Nov

When will we see Congress praise AIG?

Posted by Joe Paduda on Monday, November 23rd, 2009 | Comments

AIG will probably pay taxpayers backmost if not all of our investment in the once-dominant insurer. Asset sales are proceeding well, valuations of those assets are solid, the new Chartis looks to be off to a good start, and morale is slowly improving.
And where, one might ask, are the plaudits from the politicians? Or at least grudging respect for the AIG staffers who’ve been able to keep the company afloat while dealing with public and private ridicule?
As we enter Thanksgiving week, I’d like to acknowledge the people at AIG who’ve been able to continue performing as well or better than their competitors despite death threats, highly skeptical buyers, and a brutally soft market (in part due to Chartis’ desire to hold on to share and premium dollars).
They’ve got a long way to go, and are far from perfect, but they deserve respect.
Send this to your Congressperson and Senators. Perhaps they’ll have occasion to send their own message of congratulations and thanks.
There’s always hope…

Nov

The latest on vendor-TPA relations

Posted by Joe Paduda on Friday, November 20th, 2009 | Comments

If you’re wondering why your TPA has been changing specialty managed care vendors more often than you are used to, it may well be because the TPA is getting paid to change.
Word from several sources at the comp trade show is some managed care vendors have deals whereby the commissions/fees they pay the TPA for the privilege of doing business are increasing with volume.
The way it works is simple, if not necessarily, or even usually, in line with clients’ best interests. The vendor agrees to pay X percent for the first Y dollars of revenue, X+ for the next Y dollars, X++ for the next Z dollars, etcetera.
But some vendors are applying the higher payment levels retroactively. Yep, if the TPA delivers Z dollars, the X++ commission rate applies to ALL revenue. That’s why employers are being told they can get these services at very low – or no – cost. Hat seems like a great deal is – for the TPA. Unfortunately the TPA’s interests are not always, and in some cases are most definitely not, aligned with the employer’s.
Here’s an example. If a PT vendor controls utilization, and prevents cases from exceeding a reasonable number of visits, the employer wins. But if the case goes on and on, and the vendor does not or cannot or will not end the treatment, then more bills mean more ‘savings’ which mean more revenue for the vendor – and not coincidentally, the TPA.
What does this mean for you?
If your TPA hands you a deal that sounds great, watch your wallet. What drives revenue for many TPAs is driving up your costs.

Nov

Rumor has it…

Posted by Joe Paduda on Thursday, November 19th, 2009 | Comments

The exhibit floor at the workers comp conference is abuzz with rumors about sales; companies on the block, new transactions for TPAs, and new business for vendors.
Amongst the rumors are several that don’t appear to be based on fact, including the pending sale of Medata. When asked about the transaction, CEO Cy King looked incredulous. King stated “there’s lots of interest in the investment community and no interest on the part of Medata. It’s just wishful thinking.”
Sedgwick has been capturing business from competitors at a rapid rate. Loew’s will move to Sedgwick shortly as will Boeing. The word in the market is Sedgwick is pricing their claims services at extremely competitive rates; 20% to 30% under the incumbent. The big TPA is also pushing their managed care vendors hard for price reductions. OK so why?
It could be that Sedgwick is prepping for an IPO. Management stock options will vest in the event of a deal, UHC has been divesting other non-core assets, and the company is recruiting big names, all activities commonplace at companies looking to sell.
Among other companies reportedly on the block are MCMC (no surprise there), and Bunch and Associates (I’ve asked Bunch about this and it has been repeatedly denied, but the rumor persists).
More to follow, including corrections where necessary.

Nov

The National Work Comp Conference – first impressions

Posted by Joe Paduda on Wednesday, November 18th, 2009 | Comments

It’s good to be back in Chicago.
The ‘comp conference’, the shortened title given to LRP Productions’ annual National Workers Comp and Disability Conference, has recently been exiled to, of all places, Las Vegas. (Does anyone else see the slightest bit of irony in a risk management conference convening in the gambling capital of the nation?) Fortunately for wanna-attendees this year’s show is in Chicago (a city I like a while lot more than Vegas), a burg less likely to get the thumbs-down from corporate travel execs than Sin City.
I digress.
Here in random order are impressions from day one.
I’m impressed with the amount and variety of innovative approaches to old problems in evidence on the exhibit floor. That’s not to say that all are promising or even potentially useful but the level of effort is impressive.
For example, Coventry is actually talking about small networks. I know, I know, they’ve been talking about small networks for years but word is they may actually be doing something. More on that next week.
PMSI’s work on upgrading and strengthening their clinical programs, while not complete, is already bearing fruit. Look for more from this once-dormant PBM as it continues to invest in staff, systems, and technology.
Medata is promoting their proprietary UCR database, Tally. Unlike other UCR databases, Tally has not been successfully challenged in court. For payers concerned about litigation, this may well be a viable alternative.
Broadspire is reportedly working on new approaches to triage and early case management, building off their eTriage application/utility. This is not a standalone effort, but part of a larger initiative to revamp their approach to, and capabilities in, managed care.
Among other impressions – there are more private equity/venture capital types in attendance than in any other recent year. As I’ve indicated in earlier posts, activity has been heating up significantly of late, with the FairPay deal just the most recent.
And finally, there’s actually a Pet Insurance company exhibiting. Why, I don’t know. What pet insurance has to do with work comp or disability is not readily apparent.
Anybody have any ideas?

Nov

Change is coming to workers comp

Posted by Joe Paduda on Tuesday, November 17th, 2009 | Comments

And it is coming from all directions. California may be in the process of significant changes due to recent court decisions and the hangover from reform. Texas continues to debate, discuss, and deliberate alterations to their current system. The regulatory and legislative fronts in other states are noticeably quieter, but that silence is more than overcome by the noise from outside the regulatory system.
Brutal competition continues for what little self-insured business is left, while TPAs struggle to differentiate in a market crammed full of me-toos. Complacent carriers have invested little in adjuster education, training, systems, and decision support tools – partly because they have little to invest, but also because they aren’t thinking strategically.
The soft market is going to end – its got nine to fifteen months at the outside. Yet few insurers or TPAs are ready – they’ve been so busy cutting costs, reducing overheard, laying off talented and experienced WC pros that they are in no way shape or form ready to respond to rising medical costs, a renewed emphasis on return to work, loss prevention, and basic claims management. Not to mention the personal angst experienced by the folks left after the reductions – they’re so busy concentrating on keeping their heads down and staying out of the line of fire many aren’t worrying nearly enough about the next turn of the cycle – when costs start to head back up, and payers are woefully unprepared to do anything about it.
Add to the mix health care reform and its attendant impact on workers comp (cost shifting, changes in Medicare’s RBRVS, pharma price increases), a sharp rise in work comp medical expense, and a surge in claims that will come when employment rises once more, and you’ve got the makings of a pretty ugly picture.
The stuff isn’t going to hit the fan until mid 2010 at the earliest, and early 2011 at the latest.
Are you preparing?
What does this mean for you?
If your company isn’t ready, get your resume updated…

Nov

Your drug costs are going up…

Posted by Joe Paduda on Monday, November 16th, 2009 | Comments

The chances of some variety of health insurance reform passing are looking more likely and big pharma is getting ready.
By raising branded drug prices nine percent (so far) this year., and this at a time when the Consumer Price Index fell by 1.3%.
You may recall the big press event when pharma and the White House announced their ‘agreement’ whereby pharma would agree to not fight reform in exchange for reductions of about $8 billion a year in pharma costs. That deal is either off the table, or it wasn’t carefully enough crafted on the front end, because drug companies have been steadily raising prices for brand drugs this year, evidently in anticipation of big changes in the future. In fact, it looks like the increase so far this year more than compensates for the agreed-upon ‘cuts’ announced earlier.
Readers will remember the last time drug prices jumped significantly was just after the Medicare Part D program went into effect, when the largest quarterly increase in years just happened to coincide with the beginning of the program.
There are political as well as practical implications of these price increases. From a political perspective, pharma may be doing to itself exactly what healthplans did with the disastrous release of the PwC ‘report’. Health plans thought they had a deal with the Administration, only to infuriate the White House and Congressional Democrats with the flawed and incomplete ‘analysis’ (even though the concept was right and conclusions accurate, the presentation killed any chance of objective consideration).
With the release of this analysis, Congressional Democrats have yet more evidence of the profit-driven mentality that many believe is directly responsible for our dysfunctional health care system. Do not be surprised if the reaction from Congress is loud, fast and brutal.

What does this mean for you?
This is more of an issue for group and Medicare/caid operations than for workers comp, as comp has a greater percentage of generic fills. But there’s no doubt all payers’ drug costs are going up significantly this year.
If you’re a PBM, get ready to explain higher drug prices.

Nov

This week’s oddities and miscellanea from the world of workers’ comp

Posted by Joe Paduda on Friday, November 13th, 2009 | Comments

A few items of note have been accumulating on my desktop, each of them interesting/important but none worthy of a full post. Here they are for your enjoyment and edification:
– In a top candidate for worst idea of the month, WorkCompCentral reported [ sub req] today that the South Carolina Hospital Association wants surgical implants carved out of hospital bills and paid at 100% of the invoice price. You know, the invoice they draw up themselves in the finance office…
– Sources tell me there was a dustup at the Maine Workers Comp conference involving a representative from an IME company and a judge. The disagreement ended up in a fistfight, which resulted in the IME rep getting fired. I’m wondering if cocktails were involved, or if this was the result of a heated discussion over some fine point in Maine’s workers comp regulations. Or both?
– Word comes to MCM from North Dakota that there is a petition circulating demanding the Governor investigate Cynthia Freland, the prosecutor who may well have broken the law in her quest to convict former ND state WC fund CEO Sandy Blunt of something…anything. Fifty signatures are required, and sources in the far north tell me they are well on the way.
– In the ramp-up heading to next week’s annual work comp conference in Chicago, a preliminary and very unscientific poll indicates the new new thing is ebilling, and/or claims systems, and/or the renewed interest of the private equity/venture capital folks in work comp managed care.
– Speaking of which, the level of interest among the people with money to invest in work comp managed care is definitely up, although valuations are not. Typical multiples for deals closed, in process, and under discussion are in the 6 – 7.5x EBITDA range, with the high end rarely seen. There have been two factors limiting activity; low valuations are keeping owners from putting their companies up for sale, and the continued tight credit markets have made it difficult for investors to secure debt financing for deals. That said, the FairPay deal closed earlier this fall, and there are two others in the space that are said to be close to ‘done’.

Nov

Health plans, stock prices, and reform

Posted by Joe Paduda on Thursday, November 12th, 2009 | Comments

There are some things I just don’t get. Bungee jumping, the Ruta de los Conquistadores, body piercing are near the top of the list, just under equity investors’ reactions to health reform.
And it doesn’t look like my health investor puzzlement is going to end any time soon.
Several news items collided in my inbox this week; passage of the House reform bill and multiple analyses thereof; a report that health plans’ medical costs and profitability are worsening, yet many health plan stocks are selling close to their 52-week highs. Huh?
Let’s start with the health plan medical cost report. The good folks at Mark Farrah and Associates published an analysis that, among other things, noted:
– the top eight health plans (covering 59% of the nation’s total insureds) lost 836,000 members in the first half of 2009
– commercial membership was down 1.45 million while MA and Medicare Supplement was up 405,000
– Medical costs are trending higher, and medical loss ratios are as well
The net – profitability has declined, costs are increasing, and membership is dropping. Yikes.
Now, investors don’t seem too worried about these trends. In fact, as of this morning, they seemed to be enamored with the health plan sector as stock prices are up over nine percent over the last month, compared to an S&P that’s just over flat.
Next, health reform and the recent House and Senate bills. What I see that’s scary is the lack of a strong mandate coupled with an end to most underwriting of medical coverage means people can sign up for health insurance when they need it, stop paying premiums when their care is completed, and then re-up if and when they need care again.
Let’s call this the Massachusetts Problem, after what’s been happening to health plans there.
This isn’t conjecture or theory. It’s reality, and it is taking place in a market with a much stronger mandate than the one in the Senate Finance bill.
Finally, a few selected statements from stock analyst types:
– “There were two recent developments of particular concern to WellPoint investors, since the company is a relatively big player in the small-employer and individual markets. First, the Senate Finance Bill included strict insurance market reforms but a weak individual mandate, which could lead to adverse selection, higher premiums, and a smaller market for individual and small-group policies.” (Morningstar) Yet Morningstar rates WellPoint a five-star stock
– They also may not be hurt as badly by a federal health care overhaul as many analysts first worried. Congress is debating ways to cover the uninsured and reduce costs, and health insurance stocks have been sensitive to this debate for months. Shares sank at the start of the year when the reform debate picked up steam, but they have recovered for the most part as the threat of a strong public option that would compete with insurers faded. A possible tax on insurers based on their market share remains a concern. But overall, analysts say the sector remains on sound footing heading into the next few quarters. [notice no discussion of the impact of the end of underwriting coupled with a weak or nonexistent mandate…perhaps it was edited out] istockanalyst
– “I think they’re getting a really bad shake in the current environment,” FTN Equity Capital Markets analyst Peter Costa said. “But the core businesses are there.” istockanalyst
United Healthcare is also a top rated stock, and is trading near its 52-week high.
Analysts may say health plans are somewhat insulated from the individual market, where the underwriting issue is really problematic. True, but as more companies drop their group plans (a multi-year trend that has accelerated this year), the size of the individual market will grow – and health plans will have to get into or expand their offerings in that market if they are going to increase revenues (a mandatory requirement for publicly traded companies).
So here’s where this all leads. Without a strong individual mandate, health plans are going to lose buckets of money insuring people after they get sick. How that translates into a 52-week high is beyond me.
Disclosure – I’ve sold all my health plan stock holdings and don’t have any financial interest whatsoever in the sector. Not because I don’t think there are some good companies out there in the healthplan business (Aetna’s probably at the top of the list), but because provisions in the two health reform bills will kill off the entire industry.

Nov

The Rocky Mountain edition of Health Wonk Review

Posted by Joe Paduda on Thursday, November 12th, 2009 | Comments

Friends and colleagues Jay and Louise at Colorado Health Insurance Insider host this week’s edition, featuring the Simpsons explaining all things health policy – as only the Simpsons can.
Great stuff, all in one place for your edification!

Nov

Note to CBO – don’t forget to add that quarter trillion to the cost of health reform

Posted by Joe Paduda on Wednesday, November 11th, 2009 | Comments

Because that’s what it is going to ‘cost’ to replace the current Medicare physician reimbursement scheme with something else. And make no mistake, as Trudy Lieberman of the Columbia Journalism Review points out, most of the nation’s physicians are adamant about ‘fixing’ Medicare reimbursement.
The issue is the Medicare Sustainable Growth Rate (details here). The net is simple – if the SGR formula/process is eliminated, a quarter trillion dollars gets added to the deficit, because that’s the amount the formula/process says has been paid to docs over and above SGR ‘limits’.
Current Congressional protocol requires CBO to ‘score’ any and all health reform proposals; unsurprisingly the SGR ‘fix’ has not been included in any reform measure, because it will push the cost way, way over a trillion dollars.
Thus, thru legislative legerdemain, Congress is avoiding talking about and being held responsible for the real cost of reform.
As long as we have to ‘fix’ the SGR – and I’m not arguing that Part B (physician reimbursement) doesn’t badly need fixing, hows’ about we ‘trade’ SGR elimination for some real reform, like, say, bundled pricing for specific procedures/conditions? Like, maybe, a flat cost for treating an asthmatic patient over a year including facility and physician and lab and other costs?
Or, for those chronic patients with more than one condition, a formula that pays for all their care based on a multiplier indexed to the number, cost, and severity of their conditions?
Or a requirement that all physician bills from practices that don’t have all patients on a share-able electronic medical/health record are paid under a non-fixed SGR, while bills from practices using ‘certified’ EMR are paid under a new schema?
Pretty draconian, you say? Not as draconian as anteing up another quarter trillion bucks, I respond. Sure it will be hard and take some time and isn’t easy and all that other blather. It’s a huge knotty ugly problem, requiring some ugly solutions, and none of them are going to be perfect. But they will be a damn sight more perfect than what we have if we don’t get reform-with-cost-control done this time around – family health care costs above $30,000 within ten years.
It’s time we got more from stakeholders than just their agreement to not block reform. We need a good more arm-twisting and a lot less gentle cajoling.
What’s the net?
Watch to see how Congress and the President handle the SGR redo issue. Do they use SGR as a lever, or do the docs use it as a club?

Year: 2009