Compound drugs will be a hot California legislative and regulatory item in 2011.

At the January 5, 2011 CHSWC meeting, Barbara O. Wynn of the RAND Institute for Civil Justice and RAND Health presented a study in process on compound drugs in California’ Workers’ Compensation System.

As noted in a recent article by Los Angeles Times reporter Marc Lifsher, an “unusual coalition” is forming to push legislative controls on compound drug prescriptions. California Senator Mark DeSaulnier (D-Concord) and Assemblyman Jose Solorio (D-Santa Ana) are said to be backing proposed legislative controls.

This would not be the first time.

Several years ago the California DWC had considered a limit or ban on compound drugs under treatment guidelines, but that was never adopted. The MTUS guidelines ultimately adopted did not ban compounded drugs.

MTUS guidelines relied heavily on the ODG Guidelines from the Work Loss Data Institute, which did not forbid compounding.

But the issue of compounding drug usage and pricing has continued to build. Some doctors are providing “nutriceuticals”.

In August 2010 the California Workers’ Compensation Institute published a study by John Ireland and Alex Swedlow, titled “The Cost and Utilization of Compound Drugs, Convenience Packs and Medical Foods in California Workers’ Compensation”.

Here’s the Executive Summary of that study by the CWCI:
“In 2002, California lawmakers enacted AB 749, the first of several workers’ compensation reforms that included provisions to modify the delivery of pharmacy benefits and contain the rapidly escalating cost of prescription drugs used to treat injured workers.
In response, state regulators held public hearings and by January 2004 adopted a workers’ compensation pharmacy fee schedule. That schedule capped maximum reimbursements for pharmacy services and drugs at 100 percent of the Medi-Cal rates, which at the time, were at least 10 percent below
the average wholesale price (AWP) for prescription drugs, plus a dispens- ing fee. However, for medications not covered by Medi-Cal – such as repackaged drugs dispensed from a physician’s office – maximum reasonable fees were still governed by the Official Medical Fee Schedule that had been in effect in 2003. That schedule set maximum fees at 140 percent of the AWP for generic drugs, and 110 percent of the AWP for
brand drugs, plus a dispensing fee.
This differential pricing system allowed physicians who dispensed repackaged drugs directly from their offices to be paid significantly more than pharmacies for the same medications. A recent Institute study1 found that in 2006, workers’ compensation reimbursements for repackaged drugs often exceeded the amounts paid for equivalent phar- macy-based prescription by 500 percent or more. Given that incentive, some companies began heavily marketing repackaged drug programs to workers’ compensation medical providers as a means of enhancing their revenue. As a result, by 2006, repackaged drugs dispensed by doctors accounted for more than half of all workers’ compensation prescriptions dispensed in California, and nearly 60 percent of all workers’ compensation prescription dollars.
In 2007, the Division of Workers’ Compensation responded by revising the pharmacy fee schedule which, as of March of that year, largely eliminated the differential pricing. The effect was immediate, as both the volume of repackaged drugs and the amounts paid for these medications plummeted, declining more than 90 percent by 2008.
After the repackaged drug regula- tions took effect in March 2007, some companies began promoting compound drugs and convenience packs (“co-packs”) comprised of prescription medications and “medical foods” to California workers’ compensation medical providers. Even though there are ongoing disputes over whether the use of these substances is appropriate and what the proper reimbursement should be, anecdotal reports from workers’ compensation payors suggest their use has increased significantly in recent years. This study examines the issue using prescription data compiled from several regional and national workers’ compensation insurance companies to estimate recent changes in the volume and reimbursement of compound drugs, convenience packs and medical foods in California workers’ compensation.”

You can access the complete study here:

The bottom line is that payments for compound drugs and medical foods has grown to a figure as high as 12% of pharmaceutical expenses in the system in 2009. That’s a whopping increase, up from 2.3%.

While there may be some situations that require compounded medications, use on this scale is highly questionable.

Recognizing the problem, CHSWC was asked by the legislature to prepare a background analysis.

In her powerpoint presentation, RAND’s Wynn noted that more data is being gathered, so an actual report has not yet been rendered. But a few points key points emerged:
-the FDA does not regulate compound drugs, but there are some “red flags” for enforcement action
-most compound drugs prescribed are topical creams and lotions
-MTUS guidelines do address topical analgesics to some extent
-financial incentives may be driving compound drug usage rather than medical need in many instances
-the DWC rules for repackaged drugs don’t address all the pricing issues with compound drugs, many of which have ingredients not in the Medi-Cal database
-payers and employers already have some tools to address compound drug issues

Wynn noted that possible regulatory and legislative policy initiatives could include:
-updating and expanding the MTUS to address compound drugs as a product class
-explicitly addressing compounding drugs in fee schedule regulations
-legislation to specify compound drug coverage, but noting that this could “constrain flexibility to address evolving issues” and could have “unintended consequences”
-steps to reduce the financial incentives for use of medical foods and compound drugs

When the RAND study is released it may provide additional ammunition for reforms.

In 2010, Solorio sponsored AB 2779, which would have effected some price controls over compound drugs. But AB 2779 did not make it to the Governor’s desk.

Labor and the the influential employer-side California Coalition on Workers’ Comp are said to be backing the effort this time.

Stay tuned.

Julius Young

Your favorite Aunt worked hard, but also played hard.

She lived pretty much paycheck to paycheck, like many people in our society. What little money was in her 401k pretty much dried up in the post-Lehman crash.

The dream of twilight years sipping Tequila Sunrises at a Del Webb retirement community now fades. Auntie is going to be working into her seventies, or beyond, to pay her bills.

As this scenario gets played out with the aging boomer generation, what are the projected consequences for California’s workers’ comp system?

Maybe not all that much.

At least that’s the conclusion of a powerpoint presentation to CHSWC in Oakland this week. The talk, by Frank Neuhauser of UC Berkeley, was an update on research funded by CHSWC.

Titled “Working Safer or Just Working Longer? Impact of an Aging Workforce on Injury Frequency and Disability Cost?”, the study is being done by Neuhauser and UC Berkeley grad student Anita Mathur.

Looking at 350,000 disability claims, assigning risk values for workers in the Current Population Survey, using WCIS data and controlling for other factors (note: the methodology was difficult to follow in the limited powerpoint graphs, and a text comp of the study is not yet available), the study assigns risk values for workers and calculates the risk for age and gender.

Neuhauser and Mathur conclude that the aging of the worker population will have small impact on overall costs in workers’ comp.

That’s counterintuitive.

One would expect that aging workers would have confounding medical problems which could result in higher medical treatment costs and increased indemnity costs. On the other hand, perhaps older workers do “work smarter”, or transition into less risky jobs.

Here are some of the primary conclusions that Neuhauser claimed:
-in 2010 workers older than 55 were 11.8% of the workforce but by 2030 it will increase to 22%
-injury rates decline after 24 for men and 64 for women
-duration of days paid for injury increases with age for both men and women
-after 18-24, women’s injury rates are higher as they age
-women’s injury rates are substantially higher if they are doing the same job as men (Neuhauser speculated that this might be because many workplace machines and processes were designed wqith men in mind)
-a “surprising finding that women are at much greater risk than men, at all ages”

But Neuhauser noted that the effects of aging may be substantial for age specific programs such as Medicare. According to the powerpoint talking points this is said to include the following factors:
-the cost of Medicare Set-Asides have substantially increased (note:
nothing requires claimants of carriers to settle medical and thus there would be no required MSAs)
-older workers occupational injuries are said to be under-reported
-there are “potentially large increase in recoveries by Medicare/Medicaid and health insurers”

A number of these points seem debatable. But workerscompzone looks forward to the release of the text of the study in the coming moments.

Here’s the official link on the CHSWC website: … tin05.html

Stay tuned.

Julius Young

It’s time again for the blog’s workers’ compensation quiz.

Test your perspicacity on all things comp related by taking the 2011 California workers’ compensation quiz. In some instances, more than one answer may be appropriate. At year’s end I’ll post the name of ye who is victorious, so get your answers in to

1. The person named as Administrative Director of the DWC under Jerry Brown will be: a) a workers’ comp judge; b) a current applicants attorney;
c) a former applicants attorney; d) a former DWC official; e) staffer at a large California insurance company; (f) former legislative advocate for a workers’ comp stakeholder

2. The statutorily mandated revision of the 2005 Permanent Disability Rating Schedule will: a) be done in 2011 by the Brown Administration;
b) be delayed past 2011 as further studies are done; c) be addressed as part of a larger 2011 legislative compromise on workers’ comp;

3. In 2011, California workers’ comp insurers will: a) increase rates on average of less than 5% ; b) institute double digit rate increases, causing the perception of a new workers’ comp crisis; c) increase rates on average in the 5 to 10% range

4. By year’s end, the Ogilvie II en banc case will be: a) settled law, as appellate challenges fizzle b) mooted by a new schedule or a legislative compromise; c) in question due to conflicting Court of Appeal rulings; d) defunct, replaced by a new schedule rebuttal paradigm

5. California’s budget deficit will have the following impacts on the system: a) none, as the Brown Administration protects “user funded”
agencies; b) large cuts after the public votes against tax and fee increases in a special election; c) significant cuts in the 2011 budget, mostly restored after a revenue-increase measure passes a summer 2011 election; d) more furloughs

6. In 2011 regarding the Almaraz-Guzman line of cases: a) acceptable Almaraz-Guzman analysis is further refined in followup
panel decisions; b) a writ is finally granted in Almaraz; c) appellate case review is granted in cases which will further address A-G; d) nothing
significant occurs; d) rebuttability of the schedule is limited by legislative

7. Power on workers’ comp issues under the Brown Administration will be: a) centered at the DWC level as the administration delegates lots of authority; b) kept tightly within the Governor’s close advisors in the horseshoe; c) irrelevant because the Governor will largely ignore workers comp due to preoccupation with the budget crisis

8. California’s new Insurance Commissioner, Dave Jones, will: a) extend the Poizner strategy of questioning rate increases; b) seek to play an even more active role in the workers’ comp arena, scrutinizing carrier behavior and profits; c) will largely focus on healthcare reform issues, leaving workers’ comp on the back burner in 2011

9. In 2011 the DWC will: a) complete the 12-point medical cost savings plan started by Schwarzenegger; b) abandon the remaining items in the 12-point plan; c) complete some items, but not the RBRVS doctor fee revision; d) propose regs to tighten procedures for medical liens e) adopt regs addressing problems in the QME system

10. In 2011 the WCAB will place significant focus on: a) discovery issues in workers’ comp; b) the meaning of Labor Code 4662 and its relationship to a law based on DFEC; c) what is permissible under Guzman and what is excessive; d) attorney ethics; e) Subsequent Injuries Fund issues

11. Comp stakeholder groups that will form new and interesting alliances in 2011 are: a) CSIMS; b) the Cal-Chamber; c) CAAA; d) Self-insurers; d) Voters Injured at Work; e) CWCI;

12. 2011 will be notable as: a) a quiet year when very little changed in California workers’ comp; b) a year when comp premiums were affected as unemployment spiked higher due to budget problems and bond market turmoil; c) a year when the system was again reformed; d) a year when the economy’s growth marked the beginning of a rise in total premium written; e) a year when rate increases put comp back on the political radar

13. By years end there will be: a) change in the QME system; b) a law
banning discrimination in apportionment; c) another RAND wage loss study; d) a new lien resolution system; d) a change in the standard for rebutting the schedule; e) pharmacy networks regs; e) Wikileaking spreading to workers comp, as sensitive documents see the light of day

Ye soothsayers, what say ye? Special bonus given to those who accurately suggest other significant developments in 2011 not covered in the above.

Happy New Year to readers.

Julius Young

It’s time for the blog’s year end feature, the Top 10 developments in California workers’ comp in 2010.

2010 was not a year that saw blockbuster changes in California workers’ comp. Yet, there were many significant developments worth noting. What follows are workerscompzone’s picks, in no particular order:

Insurer rate increase in 2010 remained modest, despite the industry’s attempt to have Insurance Commissioner Poizner provide political cover for huge rate increases.
In 2009, Insurance Commissioner Poizner had twice rejected calls for double digit increases by the insurance-company led WCIRB (Workers’ Compensation Insurance Rating Bureau). In 2010, Poizner rejected a WCIRB call for a 27.7% increase, recommending no increase. Meanwhile, carriers such as SCIF raised rates at a much lower level: 5.2% in SCIF’s case.
According to WCIRB stats, the average premium rate paid by employers per $100 of payroll was $2.36 in 2009 and $2.47 in 2010, down from $6.44 in 2003. The rate in 1995 was $2.59 and in 1997 was $2.47.
Thus, premium rates per $100 of payroll remain about what they were in the late 1990s.
Figures from the CDI and CHSWC show that average rates filed by insurers fell from 2004 as follows: -3.6% (1/1/04), -7.3% (7/1/04), -3.8% (1/1/05), -14.6% (7/1/05), -14.7% (1/1/06), -10.7% (7/1/06), -7.0% (1/1/07), -11% (7/1/07), -.05% (1/1/08), -2.6% (7/1/08), +5.8% (1/1/09), and +8.5% (7/1/09), with some further increases in 2010.
But the perception of California as a relatively high cost state persists.A 2010 study by the Oregon Department of Consumer and Business Services claimed that the median premium per $100 among the various states is $2.04, with the Oregon study claiming that under its analytical criteria, California is now the 5th highest cost state. Nevada continued periodic campaigns to attract California business.
In late 2010, Poizner called for changes in the pure premium advisory ratemaking process. Henceforth, the WCIRB has been asked to provide information on actual comp rates of carriers and additional data on the profitability of the insurance industry. It is widely expected that incoming Insurance Commissioner Dave Jones will carefully scrutinize industry data.

Despite the statutory mandate that the California’s permanent disability rating schedule be updated every 5 years, the Schwarzenegger administration refused to follow through on amendment of the schedule.
There was no legal challenge mounted to the failure to amend the schedule.
Citing continuing severe problems in the California economy, the DWC indicated that the time was not right to amend the schedule in the midst of a recession with high unemployment.
In the Spring of 2008 the DWC had unveiled a proposed PDRS revision that was estimated to increase ratings by around 12% and benefits by around 16%. That revision was never adopted, despite earlier vows by DWC officials that they intended to meet the 1/1/2010 revision deadline.
Several studies, including the DWC’s own data, had shown that permanent disability awards to injured workers were significantly reduced under the SB 899 adoption of the AMA Guides and use of the 2005 PDRS.
In adopting the 2005 PDRS, then AD Andrea Hoch (appointed by Schawarzenegger in 2010 to the 3rd District Court of Appeal) had declined to do “crosswalk study” as recommended by RAND to link ratings with actual DFEC. The Almaraz-Guzman cases and the Ogilvie case are an outgrowth of and reaction to the restrictive approach to
compensating permanent disability..

Despite “user funding” through employer assessments, the Schwarzenegger administration refused to exempt the DWC and WCAB district offices from furloughs during much of the year.
Challenges to the furloughs were rejected by the California Supreme Court in 2010. System stakeholders were unhappy in 2010 as reduced service galled insurers and workers alike. Employers complained because there had been a sharp rise in employer assessments in 2010.
Later in the year the Adminsitration reached a deal with a number of state worker unions to end furloughs in exchange for pay concessions.
Employer assessments for 2011 were slated to rise at a much reduced level.
However, hanging over the whole system as 2010 ended was a great deal of uncertainty as to how the state’s huge budget deficit would be resolved and whether any budget solution could have collateral impact on workers and the system.

Insurer challenges to the board’s Almaraz-Guzman II decision fell short. The Bakersfield-area California Court of Appeals had not granted a writ in Almaraz by year’s end. In Guzman, an employer challenge to the Guzman II en banc decision did not succeed. The San Jose area 6th District Court of Appeals issued a decision upholding the WCAB’s Almaraz-Guzman II analysis.
Various defense commentators attempted to identify solace for employers and insurers in some language in the 6th District’s opinion.
But the decision stands as a major win for disabled workers, allowing evaluators in selected cases to rebut the strict AMA rating by assessing impairment within the four corners of the AMA Guides in an effort to assign an impairment rating that accurately assesses the clinical findings and the impacts on ADLs.
Later in the year the California Supreme Court refused to hear an appeal of the 6th District’s opinion in Guzman.
As the year progressed, a series of board panel decisions provided some guidance to both applicants and defense on what type of A-G II medical analysis would pass muster with the WCAB, and what would not.

The 2010 legislative session ended, winding up one of the least productive on workers’ comp in memory.
Unlike the last several years, labor advocates and applicant attorneys did not continue to push a bill to raise permanent disability. After 3 Schwarzenegger vetoes of bills on this subject, the issue was put on the legislative back burner.
Again passed by the Democratic-conrolled legislature and again vetoed were SB 145 (DeSaulnier) (to bar apportionment based on race, religious creed, color, national origin, age, gender, marital status, sexual orientation or genetic predisposition) and AB 933 (requiring that any UR reviews be done by California doctors).

In 2010 the Schwarzenegger Administration continued its effort to achieve system savings via regulatory reform. This program, announced in late 2009, is known as the 12-point plan to control medical costs. At year’s end, the DWC announced hearings on proposals to adopt Medicare-based fees for ambulatory surgery center fees and to reduce spinal hardware reimbursements, generating eventual claimed savings of $86 million per year.
Those regs (and contentious changes to the physician fee schedule, as well as regs on pharmacy networks, a medication formulary and UR authorization requests), will default to the Brown Administration for finalization. Other 12 point plan efforts either done or nearing completion are MTUS guideline regs (done in 2009), revised MPN regs, and revised regs on medical billing.
The bottom line? Much of the 12-point plan has been initiated, but only about half the items have actually been adopted.
Medical cost escalation continues to be a national problem in workers’ comp systems. NASI, the National Academy of Social Insurance, released a 2010 report documenting the fact that for the first time nationally, the cost of medical treatment for injured workers exceeds cash indemnity benefits paid to workers.
In California we continue to see tension over medical treatment in California, with some doctors threatening to leave the system if fees are cut.
. The anecdotal experience of many judges and attorneys is that many injured workers are not happy with their access to care. But in 2010 the DWC released results of a study of 1,000 injured workers conducted by the University of Washington School of Public Health. A 2007 study out of UCLA had made a similar assessment.
The University of Washington study claimed that although there were barriers to access to care, that overall 4 out of 5 workers were satisfied with their care. However, the study noted a great deal of provider unhappiness and made a number of recommendations: 1) quality improvement at MPNs; 2) better communication by DWC to providers; 30 eliminating UR delays and simplifying UR; 4) reducing administraive paperwork; 5) creating incentives for reasonable accomodation; 6) mitigating language barriers.

A midyear 2010 study by CHSWC and UC Berkeley researcher Frank Neuhauser revealed many problems in the QME process. A mismatch between supply and demand for specific specialties was noted. A small percentage of QMEs were doing a highly disproportionate share of evaluations.The study noted that some QMEs were dropping out because there were too few evaluations to make it worthwhile.
Later in 2010 the DWC considered further amendments to the QME process to address some of these problems, including the outsized share of evals done by some doctors, particularly those traveling doctors with multiple “offices”.
Many observers believe that these QME difficulties is an issue which will get attention from new regulators in a Brown administration.
Meanwhile, liens problems were a source of attention in 2010. The Los Angeles district office, which claimed that liens consume 35% of its calendar, held several highly publicized “lien” fiestas, trying to reduce the backlog of liens. And in December 2010 the California Commission on Health, Safety and Workers Compensation unveiled a draft report on liens for discussion at the January 5, 2011 CHSWC meeting. Among the recommendations are to reinstate a lien filing fee, establish an administrative system for fee schedule dispute resolution, amendment of the statutes and regs to deter premature lien filings, and tightened requirements on the disclosures and documentation that accompany liens.

Schwarzenegger’s legacy in workers’ comp will be debated for years to come.
But in 2010 the gubernatorial campaign of Insurance Commissioner Poizner never jelled. Poizner, who had significant insight into workers’ comp, may be a political force in the future.
Workers’ comp never surfaced as an issue in the 2010 campaign, and many stakeholders felt that was just as well.
The California Applicants Attorneys Association, which had had some notable dust-ups with the 1980s version of Governor Brown, was an early and enthusiastic supporter of his 2010 bid for a second round in Sacramento.
As 2010 came to a close, some DWC personnel began to exit. There was much anticipation about the incoming Brown Administration. A number of veterans of the workers’ comp scene were floating their names for the slot as DWC Administrative Director.
With the Brown’s first priority being the state budget crisis, it was not clear when comp would be on his radar.

Among the relatively meager case law developments in 2010 was the Mendoza Vs. Huntington Hospital case, wherein the WCAB rejected the controversial Administrative Director Rule 30 which had prohibited a defendant from requesting a panel QME after denying a case. Rule 30(d)(3) provided that after a claim was denied by the defendant, only the employee could request a panel QME.
The WCAB in Mendoza finds Rule 30 inconsistent with provisions of Labor Code 4060(c) and 4062.2. Therefore, a defendant will be able to deny a case without prejudice to its right to later invoke the QME process on AOE/COE grounds.
Later in the year, a writ was denied in Mendoza, and the California Supreme Court declined to review the case.

The State Compensation Insurance Fund (SCIF), continued to adjust to its reduced role in the California marketplace. The quasi-public insurer of last resort, SCIF’s market share is less than half of what it was before the 2004 reforms. The carrier released a report in 2010 noting that it had lost one-quarter of its premium volume over the prior year. In late 2010 SCIF announced plans to move many employees from its San Francisco headquarters in an effort to achieve cost savings.

For a slightly different take on many of these 2010 developments in California workers’ comp, you can see the video discussions between myself and attorney Richard “Jake” Jacobsmeyer on by clicking here:

In coming days I’ll be posting a quiz on projections for California workers comp in 2011. Happy holidays to readers.

Julius Young

The car turns down a side road, off a fine highway onto a somewhat-rutted track. Next we pull into a small courtyard. In the small office sits a 6 foot long fish tank. A big white fish, all alone, lounges dreamily. Its yellow eyes seem to reach out in communication. Meanwhile, the TV blares a

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