In forecasting serious asbestos-related claims, some of the country’s largest insurers and consultants appear to be ignoring relevant changes in medical knowledge, demographics and even social media. As a third wave of costly asbestos-related claims strikes the nation in the years ahead, many insurers will be swamped with “unexpected” reserve charges, according to “A Third Wave in Asbestos Liabilities Lies Ahead,” a new study by Assured Research, a New Jersey-based firm that analyzes the property/casualty insurance industry.

“In studying asbestos-related claims, we’re seeing evidence of outdated actuarial models,” explains Assured president William Wilt. “Since they’re based on 30-year-old epidemiological and demographic data, they can’t accurately forecast asbestos-related claims. Some insurers also seem to be ignoring advances in medical knowledge and diagnosis – and the changing behaviors of consumers and personal injury lawyers.”

The first wave of claims came from asbestos miners and millers; the second from people who handled asbestos regularly, such as plumbers, shipbuilders and carpenters. The third wave will be dominated by lung cancer claims which are ostensibly lower quality than those of mesothelioma because the cancer was predominantly caused by smoking rather than asbestos. Nevertheless, large numbers of even lower-quality claims could raise pressure on defendants anxious to settle and minimize nuisance suits. Moreover, recent literature illustrates researchers’ rising awareness of the malignant synergies between asbestos and smoking. Further, researchers are finding that short but intense exposures to asbestos can lead to asbestos illnesses.

“Medical evidence is mounting,” says Wilt, “that there is no ‘lower limit’ below which asbestos fibers cannot cause mesothelioma. Meanwhile, the people most likely to make asbestos claims are living longer – long enough, in some cases, to be diagnosed with asbestos-related disease.”

Asbestosis may be easier to diagnose today, thanks to high-resolution CT-scans, but Assured Research believes the third wave will be dominated by lung cancer claims. Personal injury lawyers are finding it easier than ever to prospect for new claimants, while a new recommendation from the U.S. Preventive Services Task Force recommends annual CT scans for all current and formers (heavy) smokers between the ages of 55 and 80 – some 10 million people.

“We believe this third wave will be aided by the growing prevalence of social media sites such as Google and YouTube which have lowered the cost of prospecting for claimants by lawyers,” says co-author and Managing Director Alan Zimmermann. “If you need convincing, type the name of any well-known asbestos law firm into a search engine and see how fast they come back to you with offers of direct conversations.”

“The confluence of outdated actuarial models, shifts in life expectancies, medical knowledge, social media, and now recommended screening,” Wilt says, “can’t be good news for insurers that are funding higher than expected claims on a pay-as-you-go basis.”

In 2003, the Legislature reformed the workers’ compensation medical care delivery system by repealing the PTP’s presumption of correctness and implementing an objective standard of care determined by evidence-based medicine guidelines. The result was the creation of a Medical Treatment Utilization Schedule (MTUS),  a dynamic series of medical treatment guidelines designed to create a “standard of care” by which proposed medical treatment would be evaluated.

In late 2012, another round of reforms began to take shape in the form of Senate Bill 863. The inability of the adversarial and judicial systems in workers’ compensation to effectively implement the standard of medical care intended by the prior reforms through the adoption of the Medical Utilization Treatment Schedule and utilization review led to the creation of a new medical dispute resolution process: independent medical review. A common principle of both UR and IMR is the process of evaluating requests for medical tests and treatments for medical necessity, efficacy, and appropriateness.

And this week the CWCI published a report that compiled data on utilization review and independent medical review decisions from a variety of sources. According to the study, “due to the availability of the MTUS and other evidence-based medical guidelines, three out of four medical treatment requests are approved by claims adjusters without the need for additional oversight, with 25 percent of the treatment requests requiring elevated utilization review.”

IMR upheld 78.9 percent of all reviewed elevated UR decisions, while overturning 21.1 percent, with a majority of the UR decisions upheld in all 14 medical service categories. As was the case in elevated UR, pharmacy-related IMR decisions were by far the most prevalent, accounting for one third of all IMR determinations. Of those pharmacy-related reviews, 78 percent upheld the UR decision, while 22 percent overturned the prior UR decision. Consultations, laboratory services, and tests and measurement had the highest percentage of overturned UR decisions following IMR (50 percent, 34.2 percent and 35.3 percent respectively). Among the high-volume IMR requests, durable medical equipment, which accounted for 1 out of 10 IMR determinations, had the lowest percentage of UR modifications (13.2 percent), while 85 percent of all IMR decisions on physical medicine upheld the UR determinations.

Physical medicine practitioners accounted for the largest proportion of the reviewers (43 percent), followed by occupational medicine specialists (20 percent), orthopedists (14 percent) and family practitioners/internal medicine specialists (10 percent). No other medical specialty accounted for more than 5 percent of the IMR reviewers.

Thus, the CWCI study concludes “The fact that only a small proportion of medical treatment requests are modified or denied shows that UR/IMR are serving as intended, as an exception process.” Federal and group health plans typically use a shared risk model to balance supply and demand for medical services. Medicare, Medicaid and almost all group health programs use mandatory utilization review, along with supply-side controls such as fee schedules, closed provider panels, highly regulated pharmaceutical formularies, explicit limits on specific procedures and therapies and prohibitions on experimental procedures and equipment and demand-side controls such as co-payments and deductibles, contractually based limitations on services. Because cost controls such as co-payments and deductibles cannot be used in the workers’ compensation system, cost containment programs are typically limited to the use of fee schedules, medical treatment guidelines, partial limits on specific procedures and utilization review.

However, the study presents alarming data on opioid pain medication use. UR and IMR pharmaceutical reviews represent 43 and 25 percent of all decisions respectively. In terms of pharmaceutical control, a chronic pain management guideline was implemented within the MTUS in July 2009 for the purposes of providing better oversight controls on the use Schedule II and Schedule III opioids and other pain management therapies. Researchers found that between 2009 and 2012, Schedule II and Schedule III opioids have essentially remained at one quarter of all California workers’ compensation outpatient prescriptions and 30 percent of total prescription drug expenditures. This data compiled on UR and IMR decisions suggests that between one-third to one-half of the UR and IMR pharmacy reviews involved opioids or compound drug requests. The authors have also separately documented the high rate of Schedule II opioid prescriptions for minor back pain, strains of the extremities and mental health disturbances, a questionable use of these highly addictive and dangerous pain medications.

The sustained high rate of Schedule II and Schedule III opioids and the high rate of pharmacy-related UR and IMR decisions suggest an opportunity for stronger pharmaceutical utilization and cost controls. A forthcoming CWCI study will compare new trends in Schedule II and Schedule III opioid use in California workers’ compensation and compare California utilization and cost factors against an alternative closed formulary method used in other states.

American Financial Group, Inc. today announced that it has reached a definitive agreement to acquire Summit Holdings Southeast, Inc. and its related companies (together, “Summit”), from Liberty Mutual Insurance in an all-cash transaction. Based in Lakeland, FL, Summit is a leading provider of workers’ compensation solutions in the Southeastern United States, with approximately $520 million of premium written. Following the transaction, Summit will continue to operate under the Summit brand as a member of AFG’s Great American Insurance Group.

Under the terms of the transaction, AFG will pay Liberty Mutual Insurance an estimated $250 million at closing. The purchase price will be subject to adjustment between signing and closing for, among other things, changes in Summit’s GAAP tangible book value. AFG’s total capital investment in Summit will be approximately $400 million, inclusive of a capital contribution by AFG at closing. The transaction is expected to close in the first or second quarter of 2014, following customary regulatory approvals. AFG will not use any external financing in the acquisition.

Carl H. Lindner III, Co-Chief Executive Officer of AFG, commented, “Summit has an excellent long-term track record of underwriting outperformance. We value its underwriting discipline, talented management team and value-based service model. Their business model fits well with our Property and Casualty Group’s strategic focus and complements our Great American Insurance Group specialty workers’ compensation offerings available through our other specialty P&C businesses. We look forward to welcoming Carol Sipe, Summit Group’s President and CEO, and her team to the AFG family.”

American Financial Group is an insurance holding company, based in Cincinnati, Ohio with assets of approximately $40 billion. Through the operations of Great American Insurance Group, AFG is engaged primarily in property and casualty insurance, focusing on specialized commercial products for businesses, and in the sale of fixed and fixed-indexed annuities in the retail, financial institutions and education markets. Great American Insurance Group’s roots go back to 1872 with the founding of its flagship company, Great American Insurance Company.

A long-running and well-respected workplace wellness program at PepsiCo that encourages employees to adopt healthier habits has not reduced healthcare costs, according to the most comprehensive evaluation of a such a program ever published. According to the story in Reuters Health, the new study was released on Monday in the journal Health Affairs was based on data for thousands of PepsiCo employees over seven years. The findings “cast doubt on the widely held belief” that workplace wellness programs save employers significantly more than they cost, conclude Soeren Mattke of the RAND Corporation and his co-authors. “Blanket claims of ‘wellness saves money’ are not warranted.”

Workplace wellness programs, a $6 billion-a-year industry, are a favorite of the business community because they promise to improve productivity, cut absenteeism and reduce medical costs by averting expensive illnesses. They aim, for instance, to help employees quit smoking, maintain a healthy weight and have regular screenings for elevated cholesterol, high blood pressure, cancer and other conditions, all of which are supposed to reduce healthcare spending. Half of U.S. employers with at least 50 workers offered a wellness program in 2012, as did more than 90 percent of those with 50,000-plus workers, according to a 2013 RAND report. PepsiCo’s was introduced in 2003.

The programs are also a pillar of the Affordable Care Act (ACA), President Barack Obama’s healthcare reform law. The ACA allows employers to reward workers who participate in wellness programs, and penalize those who refuse, with discounts or increases of as much as 30 percent of their insurance costs. That can be thousands of dollars per year.

Some workers have objected to the programs because of the penalties. Others say workplace wellness efforts invade their privacy and promote poor medicine. Last year, for instance, faculty members at Pennsylvania State University rebelled against a workplace wellness program whose “health risk assessment” asked, among other questions, whether male employees examined their testicles every month and whether women employees intended to become pregnant. They also protested its requirement that even healthy young adults receive frequent cholesterol and other screenings, which physicians recommend against, and the steep penalties for opting out: $1,200 a year.

“You’re making employees do something that invades their privacy and that goes against medical advice, and now we’re seeing (in the PepsiCo study) that it doesn’t even save the employer money,” said Al Lewis, founder and president of the Disease Management Purchasing Consortium International, which helps self-insured employers and state programs reduce healthcare costs.

For their study, RAND’s Mattke and his colleagues – including two PepsiCo executives – examined PepsiCo’s “Healthy Living” program, which has two components. One, called disease management, helps people with any of 10 chronic illnesses, among them asthma, diabetes and hypertension. They receive regular phone conversations with a nurse about managing the condition. Disease management produced healthcare savings of $136 per member per month, largely because of a 29 percent reduction in hospital admissions, the researchers found. When hypertension is well controlled, for instance, people are less likely to land in the hospital with a stroke. When asthmatics take their medication, they don’t wind up in the ER unable to breathe. PepsiCo’s disease management program “provides a substantial return for the investment made,” Mattke said.

The “lifestyle management component” is what most people think of as a workplace wellness program. It includes a health risk assessment in which workers answer questions about such behavior as eating and exercise habits; smoking cessation programs; and educational materials and telephone sessions with a “wellness coach” to help them lose weight, eat healthy, get fit, manage stress or stop smoking. PepsiCo employees who participated in these lifestyle programs reported a small reduction in absenteeism, but there was no significant effect on healthcare costs. (The study uses costs as a proxy for health, assuming that if people get sick they seek care. But it did not explicitly assess the programs’ effect on participants’ health.) “Participation in lifestyle management interventions,” conclude the PepsiCo researchers, “… has no statistically significant effect on healthcare costs,” and employers considering adopting such a program “should proceed with caution.”

The PepsiCo study is not the first to find that workplace wellness programs fall short of their promise. Last year, Mattke was the lead author of a RAND report that found that healthcare costs of workers who participated in such a program averaged $2.38 less per month than non-participants in the first year of the program and $3.46 less in the fifth year. Neither difference was statistically significant.

Researchers who are skeptical of wellness programs’ benefits are concerned that the ACA – “Obamacare” – allows employers to offer substantial financial rewards and penalties tied to something ineffective. “The ACA took a bad idea, workplace wellness programs, and turbocharged it by allowing employers to penalize workers,” said Lewis, co-author of a new e-book titled “Surviving Workplace Wellness.”

The applicant, Elvin Salguero sustained an admitted injury consisting of partial amputation of his left fourth and fifth fingers and other body parts. After several hearings, the WCJ determined that the defendant had lost treatment control and that the claimant was entitled to treat with his free choice treater, Dr.Fred Hekmat. The case was resolved with a compromise and release to disputed body parts, and a stipulated award to 53% regarding the left 4th and 5th finger and psyche, with provision for future care for these admitted body parts.

With regard to the disputed claim for home care, the documentary record at the trial showed that the applicant was psychiatrically hospitalized at Brotman Medical Center after verbalizing intent to kill himself by jumping off a freeway overpass. More specifically, the report of his secondary psychiatric treater, Elena Konstat Ph.D., noted a significant suicide risk and significant depression in recommending a psychiatric hospitalization.

After his discharge, Konstat reported that Salguero “must remain in a safe and controlled environment closely monitored for his well-being. Therefore, 24/7 home cares [sic] assistance, and transportation to all medical appointments is recommended. Mr. Salguero is taking potent medication, and should not drive himself as he maybe [sic) a danger to himself, or others. In addition, his medications should be provided by preferably an LVN, or Psychiatric Technician.” After reviewing this report, the PTP stated that “”Based upon these further records from Dr. Konstat, I feel that certainly the patient requires the following: … [Par.] The patient requires 24/7 home care assistance by a psyche technician or LVN which is necessary to cure and relieve Mr. Salguero from the effects of his orthopaedic injury.” No UR report or other competent medical evidence was prepared in response to any of the reports discussed above, at least with regard to the home care request.

The case went to expedited trial on the limited issues of applicant’s request for authorization of a hand surgeon referral, stellate blocks and 24/7 home care. On cross-examination, he stated that he wanted to kill himself and had a specific plan to do this. Nonetheless, the WCJ found that good cause had not been shown to authorize his request for 24/7 home care. The applicant’s reconsideration petition as to the home care issue followed. The WCAB affirmed the denial in the panel decision of Elvin Salguero v Charles Gemeiner Cabinets and Insurance Company of the West.

The California Supreme Court has recently made clear that “[N]otwithstanding whatever an employer does (or does not do), an injured employee must still prove that the sought treatment is medically reasonable and necessary. That means demonstrating that the treatment request is consistent with the uniform guidelines (§ 4600, subd. (b)) or, alternatively, rebutting the application of the guidelines with a preponderance of scientific medical evidence. (§ 4604.5)” (Sandhagen v. WCAB, 73 CCC 981, 990.).

The Board has applied this principle to deny authorization for a given modality of care even where the defendant has neglected to carry out timely UR review. In Garcia v. Souplantation, 2011 Cal. Wrk. Comp.P .D. LEXIS 116, a request for authorization of epidural injections which was never rebutted via UR review was nevertheless held insufficient to support a need for such procedures where the ACOEM guidelines disfavored such a procedure and the treater requesting authorization never explained any basis for deviating from these guidelines. In Chairez v. Cherokee Bindery, 2012 Cal.Wrk.Comp.P.D. LEXIS 506, an award of 24/7 home care was reversed, mainly because of an unclear record. However, the board panel instructed the trial judge on remand that “In addressing the issue of home health care as medical treatment, the WCJ should consider that even if it is determined that a utilization review is untimely or otherwise invalid, the applicant still has a burden of proving that the requested treatment conforms with the requirements of Labor Code section 4604.5 by showing that it is in accord with the appropriate guidelines, or by rebutting the presumption of reasonableness of treatment in accord with those guidelines, or by showing that a variance from those guidelines is reasonably required to cure and relieve applicant from the effects of his industrial injury. [Sandhagen cited.] In short, an untimely or improper utilization review does not automatically require issuance of an award of the requested treatment. Instead, it must also be shown by applicant that the requested treatment is within the applicable guidelines or is otherwise reasonable medical treatment.”

There was no reference to any treatment guidelines or discussion of such guidelines in any of the reports submitted in this case. Dr. Konstat’s rather unusual request for 24/7 home care as a modality of care for severe depression. There is no mention of any such modality of care in Chapter 15 of the ACOEM guidelines regarding stress complaints.