EXECUTIVE SUMMARY

Approximately 2.7 million Americans are infected with the Hepatitis C Virus (Hepatitis C Virus), a highly contagious virus that can be passed through contact with infected blood.  About four times as many Americans are infected with Hepatitis C Virus as with HIV, and the transmission rate through needlesticks is approximately ten-fold that of HIV/AIDS.  Individuals with Hepatitis C Virus can experience permanent, disabling symptoms and catastrophic medical costs.  Because of the long latency and slow progression of many cases, the workers’ compensation industry has been slow to identify occupationally related Hepatitis C Virus cases.

The Hepatitis C Virus epidemic brings large risks to workers’ compensation programs and requires new risk management techniques.  The workers’ compensation industry has generally not recognized these risks, although it is becoming aware of the new challenges that the Hepatitis C Virus epidemic brings.  There is much uncertainty about employers’ and insurers’ liabilities for Hepatitis C Virus-infected workers.  The authors intend that, by presenting the results of our actuarial analysis, this report will help define the issues and that our recommendations will reduce the industry’s long-term financial exposure. 

Projected Number of Hepatitis C Virus Claims for Workers’ Compensation

The high prevalence of Hepatitis C among the public, the high occupational risk to certain classes of workers, and the frequently ambiguous cause of workers’ Hepatitis C Virus infections make it difficult to estimate how many Hepatitis C Virus cases will fall under workers’ compensation programs.  To help quantify this risk, we use the best available data on workplace Hepatitis C Virus risk:  needlestick injuries to hospital workers.  Although other classes of workers (healthcare, housekeeping, first responders, etc.) face similar occupational Hepatitis C Virus risks, the data for these workers are not as well developed as for hospital workers. 

We use data from hospital workers to estimate the number of claims from healthcare workers for three scenarios in 2001.  The number of workers’ compensation cases (and the costs) increases from the first to third scenario.  Each scenario contains assumptions about the action or inaction of employers, insurers and regulators and about workers’ awareness of the epidemic.

·        Baseline Exposure.  About 1,100 healthcare workers will become chronically infected with Hepatitis C Virus because of an occupational needlestick injury.

·        Current Practices Exposure.  If employers do not perform immediate Hepatitis C Virus post-injury screening for reported needlestick injuries, we estimate there will be about 3,000 additional claims from Hepatitis C Virus-infected healthcare workers.

·        Presumptive Eligibility Exposure.  If presumptive eligibility rules apply to healthcare workers, we estimate there will be about 16,000 claims from Hepatitis C Virus-infected workers.

A relatively few actions or inactions could magnify the risk to workers’ compensation programs more than 10-fold.

Average Claim Costs

The medical treatment provided to an Hepatitis C Virus-infected worker has a large impact on medical costs.  Without proper medical treatment, Hepatitis C can more often lead to lifetime disability and progress to liver failure and liver transplant.  Furthermore, the interpretation of workers’ compensation statutes will significantly impact the indemnity cost for an Hepatitis C Virus-infected worker.

·        Medical Costs.  For claimants provided with curative treatment, we estimate that medical costs will average $164,000 per claim.  For claimants where no curative treatment is provided, the average is $268,000.

·        Indemnity Benefits.  Under strict interpretation of workers’ compensation statutes, we estimate that indemnity costs will be between $27,000 and $32,000 per claim.  Under a permissive interpretation of the statutes, indemnity costs are estimated to be between $310,000 and $400,000 per claim.  The lower costs of each range assume that claimants receive curative treatment.

We present cost estimates using a workers’ compensation statutory claim reserve basis.  That is, we account for estimated inflation but have not discounted future costs for the time value of money.  We have not added loss adjustment expenses, which would increase our estimated costs by about 15%.[i]

Recommendations

In the final section of this report, we present recommendations for workers’ compensation insurers and employers for controlling their exposures and the costs of Hepatitis C claims.  We have tailored these recommendations to the characteristics of the disease and the capabilities of the workers’ compensation system.

For employers at high risk (e.g. with workers exposed to blood-borne pathogens), and specifically for healthcare workers, our recommendations include the following:

·        As part of a pre-emptive control plan, establish, when feasible, post-offer, pre-employment screening for Hepatitis C Virus.  This will reduce the likelihood that the employer’s workers’ compensation programs will pay for non-occupational Hepatitis C Virus cases, even in a presumptive eligibility environment.

·        As part of a claims management plan, implement post-exposure screening for Hepatitis C Virus and improved needlestick-incident reporting.  This will reduce the likelihood that workers’ compensation program will pay for non-occupational Hepatitis C Virus cases.

·        Implement needlestick engineering controls and Hepatitis C Virus educational programs.  This will reduce needlestick risk and the risk of occupational Hepatitis C Virus infections.

·        For infected workers, consider high-quality treatment options.  Effective treatment may cure some infected workers and can reduce workers’ compensation, healthcare and disability costs. 

For workers’ compensation insurers, we present the following recommendations:

·        Provide employers with programs and options that can reduce the number of Hepatitis C Virus claims including,

·        Post-offer, pre-employment Hepatitis C Virus screening programs

·        Improved reporting systems for needlestick injuries

·        Post-needlestick screening and reporting programs

·        Programs for needlestick engineering controls and Hepatitis C Virus education

·        Implement claims management procedures to quickly bring cost-effective treatment options to Hepatitis C Virus-infected workers.  This can reduce workers’ compensation, healthcare and disability costs.

·        Implement claims reserving procedures that tie reserves to the clinical status and disease state of the Hepatitis C Virus-infected worker.  This will help the insurer appraise the financial impact of the epidemic.

·        Track state-by-state proposed legislation and regulatory changes that could introduce presumptive eligibility for Hepatitis C Virus-infected workers.  This will help the insurer make appropriate marketing and rate decisions.

This report is a supplement to the Milliman & Robertson, Inc. Research Report entitled The Hepatitis C Epidemic: Looking at the Tip of the Iceberg.[ii]  The earlier report presents an actuarial, financial and healthcare management view of the unfolding Hepatitis C epidemic.  We focus this report on the risks that workers’ compensation programs may bear.

Limitations

Our estimates are a function of the annual number of needlestick injuries, the increasing portion of patients with Hepatitis C Virus infections, infection transmission rates, the current understanding of Hepatitis C Virus, claims rates by workers, cost levels and available treatments.  Each of these factors is subject to uncertainty.  In particular, although recognized as an important hazard, many needlestick injuries go unreported[iii], which adds to the uncertainty of our estimates.  New treatments for Hepatitis C Virus, new technology to prevent blood borne pathogen transmission and changes in the workers’ compensation environment could affect these estimates.  How and whether infected workers file workers’ compensation claims for Hepatitis C Virus will vary with the publicity surrounding the disease, the labor relations environment and the legal environment.  We believe we have made reasonable assumptions for these factors; however, new information or changed circumstances could cause our risk projections to be high or low.

The long latency period and varied disease progression of Hepatitis C Virus means that the disease does not easily fit into existing workers’ compensation structures.  Furthermore, the workers’ compensation industry has had little experience with the disease.  Therefore, we used actuarial projections based on health insurance experience in developing our estimates.  For reasons described below, we believe the projections of cost to the workers’ compensation industry could understate the actual costs to the industry.  Other factors, such as improvements in treatment or reductions in the number of accidental needlesticks could cause actual costs to fall below our estimates.

This brief report does not contain sufficient detail to be used as a basis for setting reserves.  We urge the reader to carefully review the report for full details, actuarial assumptions and disease assumptions and consider whether the information presented here is appropriate for use in their particular situation.  This report must not be filed with the Securities Exchange Commission or any other securities agency.

This report was prepared for the Schering Plough Corporation, which engaged the authors to perform the actuarial modeling that form the basis for the report.  Schering Plough produces a therapy[iv] for Hepatitis C Virus that is recognized as the standard treatment for this disease.  This report reflects the methodology and findings of its authors and does not represent an endorsement of any product or policy by Milliman & Robertson.  If this report is copied, it must be distributed in its entirety.  The reader should refer to our earlier Research Report on Hepatitis C[v] for further details of the actuarial models we used for this report.

BACKGROUND

Hepatitis C is the most frequent infection resulting from needlestick and sharps injuries followed by HIV and Hepatitis B (HBV).[vi]  Approximately 600,000 needlestick injuries are estimated to occur annually in hospitals and other healthcare settings.[vii]

With the discovery of HIV in the 1980s, workplace needlestick injuries gained the attention of the National Institute for Occupational Safety and Health (NIOSH), a research institute within the Centers for Disease Control (CDC).  In 1987, the CDC published guidelines recommending universal precautions for all healthcare facilities.  These universal precautions emerge from the infection control principle that all human blood and certain other materials are potentially infectious.  In 1992, NIOSH published blood borne pathogen standards with specific recommendations. 

The incidence of needlestick injuries has significantly decreased since that time as NIOSH continues its research and education efforts, needle manufacturers continue to improve engineering controls and healthcare employers implement work practice controls.[viii]  Nevertheless, data from Exposure Prevention Information Network (EPINet system) suggest that at an average hospital, workers incur approximately 30 needlestick injuries per 100 beds per year.[ix] 

Workers’ Compensation, Occupational Disease and Hepatitis C Virus

The nature of the disease poses special challenges to workers’ compensation insurers and employers, as follows:

·                    Hepatitis C Virus can be very expensive and debilitating, but the long latency period and slow progression of many cases renders it difficult for workers’ compensation insurers to recognize or estimate future costs.

·                    Hepatitis C Virus, as an occupational disease, is transmitted through a seemingly minor occupational injury (a needlestick), but, by contrast, the workers’ compensation industry is largely oriented to dealing with significant occupational injuries, and secondarily to diseases caused by long-term occupational exposures.  Hepatitis C Virus fits neither claim model.

·                    Case law is not well established and most insurers have not established policies and procedures to deal with Hepatitis C Virus claims.

The workers’ compensation industry is heavily oriented to providing medical and lost income benefits to workers who suffer a well-defined on-the-job injury.  A typical injury might be a sprained back, broken leg, or loss of limb.  The authors believe that the clinical and risk characteristics of Hepatitis C Virus can frustrate many of the risk management techniques that exist within the workers’ compensation industry.

Hepatitis C Virus contracted by a healthcare worker through an occupational needlestick would be considered an “occupational disease.”  An occupational disease is an illness arising out of employment that is not an ordinary disease of life suffered by the general public, but instead is a disease that arises out of or in the course of employment.  Such a disease results from the nature of the employment, trade, occupation, or process, and it is a disease to which all employees of a class are subject.[x]  Examples of other occupational diseases include black lung and asbestosis.

Each jurisdiction has statutes to determine whether the injury in question constitutes an occupational disease covered by compensation or similar benefits.  As an example, The 77 Pennsylvania Consolidates Statutes Section 27.1 provides: “The term occupational disease as used in this act, shall mean only the following diseases …(m) Tuberculosis, serum hepatitis or infectious hepatitis in the occupations of blood processors, fractionators, nursing, or auxillary services involving exposure to such disease.”[xi] 

Workers’ compensation is largely legislated at the state level.  All state workers’ compensation laws recognize responsibility for occupational disease.  Medical benefits are usually covered without dollar or time limits – lifetime coverage for expenses associated with the injury.  Indemnity or “cash” benefits, which provide for loss of earnings associated with the injury, vary by state.  Even for well-defined injuries, the duration and conditions under which a worker is covered by indemnity benefits vary by state.  In our modeling, we assumed national average terms for indemnity benefits.

ACTIONS OR INACTIONS COULD INCREASE RISK 10-FOLD

Depending on the action or inaction of insurers, employers and regulators, the number of new workers’ compensation cases could vary by a factor of more than 10 to 1.  In this section, we present scenarios that show how the national number of Hepatitis C Virus claims in 2001 could vary from about 1,100 to over 16,000.

A very strong causal proof of an occupational cause for an Hepatitis C Virus claim would consist of the following:

·                    A worker reports an accidental needlestick injury involving a patient

·                    The patient tests positive for Hepatitis C Virus infection

·                    The worker tests negative for Hepatitis C Virus infection immediately after the needlestick injury

·                    The worker tests positive for Hepatitis C Virus infection within one year after the needlestick injury

The basis for post-exposure testing of injured workers is that, following virus inoculation, Hepatitis C Virus RNA can be detected in blood within 1-3 weeks and is usually associated with marked elevations of alanine aminotransferase activity (ALT).  Anti Hepatitis C Virus Antibody appears in 3 months.[xii]  Immediate post-exposure screening of the injured worker would provide strong evidence of whether the worker had an existing infection at the time of the injury.  Immediate post-exposure screening of the patient would help determine whether the patient could have been the source of a new infection.

We project about 1,100 new workers’ compensation claims for Hepatitis C Virus per year among healthcare workers, assuming perfect reporting and post-exposure screening.

Rigorous needlestick reporting without baseline screening can result in more workers’ compensation Hepatitis C Virus cases.  This is because about 2% of the healthcare workers who receive an accidental needlestick injury will have pre-existing Hepatitis C Virus infections.  We estimate that about 12,000 healthcare workers per year who have accidental needlestick injuries will already be infected with Hepatitis C Virus at the time of injury.  Assuming that only 25% of these workers file claims, workers’ compensation programs could face about 3,000 new claims per year from this source.

Under presumptive eligibility rules, workers in the presumptive classes who report Hepatitis C Virus infections after the rules’ effective date would be assumed to have acquired the disease occupationally, baring proof to the contrary.  We estimate that, among the nation’s healthcare workers, about 114,000 are infected with Hepatitis C Virus.  Under reasonable assumptions, about 16,000 previously undiagnosed healthcare workers infected with Hepatitis C Virus could file a claim in 2001 in a presumptive eligibility environment.

If post-offer, pre-employment screening is not routinely performed, all newly hired healthcare workers infected with Hepatitis C Virus before employment could also qualify for presumptive eligibility benefits.  Each year about 6% of healthcare employees are new to the industry as a whole.[xiii]  Many employers have much higher turnover.  The increasing risk would emerge because some new employees would have undetected pre existing Hepatitis C Virus infections.

The states of Nevada and North Dakota have established presumptive eligibility for police and fire fighters who develop heart attacks or respiratory conditions.  The statute provides for the presumption that these conditions are work-related and therefore compensable.[xiv]  The state of California recently signed legislation that includes presumptive eligibility for police and firefighters who develop or manifest Hepatitis C Virus during employment.[xv]

POTENTIAL EXPOSURE FOR WORKERS’ COMPENSATION CARRIERS 

We present Hepatitis C Virus workers’ compensation cost estimates as lifetime totals of trended medical expenditures and untrended indemnity payments.  We have not included any loss adjustment expenses, and, in keeping with statutory reporting standards, we have not discounted costs for interest over time.  We also show the estimated cost impact of curative treatment and different rules interpretations. 

Although clinical studies suggest that only about 40% of Hepatitis C Virus-infected patients are treatment eligible,[xvi] we believe that among a working population, the treatment eligible percent will be higher than among the general population.  We modeled costs assuming that either all patients or no patients receive treatment to show the potential impact for an average Hepatitis C Virus workers’ compensation case. 

Medical Costs

Graph I summarizes projected lifetime medical expenditures per healthcare worker who becomes infected with Hepatitis C Virus from an occupational needlestick injury in 2000.  The graph compares costs under two treatment scenarios by age cohort.  The first bar of each pair represents the average per worker lifetime medical costs if the worker receives curative treatment.  The second bar of each grouping represents the average per worker lifetime medical costs if no curative treatment is received.

 
Even though current aggressive therapy clears the virus in only about 40% of patients, treatment can greatly reduce medical costs. 

Indemnity Costs

To reflect the uncertainty about how Hepatitis C Virus occupational disability will be treated, in our financial projections of indemnity risk, we have characterized two extremes in the generosity of application of indemnity benefits as “strict” or “relaxed,” as described below: 

Strict application of rules corresponds to tight adherence to workers’ compensation rules in ways that limit cost to the insurer or self-insured program.  This would include tight requirements for gaining benefits for psychological impairment and strictly applying the statute of limitation for reporting disease.

Relaxed application of rules would provide workers’ compensation benefits more generously.  For example, indemnity benefit awards could be reopened after the normal statute of limitations if the disease worsens.  This would include more relaxed standards for awarding claims for the psychological impact of the disease or its treatment.

Table A summarizes projected lifetime indemnity costs per healthcare worker who becomes infected with Hepatitis C Virus from an occupational needlestick injury in the year 2000.  The table compares the average cost for a worker who receives and does not receive curative therapy under relaxed and strict indemnity rules.  The costs are projected by the age band of the worker when the injury initially occurred.  The costs reflect the stages and frequency of disease progression and distribution into disability categories.

The indemnity costs are based on an analysis of workers’ compensation laws that point to a majority of states paying 2/3 of the $480 average weekly earning for healthcare workers ($320)[xvii] [xviii].  Although the average weekly wage for registered nurses and physicians is higher than this, we used this figure to represent a blend of all healthcare workers.

We assume that the average compensation for workers while in the temporary total disability category is 16 weeks per year.  We assume that workers in this category will migrate in and out of lost-time, periodically returning to work but continue to miss some time due to need for psychological treatment, subjective symptoms and doctors appointments.  For permanent partial payments, we assume a one-time lump sum benefit equal to 25% of the $320 for 200 weeks, or $16,000.  For permanent total, the indemnity compensation is for life. 

Table B summarizes the portion of Hepatitis C Virus-infected healthcare workers assigned to each disability category at the end of 5 years under 4 treatment/indemnity rules scenarios. 

During the first year, we assume that all infected claimants will qualify for temporary total benefits and that it takes an average of six months post-injury for workers to enter the workers’ compensation system, be tested, and have the necessary clinical work-up.  It then takes approximately 6 months of continuous testing to determine whether a patient has cleared the virus or is chronically infected. 

In the treatment scenario, workers under both relaxed and strict scenarios will spend another year (year 2) in the temporary total disability category.  This assumes that it takes 6-12 months of curative therapy plus another 6 months of testing to determine if the virus has cleared and the patient is cured (defined in this report as the absence of detectable virus for 6 months following treatment). 

Under the treatment scenario, we assume that 41% of workers will be cured by year 3 and leave the workers’ compensation system; 59% do not clear the virus and remain infected.  For this group of workers and for workers in the non-treatment scenario who do not spontaneously clear the virus, we assume that 2% annually progress to cirrhosis and 6% per year of these 2% progress to advanced liver disease.

Table B shows the significantly higher percentage of workers who qualify for disability benefits without curative therapy.

Total Number of Workers’ Compensation Cases

Graph II summarizes the 5-year cumulative workers’ compensation cases (through year 2005) for the entire US healthcare industry under three scenarios: 

1.      5,500 healthcare workers acquiring Hepatitis C Virus directly from an occupational needlestick (left bar)

2.   14,000 healthcare workers awarded claims who were Hepatitis C Virus-infected prior to an occupational needlestick, sustain a needlestick during the 5 year period, but baseline testing for Hepatitis C Virus was not performed to establish previous infection (middle bar)

3.   58,000 healthcare workers who, assuming presumptive eligibility rules, receive benefits

The middle bar shows 14,000 potential claims from workers with documented needlesticks who already had Hepatitis C Virus before the needlestick -- but with failure by the employer to conduct post exposure screening.  We applied age-adjusted population prevalence of Hepatitis C Virus and assume that 30% of the infected workers have previous medical documentation of Hepatitis C Virus infection.  Of the remaining 70%, we estimate that 50% of the needlestick injuries will result in a report, receive subsequent Hepatitis C Virus testing and treatment and qualify for workers’ compensation benefits.

The far right bar illustrates 58,000 claims assuming that presumptive eligibility rules applied to all healthcare workers as of the year 2001.  We also assume that employers do not implement post-offer, pre-employment screening for Hepatitis C Virus.  We applied age-adjusted population prevalence of Hepatitis C Virus and assume that 30% of the infected workers have previous medical documentation of Hepatitis C Virus infection.  Of the remaining 70%, we assume on average that 20% will be tested annually, generating 58,000 claims by end of year five.  We consider new entrants into the healthcare workforce in this projection.

RECOMMENDATIONS

This section addresses approaches workers’ compensation insurers and self-funded employers can take to better manage the risk associated with needlestick-caused Hepatitis C Virus infection.

Goals for healthcare employers

·        Pre-emptive control plan to reduce the number of workers’ compensation cases

·        Consider establishing post-offer, pre-employment screening within existing regulatory constraints

·        Implement post exposure baseline screening protocols for all appropriate

·        Employee education and training to reduce needlestick injuries and costs

·        Blood borne pathogen transmission risk and prevention

·        Safe use of medical devices

·        Work practice controls

·        Needlestick injury reporting

·        Exposure control plan to reduce injuries and costs

·        Implement and monitor compliance with OSHA blood borne pathogen standards and CDC published guidelines

·        Implement and use improved engineering controls

·        Modify hazardous work practices

·        Claims management plan to reduce costs of active workers’ compensation cases

·        Implement post exposure evaluation and follow up including[xix]

·        Baseline antibody test for Hepatitis C Virus and alanine aminotransferase activity (ALT) as soon as possible after the exposure (both worker and patient baseline testing)

·        Hepatitis C Virus RNA to detect Hepatitis C Virus infection 4-6 weeks after exposure (not recommended by all experts)

·        ALT test 4-6 months after exposure

·        Consider alternative employment for those unable to return to regular duties

·        Refer employee to identified Hepatitis C Virus specialist for care

·        Exposure reporting to manage risk

·        Develop post exposure management plan including reporting, screening and tracking

·        Establish consistent, organization wide needlestick reporting process: evaluate quarterly for injury trends and hazard identification

Goals for workers’ compensation carriers

·        Develop ways to hold policyholders accountable for avoiding Hepatitis C Virus risk to reduce costs and possibly reduce premiums

·        Consider promoting post-offer, pre-employment Hepatitis C Virus screening

·        Promoting post needlestick baseline screening and reporting

·        Evaluate policyholder for needlestick engineering controls, exposure control plan, claims management, Hepatitis C Virus educational programs

·        Rate setting and Hepatitis C Virus to better match premiums with risks

·        Estimate lifetime costs for Hepatitis C Virus infections at different disease states based on

·        Annual incidence of acquiring an occupational Hepatitis C Virus infection

·        Average medical and indemnity costs per infected worker

·        Likely rules in the insured’s state

·        Adjust costs as necessary based on

·