Florida Looks to Manage State’s Workers’ Compensation Costs

By | November 29, 2011

Florida officials are looking for ways to reduce the state government’s workers’ compensation costs and considering changing some mandates that grant first responders automatic benefits and reducing prescription drug costs.

Florida Division of Risk Management Director R.J Castellanos told the Florida Budget Committee that the state government workers’ compensation system is largely stable due to the success of a 2003 re-write of the state’s workers’ compensation law.

Since fiscal year 2008-2009, the division, which insures all state agencies, including the legislature and university system, averaged around 14,000 claims per year and paid out some $114,000 in injured workers’ benefits.

“We can always do better,” said Castellanos. “But compared to other states’ public and private sectors, we are doing very well.

The state government, along with the private market, has benefited from a reform of the system passed in 2003. While there was a 7.8 percent statewide average rate increase this year and an 8.6 percent rate increase is in the pipeline for next year, Florida’s rates have fallen by a total of 58.6 percent since 2003.

That is not to say, however, the system is not without its problems. Castellanos said there are several areas the state could reduce government’s workers’ compensation costs.

Presumption Claims

One area that lawmakers are certain to look at is the growing cost associated with so-called “presumption claims.”

Over the years, lawmakers have inserted into the state’s workers’ compensation law a list of medical conditions that if contracted by some workers they are presumed to have been done so in the scope of their job, thereby making them eligible for workers’ compensation benefits.

The presumptions apply to first responders including law enforcement officials, firefighters, corrections officers, and state wildlife officers.

One such presumption is found in the state’s heart and lung statute, which states that if a first responder passes a physical upon being hired and later develops a lung disease or suffers heart attack, the conditions are deemed to have occurred on the job.

For example, if a firefighter is diagnosed with lung cancer or suffers a heart attack, it is presumed that his job led to those medical conditions despite the fact he may have been a long time smoker or suffered from hypertension. In some cases, even retired first responders can be eligible for benefits.

Castellanos said the presumption claims have cost the state some $30 million since 2003 when lawmakers included corrections officers to the list of those who could assert presumptive claims.

He said that is one reason lawmakers last year created a disability task force to review the mandates. Their report is due to be released on Jan. 1, 2012.

Under questioning by lawmakers, Castellanos said he believes rolling back or modifying the mandates could yield some cost savings.

“I think the law can be modified to be fairer to public employers while still providing the benefits to public employees that are subject to some very high-risk situations,” said Castellanos.

Drug Costs Concern

Castellanos said that the state is also bearing the cost of higher costs of physician repackaged prescription drugs.

Since 2003, Florida has placed a cap on pharmacy dispensed drugs at three times the drug manufacturer’s wholesale price, plus a $4.18 dispensing fee. However, the law remained silent on the amount physicians could charge insurers if they directly dispense drugs to their patients.

National Council on Compensation Insurance State Relations Director Lori Lovgren told lawmakers that in 2003, only nine percent of drugs were dispensed by doctors. Since then, that number has risen to over 50 percent, making Florida the state with the highest rate.

She said the problem is not the number of physicians dispensing drugs but the lack of a cap on the reimbursement.

According to NCCI, as much as 8.9 percent workers’ compensation rate increase approved for use as of Jan. 1, 2012, fully 2.5 percent were due to repackaged drugs. That equals roughly $62 million.

While stating that it is up to lawmakers to decide on the public policy about the use and price of repackaged drugs, Lovgren suggested it would be in the system’s best interest for lawmakers to act now instead of later.

“It’s nice to do little tweaks rather than major reform packages that are more difficult to do,” Lovgren said.

One problem with the drug repackaged issue is that there is little information on how it affects injured workers’ return-to work-rates. Lovgren noted that one health care study found that 30 to 35 percent of all prescriptions issued by doctors go unfilled. Therefore, the ability of doctors to repackage drugs could in theory ensure that injured workers are complying with their medical treatment.

On the flip side, the ability of doctors to charge higher prices for drugs could lead to more drugs being prescribed for a longer period than necessary

However, Tom Panza, representing Automated Health Care Solutions, said those arguments are based on speculation.

Speaking about NCCI’s projections, Panza said there is no documentation that the increase in repackaged drug costs accounted for 2.5 percent of the 8.9 percent rate filing. Further, he said, any NCCI projections of potential savings are not grounded in facts.

“At some point, we hope the legislature follows the map, because there is nothing in the filing that supports the 2.5 percent,” he said.

The impact of repackaged drugs on the state government workers’ compensation medical costs is substantial.

Ashley Mayer, director of policy research and legislative affairs, said that in just two years the cost of repackaged drugs borne by the state Division of Risk Management has grown from just $12,000 to $1.2 million in 2010.

One roadmap lawmakers may follow when it comes to reining in drug costs is the example of California, which placed a cap on the dispensing fee for repackaged drugs.

Following the California law change, the dollar share of all prescription drug costs prescribed by physicians remained between 40 percent and 50 percent from 2003 and 2009. However, the dollar share of all physician repackaged drugs fell from over 40 percent of all prescription drug costs to less than 10 percent.

Cost of Living Increases

Another place lawmakers may look to for savings is the mandatory cost of living increases on benefits received by injured workers who are declared permanently and total disabled.

The most commonly used cost of living increases are pegged to the United States Bureau of Labor Statistics Consumer Price Index. In October, the bureau estimated that for 2011, the CPI would increase by 3.5 percent.

“That number is still relatively high given the real cost of inflation and the face that salaries have gone down for most people,” said Castellanos, who recommended the cost of living increases be tied to the bureau of labor’s statistics.

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