Medicare and Workers Compensation Medical Cost Containment

View complete report: Medicare and Workers Compensation Medical Cost Containment

Medicare influences workers compensation medical cost containment in several important ways, including:

• Medicare pays a significant share of overall US medical costs. As a result, Medicare reimbursement rates influence prices generally paid for medical services, including prices paid for medical services for workers compensation.

• Many states base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule.
• Some states control costs for services provided by facilities through systems based on either Medicare’s DRG system for hospital stays or Medicare’s APC system for services provided at ambulatory surgical centers.

In states that base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule, clearly workers compensation medical costs can be affected by changes to Medicare reimbursement rates. But workers compensation medical costs can also be affected by changes to either the underlying formulas Medicare uses to determine those reimbursement amounts or to the way Medicare allocates payments by type of service. Failures to account for changes to Medicare’s methodology or for trends in how Medicare reimburses physicians in the various medical specialties might have reduced the effectiveness of some workers compensation physician fee schedules.

This paper looks at some aspects of the role that Medicare has played in workers compensation medical cost containment. Medicare confronts major near-term challenges, some in common with workers compensation. The tactics that Medicare uses to address those challenges might, in some cases, be worth considering for use in workers compensation. In addition to direct comparisons between Medicare and workers compensation, we use experience from Group Health to add perspective on the impact of workers compensation and Medicare fee schedules on workers compensation medical costs.

The key points that this article discusses are:

• While there are administrative efficiencies from referencing the Medicare reimbursement formula, workers compensation fee schedules that do so must react appropriately to ongoing changes in Medicare methodology.
• Some workers compensation fee schedules have not been adjusted to account for changes in the relationships between Medicare reimbursements and prices paid by private payers or Medicare reimbursement relativities between service types. In some cases, this has allowed excessive reimbursements to specialists by workers compensation insurers.
• The proportion of workers compensation medical costs that are subject to physician fee schedules is declining, with proportionally more billings by facilities. To maintain the effectiveness of medical fee schedules, workers compensation might consider using Medicare billing approaches for hospital stays (DRG) and ambulatory services (APC), but in doing so should adapt Medicare models to workers compensation priorities.
  
  As the workforce ages, workers compensation might focus safety initiatives toward falls and hip injuries, where Medicare protocols should provide valuable insight in designing treatment guidelines.

• Medicare faces enormous demographic and fiscal challenges. Workers compensation shares some of those challenges, and Medicare’s response might offer suggestions to enhance workers compensation medical cost containment.

-National Council on Compensation Insurance

Workers Compensation and the Americans with Disabilities Act

Now that the Americans with Disabilities Act (ADA) is in force for most businesses in the United States, questions concerning its relationship with the workers compensation (WC) system have arisen. For example, does the ADA affect the provisions or the coverage found in the workers compensation and employers liability insurance policy?

The first point to make about the ADA and workers compensation is that neither entity mentions the other; the second point is that, regardless of this mutual snub, there is a connection between the two. This connection, however, is based more on the effect that the ADA has on the WC system rather than on the WC policy. In fact, to better understand the impact of the ADA on workers compensation, the WC system has to be, at least theoretically, looked upon as a separate creature from the WC policy.

The current workers compensation system is the cumulative result of decades-long confrontation and compromise between employers and employees; an employee injured on the job relinquishes his or her right to sue the employer in return for a statutorily imposed system that provides specific scheduled benefits. The WC system is designed to assure the injured worker that he or she will receive certain benefits due to the injury (such as cash payments and rehabilitation services) and to assure the employer that he or she will not face time and money consuming lawsuits based on the injury to the worker. Now, the ADA comes along and modifies that system.

The ADA certainly does not abolish the workers compensation system and certainly does not dictate the amount of benefits scheduled to be paid to an injured worker; there is no such direct assault. There is, however, a more subtle, a more indirect effect that the ADA has on the WC system.

To be sure, the injured worker still is entitled to the state-mandated workers compensation benefits. However, the injured worker, under the ADA, may now be considered a "qualified individual with a disability". And it is in this area that the ADA can modify the workers compensation system. Now, the employer can be sued by an injured worker, not directly because of the injury, but because, as a "qualified individual with a disability", the employee can seek accommodations to allow him or her to return to work. If the employer unreasonably refuses to accommodate the injured worker, the ADA would allow a discrimination lawsuit by the employee against the employer. Thus, the employee may end up getting the proverbial "two bites of the apple" - workers compensation benefits and monetary damages based on discrimination, both awards basically arising out of the same injury.

This is not an absolute pronouncement since ADA claims will be decided on a case-by-case basis; however, it has to be noted that the exclusive remedy of the WC system does not act as an automatic and absolute bar to a lawsuit or claim made by an injured employee against the employer.

The ADA also affects the workers compensation system indirectly by having individuals with disabilities at the workplace. For example, if an individual with a disability is working at ABC manufacturing company, the chances of that individual being injured on the job (or causing other employees to be injured) may be higher than if that same person did not have a disability. Therefore, the employer, by complying with the ADA, may be increasing the number and the severity of the workers compensation claims due to the increased chances of an employee (with a disability or not) being injured while at work. This increase in the number and the severity of workers compensation claims has to have an impact on the WC system, whether that impact is in the form of higher WC rates or decreasing ability to buy WC insurance.

If the ADA has an indirect impact on the workers compensation system, its impact on the actual workers compensation policy is just about nil.

Look at the standard workers compensation policy. The policy makes the promise to "pay promptly when due the benefits required of you by the workers compensation law". The workers compensation law is the law of each state named on the information page of the policy. The coverage under the policy applies to bodily injury by accident that occurs during the policy period and to bodily injury by disease that is caused by or aggravated by the conditions of employment. The other paragraphs of the workers compensation part of the policy discuss the duty to defend against WC claims or suits, supplementary payments, other insurance and statutory provisions. The point is that nothing in the policy conflicts with the ADA, nothing enhances the ADA, and nothing even mentions the ADA. If an employee is injured on the job, the WC policy will pay the benefits required by state law, regardless of the existence of the Americans with Disabilities Act.

As noted above, the WC policy may have to pay out more benefits because an employee with a disability may be injured more often, but the ADA itself does not include or exclude the benefits prescribed by a state's workers compensation law and covered by the WC policy. Even if the state law required accommodations in order to get the employee back to work and the WC policy paid for these accommodations, it is the state workers compensation law requiring such payment and not the ADA.

There is another part, of course, to the WC policy, namely, employer's liability insurance. This insurance applies to bodily injury by accident or by disease arising out of and in the course of the injured employee's employment; it applies to all sums the employer legally must pay as damages (where permitted by law and as described in the policy) because of bodily injury to the employee.

The ADA is not mentioned in the employers liability insurance part of the WC policy and it is not relevant to that part. It is not relevant for, at least, two reasons. One, employers liability insurance is based on legal liability for bodily injury suffered by on-the-job employees; the ADA bases any claims for recovery on discrimination and violation of a civil right. Two, employers liability coverage is specifically excluded for damages arising out of demotion, reassignment, harassment, humiliation, discrimination against or termination of any employee, or any personnel practices, policies, acts, or omissions - all items that could be encompassed by a claim under the ADA.

So, regardless of which coverage part of the WC policy is examined, the ADA has no immediate impact. There is no need to be concerned about the ADA superseding - expanding or contracting - the scope of the workers compensation policy.

There are several differences between the ADA and workers compensation that can be noted. Among these differences are the following.

First, many work-related injuries covered by workers compensation are minor and only temporarily disabling; the WC payments are meant to cover the medical expenses associated with the injury and get the injured employee back to work as soon as possible. The ADA applies to employees who have substantial, permanent disabilities. A "disability" is defined in the ADA, and the 2008 amendment of the ADA did not alter the definition, only clarified it. Note that a temporary or slight disability would not make an employee a "qualified individual with a disability" under the provisions of the ADA since the disability has to substantially limit one or more of the major life activities of the individual. So, permanent and total disability due to a work-related injury can be handled as a WC payment, but, temporary and slight disability due to a work-related injury will not be handled under the ADA.

Second, the purpose of the WC system is to help employees who suffer job-related bodily injuries; the ADA's purpose is to protect individuals (employees as well as potential employees) from discrimination based on disability.

Third, workers compensation applies to injuries arising out of or in the course of employment; the ADA can apply even if the disabling injury did not arise out of employment. The employee has to be on the job for his or her company if workers compensation is to pay for any injury. Under the ADA, the individual not only does not have to be injured on the job, he or she (as implied above) does not even have to be employed by the company in order for the ADA to come into play since the ADA is meant to prohibit discrimination against not only disabled employees but also disabled job applicants. In short, workers compensation protects employees injured on the job; the ADA protects employees and non-employees and the phrase "arising out of and in the course of employment" is not relevant.

Fourth, workers compensation applies to bodily injury while the ADA encompasses bodily or mental impairment. It is true that some courts today consider mental anguish to be bodily injury, but that is not the majority rule. As an example, a mental or psychological disorder, such as emotional or mental illness or a specific learning disability, can qualify an individual as disabled, and thus, protected under the ADA. That same mental disorder, however, is not considered bodily injury as covered by workers compensation; purely non-physical or emotional harm or disorder (unaccompanied by a physical injury) is not bodily injury and not covered under workers compensation in most states.

Fifth, workers compensation claims are usually handled by the state workers compensation fund (monopolistic states) or the workers compensation insurer; the ADA is administered by the Equal Employment Opportunity Commission (EEOC). Incidentally, for a brochure on EEOC guidelines on the ADA, call 1-800-669-3362.

These differences are not necessarily all-inclusive, but are offered to distinguish the scope and intent between the Americans with Disabilities Act and workers compensation.

The ADA does have an impact on workers compensation, but that impact is mainly of an indirect nature. The WC policy itself - with its insuring agreements, exclusions, and conditions - is not modified by the ADA and those employers who are insured under the standard workers compensation policy will not find the coverage impaired by the ADA.

FC&S

Impact on Utilization From an Increase in Workers Compensation Indemnity Benefits

In a new study, NCCI uses a "difference in differences" methodology to analyze the impact of benefit changes in two states (Oregon and New Mexico) to find that for each $1.00 of direct benefit increase, there is an added $0.54 average cost due to increased claim durations.

The results of this analysis provide support for the utilization effects of statutory changes in indemnity benefits.

For Oregon, the 33.0% increase in the maximum weekly TTD benefit resulted in a 17.5% impact on utilization. This implies a duration/benefit elasticity of 0.53 (17.5% / 33.0%). The 7.6% increase in benefit duration in response to a 17.6% increase in the maximum weekly indemnity benefit in New Mexico translates into a duration/benefit elasticity of 0.43 (7.6% / 17.6%).

In terms of TTD indemnity costs, both the Oregon (38%) and New Mexico (33%) studies show that approximately 35% of the total cost impact can be attributed to a duration utilization effect. The focus of this research has been on two event studies where TTD benefits had increased. Some might interpret our findings to also conclude that a decrease in TTD indemnity benefits would result in a utilization impact. However, no such analysis was performed with which to reach such a conclusion.

Note that the difference in differences approach used here captures the portion of the utilization effect that is attributable to changes in duration only; in other words, this method is not suitable for measuring the impact on the frequency of claims that may arise from a statutory indemnity benefit change. However, there are studies indicating that statutory indemnity benefit changes may affect frequency.

NCCI's estimate of the utilization impact on claim durations from a change in statutory indemnity benefits reasonably agrees with estimates of prior studies, thereby providing additional support for the inclusion of such utilization impacts in legislative cost analyses. Producing more accurate and responsive cost impacts will enhance the legislative pricing and ratemaking services offered by NCCI, and it will provide valuable information to aid public policy decision making.

View complete report: Impact on Utilization From an Increase in Workers Compensation Indemnity Benefits

National Council on Compensation Insurance

Tiny Objects, Big Concerns

"Good things come in small packages," is a comment we often hear around Christmas time. For those in the burgeoning field of nanotechnology, though, the maxim has year-round relevance. We define nanotechnology as the building of substances and structures so tiny as to be essentially invisible. A nanometer is one billionth of a meter. By comparison, a human hair is 80,000 nanometers wide. Nanotechnology involves fabricating nanomaterials and forging them into useful products. At this level, however, material properties change and can spawn unintended side effects.

A scarcity of empirical data - especially regarding losses - hampers nanotechnology-related risk dialogue. Nanotechnology is a growing niche, so there is little litigation or loss history to analyze. Thus, much of the discussion of nanotechnology and its management flows from hypothetical examples.

Less murky is the fact that nanotechnology is not a passing fad. It has innovative applications for a range of technologies and sectors, including drug delivery, medical imaging, integrated sensors, and semiconductors. Many believe that nanotechnology can enhance treatment and detection of diseases like AIDS and cancer. Some estimate that, by 2014, nanotechnology will command a global market value of $2.6 trillion and provide jobs for one million employees in the U.S. alone.

Occupational Hazards

One of the biggest areas of nanotechnology risk management concerns lies in workers' compensation. Worries abound that employees working in manufacturing and industrial areas containing nanoparticles may inhale or absorb these particles and suffer adverse health effects. If this occurs, then serious workers' compensation claims could follow. All it would take would be a showing by an employee that there was an accidental injury or disease arising out of and during the course of employment. Experiments have shown that nanoparticles impact human tissue and cross the blood-brain barrier.

Workers' compensation policies are statutory; that is, they cannot exclude benefits for claims arising out of exposure to nanotechnology or tiny particles. Certainly companies that manufacture nanotechnology or companies working with nano-tech materials may face heightened workers' compensation risks, ratings, and costs.

In addition, the tiny nature of nanoparticles renders them highly reactive. This increases the potential for explosion, fire, and ignition. This can also create new workers' compensation and environmental hygiene challenges.

Product Perils

In addition to workers' compensation exposures, product liability exposures loom. Thus far, companies have used nanoparticles in products such as solar panels, sunscreen, long-lasting cosmetics, and self-cleaning food containers. The use of nanoparticles in these and other products will likely increase over the next decade. One can readily imagine an influx of claims and lawsuits from plaintiffs alleging injury due to a supposed malfunction or defect in a nanotechnology product. Plaintiffs can assert defective design, defective manufacture, failure to provide adequate instructions or warnings, breach of implied or express warranty, and negligent marketing, among others. These are the same kinds of allegations that companies face in "macro" product liability claims. In other words, they are not unique to nanotechnology except insofar as the potential from loss because of inhalation or absorption of tiny particles that are later alleged to be harmful to public health. Currently, manufacturers of nanotech products need not warn or notify consumers of this fact.

Product Liability Attorney Daniel Ring from Mayer Brown LLP observes, "There [have] been claims related to some screens, but not any real tremendous litigation." He further notes, "it's fair to say they are already is increasing regulatory scrutiny over nanoparticles."

By now, it should be clear that nanotechnology does not necessarily translate into nano risk. In fact, nanotechnology could possibly translate into mega risks.

Industry Responses

Insurance industry responses to nanotechnology perils are still embryonic. One reason is that many insurance companies have yet to assess the exposure. Loss data is either scarce or nonexistent. Thus, most of the insurance industry is in a study and analysis phase. Primary insurance carriers may insert exclusions in their general liability policies, precluding coverage for claims arising out of nanotechnology. Other potential insurance approaches would include deductibles for claims arising from nanotechnology or sub-limits applying to such claims.

Where are some see dangers, though, enterprising carriers may see opportunities. Therefore, we might even eventually see stand-alone policies crafted to address liability exposures from nanotechnology.

While primary insurance carriers formulate their own strategies, reinsurance companies are aware of nanotechnology risk. Some reinsurers may insert treaty exclusions precluding reinsurance coverage for nanotechnology claims. From a risk management standpoint, risk managers must closely read their general liability policies to see if the latter contain exclusions that might render a nanotechnology claim uncovered. Further, ceding carrier management must make sure that there is a clear meeting of the minds with reinsurers over coverage for nanotechnology claims.

Risk Management Strategies

Companies may apply a classic risk-management template to the perils arising from nanotechnology. This would include avoidance, retention, contractual transfer, and loss control.

Avoidance - As the name implies, this would involve a company consciously deciding not to manufacture or use nanotechnology products. However, one need not be a manufacturer to face nanotechnology risks. Employees exposed to nanoparticles on-the-job may suffer health ills even if the employer is not a manufacturer. "Unknowns" or perceived risks from potential liabilities may deter firms from entering the nanotechnology niche. Some policy analysts have even suggested a moratorium on nanotechnology development because of safety concerns.

Retention - This occurs when companies enter nanotechnology and decide to self-fund for financial loss because of liabilities. Since quantifying such liabilities is challenging, because of the nascent nature of the risk, however, companies cannot credibly establish appropriate funding levels. The danger here is that ultimate liabilities might exceed retained funds and threaten an organization's financial solvency.

Contractual transfer - This arises when firms use insurance and noninsurance ways to cushion the financial risks and liabilities from nanotechnology. Insurance is a classic contractual transfer technique. Insurance does not transfer legal liability. Rather, it shifts the financial repercussions of nanotechnology liabilities to a professional risk-bearer. Non-insurance contractual transfer might include indemnification and hold-harmless agreements with business partners or component suppliers who are involved in nanotechnology.

Loss control - It is essential to institute safety measures to minimize the frequency and severity of claims arising from nanotechnology. In a workers' compensation and occupational health context, this could prompt firms to provide adequate breathing apparatus to employees to filter out the inhalation of nanotechnology particles. From a manufacturing perspective, it might involve a company fine-tuning its quality control and manufacturing process to ensure that any nanotechnology products pass all relevant governmental, regulatory, and safety standards.

In addition, companies should analyze their indemnification obligations arising from labeling and operations. For example, there is much discussion today about whether consumer products should bear labels disclosing that suntan lotion or beauty cream purchased includes some type of nanotechnology.

Risk managers in a range of industries must stay attuned to the growth of nanotechnology and its attendant risks. The proverbial jury is out as to whether good things really do come in small (nano-sized) packages. Whether nanotech represents a scourge or a promising new business opportunity, risk managers must nevertheless anticipate both outcomes and prepare to use a variety of tools to keep nano-tech from becoming a mega-hazard to their organizations.

National Underwriter Company