Sources indicate the deal for MSC is done; Odyssey is buying the big DME, home health and transportation/translation firm.
According to the official announcement, MSC has “entered into a definitive merger agreement” with imaging company OneCall Medical, (which in turn is affiliated with, STOPS, Express Dental to make up a work comp services firm that will rival long-time industry powerhouse Coventry in terms of sheer size. Terms won’t be published but the price will almost certainly be above $400 million.
With this acquisition Odyssey further positions its portfolio as a major player in the services industry; there are substantial synergies among and between the various services and product offerings that will make the combined entity a formidable competitor.
Current OCM CEO Don Duford will assume that title at the newly merged company, while MSC CEO Joe Delaney will be named President.
Rising medical severity. The worst combined ratio in a decade. Inadequate reserves. Stubbornly slack employment demand. Premiums down a full 23 percent over the last six years.
Things can’t get any worse, right?
Before we answer that, consider many asked the same question a year ago, and here we are. The most important single factor is employment – rising employment makes a lot of these issues way less significant. Employment drives premium dollars, which increases money available for additions to reserves. To say employment growth has been “disappointing” is to understate just how weak its been. Until employment growth increases significantly, comp writers are going to be running to catch up.
Specifically, they’re trying to increase premiums written to reverse the seemingly-intractable increase in the combined ratio. According to Fitch, the workers comp industry’s combined is at a ten year high at 117, a full 9.5 points above the average for the decade. There’s no doubt the 23 percent decline in premiums we’ve seen over the last five years was the big driver of the high combined.
There’s also no doubt rising medical severity coupled with reserve deficiencies are going to make improvements to the combined a “heavy lift”.
I’ll bang on this drum again – many payers have no idea what their opioid-addicted claimants are going to cost them. With opioids accounting for almost a quarter of all work comp drug spend, and the long-term usage of these drugs increasing everywhere (except California!), and few payers fully grasping the significance of this, the picture is ugly.
Being an optimist by nature, I’m hoping
a) employment picks up dramatically;
b) carriers don’t cross the stupid line when it comes to pricing;
c) insurers get a grasp on the cost of opioids and get serious;
d) regulators support that effort; and
e) employers start investing in safety, screening, and loss prevention.
Or at least two out of five.
Buying decisions are often “illogical”, if you base the definition of “logic” on doing what appears best for the organization.
Those same decisions are quite logical, if you think about them from the perspective of the people making the decision. Unfortunately, few “sellers” understand that.
I’ve been dwelling on this for several weeks, as I’ve spent more than a few hours speaking with incredibly bright investment analysts about various potential investments in the managed care “space”. The conversations usually follow the same path…
Smart analyst (SA) – We’re trying to understand the value proposition of Company X…
Me – Well, Company X claims they save Y% on this or that type of medical service, which is more than their competitors.
SA – Wow, that’s a lot. How much of the market can they capture?
Me – Probably about xx%.
SA – Why not more?
Me – Well, their program requires the employer to make an investment in IT &/or training &/or change a business process &/or do things a bit differently.
SA – But in order to save all that money, that’s a no-brainer.
Me – You have to think about it in the context of the insurance market, which has been very soft for years, so there’s not a lot of capital available to invest in process or IT, staff to do the work, or hours to train staff who are processing claims.
SA – But in order to save all that money, that’s a no-brainer.
Me – Not necessarily; the person who has to make that decision has other priorities too, namely getting other critical IT projects that deal with compliance issues done, keeping claims moving to resolution, answering queries from her boss about progress on her boss’s boss’ pet project, and budgets are coming up too.
SA – But if Company X does the IT work, won’t that speed things along?
Me – Again, not necessarily; the vendor’s IT staff needs someone at the Customer – on the other end of the phone line – to work thru issues…
SA – So, let me get this straight. Company X can save an employer a gajillion dollars but employers won’t use them because some bureaucrat has other priorities?
Me – Yes, you got that straight.
SA – that makes no sense.
Me – [thought but not said] – not to you it doesn’t; to the “bureaucrat’ it makes all the sense in the world.
So what does this mean for you?
Employers don’t buy, people do. The ‘sale’ isn’t to an amorphous entity, it is to an individual or individuals, who succeed or fail in large part based on their decisions, the impact of those decision on other priorities, and whether their culture allows/accepts/rewards risk.
Don’t think about ‘business objectives’. Think about the person you’re talking to, who they are, what they do, and how you can make them successful while minimizing downside risk.
Over the last few years, there’s been increasing consolidation among health care providers - hospitals buying physician practices, health care systems merging, hospitals ‘partnering with’ other hospitals. Overall, consolidation of providers has led to better health outcomes but had also increased prices.
That would be the sound bite, but like all sound bites it misses much of the context and nuance.
First, as noted above this consolidation takes many forms, and these different forms have different ‘results’. A study on provider market consolidation just released by the Robert Wood Johnson Foundation found:
- increases in hospital market consolidation lead to increases in the price of hospital care. this is especially true when the consolidation occurs in already-concentrated markets where the price increase can be north of 20 percent.
- “Prices paid to hospitals by private health insurers within hospital markets vary dramatically”
- There is a “growing evidence base that competition leads to enhanced quality under administered prices.” This refers to studies of Britain’s National Health Service, which introduced competition among hospitals for patients as part of the 2006 reforms, as well as previous analyses of Medicare’s impact.
- There’s also evidence that competition improves quality where markets determines pricing, although that evidence isn’t as strong.
To date, there’s no clear evidence that physician-hospital integration improves quality. The pace of integration has increased dramatically over the last two years however this could lead to increased market power – and thus higher prices.
What does this mean for you?
We are in a very dynamic market. This is really unexplored territory, so payers would be very wise to carefully monitor pricing and quality measures in specific markets, paying close attention to those that already have high levels of provider concentration (e.g. Boston, Twin Cities)
Yesterday the Illinois Workers Comp Commission voted in favor of a regulation that would tie reimbursement of physician dispensed drugs to the price set by the original manufacturer. While this regulation has to pass thru a legislative committee before it can be implemented, that was good news indeed for Illinois’ work comp claimants, employers, and taxpayers.
The meeting was well-attended, and included representatives from the insurance industry, health care providers, PBMs (yours truly and others) and industry trade groups.
Noticeably absent were the drug chains, including Walgreens. I’m at a loss to understand this, as the WCRI report released last week showed 62% of pharmacy costs in IL are from physician-dispensed drugs. Those patients are NOT going to their corner pharmacy if they are getting their meds from their docs.
When patients get their medications from their doctors, they are at greater risk as the doc likely isn’t fully aware of the other medications the patient is taking, a risk that would be substantially reduced if they went to their pharmacy, where the pharmacist likely knows if there’s going to be a problem due to an interaction between the new drug and the patient’s current medications. Walgreens et al knows this is one of their big value propositions – the added safety inherent in going to your pharmacist.
From a purely financial point of view, the chain drug stores are missing out on thousands of store visits as well, where the claimant picks up their meds and likely some toiletries and perhaps milk too.
There are over 1900 pharmacies operating in Illinois; if one was at the meeting they didn’t announce themselves.
On a broader front, the Federal work comp program implemented an almost-identical requirement about a month ago in a move undoubtedly applauded by everyone who pays income tax to the Feds. No longer will physicians dispensing drugs to Federal workers be able to inflate costs by using repackaged medications costing several times more than the same drug bought at a retail pharmacy.
There’s bad news as well, but we’ll save that for another time.
State funds’ share of the nation’s work comp premium dollar increased 7.1% last year, the first net gain in several years.
As state funds generally grow when commercial carriers’ underwriting gets tighter, this is yet another data point we’ve seen that indicates the work comp market is hardening
The report from AMBest (thanks WorkCompWire) specifically noted one of the reasons for state funds’ growth was a stronger pricing environment. Higher prices follow higher combined ratios: funds’ calendar year combined hit a very painful 134.9 in 2011.
This news comes on the heels of reports from agencies of firming pricing and indications that some larger employers are also expecting higher work comp premiums.
Anecdotally, several HSA consulting customers point to somewhat tougher underwriting decision making coming from home offices, higher rates, and more “selectivity” re new business.
After the release of its much-awaited update on physician dispensing in workers comp, WCRI found itself under verbal assault from physician dispensing company Automated Healthcare Solutions.
AHCS, perhaps the largest firm in the business (and partially owned by Boston-based ABRY Partners, who also owns Gould and Lamb and York Claims), said this about the study and WCRI in an email to WorkCompCentral’s Mike Whitely:
“It is not surprising that this unscholarly work is the vehicle being used to deliver a self-serving message the insurance industry wants the public to hear…Despite repeated requests, WCRI has refused to make available its underlying data for prior reports, which leads us to believe that this questionable work has not been properly peer-reviewed and has not been validated by an independent third party.”
Talk about cranky…
First, this statement is from the same AHCS that has repeatedly quoted WCRI in its written statements supporting physician dispensing of repackaged drugs. Including at the last Illinois fee schedule meeting, where AHCS employee Gary Kelman MD quoted extensively from WCRI’s previous work in an attempt to justify the higher costs and utilization patterns exhibited by physician dispensers. Their advocates have also used WCRI’s reports and statements in Hawai’i, where they succeeded in delaying controls over costs for physician-dispensed repackaged drugs
Second, WCRI has a well-deserved and long-held reputation for unbiased, high-quality and well-done research. If anything, critics (including me at times) have lamented the time it takes WCRI to produce reports. Aggregating data from different companies, ensuring data quality, reviewing findings, and QA’ing every analysis, calculation, result, and formula before you even get to writing up results takes a lot of time and talent, and that’s before you get to writing up the results and fact-checking each and every statement, figure, statistic, finding, and conclusion.
Third, WCRI is funded by a variety of sources, which AHCS could have checked easily if they wanted to – insurers, state regulators, labor organizations, employers, and others. Or perhaps they did and didn’t want to mention the broad funding and support base enjoyed by WCRI.
Let’s also not forget WCRI doesn’t take stands or suggest policy - they never have. That’s not their function, and it is one they take very seriously.
For AHCS to impugn WCRI is a classic case of shoot the messenger. Fact is physician dispensing drives up costs, enriches a very few physicians, dispensing companies, and private equity firms (ABRY in particular), and risks patient safety while increasing disability duration, hurting employers, and increasing taxpayers’ burden.
Julie Ferguson’s taking no time off – her edition of health wonk review covers all that’s happening in what’s turning out to be a very, very busy summer in the health policy world.
In Illinois, physician dispensed drugs accounted for almost two-thirds of all drug costs in 2010-11. Same in Florida.
Maryland – 47%; Pennsylvania – 27%; Tennessee 25%; Michigan – 22%.
The data are from WCRI’s just-released study on Physician Dispensing in Workers Comp, and reveal growth in physician dispensing that can only be described as “explosive”.
In Illinois, physicians’ share of all prescription costs increased from 22 to 63 percent of all prescription payments over 07/08 to 10/11.
You read that right; growth tripled over three years.
Even more revealing, the volume of scripts dispensed by docs grew from 26% to 43%.
You read that right too. In Illinois, costs went up more than twice as fast than the number of scripts, which means the physicians dispensing medications raised their prices dramatically. A specific example; the price of Vicodin purchased at a retail pharmacy dropped 2 percent, while physician dispensed Vicodin went up 66% over that three-year period.
Notably, prices did not change much in Florida, perhaps as physician dispensing firms and repackagers, responding to heavy political pressure, kept a lid on pricing rather than face added scrutiny.
The study reported on physician dispensing across 23 states, representing over two-thirds of all work comp benefits in the nation.
A couple other points deserving of attention. First, proponents of physician dispensing claim lots of benefits including increased compliance, lower cost, and more rapid return to work. Note that they make these claims without a single shred of evidence to support those claims. Contrast that with the overwhelming evidence – in this and other reports from WCRI, NCCI, CWCI and other sources – that clearly demonstrate the exploding costs of this practice, costs that are borne by employers and taxpayers.
Second, these proponents assert that limiting reimbursement to the price of the non-repackaged drug will mean docs won’t dispense (and thus won’t deliver the “benefits” noted above). Not true.
California instituted price controls limiting reimbursement to the price of the non-repackaged drug several years ago; over half of all scripts California are still dispensed by physicians, just as they were pre-reform.
There’s much more in WCRI’s study; lead author Dongchun Wang points out that prescribing patterns for dispensing docs are dramatically different than non-dispensing physicians, and docs have dispensed OTC medications and charged much higher prices than retail pharmacies.
NCCI reported physician dispensed drugs accounted for 28% of all drug costs back in 2008. Now, three years later, it could well be that two-fifths of drug costs are from physician dispensed repackaged drugs.
A job-killing socialistic government-run abandonment of the free market and abuse of federal power – that’s pretty much on the far end of the “awful” scale.
If that was true, we’d all be up in arms. But it isn’t.
I’m continually puzzled by the level of anger directed at “Obamacare”; listening to some of the more vitriolic detractors you’d think it was single-payer with death panels and mandated reimbursement levels and no privacy protection with care delivered by former gulag employees…
in Gulag facilities…
What “Obamacare” is…is not “government-run” health insurance; the vast majority of newly covered folks will get their care from private insurers, who will negotiate with providers on their own terms, and set their medical management policies themselves.
What Obamacare is not – is a “job-killer”. Recall Massachusetts enacted legislation very similar to PPACA back in 2009.
Overall, employment gains in healthcare Massachusetts outstripped the rest of the country by four points; Mass added 9.5% more health care jobs since passage of reform while the rest of the nation averaged 5.5%.
But the impact wasn’t just on health care job counts. While the rest of the country saw a 2.9% drop in employment since Massachusetts passed reform, Mass’ employment dropped by a mere 0.2%.
While some jobs will likely be lost, the jobs that will be gained will be high-paying, professional ones.
According to the NFIB – no friend of Obamacare, “The employer mandate would boost demand for healthcare goods and services, thereby increasing employment in healthcare-related sectors. [emphasis added] The number of ambulatory healthcare professionals (physicians, dentists, and other healthcare practitioners) needed will increase by 330,000. An additional 327,000 staff will be required to work in hospitals. Some 157,000 more nurses (net of retirements) will be needed to staff doctors’ offices, outpatient clinics, and other provider locations. And payrolls at insurance companies will expand by 76,000 workers.”
(Note this study focused on the original mandate, not the one that exempted employers with fewer than 50 workers – and this would have created 890,000 jobs. (NFIB hasn’t updated their numbers to reflect the lack of mandate for small employers, which may well have reduced the number of jobs lost in retail and services.)
Okay, so we have 330,000 more jobs for docs and dentists, and 157,000 net new openings for nurses. That’s almost half a million new high-paying jobs; these aren’t retail clerks, burger flippers or car wash attendees, these are folks making from $50,000 to $400,000.
That pretty much takes care of the government-run and job-killing issues.
That leaves, let’s see, children are covered till age 26; exclusion of pre-existing conditions won’t be permitted; no lifetime caps on coverage; seniors won’t have to worry about the “donut hole”…
What’s left? What’s really wrong with Obamacare? No fact-free rants please.