In what can best be described as a possible return of completely rational behavior, CorVel's stock is entering the stratosphere. From above.

The decline of the managed care company's stock price and market cap from levels that can best be described as "way too high" appears to be one of those all-too-rare instances of the market finally figuring out that just because a company's stock price is high does not mean it is worth it.

As I've noted before, CorVel's valuation was all out of whack. And I'd suggest it still is.

Let'ss review, shall we? CorVel talked about a stock buyback last summer that never really got going. That was followed by CEO Gordon Clemons selling 70,000 shares of stock, after which the stock price went up. Then, CorVel bought TPA Hazelrigg for $12 million, a 6x EBITDA valuation. Next, it's stock went up some more. (That's what really got me confused.) Then, analysts cut earnings projections, and the stock went up even further. Boy, was I confused.

Now comes word that CorVel's California TPA customers are terminating contracts for managed care services. Gee, that was a tough one to predict - a managed care company buys a TPA (Hazelrigg), and the TPAs that Hazelrigg competes with decided to stop buying managed care services from the new parent.

Talk about a bolt out of the blue!

Next, earnings were announced that bettered the year-ago quarterly numbers by a good bit. The stock declined.

Now, CorVel is trading at about $30 a share, down from a high of $48 and change in late December. Better, but the P/E is still a quite generous 26, a valuation typically reserved for high-flying growth stocks, not firms experiencing 6% annual growth.

What does this mean for you?

I have no idea.

Posted by Joe Paduda at 6:18 PM | Link to this post | Comments (2)

It looks like NY Gov. Eliot Spitzer (D) has done in two months what his predecessor couldn't do in two terms - reform the New York workers comp system. If early reports bear out, this will be a huge win for injured workers, employers, insurers, and managed care firms.

That could be a rather significant "if"... but the inclusion of labor, business, and members of the opposition party in the reform process make it highly likely the package will pass.

Early guesstimates are the reform measures will result in a reduction of 10% to 15% in employers' workers comp costs. Here are the highlights of the refomr package agreed to by Gov. Spitzer.

A fee schedule for drugs, medical devices, and lab tests.

A doubling of the maximum weekly indemnity benefit (which have not increased since 1997)

Strengthening of the state's anti-fraud department and enforcement of anti-fraud measures.

A cap on the partial disability time period.

Eliminate the Second Injury Fund

Eliminate the state's rate-setting agency, the Compensation Insurance Rating Board, which has set employers' premium levels. This may indicate a move towards an open market, where insurers set prices.

Reports also indicate medical guidelines may be adopted along with streamlined claims handling and hearing procedures. These last measures could well be the best news to come out of Albany in many a year; the hearing process is unbelievably complex, time-consuming, frustrating, and ineffective. And those are its good points.

Having just completed audits for two clients with significant books of business in NY, I can attest to the dire circumstances facing the state's employers. While we will have to wait and see, on the surface this looks like very good news indeed.

Posted by Joe Paduda at 6:43 AM | Link to this post

For those curious about Bush's health care plan, it's implications, complications, challenges, and ultimate chance of adoption, Bob Laszewski's posts are a must read.

Posted by Joe Paduda at 7:30 AM | Link to this post

URAC, the accreditation body that seems to be into every aspect of managed care, is now looking to certify PBMs. In a presentation at the PBMI conference in Phoenix last week, a representative provided an overview of the process, modules, timing and certification levels contemplated by URAC.

While the process is only for health lines today, URAC is seriously looking into accrediting WC PBMs...

Brace yourselves.

URAC currently has 16 different accreditation programs for such areas as HIPAA, Utilization Revew (group and workers comp), case management, consumer directed health, and health care call centers. While the organization's standards are well-known, tend to support high-quality operations and service delivery, and in some states satisfy state certification requirements, the process can be onerous, expensive, and of uncertain benefit.

In what I'd characterize as a (very) soft sell, the presenter spent a good deal of time reviewing the benefits of URAC accreditation.

The modules include organizational integrity, pharmacy distribution channels, drug utilization management, formulary/P&T and others.

Given the lax P&T process that has resulted in listing of drugs like Lyrica on many formularies, the PT/formulary process alone may be quite valuable.

There are also stringent requirements for financial disclosure of rebate and admin fees. When one considers the confusion and consternation and outright frustration among buyers attempting to understand PBM pricing it's clear there is a need for some universal standard.

So far, so good. Personally, I've been less than overwhelmed by a few of the entities accredited by URAC. My professional experience includes quite a few audits of managed care suppliers, several with URAC accreditation. Among the URAC accredited there are more than one that, by any measure, are low performers.

What does this mean for you?

URAC certification means the organization spent a whole lot of time and money getting a "seal of approval". It may, or may not, mean the certified vendor is actually good at what it does.

PBMs, already pressured on the price front by buyers, may well find those same buyers requesting they spend time, money, and resources gaining certification. Whether those buyers will actually pay more to work with a URAC-accredited vendor is a doubtful proposition.

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (1)

As I've said a few times before, today's consumer-directed health care plans (CDHP) are not much different from the $100 deductible major medical plans of forty years ago. (That $100 is now equivalent to over $600) Although advocates loudly proclaim CDHPs as a solution to the health care crisis, experience to date indicates that the adoption rate is quite low and the impact on cost is modest at best.

If consumerism is going to have any material effect on health care costs and utilization, it will have to reflect the realities of the health care purchasing decision process and the demographics and health status of the insured population, and recognize the lack of useful data on health care procedure prices and provider quality.

Other than that...

An excellent synopsis of these issues and recommendations for greatly improving CDHP programs is provided by Paul Ginsburg et al from the Center for Studying Health System Change. Here are the highlights -

-- incenting healthy and risk reduction behaviors can have a material impact on compliance - some employers are funding their workers' HSA accounts based in part on the workers' compliance with wellness screening and improvement programs.

-- rather than applying the deductible blindly across all types of treatments for all conditions, some employers are considering reducing the cost-sharing for services that reduce key risks while increasing cost-sharing for services that are more elective in nature.

-- prescription drug benefits are under close scrutiny, with some employers (Pitney Bowes is perhaps the best known) greatly reducing copays for drugs focused on hypertension, hyperlipidemia, asthma, and diabetes. This approach directly addresses one of the major concerns with CDHPs; the high deductible is linked to lower compliance with maintenance meds.

-- employee income is directly related to ability to afford health care and health insurance. Seems pretty obvious, but the CDHP enabling legislation (up until the most recent HSA legislation passed in December 2006) blindly ignored this reality.

What does this mean for you?

With these modifications, CDHP programs, and health care reform efforts as well, can add an intelligent dose of consumerism to health care. Without them, it's more spoiled wine in new bottles.

Posted by Joe Paduda at 7:27 AM | Link to this post

How drugs make it on to formularies has always puzzled me. After listening to a talk on the process, I'm even more mystified.

I'm attending the Pharmacy Benefit Management Institute annual meeting in Arizona (demonstrating once again how diligent I can be in the search for valuable insights to pass on to loyal readers). One of the presentations was a (fairly simplistic) overview of evidence-based medicine and its use in assessing new drugs.

The real meat of the session was the analysis of clinical studies, journal articles, and research papers performed by the presenter's company, RegenceRx, when they consider adding a drug to their formulary. The point made? There is little to no use of real evidence-based studies in evaluating new medicines.

As an example, take Lyrica. This drug has been prescribed for nerve pain across the country, despite a lack of solid clinical evidence supporting that use. RegenceRx's review of the reports, articles, and studies that purported to validate Lyrica's usefulness in treating nerve pain revealed that the studies often failed basic scientific rigor (studies weren't random or blind), and/or Lyrica was not compared to other drugs commonly used for nerve pain, and/or the study methods themselves were flawed. Oh, and there was no study of Lyrica's long term safety.

In fact, of the twelve studies on Lyrica's effect on nerve pain, not one satisfied RegenceRx's (appropriate and fair) standards for evidence-based research.

Yet LyrIca is on many a formulary and is commonly covered when used to treat nerve pain.

I'd suggest that paying for a rather expensive drug that has not been adequately proven to be effective or safe is not good business. This type of business behavior may actually increase costs, as payers end up spending dollars on Lyrica and other drugs in an effort to do the job that Lyrica was supposed to.

What does this mean for you?

Time to check the rigor of your P&T committee.

Kudos to RegenceRx for doing the heavy lifting.

Posted by Joe Paduda at 7:26 AM | Link to this post | Comments (10)

The investment debacle at the Ohio Bureau of Workers Comp has resulted in jail terms, millions of dollars in losses, criminal indictments, public pillorying of politicians, and a change in the Governor's office.

As if that wasn't enough, Moody's now informs us that the $300 million in losses will affect the state's economic outlook. The big investment firm downgraded Ohio's economic outlook to negative from stable.

The downgrade may result in higher interest rates, raising the state's cost of borrowing for public works projects. And all because a few political hacks took advantage of their connections.

Posted by Joe Paduda at 11:19 AM | Link to this post

Yes, it's been a year since Matt Holt, Julie Ferguson and I launched Health Wonk Review. Thanks to all the guest hosts, tech folks (thanks Dmitriy and Shahid), and readers in wonk-land, HWR is gaining readers and traction.

Julie has the honor of hosting the anniversary edition, and offers a tip of the glass to all.

Salud!

Posted by Joe Paduda at 7:42 AM | Link to this post | Comments (2)

You are wandering lost in the desert for several days without water, parched, your lips cracking, tongue swollen, eyes rattling around in your skull, desparate for an oasis. A man appears, and you think you are saved; he tells you he's got just what you need, water. But instead of life-sustaining liquid he gives you empty water bottles and a coupon for free water, usable at a well that has yet to be drilled.

Your hopes dashed, you expire.

Pres. Bush's health reform plan provides individuals with tax breaks to help them buy insurance that for many does not exist. Sort of like water in a desert.

The Bush "plan" is comprised of a tax deduction of $15,000 for a family and $7500 for an individual, available to anyone buying health insurance. That would be great, if there was any individual health insurance to buy.

That rather significant problem seems to have escaped the President, who has been out in public (well, a very narrow, carefully selected and screened "public") (registration required) promoting his solution to the health care crisis. Here's a quote from a NYTimes article reporting on Bush's recent appearance - "Marty Ginn, an office manager from nearby McMinnville, told Mr. Bush, “I have a pre-existing condition, I have trouble with my left knee, and the quotes were just outrageous and I’m just kind of stuck.”

“That’s patently unfair,” the president replied after telling Ms. Ginn that under his plan, she would get a tax deduction of $7,500 to help defray the cost of coverage."

In his prepared comments, Bush noted:

"Right now there's a limited market for the individual. It makes it hard to find a product that either suits your needs or you can afford. The more policies written to meet the individual - in other words, the larger the risk pool - the more likely it is that costs will come down for the individualized policy. That's just the way it works. Yet the tax code discourages the individual from being in the market."

I think what Bush is saying is that if more people try to buy health insurance, there will be more health insurance to buy. That's true, for those individuals who can pass medical underwriting or will accept exclusions for pre-existing conditions.

It is patently untue for individuals with health issues.

Health insurance companies do not make money insuring people who need health care; they make money by getting people who don't need health care to buy their insurance.

And the Bush plan does nothing to change this. For those people, Bush's plan is a coupon for water from a well that doesn't exist.

Posted by Joe Paduda at 7:00 AM | Link to this post | Comments (4)

I'll be releasing the fourth annual survey of prescription drug management in workers comp in a few weeks. Here are a few early findings.

Drug spend appears to be moderating, for two reasons. Payers are experiencing a decline in claims volume and the more sophisticated payers are starting to see success in their utilization management programs.

Third party billers are still a problem - that's not news, but what is news is the wide spectrum of solutions to the TPB issue. At one end are the payers that are refusing outright to pay them anything on any scripts, and at the other are the payers that are in negotiations to pay the third party billers to send scripts to them and then convert them to their PBM program.

The level of concern about overuse of pain medications is at an all time high. Respondents are frustrated with physicians who they perceive to start treating pain with heavy-duty narcotic opioids (instead of trying other solutions first).

Card programs are gaining favor, in part due to payer frustrations with third party billers.

More to come...

Posted by Joe Paduda at 5:41 PM | Link to this post

There hasn't been much in the popular press about consumer-directed health care of late. What a relief. That doesn't mean we can bury the idea, as economists and policy makers of a libertarian bent are going to keep returning to the "market as solution to all" mantra until we successfully implant a wooden cross in their cold small hearts.

And to some degree consumerism in health care is appropriate and warranted, and therefore part of the answer to the health care reform question.

Mercer's latest study indicates that 3% of employees have selected CDHP options; that's a bit misleading as some employers only offer CDHP plans, making it tough for their workers to choose another option. Those areas that have experienced faster growth include Kansas City and Indianapolis; again when you dig a little deeper you find that the number of Kansas City employers offering consumer-direct health plans hasn't increased over the last year.

On the research front, Jason Shafrin of Healthcare Economist has done his usual excellent job making a paper on the economics of consumerism in health care understandable and relevant to the rest of us. Read his post, and then read the paper if you must. Jason's net - "the authors claim that increasing prescription drug copay costs can actually increase health care spending and make patients worse off". And they make a pretty solid case to support their claim, citing multiple studies and explaining the nuances of each..

What does this mean for you?

Beware of those touting consumerism as the solution; it is part of the solution, but the potential costs of consumerism should be carefully weighed before designing a plan.

Posted by Joe Paduda at 10:34 AM | Link to this post | Comments (20)

Jon Coppelman at Workers Comp Insider has written a thoughtful and incisive piece on the new WC market in West Virginia. The state had been (actually, until the middle of this year it still is) a monopolisitic state - employers had to buy their WC insurance from the state.

That's changing to an open competitive market. The state WC fund, now known as Brickstreet, is going to be the largest carrier in WV for some time, but will inevitably lose market share as competition enters. Jon points out that managing that transition, while adequately serving the needs of existing policyholders, is going to be an incredibly complex and difficult job. Their customer base will shrink, making one of the first tasks of Brickstreet's execs the management of staff reduction. While building a new agent service infrastructure, upgrading systems, and figuring out how to effectively compete - something they never had to worry about before.

Yikes.

Posted by Joe Paduda at 7:19 AM | Link to this post

Bob Laszewski has found the solution to the Bush health care program's reliance on the non-functioning individual health insurance market. The plan needs a model that addresses the problems of medical underwriting, denial of coverage, age band underwriting, risk selection, access and availability, and it's called "Part D"!

Posted by Joe Paduda at 10:53 AM | Link to this post | Comments (6)

Actiq is a narcotic taken in lollypop form, a technique that gets the drug to the pain centers quickly. Developed for break-through cancer pain, evidence now suggests that only 10% of Actiq users have cancer.The high-powered narcotic has been the subject of several recent reports and a state attorney general investigation concerning off-label use.

Total annual sales of the drug are about $450 million. As an indication of how prevalent off-label usage has become, analysis of data from the workers compensation industry indicate over $80 million of Actiq sales are for workers compensation patients, a figure that is nothing short of stunning. The incidence of cancer in workers comp is so small as to be unmeasureable, yet employers are buying almost one-fifth of the Actiq sold for their comp claimants.

One-fifth.

According to one report, off-label usage is not accidental. Actiq's manufacturer, Cephalon, has been accused of aggressively encouraging physicians to prescribe the drug for migraine, low back pain, and other conditions. Cephalon is currently under investigation for these activities by one state's attorney general.

Cephalon has recently introduced a new variation of oral fentanyl (the synthetic opioid "active ingredient") - Fentora. The intro has come just as Actiq has come off patent.

Health care managers would be well-advised to closely monitor the usage of Fentora among their insureds.

Posted by Joe Paduda at 7:23 AM | Link to this post | Comments (1)

If anyone can get workers comp reform addressed in New York, it's new Goc. Eliot Spitzer (D). In a wide-ranging interview conducted yesterday by the Journal-News, Spitzer noted that work comp reform is at or near the top of his list of priorities.

Likely changes will include a cap on the duration of benefits for injured workers.

Posted by Joe Paduda at 7:37 AM | Link to this post | Comments (2)

OK, so I've been a little obsessed with the First Health-Concentra deal. Several clients will be directly affected by the merger, and their priorities are mine. But I've been ignoring the larger world, including a report published in Health Affairs (subscription required) that has far-reaching implications.

Two researchers at CMS analyzed data on the concentration of health care expenditures, (what percentage of patients spend what portion of total medical expenses) and noted a surprising trend.

Up until the last few years, there was little change in the distribution of health care expenditures across the population. The top 1% spent about 28% of all health care dollars, the top 5% spent 56%, the top 10% - 69% and so on. Remarkably, this has been pretty consistent for decades; a 1928 study reported very similar results.

A few years ago this started to change - a bit.

The concentration among the top spenders decreased; the top 1% to 24% of dollars; 5% to 48%, and 10% to 62%.

The primary driver appears to be a shift in expenditures away from hospital and towards prescription drugs. After total drug spending increased by 125% from 1996 to 2003, drugs now account for 20% of all health care spending. Unlike other types of medical services, drug utilization increased across the entire population, among the high spenders and lower spenders alike. This served to dramatically increase the dollars spent by "lower" consumers, while the percentage increase in spending by larger consumers (who were already spending lots of money) was significantly lower.

Implications

As the authors noted, the big spenders are still big spenders. From a health policy perspective, we need to focus efforts on disease management and other "clinically oriented programs."

The big spenders are not going to be affected at all by so-called consumer-directed health plans as presently constructed.

However, prescription drug utilization may be effectively addressed through the use of multi-tiered plans, deductibles, mandatory generics, and the like. Some recent data suggests that the rate of increase in prescription drug spending is (finally) moderating, perhaps due in some part to the popularity of these benefit designs.

Posted by Joe Paduda at 8:09 AM | Link to this post | Comments (1)

One of the potential side effects of the Concentra-First Health deal relates to Aetna's workers comp network. Concentra is one of, if not the, largest customers for AWCA (Aetna acronym for their network). Concentra re-sells the Aetna network to its bill review customers; these deals may now be at risk.

Several larger payers and more mid-tier insurers and TPAs access the AWCA network through Concentra's bill review system. Their reason? AWCA has very strong hospital, ancillary provider, facilitiy, and physician discounts. Many in the WC world equate discounts with "savings" (the connection is not that direct), thus the best-in-class discounts achieved by AWCA are starting to translate into strong market share.

Sources indicate Coventry's management is quite concerned about Aetna, viewing them as a much more serious competitor in the WC network business than Concentra or CorVel. Now that Coventry's First Health unit owns (or more accurately is going to own) Concentra, it would not be surprising if the merged company's management decided to terminate the Aetna relationship.

This is not a forecast or prediction, but rather an attempt to point out a business risk for those payers accessing AWCA via Concentra.

Posted by Joe Paduda at 3:27 PM | Link to this post | Comments (6)

Timing is everything; Coventry's fourth quarter financials release came on the heels of the Concentra acquisition announcement, allowing the observer to compare results to prognostications.

There are a couple of key comments I'd note. First, in a comment at the end of his opening remarks, Chairman Dale Wolf noted the deal represented a "fee based acquisition in workers comp managed care"; he also reiterated his belief in the opportunity for growth in work comp managed care.

Lets' start with the fee-based comment. As Wolf has noted before, and reiterated in the latest presentation, Coventry has been quite open about its desire to increase the percentage of revenue accruing from fee-based business (as opposed to its core HMO and other risk, or insurance-based business). This is a smart move strategically.

With all the noise and heat emanating from unelected and elected politicians, it is highly likely that over the next several years there will be major changes in the way health insurance is sold, purchased, underwritten, priced, distributed, packaged, regulated, and, very importantly, the basis for success in the industry. By diversifying into another, related market, Coventry is mitigating its political risk (Workers Comp is not part of any of the current health reform initiatives).

Coventry has also been able to keep its prices ramping up faster than the medical loss ratio (MLR), a feat that may not last too much longer. The Concentra deal will help provide a cushion for the inevitable days when the MLR accelerates faster than premium increases.

Again, I like the deal from a strategic perspective.

Tactically it may not be as likeable. The best opportunity for increased profits lies in consolidation of the network and bill review businesses. Expect Coventry to consolidate the network operations quickly; First Health has (generally) better provider contracts and the staffs are essentially redundant. Concentra uses UHC's Ingenix PowerTrak bill review system, and pays a buck a bill or so for the privilege. First Health owns their bill review system; over time they may well consolidate. (although this will be a long and very windy road, the First Health system and management thereof is giving some major customers fits).

As I've noted before, the case management business is a tough, low margin, mature, highly price-competitive one with steeply declining revenues. Considering the CM business represents about half of the total Concentra managed care business, and First Health's WC business has not grown at all over the last seven quarters, this will make it tough for Jim McGarry, the exec tasked with consolidating the operations and growing the business.

Wolf again stated his belief in WC managed care as a strong growth opportunity. But, he's said that before. I respect Wolf and his executive team; they are one of the better HMO management groups in existence. That said, they have yet to demonstrate any real ability to grow the WC business organically. In fact, the opposite has been the case.

There are a couple of other key issues I'll get to in future posts.

Posted by Joe Paduda at 6:35 AM | Link to this post | Comments (3)

It looks like the Concentra workers comp deal is coming none too soon. In today's earnings release, Coventry disclosed that subsidiary First Health's revenues dropped for the second straight quarter to a two-year low of $49,175k.

This marks the seventh consecutive quarter of flat revenues for the big WC managed care provider.

Posted by Joe Paduda at 11:27 AM | Link to this post | Comments (1)

In yet another sign of the impending attainment of critical mass on health care reform, the SEIU and WalMart have found common ground.

Who woulda thunk it?

The two arch-enemies have been in conversation for several months, discussing health care reform and trying to figure out if they have any commonality. Turns out they do, and in two pretty key areas.

First, both organizations are pushing for universal access by 2012. (About the time I predict we'll be there) Health care reform without universal access is pointless, no matter the mechanism. Until we cover everyone, we'll suffer from cost-shifting, adverse selection, and risk selection games by providers and insurers alike.

Second, both the union and management see health care coverage as a shared responsibility - workers, government, taxpayers, and employers all are part of the solution.

We're getting there!

What does this mean for you?

All the present health care reform initiatives - California, Wyden, Edwards, Massachusetts all include these two key principles - universal access and shared responsibility.

You can bet they will be part and parcel of the reform package that becomes reality.

Posted by Joe Paduda at 8:56 AM | Link to this post

As part of the Concentra acquisition, First Health will own a large field case management force. From all indications, Coventry (FH's parent company) has wanted to get into the case management business for some time - it generates steady fees, as opposed to the ups and downs of Coventry's core HMO business.

Well, they're certainly in the case management business now. Concentra has hundreds of nurses and vocational rehab specialists located around the country who spend hours each week driving to attend office visits with work comp claimants, meeting with employers, and discussing cases with adjusters.

At least FH hopes they're getting lots of windshield time. If they aren't, they will be sitting around doing nothing while getting paid.

Field case management used to be much more common than it is today. In the olden days, back in the nineties, most lost time cases were "managed" by a field nurse. Nowadays, best practices call for assigning field case managers (FCM) to fewer than 10% of lost time cases.

And when they are assigned, they don't have carte blanche to do what they want when they want. Today, FCM is more often than not a task assignment, wherein an FCM is asked to accomplish a specific task for a defined payment - like attending an office visit, obtaining a return to work release, and writing up a report.

And if that weren't bad enough, across the country, over the last decade the number of lost time cases has been steadily declining.

The result of the evolution in the use of FCM has been a gradually decreasing demand for FCM and strong pressure on pricing and therefore margins.

UPDATE - These factors have resulted in significant declines in CM revenue (that's both telephonic and field) for Concentra. From a peak of $267 million in 2002, revenues dropped to $248 MM in 03, $237 in 04, and $202 in 05, the most recent year with available numbers.

The company has done a good job in maintaining margins during this period, achieving a 14% gross profit in the most recent year after hitting 12% in 2004. That result reflects well on Concentra's management.

Coventry/First Health now has a large pool of expensive professionals which require a very large, steady flow of cases. Kind of like a monster in the basement with a hearty appetite. As long as it's fed, it's fine. But if you run out of monster food, it starts to come up the stairs...

Posted by Joe Paduda at 4:29 PM | Link to this post | Comments (12)

Coventry has bought all the non-clinic operations of Concentra Inc. (with the apparent exception of Concentra Payment Systems) for $387 million in cash, making the deal worth about 1.2 times trailing 12 months' revenue.

Here's my take.

Concentra was looking to get out of the managed care services business for quite some time. The field case management and telephonic case management businesses have not been growing, and margins have been narrowing for several years. The Focus network is facing tough competition from Aetna and First Health (although Concentra has been cross-selling the Aetna WC network). And Dan Thomas, CEO of Concentra, has made no secret of his preference for the clinic business over the services operations.

So Concentra's motivations are pretty obvious. Less apparent are Coventry's. Close followers of management pronouncements will not have been surprised by the deal, as Coventry CEO Dale Wolf has been quite clear that the company was looking to acquire businesses would be complementary to the First Health network and bill review.

Strategically, Coventry believes the WC business is a good long term play. Management sees WC as several years behind group health in terms of automation, medical management, and clinical applications. Can't argue with that. Coventry also is focused on increasing the amount of fee business in its portfolio to better balance its risk (HMO/insurance) business.

By combining the two largest players in the WC managed care market, Coventry creates a tough competitor overnight.

Wolf also can add a lot of bill review volume to First Health's proprietary bill review application, reducing expenses (and hitting rival Ingenix hard).

Coventry's recent naming of McGarry as head of WC operations was a hint of a major deal to come; McGarry is well-regarded for his operational abilities, a talent that will be sorely needed over the nxt few months.

This is all well and good, but as I noted in a post a few weeks ago, FH itself has a lot of cleaning up to do. In a conversation this morning with an executive at a major WC payer, the exeec expressed frustration that FH would do another deal before cleaning up its own house.

I'm not surprised that the deal was done, nor am I surprised they did the deal before their own house was in order. That said, it will make McGarry's job a lot harder.

As for what FH is going to do with hundreds of field case management nurses...

Valuation
At 1.15 times 2006 revenue, the deal appears to be fairly priced, especially because it is all cash. Concentra will undoubtedly use a big chunk of the proceeds to retire more long term debt, and may well use the rest to acquire or build more occ health clinics. This part of Concentra's business has been growing nicely, albeit on the back of increased utilization, particularly PT.

More to come later.

Posted by Joe Paduda at 10:10 AM | Link to this post

I've been trying to find a summary of the Edwards plan unblemished by opinion/criticism/odds-making, and so far all I've found is the same article written several different ways, and no synopsis.

No wonder we're having a tough time engaging in a substantitive debate.

Most of the headlines include the words "taxes". Almost all lead with some version of "cost $120 billion more" than today's health care budget.

With all the media we have, you'd think a few would be able to write a story from a slightly different angle. Alas.

Posted by Joe Paduda at 4:58 PM | Link to this post | Comments (2)

Matt Holt has published a hilarious dialogue with a press relations guy from the National Federation of Independent Businesspeople.

If you are one of those who believe people always act in their self-interest, this will disabuse you of that notion.

Posted by Joe Paduda at 6:50 AM | Link to this post

Seventy years. That's how long its been since the P&C insurance industry enjoyed profit levels like today's. The Dust Bowl was in full blow, there was no TV, half the people worked on farms, and Roosevelt II was just getting started.

The good old days are back.

Here are the numbers. The combined ratio for 2006 is projected to come in at 93.2, a 23 point improvement since the dark days of 2001; a striking turnaround. The combined ratio results make this one of those unusual periods when the return on investment in the P&C sector rivals other industries, an event that does not happen very often.

While profits are at record levels, premium growth is stagnant, with many lines of coverage seeing flat-to-declining renewal rates. That is an inevitable response to the favorable market conditions, as insurers are seeing relatively low losses and solid investment returns, making the insurance business a great place to invest excess funds. When, not if, but when claims results turn negative, expect to see the fair-weather funds fly off to greener pastures. If they're not gone, swept away by a catastrophic weather event or other disaster.

The problem with the insurance industry at times like these is the very short memory, nee ignorance, exhibited by recent entrants. The folks who are just jumping into the market see the returns and the tax and other advantages, and don't pay near enough attention to the reason they are getting those great returns - their capital is pledged to rebuild and repair.

But for now, enjoy!

Posted by Joe Paduda at 6:20 AM | Link to this post

Controversy over treatment types, overly generous payments to physicians to endorse a product, lawsuits alleging faulty research, the FDA under fire for inadequate evaluation, fights over reimbursement for a new procedure, and confusion over the usefulness of a common and very expensive procedure.

If you want to know why the US health care system is so dysfunctional, I give you low back pain.

First, there is little agreement on treatment options. Choices range from NSAIDs and bed rest to PT to spinal fusion to disk replacement, with costs and implications from nil to millions.

Physicians (sort of) agree that over the long term, spinal fusion for low back pain is not likely to be any better than other, cheaper alternatives. This came out of a panel discussion set up by Medicare, attended by a number of physicians, some of whom are paid by implant manufacturers.. You won't be surprised that the panel decided more study is needed.

Next. filthy lucre's impact. One of the larger manufacturers of implants, Medtronic, paid a $40 million fine last year to settle charges that it had paid physicians to use Medtronic devices. The payments were in the form of excessive travel reimbursements, hefty perks, and outright bribes.

Johnson and Johnson's Charite artificial disk has been used for several years to treat patients with degenerative disk conditions. Approved by the FDA after a 2 year study period, the implant has come under withering assault from critics who contend it was not adequately tested, fails at an unacceptably high rate, and is no better than a previously-discarded alternative. The furor now involves the FDA, which is accused of ramming through the approval process for the controversial treatment.

Meanwhile, the volume of back surgeries has grown significantly over the last few years. It also varies widely by geography; you are six times as likely to have back surgery if you live in Bend Oregon than if your residence is near Yankee Stadium.

Fortunately, a well-designed evaluation of back surgery and alternative treatments is underway at Dartmouth. The study, which is investigating outcomes from surgical and non-surgical treatments for severe back pain caused by a herniated disk, has found that patients "do improve after getting a lumbar diskectomy—the surgical removal of part or all of the disk—but only slightly faster and better than people who don't get the surgery."

And for a caustically witty take, read Matthew Holt's very funny piece on ethics and surgeons (the two are not necessarily oil and water)

Posted by Joe Paduda at 8:11 AM | Link to this post | Comments (2)

My recent comments on Michael Cannon's entries for the Cavalcade of Risk struck a nerve or two, evidently without the benefit of anaesthesia.

It's always interesting when Cannon looks at health care. While he does have critical gaps in his understanding of the health care/insurance/underwriting/sales process, he does make a couple of valid observations; one notes that lifestyle issues drive a substantial portion of health care costs and it is inappropriate for the healthy living folks to subsidize those who aren't. I agree.

One of his complaints concerns my observation that "the end result of Mr. Cannon's prescription is full self-insurance for all health care costs." He doesn't seem to understand my point.

Allow me to explain. Atop the ivory tower, Cannon's perspective makes sense. Some insureds subsize others, and many of the "risks" that are subsidized are known, and therefore should fall outside a classic definition of insurance.

But Americans don't live in ivory towers. If insurance companies truly medically underwrite every individual policy, then they are no longer providing insurance, but rather transaction processing. Many individuals' health care needs would be essentially self-paid, with all but the most unlikely conditions excluded from their covered services. This would end the health insurance business.

That's my point - insurance would not be available at any kind of affordable price for anyone who really needs it if Cannon's prescription becomes reality. I think this is because libertarians don't believe in health insurance as a means to help people with health conditions pay their bills. That's certainly within their right.

Fortunately most Americans disagree.

Posted by Joe Paduda at 7:41 AM | Link to this post