Self Funding Magazine by Employer healthcare Congress

Self Funding Magazine

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ONE Location

2011 Employer Healthcare Congress Self Funding Magazine

Four Leading Healthcare Conferences

One Exhibit Hall, 4x the Traffic Shared Exhibit Hall, Networking Lunches & Networking Receptions

October 26th-28th, 2011

Marriott Renaissance Schaumburg Convention Center Hotel

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TABLE OF CONTENTS

EDITORIAL Editor-in-Chief

Jonathan Edelheit

Assist. Editor

John Springer

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“Missing Link” Significantly Impacts Waste in Work Injury Management! by John Ryan

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TABLE OF CONTENTS

LETTER FROM THE EDITOR

Crickets? Does Anyone Hear Anything Else in the Industry? by Jonathan Edelheit

Prescription for What Ails 05 ASelf-Funded Plans:

MMSEA Section 111 Reporting Is Not the Only Medicare Game in Town by Mark Popolizio

by Charles Epstein

Driving Down the Cost of Healthcare through Cost Transparency

CAFETERIA PLANS, HRAS AND HEALTH CARE REFORM by Aimee Nash

by Christopher Parks

Care and Employers: 14 Health Innovative Solutions for a Changing Marketplace by David Goldstein

17 INSURER’S LIABILITY FOR

NEGLIGENT INSPECTIONS

by Gary Wickert

DON’T DRINK THE WIZARD’S ELIXIR THERE IS A CURE FOR WHAT AILS US by Lisa M. Holland, Gregory J. Hummer, and Daryl Chapman

STRUCTURED SETTLEMENTS ARE BEST FOR ALL PARTIES by John L. Machir

ADDING VALUE: BRING HOME THE SAVINGS FOR SELF-FUNDED EMPLOYERS by Samuel H. Fleet

Copyright © 2011 Self Funding Magazine. All rights reserved. Self Funding Magazine is published monthly by Global Health Insurance Publications. Material in this publication may not be reproduced in any way without express permission from Self Funding Magazine. Requests for permission may be directed to info@SelfFundingMagazine.com. Self Funding Magazine is in no way responsible for the content of our advertisers or authors.

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LETTER FROM THE EDITOR Crickets? Does Anyone Hear Anything Else in the Industry? Everyone seems very positive about the future of the self funding industry. Many experts have expressed the opinion, that healthcare reform will increase health insurance costs, and many employers will shift to self funded plans because of a little greater flexibility, less mandated benefits, and potentially lower costs. Crickets, though, is all I hear. I don’t see or hear TPA’s, Reinsurers, or Agents coming out and educating employers on the benefits of self funding under healthcare reform. It is 2011. 2014, where many of the new changes and mandates is only a few years away. When is everyone planning to start educating and teaching employers about why they should make the transition? Are you waiting to 2014? Now is them time, with many employers nervous, upset, scared about where healthcare costs are going and being unsure of their future and whether they will be able to afford to offer benefits, or let employees buy their benefits in the insurance exchanges and just give them a stipend. Now is when Employers will be receptive to new ideas and planning strategically for the future. Three years is not to far off. Especially if you want to start saving on costs and healthcare claims now, rather than waiting until in 2014, when costs will really start skyrocketing and spiraling out of control. Wake up, and see an opportunity when it’s standing right in front of you! Jonathan Edelheit is Editor-In-Chief of Self Funding Magazine, the only dedicated online Self Funding Magazine in the industry focused on Self Insurance/Self Funding in the workplace. Mr. Edelheit has been involved in US healthcare for almost ten years and ran a national healthcare administrator for almost seven years that administered healthcare plans for insurance companies, employers and governments. While running the healthcare administrator Mr. Edelheit started to implement the first corporate wellness programs there through many tools such as health risk assessments, tele-medicine, e-health and many more options. Mr. Edelheit has been featured or mentioned in hundreds of media publications and in February 2008 was featured as a visionary in US healthcare by Executive Managed Healthcare Magazine. Mr. Edelheit also organizes the Employer Healthcare Congress, www.employerhealthcarecongress.com , which has a dedicated focus on Self Funding, www.selffundingconference.com . This year the conference will also feature a major focus on national healthcare reform and will have a dedicated conference the National Healthcare Reform Conference, www.healthcarereformconference.com . Mr. Edelheit is considered an expert in Self Funding and Healthcare and is co-editor of several healthcare magazines and is also an attorney.

Jonathan Edelheit

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A Prescription for What Ails Self-Funded Plans: A New User Engagement Model That Adds Value and Lowers Claims By Charles Epstein A well-designed selffunded plan appears to offer a perfect storm of benefits to the employer and employee alike: employees receive top coverage and employers are able to use it as a powerful recruitment and retention tool. And, if it’s truly well designed, a self-funded plan can help large AND small employers constrain costs.

However, no matter how welldesigned the model, they key ingredient is accessible, pertinent, timely, and engaging communications, without which employees remain casual spectators to their health and wellness, engaged only at the time of need, thus driving up costs and diminishing workforce preparedness. Uninformed, unengaged health care “consumers” are a drag on any health plan—but particularly so with a self-funded plan where employers absorb resulting claims.

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The following pinpoints the shortcomings of conventional communications, why they fail, and the need to increase user interactivity and engagement (partly by integrating social media); indeed, sustaining user engagement is absolutely essential, not just in raising awareness and changing behaviors, but in maintaining your trusted—and increasingly central—role as the health care landscape changes (and as your organization evolves with it).

Current Models Fall Short Self-funded employers are keenly aware of the impact of escalating health claims on their bottom line and, to that end, many have implemented health and wellness programs that focus on prevention and aim to increase employee utilization of programs—from smoking cessation to weight management—that can prevent conditions and diseases that ultimately result in costly medical claims. Providers of these health and wellness services—and employers themselves—generally issue an endless array of communications—newsletters, e-mails, and personalized messages—in an attempt to reach, engage, inform, and motivate employees to take preventive measures. However, most of these communications, no matter how well designed or “user-friendly,” are tuned out. Successfully engaging your employees requires another component—meaningful, relevant, and timely communications; information and tools that your employees can utilize to make “healthy connections” and better choices about their health and well being. Which begs the question: if communications are so intrinsic in

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awakening employees to issues and behaviors that, after all, are in their self-interest, and if communications hold the key (from a selffunded employer’s standpoint) to increased utilization, improved patient adherence, engagement, and clinical outcomes, why is it that that the vast majority of health- and wellness-related communications are so ineffective? On average, employers spend $1.50 to $3 PEPM on comprehensive wellness programs, which includes a variety of efforts to promote awareness and utilization— naturally, the higher the utilization, the higher the ROI, which underscores the critical importance of effective communications. Ineffective communications—especially around employee benefits such as health and wellness—reinforce an unacceptable status quo: employees remain unaware of their benefits, readership peaks only when something bad/unexpected happens, and by default, focus remains on treatment rather than prevention. If your employees aren’t engaged, they will remain unmoved and unmotivated. Which leads one to ask: how effective are these communications in engaging employees and driving program utilization? By most accounts, not very. However, there is a better way for you to communicate, connect, and engage your employees.

A Better Way to Communicate Traditional communications that are used to promote health and wellness products and services are typically dry, static (one-way), and uninvolving; the corporate “imprimatur” only heightens employee resistance. And

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while some companies are experimenting with social tools to introduce interactivity, build community, and drive utilization, these tools are rarely well integrated into an overarching, seamless communications framework. The Pew Internet & American Life Project discovered that 72 million people in the United States—62 percent of all Internet users—have gone online to seek health information. About 6 million people surf the Web for medical advice each day—more people than actually go to the doctor on any given day. Moreover, every generation of today’s workforce—from baby Boomer to Millennials—are linked into social media— whether it’s Facebook, LinkedIn, or Twitter— and connected to a community on both a personal and professional level. Self-funded employers need to figure out ways of initiating timely, relevant, and engaging communications, and integrating them with the web and social media to communicate health and wellness information to employees, and create like-minded communities to facilitate participation and interaction.

A Compounded Challenge The challenge is to deliver information and tools that support health care consumers in making “healthy connections” as they are increasingly responsible for the outcome of their health care decisions. • Make communications relevant and engagement continuous. Benefits-based communications needs to be a resource that employees turn to regularly—just as they visit their favorite blogs or are drawn to features

and profiles in popular magazines. Sporadic readership, or communications that are read when a decision needs to be made or when a crisis arises, will not have the intended outcome—changing behaviors or taking steps before symptoms become full-blown medical problems. This is the idea behind “connected health”—to make information and resources ubiquitous and easily available, whether you’re at your workstation or on your smart phone. • Reach a receptive audience. Creative, consistent, and interactive communications focused on health and wellness can connect and engage employees. The idea here is to wrap health and wellness messages in stories about people and things employees are inherently interested in, i.e., a story on an athlete or a commentary on a popular film that leads organically to a related health or wellness topic (“Steve Nash Gets Assist from Unique Diet”...”Justin Timberlake (yes, him) Offers Sage New Year’s Advice: Under-promise, Over-deliver”). • Promote proactive behaviors. Education results in more informed employees that understand the interrelationship of wellness with personal productivity and fulfillment. Self-funded employers can benefit from a corresponding reduction in health care and related costs.

Communications that Connect Employers offering self-funded plans have a particular stake in delivering engaging and “actionable” communications, as a more informed and motivated employee is far more likely to be proactive in acquiring or maintaining

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healthy behaviors—which naturally leads to fewer claims and a more vibrant workforce. The innovative approach to communications outlined here has the potential to deliver relevant, timely, and engaging health and

wellness information direct to an employee’s desktop—even mobile devices—to promote interactivity and build community. Effective, integrated communications is, first and foremost, a means to promote a more proactive workforce, motivated to use the resources and tools available to “course correct” and maintain a healthy lifestyle. Secondarily, communications that engage are key in sustaining relationships as the health care landscape continues to change; vendors, TPAs, and brokers who are best able to engage using the approaches and underlying philosophy described here, will continue to have a “captive” audience and remain relevant—even as their offerings or focus shifts—as they stay out in front of the broader changes and challenges to come.

About the Author Charles Epstein is President of BackBone, Inc. (http://www.backboneinc.com), a public relations, marketing communications, and business development firm specializing in healthcare, benefits, and technology. For over 15 years, BackBone has developed successful programs for organizations offering wellness services, behavioral health programs, disease management solutions, health risk assessment technologies, and population healthcare management (PHM). He may be contacted at che@backboneinc. com. Follow Charles @ http://twitter.com/ BackBoneInc.

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Driving Down the

Cost of Healthcare through Cost

Transparency With the right information, incentives and technology the self-insured industry can drive down the cost of healthcare and transform the U.S. healthcare system in the process.

by Christopher Parks

with a vested interest in making value-based healthcare decisions. With cost information at Everyone knows that the their fingertips, these self-insured companies American healthcare system is are transforming healthcare users into informed in trouble. While U.S. care is healthcare buyers, and, in the process, helping among the best in the world, its improve the countryâ&#x20AC;&#x2122;s healthcare system. runaway costs and the inability for employers, employees and general consumers to manage it Healthcare costs continue to increase outweigh the good. In addition, as consumers become more involved in making healthcare Health-related spending in America purchase decisions, theyâ&#x20AC;&#x2122;re finding that the cost continues its rapid escalation, often outpacing information needed to make informed decisions spending on other goods and services and is unavailable at best, and concealed, at worst. claiming an increasingly greater slice of the This lack of cost transparency is resulting in nationâ&#x20AC;&#x2122;s income. care choices that are far more expensive than The Federal Centers for Medicare necessary. and Medicaid Services recently reported that Yet, thankfully, things are changing. healthcare spending grew in 2009 to a record There is an emerging new consumerism 17.3 percent of the U.S. economy, the largest movement based on self-insured employers one-year jump since the government started

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keeping tabs more than fifty years ago. By the year 2018, the Centers project that health spending will be one-fifth of the GDP (20.3 percent), making health a product nearly 2 times more expensive – and significantly less effective – in the U.S. than in any other industrialized country in the world. These increases are especially hard on businesses, which foot most of the healthcare bill for employees. The latest annual survey conducted by the National Business Group on Health revealed that companies expect the cost of their healthcare plan to jump an average of 8.9 percent in 2011, versus 7 percent in 2010.

surveyed employers said they expect to boost healthcare plan premiums. More companies are also moving toward self-insurance in an attempt to control rising premiums. Fifty-five percent of American companies are self-insured, with 89 percent of those having more than 5,000 employees. This has lead to significant changes in plan design for self-insured employers, with many shifting more of the cost to employees, forcing them to take more responsibility for their decisions and health. By 2011, 61 percent of all businesses will be offering a high deductible health plan, referred to as a consumer directed health plan (CDHP). As employers and employees must become more price-sensitive as a result of these changes, they need to know the cost of healthcare, not after-the-fact when the EOB arrives, but before, when they can truly affect change. Thus, cost transparency – the ability to see and know exactly what a healthcare product or service will cost before it is purchased – is becoming the key ingredient for helping CDHPs succeed as an effective, cost-saving, employee healthcare strategy.

Why Consumer Driven Healthcare (CDHC)?

Consumer driven healthcare (CDHC) Costs being passed down to consumers addresses a broad range of health plan designs such as Health Savings Accounts (HSAs) or According to the Kaiser Family Health Reimbursement Accounts (HRAs). It Foundation, employer-sponsored insurance is usually describes the combination of a highthe leading source of health insurance in the deductible health insurance plan with a taxcountry, covering about 157 million Americans. preferred savings account used to pay for A recent Aon Consulting survey revealed that routine health care expenses. nearly two-thirds of employers intend to make Because of its structure, CDHC provides healthcare plan design changes in 2011, shifting employees a reason to be engaged in the purchase more costs to employees. Fifty-seven percent of process and be concerned what things cost. The

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individual pays for routine healthcare through their Health Savings Account (HSA). After the accounts are depleted, individuals pay directly out-of-pocket until they have reached the relatively high deductible amount in their health plan. Monthly premiums are lower in a CDHP and consumers may keep any unspent dollars in their account, creating an additional incentive to be cost-conscious. By removing the $35-for-everything-and-anything co-pay system, CDHC also creates price sensitivity and places control of healthcare back in the hands of consumers. Until now, employees haven’t had to buy healthcare as a consumer would, or make many decisions about its purchase, so most employees don’t know how to shop effectively. But that is changing, thanks to the presence of information that will help people shop for services. With trustworthy information about costs and care at their fingertips and an impetus to shop, patients should begin asking what lab provider a physician uses, why a pharmacy won’t offer a medication that one across town provides at a lower price, whether a generic or medical equivalent is a prescription is an option. They will seek appropriate, high quality, affordable care and changes will occur that no government or health plan has been able to create.

American healthcare greatly overshadows that relationship. Medical bills rarely flow from provider to patient these days. Rather, the payer – usually an insurance company – mediates claims between the two, insulating the patient (employee) and his employer from the true cost of care. Although the employer deals with costs indirectly via increasing premiums, the individual feels no need to understand what healthcare costs. Why should he? Aren’t office visits $20 (or $35 per purchase in a traditional PPO health plan) or prescriptions $10? The true cost of care is hidden. It’s like shopping for tires and having no information about the prices either online or in the tire store. The consumer makes a selection having no information about cost and only a vague inkling of quality based on what the sales person says. Until now, employees haven’t had to buy healthcare like a consumer, or make many decisions about its purchase, so most don’t know how to shop for the product effectively. But that is changing. Americans are the best shoppers on the planet. We utilize comparison shopping for items as small as groceries and as large as cars and homes. That skill has driven rapid change in many industries through the expansion of on-line information and tools. The autoindustry, pushed by online pricing and quality Can CDHC Work effectively in information, for instance, was forced to deliver today’s dysfunctional healthcare solutions such as Saturn and CarMax where system? prices are set and haggling is not part of the equation. The same should and will happen in It used to be that healthcare delivery healthcare. reflected the sacred relationship between patient and care provider, with nothing So where are the tools to help? standing in the way of a doctor prescribing the best treatment possible to help his/her patient Until now, tools for helping consumers get well. Not anymore. Today, the funding of purchase healthcare haven’t effectively

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managed cost. Post-purchase tools, such as Explanation of Benefits (EOB) bill management programs, merely help categorize a person’s expenditures for payment and tax purposes. There are some opportunities for comparisons with other shoppers, but since the data doesn’t address the differing health plans among users, a comparison of costs and prices for services is useless. Pre-purchase tools, such as those offered by health plans, are often nothing more than a database of pricing information on 20 to 50 high cost services. The focus is on high-dollar in-patient services and ignores 75 percent of an employer’s medical claims, including pharmacy, dental services, and recurring outpatient services such as primary care, therapy and even chiropractic services. The problem with these databases is that the prices in them are based on the negotiated rate and not what has been actually paid by real people in the same peer group and market. With prices varying significantly from plan-toplan and employee-to-employee, the tool that helps decipher true costs and delivers true cost transparency will be the tool that unlocks the key to better controlling runaway healthcare costs within today’s American healthcare system.

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Cost transparency tools and standards I’m happy to say that some solid cost transparency tools and processes are beginning to emerge in the marketplace. These tools are tremendously helpful because they: • • • • • • •

Highlight what was paid, not what was negotiated; Allow for the search of price options prior to purchasing a service; Proactively informs the individual regarding their savings opportunities; Delivers information through a web- based system that’s customizable; Are accessible at work or home, flexible, perpetually updated and easy to use; Provide a feedback loop that creates a continuous improvement process; and Engage consumers in their healthcare.

These tools are optimum for self-insured employers, since they employ nearly half of all US workers. Self insured employers also own and control their claims data, the fuel for the cost transparency solution savings engine which had been locked within the health plan.

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So can CDHPs and consumerism be the right information tools in place, the new an effective way to cut healthcare consumerism movement in healthcare can and will be quite effective at helping employees costs?

and employers stem the unrestrained rise in the Unquestionably, healthcare costs can be healthcare cost. And transform the country’s trimmed without plan changes or cost shifting healthcare system in the process. precisely because of the role consumers and actionable information play in healthcare going about the author forward. Christopher Parks and change: healthcare • With employees more engaged in In addition to his 18 years of executive roles in making healthcare purchase decisions because of insurance plans like CDHPs, various healthcare arenas, including disease consumers now have a reason and a process management, technology, operations management for watching their personal healthcare and supply chain consulting, Christopher Parks came to understand the industry on a personal bottom line, which will impact a company’s level after helping his dying parents deal with benefits bottom line as well; • With innovative web/software/product technologies like that offered by companies such as change:healthcare, true cost transparency can be easily and effectively delivered to employees; • With transparency costs and care information at their fingertips, consumers appear to be making far more insightful decisions about their own care, its cost and its quality. • And with all three, employers and employees are realizing lower healthcare costs and the escalating cost of their healthcare are being slowed. Those supportive of a socialized healthcare model believe that individuals cannot be trusted to make prudent decisions about their own health expenses. The reality is that most individuals are perfectly capable of making such determinations and with

overwhelming and confusing medical bills associated with their cancer care. After founding change: healthcare in 2007, he seeks to change the healthcare market by improving information flow and cost transparency to empower consumers and make consumer-driven health care work.

change: healthcare (www. changehealthcare.com) has set the industry standard for true healthcare cost transparency – a critical component to the success of consumerdirected health plans (CDHPs) and to controlling the burden of rising healthcare costs. Built on more than three years of medical claims data, the company’s web-based Cost Transparency Solution provides employees with personalized views of pricing information and proactive alerts that highlight opportunities to save money on routine care and prescriptions in their local area. By enabling informed decision-making prior to selecting and receiving care, change: healthcare delivers substantial cost savings to both employers and employees. change: healthcare works with more than 100 self-insured businesses across the U.S., representing nearly 100,000 lives.

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Health Care and Employers:

Innovative Solutions for a Changing Marketplace by David Goldstein

Fact: In the U.S. health care

expenditures are 50% higher than any other country in the world, totaling about 16% of GDP. As costs continue to increase at a rate of 8% per year, which is twice that of the Consumer Price Index, total U.S. healthcare costs will consume about 20% of the economy within the next 6-7 years. Furthermore, employerâ&#x20AC;&#x2122;s medical costs have increased 80% since 2001, causing many organizations to lower plan benefits, eliminate coverage, or propose more affordable solutions. Likewise, employees have shared the cost burden by seeing their out of pocket expenses quadruple over the last 5 years.

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75% of surgeries are elective (non-emergency procedures) totaling $750 Billion

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Interpretation: Since 75% of all procedures are elective, patients have enough time from the point of diagnosis to surgery to weigh their options and make informed decisions. With a proper model in place, there is plenty of time to research and choose a provider or treatment based on cost, quality, experience, and results. Unfortunately, many companies and their employees donâ&#x20AC;&#x2122;t have the means or infrastructure to research addition surgical options. As a result, many employers continue to miss out on one of the best opportunities to improve quality outcomes while reducing their healthcare costs.

Surgical Benefits Management

Surgery benefits management is quickly becoming one of the best ways in which employers can reduce their healthcare costs without compromising healthcare quality. Implementing a program like this can be simple and very effective if two major components are utilized: Medical travel: A Medical Travel program is a voluntary employee benefit program offered as a supplement to an employerâ&#x20AC;&#x2122;s self-funded health plan. Currently, thousands of U.S. patients utilize supplemental surgery networks every day, saving millions of dollars for their employers. The providers in these networks can perform surgeries consisting of anything from a major complex cardiac procedure to a simple minimally invasive out-patient treatment. The purpose of using a defined program is to simply bridge the gap that exists between the employee who needs the surgery and a network of specialized

health care providers that can perform the surgery. Interpretation: Implementing a Medical Travel program presents a tremendous opportunity to receive higher quality treatments while reducing costs for both employees, who benefit by paying little to no out-of-pocket expenses, and employers that typically save between 20-60% per procedure. This is not a new concept - medical travel has been around for many years, which simply consists of somebody leaving their local community to get treated somewhere else. In the past, it was predominately used by wealthy or those with chronic conditions or diseases such as cancer or organ transplants. But today, medical travel programs are being implemented by employers to expand their employeeâ&#x20AC;&#x2122;s options and to improve their outcomes, while lowering the overall health care costs. Using a quality medical travel partner is paramount to a successful program as they prenegotiate discounted global case rates which usually include pre and postsurgery consultation, physical therapy if necessary, and all hospital and surgery expenses. Expert Diagnosis Services: A team of 3 -5 experts review the records of each patient in detail. Afterwards, they summarize the issues presented and recommend a specialist who will review the case in detail. Often times this process involves even reworking tests and examinations through their comprehensive provider networks. Comparing this method to a traditional

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second opinion, expert diagnosis services tailored network of global medical facilities to are proven to be effective at helping to improve retention and reduce costs. ensure patients get the best treatment possible. about the author Interpretation: Published data states that approximately 20% of surgeries David Goldstein, President of Health are deemed unnecessary, resulting in Options Worldwide (HOW), has extensive nearly $220 billion in wasted costs each experience in the healthcare industry. Through year. Expert Diagnosis Services helps his exposure to the inner workings of hospitals to prevent unnecessary procedures, and and physicians, he learned of the inefficiencies shorten the recovery time by making that exist in the healthcare industry and was certain the right diagnosis and the right inspired to make a difference. His professional treatment approach has been chosen. experience in dealing with business owners, Adding this step into your treatment benefits managers, physicians, and hospitals algorithm will improve the health of has been a large reason heâ&#x20AC;&#x2122;s lectured and employees and reduce unnecessary health presented to companies ranging from startups care costs. to Fortune 500 organizations. Founded in 2008, Health Options On the surface the outlook for employees Worldwide (HOW) has worked hard to develop may seem grim with out-of pocket expenses solutions to counter the ever rising costs of continuing to increase in the form of high healthcare. As a healthcare IT company, HOW deductible, co-pays, and coinsurance. However, delivers a tailored network of global medical employers can make an immediate difference facilities within our technology platform to by taking an active approach to neutralize engage employees into bettering their health as these trends. An understanding of where and well as reducing overall healthcare costs. Since how health care dollars are being spent is the launching in 2010, HOW has quickly become key to uncovering potential solutions. Top a top destination for physicians, hospitals, organizations are turning to surgery benefits employers, and patients. As a trusted, unbiased management as an alternative to increasing resource, HOWâ&#x20AC;&#x2122;s free online marketplace costs and reducing medical coverage. In provides patients with direct access to top conclusion, we believe managing surgical costs medical institutions and physicians, often is an innovative technique that will improve providing fixed rates for treatments. HOW outcomes, reduce costs and deliver consistent works with many self-insured employers, results. carriers, and other partners to help reduce their In 2008, a small company called Health overall healthcare costs while demonstrating Options Worldwide (HOW) began with the outcomes. For more information on HOW visit simple goal of helping self-paying patients find Http://www.HealthOptionsWorldwide.com or qualified physicians. Today, Health Options contact David Goldstein at David.Goldstein@ Worldwide is a fast growing healthcare IT healthoptionsworldwide.com . company and strategic partner that delivers a

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INSURER’S LIABILITY

FOR NEGLIGENT

INSPECTIONS by Gary Wickert

Many insurance companies along several lines of insurance routinely provide insurance inspections of their insureds’ premises and operations (also known as field inspections or loss control surveys) for loss control, risk management, and underwriting purposes. In their unstoppable search for deep pockets and third parties, trial lawyers have for years been requiring insurers and defense counsel to respond to a vagary of legal theories of liability that challenge a common assumption in our industry – that an insurance company cannot be liable for injuries resulting from such inspections, if performed negligently. That assumption is not always correct. Many people do not fully understand the importance of the insurance inspection and how it relates to the underwriting process. These inspections are often used to verify the insured not only exists at the address on the policy and that there are no liability or other hazards that exist on the property that could cause

the homeowner (personal lines, residential inspections), business owner (commercial lines, commercial inspections) and/or the insurance company unnecessary exposure. These inspections are used as an underwriting tool to minimize the potential of an insurance claim and to verify that the information collected at the time of application for the policy is correct. With increasing frequency, however, trial lawyers are attempting to make inspections conducted by workers’ compensation carriers, general liability carriers and property insurers a basis for tort liability. These loss control inspections are performed by either company-trained loss control inspectors or graduate engineers, and function much like a home inspection you might request before purchasing a home. The insurer wants to know if there are any problems, dangers, risks, or potential claims waiting to happen as a result of shoddy safety programs and careless operations on the part of the insured. The inspections vary greatly in scope and thoroughness. Some are quick and cursory confirmations of the existence of

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certain safety equipment such as sprinklers, fire extinguishers, etc. Others are more involved and detailed, involving the technical aspects of large, complex manufacturing facilities. In addition to looking for potential problems and hazards, the inspections also serve to gauge an insured’s attitude, cooperativeness, knowledge and commitment to loss prevention and control. A safe insured is often a better risk than an insured which is not safe. Upon completion of an inspection, the inspector typically prepares a detailed report of his or her findings, including recommendations for how the insured might improve its safety, and occasionally making renewal of a policy contingent upon complying with a list of the inspector’s recommendations. The inspector’s activities are geared toward the business end of insurance underwriting, not necessarily to provide advice to insureds on their plant safety. Improved safety at the insured’s location is usually just a by-product of their actual purpose – improving the profitability of the insurer’s business. In short, they are self-serving and are not performed for the benefit of the insured or third parties, although such third-party benefits are an undeniable collateral benefit of the inspections. Most policies contain some sort of boilerplate admonishment regarding the extent and purpose of these inspections: The Company shall be permitted but not obligated to inspect the Insured’s property and operations at any reasonable time. Neither the right to make inspections nor the making thereof, nor any advice or report resulting there from shall constitute an undertaking on behalf of or for the benefit of the insured or others, to determine or warrant that such work places, operations, machinery or equipment are safe.

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Even if the policy doesn’t contain these disclaimers, the inspection report usually does. However, this does not deter trial lawyers from arguing that the insurance company has, by inspecting the premises, undertaken and assumed a duty to the insured and third parties on the premises of the insured or using the insured’s equipment. Any cause of action for negligent inspection must be based on § 324A of the Restatement (2d) of Torts:

§324A Liability to Third Person for Negligent Performance of Undertaking One who undertakes, gratuitously or for consideration to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if: (a) his failure to exercise reasonable care increases the risk of harm, or (b) he has undertaken to perform a duty owed by the other to the third person; or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking. This Restatement is sometimes referred to the “Good Samaritan Rule.” Most insurance inspections do not fall within this Restatement because the insurer does not “undertake” or assume responsibility to perform the inspection principally for the benefit of another. It is done as part of the insurer’s underwriting process. Smith v. Allendale Ins. Co., 303 N.W.2d 702 (Mich. 1981). Some courts, however, ignore the undertaking requirement and hold that reliance on an insurance company’s inspection by either employee or employer is sufficient to sustain a tort claim by employee against company for negligent inspection. Huggins v. Aetna Cas. & Sur. Co., 245 Ga. 248, 264 S.E.2d 191 (1980).

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Other courts have determined that, depending on the facts, such inspections are necessarily undertakings for the benefit of the insured and any benefit derived by the insurer does not remove the inspection from the scope of Â§ 324A. Nelson v. Union Wire Rope Corp., 199 N.E.2d 769 (Ill. 1964) (applying Floridaâ&#x20AC;&#x2122;s workersâ&#x20AC;&#x2122; compensation law). What sort of evidence would constitute evidence of an undertaking sufficient to place liability on the inspecting insurer? A New York case decided by Chief Justice Cardozo has indicated that if conduct has gone forward to such a stage that inaction would commonly result, not negatively merely in withholding a

benefit, but positively or actively in working an injury, there exists a relation out of which a duty to go forward arises. Glanzer v. Shepard, 135 N.E.2d 275 (N.Y. 1922). Admittedly, facts sufficient to create such a duty are rare, but they do exist. It is not enough that an insurance company has acted. In order to incur liability for negligent inspections, it must have undertaken to render services to another or that the insurer intended to render benefits for the benefit of another. If, in the course of marketing or promoting itself and its inspection services, or in conjunction with the actual undertaking of the inspection itself, the insurer advertises

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or represents that it will provide complete fire inspection services to alert the insured to fire hazards on the premises, its failure to detect and/or notify the insured of such hazards which thereafter result in a fire, could form the basis for liability on the part of the insurer. Smith v. Allendale Mut. Ins. Co., supra. This line of reasoning has been followed, with detrimental results for the inspecting insurance company, in a number of cases. Deines v. Vermeer Mfg. Co., 752 F.Supp. 989 (D. Kan. 2990). In Deines, the insurer’s advertisements and coverage proposal to the insured implied benefits to the insured from the inspection and did not state that the services would relieve the insured of the burden of monitoring its own facilities. The scope of the inspection might bear on whether a duty is owed to the insured or a third person. Likewise, the type of insurance at issue is also relevant. Courts draw sharp distinctions between third-party liability, workers’ compensation, and firstparty property insurance, with a tendency for workers’ compensation carriers and boiler and machinery insurers to be liable more so than first-party carriers. Leroy v. Hartford Steam Boiler Inspection and Ins. Co., 695 F.Supp. 1120 (D. Kan. 1988). This makes sense because workers’ compensation insurance inspections would be more focused on personnel safety while first-party inspections are attuned more to preventing property loss. If the insurer inspects specific dangerous machinery, such as in boiler and machinery inspections, the tendency is to place liability on the carrier’s negligent acts. This is especially true if the insurer has the authority in a specific jurisdiction to shut down the insured’s operations. Seay v. Travelers Indemnity, 730 S.W.2d 774 (Tex. Civ. App. 1987); Van Winkle v American Steam Boiler, 52 N.J.L. 240, 23

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Vroom 240, 19 A. 472 (1890). In workers’ compensation settings, an additional obstacle of the creative trial lawyer is the exclusivity rule, which holds that the employer is immune from suit by an injured employee. In most states, the workers’ compensation insurer is granted the same immunity as its insured, allowing it to take advantage of the exclusive remedy rule as a defense. Restatement § 324A also provides some indication that where the reliance of the insured, or of the third person, has induced the insured to forgo other remedies or precautions against such a risk, the harm results from the negligence as fully as if the actor had created the risk. In Thompson v. Bohlken, 312 N.W.2d 501 (Iowa 1981), the court stated: Travelers [defendant insurer] also argues that it cannot be held under a duty of inspection under its insurance contract with [employer]. However, its liability for inspections does not arise from, nor is it circumscribed by, the contract of insurance; it arises ... from its undertaking the responsibility of making such inspections in such a manner as to increase the risk of harm or create reliance to another’s detriment. In order to create liability on the part of the inspection carrier, the negligent inspection must result either in an increase in the risk of harm, in an undertaking to perform a duty owed by another to a third person, or in reliance by the insured or the employee of the insured upon the undertaking. Derosia v. Liberty Mut. Ins. Co., 583 A.2d 881, 886 (Vt. 1990). In most cases, there will be no liability for an action brought against an insurer for

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his native Wisconsin in 1998 and co-founded the subrogation firm of Matthiesen, Wickert & Lehrer, S.C. He oversees a National Recovery Program which includes a network of nearly 300 contracted subrogation law firms in all 50 states, Mexico, Canada and the United Kingdom and boasts more than $500 million in recoveries and credits for more than 250 insurance companies since 1983. Licensed in both Texas and Wisconsin, Gary is double board-certified in both personal injury law and civil trial law by the Texas Board of Legal Specialization. He is also certified as a Civil Trial Advocate by the National Board of Trial Advocacy, for whom he has both written and graded product liability questions contained on the NBTA national certification exam taken by trial lawyers around the country. For more than 25 years, Gary has served as an expert witness and insurance consultant on subrogation and insurance related issues and has been consulted by insurance carriers, lawyers, and legislative bodies from several states. He is a licensed arbitrator and has attended more than 750 mediations in more than 30 different states. He is one of only a few lawyers to have ever appeared before the United States Supreme about the author Court on a subrogation issue, and was named as one of Law & Politics and Milwaukee Super Gary Wickert is an insurance trial Lawyers’ magazine’s Super Lawyers from 2005 lawyer and is regarded as one of the world’s to 2010. leading experts on insurance subrogation. He is the author of several subrogation Gary L. Wickert books and legal treatises and is a national (262) 673-7850 and international speaker and lecturer on 1111 E. Sumner Street subrogation and motivational topics. Gary gwickert@mwl-law.com is also a published commercial fiction author P.O. Box 270670 and a politician in Wisconsin. After 15 years as gwickert@mwl-law.com the youngest managing partner in the history www.mwl-law.com of the 30-lawyer Houston law firm of Hughes, Hartford, Wisconsin 53027-0670 Watters & Askanase, L.L.P., Gary returned to negligent inspection. This is because there is generally no duty under § 324A because the insurers do not normally agree to be, or by their actions voluntarily assume to be, responsible for the safety of the structure being inspected. Gooch v. Bethel A.M.E. Church, 792 P.2d 993, 998 (Kan. 1990). Generally speaking, insurers owe no duty of care to provide a reasonably safe workplace for the employees of their insured. Commercial Union Ins. Co. v. DeShazo, 845 So.2d 766 (Ala. 2002). However, where there is specific and dangerous property which is being inspected, the insurer has the authority to shut down the insured if it fails the inspection, the advertising of the inspection services raises the expectations of the insured as to the inspection as well as their reliance on the inspection, or there is some sort of other undertaking on which the insured relies, the occasional case may see liability attach for the negligent inspection conducted by the insurer. But those cases will be few and far between. If you should have any questions regarding this article or subrogation in general, please feel free to contact Gary Wickert at 262673-7850 or gwickert@mwl-law.com.

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DON’T DRINK THE WIZARD’S ELIXIR THERE IS A CURE FOR WHAT AILS US by Lisa M. Holland, Gregory J. Hummer, and Daryl Chapman It’s time for the United States to bring sanity back to the discussion of healthcare. It’s time for us to do what we do best; use our brains and technology to solve one our most vexing problems. Let’s not drink the Wizards Elixir. It won’t work to cut loose millions of American employees from employer sponsored selffunded benefit programs and pay the “fine/ tax”. If so, then employers will be turning over a critical function to government-subsidized healthcare. This is a function that employers have worked diligently to control, is already far more cost effective than using a “fully insured” carrier and can be vastly improved with simple plan design and point-of-service payment technology.

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The health and well being of human capital is what enables productivity. Productivity is what distinguishes us from the rest of the world. So, herein is a dose of sanity that will help for what ails us. The Milken Institute’s 2007 study, “An Unhealthy America,” notes that 70% of health costs (more than $2 trillion a year) are related to lifestyle. Prevention therefore becomes the “silver bullet.” We know the causes. We know the treatment. Yet, we keep getting sicker. Why? We blame the Wizard and lack of personal responsibility! Americans have become “Healthcare Zombies.” We have been lead to believe that the healthcare system is some kind of magic potion. Eat all you want - forget about personal health responsibility, then just go to the doctor and get “cured” and/or fixed. Well it just ain’t so America.

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Let’s all take stock in the fact that in 1890 the average lifespan of an American was in the mid 40’s. Why did it jump to 6870 suddenly after the turn of the century? It is widely accepted that adding chlorine to the drinking water and providing good clean sources as well as sanitation infrastructure greatly increased life span by eradicating water bourn disease. Chlorine and infrastructure helped us all live longer not healthcare. Over the last several decades we have seen the average lifespan climb even higher to the mid 70’s but not so much as a result of healthcare. This jump has been largely related to a safer food supply. This is where a prudent man starts asking the trillion-dollar question. “If we keep getting more unhealthy as Mr. Milken points out, then what has healthcare done for us.” That answer is simple; it’s hurt our ability to compete in the world. Yes, we are the most productive workforces; however the margin we need on products is sapped by paying outrageous amounts for healthcare. It’s destroying our competitiveness, giving us false hope and now rapidly killing our businesses. If we spent just half of what we do on healthcare every year on developing new energy sources, new infrastructure and technology we would have already solved the energy problem and perhaps many other pressing issues like educating the masses about the simple ways to stay healthy. Is it any wonder that over the last 30 years any employer that could become selffunded did so? Maybe that’s because they all found out that it actually cost far less than being “fully insured” with a carrier. At present, 45% of the 308 million persons that live in the U.S. receive their healthcare through an ERISA employer sponsored self-funded program. Why? It’s affordable. It bests a fully

insured carrier by almost 50%. If you exclude the carriers’ stop loss positions on self-funded plans, less than 17% of Americans are truly covered under the fully insured carriers costing us about $890 billion a year. Just about 25% are covered under Medicaid and Medicare and about 13% are uninsured. Since the passage of healthcare reform there has been a lot of discussion by employers about dropping healthcare benefits in favor of paying the “fine/tax.” In the February 2010 issue of CFO magazine employers were asked

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to respond to the question of how healthcare reform legislation would most likely affect their company health care plan. The results of the survey revealed that of those polled 54% were considering curtailing health benefits or dropping them completely. So why do it! Why even think about paying a “fine/tax” of $2,000 per employee and getting nothing for it except jeopardizing the productivity of your human capital and even worse lowering their effective wages. Don’t listen to the other Wizard in Washington. He won’t help you either. Don’t kid yourself. Your abandoned human capital will either not get insurance or be a sitting duck and have to pay 50% more to get it from the fully insured carrier market, effectively lowering their wages. Don’t get us wrong… perhaps some of the healthiest individuals in this country are those without insurance since they cannot afford to get sick by over indulgence. Having insurance “coverage” doesn’t make you healthy. Personal choice, lifestyle and behaviors make you healthy or unhealthy. Excluding environmental and genetic diseases, 50% of all our unhealthiness is caused by poor lifestyle and behavior choices. So, let’s do something to impact behavior. Let’s stop doing the same thing over and over and expecting different results. For gosh sake, traditional plans with a $20 co-payment are no incentive to change anyone’s lifestyle. There are some good provisions in the Affordable Care Act (ACA). However, by focusing on the overall goal of the ACA to get “affordable coverage” for as many people as possible our leaders have missed the boat. It’s not coverage that will solve our problem. In fact, it’s coverage by a third party that created our problem. The government talks about controlling the overall cost of healthcare but more “coverage” will in fact increase the overall

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spend rate without gaining any useful benefit. Meanwhile people will continue to over-eat, smoke and engage in lifestyles that lead to poor health conditions ending in more visits to the doctor and more cost - a disconnect between personal responsibility and accountability. In the end the ACA will be like pouring gasoline on a fire. Somehow we have overlooked what all good firemen know. We have to prevent the fire in the first place. Why do we spend so much time on building inspectors and building codes… to prevent fires! Yet we have no codes for people at all when it comes to getting “affordable coverage.” The Wizard’s biggest deception is in fact “affordable coverage.” Until we get the fire prevented there will NEVER be “affordable coverage.” Good healthcare can add to our quality of life. It hasn’t contributed much to our longevity. Clean water, a healthful diet and some very simple everyday precautions contribute to longevity and quality of life. According to the 2007 Pfizer release, The Health Status of the United States Workforce: 29% of employees are affected by Dyslipidemia (high cholesterol), 20% have hypertension (poor blood pressure control), 65% are overweight or obese and 23% are smokers. These four health factors make up the 70% of preventable chronic disease. So what can you do? The first three health factors are directly related to diet - not only what you eat but also how much you eat. As for smoking…you may as well build your home over Love Canal. While the overall rate of smoking has decreased from 27% to 23%, it is still the number one cause of cancer and cancer related deaths, yet Americans continue to smoke. Where are we headed? Consider the recent CNN report that in the United States 61% of all adults and 31% of children are obese. By simply addressing

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these issues, you address an enormous amount of needless, wasteful spending on the Wizard’s Elixir. You can convert a “Healthcare Zombie” to a rational, thinking living creature. How? It’s time for all of us to have substantial “skin in the game.” That translates to “Healthcare Accountability.” Healthcare Accountability should be an easy and achievable goal; after all, good health is its own reward. Unfortunately, today’s “Healthcare Zombie” requires additional incentives to promote personal health responsibility and accountability. To activate employees to be accountable, many companies have implemented wellness programs in addition to their healthcare/benefit offerings. We know that “Wellness” has the ability to save companies millions of dollars in healthcare costs. The concept is simple, healthy employees cost less. In fact, over the last 10 years in America many corporations have invested millions of dollars on wellness programs to save millions of dollars. In a recent article published by the Harvard Business Review (2010), Johnson and Johnson reported that they spent about 93 million over six years to save $250 million. That return on investment would appear lucrative, except that our suspicion is that Johnson and Johnson spent far more than that on “health insurance” costs in addition to their wellness programs. So, it’s a beginning but why have to spend “extra” money to save any money? Recent data has definitely demonstrated that wellness programs can achieve a return if you are willing to wait 3-6 years for the results, if you are able to achieve significant participation levels and you happen to have “extra money” to fund the add on programs. In fact, we are now seeing that employers are beefing up financial incentive budgets for

wellness programs to encourage higher levels of participation because the traditional approach is failing and unsustainable. Thirty-seven percent of today’s employers are now linking large financial incentives to the participation and completion of a wellness program. Will this approach really yield a healthy return? Not likely, because your money will never be equivalent to the employees’ own “skin in the game.” The inclusion of consumerism is really the “silver bullet” that will provide optimal activation of employee behavior change. Consumerism by design is wellness because it fosters personal healthcare accountability and responsibility. According to a McKinsey study, a consumer driven healthcare model immediately changes behavior (by having “skin in the game”) in a way that improves the personal health as well as financial health of both the employee and employer. Towers Watson recently reported that employers are increasingly making changes in their benefit designs to offset the rising healthcare costs. More and more companies are moving to a CDHP model and this adoption rate is expected to rise another 7% in 2011. It’s time to consider the data and make a change, a change that will work to lower the spending on “healthcare” and improve the overall personal health and financial well-being of your human capital while at the same time allowing your company to become more successful and competitive in the marketplace. Wellness programs are designed to address and change individual behavior. In order to achieve a sustainable wellness program, an appropriate benefit design that supports actual long term change is necessary. Wellness experts agree that monetary incentives motivate and activate sustained behavior change. So why are

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companies (in a stressed economy) continuing to increase their wellness incentive budgets and pay more for limited results, when healthcare accountability and a healthy workforce can be achieved through consumerism alone. A CDHP fosters the highest level of healthcare affordability because the value is seen by the individual in their own dollars and cents. Healthcare entitlement is diminished as individuals become knowledgeable about the cost of healthcare and learn to spend their money wisely and appropriately. They re-examine how they perceive personal health and come to understand and embrace that good health is a reward in hard dollars as seen in their Health Savings Account. Companies who place their efforts and commitments toward a healthy workforce should continue to do so, but in a more efficient and effective way that will not only maximize their healthcare dollar but achieve the same or better health and productivity outcomes. Removing the complexities of traditional plans, multiple platforms and programs in favor of CDHP will improve the way individuals engage in and understand the healthcare system. It creates a workforce that adopts and embraces healthy behaviors and promotes financial wellness. If we use a conservative figure for direct savings on medical and pharmacy care of $1,000 per employee per year, then there is a savings of $55 billion dollars a year by moving employees to a CDHP. If the 55 million employees covered under self-funded plans put just $2,000 away each year in their HSA that would be an additional tax savings each year of $46 billion dollars for employees and $8 billion saved in employer payroll taxes. That would represent a total overall reduction of nearly 28% of the total cost of healthcare for this group and for 80% of the 55 million the tax savings alone

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are more than enough to pay the total amount of their care plus save an average of $1,200 a year.

Here is the Solution Responsibility + Accountability + Transparency = Healthcare Affordability Employers should embrace the responsibility of creating a savvy healthcare consumer and destroy the “Healthcare Zombie” by fostering consumerism through plan design administered on an efficient, paperless Internet based point-of-service payment system that enables transparency and eliminates hundreds of billions more dollars in needless cost associated with member bills, collection efforts, paper shuffling, debit card charges and fraud. The government should do the same for Medicaid and provide a means for individual self employed persons to band together to gain access to their own self-funded health plan. We have the data, technology and the CDHP/HSA legislation in place. Do we as American businessmen have the will to change? Or shall we keep on doing the same thing and expect different results. As the Wizard proclaimed, “Pay No Attention To The Man Behind The Curtain!” About Simplicity Health Plans Cleveland, Ohio - Simplicity Health Plans is the best implementation of a CDHP/ HSA. It aligns the interests of the Employer, Employee and the Provider to provide a turnkey, fully integrated Consumer Directed Health Plan. It also delivers a low cost, scalable solution to control claim costs. The Plan fuses unparalleled technology, point of service adjudication, real-time data, and first of its kind

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anti-fraud controls. Services include an ERISA compliant health plan, HSA administration and banking, medical claims administration, TPA functions, pharmacy, dental & vision, COBRA, stop loss reinsurance, real-time Utilization Review and Case Management, Health Coaching, Comparison Shopper, Health & Wellness programs, and a host of on-line tools for Providers, Employers and Members. About the Authors Lisa M. Holland, RN, MBA has been in the healthcare care industry for over 18 years and held senior level positions within the largest healthcare organization in the US. Lisa is an accomplished business development professional with a superior healthcare skill set that includes benefit plan design, sales, marketing, technology development, data analytics and project management. Lisa’s passion, strength and knowledge are in primary prevention as well as Health and Productivity Management. Lisa’s professional objective is to use her knowledge and expertise to encourage and promote the appropriate utilization of healthcare services and solutions that empower healthcare consumerism and impact national healthcare affordability.

and a three-year stint at NASA Lewis Research Center as director of medical screening. Dr. Hummer’s healthcare solution incorporates technology that provides efficient paperless claims processing and point-of-service payment with a CDHP + HSA package. Simplicity Health Plans is the first and only plan that provides instant and completely paperless claims processing and point-of-service payment transparency. Daryl Chapman has over 20 years experience in the Insurance Industry. He is an Executive Vice President with American Wholesale Insurance (AmWINs). He is currently acting as the Practice Leader for new initiatives and has operational responsibility for the AmWINs product created in response to health care reform. He joined AmWINs after the merger of his health care consulting company with (AmWINs). Daryl was a Senior Vice President at Marsh and McLennan Corporation. He had profit and loss responsibility for a 500 person, $50 million, four-site administrative unit that provided health care administration for almost a million members. He was the architect of a 60,000 person retiree health care practice and has managed the benefits for associations as large as 3,000,000 members. He is a noted consultant, author and sought after speaker on retiree health care issues. Prior to his entry into the insurance industry, Daryl spent 13 years as a Naval Intelligence officer. He served as the Aide to the Director of Naval Intelligence, the Assistant Chief of Staff (intelligence) for the Commander Seventh Fleet and as the Senior Analyst for the General Defense Intelligence Program

Gregory J. Hummer, M.D., has spent the last 18 years developing and perfecting Simplicity Health Plans to solve the vexing complexities, out-of-control costs, burdens and inefficiencies that are associated with healthcare coverage in America today. Dr. Hummer is chairman and CEO of Simplicity Health Plans. He concluded his training at the Cleveland Clinic Hospital. His career includes 16 years as a Cleveland trauma surgeon, founder of a national group To learn more about Simplicity Health Plans, of emergency care centers called MED Center, contact Lisa Holland at 401.487.1450

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“Missing Link” Significantly Impacts Waste in Work Injury Management! by Larry Feeler Statistics prove that the best way to treat any injury or illness is to prevent it from ever occurring. Even so, there are many debates about what interventions are the most effective and which ones achieve the highest levels of success. In the last issue of Self Funding Magazine, there were valuable references to cost containment for medications and the significance of “doctor shopping” for successful work injury management. But one of the most important “missing links” employers are discovering nationwide is the use of virtual essential function testing that focuses on “measured” job matching at all stages of the employment process. Standardized medical and essential function assessments are a positive bioergonomic intervention that measure human strength and performance according to each

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jobs requirements (content validity), and then appropriately match the worker to the physical demands of their job no matter what the stage of employment. Such testing has shown to reduce injuries and costs per claim as much as 81% the first year in high volume employers (thousands of employees) and an average of 50% in all industries nationwide. The fiscal rewards are impressive. The functional testing model is available to employers through a national network of occupational health care clinicians (doctors, physical therapists, and occupational therapists). These “certified” clinics perform the same standard medical exams nationwide to detect the common ailments that cost employers the most dollars including back injuries, carpal tunnel syndrome, torn shoulder and knee ligaments, nerve problems, and joint related issues.

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New-hire Tests (Post offer Tests)

qualified to perform. Again the cost of such testing is mitigated by the ability to prevent Injuries are reduced for new-hires by claims through effective intervention strategies performing baseline medical and functional instead of waiting for an injury to occur. testing that exposes the exact risk of each individual’s pre-existing conditions and strength Existing Injured Employee Tests (Fit matched to the specific essential functions of for Duty Tests) the job they are seeking. Some new-hires have Complications that typically occur in work injuries or cumulative traumas not detected by a standard doctor physical that are easily detected injury management are significantly reduced by in the post offer physical examination, i.e. torn requiring post injury “fit for duty” tests. Such rotator cuff in the shoulder, bad back, etc. exams compare baseline medical and essential Some new-hires are found to be at significant function status (pre-existing) to post injury medical risk to themselves or others, while status to reveal EXACTLY what difference some just are not physically able to be matched was caused by the injury. Imagine an aging to their job demands. In such instances, the individual whose right shoulder was injured job offer can legally be withdrawn. Since in high school and they are hired with a 10% a typical injury costs an employer between measured pre-existing impairment because they $10,000 and $30,000, it should be apparent that can easily demonstrate the ability to perform simply preventing one injury would allow the their essential functions. Suppose they have a work related or non work related injury to the employer to test hundreds of applicants. affected shoulder two years later and initially have a 14% deficit. The significance of the Existing Employee Tests (Agility injury is mitigated by the fact that the patient Tests) is only 4% from their “normal” versus being 14 Injury reductions for existing workers % impaired. As a result, the treatment is much is accomplished by annual or biannual less invasive and the return to function (back to functional “agility” tests that expose the exact their normal 10% deficit) is easily achievable. risk of the worker to their job as they age, as their body naturally deteriorates, and/or as Sincerity of Effort Tests (Physical they respond to injury or cumulative traumas. Cross-Reference Testing) Early detection of risks allows the employer to Sincerity of effort tests should be a part of consider any number of effective remedies such as a monthly membership at the test facility all “fit for duty” and or post injury “functional to “recondition” the individual specifically capacity evaluations” in protracted injury for their job, to reclassify the individual to cases, when there are inconsistencies noted, eliminate tasks that exceed their capability, to when the patient is non-compliant, and /or if make ergonomic modifications that lower the there is any question of symptom exaggeration. physical requirements, to accommodate the One of the biggest complications to effective individual by modifying their job description, work injury management is the inability to or to transfer them to a job they are physically detect if the patient is giving a good effort and/

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or is significantly exaggerating their symptoms. Most employers DO NOT know that there are two physical tests and one psychological test that are 99%, 99%, and 95% accurate in classifying effort. The physical tests simply measure the same function two different ways (cross-referenced) and should therefore achieve the same result if the patient is trying. Because the tests have been peer review published in patient populations, the results are irrefutable. Patients who fail all seven qualifying criteria have “less than a one in a million chance of a legitimate injury”. Employees who fail such tests are typically placed at “maximum medical improvement” and released to return to work full duty unless there is some other objective contraindication for doing so.

Conclusion

Finally, this model has gained wide acceptance in the business community due to the rising costs associated with workers ‘compensation as well as increased federal regulations imposed on employers by the Occupational Health and Safety Administration(“OSHA”) and the Equal Employment Opportunity Commission (“EEOC”). The functional test model, if appropriately developed and administered, complies with the Americans’ With Disabilities Act, the Age Discrimination Act, the Uniform Guidelines, Title VII of the Civil Rights Act and many state employment and discrimination laws. It should indeed be obvious that individualized medical and functional measures Treatment in Functional Test Network as well as empirical sincerity of effort testing are the “missing link” to the best work injury Another significant benefit of vending management possible. with a functional test facility is the accountability created by their system of standard measures about the author and their contribution to the national network. Each tests data is entered into a computer Larry Feeler is the owner of Odessa that houses the largest human database in the Physical Therapy in Odessa Texas and United States. This information is invaluable to the Founder and Chief Executive Officer continued research and injury comparisons for of WorkSTEPS, Inc. in Austin, Texas. Mr. each site. The test facility must prevent injuries Feeler graduated from the University of Texas and return workers to their jobs sooner to prove Medical Branch in 1977, is a licensed Physical their effectiveness. The employer has the added Therapist, a Certified Ergonomic Assessment benefit of not only testing their new-hires and Specialist, and is recognized as a leading existing workers, but being able to treat in this authority in both industrial medicine and the same network where the clinicians already use of functional data in injury prevention and know their job demands and have access to disability management programs. their “baseline” data. The consistency of the “baseline” comparison to the post injury test For more information, call WorkSTEPS combined with “Sincerity of Effort” at 888-597-8377, ext 204, e-mail lfeeler@ Assessments, is the best “insurance” an grandecom.net or visit on-line at www. employer can utilize for effective and fiscally worksteps.com. rewarding work injury management.

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Below the Surface of

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Pharmacy Benefit Management

by Liesl A. Perez A quarter isnâ&#x20AC;&#x2122;t a lot of money, unless it represents the portion of every healthcare dollar an employer will spend on prescriptions. In the current climate of the declining health of Americans, and a national healthcare overhaul, coupled with persistent economic turmoil, employers find themselves better versed than ever before on pharmacy benefits. Employers are pressed to demand serious strategies to address growing prescription consumption and unrelenting drug cost inflation. Engaged employers also are aware that they must expect their PBMs to hold costs at bay without

restricting the benefit. They know that, whether by disruption or barriers, underutilization of the benefit or non-adherence to pharmacotherapy has been shown to have a relational and profoundly negative effect on costs, as they potentially shift and balloon to expensive medical interventions.

Arriving at an Appreciable Difference It has been well established within the industry that there are certain components of a PBM company that have become â&#x20AC;&#x153;standardâ&#x20AC;? in order to optimize the performance of the prescription benefit. These indispensable building blocks include a combination of price optimization, incentives for generic and mail order utilization, therapeutic interchange and

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specialty programs, and formulary construction or plan design. These combined strategies represent the foundation of most highperforming PBMs across today’s landscape. In form, the majority of PBMs have settled into a seemingly homogenous model. Given the urgency of the times, greater scrutiny is required into the subtle differences between PBMs. Employers would be well served to probe beneath the surface; to glimpse the inner workings of implemented programs, beyond their academic presentation and theoretical promises. To that end, it is the time to ask for predictive measurements of success from the programs: to expect a program to meet certain financial goals resulting directly from its strategic implementation. While no PBM has the solution to growing consumption and none has control over the market pricing by the pharmaceutical companies on brand and specialty products, certainly a PBM should be able to forecast some tangible measurement of success to show that their programs really work. Given the diversity and ever-changing health dynamic of employee groups, there may not ever exist endless opportunities for “controllables” when administering a pharmacy benefit, but certainly employers should be able to put to their PBM directly, “Show me one of your programs that works, and to what extent it works.” Furthermore, employers should ask “how” and “why” a program works. Employers who invest the time to obtain a fuller picture of implementation will make better-informed decisions on a uniformly expanding expenditure. PBMs that come up short of predictive program success should be pressed further, because

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subtle differences can translate into substantial performance enhancement.

Changing Implementation: A Traditional versus A Fully-Integrated PBM’s Approach Employers should be encouraged to know about the nuts and bolts of both costsaving programs and value-added programs. In order to highlight specific areas of interest which are most telling of programmatic success, it is helpful to compare details of at least one representative program with respect to the different industry approaches. The following discussion will cover Therapeutic Interchange (cost-saving) programs from the two different approaches: the Traditional and the Integrated PBM approach. Doing so brings a new level of transparency to the discussion, and arms employers with more meaningful and detailed information from which to make a comparative evaluation. Dissecting programs helps employers further differentiate between PBMs. It can also reveal underlying operational philosophies of a PBM, while pointing to that PBM’s non-theoretical (real) commitment to that program’s success.

The Principles of the Integrated Approach Before delving into the two programs, let’s begin with an introduction to the Integrated PBM model. The principles of the Integrated PBM are developed from an intimate and practical understanding of the attributes of

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relevant contributors and controllers in the prescription equation. With this understanding, the programs are engineered from the foundation up for success. One of the most important contributors identified by the Integrated PBM approach is the Intended Pharmacy Beneficiary: the patient. Understanding the attributes of the Intended Pharmacy Beneficiary (IPB) is a subtle but key and fundamental difference between Traditional and Integrated PBM approaches. In other industries, for example computer technology, the differences in user interface designs produce dramatically different end results, all due to the designers’ subtle interpretations of the attributes of the pc’s end user. Likewise, attributes and relational characteristics of the IPB that have gone unrecognized, underappreciated or not understood by Traditional models have led to more predictable outcomes when given due consideration in Integrated models.

Understanding the Beneficiary, Discovering Success Integrated strategies are not merely developed, but implemented with the fundamental philosophy that unless all of the attributes are understood of all major contributors and controllers in the management equation, success is not predictable. Understanding the IPB and his/her “exact position” in the prescription management process is complicated. There are many factors to consider, study and understand. IPBs generally are not helpless, but whenever the prospect of pharmacotherapy arises and then is initiated, the IPB’s juxtaposition dramatically shifts. In all other aspects of life, the IPB may be very capable; but not convincingly when it comes to pharmacotherapy. The vast majority of

IPBs lack sufficient medical or pharmacological knowledge to feel confident about their medical situations, despite the fact that in no other time in human history has that knowledge been more easily accessible. The IPBs find themselves subject to direct-to-consumer advertisement that becomes a significant contributor to how they feel in general about medication, and how they feel specifically (with strong affinity) toward brand name medications. The relationship between Big Pharma and consumers is real, and is sustained through huge investment in directto-consumer campaigns. It is a relationship that requires respect and skillful dismantling in order for the IPB education process to take root. If this fails, a PBM has little hope of meaningful modification of any type of IPB pharmacy behavior. Another relationship demanding understanding and respect is that between the IPB and his/her prescriber. The prescriber is a commanding controller in the prescription behavior of the IPB. The factors mitigating this tender relationship typically involve the nature, severity and chronicity of IPB illness, the level of understanding of IPB diagnosis and subsequent therapy(ies), the IPB’s “cultural” role of communication (level of assertiveness) with the physician and physician accessibility. Integrated PBMs construct programs to support these two attributes: 1- Prescribers are highly inaccessible, and 2- The more IPBspecific information prescribers are provided with, including cost detail, the more likely the PBM will influence the prescriber’s behavior. Furthermore, Integrated PBMs completely relieve the burden of complex and pharmacologically technical communications with prescribers from the shoulders of the IPB. Finally, there is the attribute of the IPB’s orientation toward pharmacotherapy

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in general, and the intricate obstacles around getting the prescription fulfilled. Beyond this, there are the complications that can arise once pharmacotherapy has begun, not the least of which is adverse effects. Even if a Traditional PBM acknowledges these IPB attributes, that acknowledgement doesn’t confer its programmatic infrastructure. Integrated PBMs have identified that mere access to a well-designed benefit plan doesn’t automatically equate with the beneficiary utilizing that benefit in a way that brings the most desired outcome.

The Two Approaches to Therapeutic Interchange Programs

with no generics to a different medication within the same therapeutic category that has a generic available, as long as the intended therapeutic outcome is not jeopardized or compromised. The clinical pharmacy programs of the vast majority of PBMs have developed their own product for therapeutic interchange. Because the opportunities are “fixed”, the targeted list of medications for any given PBM will look the same. It is important to understand that the cost savings in this program can only be realized if the interchange is successful. The rate of success between PBMs may be considerably different, and the opportunities typically are substantial in characteristic groups. For example, any single successfully-executed Therapeutic Interchange can result in hundreds of dollars in cost savings to IPBs, but often translate into over a thousand dollars in savings for the employer. Compared with rebate rewards, Therapeutic Interchange Programs establish the appreciable answer to true savings. If employers stop the line of questioning here, satisfied with a “yes” or “no” to indicate whether or not there is an existing program in place, they might be making a big assumption. Employers should instead be soundly convinced by evidence produced that a successful interchange program is verifiable before leaving the negotiating table. The Traditional Approach to Therapeutic Interchange Traditional approaches to therapeutic interchange usually include a combination of the following:

Therapeutic Interchange Programs, • A collection of retrospective claims data often called “switches”, are based on switching to determine where opportunities for therapeutic the utilization of a high-cost brand medication interchange lie.

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• An outreach attempt, either by mail or by phone, is made to a patient with the targeted medication, informing the patient of cost-incentives for asking his/her physician to switch to the therapeutic interchange generic. The therapeutic interchange is complete when the patient has secured a new prescription from the prescriber for the therapeutic alternative and mails it in to the mail order pharmacy, or has it filled at the retail pharmacy. • Letters may be sent to physicians whom an analysis identifies as specifically prescribing these targeted brand name medications at a higher rate than their colleagues.

The Integrated Approach: Why High Touch Translates into High Therapeutic Interchange Production

PBM approach is to review each historical claim for eligibility to be put in the process, thereby focusing resources and eliminating wasteful steps. This helps to forecast the true opportunities for employer cost savings. The next step is a personalized phone call by a pharmacist or pharmacy technician to the IPB during which education is initiated on therapeutic alternatives, what they are, how they work, and the potential for savings is communicated. Once consent is received from the IPB to the pharmacist or pharmacy technician, the interchange process is underway. Once the active prescription has been transferred into the PBM by the internal staff, the prescription is put through the process. Now the Integrated PBM sends a communication fax or phone call to prescriber, with prescription information and demographics for the specific IPB. In this prescriber communication, the Integrated PBM highlights the significant potential savings to the IPB. The Clinical Therapeutics Department reinforces the Therapeutic Interchange with drug specific clinical support written into the relevant document. The prescriber faxes or phones in the authorization for the interchange, and the Integrated PBM fills the prescription, and informs the IPB that the prescription is on its way. Because the Integrated PBM takes complete ownership of the process from the onset, the conversion rates are substantial, measurable and predictable. Depending on the size of the employer group, savings can range from a quarter million to greater than a million dollars in any given quarter with a robust interchange program.

By subtle contrast, Integrated PBMs have opted for total insertion into the prescription process in Therapeutic Interchange. Total insertion begins with how and by whom the programs are implemented.The concepts seem obvious enough: knowledgeable and qualified people having tailored personalized discussions with the IPB and the prescriber. But it is rarely done. Integrated PBMs use exclusively trained Registered Pharmacists and Certified Registered Pharmacy Technicians, with extensive industry knowledge, to carry out from start to finish the therapeutic interchange process. For the Integrated PBM Model, total insertion is defined as ownership of the entire process beginning with the pre-qualification of the interchange targeted prescription from Conclusions claims data. Rather than just sending a mailer out to everyone who has taken brand name Components of all PBMs are designed medication “X” in the last quarter, the Integrated to add value to the pharmacy benefit, but

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the actual measure of that value is not easy to ascertain; nor is it easy to improve on that value once established. Employers traditionally evaluate PBM performance on broad measures such as the level of transparency of financial disclosure, rates, delivery on promised savings as well as promised services, and overall responsiveness. As these evaluative markers become more and more homogenous, employers should move beyond them. Specifically, a PBM should be able to measure the capacity that one or more of its offered programs creates in order to lessen the impact of the non-controllables. PBMs that commit their focus on the relationships and the route to fulfillment of improved pharmacoadherence are those which enjoy the most success. PBMs must commit to infrastructure, tools and reports designed to measure success accurately. PBMs must do more than develop one-way communication educational outreach and aggregate mailings to achieve goals. PBMs must intimately understand attributes of all of its users and build programs that commit to those attributes. About the Author Liesl A. Perez, RPh, is Vice President of Clinical Programs for PTRX, Inc., a Pharmacy Benefit Management Company. She left an extensive and successful practice in community pharmacy in San Antonio, Texas to join the organization for its truly pivotal and innovative approach to pharmacy benefit solutions. She is dedicated to the development of meaningful clinical pharmacy programs and products that are in keeping with the demands of the times. Most recently, Perez developed guidelines to proactively address client members affected by sudden changes in the industry. For example, communications to affected PTRX members of

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the most recent United States Food and Drug Administration (USFDA) market withdrawal of propoxyphene products and the USFDA’s issuance of a new overdose warning for the medication benzonatate were both pre-emptive and uncharacteristic of the industry. “As an organization, these types of clinical pharmacy program commitments we make to our employer groups distinguish our methodology and services. It reveals our mission to remain relevant and impactful within an economically tough environment,” says Perez. PTRX, Inc., whose motto is “Changing Pharmacy, Change Lives”, does do just that. Providing pharmacy benefits to employers and their plan members in a way that offers a dramatic departure from other Pharmacy Benefit Managers, PTRX, Inc.’s goal is to control pharmacy cost by educating and helping members move to lower cost therapies and lower cost pharmacies. The PTRX staff of highly trained registered pharmacists and technicians works directly with members and physicians to accomplish this goal. PTRX works with clients in all 50 states, as well as Puerto Rico. The cornerstone to our program is our PTRX Patient Services Center. It’s staffed only with licensed and certified pharmacists and pharmacy technicians, most of whom are bilingual. They manage all communication with members and their physicians. They start by proactively calling members to educate them on less expensive prescription alternatives and our $0 co-pay via mail order feature. With a member’s permission, they contact the physician to inform them of lower cost alternatives as well. All prescription changes are made only with patient consent and after physician approval. All steps of the process are initiated, conducted and followed-through by PTRX staff on behalf of our clients and their members.

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MMSEA Section 111 Reporting Is Not the Only Medicare Game in Town

Going Beyond Section 111: Why Medicare Conditional Payments Should be On the Claims Radar by Mark Popolizio A little over three years after President Bush signed Section 111 of the Medicare, Medicaid & SCHIP Extension Act of 2007 (MMSEA or Section 111) into law, official reporting for certain non-group health claims will finally commence in the first quarter of 2011; with full implementation of Section 111 reporting now slated for January next year. For the past three years, the claims industry has incurred considerable expense, and dedicated significant time and resources in building Section 111 compliance programs to meet Medicare’s new “notice and reporting”

mandates. Section 111’s steep penalty ($1,000 per day, per claim) has rightfully focused the claims industry’s attention on developing Section 111 compliance protocols. However, in all the fireworks over Section 111, it is important that another Medicare compliance obligation is not lost in the shuffle: Medicare Conditional Payments. On a number of levels, this separate compliance obligation could actually have a much greater and direct impact on every day claims handling and settlement than Section 111’s reporting mandates. Importantly, it must be understood that Medicare’s conditional payment rights exist

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independently of Section 111. Thus, although the Centers for Medicare and Medicaid Services (CMS) recently delayed Section 111 reporting for certain liability (including self-insurance) claims; primary payers still need to address the conditional payment issue even if reporting is not yet required under Section 111, or is otherwise exempted per a Section 111 reporting exception. As Medicare continues to more ardently enforce its rights under the Medicare Secondary Payer Statute (MSP), now is the time for primary payers and practitioners to make sure that conditional payments are on the claims radar, and that proper protocols are in place to address the issue as part of claims handling and settlement practices.

What Are Medicare Conditional Payments? Medicare conditional payments are payments made by Medicare for accident related medical treatment for which another payer is responsible as determined and defined under the Medicare Secondary Payer Statute (MSP). There are several manners in which conditional payments can arise in relation to workers’ compensation, no-fault, liability and other injury based claims. The most typical way for conditional payments to arise relates to cases where the primary payer denies the claim, and does not pay for medical services. In this instance, if the claimant is a Medicare beneficiary, Medicare very typically steps in and provides medical treatment for the alleged accident related injury or condition. Conversely, a primary payer may actually accept responsibility to provide accident related medical treatment (such as a compensable

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workers’ compensation claim, or non-fault claim), but the treating physician mistakenly submits the bills to Medicare for payment instead of to the primary payer.

Must Medicare be Reimbursed for Conditional Payments? Yes. Pursuant to 42 U.S.C. § 1395y (b)(2)(B)(ii), Medicare has a statutory right of reimbursement for conditional payments. This section, in pertinent part, provides as follows: A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. (Emphasis Added). In addition, a settlement or contractual obligation demonstrates “responsibility” under the MSP. (See, 42 C.F.R. § 411.22(a)(3)). With respect to reimbursement, if CMS does not need to take legal action, the amount of recoverable conditional payments is the lesser of either the Medicare primary payment, or the amount of the full primary payment that the primary payer is obligated to pay. Medicare’s

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claim may be reduced by “procurement costs” as outlined in the Code of Federal Regulations. If legal action is necessary, Medicare may seek twice the amount of the Medicare primary payment against the primary payer. The claimant may appeal a conditional payment claim through an established administrative appeals process, and may file an action in Federal Court. Claimants also enjoy other potential methods to request a reduction of the conditional payment claim including, “economic hardship” and “equity and good conscience.”

Who is At Risk? Under the MSP, Medicare has wide latitude in terms of who it may pursue for conditional payment reimbursement, and how it may do so. Medicare has a direct action against “any and all entities that are or were required or responsible” for making payment, as well as, and any entity that “receives” a primary payment, including a beneficiary, provider, supplier, physician, attorney, state agency, or private insurer. Medicare also has a subrogation

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right, and rights of joinder and intervention. As note, CMS may seek double damages against primary payers in certain situations. While it is a common settlement practice in many quarters to “pin” the responsibility for conditional payment reimbursement on the claimant, it is questionable at best whether CMS is obligated to abide by such settlement provisions given its broad powers under the MSP and corresponding regulations. One potentially troubling regulation in this regard is 42 C.F.R. § 411.24 which provides that if CMS is unsuccessful in its efforts to obtain conditional payment reimbursement from the claimant, then the “primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.” The recent case of U.S. v. Stricker, No. 09-2423 (N.D. Ala., September 30, 2010) illustrates Medicare’s broad enforcement rights. In Stricker, the government sued the plaintiff law firms, the defendant corporations and their insurance carriers involved in a 2003 liability settlement for their alleged failure to protect Medicare’s interests regarding conditional payments. As part of this action, Medicare claimed double damages against the primary payers (insurers and corporations). While this action was ultimately dismissed on the unrelated and technical grounds of the statute of limitations; Stricker nonetheless underscores the need for all parties to ensure that conditional payments are being addressed, and dispels the erroneous belief that conditional payments are solely the claimant’s (plaintiff’s) problem.

How Can Conditional Payment Information Be Obtained?

The parties must take affirmative steps

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to request conditional payment information from CMS. This entails a separate “notice and reporting” process from Section 111 involving the following steps: Step One: Reporting the Claim to COBC To get the process rolling, the claim must be reported to Medicare’s contractor, the Coordination of Benefits Contractor (COBC). Reporting to COBC is made via phone, writing or fax. It is important to note that this is a separate and independent reporting process from Section 111 electronic reporting. Step Two: MSPRC Issues Certain Documents Once COBC is placed on notice, it in turn notifies another contractor, the Medicare Secondary Payer Recovery Contractor (MSPRC). The MSPRC will then issue a Rights and Responsibilities Letter to the parties advising of Medicare’s reimbursement rights. Per the MSPRC, within 65 days of the date of the Rights and Responsibilities Letter a Conditional Payment Letter (CPL) will be issued providing an initial itemization of its claimed conditional payment amount. Typical information contained in a CPL includes, but is not limited to, provider information, diagnosis/ ICD codes, service dates, total charges, claimed conditional payment amount. It is important to note that as the case continues it may be necessary to request “updated” CPLs. CMS has established a variety of different methods and forms (e.g. Proof of Representation, Consent to Release or Carrier Letter of Representation) to be used to obtain CPLs. Information regarding which method and document to be used can be obtained at www. msprc.info.

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Step Three: The CPL Must be Reviewed for Accuracy When a CPL is received, it must be reviewed “line by line” for accuracy. The MSPRC should be contacted to request the removal of any inappropriate claims.

Conclusion

As Section 111 reporting finally (and slowly) commences, it is vitally important that primary payers do not fall prey to “tunnel vision” by failing to look beyond Section 111 to address other Medicare compliance obligations, Step Four: Request a “Final” Conditional such as conditional payments. For the reasons Payment Figure outlined herein, developing best practices and protocols to address conditional payments Under CMS’ current process, the parties should be an integral part of a primary payer’s generally cannot obtain Medicare’s “final” overall Medicare compliance program. conditional payment figure until after the claim is actually settled and the executed settlement About the author agreement is sent to the MSPRC. When CMS issues its final demand, it gives the party against Mark Popolizio, Esquire. is the Vice whom demand is made 60 days from the date President of Customer Relations for NuQuest/ of the conditional payment final demand issue Bridge Pointe date to tender payment. If reimbursement is Prior to joining NuQuest, Mark not tendered in accordance with the 60 day practiced workers’ compensation and liability timeline, interest will be assessed. If payment legal defense for 10 years. During this time, he is not tendered within 120 days, the matter will developed a national Medicare practice which likely be referred to the U.S. Department of included Medicare Set-Asides and Medicare Treasury for official collection action. Compliance. Mark is very active on the national Per CMS, it should be noted that there MSA/Medicare educational and training are two instances when a Conditional Payment circuit. He is a regularly featured speaker on Notice (CPN) will be issued in lieu of a CPL MSA/Medicare issues before carriers/TPAs, described by CMS as follows: state bar associations and industry specific organizations. 1. If the MSPRC is notified of a Mark served as Vice President of settlement, judgment, award, or other the National Alliance of Medicare Set-Aside payment through Section 111 reporting Professionals (NAMSAP) from 2006-2008 and rather than from the beneficiary or remains active with NAMSAP concentrating on their representative; and educational and legislative matters. Mark is also involved with current MSP reform efforts 2. If the MSPRC has been alerted to a in Congress (H.R. 4796). Mark has also settlement, judgment, award, or other published numerous articles on MSA/ Medicare payment by the beneficiary or their issues. representative before the usual Mark is licensed to practice law in Conditional Payment Letter (CPL) has Florida and Connecticut. Mark can be reached been issued. at 786-457-4393 or via e-mail at mpopolizio@nqbp.com.

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Cafeteria plans,

HRAs and

Health Care Reform by Aimee Nash There are several provisions in the Patient Protection and Affordable Care Act and Health Care Act and Reconciliation Act (PPACA) that impact account-based plans like Health Care Reimbursement Account plans (HRA) and/or Cafeteria plans. Many of the requirements only extend to HIPAA Portabilitycovered plans (which tend to include most HRAs and very few Cafeteria plans) while some requirements only apply to Cafeteria plans that include a health care flexible spending account (HCFSA) feature. This article will explain which PPACA requirements impact HRA and/or Cafeteria

plans. In the chart below, we summarize the main requirements that apply to HRA and/ or Cafeteria plans and provide the effective dates of the requirements. Rules that apply differently to grandfathered plans are noted under the effective date (see “Grandfathered Plans” section below for more information on grandfathered plans). Note that a description of what plans are covered by HIPAA Portability is provided in the “HRA and Cafeteria plans subject to HIPAA Portability” section below. Other requirements that likely will not affect most HRAs and Cafeteria plans are listed separately below as well as other provisions that apply in the future where we are waiting further guidance that may restrict what plan-types are affected.

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Table of PPACA Requirements Applicable to HRAs and/or Cafeteria plans Requirement Plans Affected Effective Date. Adoption assistance increased to $13,170 for 2010 (increased by $1,000) All Cafeteria plans with adoption assistance accounts January 1, 2010 . Optional health coverage of dependent children to age 26 All HRA and Cafeteria plans with a HCFSA March 30, 2010 Required health care coverage of dependent children to age 26 HRA and Cafeteria plans with a HCFSA subject to HIPAA Portability Plan years beginning after September 23, 2010. Grandfathered plans in existence on March 23, 2010 (that meet other requirements under applicable regulations) must provide dependent child coverage if the child is not eligible for other employer-sponsored health plans coverage. Coverage of preventative care without cost-sharing HRA and Cafeteria plans with a HCFSA subject to HIPAA Portability Plan years beginning after September 23, 2010. Not applicable to grandfathered plans in existence on March 23, 2010 (that meet other requirements under applicable regulations). Internal and external appeal processes for health claims HRA and Cafeteria plans with a HCFSA subject to HIPAA Portability Plan years beginning after September 23, 2010. Not applicable to grandfathered plans in existence on March 23, 2010 (that meet other requirements under applicable regulations). No reimbursement of over-the-counter drugs without a prescription All HRA and Cafeteria plans with a HCFSA January 1, 2011 . Simple Cafeteria plans (optional arrangement) Cafeteria plans January 1, 2011 . $2,500 limit on employee contributions to HCFSA Cafeteria plans with a HCFSA January 1, 2013. Health plans offered through an exchange are not a

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qualified benefit in a cafeteria plan Cafeteria plans January 1, 2014. Many of the provisions described above are fairly straight-forward. A few items, however, require a further explanation and are described below: Appeal processes for health care claims. This may the most difficult provision for accountbased plans to adhere to. Grandfathered plans are not required to meet this provision of the law. Plans may want to review the grandfathering procedures and distribute notices to participants indicating that they are a grandfathered plan in order to avoid these requirements. HRA and Cafeteria plans with a HCFSA subject to HIPAA Portability and ERISA were already required to follow most of the internal appeal processes required under PPACA. PPACA adds some new requirements to the internal appeals procedures, adds a new external appeals process and creates additional requirements to provide notices in other languages if a certain percentage of employees speak a non-English language1. The external health care appeals

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process for most cafeteria plans with a HCFSA and HRAs will likely follow federal (as opposed to state) requirements for the external appeals process (more guidance on the external appeals process is expected in the near future). NonERISA covered plans will likely be required to meet the applicable external state appeal process. This will require updates to both plan documents and summary plan descriptions and arrangements with an independent review organization to review the external claims. Dependent child coverage. Dependent child coverage to age 26 may be optional or required depending on whether the plan is subject to HIPAA Portability. HIPAA Portability-covered plans are required to cover children until their 26th birthday if the plan provides coverage for children. Non-HIPAA Portability plans have the option to extend health coverage for children or to continue covering children as provided under the definition of dependent in Code section 152 (as many plans traditionally defined dependent). No cost-sharing for preventative care. This is unlikely to be an issue for most account-based plans. If an employer also offers a major medical policy, then there should be no unreimbursed preventative care expenses to submit to an HRA and/or cafeteria plan. If there is no major medical policy as a primary source of coverage, then cafeteria and/or HRA plans subject to HIPAA Portability will need to ensure reimbursements for preventative care are covered on a dollar-for-dollar basis (up to applicable maximum reimbursement amounts). Simple Cafeteria plans. Cafeteria plans can avoid the complicated Cafeteria plan nondiscrimination rules by establishing minimum eligibility and contribution requirements for the plan. NOTE: Cafeteria plans with HCFSA features that follow the

minimum contribution requirements will very likely become subject to HIPAA Portability rules (minimum employer contributions for a simple Cafeteria plan are 2% of compensation or the lesser of: i) 6% of compensation or ii) two times the employeeâ&#x20AC;&#x2122;s salary reduction). See the section below on HIPAA Portability coverage for more information. Whether a plan will require an amendment for all or some of the above provisions will depend upon how the plan is currently drafted. For example, plans that already exclude over-the-counter medications will not require an amendment to prevent coverage. However, it is likely that most (if not all) cafeteria and HRA plans will require modification to plan documents and summary plan descriptions to accommodate the new requirements.

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Grandfathered Plans

Plans in existence as of March 23, 2010 are grandfathered plans provided they meet several requirements: disclosure of grandfathered status to participants, maintenance of documents showing coverage in effect on March 23, 2010, no change in insurance or eligibility under the plan and no reductions in coverage.

HRA and Cafeteria plans subject to HIPAA Portability

most Cafeteria plans. We assume that most Cafeteria plans with a HCFSA feature do not have employer contributions. Therefore, as long as the employer offers other group health plan coverage, the cafeteria plan will not be subject to HIPAA Portability. HIPAA Portability does apply to most HRA plans. Since HRAs by definition are employer-only funded and most HRAs will have a maximum reimbursement amount greater than $500, most HRAs will be covered by HIPAA Portability.

The following HRA plans and/or Cafeteria plans Other HIPAA Portability Provisions with a HCFSA feature are not subject to HIPAA There are other provisions in PPACA Portability: that apply to HIPAA Portability-covered plans • Plans that have less than two participants that we did not list above. Some provisions are who are current employees as of the first generally inapplicable to account-based plans and others are applicable in beginning in 2012 day of the plan year; or later and are awaiting further guidance. We • Plans that provide coverage expect that further guidance may better clarify (reimbursements) for benefits that are how the provisions apply to account-based limited to dental, vision and long-term care benefits that are not an integral part plans like cafeteria with a HCFSA feature and HRA plans. of a group health plan; Inapplicable provisions. There are • The employer offers other group health provisions in PPACA that apply to HIPAA Portability-covered plans not listed above plan coverage (that is not just dental, because it is our assumption that the vast vision or long term care coverage) and majority of HRAs and/or Cafeteria plans would the maximum benefit payable to a participant under the HRA or Cafeteria meet these requirements. These requirements include (only applicable to HIPAA PortabilityHealth Care Reimbursement Account covered plans): plan is less or equal to the greater of • $500 (plus any participant contribution, if applicable) • two times the participant’s salary reduction election for the year.

• No lifetime limits on the dollar amount of benefits (plan years beginning after September 23, 2010) • Prohibition on pre-existing conditions (plan years beginning after September 23, 2010)

HIPAA Portability does not apply to

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• Prohibition of discrimination based on health status, providers used (plan years beginning after September 23, 2010)

• Patient protections regarding choice of doctor, emergency services, etc. (plan years beginning after September 23, 2010)

• Requirement to meet non-discrimination rules of Code section 105(h) (HRA and Cafeteria plans with a HCFSA feature subject to HIPAA Portability are already required to meet this rule)

In regulations that have been released in the past few months, much-needed clarification has been provided on several provisions of PPACA. Recent regulations clarified that the prohibition on annual limits does not apply to flexible spending arrangements as defined in Code section 106(c)(2) (this includes all Cafeteria plans that include a HCFSA feature and the vast majority of HRA plans). It is likely that future regulations will further clarify how requirements impact Cafeteria and HRA plans. Awaiting guidance. There are other provisions in PPACA that may apply to HIPAA Portability-covered HRAs and/or Cafeteria plans not listed above. Future regulations may contain clarification on how the provisions apply to account-based plans. The provisions include (only applicable to HIPAA Portabilitycovered plans):

• Cost-sharing limits (plan years beginning on or after December 31, 2013)

• Waiting periods over 90 days not permitted

(plan years beginning on or after January 1, 2014)

About PPACA PPACA has significantly impacted the health insurance market and account-based plans were also impacted by the changes. It is likely that most (if not all) cafeteria and HRA plans will require modification to plan documents and summary plan descriptions to accommodate the new requirements. HIPAA Portability covered cafeteria plans with HCFSAs and HRA plans are the most affected by the changes. For more information on many health care reform topics, see our “Health Care Reform Talk” blog at www.healthcare-legislation. blogspot.com. If you have any questions please feel free to contact us at support@ftwilliam.com or call 800.596.0714. About the author

Aimee Nash, J.D. – Aimee Nash is an attorney at ftwilliam.com. She was the primary drafter of the section 403(b), 409A, 132(f) and our Welfare plan documents offered by ftwilliam.com. Aimee was also very involved in finalizing the EGTRRA defined contribution plan documents during its release. • Uniform Summary of Benefits and Aimee received her Bachelors of Science in Coverage Biochemistry and her J.D. (cum laude) from (regulations to be released by March 30, 2011; the University of Wisconsin - Madison and she summaries to be provided by plans by March 30, 2012) has 4 years of experience as a benefit attorney. • Annual reporting requirements (regulations to be provided by March 30, 2012)

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Self Funding Magazine

Structured Settlements Are Best For All Parties By John L. Machir A recent $380 million Mega Millions Jackpot had everyone with a ticket wondering, “Would I take the lump sum or the annual installments? I bet it’s safe to say most people would be tempted to take the lump sum and live out their wildest dreams. It’s also safe bet to say that most people would spend their windfall so wildly and so quickly that this new found fortune would not last over a lifetime. So let’s step back into reality. Seriously injured victims of tragic accidents are given a similar choice when their lawsuits are settled: A large, one-time, lump sum payment; or a secure structured settlement with an annuity spaced

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out over time? Let’s remember, this money is not for that huge home in a desirable zip code or the latest fancy, foreign car or that month long vacation sipping exotic drinks on beaches in the South Pacific. It’s not even a windfall of cash to invest in risky stocks, art or real estate ventures. It’s money for basic needs like food, clothing and shelter, medicine and a vehicle that can carry a severely disabled person to a doctor’s office, and much, much more. This is cash to pay for a lifetime of bills and to make your life’s finances secure. Risks should not be taken. Nothing should be left to chance. As a veteran of the structured settlement industry, here is a scenario that is all too real and too familiar for me and my colleagues. It’s one that is also completely unnecessary. Someone is severely injured. A lawsuit is filed

Self Funding Magazine

and compensation is agreed upon. The victim chooses the lump sum instead of the guaranteed periodic payments. The basics are provided at first, but then come a few bad decisions. The money is squandered. A victim’s financial future switches from secure to precarious in a matter of months. In fact, most people can not even tell you or remember where all the money went. Unless an injured claimant is a financial wizard with strong dollars-and-cents discipline to make the money last for decades, structured settlements are always best for all parties. One young woman, disabled in a tragic car accident, said it best to my co-worker, who had proposed a secure and guaranteed stream of income to her. “There’s incredible peace of mind knowing the payments that I need are totally secure and growing tax-free. If I had to do it all over again, I’d absolutely go with the structured settlement.” Unfortunately, her words of wisdom were the product of her own hindsight. She thought she could handle her finances prudently, so she naively took the lump sum against the advice of my colleague. She squandered the entire amount that was supposed to be used for her day-to-day living expenses and a lifetime of costly healthcare bills. Remember, her case is closed. There is no chance of more money coming in from her settlement. Her financial future is uncertain. Many of her worries would have been greatly diminished if she had listened to her Ringler advisor from the start, and agreed to a guaranteed sum deposited into her checking account every month as soon as her case was settled. Determining what is best for a claimant starts as soon as a structured settlement broker is called into a case and the earlier in the process, the better. The set-up process starts

with us gathering as much relevant information as possible about the financial expenditures of an injured party. What are the current and future medical needs of this person? How much will these needs cost? Is there a spouse? What are the spouse’s needs? Are there any children involved? How will the children be taken care of and what about their college education? How much will it cost to renovate a home into a handicapped accessible house? How much will a handicapped equipped vehicle cost? How long is the claimant expected to live? Questions like these and many more are answered before a monetary amount is agreed upon. Every claimant has many unique needs. For the structured settlement broker, it’s all about getting enough money and making it last a lifetime. One other often unknown benefit of structured settlements is the tax-free status. Accepting a lump sum or setting up a trust can be subject to a potentially stiff tax bill which is an expenditure no injured party needs. Section 104(a)2 of the Internal Revenue Service Code guarantees this tax-free status. The underlying physical injury in a settlement triggers the special tax treatment, not the financial product. The legislative and regulatory history of Section 104(a)2 is well-established.

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Self Funding Magazine

The financial strength of the life insurance companies issuing the annuities should be another important determining factor. We only work with the strongest life insurance companies in the United States. Their ratings speak for themselves. These annuities are as secure as almost anything being offered in the open market. Itâ&#x20AC;&#x2122;s much more likely that these major insurance companies will be around to pay the full amount than a client is to have that lump sum last for the same period of time. Protection of the claimant comes first and foremost in a structured settlement. Settlement money should be used to replace something a claimant has lost. It is a fund that should be used for living after tragedy. It is cash that should be on hand when needed for the injured party and his or her family. A structured settlement lays the groundwork for this financial security and takes no chances with an injured partyâ&#x20AC;&#x2122;s future. A structured settlement is always best for all parties. About the Author John Machir is a member of the Ringler Associates Leadership Team, and past member of the Board of Directors. John joined the firm in 1988 and is based in the National Marketing headquarters in Washington, DC. He was recently elected for the second time to the Board of Directors of NSSTA, the National Structured Settlements Trade Association. John is one of the founders of NSSTA, serving as President of the organization during 1989-1990 and as a member of its Board of Directors from 1985 to 1991. Prior to joining Ringler, he was the Chairman and Chief Executive Officer of JMW Settlements, a structured settlement company he founded in 1978. John began his insurance career in 1974

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as a full-time agent with the Penn Mutual Life Insurance Company. Prior to that, he worked for a mortgage banking company in Washington, DC. He is a frequent lecturer at conferences on topics related to structured settlements, especially in the area of hazardous waste. He has spoken before the National Association of Attorneys General, the Public Risk and Insurance Management Association, the Association of American Railroads Claims Conference, and the International City Managers Association. He has participated in training seminars for, among others, Cigna, Allstate, AIG and USF&G, as well as many state and federal agencies, including the United States Army judge Advocacy Generals School at the University of Virginia. In addition to his insurance background, he has served on the Board of Directors of the Washington, DC chapter of the International Association of Financial Planners. He received his Bachelor of Arts degree in business administration from Georgetown University in 1971 and his Chartered Life Underwriters Designation in 1980. About Ringler Associates Ringler Associates is the worldâ&#x20AC;&#x2122;s oldest and largest settlement annuity firm. Built by locally-based experts providing personal service, the company has over 90 offices in major litigation centers in the U.S., and in London. These full-service centers are staffed by 130 brokers plus support personnel. Since 1975, brokers from Ringler Associates have placed over 157,000 structures with annuity premiums in excess of $21 billion. Today, Ringler Associates is involved in one of every four structures completed by independent brokers. www.ringlerassociates.com

Self Funding Magazine

Adding Value: Bring Home the Savings for Self-Funded Employers By Samuel H. Fleet Itâ&#x20AC;&#x2122;s no secret that employers are continuing to face rising healthcare costs. Even self-funded employers, who are in the best position to keep their costs under control, are struggling to make ends meet. That gives brokers and agents an opportunity to demonstrate the value they can bring customers by identifying strategies that yield savings. One proven strategy to reduce expenses is to have employers take special measures to manage the costs of kidney disease â&#x20AC;&#x201C; one of the most expensive chronic illnesses to treat. The added bonus for this strategy is that patient

care can actually be improved through careful management. How much difference can this one tactic make? With treatments that can cost between $30,000 and $50,000 a month for each kidney disease patient, a self-insured company could quickly run through its entire benefits budget. With a careful regimen of thorough bill review, home treatment and prescription discounts, however, self-funded employers can realize significant cost-savings without reducing the level of care their employees receive. Brokers and agents can make a compelling argument by using statistics and providing an overview of how kidney disease management can make a difference.

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Self Funding Magazine

A Growing Problem

dialysis management expert who will work in conjunction with their third party administrator to help them manage their costs effectively, while protecting the best interests of the patient and other employees. An experienced dialysis management specialist will use new technology and proven strategies to control kidney dialysis costs.

Today, chronic kidney disease affects more than 26 million people in the United States, according to the National Kidney Foundation. Another 20 million people are considered at high risk for developing kidney disease. The potential for self-funded employers to see one or more kidney disease cases among their worker At least three tactics are available to ensure population is very real. The number of critical kidney disease optimal coverage at a fair price: cases is climbing upwards. According to the 1. Managing the rates. A dialysis American Society of Nephrology, an organization management expert can ensure that invoices of physicians and scientists who work to stop are being paid at Usual and Reasonable kidney disease, the number of people diagnosed rates by using current market data. This with kidney disease has doubled over the last will reduce unfair prices imposed on the two decades. As it progresses, chronic kidney employer and help to maintain healthcare disease becomes End-Stage Renal Disease. plan assets. Once the proper plan language Currently, more than 526,000 patients are is in place, the dialysis management team being treated for kidney failure. About 367,000 can ensure that the utilization review patients receive regular dialysis treatments and process withstands appeals and protects 158,000 have functioning kidney transplants. members from balance billing. Kidney dialysis is a $27 billion market, and it is only expected to grow. 2. Transitioning to home dialysis. Treatment in dialysis centers can be far more Providing Quality Care and Managing expensive than home treatment, but many Costs patients remain unaware of the option or are worried that it is too complex for them Self-funded employers have an interest to undertake. However, modern equipment in protecting their benefits budget, not only is much easier to use than in the past. Far for the ailing kidney patient and the other more importantly, studies have shown that workers, but also for the future of the benefits because of its greater frequency and ability package. Aside from the blow to the current to clear the body of toxins, home dialysis is yearâ&#x20AC;&#x2122;s budget, the impact of a single dialysis better for patients, improves their quality of case could increase the renewal cost for stoplife, causes fewer complications and leads loss insurance, which is designed to protect to longer life expectancy. Because it is self-funded employers from excessive medical also cheaper for self-funded employers, it costs. is a rare opportunity to do well by patients To prevent this problem, brokers while reducing costs. and agents can help self-insured companies target dialysis treatment by bringing in a

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Self Funding Magazine

3. Reducing drug costs. The specialty be a winning strategy that proves the value they drug Epogen, which is used to treat anemia bring to the table. in chronic kidney disease patients, is often obtained through the treating physician at a mark-up that can raise costs to more Sources: than $70,000 per year. By taking control h t t p : / / w w w. k i d n e y . o r g / n e w s / n e w s r o o m / f s _ n e w / of the prescription and arranging for KDaGrowingProblem.cfm http://www.asn-online.org/policy_and_public_affairs/docs/ drug discounts, a pharmaceutical benefits WKDFactSheets_final.pdf#page=5 manager can reduce the costs – in some http://www.asn-online.org/policy_and_public_affairs/KD%20 cases by up to 90 percent. Growing%20Public%20Health%20Threat.pdf In all, partnering with the right dialysis management expert could lead to a savings of roughly 50 percent of billed charges related to the treatment of chronic kidney disease. Getting Started Brokers and agents can not only help self-funded employers understand the value of managing chronic kidney disease, but they can also filter through available resources to help employers find the best partner to reduce dialysis costs. Their goal: Finding a qualified partner who can manage related administrative tasks and minimize costs by using innovative strategies like dialysis management. Further, a broker or agent is also in a good position to convince employers that dialysis management should be on their minds whether a case exists or not in their current workforce. The statistics make it likely that sooner or later they will face a case, and being proactive about dialysis management can lead to significant cost savings. All self-funded employers want to build the best plan for their employees, but costs have to be controlled to make sure a plan can succeed for everyone’s benefit. Exploring dialysis management strategies is a proven way to ensure the best healthcare for employees, while managing the company’s healthcare costs. For brokers and agents, dialysis management can

About the author Samuel H. Fleet is President of AmWINS Group Benefits, a leading wholesale broker/TPA of comprehensive group insurance programs and administrative services. With more than 20 years of health and benefit experience, Sam has guided the rapid rise of AmWINS Group Benefits from a small regional organization to one of the most successful wholesalers and group insurance administrators in the country. In the era of the Patient Protection and Affordable Care Act (PPACA), innovative health benefits strategies and industry-leading products will be more important than ever before – and under Fleet’s leadership, AmWINS has proven to be an expert at providing both. As the founder of the company that became AmWINS Group Benefits, Sam Fleet is frequently sought after for his knowledge and experience as a speaker at conferences of the Council of Insurance Agents and Brokers, the National Association of Life Underwriters and Benefits Selling Expo. His success has been recognized in such prestigious industry publications as Best’s Review, Employee Benefit News, Benefits Selling, Business Insurance and Employee Benefit Adviser.

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