Workers comp managed care – predictions for 2010

You’d think I’d learn not to make public predictions that may come back to haunt me, providing ammunition for folks who think I don’t know diddly.
But I subscribe to Teddy Roosevelt’s philosophy” “The only man who never makes mistakes is the man who never does anything.”
Here, in no logical order, are what I believe will happen in the work comp managed care world in 2010.

1. Acquisitions will accelerate.

We’ve seen an upsurge in the number of deals of late, with FairPay and One Call Medical the two biggest and most recent. I’d expect this to continue; Bunch may be next to go, but ownership’s demand for a 9x + multiple isn’t likely to fly. If they manage their expectations and get a bit more realistic, it could happen.
2. Coventry (the big Coventry, not the WC entity) will be acquired.
OK, I predicted this last year and was wrong (or more generously premature). But now that the health reform picture has cleared up, credit markets are (somewhat) functional again, and stock prices of other healthplan companies are up, I’d expect Wise et al to sell their company, perhaps to United HealthGroup.
As to what happens to the WC group if it does get bought, that’s worthy of another post – and some deep thinking by big WC payers tightly tied to Coventry WC.
3. The basis for WC Drug fee schedules will start to move away from AWP.
This is a ‘gimme’; AWP is disappearing in early 2011, leaving regulators and legislators little choice. The big question is obvious – what replaces AWP, and how will the ‘new’ fee schedules compare to current ones.
I do know regulators in several states are already deep into this, and are looking at multiple options. Where they end up will have a dramatic impact on WC drug costs (NOT just prices, but TOTAL cost), payers, and PBMs.
Lots more to come.

4. (Some/Many) WC physician fee schedules will change significantly

Congress is very likely to change the Medicare physician fee schedule, which is the basis (to a greater or lesser degree) of all WC physician fee schedules except California’s (which may adopt a Medicare-based fee schedule). When that happens, some state fee schedules will change immediately, some will probably not change at all, and others will go thru a process that may well result in modifications.
5. The WC insurance market will harden, bringing more business to case management, UR, bill review, and network vendors.
As the economy recovers and the jobs picture brightens, hiring will pick up and so will the raw number of injuries as well as frequency. That, along with rising medical expense, is the ‘cost-side’ driver. The ‘supply side’ of insurance is somewhat cloudier, as there still appears to be excess capacity; Fitch and others believe the fundamentals point to an extended hard market well into 2011, and there’s still a lot of capital sloshing around looking for a home. All that said, the current hard market has been around far longer than most, and when things can’t continue they won’t.
6. The rise of the Medical Director
Several large payers are re-visiting the role of medical management, examining medical costs in detail from multiple angles. What they will, and some are, finding is a need for better medical management of claims. A lot better.
The stuff that passes for ‘medical management’ in work comp is mostly driven not by a desire to better manage medical care, but a need for revenue – medical management programs have become a revenue and margin generator, a role that has come to supersede their original purpose.
As medical costs rise despite payers’ ‘investments’ in managed care, more payers are revisiting the role and results of their programs, and some are finding there’s precious little ‘medical management’ going on; outdated guidelines, bill review driven by throughput rather than accuracy, networks constructed to deliver phantom savings, case management that is more highly paid secretarial work than anything else. Payers are turning increasingly to their medical directors for more guidance; the M.D.s can be forgiven if they respond grumpily, as many have been all but ignored for years. That’s going to change, and is changing fast. I’d expect to see the ‘market’ for assertive, data-driven Medical Directors heat up considerably in 2010.
7. Drug costs will return to the fore.
Drug prices are up over nine percent so far this year, on top of a 7.5% increase in costs in 2008. After five years of decreasing trend rates, the monster is back. Fortunately we know a lot more today than we did years ago about drivers, due to the great work by Swedlow et al at CWCI and the excellent analyses by NCCI. Unfortunately, there are still far too many payers choosing their PBMs on the basis of price per pill rather than drug cost per claim.
But that’s OK, as the price-driven buyers will find their costs go up, while the cost-aware will find the opposite.
8. Florida’s attempt to redo facility fee schedules will continue to plod along
The ongoing battle over the work comp hospital fee schedule in Florida continued last month, as challenges to the pending changes were filed by two hospitals, the Florida Hospital Association, and FairPay Solutions. These challenges prevent implementation of a dramatic revision to existing fees pending further action by an administrative law court. This is good news, as the changes will result in dramatically higher costs…
Here’s hoping payers get off their collective duff and get focused on this before it is too late. I’m not hopeful.

9. TPAs will continue to try to make up lost margin by internalizing managed care services

This is an easy one, as it simply acknowledges a continuation of a current trend. As employers have abandoned self-insurance, TPAs have struggled to compete, with many forced to slash claims admin fees to hold on to business. They’ve got to get the dollars to keep the doors open from somewhere, and that ‘somewhere’ is increasingly their managed care department. What started out as demands for commissions and fees from managed care vendors has evolved into TPAs increasingly internalizing those functions.
This isn’t ‘good’ or ‘bad’, it is simply an industry dealing with a market reality. Employers who complain should be ready to pay higher admin fees…
I welcome your predictions.

Last year’s work comp managed care predictions

One year ago – against my better judgment – I made eight predictions about what would happen in the work comp managed care world. Here’s how I did.
1. Coventry will be acquired.
Well, that’s a helluva way to start out. Needless to say, that didn’t happen. I did note that it would happen after the credit markets loosened “enough for potential acquirers to feel a little more comfortable”; that is just starting to happen, but we’ve a ways to go.
What I didn’t factor in was the huge uncertainty surrounding health reform, and the impact of reform on health plans. My sense is this uncertainty will continue well into 2010 as healthplans and investors therein try to figure out what all this means.
Coventry is still an attractive target, although the recent surge in its stock price makes it a pricier deal…
2. Aetna’s work comp network business will slowly dissipate.
That prognostication worked out a bit better. AWCA network customers continue to struggle with lousy data quality in some jurisdictions, network expansion isn’t progressing as quickly or well as forecast, and payers indicate the effect of discounts is deteriorating. Without a ‘champion’ at mother Aetna, with several key staff moving on to other opportunities, and with revenues totaling well under one-tenth of one percent of Aetna’s total sales, look for that ‘dissipation’ to continue.
3. Corvel’s transition to a TPA with managed care services will accelerate.
According to their latest earnings report, revenue growth for the quarter was “reflective of improved growth in the Enterprise Comp product line, CorVel’s integrated claims management solution for workers’ compensation claims.” The 10-Q expanded on this, stating “The increase in revenues was primarily due to an increase in patient management business, with an increase in network solutions business as well. An improvement in customer utilization of the Company’s Enterprise Comp services was the primary reason for the increase in patient management revenues. ”
CorVel added another TPA to their portfolio in 2009, acquiring Eagle Claims, a five-year old WC TPA with 62 clients based just outside Syracuse NY in February.
4. Several of the larger payers will announce their own, small physician-centric network products.
Didn’t happen, making this about the umpteenth year some of us have been waiting for the big guys (and gals) to decide the one-size-fits-all PPO model doesn’t fit.
5. – Correction- Oregon will do a do-over.
In January I said “Oregon’s new regs require comp payers to reimburse at fee schedule for those services subject to the FS. Non FS services are to be reimbursed at billed charges” and as a result the state would revise their regs.
Wrong. According to a (admittedly very small) sample, payers have dealt with this and don’t see it as problematic. And there wasn’t a ‘redo’.
6. Innovation
I predicted there wouldn’t be any. That’s a ‘true’. (can’t wait to hear protestations of disagreement from those tweaking old processes and products)
7. Specialty managed care will grow
Sure has, especially in physical therapy with the expansion of Align into some additional claims offices and clients, and SmartComp’s announcements of various deals. Meanwhile, MedRisk (HSA consulting client) continues to dominate the space, inking a deal with Coventry to provide PT EPO services in most of the states with people in them.
Imaging is also growing – the recent OneCall transaction is an indicator of the private equity industry’s interest in WC, while NextImage reflects the emergence of new competitors.
FairPay’s acquisition by Riverside is more proof.
8. Medical costs
I predicted costs would “continue to increase far faster than they should, driven by lousy managed care models poorly implemented by payers more concerned with “savings” than claims costs.”
I hate it when I’m right. Drug costs are exploding, with 2008 costs up 7.5% and prices (just one component of drug spend, the other being utilization) up almost 10 percent in 2009. Hospital costs are continuing to grow faster than expected.
NCCI’s latest figures indicate costs have moderated, but these are from 2007, and don’t reflect current results. They also don’t include California, NY, and a couple other states.
Here’s how I’d score it.
Wrong – three – Coventry, Oregon and small networks
Right – four – medical costs, specialty managed care, innovation, CorVel
Neither – Aetna – but just give it time…
Never one to leave well enough alone, I’ll be out with my predictions for 2010 in a couple days.

Drug use in workers comp – the narcotics problem

Just in time for Christmas, the good folks at NCCI have released their study of Narcotics in Workers Compensation, providing readers with just what they want – more evidence that the workers comp industry has a long way to go to get prescription drug use under control.
Sorry to spoil your pre-holiday glee, but the news is pretty troubling. Here, according to Barry Lipton et al, are the ‘highlights’:
- Narcotics account for nearly one quarter of all workers compensation Rx costs
- The share of drug costs attributed to narcotics increases as claims age
- Narcotics are used mostly for back injuries in workers compensation
- and perhaps most troubling, the use of narcotics early in the life of claims is increasing
NCCI’s report (which uses 2007 data) comes on the heels of my firm’s Sixth Annual Survey of Prescription Drug Management in Workers Comp, which found drug cost inflation jumped top 7.5% in 2008, marking the first increase in the inflation rate in the six years the Survey has been conducted.
The ‘good news’ is that the percentage of drug dollars spent on narcotics has stayed relatively flat for the last eight years, this despite the rapid, and close to complete, penetration of PBMs into the work comp space. While that good news may not appear to reflect well on PBMs (and payers’ efforts too), NCCI found that average narcotic costs per claim stabilized several years ago after several years of rapid growth. (I’m a big believer in cost per claim as a metric, as it does away with the influence of variations in claim frequency and is thus a better way to assess drug management performance)
The net? Cost increases have flattened out, but to this non-pharmacist’s eye there appears to be a lot more narcotic spend than necessary.
There are some rather interesting geographical nuances here as well; states with above average use of narcotics include CA, OK, TX, LA, AL, SC, MA, DE, and NH, proving that it isn’t just the deep South that has a narcotics problem.
What does this mean for you?
Time to get focused and get after your drug problem.
This isn’t just a drug cost issue; the extended use of narcotics is also associated with longer duration of disability and higher claims costs.
And a note of compliments to NCCI on the study - this is precisely the kind of information payers need to know.

Health reform – when will the next shoe drop?

There are few Americans angrier or more frustrated than House and Senate liberals. They’ve made concession after concession on issues as dear to them as abortion, single payer, the public option, taxes on high income earners, and tougher regulation of insurers. And for what?
A bill widely applauded by Wall Street for it’s promise of millions more customers for the private insurers liberals believe are the problem, not the solution to our health care mess.
For now there us precious little the liberals can do about this. For now.
Later may well be a different story. I’d expect we have not seen the last of their efforts to alter the landscape, in fact the liberals will have learned their lessons well. The most important will be to avoid having to placate Nelson and Lieberman and Landrieu; if the Senate only needed 51 votes we’d have a very different health reform bill.
The obvious route is to use the reconciliation process to push thru legislation that wouldn’t survive the 60 vote test. I’d look for a requirement that the Feds negotiate drug prices for Medicare and lower payments for Medicare Advantage plans to start. These are both well within the boundaries of the reconciliation process and therefore will not need the support of any of the afore-mentioned Senators.
And it won’t stop there. There is a large and growing concern about the cost of entitlemt programs and Part D is particularly problematic. By attacking drug costs and thereby reducing Medicare’s future liability, liberal Democrats will make it very tough for their opponents to use the ‘big spender’ attack angle in November.

Health reform is a done deal

That’s the word from several senators, at least as of last night. The last holdout, Ben Nelson of Nebraska, is reportedly on board after a lengthy negotiating session that ended late Friday.

The bill is currently being read to the entire Senate on request from GOP Senators, after which the vote will be taken – sometime around 5 o’clock this afternoon. The price for Nelson’s vote was $45 million; the US Senator forced the Federal government to pay for the entire cost of the Medicaid expansion for his home state of Nebraska.
Who would’ve thought Nebraska would need even more pork, or that the Senator would feel no shame in forcing taxpayers from other states to pay for his vote. Since 1983, Nebraska has received more from the Federal government than it has paid in taxes; Nelson’s extortion will skew the numbers in favor of his voters even more.
Things could break down, there could be defections from the ranks of the theoretically-committed, Lieberman could decide he’s not done grandstanding, the House and Senate could run into difficulties in reconciliation, a meteor could hit the earth…suffice it to say there’s a lot that could derail passage, but there’s the beginning of a whiff of inevitability about reform, enough to make it very difficult for anyone to stand in the way of the bill.
In broad terms, the bill will result in a national health insurance exchange where individuals and some small businesses will shop for insurance, provide subsidies to help low-income people buy insurance and expand Medicaid. There are numerous pilot programs to evaluate different forms of reimbursement, cuts in Medicare reimbursement to specific provider groups, elimination of the use of medical underwriting and other ‘risk selection’ tools by insurers, and a host of excise taxes, fee cuts, and other funding mechanisms to help pay for the bill.
I’ll be taking a deeper dive into the bill tomorrow – but I won’t read the entire thing.

Health reform, hospitals, and work comp

As health reform stumbles like an exhausted runner towards the finish line, we are starting to get a clearer picture of the potential changes reform will bring to the health care landscape.
One that bears close watching is the increasing likelihood Medicare will be cutting reimbursement to hospitals. There are two ways this may affect work comp; in those jurisdictions that base reimbursement off Medicare rates, any changes may – or or may not – have a direct impact on comp reimbursement. I’m not expert in the various ways states apply their own formulas to Medicare’s, but will be studying up on it and will repor back in more detail later.
The other, and likely more significant impact may be the result of cost shifting by hospitals if/when Medicare cuts come down from CMS coupled with the expansion of Medicaid. this has plusses and minuses; Hospitals may get more paying and fewer indigent patients if the Medicaid expansion goes thru, but if these were formerly privately insured or if there is a substantial increase in their Medicaid census then their revenue mix may worsen. (Recall Medicaid reimbursement is well below most hospitals’ cost). It is mo likely the MedicUs expansion is a net plus but this will vary across the country.
Potentially more significant would be any major decrease in Medicare reimbursement as medicare is a major payer at most hospitals. Expect hospitals hit hard by a cut to look for other places to make up the lost income, and the softest target around is usually work comp.
Apologies for typos; this post written on my iPhone.

The incredible disappearing health reform plan

Today’s revelation that Joe Lieberman is once again flexing his political muscle to force the Senate Dems to remove the Medicare for 55-64 provision is just the latest evidence of the evisceration of the Senate Health Reform bill.
Here’s a few of the items that were considered for inclusion that have somehow not made it this far (this isn’t to imply or deny an endorsement).
- a meaningful mandate penalty instead of the paltry $750/individual $2250/family in the current Senate plan (the income-indexed penalty in the House plan is better but still not enough…)
- a public plan with reimbursement based on Medicare (if this was mandatory it would definitely have reduced costs – a lot)
- some form of tax on high-value/high benefit plans, aka ‘cadillac’ plans
- a plan that would actually cover the vast majority of Americans (the current plan still leaves 15 million uninsured)
- a clause enabling the Feds to negotiate drug prices for brand medications purchased for Medicare patients
- a non-fungible ban on lifetime caps on medical expenses
- a ‘budget neutral’ plan; although the current Senate plan is indeed budget neutral, it doesn’t include the quarter trillion accumulated deficit in Medicare physician costs. Notably the coming cut to physician reimbursement is addressed in the House bill, where it is eliminated.
What’s next? As Lieberman et al get more and more of the power and influence they so obviously crave, their appetites grow ever more insatiable. Liberals and centrists are getting increasingly desperate to pass something, anything, to deliver on the promise of health reform, and the longer Lieberman et al can put this off, the more press they get and the more their swelling egos demand.
(I’m wondering exactly how far the Senate Dems are going to let Lieberman push them before they decide enough is enough and smack the political crap out of him. He’s become the schoolyard bully to the Democratic weaklings, taking ever more of their lunch money in hope he’ll be nicer next time.)
The current mishmash of giveaways and concessions can only be called ‘reform’ by those willing to hope we can do much over the next decade to rein in costs before they kill our economy. I’m not among those optimists.
It is time to trash the whole thing and start over – preferably with the Wyden-Bennett Healthy Americans Act. (for a comparison of WB HAA to the current mishmash see the Kaiser Family Foundation’s excellent web tool.
But that won’t happen; We’ll likely get something passed in Congress, and President Obama will sign it, and they’ll all declare victory and move on to energy, Afghanistan, and other critical issues. Meanwhile, health care costs will continue to escalate, and in ten years the average family will be paying north of thirty grand for their health insurance and deductibles, and we’ll be reading books about how and why we missed this golden opportunity.
And this from the worst kind of government in existence, except for all the others.

Health reform – better than doing nothing?

I haven’t posted on the reform process not out a lack of interest but because every time I pick up the virtual pen I despair. I’ve been trying to decide if passing this bill is better than a continuation of the status quo, and the more I ponder the less sure I am.

But it’s time.
After months of negotiation, compromise, and horse-trading, we’re getting close to a health reform bill that will come to a vote – probably in the next couple or three weeks. There’s much work to be done to get to the magic sixty Senate votes, but it looks like no compromise, concession, or giveaway is too big to stand in the way of this must-pass (for the Democrats) legislation.
Yet after all this, we’re going to end up with a bill that won’t work – it will not appreciably reduce health care costs today, tomorrow, ever.
Sure, we’ll end up with lots more Americans covered, better/smarter regulation of insurers, and maybe even lower Medicare costs. But ten years from now, the system will be pretty much the same – a fee-for-service based health system with costs increasing well above inflation.
Why, you say? Aren’t there cost controls in the bill? Pilot programs that promise to reduce cost inflation by rationalizing the care delivered to patients?
No, there aren’t. What we have is a mishmash of ideas that have long been on the table, demonstrated to work, and completely without traction. Not to mention the huge costs not addressed in the current bill – like the current quarter-billion dollar deficit in the Medicare physician reimbursement program, a deficit that will have to be added to the total cost of any reform initiative that changes how docs are compensated under Medicare.
Fortunately for Senator Reid, no one is asking what he plans to do about physician compensation, as the Senate bill assumes the 20.5% cut in physician reimbursement goes into effect on January 1, 2010. Does anyone believe that will actually happen?
But that’s just one of the many failings of the current bill.
- We have insurance reform with a mandate so weak it will not force anyone to buy coverage they don’t really really want.
- We have pharma still enjoying margins the envy of every other stakeholder in the ‘system’ and a government prohibited from negotiating with pharma for drugs bought with Medicare dollars.
- We have a “fix” that relies on private insurers to control costs, despite overwhelming evidence of the industry’s complete inability to have even the slightest impact on inflation.
- We have tough cost controls and cost reductions that will likely reduce Medicare’s costs over time – but no way for private insurers to stop providers from shifting those costs to them.

Other analysts have complimented Reid et al for trying everything, for not leaving any cost control mechanism, trick, or option out of the bill. That’s precisely the problem – the bill’s ‘experiments’ and pilots are way too little far too late.
Folks, health care costs are increasing a helluva lot faster than inflation. Our economy is increasingly hobbled by legacy and current health care costs, not to mention future liabilities. Governments are going to have to raise taxes – a lot – to deal with retiree health care costs. By the time these pilots and experiments are even ready for dissection in the pages of Health Affairs, (forget broad-based implementation) we’re going to be spending well north of $3 trillion a year on health care.
I’m disgusted by the political grandstanding of people like Joe Lieberman, whose incredibly self-important preening is just the most repulsive example of elected officials using this crisis to show us all how principled and irreplaceable they are. Mitch McConnell’s Medicare advocacy is so blatantly hypocritical it would be laughable if it weren’t so cynical. How he can scream about not cutting Medicare while protesting its expansion to the 55-64 year old cohort is a testament to his complete lack of self-awareness. Meanwhile the Democrats are so eager to expand coverage to as many as possible, they are completely ignoring the future cost of that expansion. The campaign contributions rolling in to Reid and Dodd and other players couldn’t possibly be influencing their legislation…they just don’t think it makes sense to put strong cost controls into health reform.
The public plan advocates have yet to make a compelling case for their statements that it will control costunless Congress requires all providers to participate at or close to Medicare rates, the public option will have zero impact on health care costs. Yet they’re spending untold hours and mountains of political capital trying to include some version of a public option in the reform bill.
Which leads back to the opening question – is the current health reform bill better than the status quo?
Yes, ever so slightly.

UPDATE – OneCall Medical to be acquired

UPDATE
Last Friday I posted the news that One Call Medical was going to be acquired; here’s the official announcement which was published yesterday.
On Monday One Call Medical will announce the company has agreed to be acquired by Odyssey Investment Partners, a New York private equity firm. One of the larger private equity firms, Odyssey has some experience in the work comp business, purchasing York Claims several years ago from AIG and by all accounts transforming that firm from a low-end TPA to one of the up-and-comers.
The deal is the result of a process that has been proceeding for several months; as the dominant company in the work comp imaging management space, OCM was the subject of significant interest, attracting bids from several investment firms. I don’t know the parameters of the deal, but will guess OCM went for a figure well above $100 million with a valuation north of seven times EBITDA.
While the work comp market is OCM’s primary space, the company has recently made successful, if limited, forays into the group health and consumer markets. Look for OCM to expand their efforts in that sector, as there is limited growth opportunity in comp where they handle about one of every six MRI scans.
But for now comp is the revenue driver. A source close to the deal indicated OCM’s top line is in the $250 million range, and despite the decline in claims frequency, the company experienced solid growth this year.

This marks the second significant deal in the work comp space this fall; FairPay Solutions was acquired by the Riverside Companies a couple months ago. Sources indicate there is at least one more deal ‘pending’; this one looks a little more iffy.

HWR is up and running!

The brains behind health wonk review is this edition‘s host as well, with a pre-holiday edition featuring Santa, sausage making, and sentient statements from sensible bloggers.
boy that was pretty bad. but don’t hold that against Julie’s post…