Tag Archives: welfare

The Destructive Search for an Elixir of Life

For 3,500 or more years, mankind has been searching for the mythological elixir of life, the Fountain of Youth, the philosopher’s stone, pool of nectar, etc. that will defeat aging and extend life, if not achieve immortality.

According to Wiki, “The elixir of life, also known as the elixir of immortality and sometimes equated with the philosopher’s stone, is a mythical potion that, when drunk from a certain cup at a certain time, supposedly grants the drinker eternal life and/or eternal youth.”

All around the globe from 400 BC on, alchemists from India to China to Europe were seeking the elixir of life. Many thought gold was an essential ingredient.

The Fountain of Youth, also known as the water of life, was part of the search for the elixir of life. That search was in full throttle during the crusades and was carried to the New World by Spanish explorers, the most famous of whom was Ponce de Leon in the 1500s. Even the Mayans had legends about waters of eternal youth.

The search for the elixir of life didn’t end there.

In the 19th century in the U.S., many believed that bathing in special springs had healing powers. During that era, people flocked to eureka springs, hot springs, healing springs and many, many more. So-called healing spas are still very popular today.

“Snake oil” salesmen were peddling various cure-alls into the 20th century. A search on the Internet will reveal a large number of “promising” balms and salves, some of which actually worked for minor scrapes and burns.

If you’re over 60 or so, you may recall Carter’s Little Liver Pills. They were advertised to treat biliousness and other ailments. The FTC made the company drop the word “liver” from the name. Carter’s Little Pills are still sold, but as a laxative.

If you watched the Lawrence Welk show, you saw ads for Serutan, which is “natures” spelled backward. It’s a “vegetable hydrogel.”

Today, the search for an elixir of life, by various names, is still in high gear, and salesmen abound.

People still pursue the same goal of longer and healthier lives through a mix of vitamins, supplements, wellness, incentives, education, exams, tests, etc. that will push the time of their death out a few years.

But, alas, the human body and its organs simply wear out over time. No insurance plan, wellness plan, patient education program or prevention combination can defeat the inevitable. As we age, our bodies just wear out. For example, the reason brain aneurysms and strokes occur in the elderly is that blood vessels get thinner and more fragile with age. The same applies to other vascular diseases. Joint diseases are common as we age. Why? Joints just wear out over time. Dementia is usually related to aging. The list goes on and on.

According to NIH data, all cancer rates begin to skyrocket at about age 65. That is partially the effect of age-related diminishing immune systems. Our immune systems wear out as we age.

Companies are paying huge dollars to elixir of life promoters today, when all the facts show the elixirs just doesn’t work as advertised. Such companies’ intentions are good, even noble, but doomed to fail. Lesson: Whatever you seek, someone will find a way to sell it to you.

We are all going to have a mortal illness someday unless we die sooner from something like an auto accident. My grandfather died at age 99. Every organ in his body was failing. His kidneys were failing, as were his vascular system, his brain and his liver. Why? He simply outlived his body. I’ve known a number of good people who died a miserable death after years in nursing homes. I wouldn’t wish that on my worst enemy.

Another factor driving up costs in the U.S. has been the creation of the emergency phone number system — dialing 911 and having a life-saving trained team show up at your door in a few minutes. The 911 system saves live, no doubt, but there have been unintended health cost consequences.

If one survives a heart attack, the average cost is about $250,000. Because of the 911 phone system, some 80-year-olds are surviving three heart attacks in nine months just to die from the fourth one, adding $750,000 of cost to their last 12 months. Now, healthcare providers are even putting ventricular assist devices in people like that to keep them alive for one more day. The cost for that procedure alone is $900,000.

I’m not making a comment on the morality of deferring an elderly person’s death for nine months at a cost of $750,000 to $2 million. But we need to have an adult conversation in America about how we are going to pay for all this. By any measurement, Medicare and Social Security are both totally unsustainable unless huge changes are made that will affect everyone. Beware of proposed changes that promote intergenerational rivalries.

This chart shows death rates by age). When people hit about age 50, the death and sickness rates begin to skyrocket.

This chart shows leading causes of death. See the strong correlation to aging and heart disease. People are simply outliving their hearts and blood vessels. In 1900, people rarely died of heart disease because they didn’t live long enough to develop chronic conditions. Most of the chronic diseases we worry about are simply a consequence of aging. They are irreversible. As with the Hydra of Greek mythology, if you defeat one chronic condition, three others will pop up.

The third chart shows health spending by age; again, disease correlates to aging. That will always be the case until someone comes up with a way to prevent aging or finds an “elixir of life.” That chart also illustrates the massive, wasteful spending on end-of-life care in the U.S. compared with peer countries.

People born in the U.S. today can expect to die along a bell curve centering on age 80. If we all do everything we can possibly do to be healthier for all of our lives, there will be slightly fewer deaths around ages 78 or 79. (A great source of information on this topic is Nortin Hadler’s The Last Well Person: How to Stay Well Despite the Health-Care System.)

In any case, if you are able to add a year to your life it will, obviously, be added to the end. For most people, that will mean another year in a nursing home, in assisted living or as an invalid at home. (For a Washington Post article on just how nasty nursing homes can be, click here. Again, I would not wish that on my worst enemy.) People sometimes tell me about someone who was more or less healthy and independent at age 90. For every person like that there are a hundred in nursing homes or dementia units.

Most people retiring today don’t have enough in savings to support themselves for more than a few years, let alone enough to pay for assisted living or nursing homes when they are elderly and frail. Medicaid nursing home budgets are likewise unsustainable. Don’t count on that. For many people, living a year or two longer will simply mean being a burden to your children for another year or two, both financially and emotionally.

What about your children’s lives? Do you really want them to have to look after you well into their 60s? At that age, they should be concentrating on their own welfare.

As people age into their 80s and 90s, many become demanding in an irrational way. Some people aged 55 and up are relieved when their elderly parents pass away, but often with feelings of guilt. Most people have witnessed this in their own families.

Someday, researchers may discover a way to delay the effects of aging. Personally, I believe such is the province of science fiction. If aging is ever reversed, God help us. That would be very destructive to mankind.

Imagine our world populated by a billion or more centenarians. Imagine a nation with an average age of 65. Imagine yourself at age 90 with a 120-year-old parent or two. Who will look after whom? Will 70-year-old children or their 45-year-old children be able to look after and support such parents, grandparents and great-grandparents? The news from Asia is that many young people are no longer willing to support their centenarian parents or grandparents today, let alone great-grandparents.

What should we all do then? Simple. Spend less time wringing your hands over which illness will get you in the end; rather, make the most of the time you have. Worry will never add a day to your life.

The Romans had a blessing: May you live well and die suddenly.

66 Red Flags in Work Comp Claims

This article started as another “Top Ten” list, but I quickly realized that, when looking for potential fraud or compensability issues in a workers’ compensation claim, there are many more than 10 red flags – I came up with 66. You can probably think of more. Please add them in the comments.

The following is a loosely organized list of red flags signaling potential fraud or abuse by a workers’ compensation claimant. Keep in mind that even if the claim has all of these red flags, this does not necessarily mean the claimant is committing fraud or that you have grounds to deny compensability of a claim. However, the presence of some of these red flags should cause you to investigate further. Also note that I am using the term “fraud” broadly to include general wrongdoing on the part of the claimant and not specifically referring to a legal cause of action.

Here we go:

  1. Late reporting – If an employee is really injured on the job, it is unlikely the employee will wait days or weeks to report the injury.
  2. The details of the accident are sketchy.
  3. The employee has difficulty recalling what happened.
  4. The employee changes the description of the accident when inconsistencies are pointed out.
  5. The nature of the injury is not consistent with the nature of the work done by the employee.
  6. The date, time or location of the accident is unknown or forgotten.
  7. The details of the accident are inconsistent with the employee job duties.
  8. The accident occurs in an area where the injured employee would not normally be.
  9. Fellow workers hear rumors circulating that the accident was not legitimate.
  10. The employee gives completely different versions of the accident to the employer, the adjuster and the doctor.
  11. The employee keeps modifying the story of what happened.
  12. The employee leaves out pertinent information.
  13. The details of the accident vary from medical report to medical report.
  14. There are no witnesses to the accident, and the employee normally works around other people.
  15. There are witnesses, but their version of the accident differs from the employee’s.
  16. The nature of the injury is unusual for the employee’s line of work.
  17. The employee’s co-workers express doubt that the accident occurred.
  18. The employee is disgruntled about some aspect of his job.
  19. The employee was demoted or passed over for a promotion.
  20. The employee is on the list to be laid off.
  21. The employee is on “positive improvement needed” status and is about to be terminated.
  22. The employee has had numerous prior employers.
  23. The “accident” occurs immediately before a strike, plant closing or the end of seasonal employment.
  24. The employee is a new hire.
  25. The accident occurs near the end of probationary period.
  26. The claimant is a seasonal worker.
  27. The employee has an early Monday morning accident before the supervisor or other employees see him on the job (meaning the accident might have occurred off the job over the weekend).
  28. The injured employee is not at home during the normal workday.
  29. The employee is always sleeping when the adjuster calls or cannot be disturbed.
  30. The employee’s family member is vague or noncommittal about when you can reach the employee.
  31. The employee uses the address of friends or family members and has no definite address or uses a Post Office box as an address.
  32. The employee’s spouse is not working and is drawing workers’ comp indemnity benefits, Social Security disability payments, welfare or unemployment insurance, and the employee wants the same lifestyle.
  33. The employee inquires about a settlement early in the claim process.
  34. The employee was having financial problems.
  35. The employee is nearing retirement age.
  36. The employee files for benefits in a state other than where the accident occurred.
  37. The employee fails to report other work income while drawing indemnity benefits.
  38. The employee took excessive time off just before the injury.
  39. The employee is in the middle of a divorce or other family disturbance.
  40. The Social Security number used by the employee belongs to someone else.
  41. The employee applies for Social Security benefits before the injury occurs.
  42. Income from workers’ comp, disability or other sources exceeds the employees prior after-tax income.
  43. The employee protests about returning to work and never seems to improve.
  44. All the injuries are subjective – pain without trauma, soft-tissue, emotional.
  45. The employee changes doctors frequently (“doctor shopping”) or changes doctors when released to return to work.
  46. The employee has excessive treatment for soft-tissue injuries.
  47. The medical treatment reported by the employee is different from the medical care stated in the medical reports.
  48. The nature of the medical treatment changes from one body part to another after the employee has been treating for a while.
  49. The employee misses medical appointments.
  50. The employee fails to show up for an independent medical examination.
  51. The employee refuses or delays diagnostic testing.
  52. There are whiteouts, corrections or erasures on medical forms submitted by the employee.
  53. Pain is exaggerated.
  54. Invalid or inconsistent effort is reported on the functional capacity evaluation.
  55. The employee has a history of multiple workers’ comp claims or reporting subjective claims of injury.
  56. The injury relates to a preexisting medical condition or health problem.
  57. The length of recovery is excessive for the nature of the injury.
  58. The employee who has been off work for a while has calluses on hands or grime under the fingernails.
  59. The medical reports reflect “muscular,” “tanned” or other adjectives that reflect that the employee is in good health.
  60. The employee is unable to work because of the injury but is seen painting her house, mowing the lawn, carrying heavy objects, etc.
  61. The employee has a high-risk hobby or does other activities involving considerable physical exertion.
  62. Surveillance reflects physical activity greater than what is reflected in the medical reports.
  63. The employee is unusually pushy to settle the workers’ comp claim.
  64. The employee has extensive medical knowledge but no training in the medical field, or uses extensive insurance terminology but has no work experience in the insurance field.
  65. The employee is a part of a group of employees using the same doctor and the same attorney for their workers’ comp injuries.
  66. The attorney’s letter of representation is the same day of the injury or even dated before the “injury.”

Please share your experiences in the comments!

Disclaimer: The information in this article does not constitute legal advice, nor is it intended to create an attorney-client relationship. Every situation is unique, and I encourage you to seek legal advice from a licensed attorney for your particular situation.

Obesity as Disease: A Profound Change

The obesity rate in the U.S. has doubled in the past 15 years. More than 50% of the population is overweight, with a BMI (body mass index) between 25 and 30, and 30% have a BMI greater than 30 and are considered obese. Less than 20% of the population is at a healthy weight, with a BMI less than 25.

On June 16, 2013, the American Medical Association voted to declare obesity a disease rather than a comorbidity factor, a decision that will affect 78 million adults. The U.S. Department of Health and Human Services said the costs to U.S. businesses related to obesity exceed $13 billion each year. With the pending implementation of ICD (International Classification of Diseases) 10 codes, the reclassification of obesity is is fast becoming a reality and will dramatically affect workers’ compensation and cases related to the American Disability Act and amendments.

Before the AMA’s obesity reclassification, ICD-9 code 278 related to obesity-related medical complications rather than to obesity. The new ICD-10 coding system now identifies obesity as a disease, which needs to be addressed medically. Obesity can now become a secondary claim, and injured workers will be considered obese if they gain weight because of medications, cannot maintain a level of fitness because of a work-related injury or if their BMI exceeds 30. The conditions are all now considered work-related and must be treated as such.

The problem of obesity for employers is not confined to workers’ compensation. The Americans with Disability Act Amendment of 2008 allows for a broader scope of protection for disabilities. The classification of obesity as a disease now places an injured worker in a protected class pursuant to the ADA amendment. In fact, litigation in this area has already started. A federal district court ruled in April 2014 that obesity itself may be a disability and will be allowed to move forward under the ADA (Joseph Whittaker v. America’s Car-Mart, Eastern District of Missouri).

Obesity as an impairment

Severe obesity is a physical impairment. A sales manager of a used car dealership was terminated for requesting accommodation and won $128,000. He was considered disabled, and the essential function of the job was walking, so he was terminated without reasonable accommodation.

The judge ruled that obesity is an accepted disability and allowed him to pursue his claim against his employer. This could have substantial impact for employers as injured workers could more easily argue that their obesity is a permanent condition that impedes their ability to return to work, as opposed to a temporary life choice that can be reversed.

The Equal Employment Opportunities Commission (EEOC) has recently chimed in on obesity. According to the EEOC, severe [or morbid] obesity body weight, of more than 100% over the norm, qualifies as impairment under the ADA without proof of an underlying physiological disorder. In the last year, we have seen an increasing number of EEOC-driven obesity-related lawsuits. Federal district courts support the EEOC’s position that an employee does not have to prove an underlying condition, especially in cases where there is evidence that the employer perceived the employee’s obesity as a disability or otherwise expressed prejudice against the employee for being obese.

Workers’ compensation claims are automatically reported to CMS Medicare with a diagnosis. When the new ICD-10 codes take effect, an obesity diagnosis will be included in the claim and will require co-digital payments, future medical care or continued treatment by Medicare.

There is good news on the horizon. Reporting of a claim only happens if there is a change in condition not primarily for obesity. It is recommended that baseline testing for musculoskeletal conditions be conducted at the time of hiring and on the existing workforce. In the event of a work-related injury, if a second test is conducted that reveals no change in condition, it results in no reportable claim and no obesity issue. In the event of ADA issues, the baseline can serve to determine pre-injury condition or the need for accommodations.

What does this mean to employers?

Obesity is now considered a physical impairment that may affect an employees’ ability to perform their jobs and receive special accommodations pursuant to the ADA.

An increasingly unhealthy workforce will pose many challenges for employers in the next few years. Those that can effectively improve the health and well-being of their employee population will have a significant advantage in reducing work comp claim costs, health and welfare benefits and retaining skilled workers.

Recent studies

In a four-year study conducted by Johns Hopkins with an N value of 7,690, 85% of the injured workers studied were classified as obese. In a Duke University study involving 11,728 participants, researchers revealed that employees with a BMI greater than 40 had 11.65 claims per 100 workers, and the average claim costs were $51,010. Employees with a BMI less than 25 had 5.8 claims per 100 workers, with average claim costs of $7,503. This study found that disability costs associated with obesity are seven times higher than for those with a BMI less than 30.

A National Institute of Health study with 42,000 participants found that work-related injuries for employees with a BMI between 25 and 30 had a 15% increase in injuries, and those with a BMI higher than 30 had an increase in work-related injuries of 48%.

The connection between obesity and on the job injuries is clear and extremely costly for employers. Many employers have struggled with justifying the cost of instituting wellness programs just on the basic ROI calculations. They were limiting the potential return on investment solely to the reduction in health insurance costs rather than including the costs on the workers’ comp side of the equation and the potential for lost business opportunities because of injury rates that do not meet customer performance expectations. Another key point is that many wellness programs do not include a focus on treating chronic disease that may cause workers to be more likely to be injured and prolong the recovery period.

Customer-driven safety expectations

There are many potential customers (governments, military, energy, construction) who require that their service providers, contractors and business partners meet specific safety performance requirements as measured by OSHA statistics (recordable incident rates) and National Council on Compensation Insurance (NCCI) rating (experience modifiers) and, in some cases, a full review by 3rd party organizations such as ISNet World.

Working for the best customers often requires that your company’s safety record be in the top 25th percentile to even qualify to bid. To be a world-class company with a world-class safety record requires an integrated approach to accident and injury prevention.

Challenges of an aging workforce

The Bureau of Labor Statistics projects that the labor force will increase by 12.8 million by 2020. The number of workers between ages 16 and 24 will decline 14%, and the number of workers ages 25 to 54 will increase by only 1.9%. The overall share of the labor force for 25- to 54-year-olds will decline from 68% to 65%. The number of workers 55 and older is projected to grow by 28%, or 5.5 times the rate of growth in the overall labor force.

Employers must recognize the challenge that an aging workforce will bring and begin to prepare their workforce for longer careers. A healthy and physically fit 55-year-old worker is more capable and less likely to be injured than a 35-year-old worker who is considered obese.

Treating chronic disease

Employers who want a healthy work force must recognize and treat chronic disease. Many companies have biometric testing programs (health risk assessments) and track healthcare expenditures through their various providers (brokers and insurance carriers).

The results are quite disappointing. On average, only 39% of employees participate in biometric screenings even when they are provided free of charge. For those employees who do participate and who are identified with high biometric risk (blood pressure, glucose, BMI, cholesterol), fewer than 20% treat or even manage these diseases.

This makes these employees much more susceptible to injury and significantly lengthens the disability period. The resulting financial impact on employers can be devastating.

Conclusion

Best-in-class safety results will require a combined approach to reduce injuries and to accommodate new classes of disability such as obesity. It is important that employers focus on improving the health and well-being of their workforce while creating well-developed job descriptions, identifying the essential functions, assessing physical assessments and designing job demands to fall within the declining capabilities of the American workers. It is important for an employer to only accept claims that arise out of the course and scope of employment. This is especially true with the reclassification of obesity as a disease. Baseline testing will play an essential role in separating work-related injuries from pre-existing conditions in this changing environment.

Case for Reinventing Insurance in India

Since independence, all governments of India have committed to gradual rather than revolutionary means for spreading democratic and socialist principles (as attested notably by the preamble to the constitution of India). Independent India averted the revolutions (and most of the debates) that have shaped the role of the state in the western world for some 500 years. In recent history, India never had to face its Thomas Hobbes, Jean-Jacques Rousseau, John Stuart Mill, Georg Wilhelm Friedrich Hegel, Karl Marx, Beatrice and Sidney Webb, Franklin Delano Roosevelt or Margaret Thatcher, John Maynard Keynes or Milton Friedman. India was saved the horrors of the French, American, Russian, Turkish, Cultural (Chinese) or Iranian revolutions (to mention but a few). India was largely spared the two World Wars and most of the “…isms” (fascism, communism, Marxism, capitalism, etc.). For every political fad that swore by TINA (“There Is No Alternative”), India responded with its inimitable TATA (“There Are Thousands of Alternatives”). It had its gradual transition away from non-democratic practices (e.g., abolition of privy purses in 1971 and of debt bondage in 1976) to a welfare democracy. Even the embrace of the “Washington consensus” (a combination of open markets and prudent economic management) under the guidance of Manmohan Singh has not changed the essential nature of the state.

This “Fabian” model meant that the state was committed to provide welfare, not merely security, to the citizens, and that central government was in the main responsible for funding, producing, procuring, allocating and distributing most goods and services. This has been done in large measure through subsidies to public enterprises, producers of inputs, private-sector producers and consumers. The goods and services whose availability and price have been modified through subsidies include food, water, energy, financial services, labor, education, healthcare, fertilizers, information and media. As the public demanded more and more, the state promised more and more, sometimes through milestone measures (e.g., the largest debt waiver and debt relief program for farmers, in 2008) but mainly through quasi-permanent subsidies, which have led to a sizable fiscal deficit (almost 75% of the 2014-15 budget estimate, and 4.1% of GDP). The net cost of these handouts and subsidies is much higher than their nominal value, for three reasons: the interest payable to fund the deficit, the losses because of intermediation (e.g., it has been reported that for every kilogram of subsidized grains delivered to the poor, the government released 2.4 kg from the central pool) and the societal effects of enhanced inequity (an IMF working paper titled “The fiscal and welfare impacts of fuel subsidies in India” argued that the richest 10% of the households benefited from fuel subsidies seven times more than the poorest 10%).

This is why a policy of “less government” could have much scope by divesting ownership of public sector undertakings (PSUs) in manufacturing, services and distribution and reducing subsidies substantially. However, the existing system has created many winners that would presumably be motivated and suitably represented to protect their vested interests by militating for status quo. Additionally, certain social services must be improved considerably (mainly water-sanitation-health, financial protection, food security and education), but acting on those needs would lead to more rather than less government. Similarly, actions to remedy inequitable targeting and inefficient distribution of subsidies could bring “more governance” only if preceded by more government intervention and spending.

So, what is the road to “less government and more governance” that would both engage the many who today enjoy representation without taxation and protect future taxpayers from the financial and societal ramifications of today’s consumption? We submit the answer is in “localism.”

“Localism” means encouraging people to be involved in elaborating and governing local solutions, with only subsidiary support from government. Most of India’s population is rural and in the informal sector. For this vast majority, the world is local, and local is the measure for most things. It is a moot point to argue whether people wish to be in the informal sector (to be excluded from the framework through which the government collects taxes and imposes regulations) or whether they are victims of circumstances (of being de facto excluded from the practical measures through which the government delivers universal rights for all citizens). The essential point is that people belong to local groups through which they access benefits that are not otherwise available as public goods. Therefore, communities reinforce the norms and networks that enable individuals to act collectively, influence decisions of single community members on the economic and social engagements they can/must/must not enter into, who can/cannot do so and on how benefits are distributed. Compliance with consensus flows from members’ reliance on the community’s patterns of reciprocity. As the community reaches most everybody on a continuing basis, it can be mobilized to play a role in “more governance” of local activities and structures.

Experience from rural India and from other countries confirms that underserved rural communities have been able to operate community-based mutual-aid schemes that create welfare and distribute benefits, which are funded by resources of the members. Such collective action of groups, by groups and for group members is a major paradigm shift from the mentality of reliance on government handouts, decisions and entitlements. The change in mindset is from being dependent to being dependable; the change in the financial model is from relying on inflow of charity to relying on pooling of own funds, which are otherwise invisible and inaccessible, to obtain welfare gains. The argument in favor of empowering community-based mutual aid is not merely that it is more opportune, but that it is more legitimate. Recalling the words of Abraham Lincoln (a speech from 1854, quoted in G.S. Boritt, 2004: Lincoln and Democracy): “the objective of government is to do for a community of people whatever they need to have done but cannot do at all or cannot so well do for themselves in their separate and individual capacities.” If now the case is that communities of people can do for themselves what the government cannot so well do for them, is it not then self-explanatory that the government should do all it can to support such action at the local level? Moreover, the argument in favor of encouraging the proliferation of local action is consistent with the democratic system of India, where interest groups are well established.  In his book The Logic of Collective Action: Public Goods and the Theory of Groups (1965), M. Olson pointed out that small local groups can form more easily and function more effectively to advance their interests. Olson also asserted that it is easier for the government to support many small groups than few large ones, and by supporting community-based self-interest the state can also advance its interests more easily and less expensively. If the reason for seeking “less government” is to encourage more self-reliance and hard work and a decrease in dependence on acquired rights and corruption, then does it not follow that government should provide tangible support to encourage voluntary action? The pooling of part of people’s resources for the advancement of community-based welfare gains serves the interest of the members of such groups (who can take charge of rationing and of priority-setting relating to the use of their funds) and also of the government (which could leverage the community-based risk management by limiting its intervention to subsidiary coverage of only rare events).

The development of community-based health insurance in India as a mutual-aid activity, replacing entitlements or debt, is one of the most effective mechanisms for voluntary social change.

Just as after independence India abolished several homegrown systems based on inequality of rights (e.g., chaudhary, deshmukh, jagir, samanta and zamindar) and favored equality through democracy, so asset creation should take primacy over money lending (in all its forms, from village shark to microfinance and to banks), for the same reason. India also abolished bonded labor (which also involves interlinking debt and exploitative labor agreements), even if this practice is not yet dismantled completely, according to the International Labor Organization (ILO). And the infamous phenomenon of farmer suicides is also linked, at least in part, to debt: Farmers are held morally deficient for inability to repay loans, when in fact the reason for that insolvency is crop failure (occasioned by the inherent risks of agriculture: too much or too little rain, too hot or too cold climate, pests etc.). Many other countries developed crop insurance to protect both farmers and farming. In India, agricultural insurance is used mostly to securitize loans rather than farming (farmers must pay the premium when they borrow, but the payout goes to the lending bank).

Disconnecting crop insurance from borrowing and connecting it with “what a responsible adult does” to avert the risks of agriculture can bring about safer agriculture and more governance with less government. This change is best accomplished when embraced by local communities, not merely single individuals. When agriculture is a safer economic activity, more farmers are likely to continue farming (and thus provide food security). When crop insurance becomes an act of mutual aid, something everybody in our village does, it is easier to mobilize the community to also encourage asset creation, and better financial protection. The virtuous cycle of more community-based cooperation fosters multiple positive changes, including improved targeting of government support for financial protection, better advisory to farmers on how to improve their agricultural productivity and thus food security and enhanced equality. These are objectives that have never been achieved by debt/credit extension or debt relief, because such programs missed completely the opportunity to leverage the collective energy that, what the community can do together, none of its members can do alone.

Creation of such local asset pools may start with modest amounts, as many villagers are cash-poor, and will first want to gain trust that the new form of collective action will deliver welfare to many members of the group, not just to a few powerful or privileged persons. However, the accumulation of funds will grow over time, especially if such growth is stimulated by the government. The government can encourage such solidarity-based collective action by passing enabling regulations to recognize mutual and cooperative insurance schemes (as part of the revision of the insurance law). Indonesia has recently changed its insurance law to recognize mutual and cooperative insurance at par with commercial insurance, to facilitate the development of mutual micro-insurance in rural communities. The European experience has shown that today’s large financial institutions originated from exactly such community-based local initiatives. As these were allowed and supported to grow, they served as the basis for universalization of health insurance, agricultural insurance and natural catastrophe insurance. In some countries (e.g. Switzerland, France, the Netherlands, Belgium or South Africa) ,the local schemes have morphed into large private or cooperative insurance companies. The local origin of the activity was essential to ensure that local groups can define their local priorities (which enhance local willingness to pay) and operate their scheme with locally dependable persons (which enhances flow of information, notably through gossip, about the fair and equitable treatment of all members of the scheme).

Government support for community-based asset creation can provide the government with information that it does not have currently but that it needs to enhance governance and the government’s revenue side. The shift from remote governance to local governance relies on local trusted elites, a new kind of elite, different from the capitalist elite and the bureaucratic elite. The local elite needs to be given a good start (by imparting private sector methods for social sector activities, minus the profit-taking), and the government must still provide worst-case protection. But for the rest, government should encourage communities to devote their talents to create public goods, to fend for themselves, to concentrate on assuming responsibility for their own welfare.

This is so much better than the present situation, in which many people entertain huge, unrealistic expectations and contradictory demands from the government based on messages, disseminated for years, that welfare is a right; and when they receive welfare or debt/credit benefits, rather than being grateful, many people feel that their due has reached them too little and too late. Anchoring the support to local asset-building by community-based collective action enhances the notion that we can do more on our own and allows each local group to design and do itself some of the work that hitherto it waited for the government to do. Supporting “localism” means that welfare creation is the legitimate domain of each community, delivered bottom-up rather than entirely top-down, supported by the government rather than the exclusive responsibility of the state to each individual. Localism will enhance governance because communities, governing their own priorities and resources, are very good regulators of their local scheme, because they are responsible for doing, not debating, and their actions are transparent locally. This transition from external to community leadership entails transition to performance-related legitimacy and away from formal title or appointment. It can also be the transition from short-termism (with the next elections as implied statute-of-limitations) to the long-term, recognizing that to achieve universal access to financial services, or to health insurance, or to secured livelihoods, or to relevant agricultural insurance or better sanitation may take decades. Notwithstanding the patience needed to get results, localism can provide the platform for less government and more governance now.

The Paradox on Drugs in Workers’ Comp

Pharmaceuticals remain a large component of both total claims and medical costs in treating workers’ compensation injuries and illnesses. On the plus side, pharmaceuticals lower medical costs by decreasing demand on other health resources, improve health outcomes, including treatment safety, and provide earlier opportunities to return to work. On the negative side, prices can be very high.

States have been trying to address that negative through numerous efforts for many years, yet costs keep climbing. A study finds that a solution exists, if claims administrators become aware at the most granular level about the sources of medications and the prices that suppliers charge.

Background

Pharmaceutical pricing in the U.S. is unregulated. Pharmaceuticals are manufactured through two sources, (1) the originator (i.e. the inventor) of the medication and (2) the generic manufacturer. The originator markets the medication through a brand or trademark name and has sole marketing rights for a period. This period varies from country to country, but the norm is from five to 10 years. On expiration, generic pharmaceutical manufacturers are allowed to produce the medication and introduce price competition into the market. Pharmaceutical Research and Manufacturers of America (PhRMA) reports that generic medications account for 80% of dispensed medications in the U.S.

In an effort to control pharmaceutical pricing in California workers’ compensation, a number of legislative changes were introduced.

2002 – Claims administrators could use pharmacy benefit managers (PBMs) and pharmacy benefit networks (PBNs) to establish contract prices below the maximum price established by the legislature and to scrutinize prescribed medications at the time of dispensing. A reduction in pharmaceutical costs was expected, yet a report prepared by the California Workers’ Compensation Institute (CWCI) in October 2014, titled “Report to the Industry: Are Formularies a Viable Solution for Controlling Prescription Drug Utilization and Cost in California Workers’ Compensation?” showed the average pharmacy cost for the first year of treatment for an indemnity claim increased from $390 in 2002 to $430 in 2003 (an increase of more than 10%).

2004 – The pharmacy formulary (i.e. list of medications) established by California’s Medicaid welfare program, called “Medi-Cal,” was introduced into workers’ compensation. The formulary and price schedule are based on the state’s negotiated price with suppliers. By contrast, most other workers’ compensation jurisdictions use schedules based on the supplier’s average wholesale price (AWP), with a plus or minus percentage adjustment to establish the maximum price (e.g., AWP + 10% or AWP – 5%). Both the Medi-Cal price and the AWP are established before any off-invoice discounts, rebates or other incentives are applied by the pharmaceutical supplier. Price differences between Medi-Cal and the AWP can vary significantly. For example, paying the lowest Medi-Cal price of 4 cents per unit for the generic medication Meloxicam 7.5mg tablet, instead of paying the AWP, provides a saving of as much as 98%. Once again, expectations for a significant reduction in pharmaceutical costs were anticipated, but, according to the CWCI, the cost only dropped from $321 in 2004 to $282 in 2005 (a reduction of 12%), before increasing to $352 in 2006 (an increase of almost 25%).

2005 – In an effort to control total medical costs, claims administrators in California were allowed to establish their own medical provider networks (MPN). The intent of this legislation was to curtail the adversarial relationship between the medical profession and claims administrators and also provide an opportunity for establishing contract rates with physicians, below the mandated maximum prices, for both services rendered and medications dispensed. This time, the expectation was to see a reduction in costs for both medical treatments and medications dispensed by a physician. Instead, the CWCI showed an increase from $282 in 2005 to $352 in 2006 (almost 25%) and then to $412 in 2007 (a further increase of 17%).

2007 – Legislation was enacted to require that the maximum price paid for a supplier’s medication that was not listed in the Medi-Cal formulary be equivalent to similar medications listed in the Medi-Cal formulary; the prior practice was to use the supplier’s AWP to calculate the price.

The Medi-Cal formulary includes a number of suppliers providing the same medication. PBMs, PBNs and physicians dispensing medications also have formularies that may have different suppliers to Medi-Cal, especially where a large number of suppliers are involved. For example, Gabapentin is available from more than 55 suppliers, which may include the originator, the generic manufacturers and companies that repackage others’ medications in various package sizes. Hydrocodone-Acetaminophen is available from at least 45 suppliers in different strengths and package sizes.

Again, the legislation was expected to lead to a significant decrease in costs, because a number of physicians were dispensing medications from suppliers that were not listed in the Medi-Cal formulary. The cost, however, increased by almost 7%, from $412 in 2007 to $440 in 2008. This percentage increase is baffling. The National Council on Compensation Insurance (NCCI), in its September 2013 report titled “Workers’ Compensation Drug Study: 2013 Update,” ranked Meloxicam as the highest physician-dispensed medication by dollars paid. By applying the Medi-Cal price, instead of the AWP, cost savings should have been as high as 98%. The savings for Tramadol HCL, the second highest ranked physician dispensed medication by dollars paid, were 89% based on the Medi-Cal price of 9 cents per unit.

So, legislation enacted in California from 2002 through 2007 provided all the means to control and curtail pharmaceutical costs. Yet, according to the CWCI, the average first year pharmaceutical cost per indemnity claim reached $953 in 2012 from $390 in 2002 (an increase of 144%).

The Study — Huge Range in Prices

This paradox initiated an independent study into pricing based on the medications listed in the NCCI report. The study identified that prices offered by manufacturers of generic medications varied significantly, and that a lack of awareness by claims administrators could be a leading factor in the high cost of pharmaceuticals in workers’ compensation. The study excluded repackagers’ prices, which are often associated with physician-dispensing. The report published from this study listed the following medications:

  • Meloxicam 7.5mg tablet — prices ranged from four cents through to $5.73.
  • Gabapentin 300mg capsule — six cents through to $1.75.
  • Lidocaine 5% transdermal patch (30 patches) — $102.98 through to $258.97.
  • Hydrocodone-Acetaminophen (“APAP”) — from 22 cents through to $2.69 per unit, depending on the strength. The price for Acetaminophen with Codeine ranged from 15 cents through to 90 cents per unit.
  • Omeprazole 20mg — from 29 cents through to 65 cents.
  • Cyclobenzaprine HCL 10mg tablet — from four cents through to $1.13.
  • Oxycodone HCL — from 23 cents through to $1.57 depending on strength.
  • OxyContin — a brand name extended release or long acting Oxycodone HCL, only manufactured by Purdue Pharma and currently under a protection period, ranged from $2.27 through to $14.51 per unit based on strength.

The Solution

For claims administrators to influence a downward trend in pharmaceutical costs associated with pricing, consideration should be given to the following initiatives:

  1. Know the suppliers of the medications in the PBM/PBN’s formulary.
  2. Compare the suppliers of the PBM/PBN’s formulary to the Medi-Cal formulary to ensure at least the lower prices available from Medi-Cal suppliers are being paid.
  3. Pay only the “no substitute allowed” price when a prescribed medication is not included in the PBM/PBN’s formulary.
  4. When an MPN’s physician dispenses medications, ensure that (a) the “no substitute allowed” price is not paid and (b) the lowest available price is paid for a medication from a supplier listed in the Medi-Cal formulary, unless a lower contracted rate is already in place within the MPN.
  5. Analyze the paid price for pharmaceuticals on at least a monthly basis to ensure the lowest price for a medication has been paid regardless of supplier and monitor medications most frequently dispensed along with their quantities to ensure PBMs/PBNs and physicians are dispensing the lowest cost medication identified in the Medi-Cal formulary, unless a lower contracted rate is already in place.

A claims administrator’s processes and technologies to manage the pharmacy vendor relationships, pre-authorizations and bill reviews must be seamlessly integrated and be able to capture data at the most granular level, which in the case of pharmaceuticals in the U.S. is the National Drug Code (NDC). Without this detailed integration, pharmaceutical costs associated with pricing will continue to increase, as illustrated in California, regardless of legislation changes enacted in the future.

The report relating to this study is available in PDF format from the website managingdisability.com under the Dialogue tab.