Thursday, July 14, 2016

Comp Should Sue Purdue

Over the past weekend the Los Angeles Times published a startling investigative story on Purdue Pharma, the maker of Oxycontin, and everything they knew about illegal distribution of the drug, their investigations, their suspicions ... and the company's complete lack of communication with anyone that could put a stop to the company's $31 billion revenue stream from the nation's best selling opioid.

How much did Purdue know?

And how much did they keep to themselves ... until pressured by law enforcement and the government?

According to the story, since 1999 more than 194,000 people have died from opioid overdoses, and more than 4,000 per day become addicted.

Four thousand a day...

Yet, even after three of Purdue's executives pleaded guilty to federal charges of misbranding Oxycontin and the company paid $635 million in fines and fees, the company turned a blind eye to clinics they knew were overprescribing, and even fronting criminal enterprises, all after touting increased security and controls over their drugs.

One year after the settlement, a Los Angeles pain clinic, Lake Medical, opened its doors on the license of Dr. Eleanor Santiago, a physician who had fallen on hard times and whom the operators of Lake Medical recruited to write prescriptions.

Santiago wrote 1,500 prescriptions for the pills in a single week - more than most pharmacies sell in an entire month; and according to the story, in October of 2008 she prescribed more than 11,000 pills.

Purdue investigated and concluded Lake Medical was part of a criminal enterprise working with a pharmacy in Huntington Park.

“Shouldn’t the DEA be contacted about this?” the sales manager, Michele Ringler, told company officials in a 2009 email, according to the story. She opined certainty it was an organized drug ring.

Still, Purdue didn't take any action against Lake Medical, and didn't tell anyone about what they knew until the clinic went out of business and its leaders indicted.

According to the LA Times, Purdue had collected exhaustive evidence suggesting criminal distribution of the drug, and not only did not share that information with law enforcement, but kept selling the drug to those being investigated.

"Purdue knew about many suspicious doctors and pharmacies from prescribing records, pharmacy orders, field reports from sales representatives and, in some instances, its own surveillance operations, according to court and law enforcement records, which include internal Purdue documents, and interviews with current and former employees," the Times says.

Since 2002 Purdue had been keeping a list of suspicious doctors, and the Times investigation revealed there were 1,800 names on that list.

Only 8% of them were reported to law enforcement.

Rather than risk its interfering with the obscene profits Oxycontin was delivering by releasing its information, Purdue instead came out with a tamper-resistant formulation. It was only after many arrests had been made that Purdue supplied its "suspicious" list to the DEA - by that time it was old news; many on the list had already been arrested.

The Times investigation and the resulting story are hugely incriminating. Big business making big money off of ... big business, when put into the context of the workers' compensation system.

The issues with opioids in workers' compensation are well known, the accounts well documented.

The harm to lives, families, business is huge.

The financial damage to workers' compensation payers is monumental, especially when tallying up the costs of unnecessary disability indemnity, drug rehab, lost production, medical bills, etc.

Suffice to say, the industry has probably supported, to its detriment, Purdue to the tune of billions of dollars, directly and indirectly.

Many states have sued and settled with Purdue, but those suits were based on the company's labeling misrepresentation.

Actively concealing damaging information for the sake of profits against the workers' compensation industry is another matter, however. (To be clear, there isn't evidence that workers' compensation was targeted, but certainly work comp was a huge victim.)

It seems to me, that the workers' compensation insurance industry (and self-insured employers along with them) have some leverage in the form of a class action lawsuit to recoup much of the damage Purdue caused by its fraudulent activity.

And it IS fraud! Knowingly concealing information that causes harm and damage to others is just as bad as misrepresentation.

Jack Crowley, who held the title of executive director of Controlled Substances Act compliance at Purdue and had spent decades at the DEA, told the Times, “Well, once we start to learn about it, we’ve got to report it. That’s for sure.”

Purdue didn't.

Pretty much a slam dunk to my jaundiced work comp "no fault" legal mind.

If any carrier wants a referral for a class action law firm, contact me...

Wednesday, July 13, 2016

Uncompensated Californians

The third in a series, WorkCompCentral's latest special report on benefit adequacy, specifically temporary disability indemnity, takes a look at California.

This is, of course, of particular interest to me. I'm from California and as much as the state is denigrated by the rest of the workers' compensation community, it's temporary disability benefit is one of the most generous - perhaps because the cost of living in the Golden State is one of the highest.

It didn't use to be that way. For many years the TTD rate was stuck at abysmally low, static levels. The statute (LC 4453) was changed so that, beginning in 2004, the TTD rate would be tied to inflation as represented by the State Average Weekly Wage as determined by the Federal Department of Labor. Since then the SAWW has inflated 69%...

Still, even tied to inflation, what really happens when someone has a work injury and is off work for a protracted period? The statute, like many states, limits TTD to 2/3rds the employee's wages, subject to a ceiling, and with a maximum duration.

But California is a bit more liberal in terms of waiting periods - only 3 days of total disability before the benefit kicks in, and then retroactive to the first day of disability if more than 14 days pass. Most states have a 7 day waiting period and retroactivity doesn't occur unless more than 30 days pass without employment.

Our study examines two workers diametrically opposed in the employment sector - a farm worker who gets injured on the job, and the physical therapist assigned his case; a low wage earner and a high wage earner. As you will note from the report, neither are adequately protected by California's TTD law, and both suffer long term financial consequences far beyond the direct injury sequelae.

While you should read the report, and draw your own conclusions, here are the basics:

Jose, the farm worker, sustained an actual net loss in take home pay of 16% - nearly a fifth of his normal net pay. To a person living paycheck to paycheck, i.e. essentially on the edge, 16% is a big number, particularly if your average pay is only $21,900 per year...

Jose had to forgo savings, had to forgo support to his family in Mexico, and ends up having to rely on the generosity of his roommate to overcompensate for his financial detriment.

Worse, Jose no longer contributes to the economy, and comes out of workers' compensation a public benefit dependent.

One might think things would be different for Mike, Jose's physical therapist.

Mike's average annual wages are decidedly upper middle class at around $100,000. But kids to put through school, a mortgage, car payments, and the basics of a middle income lifestyle doen't leave a whole lot of room for a dark day, even with savings.

Mike's budget was $5,769 per month. The adjuster couldn't figure out the TTD rate because she was confused how to calculate wages when pay is based on case load (to me that's shocking and, frankly, completely unacceptable - it's a very easy calculation...) so she just didn't pay (again, completely shocking and unacceptable) and then when she did pay the amount was wrong.

But even after Mike got an attorney who was able to "school" the adjuster on how to calculate the TTD rate, that rate is capped far below Mike's needs. Indeed, because of the adjuster's error Mike had to tap his 401K and, if not repaid timely, will suffer additional economic harm.

These Special Reports are not intended to advocate for reform one way or the other, or to cast aspersion on the workers' compensation system - rather they are intended to highlight issues that we, as a society, need to take a serious look at.

I observed yesterday that perhaps the workers' compensation insurance industry's steadfast battle for work safety may, in the end, foster the irrelevancy of such insurance for the vast majority of industries and employers.

There's a palpable tension in workers' compensation that's more acute than it has been in some time.

The WorkCompCentral reports on benefit adequacy compel, I think, reviewing the basic social policies that created workers' compensation in the first place.

It comes down to value. If employers are paying too much for too little, will the industry survive? If enough people suffer financial harm from a privatized social benefit system that is inadequate, is there reason to keep it in place?

We, as an industry responsible to society, have some soul searching to do.

The Uncompensated Worker series, along with all other WorkCompCentral special reports, can be downloaded at The reports are free, though you will need to register to retrieve the reports, unless you are already logged in as a member.

Monday, July 11, 2016

The Shrinking Market

WorkCompCentral correspondent, Peter Rousmaniere, recently did an analysis of injury frequency rates by state and projected those declines out to the future, calendar year 2024.

Here's the bottom line for those who's attention spans are as short as mine: The insurance of work place injuries is a shrinking market, unless those that do the insuring raise their fees.

In other words, despite continued improvement in safety, ergo frequency and severity, the work comp industry is a money loser due to its own initiatives.

This is good, and this is bad.

This is good, because the ultimate outcome, a safe work environment, is the product of the industry’s relentless push to reduce frequency.

But in the bigger scheme of the world, this is bad, because the industry as it is currently structured is not a sustainable business model. Which leads to incongruity, and ultimately deceptive practices that undermine the entire system (evidence of which we see in all sorts of sub-sectors: UR, BR, IMR, etc ad nauseum).

The first table uses employment figures for 2015 and 2024 and projects, by state, the change in work injuries by 2024 assuming a 2.5% annual reduction in frequency (for comparison, NCCI pegs it at 4.3% since 1990).  Huge declines are due to workforce population declines (see Michigan, for instance). Even states with a growing work population are going to see injury reductions.

The second table uses a 2012 - 2022 workforce projection, which was used for the Seismic Shifts special report.  It looks at Lost Time Compensable injuries, which means that each of about 100 occupations studied (about 2/3 of the entire workforce) has is own LTC frequency estimate based on BLS injury data by occupation. The table shows the reduction in LTC injuries with a 2.5% annual reduction in frequency (again, NCCI averages 4.3%). The table also shows the percentage of LTC injuries that would occur without safety improvements in 2022, by two categories: technology improvement sensitive (vehicles and material handling) and construction-oriented jobs.   

2015 – 2024 projection of work injuries with safety improvements 

The left hand percentage is the change in the size of employment. The right hand percentage is the change in the number of work injuries at a 2.5% frequency improvement per year.

Employment Work Injuries

2015 -2024 2015 - 2024
United States

District of Columbia
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Rhode Island
South Carolina
South Dakota
West Virginia

2012 - 2022 injury analysis

This table reflects Lost Time Compensable injuries for 2012 and 2022, based on employment projections. No net change due to inter-sector employment shifts is found. 

LTC 2012:

LTC 2022:

% change, no safety improvements:

est 2022 at 2.5% freq reduction / year

% of LTC injuries 2022, no safety improvements:

    Technology sensitive (vehicles, material handling)

    Construction oriented


There are several factors at work against the current workers' compensation insurance business model.

The first, and foremost, as pointed out by Rousmaniere's analysis (and corroborated by Berkeley research Frank Neuhauser), is that the work place is safer and safer and safer.

Which means, of course, there are fewer - indeed FAR fewer - injuries or deaths to insure against than when The Grand Bargain was first negotiated.

And the declining frequency trend means that at some point work injuries/deaths will be, essentially, negligible, which will drive employers to question why workers' compensation, at least in its current mandatory format; i.e. why can't employers formulate some other work injury protection scheme without the overhead, bureaucracy, intrusion and imposition of current state workers' compensation plans since the need isn't so great.

In other words, regardless of the current foment against the nascent "opt-out" movement, eventually the industry is going to have to come to real terms with the reality that it, as in workers' compensation insurance, will become displaced.

The industry is disrupting itself.

The only defense workers' compensation insurance has against this ultimate threat is to make it cheaper, but that won't happen in today's environment, against the long term sustainability of the line, because there is no panic yet.

Indeed, a couple of years ago, at the start of the current "hard" market, then NCCI president Stephen Klingel in his State of the Line address essentially said that there was no good reason that carriers are able to sustain rates and premiums at current levels other than the fact that they could - i.e. employers haven't yet awoken to market realities.

But they will...

What demands does an employer have the right to ask from a vendor (in this case, a workers' compensation insurer) who sells a product that the vendor knows can be a lot cheaper - but the vendor doesn’t make a full effort to make it cheaper?  These are generally relationships that go on for years.

Are insurers really competing on keeping prices low but reducing their “cost of business”, which is injuries times the cost of the injuries?

When I hire a contractor or lawyer, aren’t I implicitly expecting that the vendor will take care, if only for competitive reasons, to be economical, such as avoiding unnecessary work? Should not this expectation also apply to the vending of workers' compensation insurance?

But in the short term, as the workers' compensation insurance industry adjusts to the fatal reality that there soon won't be anything to insure, a couple of trends are apparent:

1. increased competition and consolidation of workers comp industry participants.
2. increased exploration of transitioning into related fields.
3. great attention to vehicular and materials handling technology that lowers work injury (see #2).

The State Fund of Minnesota decided to invest in an injury reducing technology firm. Sure, this could lower premiums for its subscribers, but more importantly lowers cost to the insurer.

Eventually, though, the employer market is going to demand those savings be returned, or at least demand an accounting of where the money is going and, absent that, demand alternatives.

And carriers can't blame medical inflation anymore for sustained premiums - the industry's constant barrage against the medical industry has inflation way below what general health experiences.

The effect on the industry's market (i.e. employers) and the industry itself will be like how we notice changes in local real estate use - we don’t notice it until suddenly we do. 

Being Batman

Agents and brokers chastised me for suggesting they were no protection for "sophisticated employers" and that I discounted the services they provide.

I also upset some friends for giving some of the complaints "air time," which put them in a bad light.

I take a lot of heat. My callouses were developed practicing law. Back then I used to tell people who couldn't figure out how to pronounce my name or address me that, "I'm called all sorts of names - I'm a lawyer after all - so I don't care what you call me, as long as I know you're talking to me."

Well, a lot of people were talking to me.

I get it.
Always be Batman...

I also understand that most people read and absorb what they want, in general missing the context of what is trying to be communicated.

Everyone has a different reality because an individual's experiences flavor our perceptions.

Sure, one plus one equals two for most of us, but others will interpose an experience that tells them that equation is actually not so succinct, and perhaps the answer may be different depending on how one looks at the problem and the solution.

I like to call this the "life algorithm". defines algorithm as "a set of rules for solving a problem in a finite number of steps, as for finding the greatest common divisor."

How we perceive life is permanently filtered through our own experiences. The life equation is so complex that every single one of us needs to distill all that is around us into more simple parts that we can digest in order to get on with the next decision (major, minor or inconsequential) with which we are tasked.

These are algorithms. They make life understandable to most of us - probably about 80% of everyone all of the time. Some that don't get that understanding, or can not process it adequately, have troubles - probably about 20% of everyone all of the time.

The overused 80-20 rule is, unfortunately, quite accurate. 

Yep, no matter what you're doing in life, there's always someone who is going to be a challenge, who is going to be the bad example, who is going to act irresponsibly, irrationally, offensively, or with malintent.

The 80-20 "rule" plays out all the time, and attracts our attention because of the vast resources such actions take.

My personal life algorithm bends each experience into a positive factor, which may explain why I never did well with math, algebra, calculus, and all of the other pure logic-based disciplines; my life algorithm usually spits out a positive numeral because negative numbers don't make sense to me.

So I took those critiques and suggested that if indeed one does something good for workers' compensation then that person or entity should be recognized with a Comp Laude nomination.

And I'm standing by that - nominations end, for real, TODAY. The process is simple - just contact information and a brief description of why someone or some entity deserves accolades, whether they be an agent, lawyer, doctor, injured worker, employer, insurance company, vendor, copy service, therapist, etc.

You get the picture. And if you are too busy to make the deadline, call WorkCompCentral and someone can take your nomination.

There's a poster hung in a kitchen cabinet of a rental I like. It depicts a child in a Batman costume. The caption is, "Always be yourself. Unless you can be Batman. Always be Batman." 

I think that summarizes my philosophy quite well.

Or as Batman once counseled Robin, "That's one trouble with dual identities, Robin. Dual responsibilities."

Thursday, July 7, 2016

Capitate It

Workers' compensation medicine is often critiqued against general health medicine, the implication that general health does things better.

And to an extent that is correct. General health medicine coverage, in general, seems to turn out better patient satisfaction, greater physician participation, and overall less acrimony.

But a huge difference between work comp and general health is that work comp is "first dollar" for the most part - meaning that work comp pays right off the bat. There is no co-pay, no deductible, etc.

Also, whether it is because of tradition, technology, culture, politics, or whatever, but work comp is for the most part a fee for service system. A provider performs a certain function, denotes its billing code, and gets paid whatever the system says that code is worth.

General health is moving away from that model towards a "capitation" model. Basically that model makes a one time payment per "population" that is assumed to require a certain level of service. Incentives for quality and outcomes are built in, and measurements are required to adjust the cap level.

Brent James, MD and Gregory Poulsen in the July-August issue of the Harvard Business Review make a Case for Capitation, outlining how such incentives can be built, monitored and deployed to the benefit of everyone: patients, providers and payers.

There are some elements that could be applied to workers' compensation.

The University of California, Los Angeles and R&Q Healthcare have partnered on a limited capitated plan for a select service: outpatient treatment for pain and addiction.

UCLA provides the service, R&Q does the selling.

The benefits are that uncertainties regarding treatment cost are reduced, and longer term, payers should see reduced claim costs as the injured worker’s drug use decreases.

I might add, that if an injured worker's addiction to opiates is the product of workers' compensation treatment the system has a moral obligation to reverse that...

William Lape, chief executive officer of R&Q Healthcare Interests. He told WorkCompCentral the capitation model turns the tables on the traditional workers’ comp system in which a provider outlines a course of treatment and then faces challenges from the payer for anything that seems inappropriate.

“What we’ve done is reverse that,” Lape said. “It’s not the way workers’ comp is used to doing it.”

Indeed, physicians interviewed by WorkCompCentral for the story were pleasantly surprised, saying they would welcome a system where each treatment request wasn't second guessed or challenged by the payer.

Before a payer commits to the program, the injured worker is sent to a free, in-person evaluation to assess various factors, including whether the claimant wants to reduce her dependence on painkillers.

If the claimant seems to be a good fit for the program, the payer can enter an agreement for up to six months of outpatient treatment. The maximum price is capped, Lape said, but if the cap is not reached, the payer will pay for only the services used.

The program can also be customized to a degree. For example, if the injured worker needs detoxification before entering the outpatient program, that service can be added, Lape said. And if an injured worker drops out midway through the program, she'll have one opportunity to re-enter.

There are other capitated or bundled payment programs around the country, though not many.

It seems like nirvana, and that's because capitated programs are, for now, of limited application, ergo value. The models have to be refined for various injury treatment scenarios to ensure that incentives are properly placed and deployed.

But I think capitated plans are the future of medical care, and in particular workers' compensation. We'll see more of this as experience is gained.