AB 1512 (McCarty) as amended May 9, 2017, if passed, establishes the Opioid Addiction Prevention and Rehabilitation Act in California, and would impose a tax upon the distribution of opioids at the rate of $0.01 per milligram of active opioid ingredient. According to the Board Of Equalization “an estimated $88.1 million in fee revenues could be generated.”

The proposed California law requires the wholesaler to collect the tax from the manufacturer and requires the wholesaler to separately state the amount of the tax imposed by the provisions of this bill on the purchase order. The purchase order shall be given by the wholesaler to the manufacturer at the time of sale. The wholesaler will be required to remit the tax to the California State Board of Equalization (BOE).

The Assembly Committee Staff speculates that “If this tax were to work as envisioned, funding for local addiction prevention and rehabilitation programs would reduce future opioid addiction and use, which, in turn, would reduce opioid sales and funding for these programs. In a way, this tax functions almost as a Pigouvian tax (similar to the tax on tobacco products) although it is unclear if the purpose of the tax is meant simply to fund prevention and rehabilitation programs or if it is meant to decrease the use of opioids as a prescription drug. As currently drafted, this bill would accomplish both because a tax placed on the supplier will inevitably reduce opioid production and consumption.”

A Pigouvian tax is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities.

However, unlike tobacco, opioids are predominantly paid by third parties other than the consumer of the opioid. In essence the tax will be paid by insurance carriers, self insured employers, and government subsidized health care plans. For the most part, consumers of opioid medications will not notice any adverse financial effect should this bill become law.

The California Council of Community Behavioral Health Agencies (CCCBHA) in support of the bill argues that this bill would provide critical resources needed to help end California’s opioid addiction epidemic. CCCBHA cites reports that show that three out of four heroin users began their addiction by abusing prescription drugs, that up to 25% of people who use prescription pain pills over the long term become addicted to these medications, and that ERs across the state are flooded with opioid-related patient emergencies. According to CCCBHA, this bill will provide counties with critical resources needed to interrupt the cycle of opioid and heroin addiction in California.

The Healthcare Distribution Alliance (HDA) in opposition, argues that this bill creates a new and onerous tax that will have a burdensome impact on the healthcare industry and ultimately the patient. HDA further argues that drug distributors and wholesalers do their part in the fight against drug abuse by maintaining highly secure facilities that are both state and federally inspected. Finally, HDA states that other states have considered implementing a similar tax, however after fully understanding the impact and unintended consequences these efforts have been abandoned. TEVA Pharmaceuticals argues that an additional tax will directly affect the health plans and ultimately the patients who require opioid medicines. The Pharmaceutical Research and Manufacturers of America (PhRMA) argues that this bill establishes a complicated, arbitrary regulation and tax on an already overtaxed sector.

The California Chamber of Commerce has listed this proposed law as one of its 2017 “Job Killer” bills. It claims the proposed law “unfairly imposes an excise tax on opioid distributors in California, which will increase their costs and force them to adopt measures that include reducing workforce and increasing drug prices for ill patients who need these medications the most, in order to fund drug prevention and rehabilitation programs that will benefit all of California.”

The Trump Administration has recently awarded grants for states to combat the opioid crisis. The funding, which is the first of two rounds, will be provided through the State Targeted Response to the Opioid Crisis Grants administered by the Substance Abuse and Mental Health Services Administration.

A new California Workers’ Compensation Institute (CWCI) report on the use of ICD-10 codes in California workers’ comp during the transition from the ICD-9 system finds that 99% of submitted medical bills used ICD-10 codes and, as expected, a wider range of codes were provided than in the past.

But many lacked the additional characters that better define the injury, identify the type of encounter and improve communication.

On October 1, 2015, the 10th revision of the International Statistical Classification of Diseases and Related Health Problems (ICD-10) became the standard classification system for all healthcare delivery systems in the U.S., including workers’ comp. The adoption of the new system was the first time in 21 years that the codes used by medical providers to describe a patient’s clinical status had been updated. The transition from the outdated ICD-9 coding system was primarily intended to allow more accurate and precise descriptions of a patient’s clinical status in order to facilitate communication between medical providers, providers and payers, and government agencies.

Following Medicare’s lead, the California Division of Workers’ Compensation allowed medical providers a one-year transition period during which they could use ICD-10 codes that did not strictly meet the level of coding specificity called for by the new classification format and structure, but as of October 1, 2016, workers’ comp medical services that are not coded at the required specificity level are out of compliance.

The CWCI report, the first in a two-part series, examines the components of injury classification and compares ICD-9 diagnostic codes submitted by California workers’ comp medical providers in the final nine months under the old coding system to the ICD-10 codes submitted in the first nine months of the transition period. Key findings from the analysis:

– The top 10 ICD-10 diagnoses accounted for 20.4% of the primary diagnoses submitted in the first nine months of the transition.
– Diagnosis codes related to lumbar spine injuries accounted for 6 of the top 10 ICD-10 codes for services rendered in the first nine months of the transition. Despite high levels of specificity allowed by the ICD-10s, lumbar spine codes ranged from very low specificity (i.e., “low back pain” was the number one code submitted) to more specific diagnoses such as radiculopathy, disc displacement and disc degeneration.
– More than 1 in 5 ICD-10 codes submitted for shoulder pain diagnoses failed to include a sixth character to identify which shoulder was injured.
– A diagnosis of “injury, unspecified” continued to account for 1.6 percent of primary diagnosis codes under ICD-10, as was the case under ICD-9 submissions.

CWCI has published its analysis as a Research Update report, Injury Classification in California Workers’ Comp, Part 1: Medical Coding During the ICD-10 Transition, which is available from the CWCI store at www.cwci.org, or CWCI members and subscribers may log in to download a copy from the Research section of the website. Part 2 of the series will compare the two diagnosis and injury classification systems now used in California workers’ compensation: the ICD-10 codes submitted by medical providers and the body part, nature of injury, and cause of injury data noted by claims administrators.

William Zachry is a senior fellow at the Sedgwick Institute and is former group vice president for risk management for Albertson’s Companies. According to his commentary published in the East Bay Times, things have gotten much better in California Workers’ Compensation. Here are his comments.

California’s system is as maligned as any in the nation. A $26 billion behemoth, the rap on California’s system is that it overcharges employers and short-changes workers, with the difference ending up in the pockets of scurrilous medical providers and other ne’er-do-well vendors.

Such criticisms are frequently based on cases that fall outside of the typical claims experience. These cases drive news coverage, which spawn legislative proposals to “fix” the system.

But beneath the headlines, facts show that California’s system has improved by many measures.

— Higher benefits. In 2012, lawmakers increased injured worker disability benefits by $1 billion, using money squeezed out of system inefficiencies and cracking down on fraud. A review by the Department of Industrial Relations shows that benefits have increased by 30 percent.
— Stable insurance rates. California remains the most expensive state in the nation. But reforms have halted the wild swings that took employers for a ride every few years. Compared to 2001-2009, when rates shot up 80 percent and then fell by 67 percent, rates have moved up and down by 5 percent or less over the past four years.
— Fewer claims. Between 2010 and 2014, workers’ comp claims were increasing in California while decreasing in other states, driven largely by injury claims in Los Angeles. In 2015, claim filings started to decrease again, consistent with national trends and California’s own decades-long decline in workplace injuries.
— Quicker claims closure. All data and workers’ comp wisdom says the system is at its best when workers get treated, paid and back to work. Shorter claim life improves an injured worker’s chance of making a full recovery, both physically and economically. Since 2009, California’s rate of claims closed within three years has increased from 55 percent to 60 percent.
— Ousted Medical Fraudsters. In 2016, lawmakers empowered the Department of Industrial Relations to suspend medical providers who have been indicted or convicted of medical fraud, yet continue to treat injured workers and submit payment demands known as “liens.” Thus far, the DIR has halted $1 billion worth of these liens and suspended 23 fraudulent medical providers.
— Evidence-based medicine. Since the early 2000s, California has worked to adopt medical treatment guidelines for injured workers that are based on published medical evidence. Although criticized as “cookbook medicine” and criticized as an impediment to care, research shows that today 95 percent of all medical treatment requests are approved through “utilization review.” Just 4 percent are properly denied because they aren’t supported by medical evidence. That’s a 99 percent success rate for evidence-based care.
— Lower medical costs. Squeezing inappropriate and fraudulent care out of the system has halted huge spikes in California’s workers’ comp medical inflation. After a five-fold increase since 1990, average medical costs per claim have decreased by 10 percent since 2011.

Does California’s system still have problems? Absolutely.

California’s system is still the most expensive. We have more claims that result in a partial permanent disability award than any other state in the nation. We also have a new species of fraud which has to be stamped out. Our claims are more expensive and involve more litigation than elsewhere. We spend a disproportionate amount on expenses to deliver benefits to injured workers. And our claims drag on too long.

On balance, however, Mr. Zachary concludes that California’s workers’ compensation system is as healthy and stable as any time in recent history.

A county in New York state has sued Purdue Pharma LP, Johnson & Johnson and other drugmakers, accusing them of engaging in fraudulent marketing that played down the risks of prescription opioid painkillers, leading to a drug epidemic. The lawsuit, which also named units of Teva Pharmaceutical Industries Ltd and Endo International Plc as defendants, was announced by Orange County, New York, which is located in the southeastern part of the state.

Reuters reports that the case, filed in a New York state court is the latest lawsuit by local and state governments seeking to hold drugmakers accountable for a national opioid epidemic. The lawsuit claims the drugmakers through deceptive marketing misrepresented the dangers of long-term opioid use to doctors, pharmacists and patients. Those misrepresentations about drugs like Purdue’s OxyContin and Endo’s Opana ER led Orange County New York to incur health care, criminal justice and other costs related to addiction, the lawsuit said.

Drugmakers also face lawsuits by Santa Clara and Orange counties in California, the city of Chicago and Mississippi over their marketing practices.

Santa Clara and Orange (California) counties filed a case in 2015 in Orange County Superior Court. They alleged that Purdue Pharma, Cephalon, Janssen Pharmaceuticals, Endo Health Solutions and Actavis violated California’s false advertising and unfair competition laws and created a public nuisance. The case was placed on hold in 2015 pending the outcome of FDA investigations that were underway at the time.

Chicago sued Teva Pharmaceuticals, Purdue Pharma Inc. and other drugmakers in 2014, saying they misled doctors and the public about the addictive nature of opiates and pushed prescriptions despite known dangers of addiction. A defense request for a stay order pending FDA investigations was denied in September 2016, and the Chicago case is still active.

Some state attorneys general have started similar investigations. J&J this month said New Jersey’s attorney general had issued a subpoena related to opioid marketing.

Orange County New York, which has a population of about 379,000, said it recorded 943 opioid-related emergency department admissions in 2014 and 44 deaths from overdoses involving opioid pain relievers in 2015.

Orange County New York Executive Steven Neuhaus said in a statement the county has been working with non-profits and doctors to increase awareness to opioid-related problems. “At the same time, we want those responsible to compensate the taxpayers for the public funds the county has had to pay to address opioid addiction,” he said.

The lawsuit also named four physicians as defendants.

J&J in a statement called the allegations “unfounded” and noted its drugs carry U.S. Food and Drug Administration-mandated warnings.

Purdue said it shares officials’ concerns about the opioid crisis and is “committed to working collaboratively to find solutions.”

Endo did not respond to a request for comment. Teva declined to comment.

Opioid drugs, including prescription painkillers and heroin, killed over 33,000 people in the United States in 2015, more than any year on record, the U.S. Centers for Disease Control and Prevention said.

Orange County’s lawsuit is the fourth since August by a New York county seeking to recover costs related to opioid addiction. Several other counties are also considering suing.

Liberty Mutual is shutting down its research arm in Hopkinton that for six decades put it at the forefront of workplace injury prevention, prosthetic limb development, and the push for safer car features, including collapsible steering columns.

The company will no longer conduct peer-reviewed research, considered the gold-standard for studies, which extended its reach worldwide. The research influenced occupational safety guidelines that were widely used to prevent injuries in the workplace. According to the story in the Boston Globe, up to 44 employees, mostly scientists and researchers, could be laid off when the company ends the program on June 6.

When Liberty Mutual founded the research facility in 1954 it was one of few organizations studying injuries in the workplace and on the road. But since then many more outlets are researching workplace issues. And the nature of work has changed as well. More people are working remotely or in shared spaces and manufacturing now involves robots doing assembly line work. And John Cusolito, a Liberty Mutual spokesman said that other organizations and universities are better positioned to do that kind of research.

Liberty Mutual will focus its research efforts on partnerships with universities that are involved in workplace studies. The company helps fund work at the Harvard T.H. Chan School of Public Health, the University of Massachusetts Amherst, UMass Lowell, and MIT.

“We will use funds to continue and create partnerships with organizations and specialists that give us the flexibility to tap into research studying the evolving ways that people are living and working,” Cusolito said.

Liberty Mutual was among a handful of insurers that ran their own research centers. The institute focused heavily on workplace injuries – falls, carpal tunnel syndrome, and the impact of repetitive work – because Liberty Mutual began as a workers compensation insurer covering railway, shipbuilding, and tannery workers hurt on the job.

As recently as 2012, Liberty Mutual was the largest workers compensation insurer with $4.2 billion in premiums, according to the Insurance Information Institute, a trade research organization. But by 2015, the most recent data available, Liberty Mutual had fallen to fifth in market share with $2.5 billion in premiums.

Over the years it has expanded into auto and home insurance and other commercial lines. It has also scaled back its workers compensation business, as rising medical costs and state regulations cut into profits.

Tom Leamon, who served as director of the research institute for safety for 16 years until 2006, said its closure is disappointing.

“It was a way to distinguish Liberty in the global marketplace,” Leamon said. “We were the leaders in global occupational safety.”

The research that its scientists conducted – bringing in people to lift containers of different sizes to measure the impact on their bodies, or evaluating the best way to grasp tools such as knives and screwdrivers for long periods – was published in scientific journals and accessible to everybody, including competitors, Leamon said.

Working with MIT in the early 1960s, researchers helped develop the first battery-powered prosthetic elbow, called the Boston Elbow. Holliston-based Liberating Technologies Inc., a manufacturer and distributor of prosthetic devices, started out as a project of Liberty Mutual, until it was spun off as an independent company around 2001.

Liberty Mutual will keep open the Hopkinton facility, where driver training programs and classes for claims adjusters will continue.