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Tag: 2013 News

DIR Lien Revenue Reduces Costs of WC Revolving Fund

The Department of Industrial Relations (DIR) announced an aggregate decrease of approximately $9.587 million (2.19 percent) for the Workers’ Compensation Administration Revolving Fund and other funds for fiscal year 2013/14. The costs required to implement the workers’ compensation reforms of Senate Bill (SB) 863 were partially offset by lien revenue. Slight increases in appropriations for the Division of Occupational Safety and Health and the Division of Labor Standards Enforcement were mitigated by increased reserves in the Subsequent Injuries Benefits Trust Fund and the Uninsured Employers Benefits Trust Fund, as well as one-time balance transfers from the Targeted Inspection Consultation and the Construction Industry Enforcement funds.

Due to the relative sizes in the aggregate insured premium and self-insured paid indemnity pools, the effect of the assessment on insured employers and self-insured employers will differ. The actual increase in fiscal year 2013/14 for self-insured employers is 8.69 percent. Insured employers will receive a reduction in fiscal year 2013/14 of 21.21 percent.

Insurance companies and self-insured employers will receive assessment notices in the mail. The assessments are authorized by Labor Code sections 62.5 and 62.6. In addition to funding the work of the Division of Workers’ Compensation, and partially funding the work of the Divisions of Occupational Safety and Health and Labor Standards Enforcement, assessments also fund anti-fraud efforts by the California Department of Insurance and local district attorneys, pay benefits to injured workers whose employers were illegally uninsured, and provide compensation to injured workers who already had a disability or impairment at the time of injury.

The assessment covers the Workers’ Compensation Administration Revolving Fund, Uninsured Employers Benefits Trust Fund, Subsequent Injuries Benefits Trust Fund, the Workers’ Compensation Fraud Account, Occupational Safety and Health Fund and the Labor Enforcement and Compliance Fund,

Insurers must pay the assessment for policy holders and recover those funds from policy holders through workers’ compensation policy surcharges and assessments. Letters and invoices were mailed to insurers and self-insured employers showing the share of the assessments and surcharges due. Insurers with questions about their letters should call DWC Staff Services Manager Amadeo Urbano at (415) 703-4014 or DWC Analyst Naomi Carter at (415) 557-1020 for more information. Self-insured employers with questions about their letters should call the Office of Self Insurance Plans at (916) 464-7000 and speak with Tina Freese.

Feds Pass New Law Regulating Drug Compounding

New federal law was passed last week that gives U.S. health regulators greater oversight of bulk pharmaceutical compounding and strengthens their ability to track drugs through the distribution pipeline. The Drug Quality and Security Act clarifies the authority of the Food and Drug Administration over compounded medications and creates a new class of compounding manufacturer known as an “outsourcing” facility, which will be able to sell to hospitals in bulk.

The law was prompted by quality control problems that led to a deadly outbreak of fungal meningitis in 2012 traced to a tainted pharmaceutical mixed by a Massachusetts compounding pharmacy. The product has been linked with more than 50 deaths. Following the outbreak, the FDA conducted 31 unannounced inspections in 18 states of other compounding pharmacies, finding conditions that could create a contamination risk in all but one.

FDA Chief Margaret Hamburg asked lawmakers at a Nov. 2012 hearing for more power to regulate compounding pharmacies, saying the agency had to defer to Mass. state authorities by law. “The challenge we have today is that there is a patchwork of legal authorities that oversee the action we can take,” Hamburg said at the time.

Besides giving more regulatory powers over compounders, the law authorizes the FDA to develop a national track-and-trace system to secure the pharmaceutical supply chain and minimize opportunities for contamination, adulteration, diversion, or counterfeiting, according to the White House. The law also creates a national set of standards to track pharmaceuticals through the distribution chain to help thwart the introduction of fake medications into the drug supply.

Last year, fake vials of Roche Holding AG’s cancer drug Avastin appeared in the United States from Britain, where they were purchased from a Turkish wholesaler.

In the United States, dozens of states have some type of regulation designed to track a drug’s pedigree, but the rules are inconsistent. This law is designed to apply a uniform standard nationwide.

Feds Resolve Fraud Case With Orange County Ambulance Company for $3 Million

United States Attorney André Birotte, Jr. announced that an Orange County-based ambulance company has paid the United States more than $3 million to settle a lawsuit alleging it received overpayments from the Medicare program and other federal health care programs for transporting patients who were not eligible for ambulance transports.

A federal judge in Santa Ana unsealed a lawsuit this month filed under the False Claims Act against ambulance transport company FILYN Corporation, which does business under the name Lynch Ambulance and is based in Anaheim. Lynch Ambulance and two of its principals named in the lawsuit settled the case. On November 7 Lynch Ambulance paid $3.05 million to the United States to resolve allegations that from 2001 through 2007 it regularly billed Medicare and other federal healthcare programs for transporting patients who were not “bed-confined” or whose transports otherwise were not medically necessary. The federal health care programs that paid claims for medically unnecessary transports were Medicare, TRICARE, and the Federal Employees Health Benefits Program.

The settlement resolves a lawsuit filed under the qui tam or “whistleblower” provisions of the federal False Claims Act, which allow private citizens with knowledge of fraud to bring civil actions on behalf of the United States and to share in any recovery. The lawsuit – which was filled by two former Lynch Ambulance employees, Jamie Weatherly and Dawn Lucero – was unsealed after the United States elected to take over part of the case and negotiated the settlement.

Lynch Ambulance has also entered into a Corporate Integrity Agreement with the Department of Health and Human Services. Glenn R. Ferry, Special Agent in Charge for the Los Angeles Region of the Office of Inspector General for the Department of Health of Human Services, said, “Taxpayers shouldn’t be on the hook for these expensive and medically unnecessary ambulance trips. Count on federal law enforcement to aggressively investigate and prosecute such actions.”

Lynch Ambulance and its principals have resolved this case without admitting any wrongdoing.

The settlement with Lynch Ambulance is the result of an investigation by the United States Department of Health and Human Services, Office of the Inspector General; the Department of Defense, Office of the Inspector General; the Office of Personnel Management, Office of the Inspector General; and the Federal Bureau of Investigation.

This is the second federal case against a Southern California ambulance company this month. The owners and supervisor of Alpha Ambulance Inc. (Alpha), a now-defunct Los Angeles-area ambulance transportation company, have pleaded guilty in connection with an ambulance fraud scheme. The owners of Alpan Ambulance face a ten year sentence.

Panelists Says Early Aggressive Medical Care Lowers Claim Costs

Aggressive medical care at the beginning of a workers’ compensation claim results in reduced costs, shorter claims duration, and lower litigation rates, according to research from Harbor Health Systems, a One Call Care Management company. The pilot study findings across four categories of injuries showed that the more aggressive approach to care achieved:reductions in claim duration from 13 – 20 percent, reductions in indemnity costs from 19 – 61 percent and reductions in litigation from 7.2 – 16 percent.

The data was presented during a panel discussion at the National Workers’ Compensation and Disability Conference, Las Vegas, on November 21, entitled: “Physicians Speak Out on Whether More Care Early Equals Better Outcomes.” Panelists included Douglas Benner, MD, Chief Medical Officer, EK Health, David C. Deitz, MD, Vice President, National Medical Director, Commercial Insurance Strategic Practices, Liberty Mutual Insurance and Greg Moore, MPH, President of Harbor Health Systems, a One Call Care Management Company.

“Our objective was to investigate the differences in overall claims outcomes when comparing aggressive and conservative care in workers’ compensation,” said Moore. “We found that when knowledgeable and experienced physicians were allowed to perform some common specific surgical procedures prior to the recommendations of the guidelines, the outcomes improved. We believe that these findings show the importance of integrating best-in-class physicians with the use of evidence-based guidelines. They validate the importance of outcomes-based networks by supporting the concept of working with experienced, proven providers and accelerating care when you can trust the diagnosis.”

The pilot study analyzed information from more than 700,000 claims for four procedures: ACL (anterior cruciate ligament) repair, knee menisectomy, shoulder rotator cuff repair, and carpal tunnel injuries.

Harbor Health Systems’ analysis has previously demonstrated that superior performing physicians produce superior outcomes, and utilized this information to develop benchmarking tools that identify these top doctors for inclusion in best-in-class provider networks. This new research project refines the characteristics that distinguish high-performing physicians and the treatment approaches that achieve better results.

NICB Reports Increase in Medical and Workers’ Comp Fraud Claims

The National Insurance Crime Bureau released its third quarter 2013 questionable claims (QC) referral reason analysis. The report examines six referral reason categories of claims – property, casualty, commercial, workers’ compensation, vehicle and miscellaneous – for the third quarters of 2011, 2012 and 2013.

Questionable claims are claims that NICB member insurance companies refer to NICB for closer review and investigation based on one or more indicators of possible fraud; A single claim may contain up to seven referral reasons. The volume of QC referrals can increase or decrease over a given period of time and may be caused by a number of factors, including better reporting by the industry and an increase or decrease in fraudulent activity, etc.

During the first three quarters of 2011, there were 74,944 QCs referred to NICB. During the first three quarters of 2012, that number increased to 87,684 and it increased again during the first three quarters of 2013 to 93,053. Overall, comparing the first three quarters of 2011 to the first three quarters of 2013, the numbers of QCs increased 24 percent

Although most categories of QCs saw increases in the third quarter, only one, the commercial category, posted a decrease. It was down 13 percent in the third quarter from the previous quarter; For a single referral reason, Medical Provider referrals in the Miscellaneous category had the largest increase in volume, as well as the highest percentage increase. Duplicate billing complaints were up 26%, unbundling/upcoding were up 20% and inflated billing referrals were up 17%.

Overall, Workers’ Compensation Questionable Claim referral reasons increased 4% when comparing the First 3 Quarters 2012 to the First 3 Quarters 2013. Disability and False SSN referrals topped the percentage increases with 58% and 40% respectively. Disability referrals had the highest increase of volume in the Workers’ Compensation category when comparing the First 3 Quarters 2012 to the First 3 Quarters 2013; while Claimant Fraud remains the largest Workers’ Compensation referral reason by over 2 ½ times the next highest referral reason.

Insurance Commissioner Approves 6.7% Rate Increase

The California Insurance Commissioner has issued a Decision regarding the WCIRB’s January 1, 2014 Pure Premium Rate Filing approving advisory pure premium rates that average $2.70 per $100 of payroll effective January 1, 2014, which is 6.7% higher than the average filed pure premium rate as of July 1, 2013. The WCIRB in its October 23, 2013 amended Filing proposed advisory pure premium rates that average $2.75 per $100 of payroll.

In justifying approval of the lower rate, the Commissioner’s report stated as follows. “The gap between the recommendations of the WCIRB and the Department is due to two differences in the methodology used. First, the WCIRB included in their analysis a portion of the State Compensation Insurance Fund’s (“SCIF’s”) loss adjustment expense. The Department of Insurance did not include SCIF’s loss adjustment expenses. Second, the Department of Insurance recommends an additional 2.5% reduction in medical losses due to anticipated savings in SB 863, which the Department projects will result from the new Independent Medical Review process. This additional 2.5% reduction is not reflected in the WCIRB’ s recommendation. I agree with the Department that the Advisory Claims Cost Benchmark and pure premium rates should exclude the loss adjustment expense of the State Compensation Insurance Fund and include the Department’s additional projected medical loss savings”.

The WCIRB filing for January 1, 2014 demonstrates that insurers continue to charge premiums that are very close to the estimated cost of providing benefits and adjusting expenses. At the same time the Commissioner’s report noted that insurers once again filed substantially higher manual rates (rates that could be charged to employers). The rates actually charged to employers, however, are substantially lower on average than the filed rates. This is due to a common insurer practice of discounting from the filed rates. The extent to which insurers will discount from the filed rates in the future, however, remains to be seen. Current observations suggest that discounts are shrinking.

The WCIRB testified at the hearing that, over the last year or two, the charged rates have risen at a faster rate than the rise in the pure premium rate. In other words, trends suggest that insurers are beginning to moderate the extent to which they discount from the filed rates. The fact that insurers are substantially discounting their manual rates has helped to keep workers’ compensation insurance prices lower,. despite increasing costs. The data suggest, however, that insurers may be recognizing that this trend cannot continue in the face of increasing system costs. Consequently, insurers are now charging higher rates to employers.

Over the past few years, the department of insurance observed that many insurers draw down from their surplus and capital to sustain lower pricing. As I have noted in prior decisions, however, this is a trend that cannot continue indefinitely. Over the last two years, we’ve observed an increase in premiums as insurers limit the extent to which they discount from their filed rates. The Department of Insurance will continue to closely monitor this trend to ensure that discounting is fair and

At the time this rate increase was evaluated and approved, neither the WCIRB nor the Department of Insurance included the effects of the recent federal court injunction against imposition of the lien filing fee, nor the California Supreme Court ruling in Valdez, nor the estimate by Maximus Federal Services that IMR requests will soon exceed 50,000 per month.

The WCIRB will begin calculating 2014 experience modifications shortly and expects to publish nearly all first quarter 2014 experience modifications by November 27, 2013. When these recent factors have been considered, it may well be that a 6.7% increase is overly optimistic.

Should Reserves Be Increased for Obese Claimants?

Obese employees make more workers’ comp claims, and they make costlier ones than non-obese employees. That conclusion was drawn by Lockton Companies based on its review of several independent studies on employees with high health risks (including obesity, smoking, high blood pressure and limited physical activity) and workers’ comp claims. The Kansas City, Mo., provider of risk management, insurance, and employee benefits consulting services cites three studies that, when taken together, paint a troubling picture, especially of the impact overweight workers can have on workers’ comp claims.

Lockton says that wellness programs, properly designed and implemented, can address this situation by helping obese workers lose weight. But Lockton doesn’t offer any stats on how effective wellness programs are overall in combating obesity. Still, the studies cited offer food for thought.

The University of Michigan Health Management Research Center studied Xerox Corp. employees and confirmed that “employees with high health risks tended to have the highest workers’ compensation costs.” Xerox was an early proponent of wellness plans. The UM followed employees for four years and reported that “workers’ compensation costs increased for those employees whose health risks were increasing or high already (e.g., smoking, physical inactivity, hypertension, high cholesterol, and life/job dissatisfaction).”

Lockton also refers to a 2010 study by the National Council on Compensation Insurance which more closely correlated obesity with workers’ comp claims. The data “showed that workers’ compensation claims that included the obesity comorbidity diagnosis incurred significantly higher medical costs than comparable claims without the high health risk. NCCI also discovered that claims for employees identified as ‘obese’ almost tripled from 2000 to 2009 from 2.4 percent to 6.6 percent,” Lockton said.

Lockton then cites a more recent NCCI study testing whether “the lost-time duration of obese claimants is a multiple of non-obese claimants.” It was. “According to their findings, obese claimants incurred medical costs 6.8 times higher than non-obese (as defined by body mass index), were twice as likely to file a claim and an indemnity duration that averaged about 13 times higher,” Lockton summarized.

Lockton suggests that companies proactively engage HR and employee benefits to better understand the scope and breadth of existing corporate wellness initiatives, as well as how the organization is tracking the effectiveness of those programs. They should also determine how their insurer and/or third party administrator is capturing data on comorbid factors in workers’ compensation claim files and how that information can be incorporated into effective analytics. Finally, companies should collaborate with internal safety, health, and environment professionals (if applicable) to discover how best to integrate employee wellness with workplace safety.

“Effective corporate wellness initiatives have shown to be successful in not only reducing the duration of lost-time workers’ compensation claims,” said Lockton’s Michal Gnatek, author of the report, “but also in promoting healthy behaviors that potentially inhibit unsafe or inattentive workplace behavior.”

A.M. Best Report Shows Comp Industry Financial Improvement

The workers’ compensation industry’s results improved in 2012, as evidenced by a combined ratio of 110.3, a seven point decrease from 2011 and the first decline since 2006. The combined ratio is a measure of profitability used by an insurance company to indicate how well it is performing in its daily operations. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.

While the industry faces challenges such as poor underwriting results, low investment yields and ongoing uncertainty over the impact of healthcare reform, there were positive signs in 2012. Premiums grew for the second straight year, the combined ratio improved (although it remains elevated), and claims frequency declined at a faster rate than severity increased, according to a special report by the A.M. Best Co.

Operating results for A.M. Best workers’ compensation composite also improved in 2012, primarily due to a smaller reported underwriting loss coupled with solid but declining investment earnings. The composite’s 2012 combined ratio of 114.3 is in line with the overall workers’ compensation line underwriting performance. These improved results reflect year-over-year rate increases and growth in payrolls but are offset in part by rising medical costs and the improving, but still relatively weak macroeconomic environment.

Industry results also have benefited from advancements in technology, which enable companies to react more quickly to negative trends. However, without the benefit of higher investment yields that the industry earned in the past, overall earnings have declined.

Insurers Protest Proposed CMS SMART Act Rule Extending Time Limits

A report by the Insurance Journal says that a rule proposed by the Centers for Medicare and Medicaid Services contradicts the intent of a recently passed law aimed at requiring CMS to tell insurers how much of a claims settlement involving federal health insurance recipients must be given to CMS. The regulatory process was mandated by passage in January, after years of effort, of the SMART Act, or The Strengthening Medicare and Repaying Taxpayers Act. It deals with mandates for providing timely information to CMS on settlements of lawsuits involving no-fault auto-insurance claims, workers’ compensation claims, and payments under liability insurance, such as auto accidents.

The interim final rule–which means it goes into effect immediately–more than doubles the statutory 120-day period CMS is given under the new law to provide to insurers the portion of the final settlement that insurers will have to give to CMS rather than the claimant. Under the interim final rule, CMS will be given 245 days to process claims submitted by the insurers and other third-party payers, as well as lawyers involved in settlements. The comment letters sent by insurers voiced concern that, contrary to the intent of the law, the proposal doesn’t reflect the fact that when a deal is reached, all parties have certainty within a reasonable period of time.

Among those submitting comment letters are the American Insurance Association, the Risk and Insurance Management Society (RIMS) and the Medicare Advocacy Recovery Coalition (MARC), which includes self-insured employers. RIMS members include a number of municipalities, public school systems, etc.

“In addition to conforming to the requirements of the SMART Act, the CMS proposal also must work within the context of how settlements actually occur, and should promote, rather than delay the settlement of claims. The potential that settling parties would have to wait over half a year to conclude their settlement because of a lengthy MSP process will lead many settlements to breakdown,” said John Phelps, RIMS president.

Michele L. Adams, chair of MARC said that the interim final rule designed to implement the SMART Act “is flawed” because it creates a settlement process that is in “direct contradiction to Congress’ clear instruction, exceeds and misconstrues the SMART Act, and fails to address needed regulatory issues,” “For all the reasons set forth above, the MARC Coalition urges CMS to withdraw the IFR and reissue a proposed rule upon which all stakeholders can comment,” .

The insurers and other interested parties are also concerned that CMS is presenting them with a fait accompli, meaning immediate implementation of the rule, rather than a full notice and comment process, interested parties including insurers, are saying in comment letters.

Headache Doctors Publish Treatment-to-Avoid Guidelines

Doctors who specialize in treating head pain, such as chronic migraines, are the latest to list the procedures and treatments they think have risks or costs that may outweigh the benefits to patients. To come up with the recommendations, Loder and her coauthors asked physician members of the American Headache Society (AHS) to identify tests and treatments they view as being used incorrectly or too often, and which methods of care had benefits too small to outweigh the risks.

According to the report in Reuters Health, the researchers evaluated more than 100 items suggested by AHS members, distilling the list down to five items based on current evidence.

The guidelines advise against imaging the brains of patients who get headaches that have not changed over time.

They also discourage the long-term use of over-the-counter pain pills to treat headaches, and recommend that physicians avoid using certain pain medications – opioids like oxycodone and drugs containing butalbital like Fioricet – for patients who get headaches often.

Finally, physicians should not perform computed tomography, or CT, on a patient with a headache when magnetic resonance imaging, or MRI, is available, except if it’s an emergency, the recommendations state.

The recommendations, Loder said, “are a nice distillation for patients when thinking about their care.” Patients and their families can use the guidelines to start a conversation with their doctor about the pros and cons of a given test or procedure.

“In addition to thinking about the good things that may come about from interventions, it’s also important to think about situations in which caution can be used,” Loder told Reuters Health.

Labor Code section 4600 provides that medical care provided in workers’ compensation cases conform to standards of evidence based medicine that is peer reviewed. While the DWC published Medical Treatment Utilization Schedule (MTUS) is presumed to be correct, it can be overcome by higher quality medical evidence. Thus, utilization review vendors may rely on better guidelines as they review requests for authorization for medical care.