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Workers' Comp Reform

Florida Business Groups Push for Comp Reform

With meaningful reform stalled and premiums rising, employers want their concerns to be heard.
By: | May 26, 2017 • 6 min read

Employers are expected to pressure Florida lawmakers to agree on workers’ compensation reform next year.

The Florida Supreme Court ruled unconstitutional significant components of the state’s workers’ compensation statutes in 2016, triggering a rate spike for employers. Attempts at reform — House Bill 7085 and Senate Bill 1582 — sputtered out in May, after lengthy debates.

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While next year’s legislative session starts Jan. 8, business groups believe the pressure will start in late summer or early fall, when the National Council on Compensation Insurance is expected to recommend significant rate increases — likely double-digit rate increases for two years in a row, said Carolyn Johnson, director of business, economic development and innovation policy at the Florida Chamber of Commerce.

“That should force the Legislature’s hand to act — at least that’s our hope,” she said.

This year’s rate increase of 14.5 percent followed two significant rulings. Castellanos vs. Next Door Company invalidated current caps on attorneys’ fees in workers’ comp claims, said Johnson.

The current system in Florida requires that the employer and carrier pay for an employee’s attorneys’ fees in workers’ comp claims.

In Westphal vs. the City of St. Petersburg, the court invalidated the length of time an injured worker could receive temporary total disability and temporary partial disability under current law, removing the cap on benefits workers could potentially receive, Johnson said.

Carolyn Johnson, director of business, economic development and innovation policy, Florida Chamber of Commerce

Following the rulings, the National Council on Compensation Insurance (NCCI) filed for a 19.6 percent increase. The Florida Office of Insurance Regulation disapproved the filing, but approved the amended increase of 14.5 percent.

The attorney fee decision resulted in about 10 percent of the 14.5 percent rate increase, and the invalidation of the cap on benefits resulted in about 2.2 percent, with the remaining portion due to the Florida Legislature having to ratify any rulemaking that has a significant impact on the business community.

“The key thing for the Florida Chamber of Commerce and Florida’s business community is how do we put constraints on how much claimant attorneys can make under the system of the post-Castellanos world,” Johnson said.

“We started out last year’s legislative session suggesting that the state move to a claimant-pay attorney fee system, but the political reality was that no one wanted to touch that.”

The Florida House’s initial proposal was to cap attorney fees at $150 an hour if the fee that the claimant’s attorney was making was 40 percent below or 120 percent above what the average defense attorney was making on a workers’ comp case.

The bill would not only have controlled costs, but would have also tied the cap to defense attorney fees, Johnson said.

The Florida Senate took a much different approach to solving the workers’ comp problem, as lawmakers believed it was time to move from an administered rate system to a loss cost system, she said. Florida is one of the few states that still has administered pricing.

“But we believe that is a red herring and will not reduce rates,” Johnson said.

Senate legislation would have codified the court’s decision but with one caveat — capping claimant attorney fees at $250 an hour, but business groups contended that would not have resulted in any real savings to the workers’ comp system.

“We believe any reforms to the workers’ comp system should first focus on making sure the injured worker is getting back to work as quickly as possible, while getting the benefits they deserve under the workers’ comp system,” she said.

“We also need to control and reduce the amount of litigation, and really take a look at what’s driving litigation.”

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One cost driver is the amount of claimant attorney fees, and business groups are now looking at how to derive an attorney fee schedule in which a “departure fee” from the current statutory fee structure is narrow enough to control the amount in attorney fees, but meets the Florida Supreme Court’s decision in Castellanos, Johnson said.

There are also other areas for reform, such as requiring a good-faith effort to resolve the dispute before it goes on to a hearing, which includes requiring more information about what benefits are being sought, Johnson said.

“If it’s an average weekly wage issue, we would like for the claimant to let the employer know what they think the number should be, and what formula is being used to calculate that number,” she said.

“That way, claims can be resolved faster. We should try to make our workers’ comp system fully self-executing.”

Pressure to Build

Tom Feeney, president and chief executive of Associated Industries of Florida, said that 2016 was largely “an educational process” for lawmakers about the state’s workers’ comp system.

Out of the 160 lawmakers, likely only five had ever voted on a comprehensive workers’ comp reform bill before.

The last reform occurred in 2003, which Feeney said took Florida from being the most expensive workers’ comp state to being in the top half of the least expensive states, with an annual savings of more than 60 percent for the average business.

“Legislators will soon get an earful from their constituents going into an election year, and maybe we’ll go back to a system of putting the focus back on getting injured workers healthy and not making lawyers wealthy.” — Tom Feeney, president and chief executive, Associated Industries of Florida

“The consequence of those cases is that lawyers who are now getting into the business know they can run up bills that their client won’t have to pay — it will be the employers paying,” he said.

“We estimate that the increased costs to the system because of these decisions will ultimately be between 30 percent and 40 percent, after two or three more rate increases.”

When rates rise again this summer, small businesses will likely start talking to legislators and the pressure will continue to mount, Feeney said. That’s what happened during the last crisis that came to a head in 2003, which drove reform efforts.

“Legislators will soon get an earful from their constituents going into an election year, and maybe we’ll go back to a system of putting the focus back on getting injured workers healthy and not making lawyers wealthy,” he said.

Shifting the Burden

A simple way to fix the problem would be for the claimant to pay their own attorney fee — presumably Floridians would not hire a lawyer for a frivolous claim if they had to pay a lawyer, Feeney said.

Tom Feeney, president and chief executive, Associated Industries of Florida

Thirty-one states have some version of a claimant-pay system, with some having the employer paying a fixed amount and the claimant paying the overage. The claimant pay could be a contingency fee.

“However, in Florida we’ve never had a workers’ comp system where claimants pay their own lawyers, so politically it could be unpopular,” he said. “But if we build in some additional benefits and more pay, we could likely get more support from more advocacy groups.”

There are other things that can be done to lower costs, Feeney said. For example, before a lawyer files a claim for an injured worker, the claim should detail exactly what that claimant is entitled to.

If a worker twisted their ankle, what kind of specific treatment do they want, and if they need psychotherapy, what kind of specific therapy do they need and why.

“Right now, lawyers are filing dozens of unrelated claims, which puts pressure on Florida employers and insurance companies to settle claims that have no value,” he said.

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What are the chances for such reforms?

“I’m an optimist and I think we made progress this year,” Feeney said. “When the next rate increases start generating enormous grassroots heat from small businesses, I could see landscape contractors, manufacturing facilities with 15 employees, and others telling lawmakers that they can no longer make a profit because of the rising rates,” he said.

“At that point, it will be crucial for lawmakers to do something to help Florida’s employers that are being crushed by alarmingly high costs.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Pharma Under Fire

Opioids Give Rise to Liability Epidemic

Opioids were supposed to help. Instead, their addictive power harmed many, and calls for accountability are broadening.
By: | May 1, 2018 • 8 min read

The opioid epidemic devastated families and flattened entire communities.

The Yale School of Medicine estimates that deaths are nearly doubling annually: “Between 2015 and 2016, drug overdose deaths went from 33,095 to 59,000, the largest annual jump ever recorded in the United States. That number is expected to continue unabated for the next   several years.”

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That’s roughly 160 deaths every day — and it’s a count that’s increasing daily.

In addition to deaths, the number of Americans struggling with an opioid disorder disease (the official name for opioid addiction) is staggering.

The National Institute on Drug Abuse (NIDA) estimates that 2 million people in the United States suffer from substance use disorders related to prescription opioid pain relievers, and roughly one-third of those people will “graduate” to heroin addiction.

Conversely, 80 percent of heroin addicts became addicted to opioids after being prescribed opioids.

As if the human toll wasn’t devastating enough, NIDA estimates that addiction costs reach “$78.5 billion a year, including the costs of health care, lost productivity, addiction treatment, and criminal justice involvement.”

Shep Tapasak, managing principal, Integro Insurance Brokers

With numbers like that, families are not the only ones left picking up the pieces. Municipalities, states, and the federal government are strained with heavy demand for social services and crushing expenditures related to opioid addiction.

Despite the amount of money being spent, services are inadequate and too short in duration. Wait times are so long that some people literally die waiting.

Public sector leaders saw firsthand the range and potency of the epidemic, and were among the first to seek a legal reckoning with the manufacturers of  synthetic painkillers.

Seeking redress for their financial burden, some municipalities, states and the federal government filed lawsuits against big pharmaceutical companies and manufacturers. To date, there are more than 100 lawsuits on court dockets.

States such as Ohio, West Virginia, New Jersey, Pennsylvania and Arkansas have been hit hard by the epidemic. In Arkansas alone, 72 counties, 15 cities, and the state filed suit, naming 65 defendants. In Pennsylvania, 16 counties, Philadelphia, and Commonwealth officials have filed lawsuits.

Forty one states also have banded together to subpoena information from some drug manufacturers.

Pennsylvania’s Attorney General, Josh Shapiro, recently told reporters that the banded effort seeks to “change corporate behavior, so that the industry can no longer do what I think it’s been doing, which is turning a blind eye to the effects of dumping these drugs in the communities.”

The volume of legal actions is growing, and some of the Federal cases have been bound together in what is called multidistrict litigation (MDL). These cases will be heard by a judge in Ohio. Plaintiffs hope for a settlement that will provide funding to be used to help thwart the opioid epidemic.

“From a societal perspective, this is obviously a big and impactful issue,”  said Jim George,  a managing director and global claims head with Swiss Re Corporate Solutions. “A lot of people are suffering in connection with this, and it won’t go away anytime soon.

“Insurance, especially those in liability, will be addressing this for a long time. This has been building over five or six years, and we are just now seeing the beginning stages of liability suits.” 

Basis for Lawsuits

The lawsuits filed to date are based on allegations concerning: What pharma knew or didn’t know; what it should have known; failure to monitor size and frequency of opioid orders, misrepresentation in marketing about the addictive nature of opioids; and false financial disclosures.

Opioid manufacturers, distributors and large drugstore chains together represent a $13 billion-a-year industry, meaning the stakes are high, and the pockets deep. Many have compared these lawsuits to the tobacco suits of the ’90s.

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But even that comparison may pale. As difficult as it is to quit smoking, that process is less arduous than the excruciating and often impossible-to-overcome opioid addiction.

Francis Collins, a physician-geneticist who heads the National Institutes of Health, said in a recorded session with the Washington Post: “One really needs to understand the diabolical way that this particular set of compounds rewires the brain in order to appreciate how those who become addicted really are in a circumstance where they can no more [by their own free will] get rid of the addiction than they can get free of needing to eat or drink.”

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk.” — Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

The addiction creates an absolutely compelling drive that will cause people to do things against any measure of good judgment, said Collins, but the need to do them is “overwhelming.”

Documented knowledge of that chemistry could be devastating to insureds.

“It’s about what big pharma knew — or should have known.  A key allegation is that opioids were aggressively marketed as the clear answer or miracle cure for pain,” said Shep Tapasak, managing principal, Integro Insurance Brokers.

These cases, Tapasak said, have the potential to be severe. “This type of litigation boils down to a “profits over people” strategy, which historically has resonated with juries.”

Broadening Liability

As suits progress, all sides will be waiting and watching to see what case law stems from them. In the meantime, insurance watchers are predicting that the scope of these suits will broaden to include other players in the supply chain including manufacturers, distribution services, retail pharmacies, hospitals, physician practices, clinics, clinical laboratories and marketing agencies.

Litigation is, to some extent, about who can pay. In these cases, there are several places along the distribution chain where plaintiffs will seek relief.

Nancy Bewlay, global chief underwriting officer for casualty, XL Catlin

Nancy Bewlay, XL Catlin’s global chief underwriting officer for casualty, said that insurers and their insureds need to pay close attention to this trend.

“Pharma and its supply chain need to know that this is here now. It’s not emerging, it’s here, and it’s being tried. It is a present risk,” she said.

“We, as insurers who identify emerging risks, have to communicate to clients. We like to be on the forefront and, if we can, positively influence the outcome for our clients in terms of getting ahead of their risks.”

In addition to all aspects of the distribution chain, plaintiffs could launch suits against directors and officers based on allegations that they are ultimately responsible for what the company knew or should have known, or that they misrepresented their products or signed off on misleading financial statements.

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Shareholders, too, could take aim at directors and officers for loss of profits or misleading statements related to litigation.

Civil litigation could pave the way, in some specific instances, for criminal charges. Mississippi Attorney General Jim Hood, who in 2015 became the first state attorney general to file suit against a prescription drug maker, has been quoted as saying that if evidence in civil suits points to criminal behavior, he won’t hesitate to file those charges as well.

Governing, a publication for municipalities and states, quoted Hood in late 2017 as saying, “If we get into those emails, and executives are in the chain knowing what they’ve unleashed on the American public, I’m going to kick it over to a criminal lawsuit. I’ve been to too many funerals.”

Insurers and insureds can act now to get ahead of this rising wave of liability.

It may be appropriate to conduct a review of policy underwriting and pricing. XL Catlin’s Bewlay said, “We are not writing as if everyone is a pharma manufacturer. Our perception of what is happening is that everyone is being held accountable as if they are the manufacturer.

“The reality is that when insurers look at the pharma industry and each part of the supply chain, including the pharma companies, those in the chain of distribution, transportation, sales, marketing and retail, there are different considerations and different liabilities for each. This could change the underwriting and affect pricing.”

Bewlay also suggests focusing on communications between claims teams and underwriters and keeping a strong line of communication open with insureds, too.

“We are here to partner with insureds, and we talk to them and advise them about this crisis. We encourage them to talk about it with their risk managers.”

Tapasak from Integro encourages insureds to educate themselves and be a part of the solution. “The laws are evolving,” he said. “Make absolutely certain you know your respective state laws. It’s not enough to know about the crisis, you must know the trends. Be part of the solution and get as much education as possible.

“Most states have ASHRM chapters that are helping their members to stay current on both passed and pending legislation. Health care facilities and providers want to do the right thing and get educated. And at the same time, there will likely be an uptick in frivolous claims, so it’s important to defend the claims that are defensible.”

Social Service Risk

In addition to supply chain concerns, insurers and insureds are concerned that even those whose mission it is to help could be at risk.

Hailed as a lifesaver, and approved by the Food and Drug Administration (FDA), the drug Naloxone, can be administered to someone who is overdosing on opioids.  Naloxone prevents overdose by blocking opioid receptor sites and reversing the effects of the overdose.

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Some industry experts are concerned that police and emergency responders could incur liability after administering Naloxone.

But according to the U.S. Department of Justice, “From a legal standpoint, it would be extremely difficult to win a lawsuit against an officer who administers Naloxone in good faith and in the course of employment. … Such immunity applies to … other professional responders.”

Especially hard hit are foster care agencies, both by increased child placements and stretched budgets. More details in our related coverage.

While the number of suits is growing and their aim broadening, experts think that some good will come of the litigation. Settlements will fund services for the addicted and opioid risk awareness is higher than ever. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]