Settlement of High-Exposure Workers' Comp Claims: Part One - Insurance Thought Leadership

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February 10, 2014

Settlement of High-Exposure Workers' Comp Claims: Part One

Summary:

This article outlines a few of the potential triggers that indicate when a case may spiral into a high-exposure claim that should be identified as early as possible and moved toward resolution.

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In nearly every workers' compensation program, cases that are referred to as “legacy files,” “dog files” and a myriad of other names (some of which are not appropriate for print) represent high-exposure claims that drive costs. Identifying and resolving these cases early can reduce exposure and overall costs.

The first part of this three-part series will look at what can trigger those important cases. 

Identification

Generally speaking, a few cases represent the vast majority of the cost of a workers’ compensation program. Many are driven by the medical treatment necessary to cure or relieve the effects of the injury. While the indemnity aspect (permanent partial and permanent total disability) can be important, typically it is much easier to quantify these benefits than it is to determine the medical costs.

The high-exposure claims fall into two categories: acute and chronic.

Some examples of acute cases are quadriplegics, paraplegics, severe burns, amputations and head traumas. These injuries are severe and occur immediately as a result of the initial injury. In most instances, there is a significant initial cost, and the continuing care is substantial.

Chronic catastrophic cases, on the other hand, are much more difficult to identify. They typically start off in benign fashion (lumbar strain, knee strain, etc.) and deteriorate into multiple surgeries, lengthy periods of lost time and permanent disability. Chronic cases typically develop about five years after the injury.

A variety of metrics can be used to identify these cases and bring them to the forefront of a settlement initiative. 

Co-Morbidity

A case review can reveal numerous medical conditions that affect potential future exposure, including hypertension, obesity, diabetes, nicotine usage and excessive alcohol consumption. In many instances, these conditions are considered non-industrial and are not identified as cost drivers for the workers’ compensation claim. They are, nonetheless, extremely important in the healing process.

For example, the failure rate of spinal fusions is 20% to 30% in cigarette smokers, nearly double that in non-smokers. The failure of a spinal fusion typically results in one or more additional procedures, including: 1) a repeat fusion; 2) trial/implantation of a spinal cord stimulator; or 3) trial/implantation of an intrathecal pump (commonly referred to as a morphine pump). The costs associated with a failed fusion are payable by the claim, significantly increasing its duration and the cost. 

Similarly, high glucose levels in diabetics can cause poor circulation, diabetic neuropathy and deficiencies in the immune system–all factors in recovering from injuries and surgeries. When an injured worker needs lower extremity surgery (foot, ankle, knee, etc.) and his diabetes is not well-controlled, significant medical problems can develop, including delayed recovery, infections and, in extreme cases, amputation. Again, whether or not the diabetes pre-dated the industrial injury, it can drive medical, indemnity and expense costs. Further, in some jurisdictions, a defendant may become liable for treatment of the diabetic condition if there is evidence that the condition was exacerbated or “lit up” as a result of the industrial injury.

These are just two examples of many nonindustrial co-morbid conditions that can have a significant impact on the cost and duration of a claim.

Life Expectancy and Inflation

In identifying cases that may become high-exposure claims, it is critical to determine the life expectancy of the injured worker. According to the Department of Labor, the median age of the workforce today is 42 years. Based on figures from the National Center for Health Statistics, that would result in a remaining life expectancy of 38 years, on average between men and women. So, it could be necessary to provide medical benefits for an extended period.

The rate of medical inflation is typically 8% a year, so the cost of medical care for an individual will double approximately every eight years.  We refer to this as The Rule of 8.  If an individual is consuming $5,000 a year in treatment today, a doubling every eight years would mean the medical cost would exceed $80,000 annually as he approaches the end of life (see Chart I below). The figures do not consider any deterioration in the medical condition.

Medications

Prescription and consumption of medications is escalating. In severe cases, the individual becomes dependent, and the physician is left with few other treatment options. We see instances where medications are prescribed, then additional prescriptions are viewed as necessary to counteract side effects.

New medications are approved by the FDA on a regular basis and are often prescribed in workers’ compensation claims.  More and more, a physician will prescribe an “off label” medication (one that has been approved by the FDA for a specific condition or purpose not consistent with the diagnosis).  Because of patents, there are no generics, and the medications can be costly. An example is Actiq.  This medication was approved by the FDA for the treatment of pain in Stage IV cancer patients.  But, in recent years, physicians have prescribed Actiq for the treatment of chronic spine pain.  The medication can cost upward of $4,000 to $6,000 a month. 

Addition of Body Parts

We all remember the old “Dem Bones” song: “The knee bone’s connected to the thighbone, the thighbone’s connected to the …”  Well, nothing could be more accurate in the world of workers’ compensation.  In catastrophic cases, additional body parts are almost universally alleged as part of the industrial injury. A cervical injury expands into the upper extremities. A knee injury expands to the back and ankle because of an altered gait.  Medications prescribed for chronic pain cause internal complaints.

Identification Process

These triggers, and others, can make a case spiral into a high-exposure claim.  Part II of this series will discuss, in detail, approaches that can be used to assess these types of cases and focus on strategies to mitigate the exposure and move the cases toward resolution.

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