Federalization of workers comp – part 2

This evening we’ll dig into some of the history of Federal activities related to workers comp, activities that some view as somehow connected, a series of events leading to some greatly expanded role for the Feds in workers comp.
Me, I see this as disconnected, independent, nonlinear – a mishmash of events triggered by politics, publicity around public health problems, and constituent service/appeasement.
But that’s just me…
Let’s start with OSHA and the National Commission
There’s been talk of a federal workers comp system since 1970 when OSHA was created by the Occupational Safety and Health Act of 1970. Chaired by John Burton, the National Commission on State Workmen’s Compensation Laws was tasked with, among other things, evaluating state workers compensation laws, rules, and regulations. When the study was completed in 1972, the commission did not recommend the nationalization of workers comp. The study did make many recommendations adopted by many states, recommendations that many agree were long overdue.
The National Commission deemed 19 of the recommendations as ‘essential’, and noted that at the time of the report’s publication, the average state complied with 6.9 of the 19 essential recommendations. Over the next eight years, average state compliance rose rapidly to 12.0 in 1980.
In a recent hearing before a Congressional sub-Committee, Burton cited as proof of a more recent “counter-reformation” and outright deterioration in state compensation systems the fact that, as of 2004, average state compliance was still only 12.8 of the 19 essential recommendations. With all due respect to Professor Burton, a man who has probably done more than any other single human to improve workers comp, I’d note that a 0.8 increase is not, strictly speaking, a deterioration. It may be a very minor improvement, but it is an improvement nonetheless.
Here’s how Professor Burton addressed the issue: “The extent of the deterioration in adequacy and equity of state workers’ compensation programs in the last 20 years is not reflected in compliance scores with the essential recommendations of the National Commission. Rather, the slippage has occurred in other aspects of the program. A number of states changed their workers’ compensation laws during the 1990s to reduce eligibility for benefits (Spieler and Burton 1998). These provisions included limits on the compensability of particular medical diagnoses, such as stress claims and carpal tunnel syndrome; limits on coverage when the injury involved the aggravation of a preexisting condition; restrictions on the compensability of permanent total disability cases; and changes in procedural rules and evidentiary standards, such as the requirement that medical conditions be documented by “objective medical” evidence.”
I don’t see those changes as a diminution of workers comp, but rather a response to medical conditions based on rather sketchy science, an effort to accurately and fairly allocate employers’ responsibility (and therefore employee responsibility as well), and a response to the assignment of responsibility for degenerative skeletal-muscular conditions to the employer.
If anything, I’d argue there are more conditions covered under work comp now than forty years ago. In my home state of Connecticut, as in several others, public safety employees’ cardiovascular conditions are automatically deemed to be compensable. That’s just a BIT of a stretch.
I’m not clear how an improvement in average state compliance, and the increase in the type of condition covered by workers comp in many jurisdictions, is a ‘deterioration’. And it would appear that almost all of our national legislators don’t see a significant problem, either.
Many would argue that our national legislation is comprised of slick, money-grubbing, intellectually challenged politicians who don’t know a damn thing about much of anything. That’s may be your opinion, but it is irrelevant – the national legislators are the ones who decide what legislation is going to see the light of day, and, as I noted in some detail yesterday, they are very, very uninterested in workers comp.
Tomorrow, some of the other Federal initiatives…


The Federalization of Workers Comp – seriously?

This afternoon I was a lunch time speaker at the IAIABC Conference in St Louis, where I was asked to opine on the chances of a major Federal incursion into the (mostly) state regulated world of work comp. I’ve noted (way) more than once that this is one of those ‘never gonna happen’ things, so here was an opportunity to make my case in front of a very knowledgeable and engaged group. There was a lively and informed discussion after the talk, and I’ll dive into that in a later post.
Here’s the first of several excerpts from that talk. I welcome your comments and contrasting opinions.
Workers comp is a tiny, all-but-insignificant industry that accounts for less than two percent of total US medical spend. Sure, it may be wildly important to you and me, but, really, does anyone else give two hoots about work comp?
Didn’t think so.
Insurance segments that tend to be regulated or addressed (in a meaningful way) on a national basis are those that are so large or complex or federally-specific that only the federal government has the interest and resources and capacity required to address the risk – which is how flood insurance came about, and nuclear plant risk guarantees, terrorism risk insurance, and coverage for the beryllium industry.
WC doesn’t fit the profile. – it’s relatively small, has an active, vocal, and effective group of stakeholders from across the political spectrum and both political parties (plaintiff attorneys and the Chamber of Commerce are two examples), and isn’t perceived by anyone in a position of authority to be anywhere close to broken.
Why would anyone in Congress – except Joe Baca, – have any interest at all in taking on workers comp?
And if they did, which they don’t, where exactly would this fit on the priority list? Above the budget bill? Just below immigration reform? Senior to the medicare physician fee fix bill, or not? More, or less, important than the nuclear non-proliferation treaty? If less, now that the treaty is passed, can we expect some major action?
Somewhat less significant than the Israeli West Bank settlement issue, or more? More critical than the energy bill, or no?
If Congress(wo)man X has to spend time thinking about comp, or Afghanistan, or the US nuclear industry, or Iran, or China’s refusal to adjust its currency valuation, or bank regulation, what do you think s/he will do? Where will s/he spend her time?
As to any interest at CMS in taking over WC, wouldn’t you think they have enough to do what with dealing with Congressional oversight hearings, implementing health reform, expanding Medicaid by a third, revising hospital reimbursement, drastically changing physician compensation, completely redo-ing Part D, developing and implementing over a dozen pilots and trial programs, and revamping Medicare Advantage?
Next, we’ll review a bit of history and discuss some of the new ‘news’ that is generating excitement among those concerned about a federal takeover.


In defense of the California state workers comp fund

The oft-maligned State Compensation Insurance Fund, aka California state fund, is back in the news again, this time for terminating the Fund’s long-time Medical Director, Gideon Letz. Dr Letz was at the Fund for over two decades, was an active and forceful advocate for appropriate medicine and assertive return to work and played an important role in developing some of the more innovative – and effective – care delivery models for workers comp claimants.
I don’t know the details – or even the broad strokes – of the SCIF-Letz split – and that’s not the point of this post.
Instead, I’d like to focus on the really difficult position the Fund is in – its highly-problematic role of carrier of last resort, quasi-public agency, and competitive provider of workers comp insurance.
The comp business is highly cyclical, vacillating between hard and soft markets every few years. As claims costs rise, for-profit insurers restrict underwriting and raise prices, forcing more and more employers to get their workers comp from the Fund. With more premium comes more claims, more injured workers, and more inquiries, policies, bills, claims, and procedures to administer. At some point, the cycle turns, the for-profits come back into the market, premiums dry up, and there are far fewer policyholders, new claimants and new claims.
Meanwhile, during the hard markets the politicians are fielding complaints from constituents about poor service, unanswered phone calls, letters, and complaints. Many elected officials – often with good intentions, sometimes not – demand answers and accountability from the Fund, which then has to educate newbies about the cycle, SCIF’s “carrier of last resort” status, and the business implications of the cycle and SCIF’s status. The Fund then scrambles to hire, equip, and train more claims adjusters, bill reviewers, clerks, administrators, and nurses, open offices in ‘underserved’ areas, contract with more vendors, and buy more stuff needed to handle the increased business.
Several years later, the market has turned – other insurers enter the market and start taking share from the Fund, new business declines along with new claim volume. Inevitably, a report comes out showing the Fund is overstaffed, has too many offices and claims reps, and administrative expenses that look to be much higher than their for-profit competitors. Now, the same (or new and different) politicians point out the inefficiencies of the Fund’s bloated bureaucracy, demanding to know why the Fund needs so many more people/offices/computers to handle claims than those much-more-efficient private insurers. Inevitably, offices are closed, staff reduced, services cut.
And then the next hard market arrives.
Think for a moment about the business challenges inherent in running a carrier of last resort. First, you’ve got public oversight. Not to say that’s a bad thing, but it does take a lot of time, patience, and tact on the part of senior management. Next, you’ve got the pressures of public finance, where taxpayers don’t want to pay more yet demand better and more services. Let’s not discount the challenge of managing a highly cyclical business where your operation MUST take on customers no one else wants, while constantly losing its most profitable customers to competitors.
This is NOT to say SCIF doesn’t suffer from poor managers, inefficient and outdated systems and processes, internal politics and nonsensical policies – hell, every comp insurer, whether private, public, for-profit or Fund, mutual or stock does. Sure, some have fewer warts, but all could be better/faster/smarter/more efficient. And perhaps SCIF has more issues than most.
But, given the conditions SCIF – and most other state funds, for that matter – operate under, it’s a wonder they don’t have many more.


Injury rates – (very) early indications of increases

Anecdotal information indicates the comp injury rate is heading up just a bit. In email conversations with Jim Greenwood, CEO of Concentra, Inc., the nation’s largest occ/urgent care clinic company, Jim sounded encouraged by the upward trend in the company’s growth, particularly in an increase in patient visits.
Concentra is seeing its strongest growth “in the Great Lakes (Chicago, Michigan,
Indiana, Ohio and Western PA), followed closely by the Mid Atlantic / New Jersey / Philadelphia.
Texas is also doing well, but “activity levels in the southeast, far southwest and west coast [are] best described as moderate on a relative basis.”
According to Greenwood, the growth in patient visits appears to be due to two primary factos: increased hiring in the transportation sector and greater market share for Concentra’s clinics.
Department of Labor employment data doesn’t necessarily correlate with Concentra’s results. For example, Texas employment was up by 43,600 in May, and California saw 28,300 net new jobs that month; TX correlates with Concentra results but California doesn’t. And, a spokesman for DoL noted: ” the worst hit states remain the housing bubble states and manufacturing states around the Great Lakes…”.
What does this mean for you?
If you’re in the work comp services business, a little good news. Employment is clearly nowhere near where anyone would like it to be, but it is improving, if ever so slowly.


Last year’s work comp managed care predictions

One year ago – against my better judgment – I made eight predictions about what would happen in the work comp managed care world. Here’s how I did.
1. Coventry will be acquired.
Well, that’s a helluva way to start out. Needless to say, that didn’t happen. I did note that it would happen after the credit markets loosened “enough for potential acquirers to feel a little more comfortable”; that is just starting to happen, but we’ve a ways to go.
What I didn’t factor in was the huge uncertainty surrounding health reform, and the impact of reform on health plans. My sense is this uncertainty will continue well into 2010 as healthplans and investors therein try to figure out what all this means.
Coventry is still an attractive target, although the recent surge in its stock price makes it a pricier deal…
2. Aetna’s work comp network business will slowly dissipate.
That prognostication worked out a bit better. AWCA network customers continue to struggle with lousy data quality in some jurisdictions, network expansion isn’t progressing as quickly or well as forecast, and payers indicate the effect of discounts is deteriorating. Without a ‘champion’ at mother Aetna, with several key staff moving on to other opportunities, and with revenues totaling well under one-tenth of one percent of Aetna’s total sales, look for that ‘dissipation’ to continue.
3. Corvel’s transition to a TPA with managed care services will accelerate.
According to their latest earnings report, revenue growth for the quarter was “reflective of improved growth in the Enterprise Comp product line, CorVel’s integrated claims management solution for workers’ compensation claims.” The 10-Q expanded on this, stating “The increase in revenues was primarily due to an increase in patient management business, with an increase in network solutions business as well. An improvement in customer utilization of the Company’s Enterprise Comp services was the primary reason for the increase in patient management revenues. ”
CorVel added another TPA to their portfolio in 2009, acquiring Eagle Claims, a five-year old WC TPA with 62 clients based just outside Syracuse NY in February.
4. Several of the larger payers will announce their own, small physician-centric network products.
Didn’t happen, making this about the umpteenth year some of us have been waiting for the big guys (and gals) to decide the one-size-fits-all PPO model doesn’t fit.
5. – Correction- Oregon will do a do-over.
In January I said “Oregon’s new regs require comp payers to reimburse at fee schedule for those services subject to the FS. Non FS services are to be reimbursed at billed charges” and as a result the state would revise their regs.
Wrong. According to a (admittedly very small) sample, payers have dealt with this and don’t see it as problematic. And there wasn’t a ‘redo’.
6. Innovation
I predicted there wouldn’t be any. That’s a ‘true’. (can’t wait to hear protestations of disagreement from those tweaking old processes and products)
7. Specialty managed care will grow
Sure has, especially in physical therapy with the expansion of Align into some additional claims offices and clients, and SmartComp’s announcements of various deals. Meanwhile, MedRisk (HSA consulting client) continues to dominate the space, inking a deal with Coventry to provide PT EPO services in most of the states with people in them.
Imaging is also growing – the recent OneCall transaction is an indicator of the private equity industry’s interest in WC, while NextImage reflects the emergence of new competitors.
FairPay’s acquisition by Riverside is more proof.
8. Medical costs
I predicted costs would “continue to increase far faster than they should, driven by lousy managed care models poorly implemented by payers more concerned with “savings” than claims costs.”
I hate it when I’m right. Drug costs are exploding, with 2008 costs up 7.5% and prices (just one component of drug spend, the other being utilization) up almost 10 percent in 2009. Hospital costs are continuing to grow faster than expected.
NCCI’s latest figures indicate costs have moderated, but these are from 2007, and don’t reflect current results. They also don’t include California, NY, and a couple other states.
Here’s how I’d score it.
Wrong – three – Coventry, Oregon and small networks
Right – four – medical costs, specialty managed care, innovation, CorVel
Neither – Aetna – but just give it time…
Never one to leave well enough alone, I’ll be out with my predictions for 2010 in a couple days.


Is the drop in work comp claims frequency a myth?

An article in Human Resource Executive highlights the results of a report by the Government Accountability Office on workplace injuries, specifically noting many employers fail to report injuries and illnesses for fear of increasing their workers’ compensation premiums.
It’s not just employers, as many workers don’t report occupational injuries out of fear that they’ll be fired or disciplined, or their injury will taint their department’s unblemished safety record. The implications of this are significant and far-reaching.
According to the article,

Employers that deliberately under-report injuries in order to protect their workers’ comp insurance rates are committing fraud — fraud that will impact the entire business community, says Paduda [I was a source for the piece].
“Because of this fraud, workers’ comp insurers have been assuming much greater risk than they’ve been pricing for,” he says. “This will eventually lead to a lot more audits by insurance companies of their clients and much higher rates for everyone, especially when the current ‘soft market’ for workers’ comp insurance ends, which it soon will.”
It may also lead to higher rates and more audits from group health insurers due to injured or ill workers seeking treatment from their primary-care providers instead of their company’s workers’ comp provider, says Paduda.
“Group health insurers are growing more suspicious that many of the claims they’re seeing are the result of workplace injuries and will try to subrogate those claims to the parties they believe should be paying for them.”

Another report by the National Employment Law Project highlighted the problems faced by low-wage workers when they are injured on the job. The study looked at a population that accounts for fifteen percent of all workers in just three cities; Chicago, New York, and Los Angeles. Extrapolating the numbers out in just those three cities indicates that 75,446 workers comp injuries were not reported.
What does this mean for you?
For the comp industry, the declining frequency years may be coming to a screeching halt.
If you’re a work comp payer, you’ve been ‘lucky’ if you insure these businesses. That ‘luck’ will soon change as the Department of Labor is dramatically ramping up enforcement efforts. (I don’t mean to imply that comp carriers have somehow been complicit in this, in fact the opposite is much more likely as insurers work very hard to ensure rapid and accurate claim reporting.)
If you’re a TPA or other servicing entity, your revenues have been suppressed by the failure to report injuries.
And if you’re one of these low-wage workers, perhaps there’s hope that the situation will improve.