National health reform – implications for workers comp

I’ve gotten several queries about the future of work comp if/when health reform occurs. The real answer is – no one knows. But I’m happy to take an educated guess.
I very much doubt comp will be directly impacted by or addressed in any health reform bill. It is going to be difficult at best to pass health reform legislation; adding comp is unlikely to increase support but would almost certainly drive work comp stakeholders to lobby against the bill. There’s just no upside for including comp in health reform.
Back in the Clinton health reform days, comp was part of health care reform, where it ran into objections (most warranted) from employers, industry types, insurers, and providers. Work comp was addressed in Title X, which “would have required that employees receive all of their health care through the same insurance plan, regardless of whether the injury or illness occurred at home or at work.” For lots of reasons, this was a non-starter.
President Elect Obama may well have learned from his future Secretary of State’s errors: nowhere do the words ‘workers compensation’ or similar terms appear in President Elect Obama’s website, policy papers on health reform, or in the several speeches he has made on the subject.
Finally comp is not linked to/mentioned in the Baucus plan, Wyden/Bennett Healthy Americans Act, or on Sen. Kennedy’s policy pages. These should be viewed as drafts of final bills; if policymakers were actively considering incorporating work comp it is likely we’d have seen it appear in one or more of these bills.
What does this mean for you?
Don’t expect to see work comp directly addressed in reform legislation on the Federal level.
But, any reform initiatives will undoubtedly affect workers comp. Here are a couple specifics.
Physician reimbursement
The fall will be highlighted by a debate over Medicare physician compensation. With docs scheduled to see their reimbursement drop by around 20% in 2010, the caterwauling will be heard loud and clear inside the Beltway. Don’t look for a major policy change, but rather something to satisfy the physician community and build a little equity for the future. My sense is CMS will increase reimbursement for E&M codes (cognitive services). Almost all WC fee schedules are based on Medicare, so any change in Medicare directly and immediately impacts comp reimbursement. Watch Capitol Hill carefully; if Congress passes legislation signed by future President Obama affecting Medicare reimbursement, clinic companies may be big winners.
This will also be good news over the long term for comp in general. Good work comp medical care requires physicians to spend time listening to patients, and talking with employers, adjusters, and case managers. Docs don’t get paid (at least not adequately) for this time, therefore any increase in reimbursement for office visits will encourage docs to spend time with claimants instead of doing procedures. Well, at least not discourage doctor-patient discourse…
Medical care delivery
If there is a major reform initiative passed, there will likely be fundamental changes in the way health care is delivered, the virtual ‘location’ delivering that care, and the evaluation of care.
And that would dramatically affect workers comp.
Today, health care is delivered episode by episode; diagnosis, care plan, treatment, assessment, and repeat steps 2-4 until the situation is resolved. This episodic model of care will (over time) change to one based on functional outcome management – care focused on returning the patient to functionality, and maintaining that functionality.
This will be in large part driven by the growing influence of chronic care and need to develop a better care model to address chronic care, one that will heavily emphasize patient education and monitoring. It will also require a different ‘location’ of care – the medical home.Dr Kathryn Mueller of the University of Colorado sees the medical home model as a big part of the solution in workers compensation, as the medical home may well be the dominant model for delivery of care throughout the health system in years to come. Studies indicate the home decreases medical errors and improves the quality of care delivered. Notably, the medical home model is NOT a primary-care gatekeeper model – but rather a model wherein the physician is tasked with and responsible for coordinating care and educating the patient.
If Congress calls for the Feds to negotiate drug prices, this will affect comp in one of two ways. Either comp payers will be able to piggyback on the Feds’ negotiated rates, in which case per-pill prices will come down, or (more likely) comp payers find their per-pill prices increase due to cost shifting.


The double whammy = claim frequency and declining employment

The decline in work comp claims frequency is worrying many in the workers comp managed care business – as well it should. As I noted last week, a drop in the frequency of claims will mean fewer cases to manage, bills to process, and provider bills to profit from.
There is an ‘upside’ to the recession – claim duration could go up. That’s likely true. But the second part of our conversation may well be more important.
During a conversation with the head of a large TPA earlier this week, my colleague made the point that during a recession, claim duration may well increase for a couple of reasons – the folks who are still working are likely older (younger workers with less seniority get laid off first) and we older folks take longer to heal, and have other medical conditions that make the treatment process more complicated, longer, and more expensive.
So claim severity (the medical cost per claim) may well bump up as a result of the recession. But, and it’s a big but, there may be a more dramatic drop in the number of claims than anticipated. The key, as the exec noted, is while there has been a decade-plus long decline in the injury rate, the decline in frequency has been somewhat offset by an increase in employment.
While the economy was expanding, more jobs were being created. The increase in the number of people working offset the decline in claim frequency. (Frequency is measured in terms of injuries/illnesses per 100 FTEs, so the more FTEs the more injuries). Now, jobs are disappearing, with a disproportionate loss from jobs that have higher-than-average injury rates – construction (down 780,000 since December 2007), manufacturing (down 604,000), logistics.
The comp managed care industry has been protected from the decline in frequency by growth in employment, but this growth masked the structural, long term decline in frequency. Now that growth has been reversed, there’s a ‘multiplicative effect’; loss in high-injury-rate jobs times a decline in frequency = bad news for (most) managed care vendors.
What does this mean for you?
Tough times for some vendors; some, but not all. Tomorrow I’ll look at which sectors may be less vulnerable.


The 50 million uninsured

The number of Americans without health insurance will exceed 50 million by next summer.
Friday’s employment news was just what the country needed to hear before a pre-holiday shopping weekend – a loss of over a half-million jobs in the prior month, driving the unemployment rate up to 6.7%.
That’s bad.
It’s actually worse than that. Due to the vagaries of Federal statistical collection and reporting, the unemployment rate appears to undercount the unemployed. Here’s how the NYTimes’ David Leonhardt and Catherine Rampell put it:
The number of people out of the labor force — meaning that they were neither working nor looking for work and that the government did not consider them unemployed [emphasis added] — jumped by 637,000 last month, the Labor Department said. The number of part-time workers who said they wanted full-time work — all counted as fully employed — rose by an additional 621,000.”
The number of people working part time also looks to be growing, as the average work week has shrunk to just over 33 hours.
One of the many unpleasant implications of losing a job is losing health insurance. Sure, there’s COBRA, wherein a newly-unemployed can keep insurance for a year and a half to three years if they pay the monthly premium plus an admin fee. To do that, a family will pay about $1100 a month, a huge chunk out of whatever severance and unemployment compensation the breadwinner(s) are due. For those that still have a job, they still have to get enough hours to qualify for health insurance; the declining hours worked per week stats indicate fewer and fewer Americans will meet that test, and therefore will lose their coverage.
Historically, a one percent rise in the unemployment rate adds about 1.1 million individuals to Medicaid and SCHIP rolls, and another million to the ranks of the uninsured.
Since December, the US has lost 1.9 million jobs and the jobless rate has jumped from 5 percent to 6.7 percent, increasing the rolls of the uninsured by 1.7 million. (Not all of those workers had insurance through their employers, and some will end up qualifying for Medicaid and their dependents may qualify for S-CHIP coverage in some states). Adding those unfortunates to the 45.7 million + without coverage in 2007 gives us a total of about 47.4 million.
My sense is this is the best case scenario. These days there are a lot more Americans working part time, and with more employers dropping coverage, those folks who still work are stuck – they can’t get insurance through the job and make too much to qualify for Medicaid or SCHIP in most states. Anecdotal information from conversations with insurance brokers in Florida, Colorado, and Texas is scary – most are seeing a significant drop in the number of existing customers renewing their plans for 2009, and those that are signing up are cutting benefits and raising deductibles and employee contributions.
With the unemployment rate projected to hit 8 percent by Q3 2009, we can expect the number of Americans without health insurance to hit 50 million by summer.
Apologies for starting out your week on a (very) sour note.


They’ve got to be kidding!

In what has to rank as the ballsiest move of the year, managed care giant United Healthcare has come up with a ‘guaranteed insurability’ product for anyone fearing they will lose their health insurance and be unable to obtain coverage in the individual market.
For a fee of a mere 20% of the actual premium, individuals can buy a guarantee from United that they will be able to buy individual health insurance if they need it in the future.
What a deal.
Who’s going to buy this? A really tiny market comprised of very healthy paranoid individuals with more money than brains.
Recall that people working for employers with 20 or more full-time employees who leave can still get the same health care benefits for 18 to 36 months, provided they pay the full cost of the premium plus a small upcharge for administrative fees.
HIPAA requires insurers in the individual market guarantee renewability of coverage in most situations.
So, who’s left? Anyone who thinks they will lose their group coverage and their COBRA coverage will expire who also won’t be able to get individual coverage and doesn’t believe there will be meaningful changes in regulation of medical underwriting and treatment of pre-existing conditions. Perhaps my earlier characterization was inaccurate, and the market is not tiny but infinitesimal.
As applicants will have to qualify up front, UHC will (wherever possible) do their medical underwriting and rating for folks applying for the ‘Continuity’ product. So, if you are covered under a group program and have a pre-ex (as many do), you’re not likely to get that condition covered by UHC (in states that allow that practice).
What a great country.


Tough times ahead for work comp managed care

As if the declining frequency rate wasn’t bad enough, managed care companies are now looking at significantly lower claims volume in 2009, a decline that will spell trouble for work comp managed care.
When the number of injuries goes down (which it does during economic recessions), managed care vendors are directly affected. There are fewer bills (bad news for bill review), fewer treatments and visits to providers (bad news for PPO networks and UR vendors), fewer prescriptions (not as bad news for PBMs as you might think), and fewer cases to manage (bad news for case management firms).
This recession, currently in its twelfth month, may well be tougher on managed care vendors than prior ones. The jobs that are disappearing tend to be those in higher injury rate classes – retail, manufacturing, construction (24 consecutive months of declining employment), transportation/logistics. The auto industry is in freefall with sales down 37% last month, bringing suppliers along for the ride. The unemployment rate has rocketed to 6.8%, the worst result in over sixteen years, and may be headed to 8.5%.
Fewer workers, fewer injuries. Those fortunate enough to keep their jobs tend to be more experienced, better trained, and less likely to report an injury for fear they’ll lose their job. And, the pace of work is slower with much less overtime- all contributing to lower injury rates.
As if that wasn’t bad enough, payers are looking to move more managed care services in-house.
For some time, big (and medium) TPAs and insurers have been internalizing their managed care. Gallagher-Bassett, Liberty Mutual, AIG, Broadspire, and Sedgwick are but a few of the big boys that have long handled much of their own managed care (with the exception of networks – more on networks in a minute). Services such as bill review and telephonic case management are easily handled by the payer, and system vendors usually have modules ready for payers moving in this direction. Payers are able to capture more revenue and profit, while contending (with, in some cases, justification) that their results are better than vendors can deliver. Of late this trend has accelerated, primarily due to the soft market. First Cardinal is one TPA that recently brought case management in-house, others are internalizing bill review and UR as well. Expect this trend to accelerate.
As I noted a couple weeks ago, the network business is under increasing pressure from regulators. In addition to the legal issues in Oregon and Louisiana, is is highly likely the ‘networks of networks’ will find their business model under attack as states adopt legislation/regulations forcing greater disclosure of rental network agreements, requiring positive agreement from providers (providers have to sign off on a document before they can be added to a network). This will mean more work for provider relations, legal, and customer service departments at network vendors, driving up costs.
There is also increasing chatter in the industry about big payers moving towards much smaller, more specialized networks focused around key workers comp physicians. We are seeing significant movement in this direction in California, Florida, and Texas, three states that combined account for a big chunk of workers comp medical spend.
There is a bright spot. Specialty vendors in the DME, Home health, and pharmacy sectors will be least affected. As reported by NCCI, the big dollars in these sectors are spent by long-term claimants. The recession will not affect these companies much, if at all, as most of their business is coming from claimants that were injured years ago.
What does this mean for you?
If you are a vendor, batten down those hatches. Demonstrate your value, service your customers, and get your employees on board.


Health care reform – we have to deal with costs

No, that’s not my entry for understatement of the decade. It is a follow up to my post last week about the impossibility of comprehensive health care reform given today’s rather difficult environment.
Yet a recent editorial in the New England Journal of Medicine says Congress and the President-elect can deliver on reform, if they move quickly, act forcefully, and ignore costs. The piece is an excellent analysis of how Medicare came to be, paying particular attention to political maneuvering and manipulation.
As good as it is, I have a major bone to pick – the authors’ rather cavalier approach to the cost issue.
Here’s how they put it:
“The expansion of health care to large populations is expensive, and presidents may need to quiet their inner economists.[emphasis added] [then-President Lyndon] Johnson decided, in effect, to expand coverage now and worry about how to afford it later. Accurate cost estimates might very well have sunk Medicare. In fact, this generalization holds across every administration from Harry Truman to George W. Bush. Major expansions of health care coverage rarely fit the budget and generally drew cautions (and often alarms) from the economic team. Of course, under current federal budgetary circumstances, managing the economics of health care reform may be more difficult than ever before.”
Well, it’s safe to say we know a heckuva lot more about costs, drivers thereof, and implications of governmental programs than they did forty-five years ago. As an example, I give you Medicare Part D. After Part D, the largest expansion of government-assisted health care since 1964, went into effect drug manufacturers raised prices by an average of 7.4%. Why? Because they knew there was a large new customer base, eager to get drugs, that was not very concerned about cost.
The passage of Part D was a boon for big pharma, as the industry enjoyed a substantial increase in profits and revenues attributable to Part D. Part D did not benefit the managed care firms; many have not profited from their offering, and more than a few (see Humana) got hammered. For 2009, the big Part D carriers are raising premiums significantly; Humana by 51% and United Healthcare by 18%, with copays also on the rise.
On a national scale, the program is a disaster. The ultimate liability for Part D is $8 trillion, a liability that is unfunded. This is what we can expect if Congress passes and President Obama signs into law national health reform that does not aggressively, and forcefully, address cost – a deficit explosion that will make the cost of the current bailouts look like lunch money.
Simply put, you just can’t ignore cost. Even if the Democrats tried to push thru universal coverage without strong cost controls (which they won’t) the Republicans would crucify them (which they should).
But, with one exception, the current bills before Congress and ideas floating in Washington don’t address cost. There’s talk about fraud and abuse, electronic medical records, prevention and wellness – all the usual sound bites. What there is not is any meaningful discussion of cost control.
(The Wyden-Bennett Healthy Americans Act was carefully analyzed by the Lewin Group before it was released (the analysis indicates it will actually reduce costs). Sen Wyden (D OR) is astute enough to understand that any reform bill that does not explicitly address costs is a waste of time, dead before it even hits the floor.)
So what do we do? We obviously can’t rely on private insurers, as they have demonstrated absolutely zero ability to manage costs. I’ll take that up tomorrow.


The taming of the wild west – PPO regulation is getting serious

The PPO world is about to get more complicated, and likely less profitable – for the PPOs.
The National Conference of Insurance Legislators (NCOIL) has developed model legislation tightly regulating PPOs, legislation that looks to be on the docket in at least two states next year, and likely others as well.
According to Bill Kidd in today’s WorkCompCentral, the model act “allows unlimited “downstream” rentals of PPO contracts and physician discounts, but requires that network access information be made available to providers.
The model establishes criteria for network and discount access and contract termination; sets out contracting entity rights and responsibilities, requires disclosure to providers and contracting entities of third-party access; provides for registration of unlicensed contracting entities; prohibits and penalizes under a state’s unfair trade practices act unauthorized access to provider network contracts and allows physicians to refuse a network discount without a contractual basis.”
The key is the notification requirement. The model act calls for PPOs to periodically inform providers of all the networks and ‘access brokers’ who can access the network contract. Providers have to be kept informed of changes to the list, and the list has to be emailed, mailed, and/or posted on a secure website.
While the issue of silent PPOs has been on a slow boil for years in many jurisdictions, It has been much more contentious in several states including Louisiana, Texas, California, and Oregon. Provider groups have complained that the managed care contracts they enter into have been sold and resold multiple times without their permission or agreement. That complaint is arguably minor; what is definitely not is providers’ belief that the payers accessing the contracts ‘downstream’ are not doing anything to direct patients, but are simply accessing contracts to get a discount.
This is the core issue – PPOs trade volume for discounts. For far too long, big, yellow-pages PPOs have done little to actually increase a provider’s patient volume. Many claim they have contracts with and/or access to hundreds of thousands of providers. If that’s the case, and I have no reason to doubt that it is, there is no way the PPO can claim it is actually directing care to a selected group of providers.
If everyone’s a member of the PPO, then it isn’t a ‘Preferred’ Provider Organization.
The bill under consideration in Texas provides a window into what other states may see on their legislative agendas.


Why big reform won’t happen in 2009

In the three and a half years I’ve been publishing MCM, I’ve been labeled a conservative, libertarian, apologist for the insurance industry, socialist, leftist, liberal, and other less printable terms.
It’s nice to be part of so many seemingly diverse groups.
Yesterday the Center for American Progress (a progressive organization) called me out for my statements that we won’t see big health reform any time soon. They make a rather compelling case for health reform, citing all the good reasons for the ‘big fix’.
While I applaud their motives, perspective and logic, I would also note that their piece completely misses the big point, a point they themselves explicitly acknowledge. None of the health care reform initiatives presently before Congress (except for the Wyden-Bennett bill), nor President-elect Obama’s health reform platform address costs.
Folks, wake up! We cannot afford to cover 50 million more Americans unless and until we do something meaningful about costs!
Once people get insurance, they tend to use it. And as we’ve seen with Part D, once the medical/pharma/device/hospital industry figures out there are a lot more people with coverage, they will raise prices, buy more technology, and build more capacity to service those new customers
Obama’s campaign speeches and white papers acknowledged this central issue. Yet he has yet to come out with anything remotely addressing cost savings initiatives. The contention that his plan will save the average family $2500 is simply not credible; there is no backup for that claim.
There’s a very good reason for the absence of cost cutting; politically it would make the Obama plan dead on arrival; or more accurately, dead before conception.
The combination of the political impossibility of keeping every health stakeholder happy, today’s economic situation, the wars in Iraq and Afghanistan, Russian and North Korean belligerence, energy, and the world wide implications of the recession and credit market collapse leave no oxygen for major health reform. Yes, there will be incremental initiatives (see here) and these incremental improvements might actually be big changes.
But anyone who wants to see the whole mess fixed at one fell swoop is going to be sorely disappointed.


What’s wrong with the US health care system

is exemplified by drug manufacturer Cephalon’s drug pricing strategy. The company’s narcolepsy drug Provigil is coming off patent in 2012. So, like any good corporation seeking to maximize shareholder wealth, it has developed a replacement drug – Nuvigil, that is a longer-acting version of the same medication.
But Cephalon is not content with just doing what other pharma companies do – patenting a long-acting version of an old standby, and releasing that LA version just as the older drug goes off patent. Instead, the fine folks at Cephalon are jacking up the price of Provigil now, to make it even more expensive. Then, when Nuvigil comes out, it will be priced less than Provigil, encouraging patients to switch.
And because there won’t be a generic for Nuvigil for years, Cephalon holds on to a nice revenue stream.
Cephalon is the poster child for sleazy pharma marketing practices. Just a couple months ago Cephalon pled guilty to illegally marketing Provigil and pain drug Actiq, and paid a $444 million fine for their criminal behavior. The company has been shoving Actiq down the throats of workers comp patients for years, despite the drug not being FDA approved for anything but breakthrough cancer pain.
No matter to the profit-at-any-cost execs at Cephalon. In their dedicated, unending quest for more shareholder wealth, they have proven they will do anything to gain more revenue.
Realists will understand that Cephalon’s strategy is short-sighted at best. With national health reform coming, one of the earliest items on the agenda is likely to be legislation encouraging/allowing the Feds to negotiate prices with big pharma. Although few industries are as adept at marketing as big pharma, there’s a new sheriff in town.
House Energy and Commerce chair Henry Waxman’s record on pharma is mixed. Co-author of the landmark 1984 Hatch-Waxman Act in 1984, which has had the effect of speeding up the introduction of generics while offering some protections for branded drugs, Waxman has more recently taken a more aggressive stance, putting drug development firms on notice that their attempts to circumvent patent expiration terms is unacceptable.
In a speech in 2005, Waxman stated:
“Current law does not strike the right balance. We cannot continue to have a system that
effectively enshrines permanent monopoly status for some of our most important medicines. Of course, some intellectual property protections are needed to encourage innovation by brand-name manufacturers. But permanent monopolies are neither needed nor wise.”
Waxman has been a loud and consistent critic of pharma’s reaction to Part D. Here’s an excerpt from the Congressman’s letter to the GAO in January 2006:
“A report I released in November showed that prices for brand-name drugs under the new Medicare drug benefit are 84% higher than the prices that the Department of Veterans Affairs negotiates for the federal government.[13] An analysis that GAO did for me in October 2000 showed that on average, Medicaid’s prices for brand-name drugs were 43% higher than the prices negotiated by the VA.”
What does this mean?
Cephalon’s shareholder-wealth-maximization strategy is short-sighted. There will be a major push in the next Congress to find the money to do something big in health care reform, and pharma profits may be a very attractive source. Cephalon’s blatantly greedy practices make it even more likely the Feds will negotiate price.