Jan
31

Friday’s catch up and quick takes

The week flew by, so I’m running to catch up on things I should’ve posted on earlier.

Looks like mother Aetna is getting her arms around Coventry work comp; reports indicate about three dozen Coventry work comp IT folks were laid off earlier this week, including most of the staff supporting BR 4.0, their bill review application.  This will come as no surprise to current clients and loyal readers; under the former ownership, there was little investment in the application over the past several years.

The question is – what happens to those current clients?  

First, indications are Coventry will not be doing bill review either on an application or service basis. If this the case, ALL Coventry BR clients will have to transition to a new provider.

Some payers have been planning for years to move to a competitor; expect Medata and Stratacare to pick up a couple of very big payers.  Mitchell will likely be very active, and MCMC is well-positioned to take on business too.  I would not expect ACS-CompIQ to be much of a factor as contacts indicate their service and performance levels of late have been less than acceptable.

Coventry WC may do a “renewal rights” deal with one of the other BR companies to transition clients, private-label one of the four competitors’ application, or – least likely – tell current BR 4.0 clients they are on their own.  As all Coventry BR clients will have to implement a new application, expect a lot of focus on this in the coming year.

Which may delay other critical IT upgrades/implementations/projects for some time…

Health reform

On the subject of health reform, looks like the trickle of uninsureds signing up for coverage thru the exchanges is going to increase.  A just-released Gallup poll indicates 56 percent of uninsureds who are going to get coverage will do so via the exchanges. Of all uninsureds, 53 percent are planning to buy insurance and 38 percent say they will pay the fine…

One of the less-well-known components of PPACA, outcomes research, has continued to make major progress.  The latest from the Patient Centered Outcomes Research Institute lists key initiatives and reviews the current process.  Of interest to work comp folks;

  1. Strategies for preventing the progression of episodic acute back pain into chronic back pain
  2. Compare the effectiveness of innovative strategies for enhancing patients’ adherence to medication regimens. Studies should take into account the needs of patients with chronic conditions who are prescribed medications for short- and/or long-term indications.
  3. Compare the effectiveness of specific features of health insurance on access to care, use of care, and other outcomes that are especially important to patients.
  4. Treatment options for people with opioid substance abuse

This is truly important work.

A good piece on working with work comp PBMs appeared in Claims Management. Authored by Jeffrey Austin White and Cathy Whitford of the Accident Fund, it includes some very helpful suggestions on how to get the most out of your PBM.


Jan
29

How Texas Mutual is successfully addressing opioids

A few states – very few – are getting some measure of control over the overuse of opioids in workers’ comp.  I’ve been speaking to folks in these states, and will report on those conversations, what is working, what isn’t, and what we can learn.

We’ll start with Texas, where Kim Haugaard of Texas Mutual has been working closely with TM’s Medical Director Nick Tsourmas MD – and pretty much everyone else at TM and in the provider community on this issue for years.  Notably, Texas has the advantage of a strong regulatory environment with clinical guidelines and strong UR rules.  While this combination makes it somewhat easier to address opioid overuse, the regs are only good if they are fully embraced.  That, Texas Mutual has done.

Here’s part of our conversation.

MCM – What was a key factor motivating TM to address opioids and drugs?

Kim – We are meeting with our actuaries constantly, monitoring the trend lines, average paid per claim and other data points.  We separate out claims with and without opioids.  [From those analyses, we learned] The longer claims were open, the higher the chance there were drugs involved, and drugs were the driving cost factor.  Once you address the drugs, you reduce length of disability.

MCM – What are the results of your efforts to date?

Kim – We have had a lot of success addressing opioids and all drug overuse, probably more than any other company. Our drug costs have seen a steep drop since Q1 2010.

Overall opioid usage is down by over 40%. I can tell you that of the 1,249 claims no longer receiving “N Drugs”, 46% of those injured workers are receiving no drugs whatsoever. The other ones have moved away from the N-status drugs to Y-status drugs. 

You may remember at AASCIF, Dr. Tsourmas presented the findings on a program that I implemented several years ago. For the top 400 most costly Rx claims, the average Rx cost per claim per year was $14,700. After our program – outreach for doctor-to-doctor, average cost per claim was $3300, average savings of $11,400 per claim.

MCM – What’s the key to your success?

Kim – You have to attack the drug issue from all angles, this is a team effort, involving prescribing doctors, and various carrier stakeholders, including, front-line staff, actuary, medical operations staff, medical director, legal, and the PBM.

MCM – You noted this is a team effort – who else is on your “team”?

Kim – We are working very closely with the Texas Medical Society and Pain Society, we’ve spoken at their conferences and met with physicians and physician leaders individually.  Some physicians we had issues with are now collaborating closely to address the opioid issue.

On drug testing, we are working with Millennium Labs on developing a “best practices” program, setting up testing protocols based on patient risk scores.

MCM – How do you focus your efforts?

Kim – In everything we do, we focus on outliers – reward the high performers and analyze and address the low performers.

What does this mean for you?

Yes, you can dramatically impact opioid overuse.  

While strong regulations are a big help, a) you have to use them effectively, and b) much of what Texas Mutual has done can be done anywhere – perhaps with a bit less success, but success nonetheless.


Jan
27

Sedgwick under KKR – quick takes

Talked with several folks in the industry about this deal, including Sedgwick CEO Dave North.  Couple points worth highlighting.

This has nothing to do with Mitchell International and there will not be any combination of the companies.  

For some reason a few folks are advancing the theory that there is some grand strategy at KKR involving buying up some/most/all work comp service firms (I exaggerate, I know) to build some Mega-Corp that will own the industry.

Please disabuse yourself of this notion.  Of course, KKR sees work comp services/P&C services as an attractive market, but that does NOT mean they are looking to mush a bunch of disparate entities together.  According to North, he “hasn’t had a word with anyone from Mitchell and there is nothing that is part of this deal that contemplates Mitchell as part of the scenario.”

I believe him.

As a side note, Stone Point (current owner of Sedgwick) owns/has owned several other work comp services businesses including Cunningham Lindsay and Genex.  There was very little communication between these entities, and a lot of competition.

Moreover, investment companies aren’t monolithic; they manage different internal investment funds, with different outside investors in those funds.  It is highly likely the investors in Mitchell are NOT the same as those buying into Sedgwick.

Sedgwick management is sticking around; many have also invested in the company going forward. That’s from several internal sources.

Finally, while management is staying, the same business model will be followed, and Sedgwick will remain Sedgwick, there will be changes – as North noted, “any time you have the backing of a company like KKR there should be opportunities for change that didn’t exist in the past.”

KKR is huge, has tremendous resources, and may well decide to deploy some of them to further enhance their new asset.  But they certainly wouldn’t have bought Sedgwick with the assumption they would make big changes.

You don’t pay a multiple in the double digits for a company that needs major changes.


Jan
27

Sedgwick’s been acquired

Investment firm KKR will buy a “majority interest” in TPA Sedgwick for $2.4 billion in a deal announced officially minutes ago.

The transaction is the latest of several high-multiple deals for workers’ comp assets, second only in size to Apax’s total cost for the combined OneCall/Align transactions. Estimates of the valuation are in the 11-12x on a trailing basis or perhaps around 10x of forecast earnings.  However, what isn’t known is exactly how much of Sedgwick KKR bought. It is likely management owns a piece of the company; I’d be somewhat surprised if the sellers – Hellman & Friedman and Stone Point – retain any significant stake.  I would speculate that the total valuation – after accounting for minority ownership – is between 10x – 11x of forecast earnings.

(I need to revise my expectations, as I’d forecast a sale price of “as much as $2.4 billion.”

Regardless, a double-digit valuation for a TPA is a pretty rare occurrence.

So, what does this mean?

First, there’s been no decrease in deal flow in the work comp space, and there are at least two others in process.  At some point this will slow down/end, perhaps because there’s nothing left to buy and/or prices get so high that even the most enthusiastic will stop bidding.

Second, investors that have been bidding on assets are now selling into the market. This tells me they see the opportunity as pretty darn attractive, making it hard to hold on to investments when they can sell them for double digit multiples.  Arguing with myself, perhaps this implies the deals will continue as today’s owners find the returns just too good to pass up.

Third, I’d expect current management will stay at Sedgwick.  Dave North et al have made the current investors happy indeed (doubling the value in four years), and KKR will want to continue that trajectory.  I don’t see North as ready to ride into the sunset just yet.

Fourth, don’t look for any combination of Sedgwick and KKR’s other recent P&C acquisition, Mitchell International.  Too much channel conflict, very different companies, little overlap, and synergies would be relatively small.

Fifth, times are relatively good for TPAs these days; that said the competition should see this as a loud and sustained wakeup call. New owners will demand even more top-line and bottom-line growth from Sedgwick, so expect they’ll be as competitive as ever – if not more so.

 

 


Jan
25

It’s (un)official – KKR is buying Sedgwick

The deal is close to done, a $2 billion transaction that will make KKR one of the biggest investors in the workers’ comp transaction business.  If it goes thru, Sedgwick will join bill review technology company Mitchell on KKR’s list of investments, raising questions about:

  • how/if/where the two companies will join forces or work together, and
  • what else is on KKR’s acquisition radar.

Sedgwick’s current owners, Hellman & Friedman and Stone Point, are going to do quite well on this transaction.  As I said a couple weeks ago,

Reports indicate Sedgwick’s earnings are around $200 million. With current multiples above 10x, a price in the $2 billion range is certainly possible; don’t be shocked if the final deal is worth as much as $2.4 billion.

There are a host of reasons for the TPA’s current owners to sell the company, with the primary reason likely the high valuations currently on offer.  Doubling one’s money over four years is reason enough for the owners to consider a deal; when one considers the (high) likelihood that H&F and Stone Point undoubtedly leveraged the deal, the RoI picture becomes even more compelling.

KKR is clearly betting big on P&C transactions – the Mitchell purchase and this deal represent over $3 billion in total investment, almost as much as Apax paid for OneCall Care Management and Align Networks. (however most of the price is likely debt as investors almost always leverage their investment capital).  To buyers, this makes sense, as bill review and claims processing are both “sticky” businesses; customers don’t like to move unless they HAVE to, making for good long-term relationships that, properly managed, generate increasing profits.

I’d expect the relationship between Mitchell and Sedgwick to become closer, however there may be some channel conflicts as other large payers may not like the joint ownership.  Undoubtedly Mitchell and KKR will move as quickly as they can to assure clients there will be no such issues, however competitors will, however subtly, raise doubts.  Recall there will be a “quiet period” during due diligence during which Mitchell et al won’t be allowed to say anything about anything.

Finally, Stone Point is still an investor in this space – they, along with lead investor Kelso, own PBM PMSI/Progressive.

What does this mean for you?

There’s no decrease in the private equity industry’s focus on workers comp; expect more deals in coming months.


Jan
24

Friday catch-up and fast reads

Physician dispensing – it’s not just for Americans any more!

From the Harvard Business Review comes this item; Chinese docs prescribe waaaay too many antibiotics – because that’s how they make money.

Antibiotics are often prescribed unnecessarily for colds in China, in part because hospitals sell medications directly to patients and doctors’ bonuses often depend on drug revenue, says a team led by Janet Currie of Princeton. In a past study by other researchers, two-thirds of patients visiting clinics with mild cold or flu symptoms received inappropriate prescriptions for antibiotics, and many were advised to take powerful “second-line” antibiotics that are supposed to be reserved for serious illnesses. These prescriptions impose substantial costs on patients, raise the risk of side effects, and foster growth of drug-resistant “superbugs,”

Here’s hoping WC docs don’t “reverse engineer” Chinese business practices.

Hiring

The Hartford is looking for a medical director; evidently Rob Bonner MD will be retiring.  This is one of those great opportunities for business-oriented work comp docs; the Hartford’s Medical Director has real authority and responsibility.

Journalism

Much as I respect the folks at R&I, their latest “editor’s choice” had me scratching my head about a piece from the Washington Examiner – It’s a climate-change denier piece asserting that we may be in for a century of cooling due to…wait for it…sunspots.

C’mon.  There have been 2528 peer-reviewed articles about climate change over the last year.  A grand total of one – yes, that’s one – rejected man-made global warming.  And that lone article was in the Herald of the Russian Academy of Sciences.

Principled and soundly-researched discussion is critically important – but only when it is reality-based.

Exchange enrollment

Exchange enrollment data is pretty mixed; numbers are way up in California and New York but most folks who are eligible for Medicaid or for subsidies via the Exchanges don’t know they are eligible.  Not surprisingly, the Latino enrollment data in California has been disappointing – to say the least.

On the federal side, enrollment seems to be much below expectations, even after the end-of-the-year push.  Whether things will pick up a lot before the March drop-dead date remains to be seen…

One factor affecting enrollment in many states may be that fourteen have enacted so-called “navigator suppression” laws; legislation that hinders/prevents/makes it difficult for the people who are supposed to help the uninsured enroll do their job. (thanks to Julie for the tip).

Impairment ratings

In one of the more esoteric  – but nonetheless significant conversations of the last week, I learned that many of the impairment ratings done in Texas are wrong – for a multitude of reasons.  Evidently those done by chiros are often (like 80% often) much higher than they should be, and medical doctors aren’t a whole lot better.  TX payers that aren’t reviewing ratings to make sure they are right may be paying out a whole lot more than they should – especially if those ratings are above 15%, the “magic number” where big payouts kick in.

Enjoy the frosty weekend – high this week in upstate NY has been 8 degrees.  Get out and enjoy!

 


Jan
22

More states will expand Medicaid

Even those dominated by Republicans.

To understand why, here’s a quote from a conservative GOP legislator from Michigan:

State Rep. Al Pscholka: “When people say Medicaid expansion, I think to a lot of us that meant bigger government, and it meant expanding a program that doesn’t work very well…When I understood how it worked, and what we had done in Michigan in the late ’90s, that was actually pretty smart, we’ve privatized a lot of that already, which I think a lot of folks didn’t understand.”

But it’s more than that.

Hospitals and health care systems will be in dire shape without expansion.  Already the feds are reducing the amount of funds they are transferring to hospitals that provide a lot of uncompensated care and Medicaid services. The federal DISH (disproportionate share) allotments are established, HHS has a formula in place for rolling out those changes but that formula doesn’t account for states that don’t decide to use expansion. States that don’t expand Medicaid will see a reduction in these payments, and no increase in Medicaid, leaving the hospitals in a financial bind.

Without Medicaid expansion, hospitals and health systems will find it increasingly costly to care for the uninsured  – and they will pass that cost along to privately insured patients and workers’ comp payers.  This already happens, and is one of the arguments in favor of universal coverage.

More significantly, the poor uninsured with chronic conditions (diabetes, asthma, hypertension, depression) will become increasingly expensive to care for.   The lack of primary care will mean when they do get care, it will be much more expensive than if they’d been able to effectively manage their health and thus avoid hospitalization.

Unhealthy people find it harder to get and keep a job, don’t do well in school, and thus are less able to contribute meaningfully to society than those of us with insurance.

That’s not to say that Medicaid shouldn’t be modified; for example, some sort of nominal copay or coinsurance so services aren’t just a freebie makes sense to me. That’s happening in some states.

Finally, there’s a bit of history here; when Medicaid was originally introduced, many states opted out.  Within a few years, each one had signed up.

What does this mean for you>

History will repeat itself, and that’s good news indeed.

Thanks to Kaiser Health News for the heads’ up.


Jan
21

Why don’t workers’ comp payers have pharmacists on staff?

I’m only aware of three major work comp insurers (Travelers, BWC-Ohio, Washington L&I) that have pharmacists on staff; the North Dakota State Fund does as well.

With pharmacy costs accounting for somewhere around 15% of total medical spend, that seems like a “miss”.  Yes, pharmacy costs have been flat in recent years, but the impact of drugs on work comp claim duration and the medical and indemnity expense associated with long-term drug use is quite significant.

Many payers have medical directors, nurses, and other clinicians on staff to help address medical issues; in some instances ALL medical issues are the purview of clinicians. Yet these payers don’t have pharmacists on staff, relying instead on medical folks.  Sure, they have knowledge of pharmacy, but nowhere near the depth and breadth of expertise resident in even the greenest pharmacist.

As physician dispensing of medications increases, payers begin (yes, most are just beginning) to address their long-term opioid users, off-label prescribing continues to grow, new medications come on the market, and compounding spreads, payers will find themselves at a disadvantage if they don’t have inhouse expertise.

Sure, PBMs have pharmacists on staff, and most are very, very experienced, understand pain management, and know work comp.  They have the added benefit of being “free”; they don’t increase overhead expenses.  But they work for the PBM, aren’t available on an ongoing basis to address the issues listed above, and if the insurer switches PBMs, that experience and corporate history disappears.

Twenty years ago rare was the insurer with any real medical expertise on staff. Claim adjusters were quite capable of handling medical issues, thank you.

It won’t  – at least it shouldn’t – take that long for insurers to see the wisdom of hiring pharmacists.

 

 


Jan
17

Friday catch-up and heads-up

Lots happening this week – here’s a few notable events.

First, WCRI’s webinar on physician dispensing, opioids, and physician prescribing patterns.  A couple key takeaways:

  • after FL banned doc dispensing of potent opioids, almost all the docs who were prescribing and dispensing Schedule II and III data switched to NSAIDs; far less potent pain killers.  Which leads one to wonder…how scummy is a doc who does this?
  • Prescription Drug Monitoring Programs – properly designed and implemented – dramatically reduce doctor and pharmacy shopping.

Much more was discussed; the underlying research on Florida’s changes can be found here.

One of the more creative marketing campaigns was launched this week by Acrometis; the Year of the Adjuster. An excellent infographic is here; pay attention to the campaign and offshoots thereof.   My bet is this dramatically raises Acrometis’ profile…

12 of the nation’s 50 most expensive hospitals are in California; thanks to California Healthline for the heads-up. To find out which are in your state, click here.

The Sedgwick sales process is well underway, with bids due (I’m guessing here) within the next week or two.  Don’t expect this will close quickly as there’s a lot to review.

Finally, a tech research firm has a rather bizarre piece out on Google Glass, the next “Killer App” in insurance.  Bizarre because:

  1. there hasn’t been a Killer App out yet, so this would be the First…
  2. given the rather slow tech adoption rate (to be kind) in the P&C insurance industry, I wouldn’t expect companies that spent a year approving MIcrosoft Office upgrades to jump on the Glass platform; they’ll spend much of their effort figuring out how to prevent employees from mis-using the technology before assessing how hard it will be to tie the device and output into their systems.

See you Monday!