For a couple weeks now there’s been a rumor that PBM Progressive Medical is acquiring third party biller Stone River.
There is a grain of truth in this.
In reality Stone Point Capital is acquiring Progressive which will operate as an independent company, reporting up thru a holding company structure to be called Progressive Enterprises. PE will include Stone River.
A highly placed source indicated current Progressive Chairman Dave Bianconi will remain with PE and has invested in the company. I’m betting Dave has a
somewhat much greater ability to do that – or will when the deal closes. Dave is very well regarded in the comp world and well liked by all. I may be a bit biased as Dave is a friend as well, so I’m happy for him personally, as well as the rest of the Progressive folks.
As to how this will be perceived in the market, that’s a very good question. SR is not well liked by most payers. It remains to be seen if the new alliance will help Progressive add market share, a task that has been somewhat daunting of late for the 24-year old company.
The official announcement will be released tomorrow; like most it’s pretty obtuse and lacks any substantive details.
So, how’d my predictions for 2010 turn out?
Well, I won’t e jumping for joy – or out any windows either.
Here’s what I predicted back in January for 2010, and a (mostly) objective assessment of the accuracy thereof.
1. Acquisitions will accelerate.
IntraCorp, SRS, Sedgwick, Bunch, York Claims, CS Stars, and Concentra were among the WC entities bought or ‘recapitalized’ in 2010 – a significant increase in both the number and size of deals over 2009.
Have to score this one as ‘correct’
2. Coventry (the big Coventry, not the WC entity) will be acquired.
OK, I predicted this last year (and the year before) and was wrong (or more generously premature) – again.
This one – wrong.
3. The basis for WC Drug fee schedules will start to move away from AWP.
This was a ‘gimme’; AWP was supposed to disappear in early 2011, leaving regulators and legislators little choice but to move to another metric. The announcement of AWP’s demise was premature as Medispan announced its intention to keep publishing AWP for the foreseeable future.
4. (Some/Many) WC physician fee schedules will change significantly
Some fee schedules did change when Medicare’s RBRVS was altered, but the failure of Congress to act on a more permanent fix meant the changes were not significant.
Have to score this as another wrong. This is getting painful.
5. The WC insurance market will harden, bringing more business to case management, UR, bill review, and network vendors.
Twelve months ago I said “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…”
There’s some evidence the comp market is hardening (as opposed to softening) but is by no means ‘hard’. There is certainly evidence that hiring has picked up and anecdotal reports that so have first reports and claimants seen at occ med centers. But – bill volume remains down and – likely due to internalization of CM and UR at many payers, external CM and UR volumes are not increasing.
Looks like a push.
6. The rise of the Medical Director
Last year I said “I’d expect to see the ‘market’ for assertive, data-driven Medical Directors heat up considerably in 2010.”
Definitely a ‘correct” (and about time!). Broadspire’s Jake Lazarovic has played a major role in the company’s new network strategy as well as their DME ‘formulary’. David Deitz at Liberty continues to be one of the most influential medical leaders in comp. And at least three other payers have hired or are looking for MDs that fit the definition.
This isn’t to say there is a market-wide trend, but rather a growing recognition of the need for smart, data-driven clinical leadership in comp.
7. Drug costs will return to the fore.
A yes. Drug costs are once again rising at near double rates, execs are concerned, and the focus on opioids is both very welcome and long overdue.
8. Florida’s attempt to redo facility fee schedules will continue to plod along
Yes – without much progress. The three member panel just published their latest thoughts on facility fee schedules, and payers still seem unconcerned.
9. TPAs will continue to try to make up lost margin by internalizing managed care services.
A definite yes. Led by Sedgwick, most TPAs have pushed hard to grow their internal bill review, case management, and UR functions, taking business away from their vendors while increasing the TPA’s top – and bottom – lines.
Here’s the final score:
Correct – 5
Wrong – 3
Push – 1
A lot happened in the work comp world in 2010 – here are the top issues discussed here on MCM.
Mergers, acquisitions, and buyouts
This has been a very busy year for the financial folks. OneCall Medical, Intracorp, Sedgwick, SRS, Concentra, and CS Stars were all bought/acquired/recapitalized in 2010, and there may have been a couple more if the tax treatment of these deals had changed in 2011. More on what 2011 may bring in my annual predictions post later.
Opioids in work comp
WCRI, NCCI, CWCI – pretty much everyone who’s anyone in work comp research highlighted the growing problem of opioid usage in workers comp this year. California saw a five-plus-times growth in the use of opioids, and other states were equally challenged. One can only hope that all the attention will force states, payers, providers, and employers to take major steps to attack the overuse of opioids.
Federalizing workers comp
This gets the award for ‘non-story that refuses to die’. The ongoing game of whack-a-mole continued throughout 2010, as any junior legislative aide who mentioned-in-passing workers comp became ‘NEWS’ to those who saw evidence of nefarious plans by the national gubmint to take over workers comp. This started with inclusion of coverage for one condition in one town in one state in the reform bill, continued with the Baca bill (introduced for the umpteenth time and tabled for the umpteenth time), and now comes the 9/11 responders bill as yet more evidence of the ‘drive to Federalize’. (Jon Gelman is a very well respected attorney and effective advocate for workers’ rights, but his decade-plus long effort to reveal this ‘Federalization’ appears to be a classic case of finding links where there are none.
The Louisiana appellate court’s ruling against Coventry was notable not only for the amount of the penalty/fine -$262 million – but because it negated, or more precisely subordinated, provider – PPO contract terms to onerous statutory notice requirements.
This marks yet another assault on the work comp PPO business, and follows several successful ‘silent PPO’ suits in Illinois.
Most Bizarre Story of 2010
Finally, the winner of the ‘Most Bizarre Story of 2010’ has to be new Florida GovernorRick Scott’s claim he will cut Florida work comp costs by 35%. I guess the guv likes a challenge; before he even got into office he convinced the State Senate to keep employers’ costs $34 million higher.
This is the same Rick Scott who received over $275,000 from AHCS (and affiliates), the Florida physician dispensing company that played a major role in forcing Florida employers to keep paying $34 million more for work comp drugs. According to the Workers Compensation Research Institute, physician dispensed drugs are the main reason Florida’s prescription drug costs were 38% higher than a 16-state average.
And the gravy train is still running; Green Solar, an affiliate of AHCS donated $25 grand to Scott’s inaugural…
Next – recapping my predictions for 2010.
MCM will be off the virtual air till after Christmas, when I’ll revisit my predictions for 2010 and make a few for 2011.
We’re in Maine for Christmas, where it’s snowing and beautiful.
Have a wonderful weekend.
The second edition of the ‘Benefits Package’ is up at Evan Falchuk’s SeeFirst blog.
It’s a quick synopsis of some pretty good thinking on what’s up and why.
In an announcement a few minutes ago, Third Party Administrator (TPA) Sedgwick announced it will be buying SRS from the Hartford for $278 million in cash, with the deal scheduled to close early next year.
That’s a nice multiple over 2009 revenues of $230 million, and sources indicate this will be a clean deal, with the Hartford cutting ties completely post-closing.
SRS, like many TPAs, was hit hard by the soft market then slammed again by the recession, events that reduced market demand for TPA services while reducing claims volumes for those self-insured employers that remained. TPAs typically get paid based on claim volume, so this double hit has been tough for the entire industry.
Including private-equity-owned Sedgwick, which has some pretty lofty top line growth goals. The company has been working hard to increase revenues both organically (quoting very competitive prices for administrative services) and via acquisition (most recently of Factual Photo).
The release had this statement from Sedgwick CEO Dave North – “Sedgwick CMS and SRS share remarkably similar philosophies on issues of quality and accountability for client results. We look forward to bringing these two exceptional organizations together for the benefit of our customers, industry partners and company colleagues.”
I’m reasonably familiar with both organizations and don’t see the similarities Mr North does. Or perhaps more accurately I don’t see them as very similar organizations.
Sedgwick has been quite aggressive in pursuing new business and has done so at least in part through aggressive pricing. Their scale may well contribute to that strategy, but there’s a big variable cost component to the TPA business – you have to have so many adjusters to handle so many claims. SRS has been somewhat less successful in acquiring new business over the last few years, choosing to hold the line on company policies and, as much as possible, on pricing
In the Work Comp Analysis Group roundtable at the Vegas Comp Conference, SRS CEO Joe Boures stated that SRS does not take commissions or share in revenue from their managed care vendors in any way, shape, or form. I applauded Joe at the time, and do so again. That’s not to say that vendors sharing revenue or paying commissions or fees to TPAs is inherently unethical or immoral – in fact it’s a way of doing business for many TPAs. This stance may well have contributed to the Hartford’s decision to sell SRS, as the numbers may have been a bit bleak of late.
I don’t know Sedgwick’s policy re vendor commissions or revenue sharing; that’s something current SRS customers may want to discuss with their account execs.
For those who were following with bated breath the efforts of many to forestall the end of PBMs in Texas, Friday brought official confirmation of the rumors that we reported last week: the Division of Workers Comp published emergency regs [opens pdf of actual rules] that:
– make the Attorney General’s opinion moot;
– enable PBMs to operate in Texas after 1/1/11; and
– call on the legislature to pass a permanent fix.
So, on 1/1/11, PBMs can continue operating just as they do today.
Here’s the key language from DWC’s memo [opens pdf]:
“The rule amendments may remain in effect for a maximum of 180 days if renewed.
The adopted amendments permit insurance carriers to continue to reimburse prescription drugs dispensed on or after January 1, 2011 at rates either above or below the fees determined by the Division’s fee guideline using written contracts between insurance carriers and pharmacies or their processing agents, if applicable.”
I’m waiting for guidance on the 180 day issue: you’ll know when I do.
The week is almost over, and none too soon for your faithful reporter. In addition to new client work, deliverables for current clients, and trying to keep MCM up to date, we’ve also been dealing with the Texas…situation.
Word is we’ll get an emergency regulation today from the Division of Workers Comp that will allow PBMs to continue to operate after January first.
Let’s hope so.
While that’s welcome
news rumor, we’re still stuck with the demise of other ‘voluntary networks that provide big cost savings for DME, home health, imaging, physical therapy and other services – services that together account for far more of the work comp medical dollar than drugs do.
In retrospect, we can all learn a lot from what happened in Texas – much of the problem that consumed far too much time from for far too many people was due to the unintended consequences of what can only be described as poorly worded legislation.
It is very tempting to put this behind us and get back to the other gazillion priorities that were shoved to the side while we were working our collective butts off to get this resolved. But before we do, lets reflect on lessons learned.
1. get in front of these issues early.
2. build coalitions by educating politically powerful forces about the potential adverse consequences of legislation/regulation.
3. listen when others come to you with similar scenarios, and think thru what it means for you, your operations, and your ‘customers’.
4. realize that no matter what you do or how much you prepare, there are going to be times when the stuff is going to hit the fan – be calm, have a plan, communicate, and persist.
Now I’m going to tackle the ‘real work’ that’s sitting on my desk.
I’m reluctant to post this. There have been so many false starts and so much confusion around the issue of PBMs’ status in Texas that the latest ‘news’ sounds too good to be true.
I have heard from two credible sources that Texas’ Department of Work Comp will file emergency regulations permitting PBMs to continue operating until legislation addressing the issue around their status is passed in the next legislative session.
Unless DWC – or another entity intervenes, as of now – 7 am in Phoenix – PBMs will be out of business in Texas after 1/1/11 – they are considered ‘involuntary networks (well, at least they ‘appear’ to be considered involuntary networks, but some disagree…) which cannot operate after the first of the year.
While some are saying involuntary networks should continue as legislation will retroactively permit their operation, that’s a very – very – high stakes gamble – loss of license plus a $25 grand per day fine for transgressors.
For more on the history click here.
That depends on whether the rest of the reform bill survives without that clause. I’ve heard from a couple of sources that the Accountable Care Act doesn’t include a severability clause. If that is true, than the entire bill may be thrown out if the mandate is ruled un-Constitutional.
That’s for others steeped in the details of the ACA and law to figure out. As I’m sure they will.
(Lest we get all excited about the Virginia case, note that there have been about twenty suits filed so far re the ACA, 12 have been dismissed and in two other cases both judges ruled the mandate is Constitutional.)
If the rest of the ACA does survive the demise of the mandate, we’ll have a very, very interesting situation. Health insurers will be required to take all comers, the rates they can charge will be highly regulated, benefit plans consistent across most insurers and employers, and there will be no upcharging or medical underwriting or discrimination based on age, pre-existing conditions, or sex.
It would be tough to design a better recipe for disaster for insurers.
Nonetheless, that’s what we’ll be faced with if the mandate is removed; the rest of the Act will become law, and individuals and employers would – at least theoretically – be able to buy insurance when they need health care, and drop it when they don’t.
There’s already a precedence for this – in the Massachusetts experiment, loss ratios in the individual market for at least one health plan were about 600%.
The White House recognizes the problem – in a response to the latest court challenge to the mandate that is notable for its focus on individual responsibility for the costs of their care:
“However, unless every American is required to have insurance, it would be cost prohibitive to cover people with preexisting conditions. Here’s why: If insurance companies can no longer deny coverage to anyone who applies for insurance – especially those who have health problems and are potentially more expensive to cover – then there is nothing stopping someone from waiting until they’re sick or injured to apply for coverage since insurance companies can’t say no. That would lead to double digit premiums increases – up to 20% – for everyone with insurance, and would significantly increase the cost health care spending nationwide. We don’t let people wait until after they’ve been in a car accident to apply for auto insurance and get reimbursed, and we don’t want to do that with healthcare. If we’re going to outlaw discrimination based on pre-existing conditions, the only way to keep people from gaming the system and raising costs on everyone else is to ensure that everyone takes responsibility for their own health insurance.”
Whether the President and/or Congress would try to overturn the ACA, or remove the underwriting language is to be determined. While the White House’s statements to date acknowledge the issue, AHIP et al have few friends left among Democrats, and those friends would be hard pressed to convince the Administration to be nice to an industry that has been anything but to the Democrats.