Insight, analysis & opinion from Joe Paduda

Jan
18

Surviving in a declining business

Workers’ comp is a declining industry.

While there may be occasional bumps in claim frequency, claim counts and cost per claim, the irrefutable fact is that every year one of every thirty claims will disappear.

Put another way make sure you reduce claim counts by about 10 percent when you do your three-year plan.

Yet pretty much every business in this space is planning to grow.

That won’t happen – but it will for those who invest in branding and marketing.

Reality is most companies in WC services woefully underspend on branding and marketing, or spend their dollars…unwisely. I fully expect that to continue as execs cut back on “soft” dollars allocated to marketing as they try to shrink their way to increased profits.

Before you scoff, ask yourself why you drive the car you do, drink the beverages you drink, use the toothpaste you brushed your teeth with this morning.

Put another way, Is Coke really different than Pepsi?

What companies should be doing is investing in their brand – finding out what the market thinks of them and their competitors, defining what it is that makes them unique and special, and creatively communicating that to potential buyers, influencers, thought leaders.

This works because it ensures:
– potential buyers actually know you exist
– those buyers have a positive view of your company
– they feel comfortable with you.

So when they issue that RFP and read your response they interpret your answers positively, they look for confirmation of what they already know – you value customer service, you listen to your customer’s needs, you are a low-risk choice.

What does this mean for you?

What you do today defines if you are in business in three years – let alone growing. If you aren’t spending 2+ percent of revenues on REAL marketing, your chances of success are limited indeed.


Jan
15

The Wall, “Obamacare” lawsuit, and unintended consequences

In 2015, a federal judge ruled the House of Representatives could sue the Obama Administration for spending money it hadn’t approved.

Now, that ruling could well be why President Trump hasn’t – and won’t – declare a National Emergency over his much-loved Wall.

If Trump declares an Emergency – which most knowledgeable people thnk is well within his power – he’ll then have to find the money to build the Wall. That’s a whole other problem, one that was specifically addressed In the House v Burwell case in 2015.

House v Burwell was the lawsuit filed by the House (then run by Republicans) when the Obama Administration used unallocated funds to fund subsidies for lower-income people buying insurance via the ACA. The case was eventually settled, but during the process, precedent was likely established. To wit:

Presiding Judge Rosemary Collyer wrote “Neither the president nor his officers can authorize appropriations; the assent of the House of Representatives is required before any public moneys are spent,” Collyer wrote this in September 2015.

Now, there’s a bit of nuance here. From WaPo’s Paige Winfield Cunningham:

“[If] Congress hadn’t set aside funding specifically for those (ACA) subsidies, it had at least authorized them as part of the ACA. But in this case, Congress hasn’t passed a law creating a border wall — let alone set aside money to pay for it.” 

In the view of some legal experts, this makes a potential House suit to block funding for the Wall much stronger. And the likelihood that Trump gets his Wall bleak indeed.

What does this mean for you?

Beware of unintended consequences.


Jan
14

How will automation affect jobs and employment?

There’s an excellent piece on automation and employment in the Harvard Business Review; here are what I see as the main takeaways.

What jobs will be lost and where are they?

Yes, automation will undoubtedly create jobs – as technological change always has. The key here is the pain and opportunity will happen in ways we can predict.

Jobs that are “automatable”are mostly routine, lower-skilled positions. Think logistics, manufacturing, transportation, retail, some construction and heavy industry. These jobs are more likely to be held by men, and tend to be located in inland California and many smaller southern and midwestern metro areas where they make up half or more of all jobs.

From HBR: “Conversely, just one-third of jobs in metro Washington DC and San Jose CA are routine.”

The automated jobs also tend to have higher injury rates and/or higher injury severity.

What about wages?

Automation affects wages, and wages affect automation. Or, if a machine can do something cheaper than a human, the human will be replaced by a machine. The obvious takeaway is the lower the human’s wage is, the less likely they will be replaced by a machine.

So, higher-wage routine jobs will likely be more affected by automation.

The net effect – automation drives down wages for specific jobs and in specific industries – both in the industries that see high automation and those industries where workers who lost their jobs seek new ones.

Automation will reduce wages in jobs that tend to be higher frequency/higher injury severity.

What does this mean for you?

More evidence that automation will accelerate the long-term decline in workers’ comp.

Or…


Jan
11

The Shutdown’s impact on healthcare

Note – this is a repost; a system problem prevented email notifications for the original post.

Is rather modest – until it isn’t.

Preparing for the next pandemic, monitoring food safety, preventive health services for at-risk people, new drug approvals – all are on hold or severely curtailed as the Federal government shutdown heads towards its fourth week.

Fortunately, funding for most health-related federal programs – the VA, Medicare and Medicaid, other CMS programs – was approved before the current impasse, so most of us will not be affected.

That is, if the shutdown is resolved soon. If not, the downstream effects are going to be felt more deeply – by more of us.

While it may seem like there’s not much impact on most of us, that would be wrong. Specific departments’ policies, funding approval processes, budgetary allocations and the like are often affected by other agencies. For example, there are significant pending changes to healthcare IT standards which must be approved before hospitals, healthcare systems, and other providers and payers can update their systems to comply with Federal laws and regulations.

Programmers are waiting for guidance, and will keep waiting until the deadlock is over. Some of these system updates have deadlines; while the deadlines should be extended if and when the politicos agree to a deal, what should happen in Washington – and did back when adults ran our government – often doesn’t.

This is just one example – and there are hundreds more. Reality is we live in an incredibly complex world, the Federal government is tasked with making sure that world is safe, non-toxic, operates well and does so efficiently. And most government workers are committed to doing that well.

The problem isn’t the workers; it is the press that vilifies them and the politicians that blame government workers for problems the politicians create and exacerbate.

Of course, for those who want to use our national treasure – the National Parks… if the knuckleheads in DC don’t get their stuff together, the Parks may be their own public health crisis.

What does this mean for you?

There are dozens of ways the government affects our lives – almost all of which we don’t know about or appreciate until it’s gone.


Jan
10

Predictions for workers’ comp – Part 2b

Note – due to a snafu in a system upgrade, email notifications for this post never went out last week. So, republishing it for those who missed it.

Continuing my predictions for workers’ comp in 2019, the first five were last week.

But before I do, you may want to read this on the fallacy of so-called “experts” – I occasionally think I am one. (thanks To Tom Lynch of Lynch-Ryan for the link)

6.  The “advocacy” claims model will gain a lot more traction, as more employers, insurers, and TPAs embrace treating “claimants” as actual real people with medical and disability problems.

The problem is – how do we track this? That’s my challenge, but I hope you will let me know of payers embracing the model!

7.  “Opt-Out” will not gain traction.

Allowing employers to “opt out” of workers compensation is a solution in search of a problem – overall work comp is working pretty well, costs are under control, employers don’t see it as an issue, most patients recover and get back to work.

Most importantly, there is no significant political constituency that cares enough about it to make it happen.

Promoted by ARAWC and a few stakeholders invested in managing opt-out business, this isn’t going anywhere. Change does not happen unless there is a problem that needs fixing, and work comp’s problems are tiny in comparison to other issues confronting state legislatures…taxes, school funding, gerrymandering, Medicaid expansion, rural hospital funding, industrial and economic development, natural disaster preparation and recovery…

(Good friend and IAIABC Executive Director Jennifer Wolf Horesjh has a slightly different perspective…you can listen to Jennifer’s podcast here.) . She notes the advocates are working diligently to promote Opt-Out/Non-subscription.

8.   Service companies that deliver best-in-class customer service – and build that into their branding messaging – will win. 

In a commoditized business (which is how most buyers view most work comp services) customer service is critical to success – but most companies in commoditized businesses don’t understand this.

I’d go a step further – because workers comp is a declining, industry, being known for delivering great service is essential to survival.

Yet many businesses just don’t understand this, or if they do,

  • they haven’t figured out how to deliver great service,
  • or if they do deliver great service they fail to build that into their branding efforts
  • if they even have anything that remotely resembles “branding.”

We will be doing some interesting research on this later this year which should help determine a) if my prediction is accurate, and b) what works.

9. More success in reducing long-term opioid usage by more payers.

We’ve learned that diligent, persistent, intelligent and caring approaches to managing chronic pain and long-term opioid usage produce results. The State Funds of California, Ohio, and Washington along with Sedgwick are a few of the payers achieving remarkable success in helping patients handle their chronic pain while reducing their opioid usage.

Vendors including Carisk are also delivering solutions to this knottiest – and most problematic – of work comp problems.

10. Payers will implement business models and processes using Artificial Intelligence  

These will include some or all of these:

  • claims intake and triage;
  • fraud/waste/abuse triggering and assessment;
  • patient and provider communication;
  • clinical assessment, including utilization review;
  • policyholder communication;
  • and more I can’t think of.

That’s it for this year’s predictions. So, what say you?


Jan
9

The Shutdown’s impact on workers’ comp

Almost four weeks into the Trump shutdown, it’s time to examine how this will affect workers’ comp.

“…I am proud to shut down the government for border security…So I will take the mantle. I will be the one to shut it down. I’m not going to blame you for it.”

Briefly, not much – if it gets resolved soon.

I don’t think it will – more on that below.

First, key Federal agencies are pretty much unaffected.

Second, with a few exceptions, contractors for Departments that are now without funding are furloughed or on leave. 420,000 workers have to keep working – without pay. Several hundred thousand more are not on the job

The Departments of Justice and Homeland Security (I still think that’s a pretty creepy title) and other key agencies and departments are particularly affected as thousands of their workers have to work without pay. Other unfunded departments include Agriculture, Commerce, HUD, Interior, State and Transportation.

The US Trade Representative’s office is closed, we’ll get no economic reporting on jobs or output or prices or GDP. and numerous other independent entities are shuttered.

Here’s the caveat – the longer this stupidity lasts, the more impact it has on the economy, workers, and workers’ comp.

The White House reports that annual GDP drops 0.1% every two seeks the government is shut down. That equates to about $10 billion a week in foregone products and services.

So far, we’re down about $30 billion – a pittance in a $21 trillion economy. What scares the bejesus out of me is this could drag on for months – which will do real and lasting damage to the economy, businesses, and tax receipts.

Identity Loyalty is why it may not end soon. Simply put, compromise isn’t possible because the powers-that-be and their supporters know in their hearts they are in the right – and no amount of data, facts, or logic will change that.

The Wall has a brand that is all its own. It is incredibly powerful to Trump supporters as it is all about protecting them and who they are and what they have from others. This can’t be under-estimated, and is why Trump’s base and the right-wing media were furious with him when he offered to compromise way back in December.

By the same token, the Wall represents all that Trump opponents dislike – if not hate – about the man and what he stands for. Agreeing to pay for the Wall would be amoral at best.

You may have noticed Trump and his allies have been trying to use different language when referring to The Wall…steel slats, border protection, border security. That reflects a desire to change the terms of the current “disagreement” (putting it mildly).

Alas, Trump et al have done such a good job branding the Wall that this belated effort to re-frame things isn’t getting any traction.

What does this mean for you?

For those who elected Mr Trump because they wanted a change, you are certainly getting one.


Jan
7

The Shutdown’s impact on healthcare

Is rather modest – until it isn’t.

Preparing for the next pandemic, monitoring food safety, preventive health services for at-risk people, new drug approvals – all are on hold or severely curtailed as the Federal government shutdown heads towards its fourth week.

Fortunately, funding for most health-related federal programs – the VA, Medicare and Medicaid, other CMS programs – was approved before the current impasse, so most of us will not be affected.

That is, if the shutdown is resolved soon. If not, the downstream effects are going to be felt more deeply – by more of us.

While it may seem like there’s not much impact on most of us, that would be wrong. Specific departments’ policies, funding approval processes, budgetary allocations and the like are often affected by other agencies. For example, there are significant pending changes to healthcare IT standards which must be approved before hospitals, healthcare systems, and other providers and payers can update their systems to comply with Federal laws and regulations.

Programmers are waiting for guidance, and will keep waiting until the deadlock is over. Some of these system updates have deadlines; while the deadlines should be extended if and when the politicos agree to a deal, what should happen in Washington – and did back when adults ran our government – often doesn’t.

This is just one example – and there are hundreds more. Reality is we live in an incredibly complex world, the Federal government is tasked with making sure that world is safe, non-toxic, operates well and does so efficiently. And most government workers are committed to doing that well.

The problem isn’t the workers; it is the press that vilifies them and the politicians that blame government workers for problems the politicians create and exacerbate.

Of course, for those who want to use our national treasure – the National Parks… if the knuckleheads in DC don’t get their stuff together, the Parks may be their own public health crisis.

What does this mean for you?

There are dozens of ways the government affects our lives – almost all of which we don’t know about or appreciate until it’s gone.


Jan
4

Predictions for workers’ comp in 2019 – part 2

Continuing my predictions for workers’ comp in 2019, the first five were Wednesday.

But before I do, you may want to read this on the fallacy of so-called “experts” – I occasionally think I am one. (thanks To Tom Lynch of Lynch-Ryan for the link)

6.  The “advocacy” claims model will gain a lot more traction, as more employers, insurers, and TPAs embrace treating “claimants” as actual real people with medical and disability problems.

The problem is – how do we track this? That’s my challenge, but I hope you will let me know of payers embracing the model!

7.  “Opt-Out” will not gain traction.

Allowing employers to “opt out” of workers compensation is a solution in search of a problem – overall work comp is working pretty well, costs are under control, employers don’t see it as an issue, most patients recover and get back to work.

Most importantly, there is no significant political constituency that cares enough about it to make it happen.

Promoted by ARAWC and a few stakeholders invested in managing opt-out business, this isn’t going anywhere. Change does not happen unless there is a problem that needs fixing, and work comp’s problems are tiny in comparison to other issues confronting state legislatures…taxes, school funding, gerrymandering, Medicaid expansion, rural hospital funding, industrial and economic development, natural disaster preparation and recovery…

(Good friend and IAIABC Executive Director Jennifer Wolf Horesjh has a slightly different perspective…you can listen to Jennifer’s podcast here.) . She notes the advocates are working diligently to promote Opt-Out/Non-subscription.

8.   Service companies that deliver best-in-class customer service – and build that into their branding messaging – will win. 

In a commoditized business (which is how most buyers view most work comp services) customer service is critical to success – but most companies in commoditized businesses don’t understand this.

I’d go a step further – because workers comp is a declining, industry, being known for delivering great service is essential to survival.

Yet many businesses just don’t understand this, or if they do,

  • they haven’t figured out how to deliver great service,
  • or if they do deliver great service they fail to build that into their branding efforts
  • if they even have anything that remotely resembles “branding.”

We will be doing some interesting research on this later this year which should help determine a) if my prediction is accurate, and b) what works.

9. More success in reducing long-term opioid usage by more payers.

We’ve learned that diligent, persistent, intelligent and caring approaches to managing chronic pain and long-term opioid usage produce results. The State Funds of California, Ohio, and Washington along with Sedgwick are a few of the payers achieving remarkable success in helping patients handle their chronic pain while reducing their opioid usage.

Vendors including Carisk are also delivering solutions to this knottiest – and most problematic – of work comp problems.

10. Payers will implement business models and processes using Artificial Intelligence  

These will include some or all of these:

  • claims intake and triage;
  • fraud/waste/abuse triggering and assessment;
  • patient and provider communication;
  • clinical assessment, including utilization review;
  • policyholder communication;
  • and more I can’t think of.

That’s it for this year’s predictions. So, what say you?


Jan
2

Predictions for workers’ comp in 2019

If there was ever an impossible-to-predict year, 2019 is it.

An unstable White House, divided Congress, uncertain-at-best economic outlook, contentious relations with Russia, China, and North Korea, Brexit…jeez I yearn for the days of boredom.

But, far be it from to miss an opportunity to demonstrate how fallible I can be, so here goes.

1. The work comp insurance market will harden – a little.

Over the last few years as more capital came into the sector, profits zoomed up, and medical cost inflation remained relatively tame, rates kept coming down almost everywhere. That can’t last, and I expect the insurance market to harden a bit. Specifically, we’ll likely see rates ticking up just a bit by the end of the year; earlier and more in individual states and for specific industry sectors.

This has been a very long soft and profitable market, and if we’ve learned nothing else, it is that the industry is adept at ending prosperity.  Watch quarterly rate reports from MarketScout and others to monitor this.

That said, I’ll hedge my bet on the upside, because…

2.  A very big external event/issue/mess will affect the economy – and thus workers’ comp

There’s something(s) scary behind the curtain.

By the end of 2019, we’ll see an economic recession, change in the resident of the White House, international crisis(es), and/or other really big event that will rock the economy and likely be felt more severely in specific industries – perhaps logistics, manufacturing, energy, construction. This will lead – over the slightly-longer term – to significant changes in claiming behavior, claim counts, claim frequency in the most-affected areas.

3. There will be significantly fewer M&A deals in work comp services – and those deals will be either pretty small or really big

While this is a gimme, I’m highlighting it more to get your attention than to come out with a bold prediction.

Workers’ comp services is a highly mature industry. As in all mature industries;

  • Scale matters to gain efficiencies, reduce operating costs, gain leverage over vendors
  • Margins shrink as competition is brutal
  • Company growth comes from taking share from competitors – or buying them and/or diversifying into other verticals

Also, most of the biggest players are owned by private equity firms, carry big debt loads, and are tasked with growing a lot – fast – to give their owners a big return on their investment. And all this in a declining industry.

So, I would not be at all surprised to see Sedgwick buying up another large TPA, Mitchell moving aggressively into networks, Paradigm seeking a merger with another big player.

There are a lot of smaller companies that the big ones will try to buy to add revenue and margin. Owners of those that sell will do pretty well  – as long as the deal gets done before something big and bad happens.

4. Facility costs will be the new focus for payers and service companies

I’m going to write a series of posts on this in a bit, but for now – pay attention to hospital, Ambulatory Surgical Center, and similar cost areas. These entities are eating up more of the services pie, are very, very good at “revenue maximization”, and know workers’ comp is a soft target indeed.

And, most payers are woefully unprepared.

That has to change, and fast. Payers will be seeking out, and contracting with, vendors who can help them better manage facility costs.

5.  New business models for Pharmacy Benefit Management will gain traction

Expect to see much more focus on transparent pricing models, as the current business model is unsustainable.  Revenues are down by double digits over the last few years, the administrative burden – driven by more formularies and ever-increasing regulatory requirements – is increasing, and PBMs are consolidating like mad to stay financially viable.

At the same time, the transparency movement is gaining traction in the real world (that is, outside workers’ comp).

Different service models, different pricing methodologies, and an openness to new ideas from PBMs and payers alike will come in 2019. Several payers will adopt “transparent”-type contracts in 2019.

Tomorrow – the other 5.

 


Dec
18

2018 Predictions – How did I do Part 2

Yesterday I recapped my first 5 predictions; today it’s the second 5 (predictions and details are here).

6.  Claims counts will bump up
In hurricane-ravaged Puerto Rico, Florida and Texas. Alas a lot of injuries and illnesses will go unreported as unscrupulous companies hire day laborers and don’t insure them, or, in Texas, where work comp isn’t required.

Verdict – as of now, a no. Latest data from FL indicates 2017 saw a decrease in frequency. Texas did too. While that’s not the same as claim count, it implies a reduction.

That said, couldn’t find any data on Puerto Rico (any ideas welcomed) and I’m still suspicious about under-reporting and non-subscriber issues in TX.

7But frequency will continue to decline, and total claims will too.
because a) frequency almost always declines, and b) we are at or very close to full employment, so a growth in employment won’t counterbalance structural decreases in frequency.

Verdict – yes. Indubitably.

8. Work comp medical costs will increase slightly
On a per-claim basis, expect costs were slightly higher in 2017 than the previous year. Per-claim figures are the best measure, although total medical spend is helpful as well. Kathy Antonello will tell us at NCCI’s Annual Issues Symposium in May…

Verdict – being brutally honest, that’s a wrong. The 4% increase reported by NCCI is a tad higher than “slightly” while it is certainly less than 2016 (6%). HOWEVER – medical costs in California actually decreased Year ver Year (YoY) by about $100 million, or 2.1%. Considering California accounts for roughly 15% of US WC medical spend, that’s a small but meaningful reduction.  In the future, I’ll try to be more specific and use quantitative metrics.

9. Innovative new approaches to financing work comp risk will emerge
Variations of peer-to-peer such as Lemonade, some enabled by blockchain technology, will gain a toehold in a few states. Don’t expect there to be a major move just yet as the regulatory, capital requirements, and distribution channels are going to adapt slowly. That said, there’s just too much opportunity to reduce costs inherent in the inefficient administrative processes in today’s workers’ comp system.

Verdict – correct. Pie launched in a handful of states. Oyster started out in California.  Lemonade isn’t in workers’ comp – and may never be, but i LOVE their transparency and willingness to speak English to customers. Read this – We Suck – Sometimes...and tell us if you’ve ever seen ANY insurance company be this honest.

Warning – there are some companies out there that talk about disrupting workers comp but don’t seem to have a clue about the underlying business.

10. Payroll fraud incidents and other even more creative efforts to screw workers will increase
I’ll be looking at this in detail, but one quick take is the number of “contingent workers” in many industries has grown dramatically.  The biggest increases? farming, fishing forestry; logistics; personal care; protective service, education and training. The implications for comp are deep and broad; lower premiums, claiming incentives, fraud.

Verdict – Correct. Kudos to Matt Capece, the guy who does more to combat this than anyone else I’ve come across. Convictions in Utah, New York, California, Florida, and new legislation in multiple states attest to the impact of Matt and others.

Yet attempts by companies to misclassify workers continue

The net

I was right on 7 out of 10.  That’s about what it should be; anything better would mean I was predicting the obvious.

And who wants to be this guy…


Joe Paduda is the principal of Health Strategy Associates

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