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Good Answer (Maybe) on Opioids in California

The California Workers’ Compensation Institute (CWCI) has added its voice to the growing national consensus that greater controls are needed over the use of Schedule II medications in workers’ compensation medical treatment and disability management. But the CWCI research must be analyzed in a broader context.

First, we continue to view the abuse of these medications in a “going forward” context – we focus on, how can we stop over-prescribing these medications on claims from the effective date of such reforms? Second, we inevitably take these recommendations out of the context of the state being analyzed — can we say that the Texas closed formulary will work in any state whose system otherwise doesn’t bear any resemblance to the Texas system?

One body of work and thought proclaims the overuse of Schedule II medications to treat industrial injuries is “bad medicine” and should be stopped as soon as possible. Guidelines from Ohio, Texas and Washington, however, recognize the need for prescriptions to relieve acute and chronic pain and provide detailed guidance on moving from acute to chronic pain management. Encompassed within that guidance is recognizing when weaning from these medications, or other early interventions, is appropriate and how to taper dosages to maximize clinical effectiveness and minimize adverse consequences to injured workers.

Many of these concepts are embodied in proposed guidelines from the California Division of Workers’ Compensation (DWC) and the Medical Board of California (MBC). It is encouraging that on Sept. 29 of this year the DWC presented its work to the MBC’s Prescription Task Force at a public hearing and that both agencies are moving forward with compatible guidelines. As seen in other states, notably Washington, inter-agency cooperation is critical so as not to create conflicts between the regulatory agencies that oversee benefit delivery systems and licensing agencies that oversee providers.

To take advantage of the potential cost savings in California’s complex workers’ compensation system identified by CWCI and the Workers Compensation Research Institute (WCRI), however, more needs to be done than adopting a closed formulary. That aspect of the Texas system requires prior authorization before prescribing an “N” drug, which includes Schedule II pain medications. After all, the California system already has: (1) claims administrators’ authority to direct medical care though the medical provider networks (MPNs); (2) the ability to adopt formularies through the MPN; (3) utilization review; (4) a medical treatment utilization schedule (MTUS) that sets forth presumptively correct guidelines for treatment, and; (5) post-Senate Bill 863 (DeLeón), independent medical review (IMR) for resolution of treatment disputes.

We are continuing to have the discussion  regarding Schedule II medications because over the past decade the controls that have been put in place to manage the care and cost of medical treatment more efficaciously and efficiently have not produced the desired results. Some of this can be attributed to the pre-SB 863 environment where the MTUS was regularly subverted through the med-legal process. Claims where high level of opioids and other medications were approved for continuing treatment are still in the system and are now subject to IMR. While the adoption of IMR may be viewed as beneficial from a payment standpoint, it is not automatically beneficial in terms of patient care. As the actions of other states have shown, for those who have become addicted or incapacitated because of their overuse of these medications – at the direction of their treating physician – necessary care means more than saying you shouldn’t have had these, or as much of these, so we’re cutting you off.

Also, more needs to be understood about the universe of claims that will be most immediately affected by a closed formulary – long-term, open claims and claims where compensability has been denied, whether completely or whether there is a dispute over a consequence of an accepted claim. As the DWC moves forward with its new Guideline for the Use of Opioids to Treat Work-Related Injuries, there needs to be more specific treatment of legacy claims or any claim where the liability of the employer is in dispute. The MBC’s Pain Management Guidelines, currently under revision, are applicable to all practitioners regardless of the nature of the injury or illness or the mechanism by which a provider is compensated. The DWC would do well to incorporate that work product into the MTUS as a reminder to all providers that, even if the claim is not accepted, it is not “off the grid,” and the MBC requirements still apply.

Finally, the claims administration community needs to take a long hard look at how we review these cases. There is a universe of claims where Schedule II medications are being approved that would not seem to be supported by best medical evidence. Payers are an integral part of the close monitoring of claims where pain management is indicated and determining when it is appropriate to start tapering use of opioids with a goal of returning the injured worker to employment. As noted by the MBC in its draft revised Pain Management Guidelines, when referring to workers’ compensation:

“The use of opioids in this population can be problematic. Some evidence suggests that early treatment with opioids may actually delay recovery and a return to work. Conflicts of motivation may also exist in patients on workers’ compensation, such as when a person may not want to return to an unsatisfying, difficult or hazardous job. Clinicians are advised to apply the same careful methods of assessment, creation of treatment plans and monitoring used for other pain patients but with added consideration of the psycho-social dynamics inherent in the workers’ compensation system. Injured workers should be afforded the full range of treatment options that are appropriate for the given condition causing the disability and impairment.”

As payers, we have the ultimate leverage to make certain treatment of injured workers meets this standard. But if we simply want to find a quicker, better way to say “no” when a request for authorization is faxed in, then a closed formulary will only be yet another attempt at lowering medical treatment costs that failed to meet expectations.

Paging Dr. Evil: The War Over Opioids

Over the past several years, the epidemic of prescription drug abuse under the guise of “pain management” has generated headlines all across the country. The improper use of Schedule II medications in the workers’ compensation system is a part of this public health crisis. Publications by the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute (CWCI) and the National Council on Compensation Insurance (NCCI) have underscored not only the costs of such abuse but the tragic consequences to those who, through no fault of their own, have been consigned to a life of addiction and disability. Those tragedies are unnecessary and avoidable.

When it comes to workers’ compensation, the payer community has been at war with the provider community for generations. In some respects, the debate can be reduced to a clash of two business models  — the claims payer wants to reduce workers’ compensation costs while providing mandated medical care, while the care provider must build a business model around a dazzling array of payment (and paperwork) systems to maintain profitability. It is, in part, the economics of healthcare that so confounds payers and so stymies providers who are honest and ethical but who nevertheless still have to keep their offices open and a roof over their heads.

But consigning the issue of opioid abuse to this paradigm is too easy an exercise.

Equally significant, regrettably, are the problems associated with the insular world of workers’ compensation and how regulatory decisions are made within this highly regulated, if not suffocating, environment.

Some states get the process right. Oregon and Washington have transparent and inclusive processes to engage claims payers, worker representatives, providers and regulators on important issues of occupational medicine. The Oregon Medical Advisory Committee has as its charge: “…to advise the director, with a diversity of perspectives, on matters relating to the provision of medical care to injured workers. The ‘director’ is the director of the Department of Consumer and Business Services or the administrator of the Workers’ Compensation Division (WCD).” That’s a lot larger charge than adopting treatment guidelines in a rule-making process.

In Ohio, Gov. Kasich’s Opiate Action Team developed prescribing guidelines in a process that involved all key public and private stakeholders: “The clinical guidelines are intended to supplement — not replace — the prescriber’s clinical judgment. They have been endorsed by numerous organizations, including: Ohio State Medical Association, Ohio Osteopathic Association, Ohio Academy of Family Physicians, Ohio Chapter of the American College of Emergency Physicians, Ohio Pharmacists Association, State Medical Board of Ohio, Ohio Board of Nursing, Ohio State Dental Board, Ohio State Board of Pharmacy, Ohio Hospital Association, Ohio Association of Health Plans and the Ohio Bureau of Workers’ Compensation.” Like Washington, Ohio maintains a monopolistic state fund to provide workers’ compensation benefits. Ohio’s Bureau of Workers’ Compensation uses the same guidelines as every other provider of medical services.

And, of course, there is the large body of work being done by the Agency Medical Directors Group in Washington. That entity coordinates medical treatment among all state agencies providing medical care, including their state-run workers’ compensation program at the Department of Labor and Industries. Professional licensing boards and medical associations are also an integral part of that process.

Why aren’t these collaborative initiatives the template for further prescription drug reforms in states like Arizona or California? The much-lauded Texas closed formulary wasn’t created in a vacuum, and policymakers in that state recognized that open (“legacy”) claims required special treatment. As reported in TexasMedicine, the publication of the Texas Medical Association, “The regulations require physicians and carriers to formally discuss the pharmacological management of these patients. Ideally, the two parties would agree before Sept. 1 (2013) on how to proceed. That agreement could include a weaning schedule, a plan to continue the patient on the N drug or other alternatives.” California didn’t do that when making the transition from a judicial medical dispute resolution process to independent medical review, and Arizona has on the table a review/dispute process that will be equally jarring for open claims

It would be remarkably naïve to suggest that a more transparent approach to the development and application of treatment guidelines and having processes in place that encourage a peer-to-peer dialogue between requesting and reviewing physicians would result in an immediate drop in prescription drug abuse. But it would also be remarkably cynical to proclaim that the approach won’t have an effect.

The current workers’ compensation monologues over Schedule II drugs needs to be replaced with a dialogue that has as its goal not only the delivery of appropriate care to those who will be injured at work in the future but that also addresses the sad legacy of the abuses of past decades and offers help to those who so desperately need it now.

Florida Work Comp Comes Full Circle

The recent Florida 11th Judicial Circuit Court decision in Florida Workers Advocates v. State of Florida, No. 11-13661-CA25 (2014) written by Circuit Court Judge Jorge Cueto, represents, in essence, a constitutional challenge to workers’ compensation that has come full circle. While during the early part of the 20th century there were a host of challenges to state workers’ compensation systems by employers, it has taken almost a century for workers to raise their own constitutional claims.

The interest in this case that has been triggered across the country should be tempered by the fact that this is a trial court level opinion and that the Florida Supreme Court already has a constitutional challenge to the workers’ compensation system on its docket. This latest case, undoubtedly, will be added to the appellate mix. (See: Westphal v. City of St. Petersburg, Case No. 1D12-3563)

As part of the reform process, stakeholders in every state workers’ compensation system have to come to grips with issues that require revisiting the original bargain. The inciting incident is inevitably the high cost to employers and the perceived abuses in the system by lawyers, medical providers and others. Seldom is the issue whether injured workers are being paid too much per se in terms of impairment or temporary or permanent indemnity benefits.

The challenge to the courts, whether in Florida or anywhere else, is to not sit in judgment over what is fundamentally a legislative decision. As stated by the California Court of Appeal more than a decade ago, “…policy concerns, expressed in a parade of horribles—delay or denial of benefits, delay in employees’ return to work, litigation explosion, increased claims costs, increased strain on government benefit programs, defense solicitation of ‘bought’ medical opinions—are better addressed to the legislature.” Lockheed Martin Corp. v. Workers’ Comp. Appeals Bd. (2002) 96 Cal.App.4th 1237, 1249, 117 Cal.Rptr.2d 865. When the legislature enacts changes to the workers’ compensation system, it is not up to the courts to overturn such actions based on whether they comport with the courts’ version of what a good workers’ compensation system ought to be. As the California Court of Appeals also stated:

“The judiciary, in reviewing statutes enacted by the legislature, may not undertake to evaluate the wisdom of the policies embodied in such legislation; absent a constitutional prohibition, the choice among competing policy considerations in enacting laws is a legislative function.” Bautista v. State of California (2011)201 Cal.App.4th 716, 733.

Even though Judge Cueto cited New York Central R. Co. v. White 243 U.S. 188 (1917), a decision arising from when New York’s system came under immediate scrutiny almost a century ago, to support his finding that exclusive remedy was now unconstitutional, the U.S. Supreme Court in that case also found:

“If the employee is no longer able to recover as much as before in case of being injured through the employer’s negligence, he is entitled to moderate compensation in all cases of injury, and has a certain and speedy remedy without the difficulty and expense of establishing negligence or proving the amount of the damages. Instead of assuming the entire consequences of all ordinary risks of the occupation, he assumes the consequences, in excess of the scheduled compensation, of risks ordinary and extraordinary. On the other hand, if the employer is left without defense respecting the question of fault, he at the same time is assured that the recovery is limited, and that it goes directly to the relief of the designated beneficiary.”  White 243 U.S. at 201 (1917)

The Court in White set out the boundaries for any constitutional analysis of a state workers’ compensation system when it said, in dicta, “This, of course, is not to say that any scale of compensation, however insignificant on the one hand or onerous on the other, would be supportable.”

That language underscores the wide range of actions a state legislature may take when creating and changing benefits in a workers’ compensation system and how best they are to be delivered. Such discretion – and deference – is at the heart of the concept of separation of powers.

Judge Cueto held that the Florida legislature has crossed this constitutional Rubicon. It will be up to the Florida Supreme Court, ultimately, to decide on which side of the bank its workers’ compensation is now docked.

ERM: If You See the Iceberg, It’s Too Late

Let’s imagine a meeting of the risk committee of the International Mercantile Marine Co. a bit more than a century ago.

The meeting was called to order. Mr. Morgan addressed the representatives of its companies: Mr. Clement Griscom of the American Line and Red Star Line (International Navigation), Mr. Bernard Baker of the Atlantic Transport Line, Mr. J. Bruce Ismay of the White Star Line and Mr. John Ellerman of the Leyland Line. The topic was the business of the trust, including opportunities for growth and boosting investor confidence.

Mr. Morgan noted with approval that IMMC had met the competitive challenge from Cunard by launching the Olympic. He said he expected that the builder, Harlan & Wolff, would deliver an even more prodigious conqueror of the sea, with Titanic.  He asked Mr. Ismay if plans were proceeding as scheduled for the second jewel of the White Star crown.

Mr. Ismay replied that there had been a problem securing sufficient high-quality iron ore for the rivets fore and aft on the hull. Mr. Ismay added that Harlan & Wolff had decided that, to control costs, it would use iron rivets, rather than steel, to secure the hull fore and aft. Steel rivets would still be used amidships.

Mr. Morgan cleared his throat.  He said he found it somewhat annoying that Mr. Ismay’s shipbuilder’s plans to lower quality to preserve its profits would, given the cost-plus nature of the contract, cut into IMMC’s own profits. Mr. Morgan also said that Lord Pirrie, the chairman of Harland & Wolff, had cabled him expressing concern about labor shortages and whether the suppliers of the iron rivets were up to the task.

Mr. Ismay assured Mr. Morgan that the success of the Olympic vindicated Harland & Wolff’s approach and that it was typical in projects such as these that there would be labor and materiel shortages that must be resolved by using smaller firms to fill the gaps. He was certain that these suppliers would be up to Harland & Wolff’s standards. Every specification for Titanic meets maritime regulatory requirements, he said, and White Star will deliver handsome profits to IMMC.  He expressed his disappointment that Lord Pirrie raised his concerns to Mr. Morgan directly. That was not how a gentleman, let alone a peer, should conduct business.

Mr. Morgan said he was also told that Harland & Wolff expressed concerns that not enough lifeboats are planned to be available in the event that the unthinkable were to occur. While the prime objective is to bring value to investors, Mr. Morgan said, IMMC must be prepared in the event that a serious loss, no matter how unthinkable, may occur. Insurance can cover the loss of property, but no policy can indemnify against a loss of reputation.

Mr. Ismay reiterated that the number of lifeboats met regulatory standards and reaffirmed White Star’s compliance with the rules governing international shipping. Mr. Ismay also noted with pleasure that, while the announcement had yet to be made, legendary White Star Capt. Edward Smith would be pilotin Titanic on her maiden voyage.

There was a deathly silence in the room. The other company officers looked away awkwardly.

Mr. Morgan stared at Mr. Ismay and asked, almost under his breath, whether this was the same Capt. Smith whose piloting of the Olympic caused the collision with the HMS Hawke? The same Capt. Smith who caused Olympic to be laid up in Belfast and delay completion of Titanic? The Capt. Smith whom the Royal Navy found to be at fault for that collision; that Capt. Smith?

Mr. Ismay replied that using the “Millionaires’ Captain” was necessary to make sure that the elite sailed to New York on Titanic. The ship has an excellent crew and experienced officers and is well-nigh unsinkable, so nothing will happen to her, Mr. Ismay told the group.  He assured all those in the room that the British had a rich tradition of honor and seafaring and that nothing would dim the success of the White Star Line and its crossings from Southampton to New York. Titanic and Capt. Smith would exceed their expectation for return on investment.

After a brief pause, Mr. Morgan stated that he hoped that the IMMC would not prove to be his one business failure. With that, he looked to the other operating subsidiaries and asked for their reports.


Obviously, this meeting never occurred, but it illustrates many problems that do occur with enterprise risk management (ERM).

In our hypothetical meeting, the overall objective of investor return was articulated, but there was no enterprise-wide view of risk and no mechanism by which to measure whether IMMC’s risk tolerances were defined, let alone exceeded. Each subsidiary was a silo even though each subsidiary, and the White Star Line in particular, could put the entire enterprise at risk. From the management of the finances to the assessment of the qualities and capabilities of spot labor and materials, the only “risk” identified was not finishing the project (Titanic) as close to deadline as possible.

Had IMMC not been so leveraged in Mr. Morgan’s efforts to create a transatlantic trust to dominate the shipping trade, perhaps an enterprise view of risk could have been articulated that would have allowed for sufficient controls and incentives on identifying and reporting risk, and Titanic would have sailed the Atlantic successfully for decades.

But that was not to be. Virtually everything that could go wrong did go wrong. J.P. Morgan considered IMMC to be one of his few failures and was, indeed, a colossal one.

Morgan died in 1913, and IMMC sought bankruptcy in 1915. The company continued on until the last vestige of IMMC, the United States Lines, went bankrupt in 1986.  The White Star Line merged with Cunard in 1934, and in 1950 Cunard bought the last remaining shares of White Star Line, ending that marque forever. Harland & Wolff continues to build ships in Belfast.

Workers’ Comp: How We Got Here

The workers’ compensation insurance marketplace in California may at times seem like the Wild West. From the employer standpoint, it involves a dazzling array of choices and options. It is driven by a value proposition that can perilously tilt to price rather than long-term service and protection.

For insurers, it all begins at the Department of Insurance, with what is called the pure premium (claims cost benchmark). As can be expected in this complex system, the pure premium rate-setting process can appear to be as chaotic as any other aspect of this system. There is, however, a method to this madness.

Well before federal antitrust laws came into effect, the U.S. Supreme Court determined that insurance was not a part of interstate commerce. Thus, when antitrust laws were enacted, they did not apply to insurance. Insurers were free to share their market data with each other without fear of government prosecution.

That all changed in the 1940s when the Supreme Court changed its position and determined that insurance was now part of interstate commerce. Overnight, much of what the industry was doing in terms of sharing data and making rates was illegal.

Congress stepped in, and by the early 1950s what we now know as the Workers’ Compensation Insurance Rating Bureau (WCIRB) was licensed by the California Department of Insurance and was doing its business under “active state supervision” – which, under the law, allowed insurers to continue to share information.

During most of the history of California workers’ compensation insurance, fully developed rates (losses, loss adjustment expenses, and general expenses) were set by the WCIRB and approved by the commissioner. No insurer could charge a lower rate (with some exceptions), leading to the name “minimum rate law.” No multi-line or interstate combinations of experience were allowed. In other words, workers’ compensation insurance rates had to be standalone adequate.

By 1993, employers were experiencing the pain of high insurance costs and a dysfunctional system. Major reforms were enacted, including the repeal of the minimum rate law. Effective Jan. 1, 1995, a new “competitive” rate law was adopted. The WCIRB was to develop an advisory “pure premium” – losses and loss adjustment expenses only – and insurers did not have to use it. Insurers had to file their own rates and rating plans and load their own expenses. And multi-state, multi-line experience was now allowed when determining whether premiums were adequate.

Within about five years, the wheels had pretty much come off the insurance marketplace in California. There were insolvencies and impairments; capital was leaving the state; and there was an undeniable crisis that affected the system well beyond the borders of the Golden State. The causes were many and varied, and while the legislature made some changes to the rate law, its primary focus in 2003, 2004 and most recently in 2012 was to rein in the costs of the system and try to bring some stability to the marketplace.

But the pure premium rate-setting process has pretty much stayed the same since its enactment more than 20 years ago.

The WCIRB does more, much more, than collect the data necessary to develop pure premiums. It develops and administers the statistical plan for data reporting, the uniform classification system and the uniform experience rating plan, for example. Each of these requires the approval of the commissioner, and each is a regulation of the Department of Insurance. As such, they fall under the procedures of the Administrative Procedures Act (APA).

For many years, this APA notice and hearing process was used for both the regulatory and rate-setting filings of the WCIRB.

Since 2013, however, the two processes have been split up. There’s a good reason for this. The first is that the APA, housed in the Government Code, doesn’t apply to rate-making proceedings. It is the Insurance Code that requires a hearing on pure premiums but also requires that the commissioner issue an order within 30 days of the hearing. The fact is that the department and the WCIRB work very closely together throughout the year, and the intended procedure for the adoption of the pure premium rates acknowledges this. The regulations that fall under the procedural requirements of the Government Code (APA) are not as time-sensitive as the adoption of the pure premium – the latter requiring some sense of certainty not just before Jan. (or July) 1, but with sufficient time to make rate filings and, if necessary, send out notices of nonrenewal depending on the size of the rate increase. The new process developed by the department allows for that.

The WCIRB makes available copious amounts of data regarding the performance of the system. These can be found on the bureau’s website: www.wcirb.org. Everyone who is affected by the system would benefit by spending some time looking at these and understanding why we are where we are today, and the still very long journey to get to where we ought to be.