Insight, analysis & opinion from Joe Paduda

Sep
19

Paradigm Outcomes acquired

Paradigm will be acquired by investment firm Omers, a Toronto, Canada headquartered company. Sources indicate the price was approximately 14 times earnings; by my calculation, the total valuation was above a billion dollars.

Till now, Omers had not been visible in the work comp services investment space. And, Paradigm was not “shopped” in the usual way; an investment bank is hired, books go out, bids are accepted, etc. The price is even more remarkable as there wasn’t an auction; the valuation continues what’s become the new normal pricing for work comp assets.

If it seems like you were just reading about a Paradigm acquisition…you were. The company just completed a deal to buy pain management network company AdvaNet.

Omers does own Premise Health, a worksite clinic firm, as well as two outpatient rehab and physical therapy companies – however sources indicate there are no plans for any collaboration or combination of assets.

What does this mean for you?

If you own a work comp services business – sell now!


Sep
18

Why a Texas court case is hugely important to you.

You or your spouse may well have a pre-existing health condition, one that, back in the bad-old pre-ACA days would have made it hard if not impossible to get insurance coverage in the individual and small group insurance markets.

Those days may be coming back.

A Texas court case is scaring the bejesus out of many; the Trump Administration and several state attorneys general are suing to overturn provisions of the ACA that require health insurers to cover pre-existing conditions.

If this scares you, you’re not alone. More than half of people polled are afraid their insurance costs will go way up, and 4 out of ten think they may lose insurance coverage if insurers no longer have to cover pre-existing conditions.

An old athletic injury, skin cancer, stomach trouble, anxiety, a heart murmur, migraines, allergies – all those and many more are pre-existing conditions that, if the lawsuit succeeds, would likely prevent you from getting individual insurance coverage for those conditions – if you could get insured at all.

Before the ACA,

  • you couldn’t leave their job to try something new or retire early – a condition known as “job lock”
  • small employers’ costs went up dramatically if workers got sick or had specific conditions because their insurer wanted to dump them.

Under the ACA, insurers must cover pre-existing conditions, and can’t charge individuals, families, or small businesses more based on those pre-ex conditions.

This strikes me as eminently fair; I had cataract surgery and started getting migraines years go, and until the ACA I had no coverage for ANYTHING related to my eyes or brain. That was pretty scary; any medical care related to those rather important organs was money out of our family budget.

Here are some of the conditions that you are insured for under the ACA, conditions that would not be covered if the lawsuit succeeds.

I’m all for freedom and choice and all that stuff.

What I’m vehemently against is stupid public policy that results in you going bankrupt because an insurer won’t cover your pre-existing condition.

For those who claim the “free market” will fix this – you are smoking crack. No insurance company will cover your pre-ex condition – or your spouse’s, or kids’ – unless they are forced to.

What does this mean for you?

If Trump et al win this suit, your freedom to change jobs just disappeared.

 

 

 


Sep
13

The biggest deal in work comp to date

Yesterday’s announcement that Carlyle is acquiring Sedgwick is a clear indication that the work comp services industry remains a favorite of private equity investors.

The transaction, which valued the giant TPA at $6.7 billion, far exceeds the previous record set by the ill-fated One Call deal. It also produced very healthy returns for previous owner KKR; it bought the company for $2.4 billion just four years ago.

A 180% increase in value over a brief four years speaks to Sedgwick’s successes over that period, a clear and compelling growth strategy, and strong belief in management, which remains an investor in the company. (To be clear, a big chunk of this value growth was also driven by two major acquisitions, discussed below)

Here’s my brief take on why Sedgwick sold for so much.

Management

I’ve crossed swords with CEO Dave North in the past, but no one can argue with the success he and his team has delivered. I’ve also come to know several senior management folks, and they are, to a person, impressive.

Strategy

Work comp is shrinking, and TPAs are perhaps the only segment of the industry that will benefit from that shrinkage.  As claim counts decline, more insurers are choosing to have TPAs handle more of their claims.

Sedgwick also increased its internal work comp services expertise and capabilities. One example – the pharmacy management program overseen by Paul Peak PharmD is delivering impressive results.

North et al embarked on a clear diversification strategy several years ago, a strategy evidently designed to continue the company’s growth by dramatically increasing its footprint internationally and in property adjusting. Sedgwick’s acquisition of Cunningham Lindsey and Vericlaim positioned the company to profit from climate-change driven events such as hurricanes, fires, tornadoes and the like.

Wise indeed.

Scarcity

I’d be remiss if I didn’t reprise my comments from a few weeks ago –  there just aren’t that many work comp services assets to buy these days. To be clear, Sedgwick is neither a Pinto or a Gremlin; far from it.

The services industry has bifurcated into really big companies – Mitchell, Genex, Sedgwick, One Call, and relatively small ones – MTI America, HomeCare Connect and the like. While there are several firms occupying the middle ground, overall the number of potential acquisition targets has shrunk dramatically.

Because the big companies are really, really big, relatively few PE firms have the financial wherewithal to buy them.

As a result, when assets do come to market, investors seem willing to bid up prices.

What does this mean for you?

There are ways to succeed and profit in a consolidating, highly mature industry.

 


Sep
12

Florence and work comp

Hurricane Florence will devastate much of North and South Carolina and parts of Virginia as well.

Florence will have some impact on workers’ comp – and in some ways already has.

  • Industry capacity – The work comp insurance market remains soft, and until and unless capital dries up, it is likely to remain soft. Insurance stocks took a hit as investors anticipated major losses, and the catastrophe bond market sunk as well. Total projections for insured losses range from $12 to $20 billion, a range that is well within the financial capacity of the industry.
    If current rainfall and storm surge forecasts prove accurate, projected losses can be absorbed without undue stress. I don’t expect Florence to affect work comp premium rates.
  • Preparing for service delays – In conversations with work comp home health care, PBMs and other work comp patient service providers, I learned that these companies are doing a lot to prepare, including:
    • sending patients additional medications, soft goods and consumables in case mail services are disrupted
    • re-locating patients to facilities in case home health care providers can’t reach patients’ homes, or their homes lose utility services for extended periods
    • testing their backup and business interruption processes to ensure they can stay functional
    • re-scheduling office visits, therapy sessions, IMEs and other services
  • Post-storm cleanup and rebuilding – There will be two employment effects – Storm recovery companies will hire thousands of contract workers to help clean up debris and damage from the storm surge, wind damage, and flooding. Most of this will take place in the next couple of weeks. Rebuilding will – of course – take much longer, and will increase hours and wages in construction, logistics, and other industries.  Hiring and payroll increases won’t be enough to move the national needle, but it will be material in the affected states.
    As many of the clean-up workers will be temps, there will be a localized and very short-term uptick in claims.

The bigger story here is future storms will be larger, more damaging, and perhaps more frequent.

Harvey’s rains were almost 40% more intense due to global warming. Changes to the jet stream associated with changing weather patterns have affected Florence’s path.

What does this mean for you?

The climate is changing; weather will too.  Those who deny this do so at their peril.

 


Sep
10

Hypocrisy hits new heights.

The same folks who want to cut $537 billion from Medicare are now claiming only they can “protect” Medicare.

Out on the campaign trail, President Trump and Gov Rick Scott (R FL) are claiming “Medicare for All” would somehow harm Medicare, and seniors need to vote for them to preserve Medicare as it is.

In an obvious attempt to scare seniors, Trump et al are asserting that expanding Medicare – the most-liked health coverage in the nation – will somehow result in seniors losing Medicare benefits. They support this assertion with no logic, no coherent argument, no evidence or data, yet there it is.

This from the same folks who, just a couple months ago, wanted to cut seniors’ Medicare benefits. What’s changed?

Elections are coming, that’s what’s changed.

According to Forbes, the GOP is looking for:

$900 million in cuts to rein in Medicare prescription abuses. Another $5 billion is cuts are specified to address high drug prices, while $286 billion in funding will be pared to reduce excessive hospital payments.

Now, there’s an argument to be made that Medicare is not financially sustainable – especially given the huge tax cuts passed by the GOP.  And yes, we need to figure out how we can keep Medicare viable given the drop in federal tax revenue due to the tax cut.

But to turn around and claim that expanding Medicare for All is somehow damaging to a program you’d like to cut by a half-trillion dollars is, well, the height of hypocrisy.

What does this mean for you?

Medicare for All isn’t a threat to Medicare. 


Sep
7

Healthcare costs and wages

The economy is booming, wage growth is not.

Healthcare is the big reason workers aren’t seeing higher wages – instead of spending their dollars on consumer goods, travel, cars and entertainment, workers are paying higher premiums and deductibles.

More than half of all workers have seen no increase in take home pay – ALL of their pay increases have gone to pay for higher health insurance premiums. And that’s before deductibles, copays, and co-insurance.

(graphs from WaPo)

Deductibles are zooming ever higher because high deductibles mean lower premiums. Think of this as cost-shifting to the sick; healthy folks pay lower premiums but if/when you need health care, BOOM!

You first have to pay for that care yourself, before you start getting some help from your healthplan.

This is even more of an issue for folks who work for smaller employers (<200 workers), where the average deductible for individuals (not families) is $2,069.

What does this mean for you?

You have less money in your paycheck because it is going to doctors, hospitals, pharma, device companies, and insurers.

And it’s going to get worse.

 

 


Sep
6

The latest deal in workers’ comp services

Paradigm announced it is purchasing Adva-Net, a Florida-based company with a network of pain management providers. While terms weren’t disclosed, word is the price was north of $105 million, a very healthy multiple of earnings.

I interviewed Paradigm CEO John Watts a few weeks back, but decided to hold off on publishing it until this deal was done. Watts, who has an impressive resume including multiple leadership roles in the “real world” (outside of work comp) is impressive; he has a clear strategic vision for the company, knows what he doesn’t know, and appears to understand the critical importance of branding. Quotes are from Watts

We talked about his strategy for Paradigm and the acquisitions the company made over the past year plus – specifically Foresight Medical and two case management firms – Alaris and Encore. In addition, Paradigm just acquired several ‘advisory solutions’ focused on pain management, catastrophic claims, and back care from Best Doctors.

Frankly I’ve long been somewhat puzzled by these acquisitions; NCM is old school, Foresight is anything but (and was wicked expensive).

Before those additions to the company, Paradigm had “a nice longstanding business doing pretty much one thing” – managing a carefully selected inventory of catastrophic claims, and doing so quite well.  Management realized that a sole focus on cat claims wasn’t enough and the company needed to diversify.  Acquiring case management assets, a business that Watt noted is “way more traditional than the cat claim business”, gave that cat claim “operation access to about 500 +/- employed nurse case managers.” Not only did this expand Paradigm’s ability to handle cat cases, it increased it’s customer footprint, provided a training ground for cat nurses, and added some “synergies” – management speak for reducing overhead expenses like management, finance, and HR.

Going forward, Paradigm “wants to stitch together assets with the ability to take risk in complex acute situations to manage clinical outcomes…[the company will likely handle] more types of catastrophic conditions while also moving into lower severity claims.” Alaris and Encore (Paradigm’s NCM firms) help them do that.

Foresight was another acquisition; I asked how these services align with Foresight.

Foresight stands on it’s own. According to Watts, it has a “Strong focus on implants, cost and quality…Foresight is also building a high performance orthopedic network using data analytics.”

In the near future, expect Paradigm to be a “big player in the musculoskeletal space.” The company (again this was several weeks ago) was “in an acquisitive place now.”  Going forward, the plan is to focus on becoming known as expert in managing ortho surgery care…first, couple [Foresight’s ortho network] services with NCM, then add catastrophic services.”

At the end state, expect Paradigm to handle a defined bundle from point of injury to back to work.

Future expansion will likely include a “front end solution on musculoskeletal condition to help clients avoid unnecessary surgeries” and the tools to do that.

So, Paradigm is focused on adding depth and breadth to the solutions it provides work comp payers – adding services to help with less acute claims, and broadening its capabilities to handle more of the claim medical service spectrum.

In this context, Adva-net will add a pain management provider network. After a rather prolonged development period, the company’s earnings recently ramped up significantly. The business model is primarily a traditional percentage of savings arrangement – the more services delivered, the more dollars earned.

The acquisition brings another specialty-focused business, some additional customers, and a provider network to the Paradigm portfolio.

The acquisition was expensive, but as the company has shown with Foresight, it isn’t afraid to pony up the bucks when it sets its sights on a deal.

My take.

Paradigm is intelligently diversifying and has a coherent and promising strategy. That said, I still don’t understand the prices paid.


Sep
5

Making “Medicaid for All” work

The US healthcare “system” is headed towards a cliff, and when it hits the edge, Medicaid may well be the replacement.

Briefly:

  • Managed Medicaid plans would be offered in every state
  • people would sign up for the plan they want, with the option of enrolling in regular fee for service Medicaid
  • funding would be from payroll taxes, individual service-based fees, and federal funds
  • provider reimbursement would be pegged to Medicare for ALL payers, eliminating payer-shopping by providers and increasing Medicaid FFS reimbursement

The details…

There are two ways this would work – Medicaid for All (MFA) becomes the way all of us get coverage, or Medicare remains in place for elderly folks and Medicaid covers everyone else.

It’s entirely possible employers continue providing basic healthcare coverage, but really, do they want to? It’s expensive and a pain in the neck. Instead, employers will be able to offer supplemental insurance (similar to what happens in Canada, the UK, and other countries) as an employment benefit.

Today, Medicaid comes in two general flavors – “classic” and Managed Medicaid.

Classic is fee-for-service Medicaid, where members can go to any provider that accepts Medicaid. Providers are paid on a fee for service basis, at rates that vary greatly between states (states set reimbursement).

Managed Medicaid is an option in almost every state. The states contract with healthplans to provide integrated Medicare and Medicaid in what are called “dual eligible” programs (members are eligible for both Medicare and Medicaid).

The Managed Medicaid (MM) plans are paid on a capitated basis – that is, a flat fee per member. That fee is based on the health status and health risks of the members; the sicker the member is, the higher the capitation amount.

This arrangement incentivizes MM plans to figure out the optimal ways to keep members healthy and keep costs down – keep them out of the ER, avoid inpatient hospital stays, and encourage healthy behaviors. If costs come in under budget, the plans make money (usually a couple percent at most). If not, the plan loses money – not the taxpayer. (MFA will be based on Managed Medicaid)

(a detailed explanation is here.)

Today, states with these plans in place enroll members in different ways. Some randomly assign members to plans, others allow more assertive competition among the plans for members. I’d expect this to continue under Medicaid for All; existing enrollment processes would be expanded, systems upgraded, and communications refined to address the broader market. Every fall, MM plans would compete for members, enrolling them before the end of the calendar year.

Individual contributions to premiums would be income-based (as under ACA today); there could be low copays for certain services but paperwork for members would be almost non-existent. (All Medicaid members today have ID cards that enable electronic record sharing, billing, and claims submission.)

Funding would be a combination of service-based fees (copays and co-insurance), payroll taxes, federal funds, and perhaps general state funds.

Remember, as employers would no longer have to deliver health insurance, those dollars could be spent on higher wages, to offset payroll taxes, or for other purposes. Similarly, individual payments for premiums, high deductibles and the like would be eliminated, altho some of those “savings” would go to higher payroll taxes to cover Medicaid for All.

Provider reimbursement would be up to the MM plans negotiating with providers – who would remain independent (unless they are employed in a health system that is also a MM plan provider). However, FFS Medicaid reimbursement would be increased to mirror Medicare’s rates.

Why this is the future

US healthcare is not sustainable. Period.

Family health insurance premiums are nearing $20,000, the number one cause for bankruptcy is medical debt, Medicare and Medicaid are the largest chunks of the federal budget, and industrial competitiveness is hampered by healthcare costs which are double the average costs in other countries.

And, 74% of Americans are worried about losing their insurance.

So, we can either keep driving off the cliff, or take an alternate route. One that will be very rocky, cause a lot of headaches and heartache, disrupt businesses and families and providers, but one that sooner or later, we’ll have to choose.

What does this mean for you?

It’s not a matter of if, but when.

Note – happy to engage in fact-based, citation-supported conversation. “I heard this” and “everyone knows” arguments are not helpful.

 


Sep
4

The case for Medicaid for All

When Single Payer becomes the law of the land, Medicaid will be the foundation.

We’ve looked at the current push for Medicare for All, the factors that I believe will drive us to some form of single payer, and posted a primer on Medicaid.

Here’s why it’s going to be Medicaid for All.

  1. Medicaid for All will spread the cost of universal coverage across states, reducing federal financing requirements.
    Medicaid is a state AND federal program; States provide a lot of the funding for Medicaid; on average the Feds contribute 63% and states 37%. This is critical, as Congress will want to spread the cost of a Single Payer solution and there’s no better way to do this than require states to pony up big dollars [State contributions vary based on a state’s average personal income relative to the national average; states with lower average personal incomes get more federal dollars.]
  2. Medicaid is already built to cover everyone.
    Medicare covers people of all ages, Medicare is very much elder-care focused.
    Adapting Medicare to handle everyone from newborns to elderly, maternity care to pediatrics will be difficult, time-consuming, and expensive. Medicaid does all this and more – today.
  3. Generally, Medicaid is less expensive than other “systems”.
    This is due to much lower provider payment and significantly lower administrative costs. Yes, this means providers are going to be paid less.
  4. Medicaid member satisfaction is pretty good; access to care is not much of an issue.
  5. Medicaid-based Exchange programs are much more successful in the Exchanges than commercially-based plans.
    The Centenes et al [Medicaid-based plans] understand the demographics of the uninsured, have lower medical costs, and already have provider networks, customer relations operations, workflows and processes set up and operational. At the end of the day, lower cost wins – and their costs are lower.
  6. Medicaid is a simple, fully-integrated healthplan.
    Medicare’s alphabet-soup of Parts A B C and D is confusing and convoluted, with different payers often covering the same individual. This increases administrative costs, member hassles, and decreases quality of care (co-ordinating pharmacy and medical care between different payers is problematic at best.
  7. Managed Medicaid plans are working.
    These plans currently exist in most states, and many have been able to deliver excellent care at lower costs through innovation and very tight focus on outcomes. One example is using paramedics to deliver care. [disclosure – I sit on the board of Commonwealth Care Alliance, a Massachusetts healthplan that serves dual-eligible members]

Tomorrow I speculate on how Medicaid for All will integrate with Medicare and employer-based coverage.

What does this mean for you?

Better care, lower costs, while a big impact on pharma, device companies, healthcare systems, and healthcare providers.


Aug
30

Medicare for All – explaining what it means and what it would cost

Yesterday we gave a brief overview of Medicare – the various parts and pieces.

Today – what exactly is the plan, who would pay for it, and how much would it cost?

Sen. Bernie Sanders, (I VT) is the original MFA (Medicare for All) advocate, and most other candidates echo his plan – which is pretty simple:

  • Everyone is enrolled in MFA
  • No one pays copays or deductibles
  • You can choose any healthcare provider
  • It isn’t really “Medicare” for all, but rather a simple “everything is covered” plan
  • Funding would come from:
    • higher taxes on high-income earners
    • re-instatement of the estate tax
    • payroll tax of 6.2% for employers
    • 2.2% income based premium for individuals and families
    • taxing capital gains as ordinary income
    • repealing tax exemption for premiums etc.

There’s been a lot of press about this, with claims and counterclaims muddying the waters  – but the net is this:

Sanders’ plan would enroll pretty much everyone.

The plan would save costs by:

  • reducing total provider compensation by 11% – 13% (physicians make a lot more money here than they do in most other countries)
  • it would do this by setting flat reimbursement rates – today employer plans pay about 40% more than Medicare, and much more than Medicaid (generally speaking).
  • However, reimbursement would be higher than today’s Medicaid rates.
  • MFA advocates note that administrative costs would be a LOT lower, as doctors and hospitals wouldn’t need the big IT operations and personnel required to track down payers and get reimbursed

MFA would be phased in over four years.

What would it cost?

That’s a tough one – the CBO won’t score it.

One Koch-funded research center came out with a report that said it would A) cost $32 trillion over ten years, and B) reduce total US healthcare costs by some $2 trillion while covering 30 million more folks. (yes, this was Mercatus’ higher estimate, but they fudged other numbers to make costs look higher, so I’m going with that figure)

Bernie and other advocates, claim savings would be higher – so the total cost would be lower.

However you slice it, you have to remember that employers and individuals would no longer be paying over a trillion dollars for healthcare every year via payroll taxes and premiums and deductibles and copays.

And yes, you’d save a lot of money by reducing provider reimbursement to Medicare rates.

Who and what gets disrupted?

Insurance companies. It isn’t clear who would administer this program, perhaps the current companies that handle much of Medicare. However, many or most commercial health plans, Medicare Advantage plans, Managed Medicaid plans (disclosure I am on the Board of one – Commonwealth Care Alliance) would shrink or disappear entirely.

Revenue Cycle Management – this huge industry would become obsolete overnight.

Millions of workers – no longer needed to handle the morass of regulations and insurer requirements

Pharma – Bernie would negotiate with pharma and medical device companies – as every other country does – to get the lowest possible prices.

Brokers and consultants. Ouch.

Remember – the US healthcare system is enormously inefficient, overall delivers mediocre-at-best results, and is not sustainable.

What does this mean for you?

Opponents of MFA would be well served to come up with a better answer than MFA, because that MFA is getting traction.

 


Joe Paduda is the principal of Health Strategy Associates

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