One big reason – physician dispensing of repackaged drugs.
Two stories, seemingly unrelated, appeared in the last week or so that, when read together, clearly lay out the problem.
One described the costs borne by Florida’s employers, costs much higher than necessary due to inflated costs from drugs dispensed by physicians. A loophole in the law allows doctors to dispense drugs at prices far above those for the same pills dispensed in a retail pharmacy. More on this in a minute.
So, why is this happening. In a word – money. Specifically, political connections fueled by large campaign donations from companies profiting from the current Florida fee schedule, a fee schedule that has added tens of millions in costs to Florida’s employers and tax payers.
here’s an excerpt from the article:
“Employees of one influential healthcare company, Miramar-based Automated Healthcare Solutions, accounted for $55,200, the second-highest amount of contributions to Haridopolos.
With Haridopolos’ backing, the firm was active in pushing a bill tightening reporting requirements for a prescription-drug monitoring database [PDMP]. The firm, along with Haridopolos, also unsuccessfully fought a provision restricting many doctors from dispensing painkillers in their offices.”
Now at first blush this is good news – and I’d say at second blush too. AHCS appears to be promoting a PDMP, a long- and desparately-needed tool that would enable much better tracking of narcotic prescribers, dispensers, and users by physicians, pharmacists, and, when appropriate, law enforcement. Doctors would be able to see if their patient was getting multiple scripts from other doctors; pharmacists would see if their customer was getting similar scripts filled at other pharmacies, and law enforcement’s ability to identify potentially criminal behavior would be greatly enhanced.
So far, so good.
What’s less good – much less – is AHCS’ actual business. AHCS enables physician dispensing in Florida and many other states. Which leads to the next article.
WCRI’s recent report indicates Florida’s drug costs are 45% higher than the median state, largely due to physician dispensing – not of narcotics, but the run-of-the-mill generics that make up the vast majority of work comp prescriptions. Here are some of the study’s conclusions.
– the average payment per claim for prescription drugs in Florida’s workers’ compensation system was $536 – 45 percent higher than the median of the states in the study.
– Over a two year period (2005/2006 and 2007/2008), the average cost per claim for prescription drugs in Florida increased 14 percent. By contrast, prescription costs per claim were fairly stable in most study states over the same period.
– Higher and growing costs of prescription drugs in Florida were largely due to more frequent and higher-priced physician dispensing.
– Physician-dispensing in Florida’s workers’ compensation system has been taking an increasingly larger share of prescription payments. The percentage of prescription payments for physician-dispensed prescriptions in Florida increased from 17 to 46 percent over a four year period (2004/2005 and 2007/2008)…
I’d note that WCRI’s most recent data are from 2008 – three years ago. If physician dispensing continued to grow at the same rate, we’re looking at drug costs in Florida that are probably twice as high as other states…
Here’s the net. AHCS has contributed close to two million dollars to various politicians, political campaigns, PACs, and other entities. Sure, some of their activity appears to be focused on controlling narcotics in workers comp. But most of their donations occurred back when Florida’s legislature was intent on closing the loophole that has generated millions in revenue for AHCS, AHCS’ affiliates, and AHCS’ dispensing physicians.
Nationally, physician dispensing of repackaged drugs adds more than a half-billion dollars to employers’ costs. These added costs are passed on to taxpayers, customers, stockholders, and employees.
All at a time when employers and taxpayers are struggling to get though a horrendous recession.

On the list of successful uses of social media in workers comp, one has to put Mark Walls’ LinkedIN Work Comp Analysis Group at the very top.
Mark’s group just passed 10,000 members. Yes, that’s ten thousand members – a pretty amazing feat considering the group is just a few years old.
Kudos to Safety National for accommodating, and encouraging, Mark’s work in social media. I have to believe it has been enormously productive for Safety National; Mark’s now hosting speaking symposia at the National Workers Comp and Disability Conference; the group has several ongoing conversations at any one time; Safety National’s name is far better known among the rank-and-file; and all at a cost of a few hours a week for one executive.
Safety National’s decision to promote and support the use of social media has been rather unique in the industry. I’m not aware of any other carrier or TPA of any similar size that has been so forward-thinking and, to be blunt, courageous. This is a very risk averse industry, yet the LinkedIN Group shows what can be accomplished if one has a bit of foresight, a good measure of dedication, and an excellent platform.
By way of contrast, this blog has just under 2700 subscribers and WorkCompInsider about the same. Notably, Roberto Ceniceros’ CompTime blog is gaining traction daily; it is likely among the leaders in any ranking. Undoubtedly this has greatly helped Business Insurance, which may be suffering from the same malady affecting all ‘old school’ media – a struggle to stay relevant and timely in the world of the internet.
I’d be remiss if I didn’t note WorkCompCentral President David DePaolo’s Work Comp World. David’s thoughtful discussion of contentious and complex issues is must reading for all execs in the business. He’s a professional with strong opinions, and the brains and diligence to back them up.
Finally, Pat Sullivan’s WorkCompWire continues to highlight the latest research and reports, coupling intel with advertising in a new blend that the rest of us are watching carefully.

Work comp PT network company AligNetworks has been sold to private equity investor General Atlantic. While terms weren’t disclosed, sources indicate the company went for a premium well above the ‘usual’ 6-7 multiple of EBITDA.
Butch Hofstetter and his team did a remarkable job, building a serious competitor to industry founder (and HSA consulting client) MedRisk and Universal SmartComp in a few short years. Leveraging their relationships, Butch and his team went after adjusters, relying on those relationships to drive transactional volume. The focus was a success, and the numbers certainly showed they’d carved out a solid niche.
While there were at least two strategic buyers in the mix, General Atlantic made the winning bid, leaving those entities looking to add to their portfolios to keep looking. While the GA people are undoubtedly very, very smart, this is also their first major foray into what is a pretty weird business space. My bet is they use of their additional capital (along with debt) to invest in IT and operational infrastructure. Align’s been able to handle their volume to date with a pretty thin operation, but they’ll need to invest if they want to move beyond pleasing adjusters to nailing down deals with some of the big boys.
That’s not to say Align hasn’t begun some relationships with larger payers; emphasis on the ‘begun’. However, that market has long been MedRisk’s sweet spot, and anyone who knows CEO Shelley Boyce knows taking share away from MedRisk will be a serious challenge. MedRisk has been working very hard to consolidate relationships with current large payers, while building the infrastructure necessary to deliver the same savings results to individual adjusters.
Regardless, this is good news for payers. More focus on physical medicine, which accounts for about a fifth of all workers comp medical spend, is a welcome thing indeed. And competition, especially between two such organizations, will produce better outcomes, more efficient processes, and lower costs for all work comp payers.

In the last couple weeks there’s been a wealth of new reports, analyses, and studies released about various aspects of the work comp world. Too many to give each the attention it deserves, so a synopsis of a few will – alas – have to suffice.
Yesterday David DePaolo posted on his contention that there aren’t “any valid scientific studies demonstrating that the introduction of an RBRVS fee schedule would result in a mass exodus of physicians from workers’ compensation”. After asking for examples of same, he received seven plus an article that his own WorkCompCentral published six years ago. (thanks to Mark Walls’ LinkedIn Group for the tip)
David hasn’t reviewed each of the “studies” he received, but a quick analysis indicates the scientific rigor of most is rather less than, well, rigorous. Several appeared to be telephonic surveys of doctors’ offices (several studies didn’t provide any information on methodology). At least one [opens google docs] made several conclusive statements without any discussion of how they arrived at those conclusions. Another authored by the same writer provided background on the methodology, which was a phone call to physician offices where the person answering was asked if the physician accepted workers comp patients.
A quick read indicates the methodologies used appear to be rather less than scientific, the conclusions based on opinions of cause and effect rather than rigorous analysis. That’s not to say that low fee schedules may well influence physician participation, but rather to point out there’s not much in the research provided to conclusively demonstrate the linkage.
From the good folk at WCRI comes the latest research on narcotic usage in workers comp. While this particular aspect of the subject (interstate variation in usage of narcotics) has been explored in some detail by NCCI, WCRI’s report looks specifically at usage for non-surgical lost-time claims in 17 states for the period 2006 – 3/2008. The report indicates usage on a per-claim basis was highest in LA MA NY and PA, with those four states plus CA, NC and TX showing a higher proportion of claims with long-term usage of narcotics than average.
Shockingly, few long term users were monitored according to medical treatment guidelines…
Meanwhile, the government shutdown in Minnesota means the state’s WC Division is closed for all but critical services.
On the good news front, the ‘low cost’ (well, it’s relative…) movement has entered the surgical device industry, with the WSJ reporting the emergence of a new business model; “Low-cost orthopedic parts [are] cheaper versions offered with a no-frills sales approach. This typically means not sending sales representatives into operating rooms to advise surgeons, which is a common but cost- and labor-intensive practice.”
I’d note that there are several companies currently focused on this space in workers comp, but with a different model. They find out about a scheduled surgery, identify the devices to be used, and order them on behalf of the insurer – usually at a much lower price point than that charged by the facility.

The former head of North Dakota’s state workers comp fund has been – and continues to be – vilified by a few people who obviously don’t know the guy. (more on the appeal in a future post).
Prosecuted for ‘misuse of funds’, Sandy’s life has been ruined because he approved payments for balloons, small ($50) gift cards, sweets, and cakes for employee recognition events, along with refusing to seek repayment for relocation expenses for an employee terminated for performance (which was legal and appropriate).

Well, I do know the guy, and there’s plenty wrong with him. Here’s the real scoop on this horrible guy/abuser of the public trust/scofflaw…
Well, he worked for George HW Bush in the White House (our politics are pretty different, but I keep hoping he’ll come over to the bright side).
He’s an avid, very well informed – and extremely loyal – Cleveland sports fan. (Gotta respect that, even if you don’t understand it)
He isn’t a golfer. (Me neither, so that’s actually a big plus)
I don’t think he can dance.
He went to one of those fancy Eastern big-name business schools (Wharton, I think).
He is such an Eagle Scout (which he actually is) that he won’t let his kids download music from file-sharing services because it is unethical. I’m sure the young Blunts think he’s horribly unfair.
For a non-IT guy, he’s pretty good at tech stuff, making me think he was an AV club guy in his high school days (and not, that’s not meant pejoratively).
Sandy was COO of Ohio’s Bureau of Workers Comp before he was recruited to professionalize the NoDak state fund (so much for that honest effort). By all accounts he was well-liked, and more importantly, very well respected in that role. But still, he was a workers comp exec, and you KNOW what those people are like…
He’s unremittingly positive, unerringly cheerful, and undeniably an upbeat person. Despite what the ‘criminal justice’ system has done to ruin his life, Sandy’s always positive. I don’t get it.
He’s a very, very good analyst. Sandy’s helped me on several consulting projects involving analyses of big databases of medical and claims data and interpreting the results, and the guy knows his stuff. This ticks me off, because he sees stuff I don’t.
He knows his college sports, and probably did pretty well in the NCAA pool. Those guys who a) know their sports and b) are analytical usually do. Again, pretty darn annoying.
There’s more, but if I say anything else I’ll embarrass the guy even more. Still, glad I’ve finally come clean on just what kind of bad actor this Blunt guy really is.
I feel so much better now!