As Florida Weighs 6.1% Workers’ Comp Hike, Legislators Urged to Act

By Michael Adams | October 18, 2012

A proposed statewide average 6.1 percent increase in Florida’s workers’ compensation rates could spur the first major legislative changes in the state’s system since 2003.

The likely targets of reforms include physician-repackaged drugs and hospital costs, which the industry says are driving the latest rate proposal.

The National Council on Compensation Insurance filed for the 6.1 percent increase in August, marking the third consecutive rate increase after seven consecutive decreases following a 2003 rewrite of the state’s workers’ compensation law. Even if regulators approve the current rate filing as submitted, those reforms have seen Florida’s rates drop by 56 percent.

NCCI officials and regulators, however, now say the savings from the 2003 reforms have been exhausted. They warn that larger increases could be coming unless steps are not taken to rein-in the system’s cost drivers.

Florida Insurance Commissioner Kevin McCarty said at a recent public hearing that it was time for lawmakers to address the cost of physician-dispensed prescription drugs and the state’s hospital costs.

“The prospect of a third possible rate increase should be used as an opportunity to refocus our attention on the Florida Legislature,” said McCarty. “Although we do not expect the cost savings of the magnitude of 2003, I believe we can make progress addressing some of the cost drivers we are all aware of.”

Since 2010, regulators and some lawmakers have focused on physician-dispensed drug costs, which have risen significantly around the country. In Florida, pharmacies receive three times a drug manufacturer’s wholesale price, plus a $4.18 dispensing fee. However, there is no such cap on fees to physicians who dispense drugs. An NCCI study found that in some cases costs for physician-dispenses drugs are marked-up by more than 400 percent.

NCCI estimates that physician-dispensed drugs accounted for 2.5 percent of the 8.9 percent rate increase that went into effect in 2012 and cost employers an additional $62 million. That number has come down, however, and NCCI now estimates the cost of physician-dispensed drugs at 1.1 percent or $27.3 million.

NCCI State Executive Lori Lovgren said the reduction is attributable to several factors such as insurers applying a previous overlooked part of the law that allowed them to compensate physicians not under contract at the same rate they pay physicians under contract. She said the prospect of lawmakers capping reimbursements on physician-dispensed drugs may also have led to changes.

“There has been three years of attention paid to this issue and that could have contributed to some of the changes in the behavior of repackagers,” Lovgren said.

Outpatient hospital costs is another major driver of workers’ compensation costs.. Unlike physicians, outpatient hospitals and ambulatory surgical centers that also provide radiology and lab services are not paid on the basis of a fee schedule, but receive a percentage of their usual and customary charges. Insurers say this has contributed to an increase in utilization and services that has pushed up the state’s overall medical costs.

Lovgren said that if the lawmakers were to institute a more rigorous fee schedule and bring Florida’s costs in line with the countrywide average, they could reduce rates by as much as 5.5 percent. Along with the potential savings on physician-dispensed drugs, that could result in a substantial savings to employers.

“If you just reduce hospital facilities cost to the countrywide average and add drug changes, you’re looking at 6.6 percent in potential savings,” said Lovgren.

Florida’s Insurance Consumer Advocate Robin Westcott supported the call for legislative action and supported NCCI’s rate request.

“I agree that many assumptions in the filing are conservative in nature,” said Westcott. “It is difficult to find fault, especially in regards on the impact to the solvency of our carriers.”

The filing itself portrays an economy that is just starting to rebuild after the 2009 recession that dramatically reduced activity in some of the state’s largest industries including construction.

Private market premium volume, which totaled of $3.1 billion in 2007, fell to $1.6 billion in 2010. In 2011, however, that number grew slightly to $1.8 billion. The state’s combined loss ratio is at 119 percent.

An Oregon rate study ranked Florida 40th in lowest rates in 2010. However, the state moved up 19 spots to number 29th in 2012.

Even if the 6.1 percent rate increase is approved as filed, Florida’s rates would remain around the average of states in the Southeast.

 

 

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Latest Comments

  • October 18, 2012 at 11:38 am
    perplexed says:
    Uhhh... The difference between 40th and 29th is not 19 spots. Unless you are using the kind of math the political candidates are so fond of.
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