Tag Archives: co-morbidity

Settlement of High-Exposure Workers’ Comp Claims, Part Two

(Part I of this series focused on how to identify high-exposure claims and on the factors that drive cost and duration. Part II focuses on approaches to establish the value of a case, to determine if it is a good candidate to settle.)

Three numbers are critical in the valuation and determination of whether a case is a good candidate for settlement: future value, present value and settlement value.

Future value

The analysis of future valuation provides, by reserve category, a value for the indemnity, medical and expenses projected for the future of the case. 

The indemnity exposure is driven by statutory requirements for both permanent partial and permanent total disability. Typically, permanent partial disability is a fixed number of weeks multiplied by a weekly benefit. Likewise, permanent total disability benefits are calculated at a fixed rate; however, in most instances the benefit is payable for the life of the injured worker. A complication is that each jurisdiction views permanent partial and permanent total disability differently.

Determining the future medical exposure can be even more complicated. In many instances, a calculation will be made based on the average spending on the case over the past three years, but a more thoughtful analysis is necessary to determine the true future value. The analysis should be calculated based on the normal, expected treatment that an injured worker will need over the course of the claim but also consider the irregular treatment modalities necessary or requested by the physician. These may be surgeries, replacement of motorized wheelchairs, conversion vans, etc., which occur on an irregular basis; for example, a replacement van would be required every eight to 10 years, or a motorized wheelchair may need to be replaced every five to seven years. By parsing out these items, a much more accurate and appropriate analysis will be developed. 

Even once you understand the future exposure and the present value of a case, you still should consider other factors, such as co-morbidity and the reduction in the life expectancy of an injured worker because of both industrial and non-industrial conditions (factors discussed in Part I: Settlement of High-Exposure Claims Part I). 

Co-morbidity factors can indicate whether an injured worker’s life expectancy suggests there will be a need for, perhaps, a second knee surgery (at the 30-year mark). Will the injured worker’s condition deteriorate to either create a need or expand the existing exposure for home/attendant care? 

The most significant costs in high-exposure claims typically are medical, and a calculation of settlement value should also take into account that great savings can be achieved. In many instances, savings can be realized through turning the Medicare Set Aside, presuming one is necessary, into an annuity. Assessing non-Medicare type items such as home/attendant care and “off label” medications can also produce savings.

Expenses are also sometimes difficult to quantify. Allocated expenses such as legal fees and record subpoena services may diminish over time as issues begin to resolve. Depending on the jurisdiction, continuing litigation costs may be incurred if a defendant denies a treatment modality or procedure. In addition, consideration should be given to “other” medical expenses such as bill review, utilization review and nurse case management services. These typically continue through the life of the claim and may cost thousands, if not tens of thousands, of dollars. 

Present value

When analyzing the present value (also referred to as a discounted value) of benefits, it is important to understand the time value of money and current internal rates of returns on investments. The typical internal rate of return for annuities is currently approximately 4%. This rate varies, primarily based on interest rates. Carriers and self-insured employers have greater buying power, so they might expect a return of 6% to 7%.  

Determining present value is a straightforward calculation based on whatever the right discount rate is but requires a detailed understanding of likely expenses. Is the injured worker only entitled to benefits for a specific number of remaining weeks? Or, is the benefit payable for life? Determining the present value of the consistent medical generally is a matter of calculating the average annual cost and applying the appropriate discount rate. With irregular costs, it is necessary to understand the specific items in question and the estimated frequency of each. If an injured worker needs knee replacements and will require two over her lifetime, an estimate is needed as to when those will occur (for example, in 15 years and again in 30 years) and the anticipated cost of the surgery. The present value of the surgeries can be calculated based on how many years off they are. 

Discounting expenses associated with a case is typically handled much like the medical discounting. For the regular, consistent costs, an annual amount can be calculated and discounted for present value. If intermittent litigation and other expenses may occur, estimates are created and discounted for present value.

It is safe to say there is some art associated with determining present value. Variances in the discount rate used, the manner in which exposure is calculated and other factors can greatly affect the calculation. Understanding these variables and analyzing them correctly is imperative to reaching a solid present value calculation.

Settlement value

The nature and type of insurance program (primary vs. self-insured) as well as the manner in which the defendant has analyzed his exposure will greatly affect the settlement value of a case.  Understanding the differences between the future exposure and present value calculations aid in determining the amount of money that a party is willing to spend to bring closure to a file. 

Lacking a crystal ball, reserving practices have always had an aspect of “art” to them; thus the future value will have some variation over time based on changes in treatment course, deterioration in condition and other factors.  Present value calculations are estimations or approximations based upon the changes in value of money over time.

Likewise, the settlement value of a case is the best estimate of where the future needs of the injured worker will be, with consideration of the time value of money and degree of desire to extinguish the exposure now—before there is any further potential for expansion or deterioration in the condition, creating a greater degree of expense and exposure in the future. 

A discussion of settlement value should consider that a settlement of the case-in-chief not only ends direct expenses such as litigation, utilization review and nurse case management but also brings to an end the time and energy expended to adjust the claim. Time and energy are usually disproportionately great in high-exposure cases because of the complexities.

A settlement also helps the carrier/self-insured employer by possibly allowing it to recover reserves set aside for a case and by reducing exposure to any expansion of the claim as the years go by.

Conclusion

Ultimately, the objective is to bring these high-exposure cases to resolution as promptly and cost-effectively as possible because, for carriers and self-insured employers, this small percentage of cases drive the majority of costs associated with a workers’ compensation program.

Part III of this series will cover Negotiation and Resolution.

New AMA Classification Of Obesity: How It Affects Workers’ Compensation And Mandatory Reporting

On June 16, 2013, the American Medical Association voted to declare obesity a disease rather than a comorbidity factor. This change in classification will affect 78 million American Adults and 12 million children. The new status for obesity means that this is now considered a medical condition that requires treatment. In fact, a recent Duke University / RTI International / Centers for Disease Control and Prevention study estimates 42 percent of U.S. adults will become obese by 2030.

According to the Medical Dictionary, obesity has been defined as a weight at least 20% above the weight corresponding to the lowest death rate for individuals of a specific height, gender, and age (ideal weight). Twenty to forty percent over ideal weight is considered mildly obese; 40-100% over ideal weight is considered moderately obese; and 100% over ideal weight is considered severely, or morbidly, obese. More recent guidelines for obesity use a measurement called BMI (body mass index) which is the individual's weight divided by their height squared times 703. BMI over 30 is considered obese.

The World Health Organization further classifies BMIs of 30.00 or higher into one of three classes of obesity:

  • Obese class I = 30.00 to 34.99
  • Obese class II = 35.00 to 39.99
  • Obese class III = 40.00 or higher

People in obese class III are considered morbidly obese. According to a 2012 Gallup Poll, 3.6% of Americans were morbidly obese in 2012.

The decision to reclassify obesity gives doctors a greater obligation to discuss with patients their weight problem and how it's affecting their health while enabling them to get reimbursed to do so.

According to the Duke University study, obesity increases the healing times of fractures, strains and sprains, and complicates surgery. According to another Duke University study that looked at the records for work-related injuries:

  • Obese workers filed twice as many comp claims.
  • Obese workers had seven times higher medical costs.
  • Obese workers lost 13 times more days of work.
  • Body parts most prone to injury for obese individuals included lower extremities, wrists or hands, and the back. Most common injuries were slips and falls, and lifting.

The U.S. Department of Health and Human Services said the costs to U.S. businesses related to obesity exceed $13 billion each year.

Furthermore, a 2011 Gallup survey found that obese employees account for a disproportionately high number of missed workdays. Also earlier National Council on Compensation Insurance (NCCI) research of workers' compensation claims found that claimants with a comorbidity code indicating obesity experience medical costs that are a multiple of what is observed for comparable non-obese claimants. The NCCI study demonstrated that claimants with a comorbidity factor indicating obesity had five times longer indemnity duration than claimants that were not identified as obese.

Prior to June 16, 2013, the ICD code for comorbidity factors for obesity in workers' was ICD-9 code 278. This is related to obesity-related medical complications, as opposed to the condition of obesity. Now the new ICD codes will indicate a disease, or condition of obesity which needs to be medically addressed. How will this affect work-related injuries?

Instead of obesity being a comorbitity issue, it can now become a secondary claim. If injured workers gain weight due to medications they are placed on as a result of their work-related injury or if an injured worker gains weight since they cannot exercise or keep fit because of their work-related injury and their BMI exceeds 30, they are considered obese and are eligible for medical industrially related treatment. In fact, the American Disability Act Amendment of 2008 allows for a broader scope of protection and the classification of obesity as a disease means that an employer needs to be cognizant that if someone has been treated for this disease for over 6 months then they would be considered protected under the American Disability Act Amendment.

Consider yet another factor: with the advent of Mandatory Reporting (January 1, 2011) by CMS that is triggered by the diagnosis (diagnosis code), the new medical condition of obesity will further make the responsible party liable for this condition and all related conditions for work-related injuries and General Liability claims with no statute of limitations. It is vital to understand that, as of January 1, 2011, Medicare has mandated all work-related and general liability injuries be reported to CMS in an electronic format. This means that CMS has the mechanism to look back and identify work comp related medical care payments made by Medicare. This is a retroactive statute and ultimately, it will be the employer and/or insurance carrier that will be held accountable.

The carrier or employer could pay the future medical cost twice — once to the claimant at settlement and later when Medicare seeks reimbursement of the medical care they paid on behalf of the claimant. This is outside the MSA criteria. The cost of this plus the impact of the workers' compensation costs as well as ADAA issues for reclassification of obesity for an employer and carrier are incalculable.

The solution is baseline testing so that only claims that arise out of the course and scope of employment (AOECOE) are accepted. If a work-related claim is not AOECOE and can be proved by objective medical evidence such as a pre- and post-assessment and there is no change from the baseline, then not only is there no workers' compensation claim, there is no OSHA-recordable claim, and no mandatory reporting issue.

A proven example of a baseline test for musculoskeletal disorders (MSD) cases is the EFA-STM program. EFA-STM Program begins by providing baseline injury testing for existing employees and new hires. The data is only interpreted when and if there is a soft tissue claim. After a claim, the injured worker is required to undergo the post-loss testing. The subsequent comparison objectively demonstrates whether or not an acute injury exists. If there is a change from the baseline site specific treatment, recommendations are made for the AOECOE condition ensuring that the injured worker receives the best care possible.

Baseline programs such as the EFA-STM ensure that the employee and employer are protected and take the sting out of the new classification by the AMA for obesity.

Game-Changing Strategies to Transform Workers' Compensation

The workers' compensation system continues to face three major challenges: reducing the spiral of rising costs for claims, improving outcomes for medical care, and streamlining efficiencies which impacts both care and costs.

Each year, workers' compensation medical costs continue to escalate — they now constitute 60% of total claims costs according to the National Council on Compensation Insurance. The average medical cost of lost-time claims has more than tripled during the last 20 years. The Workers Compensation Research Institute recently reported that outpatient hospital average payments per claim were up 31% from 2006 to 2010, while inpatient hospital payments per episode jumped 36% during the same time.

Unfortunately, the inter-related nature of components in workers' compensation makes it difficult to achieve long-term, consistent progress in cost containment. While medical expenses are recognized as an increasingly powerful cost driver, the total cost picture is impacted by more than just charges for and volume of medical services. Quality medical care is behind the speed and ability of the injured worker's ability to return to work, which influences indemnity and lost time costs. Litigation by dissatisfied claimants adds to the expense picture. However, the fact is that medical costs and care are the 800-pound gorillas that are the real challenge to better management and superior outcomes. A new approach that can break through this log jam will be a truly game-changing solution.

Such a solution must be able to remedy the primary drivers of increasing costs and sub-par medical outcomes in workers compensation, which include:

  • The growing epidemic of opioids for the treatment of pain, which can — when used inappropriately — lead to long-term disability, negative health outcomes, and fraud and abuse. A study by Accident Fund Holdings and Johns Hopkins University found that the presence of long-acting opioids resulted in claims almost 3.9 times more likely to cost more than $100,000 than a claim without any prescriptions; claims with short-acting opioids were 1.76 times more likely to have an ultimate claims costs of more than $100,000.
  • Co-morbidities and obesity that raise the cost and complexity of care. The October 2012 National Council on Compensation Insurance Research Brief, “Co-morbidities in Workers' Compensation” found that claims with a co-morbidity diagnosis have about twice the medical costs of other comparable claims.
  • An older workforce is another cost driver. According to the National Council on Compensation Insurance's Research Brief, “Workers' Compensation and the Aging Workforce,” claim severity and costs for older workers (45 – 64) is more than 50% higher than for younger employees for both indemnity and medical.
  • Significant variations in care by provider and by state negatively impact outcomes. For example, the Workers Compensation Research Institute's “Prescription Benchmarks, 2nd Edition: Trends and Interstate Comparisons,” July 2011, reports that the average prescription payment in Louisiana was $1,182 for claims that had more than seven days of lost time and at least one prescription, as compared to $330 – $350 in states with the lowest prescription costs.
  • The fragmentation of care management creates waste and poor outcomes. It takes a multitude of different types of medical and service providers to successfully treat an injured worker. Within this maze, the traffic cop is the busy claims adjuster who today may manage an average of 150 claims. This heavy workload makes it hard for the beleaguered adjuster to find the right providers, manage all the connections, and to give claims — especially complex ones — the constant, in-depth oversight needed.
  • The impact of providers can vary widely. Many providers are not experienced in workers' compensation cases — they do not understand the assertive “sports medicine” type of approach that deploys and manages treatment from the inception of the case in order to help achieve a rapid recovery and return to work.

Within this scenario, it's easy for a case to become unnecessarily complicated, dragging on for months and years, ratcheting up not only medical but also indemnity costs.

The Solution
Leaders in workers' compensation recognize that finding and using superior practitioners is the key to getting the best care for injured workers and reducing overall costs. Results in outcomes-based networks have indicated that superior providers can reduce total claims costs by 20%-40%.

If an injured worker sees an experienced and high-performing physician from the beginning, and their treatment plan moves rapidly through an integrated network of outstanding providers who understand workers' compensation objectives, there is a much better chance of an efficient and fast resolution of the injury, return to work, and closure of the claim.

Rapid interventions with the right therapies from the beginning of the case means the injured worker is more likely to recover faster and have a better overall outcome. For example, a recent study published in the medical journal “Spine” found that early physical therapy treatment for low back pain was associated with reduced likelihood of subsequent surgery injections, physician visits, opioid use, and advanced imaging along with a corresponding reduction in related medical costs.

Yet, until now, there has been no solution that enables claims professionals to know which providers deliver the best care, and to consistently connect these providers to injured workers for timely, efficient delivery of superior care for best outcomes.

Now, due to three developments in the industry, that solution is becoming a reality. When this model is deployed throughout a claims management enterprise, payers can experience unparalleled improvements in medical outcomes, reduced overall costs, and increased efficiency.

The three capabilities present in today's marketplace that enable this change are:

  • The ability to develop strong networks of specialty “best-in-class” providers who contribute to all elements of care in workers' compensation, and who receive scrupulous credentialing and consistent quality oversight to ensure an aggressive focus on evidenced-based medicine and fast return-to-work.
  • Advanced analytics of claims data that can now determine which providers generate the best outcomes.
  • Easy-to-use technology that connects this broad range of providers with claims professionals, expediting fast referrals and treatment, overall care coordination and prompt reporting of test and care results. This technology connects these once fragmented players into a virtually integrated care team focused on the injured worker and a common set of objectives.

When these three capabilities are integrated, for the first time in workers' compensation there is a system that brings together the best providers in both primary treatment and ancillary services who are delivering care with aligned goals and shared information to bring about better outcomes with streamlined efficiencies and reduced frictional cost in the system.

The value of this integrated approach to care delivery has been recognized in healthcare for 10 years. At The Cleveland Clinic and the Mayo Clinic, care for Medicare patients cost less than the national median, indicating that this approach is successful in not only delivering better outcomes but lower overall costs.

The 2011 Health International McKinsey report, “What It Takes to Make Integrated Care Work,” found that an integrated care model can be implemented in virtually any health system, provided the three elements of multidisciplinary care, a focus on patient segments most likely to have high health care spending, and the ability to create strong virtual partnerships, are present.

How The Integrated Model Works In Workers' Compensation
The following examples illustrate how the integrated model workers within workers' compensation:

  1. A worker with a complex injury to his right leg is immediately referred to an occupational health physician who is experienced in workers' compensation and connected to networks of specialty providers. Based on the nature of the injury, the physician's office is instantly connected to a resource for crutches, transportation for getting back and forth to appointments, and a best-in-class diagnostics provider to provide fast, accurate diagnostic tests. Instead of having to figure out what is needed and arrange for each piece individually, all the components are in place from the beginning of the treatment plan.
  2. As the injured worker receives treatment from an integrated network of specialty providers, not only is the care provided by best-in-class providers but cost savings are maximized by consistently taking advantage of network discounts and preventing leakage.
  3. A patient who has an injury that may be associated with chronic pain is managed aggressively from the beginning of the case, to alleviate pain and optimize recovery with physical therapy and other pain-reducing modalities. Pharmacy management is also aggressive — if an opioid is prescribed it is for a finite period of time and constantly reviewed to ensure that it is still required and that addiction or misuse is not developing. Consequently, the slippery slope to long-term addiction and disability is avoided.
  4. When cases are complex and the injury is serious, all the treatment components that the patient may need are linked together and available when needed. The adjuster no longer wastes time trying to find specialists who are not in the network and who understand workers' compensation objectives, waiting for equipment that doesn't show up or work, or finding experienced clinicians who can coordinate care for challenges, ranging from infusion medical management to home modifications. The injured worker is managed for the duration of the injury, ensuring that their health is protected and that costs do not creep up through benign neglect or lack of oversight.

The best-in-class clinical team does far more than just deliver services — it takes on the role of care coordinator for the entire case: working with the hospital team before the injured workers is discharged to put in place a continuous care plan, ensuring that the right equipment is actually ordered and working and that it's there when needed and removed when it's no longer useful, and keeping continuous oversight of complex and long-term claims years after the injury so that these long-tail claims stay on track.

Interconnectivity between the physician, the specialty providers, and ancillary services like equipment, transportation, and translation keeps the team informed and linked so that reporting, communication and referrals are seamless, smooth and timely. For example, if a patient needs a knee brace to return to work that can only be fitted in the doctor's office, the transportation to the physician's office is arranged through the home care provider and the correct brace is waiting in the doctor's office when he arrives.

Enterprise-Wide Deployment Delivers Highest Value
The greatest value of the integrated medical model will be in its applications throughout a claims management enterprise when:

  • High performing physicians drive each case.
  • Best-in-class specialists are immediately available at the onset of each case, and with every development in the injured worker's condition.
  • Aggressive and appropriate care moves the injured worker toward recovery, avoiding pitfalls such as prescription drug dependence, long-term disability, and unnecessary treatments and costs that result in no improvement.
  • Providers are linked and connected with technology to know exactly what the injured worker needs and to make sure that all connections are met and made.

When this scenario is multiplied for every claimant that a payer has, the results in improved outcomes, reduced overall costs, and improved efficiencies are truly transformational. The integrated care management model in workers' compensation will be a game-changing phenomenon that will exponentially improve results throughout the entire system.