs of data management at costs that have exceeded $200 million.

The original intention of the EU's Solvency 2, the regulatory requirement for capital held by insurers, was to create a framework that inspired policyholder confidence and restore trust. The real outcome was to force insurers to undertake massive programs of data management at costs that, for some Tier 1 insurers, have exceeded $200 million. Some insurers said they would pass the cost on to their customers, which I’m sure wasn’t the intention.

In what was arguably worse, the cost became so great that other useful programs were put on hold because of this burning regulatory platform. The knock-on effect has been to create delay especially in customer-facing activities (which would have had a far better impact in improving confidence and trust).

Some international insurers suggested that the requirements might prevent them from trading in Europe – creating a "Fortress Europe" – but Solvency 2 seems to be emerging in multiple guises around the globe, in China, Latin America, South Africa and of course the U.S. in the form of RMORSA.

There’s lots written on this topic, such as http://www.solvencyiiwire.com/, and I won’t bore you, but as I looked out at the faces at a major conference in the U.S. where I spoke recently, I recognized the look I saw in many insurers in Europe in 2008 -- that of not really knowing what was going to hit them.

Insurers were to discover that more than 80% of both cost and implementation time was absorbed in data management, 15% on analysis and the small balance on risk reporting. Yet the reporting element proved to be the only part visible – reminding me of an iceberg analogy, with the reporting being that part of the ‘berg visible above the waterline.

Comparing risk and regulation to an iceberg is interesting, and as I looked around the room at the conference, I wondered how many attendees were ready for what would be, for them, a long and difficult passage. But not, I hope, a Titanic one…

Should You Recommend Castlight to Your Clients?

Castlight may help employees avoid emergency care for conditions that are merely urgent, and there is a pharmacy app, as well.

Castlight is in the news, with the largest IPO in the history of employer cost savings tools. Despite only $13 million in sales and a $62 million loss, the market is rewarding the company by valuing it at more than $1 billion.  

We will let others opine on the fairness of that valuation, but clearly that valuation reflects an expectation that there is a huge market for tools that employees can use to shop around for lower-priced medical care. And there is so much buzz around this company that even notoriously insulated human resources executives are going to hear about it, and ask you whether it works. By way of background, in case you’ve been off the grid for a few months, the basic Castlight intervention is an app that allows employees to identify and price venues for elective procedures, high-cost diagnostics, specialists, hospitals, physical therapy and other uses of care. It may help employees avoid emergency care for conditions that are merely urgent, and there is a pharmacy app, as well.

This column will help you provide the type of pluses and minuses that your clients count on you for, and that should sound insightful enough to cement your status as a trusted adviser.

Pluses:

  1. Employees who have not yet satisfied the annual deductible will indeed save money, possibly a lot of money, on fungible resources – like MRIs and CT scans – where there really is no actual or perceived quality differential;

  2. In addition, employees will appreciate the convenience of being able to find a place that may be closer, have earlier availability, weekend hours, etc.;  

  3. Employees will also appreciate that the app will tell them how much of their deductible remains to be satisfied and give them other financial insights;

  4. Because the employee is the one saving the money if they are low-enough utilizers not to exhaust their deductibles, you can offer this app as an offset when moving to a high-deductible plan, or use this as one enticement to get employees into a high-deductible plan. Otherwise, direct decreases in your own health benefit are likely to be modest.

So far, so good. And, by the way, Castlight is good, relatively speaking. It is a far better use of money than wellness, for example. However, your client can learn these benefits directly from Castlight. The greater insights you can provide are about the cautions, and setting low expectations for an ROI.

First, much of medical care is not likely to be shopped. Perhaps employees new to an area will shop for a primary-care physician (PCP) using Castlight, but probably not on the basis of price, given that PCP checkups are free. And generally people don’t shop for specialists on the basis of price, but rather use someone referred by the PCP who is “in-network,” and typically in-network doctor visits have the same co-pay once the deductible is satisfied. Or if employees don’t use someone referred by the PCP, they’ll use a referral by a friend to someone who is “supposed to be one of the best.”

Second, once employees satisfy the deductible, people are far less likely to be price-sensitive beyond in-network and out-of-network differentials. Employees will be much more interested in saving their own money than saving your clients' money.

Third, a corollary is that the really high-cost employees—the 5% who consume 50% of your resources—will easily blow through their deductibles. Castlight will be of very little use to them. Likewise, emergency care and admissions generally are not price-sensitive, and the latter itself would blow through a deductible.

Fourth, there is an implicit assumption that when employees go shopping for medical care, it’s for the lowest price. They are equally if not more likely to be shopping for convenience, perceived quality, availability etc.

Finally, in non-urban areas and for less common specialties, there isn’t likely to be much choice; all the price comparisons in the world aren’t going to be helpful if the low-price option is an hour’s drive away.  

Put all that together and the result is at best a very modest cash-on-cash ROI. Note that Castlight doesn’t scream about ROI on its website. This could be a testament to their honesty, or else – call me a cynic here – because they are going public they’ve decided not to be liable to shareholders for false representations.  

In the past, their impact calculations have been squirrelly. Take a hard look at that link because they may be reporting similar statistics to you. Don’t assume that “influencing a healthcare decision” means saving money, and when you see a figure like “61%” for engagement, don’t assume 61% means 61%. In this Honeywell example, 53% registered, 60% of registrants used the app and 61% of users say the app “influenced a decision.” Do the math--53% times 60% times 61%--and that means just 19% of all employees in the case study say they benefited from the app. Yet somehow Castlight claims 9% overall savings. To make their own figures tie together, you’d need to assume that those 19% used the app for just about everything and were able to cut almost 50% out of the price of everything they used the app for.

In other words, that 9% savings figure is made up. (Welcome to the world of population health management.) However, unlike with wellness vendors (which are more likely to harm employees than benefit them), there is an employee benefit to using Castlight, and unlike with wellness vendors you don’t need to bribe or threaten employees into using the app. The app speaks for itself.

Beyond these observations, there are many strategies you yourself could undertake with your client to maximize the value of Castlight and, more importantly, your own services. For instance, if you find that a delivery costs between $2,000 and $8,000 (for hospitals that get an A or B from Leapfrog – and you want to choose those so you don’t expose yourself to charges that you are pushing lower-quality institutions), you might recommend a $5,000 delivery benefit and let people make their own decisions as to where to go.  

You can also use the Castlight app as a negotiating lever. If you show a nearby high-cost provider what the price differential is and how you are giving employees the tool to look elsewhere, you may be able to negotiate a better price, a win-win for everyone in your value chain. It’s a “lose” for the provider in question, but that just means you’re doing your job.