Specialty Pharma

Cancer Drugs a Growing Cost Driver in Workers’ Comp

Presumption laws combined with newer, more expensive cancer drugs are a one-two punch municipalities can ill afford.
By: | November 1, 2017 • 4 min read

In recent years, opioids grabbed a prominent role as one of  the biggest pharmaceutical costs in workers’ comp, but with the proliferation of state presumption laws and a rash of chemotherapeutic specialty drugs either hitting the market or in the works, cancer drugs could be poised to become the next pharmaceutical cost driver.

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Over the course of the last decade, at least 36 states passed presumption of compensability laws, which makes some first responders diagnosed with certain types of cancer eligible for workers’ compensation on the presumption that the individual obtained the disease on the job.

While these bills vary widely, the majority of presumption bills cover firefighters for cancers and other conditions presumed to be caused by their exposure to a known carcinogen. Some of the cancers typically outlined as covered include lung, brain, kidney, bladder, rectal and skin cancer, and often also include non-Hodgkin’s lymphoma, leukemia and multiple myeloma.

Phil Walls, the chief clinical officer of myMatrixx, a pharmacy benefit management company owned by Express Scripts and based in Tampa, Fla., said he’s heard payers comment that presumption laws and the specialty drug market keep them up at night.

“Cancer [in workers’ comp] prior to presumption laws was a relatively rare event,” he noted. “For those insurers that cover [these first-responder] populations, I think this is going to have a big impact. Chemotherapy is very expensive. We continue to see escalating drug prices, with most of these within the specialty drug market.”

A recent Express Scripts study noted that more than 830 oncology drugs are in the pipeline.  The company projects that the health care industry can expect to see an increase of more than 20 percent in cancer drug spending each year through 2019, mainly due to patients using these expensive drugs as maintenance therapy.

Elam Herr, assistant executive director, Pennsylvania State Association of Township Supervisors

Firefighters and other first responders who may be covered by presumption of compensability laws make up a statistically insignificant portion of the overall workers’ compensation market.

However, a major cancer claim expense could be fiscally damaging for a small municipality, said Brian Allen, vice president of governmental affairs for San Diego, Calif.-based Mitchell Pharmacy Solutions and a board officer for the American Association of Payers, Administrators and Networks.

Public safety employees represent less than 3 percent of the general working population, but if a firefighter or two goes out on disability because of a cancer presumption, it could increase a small city’s claim costs by 20 to 25 percent, he said.

Premiums Impacted

Allen also noted that most of the expensive oncology drugs new to the market weren’t factored into the fiscal analysis conducted by states that have passed these presumption bills, further impacting the bottom line of smaller municipalities.

Elam Herr, assistant executive director of the Pennsylvania State Association of Township Supervisors, said that when Pennsylvania passed its presumption of compensability bill in 2011, the response by insurers was to drop them. The bill enabled firefighters to report retroactive claims going back 10 years.

“Starting out with claims for 10 years and no reserves as of day one, all the insurance companies and trust bailed on the municipal governments,” Herr recalled, referring to the township members of the association.

Those small municipalities were forced to seek coverage for their predominantly volunteer fire departments through the State Workers’ Insurance Fund, which led to premium jumps ranging from 20 to 40 percent for townships, he said.

“If there’s one thing American people want, it’s the biggest and best of everything. If there’s a miracle drug out there, they’re going to want it.” — Elam Herr, assistant executive director, Pennsylvania State Association of Township Supervisors

Since Pennsylvania’s bill took effect, 261 firefighters petitioned for coverage under the cancer presumption, but only 19 are volunteer firefighters — a smaller figure than Herr and others anticipated.

However, he is still wary about the impact of the law and increasingly expensive oncology drugs.

“I think any type of drug today will drive up cost,” he said. “If there’s one thing American people want, it’s the biggest and best of everything. If there’s a miracle drug out there, they’re going to want it.”

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Representatives of the Arizona League of Cities and Towns are similarly concerned about the impact of presumption bills on comp coverage. In 2016, the Arizona legislature added 12 new cancers to the presumption statute, including skin and prostate cancers, which are common in Arizona.

Arizona’s law allows workers who served as firefighters and peace officers for at least five years to file claims within 15 years of their last date of employment.

“We’re in a new era for workers’ comp for all employers … we’ve got a mix of factors that create the potential for quite a lot of cost,” said Alex Vidal, a legislative associate at the Arizona League of Cities and Towns.

“In terms of drug costs, when you’re treating something as complicated of cancer, the health insurance system is best set up to handle that type of treatment. In workers’ comp, because of their fee schedule system and restrictions, [the system] isn’t able to get the kind of savings that health insurers get, and medical costs can be more expensive.” &

Angela Childers is a Chicago-based writer specializing in health care and business management. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Property

Insurers Take to the Skies

This year’s hurricane season sees the use of drones and other aerial intelligence gathering systems as insurers seek to estimate claims costs.
By: | November 1, 2017 • 6 min read

For Southern communities, current recovery efforts in the wake of Hurricane Harvey will recall the painful devastation of 2005, when Katrina and Wilma struck. But those who look skyward will notice one conspicuous difference this time around: drones.

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Much has changed since Katrina and Wilma, both economically and technologically. The insurance industry evolved as well. Drones and other visual intelligence systems (VIS) are set to play an increasing role in loss assessment, claims handling and underwriting.

Farmers Insurance, which announced in August it launched a fleet of drones to enhance weather-related property damage claim assessment, confirmed it deployed its fleet in the aftermath of Harvey.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now,” said George Mathew, CEO of Kespry, Farmers’ drone and aerial intelligence platform provider partner.

“The current wind and hail damage season that we are entering is when many of the insurance carriers are switching from proof of concept work to full production rollout.”

 According to Mathew, Farmers’ fleet focused on wind damage in and around Corpus Christi, Texas, at the time of this writing. “Additional work is already underway in the greater Houston area and will expand in the coming weeks and months,” he added.

No doubt other carriers have fleets in the air. AIG, for example, occupied the forefront of VIS since winning its drone operation license in 2015. It deployed drones to inspections sites in the U.S. and abroad, including stadiums, hotels, office buildings, private homes, construction sites and energy plants.

Claims Response

At present, insurers are primarily using VIS for CAT loss assessment. After a catastrophe, access is often prohibited or impossible. Drones allow access for assessing damage over potentially vast areas in a more cost-effective and time-sensitive manner than sending human inspectors with clipboards and cameras.

“Drones improve risk analysis by providing a more efficient alternative to capturing aerial photos from a sky-view. They allow insurers to rapidly assess the scope of damages and provide access that may not otherwise be available,” explained Chris Luck, national practice leader of Advocacy at JLT Specialty USA.

“The pent-up demand for drones, particularly from a claims-processing standpoint, has been accumulating for almost two years now.” — George Mathew, CEO, Kespry

“In our experience, competitive advantage is gained mostly by claims departments and third-party administrators. Having the capability to provide exact measurements and details from photos taken by drones allows insurers to expedite the claim processing time,” he added.

Indeed, as tech becomes more disruptive, insurers will increasingly seek to take advantage of VIS technologies to help them provide faster, more accurate and more efficient insurance solutions.

Duncan Ellis, U.S. property practice leader, Marsh

One way Farmers is differentiating its drone program is by employing its own FAA-licensed drone operators, who are also Farmers-trained claim representatives.

Keith Daly, E.V.P. and chief claims officer for Farmers Insurance, said when launching the program that this sets Farmers apart from most carriers, who typically engage third-party drone pilots to conduct evaluations.

“In the end, it’s all about the experience for the policyholder who has their claim adjudicated in the most expeditious manner possible,” said Mathew.

“The technology should simply work and just melt away into the background. That’s why we don’t just focus on building an industrial-grade drone, but a complete aerial intelligence platform for — in this case — claims management.”

Insurance Applications

Duncan Ellis, U.S. property practice leader at Marsh, believes that, while currently employed primarily to assess catastrophic damage, VIS will increasingly be employed to inspect standard property damage claims.

However, he admitted that at this stage they are better at identifying binary factors such as the area affected by a peril rather than complex assessments, since VIS cannot look inside structures nor assess their structural integrity.

“If a chemical plant suffers an explosion, it might be difficult to say whether the plant is fully or partially out of operation, for example, which would affect a business interruption claim dramatically.

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“But for simpler assessments, such as identifying how many houses or industrial units have been destroyed by a tornado, or how many rental cars in a lot have suffered hail damage from a storm, a VIS drone could do this easily, and the insurer can calculate its estimated losses from there,” he said.

In addition,VIS possess powerful applications for pre-loss risk assessment and underwriting. The high-end drones used by insurers can capture not just visual images, but mapping heat, moisture or 3D topography, among other variables.

This has clear applications in the assessment and completion of claims, but also in potentially mitigating risk before an event happens, and pricing insurance accordingly.

“VIS and drones will play an increasing underwriting support role as they can help underwriters get a better idea of the risk — a picture tells a thousand words and is so much better than a report,” said Ellis.

VIS images allow underwriters to see risks in real time, and to visually spot risk factors that could get overlooked using traditional checks or even mature visual technologies like satellites. For example, VIS could map thermal hotspots that could signal danger or poor maintenance at a chemical plant.

Chris Luck, national practice leader of Advocacy, JLT Specialty USA

“Risk and underwriting are very natural adjacencies, especially when high risk/high value policies are being underwritten,” said Mathew.

“We are in a transformational moment in insurance where claims processing, risk management and underwriting can be reimagined with entirely new sources of data. The drone just happens to be one of most compelling of those sources.”

Ellis added that drones also could be employed to monitor supplies in the marine, agriculture or oil sectors, for example, to ensure shipments, inventories and supply chains are running uninterrupted.

“However, we’re still mainly seeing insurers using VIS drones for loss assessment and estimates, and it’s not even clear how extensively they are using drones for that purpose at this point,” he noted.

“Insurers are experimenting with this technology, but given that some of the laws around drone use are still developing and restrictions are often placed on using drones [after] a CAT event, the extent to which VIS is being used is not made overly public.”

Drone inspections could raise liability risks of their own, particularly if undertaken in busy spaces in which they could cause human injury.

Privacy issues also are a potential stumbling block, so insurers are dipping their toes into the water carefully.

Risk Improvement

There is no doubt, however, that VIS use will increase among insurers.

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“Although our clients do not have tremendous experience utilizing drones, this technology is beneficial in many ways, from providing security monitoring of their perimeter to loss control inspections of areas that would otherwise require more costly inspections using heavy equipment or climbers,” said Luck.

In other words, drones could help insurance buyers spot weaknesses, mitigate risk and ultimately win more favorable coverage from their insurers.

“Some risks will see pricing and coverage improvements because the information and data provided by drones will put underwriters at ease and reduce uncertainty,” said Ellis.

The flip-side, he noted, is that there will be fewer places to hide for companies with poor risk management that may have been benefiting from underwriters not being able to access the full picture.

Either way, drones will increasingly help insurers differentiate good risks from bad. In time, they may also help insurance buyers differentiate between carriers, too. &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected]