To date, Automated Healthcare Solutions and other companies owned by their principals have donated over $3 million to various politicians, campaigns, and political organizations. Automated Healthcare Solutions and their sister companies are heavily involved in physician dispensing to workers comp patients in Florida and other states.

The actual number is $3,224,076 since 2002, coming from dozens of companies that are affiliated with or managed by AHCS' principals, with big dollar donations to committees backing current Senate President, MIke Haridopolous and House Speaker Dean Cannon.

Haridopolous' and Cannon's committees each received at least $350,000.

The research was done by the Florida Independent's Virginia Chamlee, who details the various companies and political donations in her piece on Automated Healthcare Solutions. Chamlee's piece is the first to provide a full picture of the political donations of AHCS' principals Zimmerman and Glass, and the $3.2 million total shows clearly just how important Florida is to dispensing companies and their affiliates.

If you are thinking this isn't a big deal - you aren't thinking. Physician dispensing increases Florida workers comp premiums by 2.5%. That added cost will disappear if Senate bill 668 passes and is signed into law, but the contributions and political muscle of AHCS and their allies are making that look increasingly doubtful.
SB668 is out of one committee in the Senate, but things get tougher from here. There's no question Sen Haridopolous has gotten an earful from those who are profiting from physician dispensing, and as the Senate's boss, he has a lot of influence.

Now he needs to hear from those who are paying the tab.

Send Sen Haridopolous an email, copy Sen Alan Hays, the Senator who is backing the bill to limit the cost of physician dispensed drugs - not ban physician dispensing, but limit the cost to what you'd pay for the same drug at a retail pharmacy.

and send me a copy too.

Tell Sen Haridopolous:

- Florida's employers can't afford to enrich a select few who get most of the dollars from physician dispensing.

- If he's serious about getting the State's economy back on track, he'll help employers cut their costs

- if he's serious about helping taxpayers, he'll stop backing physician dispensing which adds to their bills while forcing schools, police and fire departments to lay off workers to pay the inflated bills of physician dispensers.

What does this mean for you?

Time to get active, or don't complain when SB668 is defeated and your costs go up even more.

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (0)

Over the last ten years, more than two thousand claimants have died as a result of drugs received as part of their "treatment' for their occupational injury or illness.

That's the conclusion reached by Peter Rousmaniere in his latest column at Risk and Insurance - and if anything, his estimate is on the low side. This isn't a criticism, as it is evident Peter is doing his best to avoid sensationalizing an issue that needs no exaggeration.

Peter bases his estimate on several different data sources, including a just-published article authored by Gary Franklin, MD, Medical Director of Washington's state workers comp fund. By my calculation, both Peter and Dr Franklin's estimates seem low.

A back-of-the-envelope calculation arrives at this figure - there were about 1750 narcotic-related workers comp deaths across the country in 2009 alone.

I base that figure on two data points.

1. Washington's research - about 35 claimant deaths in 2009 appeared narcotics-related.

2. Washington has about 2 percent of the nation's population.

Washington State has addressed the issue, and their solution has had a remarkable impact. This from the article by Franklin et al:

"By the third quarter 2009, there was a substantial decline in the mean daily long-acting opioid prescription dose among workers' compensation claimants in WA, followed by a dramatic fall in unintentional poisoning deaths related to prescription opioids in this population in 2010."

That's one state out of fifty.

What does this mean for you?

Identify doctors prescribing more than 120 morphine equivalents per day to claimants. Find out why, and if appropriate, take immediate steps to stop sending claimants to them.

Posted by Joe Paduda at 6:24 AM | Link to this post | Comments (1)

One of the most powerful firms in the physician dispensing business is sending hundreds of thousands of dollars to elected officials in Florida. [sub req] The donations, to individual politicians and their affiliated organizations, come as the Florida Senate is considering a bill that would limit reimbursement of physician-dispensed drugs to the cost of the underlying (non-repackaged) drug.

This morning Mike Whitely of WorkCompCentral reported Automated Healthcare Solutions "gave more than $32,500 to Florida state lawmakers and more than $500,000 to committees associated with conservative causes and candidates in 2011...", most of it in the last three months of 2011.

The timing is fortuitous, as Senate bill 668 was moving thru the legislative process last quarter, and is the subject of intense debate. Suffice it to say that passage of SB 688 would greatly reduce the income of companies in the physician dispensing/drug repackaging sector.

The physician dispensing bill made it out of one Senate Committee last week, albeit with a poorly-written and ill-advised amendment.

Writing in HealthNews Florida, Carol Gentry reported: "SB 668 survived its first committee in a 7 to 4 vote. But some senators who voted in favor said they may change their minds if answers to their questions aren't forthcoming by the time it gets to the Senate floor."

It's unknown if the flood of cash from AHCS will affect the votes of key Senators, or cause beneficiaries to use parliamentary procedures to block the bill. The forces allied in support of the bill include the Chamber of Commerce, most of the workers comp insurers, and many employers.

And, in an interview with Whitely, a spokesperson for AHCS said the company is not focusing on the issue, saying their donations are "not a means of affecting public policy".

Really. That's what she said. Evidently AHCS' half-million bucks - donated to key legislators with power over SB 688 - is not related to physician dispensing.

That being the case, I'm sure Florida's elected legislators will do the right thing, pass the bill, and thereby reduce Florida employers' work comp premiums by tens of millions of dollars.

What does this mean for you?

Yet another opportunity to watch the ugly, money-driven process that is politics at its worst.

Posted by Joe Paduda at 8:09 AM | Link to this post | Comments (0)

Looks like the rumors are based in fact; case management/bill review vendor Genex is up for sale.

The "official" news came yesterday (thanks to a good friend for the tip); "The Wayne, Pennsylvania-based company has EBITDA of USD 40m, the source and the first industry banker said. Bank of America has been mandated for the sale process, according to the source familiar. The sale process is in the early stages, with no first round bid deadline yet set, a third industry banker said."

With top line revenues estimated at $390-$400 million, it's not a terrifically profitable entity, but then case management is not known as a big cash generator. They've made a couple acquisitions lately, with Intracorp by far the largest.

Looks like Genex' owner, Stone Point Capital, may be entering the divesting phase. Recall SPC also has ownership in Sedgwick and Stone River/Progressive Medical, although the latter property was only recently acquired. As CIGNA is also an owner, they could be pressuring Stone Point to sell Genex; pretty much every health plan is looking for capital to invest in preparing for 2014, and CIGNA would get a chunk of cash from a sale.

Timing is good - valuations are up, there's lots of activity and interest, and a couple of big-money folks are looking for roll-up and industry integration opportunities. Genex would be a pretty interesting cornerstone for such a venture.

What does this mean for you?

Hold on to that hat - this isn't going to be the last big deal we'll see this winter.

Posted by Joe Paduda at 7:13 AM | Link to this post | Comments (0)

A couple days ago a shadowy equity "research" outfit that goes by the name Copperfield Research published what can only be described as a hatchet job, with CorVel the target.

I'm no fan of CorVel - their business model makes little sense, their pricing model for bill review/networks/ancillary savings appears designed to maximize their revenue, the quality of their services varies widely, and I've been generally unimpressed with their customer service and value proposition.

I'm even less enamored of the "research" and "analysis" done by Copperfield. This isn't a well-known research firm or trading outfit, I couldn't find anything definitive about Copperfield, what their business is, who works there, and why they publish "research". Others speculate Copperfield is the product of an individual engaged in short selling; making money when a stock price drops. I have no idea if that's the case, but that would help explain the CorVel research paper.

Whoever wrote the hatchet job quoted me extensively; that's why I find it necessary to speak out.

It is quite clear that Copperfield knows next to nothing about CorVel's workers comp business, or the work comp world in general, for that matter. Here are a few specific issues I have with their "report".

Copperfield cites the 2005 Broward County audit as an example of CorVel's problems - folks, that was seven years ago. Why did Copperfield resurrect that story? How does this support his claim that "Corvel operates in the gray area of legal and business practices?"

Copperfield raises the Silent PPO issue; CorVel's PPO, like every other PPO, probably has serious data issues and may publish inaccurate provider manuals as well. This isn't evidence of intentional fraud; as anyone who's ever been in the network business knows, the directory is obsolete the instant its published.

CorVel's bill review and related operation is cited as another example of possible malfeasance. Again, disagreement between bill repricers and providers is not exactly new news, and disagreements don't mean there's intentional fraud.

Copperfield can't understand how a work comp services company can grow while frequency declines. Boy, talk about a guy without a clue about comp. Severity is up, Copperfield, medical complexity is up, and many other services companies have also grown over the last decade - despite declines in frequency. Perhaps Copperfield's extensive research staff didn't find Sedgwick, MedRisk, PMSI, MSC, Express Scripts, Align Networks, York Claims, MHayes or any of the dozens of other companies, that have grown quite nicely over the last ten years.

He says "CorVel is paid based on the number of claims it manages and is often paid a percentage of the client's savings..." Well, not exactly. CorVel gets paid in a variety of ways for a variety of services; Copperfield's failure to delineate these various services and describe the associated pricing mechanisms shows a lack of attention to detail, or perhaps eagerness to avoid talking about issues that don't support his assertions.

Moreover, Copperfield's complete lack of professionalism is evident in his assertion that somehow CorVel's percentage of savings model is an outlier, unique and different. We all know that's far from reality. While I have voiced my objections to the model, the fact is it's all too common.

He also says no analysts are following the company - not true. There are any number of research reports on Corvel

Okay, those are the highlights. Now let me get snarky.

This guy just flat out can't write, yet he thinks he can. Here are a couple examples.

Discussing the Broward audit, he says it "succinctly details" information. Huh? That's an oxymoron, and a wrong one at that - the report has 211 pages...

Copperfield likens himself to perhaps the most attractive exposer of corporate malfeasance in recent history, saying "we feel a certain kinship to the Erin Brockovich's [sic] of the world..." I have no idea if Copperfield is the male equivalent but he certainly doesn't know the difference between the possessive and the plural.

In discussing the results of his(?) extensive research, Copperfield says "we have uncovered some alarming finding.[sic] There's that damn plural again...

If you really want a hoot, read his description of the work comp claims process on page 5. It is (unintentionally) hysterically wrong.

Finally, this knucklehead says "According to Joseph Paduda [that's me]...nurse case management is a low-margin." I know, I know, he just forgot to add "business." That's not acceptable for two reasons. One, if you're going to paraphrase or quote someone, get it right. Two, it shows a lack of attention to detail, an absence of care and thoroughness that may well extend beyond his inability to write.

What does this mean for you?

If Copperfield is selling short, he's already done well. And if you're reading his stuff and acting on it, good luck.

Posted by Joe Paduda at 6:58 AM | Link to this post | Comments (5)

Earlier this year, I predicted Florida would pass a bill limiting reimbursement for physician dispensed drugs. This morning, we made some significant progress.

Spent a good chunk of the morning watching the Florida Senate hearing on Sen Hays' bill that would peg reimbursement for physician dispensed drugs at what a retail pharmacy would charge for the same drug.

Automated Healthcare Services' lobbyist Tom Panza was up to speak in opposition. A passionate advocate for his client, Panza's speech was notable for its energy if not for its accuracy.

He conflated drug costs, saying that repackaged/physician dispensed drugs average price of $137 is the same as the average pharmacy price of $120. What Panza didn't say, and none of the Senators asked about, is drug mix. Physician dispensers almost exclusively dispense generics, which are much cheaper - on a per script basis - than brand drugs. And retail chains sell brands and generics - brands cost over $200 per script. Thus, Panza's claim that physician dispensed drugs only cost $17 more on average than retail was misleading and false on its face; in fact WCRI's recent report on pharmacy in Florida notes: "physicians were paid 35-60 percent more than pharmacies for the same prescription."

Panza also trotted out the hoary old chestnut that physician dispensing increases compliance, citing the statistic that 30% of scripts aren't filled - ignoring that this figure is a) dated; b) addresses group health and not work comp; and c) the main reason people don't fill their group health scripts is cost. And as we all know, comp claimants don't pay anything for drugs.

Panza also stated that physician dispensed drugs reduced litigation and increased patient satisfaction, without citing any data or research to support that assertion. Gotta respect his passion, even if his logic and supporting data (of which there was almost none) was suspect at best.

Lori Lovgren came up after Panza, and debunked his claim that prices were the same for physician and pharmacy prices. Sen Bennett was somehow confused about her response, or perhaps more accurately Bennett didn't like what he heard. Bennett's been vocal about his support for the egregious over-billing for drugs by physician dispensers. Sen Negron, another physician dispensing supporter, asked some unsubtle questions asking if insurers had any ownership of pharmacies or PBMs, which Lovgren did not answer - the answer, of course, is no.

While Lovgren was, or course, accurate, she wasn't a particularly effective speaker, and failed twice to make key points refuting Panza's claims. It's one thing to have the right information, but it's a whole different thing to present that information cogently and effectively.

Several other Senators seemed to focus on narcotics, and wanted to know if the pill mill bill had changed the financial picture, making NCCI's cost figures irrelevant. Lovgren responded that no, there was no significant impact on cost, but that didn't seem to bear much weight

A number of potential speakers from all manner of employer, taxpayer, and payer advocacy organizations waived their chance to speak but voiced support for Sen. Hays' bill (restricting overcharging for physician dispensed medications).

A physician advocated for physician dispensing said he couldn't dispense at the costs set by the Hays bill as he has to hire additional staff and buy software etc and therefore the bill killed physician dispensing

David Deitz, MD spoke directly to the physicians' claims that physician dispensing increases compliance, noting there are no studies supporting that claim. He also noted that Liberty Mutual does not oppose physician dispensing but rather repackaging. Another Senator cut off Dr Deitz, and the Committee did not allow any of the other dozens of supporters to speak. That's too bad, as Dr Deitz knows this subject very well.

There was some very brief discussion, but the bill passed out of Committee by a substantial margin

This is a big step, a critically important one, but only a step. There's much to be done to get this bill passed by the Senate and signed into law.

We'll keep you posted.

Thanks to Carol Gentry of HealthNews Florida for the head's up.

Posted by Joe Paduda at 9:29 AM | Link to this post

Colleague Bob Wilson of WorkersCompensation.com has been delving deeply into the disaster that is North Dakota "justice", at least justice as applied in the Sandy Blunt case.

Bob's efforts have uncovered some amazing stuff...

For instance, the same state that spent hundreds of thousands of dollars prosecuting Sandy Blunt for giving a few thousand dollars of incentive presents such as balloons and chocolate chip cookies and five dollar (five dollar!!) gift cards to employees also used a Predator drone to nail some farmers for keeping six of a neighbor's cows on their property.

Yep, that's a $154 million aircraft used to get $6000 worth of beef.

There's a new definition of RoI; it's no longer "return on investment" but Reminder of Idiocy.

Alas, some of the good bad folks of NoDak don't see that as a problem, instead choosing to hurl imprecations (for you NoDak Sandy-Haters that means "say nasty things") at Bob for his ignorance and temerity (again, for NDSHers, that means "unmitigated gall"; oops, that won't work...how about "excessive boldness"?).

Net is, they've been pretty awful, and not very articulately awful at that. Lots of "oh yeahs?" and "yo mama" type stuff, so much so that Bob had to shut down comments before the offenders sprained their brains tying to decipher his multisyllabic retorts.

But Bob says it better than I can. Go read his "People's Republic of North Dakota" piece and see for your own self.

And don't forget to sign up for the Friends of Sandy Blunt afterwards...

(Now before all the GOOD folks of NoDak pillory me, I know you're out there, admire you immensely for standing by Sandy, and appreciate your support for the guy. I'm also sorry you have to live on the same planet with those jerks)

Posted by Joe Paduda at 3:53 PM | Link to this post | Comments (2)

Today's WorkCompWire has a great piece authored by PMSI CEO EIleen Auen on the differences between work comp and group pharmacy management.

Among Eileen's points are:

- "Group health benefits generally focus on sickness and illness while workers' compensation focuses on workplace injuries and returning individuals to work. Although a fairly obvious difference, it underlies many of the other differences that make workers' compensation unique, including drug mix." (I'd add that work comp ONLY covers drugs specifically for treatment of the occupational injury or illness).

- "The types of drugs used. Because of the focus of care, the medication mix in workers' compensation is much more focused towards pain management rather than illness management."

There's quite a bit more on differences in clinical management, formulary, and financial incentives, and how these effect prescriber and patient behavior.

Well worth the read, especially if you're an investor type trying to understand the WC PBM industry.

(Note PMSI is a member of CompPharma, and Eileen is a good friend)

Posted by Joe Paduda at 12:43 PM | Link to this post | Comments (1)

Today's' WorkCompCentral arrives with a solid piece[sub req] from Greg Jones detailing the current work comp insurance market environment, which III's Bob Hartwig characterizes as "firming"; rates are up but not (yet) into the double digit territory which is Hartwig's definition of "hard".

It's been a long five or six years, rates are at historic lows in many states, and the hardening is spotty - some states (Texas) are still seeing rates that are flat or nearly so, while others (Florida) are looking at big increases.

For now, the question is not "when will the market harden?", rather it is "how fast and how much are rates going to increase?"

TPAs are hoping the answer is "very soon and a lot", and most insurers are as well - especially the ones who have reserve deficiencies...

What does this mean for you?

Realism in pricing is good, even though prices are up for employers, the recent pricing was simply too low. If it had continued, real damage would have been done to lots of insurers, and we'd be looking at insolvencies and a very hard market coming very quickly.

Posted by Joe Paduda at 7:20 AM | Link to this post

Okay, here's the last of my predictions for the work comp business 2012...

7. The physician dispensing cost control bill currently pending in Florida will pass.

After several years of political intrigue, huge campaign contributions from companies making enormous profits from physician dispensing, and continual efforts by good actors in the system, outraged taxpayers and employers will finally succeed in limiting reimbursement for drugs dispensed by docs to the original underlying price of the non-repackaged drug.

I hope. And so should you.

That won't' be the end of the issue; Maryland, South Carolina, and other states are also battling to limit this latest and greatest abuse of the comp system. Even if we win in Florida, there will be many more battles ahead.

8. More payers will diversify their provider network partners.

As Aetna winds up its work comp network operation, payers' interest in exploring other network options will increase. Following the lead of Broadspire and ESIS and enabled by technology that makes it easier than ever to mix and match provider networks, we'll see several other large payers award more network business to more network companies. Expect firms such as Anthem, HFN, Horizon, Cofinity, Rockport and Prime to gain share.

That doesn't mean anyone should count Coventry out. They are the oldest, largest, and most entrenched, and are working hard to address network gaps that will arise when their relationship with Aetna finally ends (which is still a long way away).

9. York Claims will finish the year well on its way to becoming a top-tier TPA.

Through savvy deal-making, a pretty intelligent sales approach, and what is by several accounts a strong focus on doing the right thing for the employer (and not just generating fees for York), York has transformed itself from what was a not-very-good TPA a decade ago to a well-regarded and very well run organization. York's robust technology and strong market share in key sectors (especially governmental entities in several states), coupled with the expertise they've added as a result of acquisition (I'm especially impressed with the JI Companies deal) bodes well for their future.

Perhaps I should modify the headline - York already is a top tier TPA in terms of capabilities; these capabilities will drive them towards the top tier in terms of revenue and market share.

10. Oklahoma will eliminate the requirement that all employers have workers comp insurance.

There are moves afoot in several states to reconsider the work comp mandate, but none have more traction than the one in OK. Whether it's because they share a long border with the only state that doesn't require comp (Texas), many of their larger employers also have big operations in Texas and like the opt-out there, or there's something more ephemeral, a sense that work comp as currently constructed doesn't work the way it should anymore, Oklahoma may well be the next state to allow employers to opt out.

There's already a study group authorized by the State Senate that's looking into the feasibility of the change; their findings should be released in the next few weeks. that will be just in time for the next legislative session which starts in February.

This may not become law in 2012, but I'd expect some movement that allows some employers to opt out, perhaps in a pilot program as early as next year.

Well, there we have it. Oh, there's one more..

11. My annual April Fool's post will generate some controversy, tick off a few people, and generally cause consternation among those who either don't have a sense of humor or can't read a calendar. It will also not get me in as much hot water as some others because I have to vet it through my PR department...

Posted by Joe Paduda at 10:45 AM | Link to this post

I'm finishing up compiling results from the most recent survey of pharmacy management in workers comp, and had to take a break and get this out.

I just totaled up the responses to the question "How much of an issue are opioids in workers comp?"

The average response was 4.8 on a 1 to 5 scale, with 5 "extremely significant".

This is the highest score for any question in the eight year history of the survey.

Moreover, respondents are deeply concerned about the increased risk of addiction and dependency inherent in widespread and prolonged use of these highly addictive drugs. They rated their level of concern at 4.4.

Respondents were from a variety of payers: state funds, large private insurers, TPAs and smaller regional carriers.

Kudos to WCRI, NCCI, and CWCI for raising awareness of the issue.

Next step is to put solutions in place.

Posted by Joe Paduda at 3:38 PM | Link to this post | Comments (4)

With the release of WCRI's latest report - this on on outpatient facility surgery costs - I'll have to leave the next and last wave of crystal ball gazing to tomorrow. That'll ensure it has a full charge before I polish it up one more time for some serious prognosticating.

The report is typical WCRI - carefully researched, stuffed full of appendices, state-specific information, methodological discussions and data dissection. Fortunately authors Rui Yang and Olesya Fomenko have provided a quick summary of major findings for those who don't want to read all 123 pages. We'll get to them after a (very) quick synopsis of the methodology.

For trending purposes, Yang, Fomenko, and assistant Juxiang Liu analyzed payments for the 2003 - 2009 service years for knee and shoulder arthroscopy, surgical episodes common in workers comp, thereby taking into account fee schedule, coding, negotiated, and network discounts. The cost differentials were based on 2009 data.

- It will come as no surprise that states with no fee schedule, or one based on percentage of charges - had higher costs in 2009. And, those costs increased more over time than states with fees based on standards such as APCs (Ambulatory Payment Classification groupers)

- Illinois had the highest costs, 45% above the median (recall that work comp is already a v very profitable payer, so paying 45% more than median means WC is really profitable business for facilities)

- Massachusetts had the lowest cost, at 40% of the median. However, Mass had the highest rate of increase over the six year period at 85%.

- Notably, Maryland, the only state that sets costs level across all (well, mostly all) payers was the second lowest cost state at around 55% of the median.

- looking at arthroscopic knee surgery, Maryland's FS rates were $928, about an eighth of Illinois' at $7.713. For shoulder surgery, IL's outpatient FS rates were more than twelve times higher than Maryland's...

So, a couple of observations.

1. the information is a couple years old, and therefore doesn't factor in changes since then. There's no way WCRI could as many changes don't make their impact felt for some time. That said, I'd note that Illinois' new FS is 'more of the same', using a percentage reduction below charges that, as the study shows, won't control costs.

2. the average cumulative trend rate from 2003 - 2009 was 38%, not terribly different from the overall CPI for similar services (6% per year). That's encouraging, if you're average. Texas' increase was 73%...

3. With the expansion of Medicaid, pressure on hospital reimbursement from Medicare and the rapid increase in the number of uninsured, workers comp's unenviable position as the best payer in the business is ever more firmly established.

And a conclusion.

Fee schedules and network discounts based on a reduction off charges DO NOT WORK, if "work" is defined as controlling costs.

If "work" is defined as making money for network companies, they work really, really well.

Posted by Joe Paduda at 8:33 AM | Link to this post | Comments (1)

My crystal ball blanked out yesterday after revealing the top three predictions for 2012; it recharged overnight and looks ready to continue this morning. I'll see what it shows and hopefully, before the light dims, we'll have a clear picture of what the new year will reveal.

4. Attacking opioid addiction and dependency will hit the top of many payers', regulators', and employers' agendas.
Led by reports and publicity from notables including Gary Franklin, Medical Director of Washington State's work comp fund, Alex Swedlow of CWCI, WCRI and NCCI, there's been a tremendous awakening among stakeholders to the human and financial cost of opioid abuse in workers comp. The quicker payers are already moving from "oh my it's a big problem" to "here's the plan to fix it."

It's about time. The damage caused by rampant over-prescribing of opioids is immeasurable. Devastated families, dead claimants, rising insurance premiums, increased crime, completely unnecessary disability and higher costs for employers and taxpayers are the result.

Identification of claimants at high risk for addiction and treatment of those individuals must - must be a priority. Intelligent payers will stop ignoring the problem or hoping it will go away, and work to a) prevent more overuse and b) help those already addicted/dependent to get healthy.

5. Now that Illinois is starting to approve Preferred Provider Programs, there will be lots of interest followed by disappointment that they really don't do much to control over-utilization.

I know, this is a gimme. The good folk at the Illinois Department of Insurance have been forced to come up with regulations to implement legislation that is about as convoluted as it could possibly be. Unfortunately, claimants who are interested in gaming the system will use the loopholes in the PPP system to get what they want when they want it from the providers they want to get it from. The PPP will only really work for claimants who weren't interested in gaming the system.

Unfortunately the PPP isn't much of a solution.

6. As work comp premiums begin to rise, we're going to see a renewed interest in loss control, risk management, and medical management.

With rate increases coming in California, Florida, and Massachusetts (among other states), employers are going to have to dust off those yellowed risk management plans, recall the basics of loss prevention, and perhaps re-hire the loss control pros they laid off over the last few years when their services weren't 'needed'.

Look for the big consulting houses, and smaller boutique firms, to emphasize their loss control expertise and capabilities; mono-line (and heavily-work-comp-focused) carriers will also tout their knowledge and ability to help employers control comp program costs.

The ball is dimming, and client work calling...time to put the sphere back in the charger.

We'll conclude tomorrow.

Posted by Joe Paduda at 7:08 AM | Link to this post | Comments (1)

There's a lot happening in the work comp industry: a hardening market; frequency ticking up; consolidation/mergers/acquisitions and buyouts; legislative and regulatory changes; and management moves. And all this against the backdrop of a very big election year.

So here's what I'm going to be watching for.

1. Health reform will impact workers comp.

I have no idea what the Supremes will do when they rule on the constitutionality of the PPACA, aka health reform bill. Their ruling could kill the law, leave it alone, or eliminate the individual mandate. But no matter what the official decision is, the health financing and delivery industries have changed dramatically over the last two years, and that change will only accelerate over the next two.

The rapid consolidation of health care providers, growth (via acquisition) of delivery systems, and acquisition of providers and provider-based managed care plans by payers is changing the landscape, as is the expansion of Medicaid. Health plans KNOW they have to change their models, get bigger, invest billions in technology and solidify and strengthen relationships with providers, regardless of whether reform survives or not.

All health plans are very tightly focused on those strategic imperatives. As a result workers comp, long a sideline, has been relegated to a position of insignificance, with one exception - Anthem. I'd expect to see the Big Blue continue to expand their work comp presence, but they'll be the only one to keep pushing. The rest are too busy worrying about the 98% of the business that is group, Medicare and Medicaid.

For comp, network discounts will diminish, That doesn't mean medical costs will increase, as discounts don't always, or even most of the time, equal savings. Network options will change, and we'll see more piecemealing of networks as other payers follow the lead of Broadspire and now ESIS and diversify their network relationships.

2. M&A in comp is going to accelerate.

There was a lot last year, but 2012 is going to be the year of the deal. With the pending changes in capital gains slated to kick in a year from now, several private equity-owned companies getting well past the three year horizon (and a couple past five), some long-time entrepreneurs looking to ride off into the sunset, and what appears to be an uptick in valuations, it's a no-brainer.

3. Comp rates will go up.

Well, this already started, but it bears repeating. After a way-too-long soft market, it's about time pricing sanity returned. Higher work comp premium rates will drive business to TPAs, encourage risk managers to, well, actually manage work comp risks, increase vendor business (think UR/case management, PT, bill review, and networks) and generally help all of us in the industry.

Three more tomorrow...

Posted by Joe Paduda at 5:24 AM | Link to this post

It's increasingly evident that the way-too-long soft market in workers comp is coming to an end - if it isn't already over.

The latest news comes from MarketScout (reported by Mark Ruquet in PropertyCasualty360.com), which indicated WC rates were up three percent in December, the highest increase among all P&C lines.

Earlier, Moody's noted that reserve releases (insurance companies deciding they have too much money set aside to cover future claim costs) for work comp claims had pretty much ended, and ISO reported P&C insurers' net income for the first three quarters of 2011 had declined by two-thirds from the same period in 2010.

This comes as welcome news to insurers, brokers, TPAs, and has implications for work comp services companies as well. And while employers may not look forward to paying higher premiums, they have to realize they've been enjoying a long period of low rates and great availability, factors which have reduced their expense significantly over more years than anyone could have expected.

For TPAs, many of whom have been hanging on by a thread while waiting for employers to once again look hard at self-insurance, this couldn't come any sooner. Word is there's been an uptick in proposal requests from employers.

For companies such as York (which just completed another acquisition of JI Companies late in December), Broadspire, Gallagher Bassett, and Sedgwick, this could well be the start of some nice, profitable growth. That is, if they don't decide to cross the stupid line when it comes to pricing.

What does this mean for you?

Congratulations, you've made it through the longest soft market in recent history.

Posted by Joe Paduda at 6:21 AM | Link to this post | Comments (3)

Today's WorkCompCentral arrived with the welcome news [subscription required] that South Carolina's Workers Comp Commission has capped the price on repackaged drugs at the price set by the underlying manufacturer.

This is good news indeed, and a well-deserved helping of coal for drug repackagers and physician dispensing companies who add no value while sucking money out of the system.

This follows similar action earlier this year in Georgia, and should have a significant impact on employers' costs in the Palmetto State. According to NCCI, physician dispensed drugs accounted for about 27% of all drug costs in SC - but that was back in 2009. It's highly likely they're up well over 30% by now.

Other states that have put caps on physician dispensed drugs or otherwise limited the practice include California, New York, Georgia, Texas, and Massachusetts. Connecticut is looking at the issue, as is Maryland.

The big problem continues to be Florida, where physician dispensed drugs now account for over half of all drug costs - and price levels continue to head for the stratosphere. Sources indicate legislation designed to limit price gouging will pass the House, but it's up in the air in the Senate.

For more info on exactly how much cost these companies add to the system, click here.

What does this mean for you?

Lower costs and improved patient safety in South Carolina is great news indeed!

Posted by Joe Paduda at 7:54 AM | Link to this post | Comments (1)

I'm all about accountability - and that means each year I have to report how I did on my predictions for the preceding twelve months. Not always a happy time, especially when it's one of those "learning experiences.".

Yep, it's time for the annual review of my predictions for the year gone by - an annual event more likely to humble than honor your faithful author, while providing a bit of entertainment for you, dear reader.

So, somewhat reluctantly, here goes.

1. Business will pick up - a lot.
This referred to the work comp sector; it looks like my outlook was overly optimistic. While there's been an uptick in initial claims, and severity continues to increase, and premiums are going up a bit, it's only "a bit." Have to score this a wrong...

2. We'll see several new comp writers enter the market as capital comes in, providing increased underwriting capacity in selected markets.
I'd have to score this as a partial; there is plenty of capital in the comp market but not much in the way of "new writers".

3. Sedgwick will continue to snap up TPA operations, supply-chain pieces, and managed care vendors
A definite "correct", as the nation's largest TPA, Sedgwick continues to grow in part by "vertical integration", buying workers comp service companies and other TPAs. The latest deals include XChanging and SRS.

4. The exploding growth of opioid usage in narcotics in comp will become even more prominent.
Another "correct". The research published by CWCI, NCCI, WCRI and individual PBMs has documented all too well the sad state of affairs. And if this wasn't enough, there's been reports of opioid-related claimant deaths in the mass media as well.

5. Obesity's impact on work comp costs will gain more attention, as additional research will show significantly higher costs
Another yes, as well-documented by our colleagues at Workers' Comp Insider and excellent research from NCCI

6. Congress will not solve the Medicare physician reimbursement conundrum,

This has to rate as a "gimme"; there's no evidence Congress will ever solve ANY problem, much less one as knotty as Medicare physician reimbursement.

7. Hospital and facility costs, both inpatient and out, are going to get a lot more attention in payers' C suites.
I can only comment on this anecdotally, but several payers I work with are quite alarmed about the cost of facility fees, especially in Illinois, California and Florida. That said, there hasn't been the public discussion I thought would happen when this issue really gets traction. So, I'll give this a "not really".

8. We'll see more litigation around 'silent PPOs' in more states.
Fortunately, this looks to be a "not really." Madison County Illinois is one of the hotbeds of class action suits alleging silent ppo violations; most recently a federal judge refused to certify a class in a silent ppo case.

9. Social media is going to make its presence felt broadly and deeply in comp, in ways obvious and not, good and bad
Again, no question - yes. Whether it's the usage of Facebook, Twitter, and other vehicles by payers looking for information on claimants, or service companies using social media for marketing purposes, or industry wide discussion groups (Mark Walls of Safety National's LinkedIn Group, Bob Wilson of WorkersCompensation.com), or blogs (led by the originator, Workers Comp Insider) breaking news about developments in the market, there's no doubt social media is a large and growing presence in comp.

10. The impact of health reform on workers comp will happen in ways mostly subtle.
Absolutely. While reform is a long way from full implementation, the added coverage of 2.5 million young people due to the expansion of parental coverage to children under 26, greatly expanded use of electronic medical records and e-prescribing, and increase in funding for medical research of comparative effectiveness are all making a difference.

What's the result?

Well, six corrects and four "not corrects" - better than a great baseball hitter, but not what I'd hoped. (That said, a couple of the "not corrects" may get partial credit)

Next up - predictions for 2012. I'm off to get the crystal ball polished up at the local gemologist...

Posted by Joe Paduda at 8:38 AM | Link to this post | Comments (2)

A doctor prescribes massive doses of opioids for a claimant; that prescription is denied; another physician writes the exact same prescription, the claimant gets the drugs, dies, and the insurance company that paid for the drugs is liable.

Only in workers comp.

I've received no fewer than eight emails and references to this in the last few days; all express outrage - outrage that any physician would prescribe these drugs, outrage that the second prescription wasn't rejected, outrage that the doc that wrote the second prescription was the sister of the first prescriber, outrage that the insurance company is somehow deemed liable for the death.

I won't get into the court's decision re liability; Roberto Ceniceros has that discussion covered here. That's dealing with the result. What makes me insane is the simple reality that the claimant got drugs they never should have received.

Because the system - denying inappropriate care through the state-regulated utilization review process - worked. The pharmacy that received the initial script refused to fill it.

Here's a few more details that add even more concern.

The claimant was prescribed fentanyl patches which were supposed to last two days per patch. Two days after the script was written, there were only four patches left in the box. According to court records, "Subsequent toxicology reports revealed that Fentanyl alone was sufficient to account for death, in even a tolerant user, as Decedent was [sic] certainly was. Decedent died from drug intoxication due to an overdose of Fentanyl prescribed for his work injury."

This was in addition to "Propoxyphene, which is [sic] synthetic narcotic analgesic, frequently compounded with non-narcotic analgesics; Oxycodone, a narcotic analgesic, often compounded with other ingredients such as non-narcotic analgesics..."

Oh, and the doc who prescribed the drugs that killed the claimant worked in her brother's practice; was referred the claimant by her brother, who told her to "handle" the situation; knew the UR determination had rejected her brother's initial prescription; yet wrote the exact same script - for Sonata, Fentanyl, Oxycodone, Fentora, Docusate, and Lyrica.

What does this mean for you?

It is abundantly clear that opioid usage in workers comp is a national disaster. PBMs and payers have to start - or step up - screening for overuse and denying scripts that are not medically necessary. Physicians exhibiting these prescribing patterns have to be very carefully scrutinized. PBMs and payers have to work together to identify claimants at high risk for addiction, assess those claimants, and get them into treatment.

And we need to do this NOW.

Court decision is here.

Posted by Joe Paduda at 11:08 AM | Link to this post | Comments (2)

I'd have to say "Yes."

Several sources have confirmed that the rumored acquisition of Avizent by York Claims is an all-but-done deal.

York was a small, low-price NYC-based TPA a decade ago, a subsidiary of AIG (who had bought the company from the founding family) that won business on low bid awards. THe offices were modest (to say the least), staff over-burdened and under-qualified. Over the last ten years, the company has evolved been transformed into what is now a well-regarded, well-positioned TPA with offices in a dozen states, thousands of customers, and a growth record that's pretty impressive given the economic conditions of the last few years.

Purchased by management and private equity firm Bexil in 2002, York was acquired by Odyssey (another private equity firm) in 2006, where York's growth accelerated through acquisition and new clients. York acquired several TPA and related businesses including Southern California Risk Management Associates (SCRMA) and Bragg and Associates, expanding the company's reach in California and the midwest.

Columbus Ohio-headquartered Avizent looks to be the next company purchased by York. Not to be confused with Advisen, Avizent is a well-regarded TPA that has also grown, albeit primarily via new business acquisition. With its roots in the old Frank Gates organization, Avizent added FA Richard (FARA) in 2010, a major deal that greatly expanded Avizent's business in the south.

The contract is done, due diligence essentially completed, and it's just details and timing now.

What does this mean?

There's been a lot of consolidation in the claims administration industry. Industry leader Sedgwick has been acquiring various and sundry claims services and claims related entities for several years, Gallagher Bassett bought GAB Robins back in 2010, and regional TPAs have been consolidating - or closing - as the soft market has dramatically affected their business.

These deals have removed competitors and added strength in different geographic areas and industry sectors.

Now that the market looks to be hardening, TPAs are positioning themselves for organic growth. As insurance premiums increase and insurance becomes harder to find, more employers are going to turn to self-insurance. The TPAs that have survived the brutal conditions of the last few years are - in general - well positioned to flourish.

(Note I asked both entities for comment; if I hear back I'll provide an update)

Posted by Joe Paduda at 11:35 AM | Link to this post

Here's what Aetna provided in response to my questions about the termination of their workers comp business. The company did not directly respond to my queries about who was going to keep access for how long, and there's a good bit of corporate-speak here.

If I hear more inside info about the decision I'll pass it on...

"Aetna is focused on committing resources to areas where we see the greatest potential for growth and where we can deliver the greatest value to our customers. After reviewing our business portfolio, we made the decision to transition out of the AWCA [Aetna Workers Comp Access] business so that we can invest in other areas of the enterprise where we see greater opportunities for growth. We notified our customers of this decision earlier this year and have committed to honoring all existing contracts, which in some cases run through the end of 2013...

Since we are transitioning out of the business over a two year period, there will be no immediate impact to the services that we provide to our customers or to the employees that support the AWCA business. We will continue to monitor our staffing levels to ensure that they are in line with our business needs and will look for opportunities to realign staff to other business areas as appropriate."

Readers will recall AWCA laid off a number of customer-facing staff early in 2011, so there may not be many left to go.

Initially Aetna said no other business areas were affected; in subsequent conversations I learned they will no longer underwrite the insurance risk for PetsBest pet insurance - but that's it.

Posted by Joe Paduda at 7:07 AM | Link to this post

There are three types of physicians - the few really good ones, the few really bad ones, and most who either aren't good or bad, or you just don't have enough information to tell. The problem with most networks is you can't de-select/kick out/avoid the bad docs without going thru lots of effort.

That's about to change.

Most comp provider networks are pretty much interchangeable - a big directory of every provider alive - and some not - that's agreed (usually) to give a discount to payers accessing that network's contracts.

A great friend and colleague referred to these networks by the mildly-pejorative term "a box of contracts" many years ago - and that description, unfortunately, still fits.

Recently I've had yet another opportunity to evaluate a network - or more precisely, a managed care firm with an interesting network 'capability'. The company is Anthem Workers' Comp (subsidiary of Wellpoint), and their network offering is somewhat unique - somewhat more than that proverbial box.

First, buying power. Originally created by Blue Cross of California back in 1992 as a for-profit managed care subsidiary, Wellpoint is comprised of what we used to know as Blue Cross and Blue Shield plans. Anthem is an operating entity under giant healthplan Wellpoint, which was 'created' back in 2004 when the two companies merged. Health Plans in California, Colorado, Indiana, Kentucky, Missouri, Nevada, Ohio, New York, Virginia, Wisconsin and a few other states were acquired by the parent over the years, and those plans, along with new plans in other markets, form what is now the nation's largest health plan company.

(The work comp network isn't available in all areas, but is limited (for now) to California, Colorado, Nevada, Missouri and Southern Illinois.)

Wellpoint is best known for their dominant market share in the group health (and governmental sectors) in California and several other states. Several years ago, Wellpoint decided it was going to be a major force in work comp. Leveraging their provider contracts and relationships, they began contracting in California, which remains the core market. As Wellpoint is one of the dominant players in the state for non-comp business, the list of providers is rather extensive, as is their buying power. The result is clients get pretty good deals with most providers. (That's not to say there are any bargains out there for comp payers - far from it. Unfortunately work comp remains one of the best payers in most states, especially for hospitals and facilities.)

So far, pretty standard stuff - big health plan uses its buying clout to get providers to sign work comp deals. Here's the second point; Anthem (the brand they operate the WC sub under) has a unique offering - customers can use Anthem's network 'selection' tool to pick whatever providers they want. Now operational in California, payers are essentially building their own, customized workers comp MPN.

According to Anthem work comp president Bob Mortensen, payers are able to pick and choose whatever providers they want from Anthem's directory. If they want to focus on one county, one region, or need a custom MPN in a few different communities they can do that. For those payers who want a small MPN with relatively few physicians, that's their choice. How they select providers, the criteria they use, that's up to the payer.

I've spoken with a couple of their customers, and they are generally pleased with the result.

Big insurers and TPAs that work with large self-insureds need the flexibility to add or remove docs as those employers see fit. As payers increasingly push for smaller and smaller networks comprised of physicians who understand work comp and treat appropriately, the ability to manage their own network will gain more traction.

For insurers with lots of mom-and-pops, big networks with lots of providers are critical, as there's precious little chance a claimant will think to check the posted panel before seeking care.

The big advantage to Anthem's approach is this - they've got the world under contract, and you can pick and choose which docs you can exclude. Because those are the ones that do the most damage: the ones who overprescibe opioids, refuse to release to return to work, recommend spinal fusion far too often, don't communicate with payers and employers, and generally deliver lousy care.

What does this mean for you?

Anthem is building what looks to be a reasonable alternative in multiple jurisdictions. Competition is good.

While it would be great to be able to identify the docs who are definitely the "best", that's hard to do for myriad reasons: not enough data, inaccurate data, low claim frequency, diverse patient population, the list goes on. But rather than focus on the good ones, there's a lot to be gained by identifying the ones at the other end of the spectrum. And once those outliers are gone, results will improve - probably dramatically.

Posted by Joe Paduda at 7:00 AM | Link to this post

Aetna Work Comp Access will be exiting the provider network business. Over the next couple of years, current direct customers will be losing access, with the duration of access dependent on whether the relationship is direct or through a reseller. I've got my own opinions on why, but will hold them for now in hopes I hear back from Aetna soon.

This hasn't been announced publicly, but sources indicate all AWCA's direct clients were informed over the last couple of months, and the 'indirect' clients - those accessing AWCA through Coventry or another entity - are finding out thru their account managers (if not, to misquote Desi Arnaz, "you got some 'splainin' to do...").

First, a bit of history. Veterans of the industry will recall Aetna made a big push into the WC provider network business back in 2006, positioning itself as a competitor to Coventry/First Health. An executive team was hired, staff came on board, and they were off and running. Some years later, senior management at Aetna decided to change course, and instead of competing with Coventry, they became Coventry's network in what they said at the time was nineteen states.

Coventry's been using Aetna as their underlying network in about 15 states since late in 2007.

Shortly after, senior management was terminated in a surprise move in September, 2008.

More recently (January 2011 to be precise), most of their customer-facing staff were laid off r and Aetna ended (most of) their direct relationships and pushed those customers to work thru their resellers, including Coventry.

I spoke with David Young, President of Coventry Work Comp about this, and here's what he had to say.

Way back when the two entities first got together, they included what David called "divorce provisions" in the deal they structured. Back in January Coventry got notice to term contract at beginning of year. Over the course of 2011, both parties were in discussions, with Coventry looking to renew the relationship. That was not to be. Early this fall, Aetna confirmed their intent to exit the business.

As a result of those "divorce" provisions, Coventry'a network customers will have access to Aetna's network thru 12/13. David believes this is longer than any other entity (I'll ask Aetna when I hear back from them). Coventry plans to use that two year window to evaluate their current network, figure out where they need to backfill, and get as much as possible of that done before the clock stops ticking.

So far, Young's analysis indicates Coventry's current non-Aetna direct and leased network contracts can cover about 70%+ of the dollars flowing the network. They're starting a targeted recruitment effort in areas most affected by Aetna's departure, and are looking to strengthen relationships with current leased network partners as well.

Of course, David was quick to note this has no bearing on their interest and commitment to the WC business - Coventry is commited to the comp business. I believe him. They are making so much money from comp that they'd be nuts to get out - and Chairman Allen Wise is not nuts.

That said, this opens up the door for other network companies, as large and mid-sized payers, network aggregators, and bill review companies are looking hard at alternatives.

One last point. A lot of work comp dollars flow thru Coventry's networks, and they aren't shy about using those dollars to squeeze providers for better pricing. David indicated they've had success in negotiating deals with two health systems recently doing just that.

I hope to hear from Aetna tomorrow.

Posted by Joe Paduda at 11:06 AM | Link to this post

The giant pharmacy/PBM company has told some Florida physicians they will no longer fill their scripts.

The article by the St Pete Times' Letitia Stein, reported "CVS pharmacies appear to be flagging prescriptions for a specific combination of medications with high potential for abuse -- oxycodone, Xanax and Soma...". CVS is focusing on a relatively small group of doctors; this isn't a blanket policy. These docs received a notice from CVS stating:

"CVS Pharmacy Inc. has become increasingly concerned with escalating reports of prescription drug abuse in Florida, especially oxycodone abuse...We regret any inconvenience that this action may cause. However, we take our compliance obligations seriously and find it necessary to take this action at this time."

Pharmacies are obligated to refuse to fill scripts they believe are questionable; some, including Titan Pharmacy in New York, believe strongly in this obligation. Unfortunately the vast majority don't. If they did, the current disaster in opioid overdosing would be much less of a problem.

Which is a nice segue to our next news item - WorkCompCentral's John Kamin reported [sub req] this morning that the widow of work comp claimant who reportedly died as a result of an oxycodone overdose can pursue death benefits.

That's right - a comp claimant, who was receiving drugs as a result of a work comp injury, died and the carrier may be liable for death benefits.

In this case it appears that the prescribing physician was careful and judicious, as the patient was prescribed a total of 60 mg of oxycodone (equivalent to 120 MED, the generally accepted dosing limit)
. And, the patient's toxicology report appeared to indicate much higher usage than expected.

With all that said, the warning here is clear.

Some number of work comp claimants die as a result of opioid usage, and the employers/insurers who own that claim may well face liability for a death claim.

Posted by Joe Paduda at 6:25 AM | Link to this post | Comments (5)

Closing out MCM's coverage of WCRI's annual meeting, here's a few final observations.

In general, this was one of the better WCRI meetings I've attended over the past fifteen years. The material was more current, the focus was on issues near and dear to my heart (lots of research on drugs, pricing, and utilization of medical services), and attendance was robust. WCRI's also recognized the influence of press and social media, and worked diligently to accommodate both.

One of the sessions addressed the oft-asked question "Do work comp fee schedules affect the actual prices paid for medical services?"

But not consistently.

According to data provided by WCRI, states with the highest prices for medical services are generally those that do not have few schedules. The non-FS states also exhibited higher growth in costs than those jurisdictions with fee schedules.

However, my home state of Conn. was one of the states in the 'high price' group but it has a fee schedule, albeit a particularly high one. Illinois was even pricier but there's a lot more to that, namely the IL FS was a pretty loose one (and was one of the reasons reform was passed earlier this year).

Interestingly, there was a BIG variation in medical prices paid with the highest prices 2.5 times greater than the lowest. There's been much discussion and research into this in the past, and the correlation isn't very strong.

Note that this research addressed price - and not cost. While price is one component of cost, its influence is often overshadowed by utilization. Moreover, price is not directly linked with cost. For example let's look once again at Connecticut. While we have high prices, we don't have high costs. In fact, CT's costs are consistently about average among WCRI's study states.

Finally, I'd vote for WCRI to move their conference to the first quarter instead of the same month as National WC. The two conferences compete for a similar target market, and moving to a different date may increase attendance as heading to Las Vegas one week only to pack up and travel to Boston the next is tough. (National WC can't move as they have a 5 year facility contract.)

Posted by Joe Paduda at 7:17 AM | Link to this post | Comments (1)

This morning's opening session at the WCRI packed more insight into an hour than anyone could reasonably expect to digest. That's not a criticism but rather a compliment directed at the four speakers.

First, the macro view as provided by WCRI's Dongchun Wang. Massachusetts, Pennsylvania, Louisiana and New York had narcotic utilization significantly higher than the other study states, with NY occupying the top spot.

Massachusetts had by far the largest percentage of Schedule II drugs used as pain medications.

Long term usage of narcotics is a critical issue in comp: claimants on these drugs are not likely returning to work and incur higher medical costs. Again NY and LA had high percentages of claimants on narcotics who continued using them for an extended time. WCRI also examined public policy implications of their research findings on long term narcotic usage. Researcher Dongchun Wang reported data indicating compliance with chronic pain guidelines was all but non-existent (my words not her's). The data showed only 7% of users were drug tested while 4% had psych evaluations/treatment.

This is a disaster. 19 out of 20 claimants prescribed narcotics over the long term are pretty much on their own. These prescribing physicians are NOT complying with the basic treatment guidelines.

Addiction, which Pain Management physician Janet Pearl MD defined as a psychological dependence on a drug, is a very significant and all-too prevalent among work comp claimants using opioids over an extended period. Pearl also noted that there is no evidence to support high dose opioid therapy while moderate dosing helps with pain but NOT with function.

Finally Colorado work comp medical director Kathryn Mueller MD described how her state addresses the issue. My main takeaway involves Colorado's decision to pay physicians for managing chronic pain based on a code-based reimbursement for review of drug screens, and the implementation and monitoring of opioid agreements.

This is one of those blindingly obvious solutions that every payer and state should implement now. Paying a physician to do the extra work required in managing claimants with chronic pain is just common sense.

Posted by Joe Paduda at 8:35 AM | Link to this post

Employment.

After much discussion and debate, WCRI Executive Director Rick Victor informed WCRI meeting attendees that one of the more significant issues facing work comp is the gap between jobs needed to return to pre-recession levels of employment and current employment.

Specifically, Rick noted there are now 25 million potential workers and 3.5 million current job openings. This will - and undoubtedly is - dramatically affecting claimants looking to return to work in a new position.

If those jobs aren't there;

- disability durations will increase

- medical costs may well escalate

- overall claim costs will rise

- older workers may find it particularly hard to get hired

- states with older populations and declining industries may be particularly hard hit

Combine Rick's elephant with rapidly rising hospital and pharmacy expenses (the 'elephant' CWCI research guru Alex Swedlow and I discussed at length over dinner last week) and things aren't looking so bright.

Quite the opposite.

Posted by Joe Paduda at 8:32 AM | Link to this post | Comments (1)

Probably lousy, maybe okay, and just possibly pretty good.

Last week I received a PR email from a work comp services company that had me shaking my head. After I reattached my jaw.

I won't get into the generalities, much less the details, but it was just not helpful to the company behind it.

Public relations is (pick one or more)

- grossly misunderstood,

- complicated and complex,

- overly involved and time-consuming,

- usually poorly done,

- not worth the money, and/or

- critically important.

My vote is "most of the above", especially when we're talking health care/work comp/health insurance.

Public relations deals with a couple areas - building brand and addressing problems. PR is MUCH more important for building brands than advertising - advertising claims aren't credible, it's much more expensive on a cost-per-impression basis, and no one believes advertising (especially when it's from an entity you haven't heard of or don't have a solid brand impression of).

There's a lot of attempted differentiation in the managed care space, but the differentiation exists mostly in the minds of the execs leading the vendors' efforts. What they see as a definite, valuable, obvious difference their market either a) doesn't see or b) doesn't care.

I can't remember all the times I've heard "the market just doesn't get it" from a CEO lamenting their inability to break thru the clutter and get the market to understand just how great their product/service offering really is. But here's the key - the CEOs are right, sort of: the market doesn't get it because it hasn't been explained to them in a way that will resonate and stick.

The way PR works in building brand is

- credible third party sources

- discuss, debate, define,

- an innovative product or service,

- in mass media, online vehicles, or public forums.

How that happens is the tough part. Press releases about relatively unexciting issues don't work to build brand (they can have other uses); some press releases (such as the one mentioned in the lead) hurt the brand by confusing the reader, clouding the message, or because they're just plain unprofessional.

What works is discussion of that brand, product or service by credible sources. But you can't just get a reporter or writer to blather on about yet another predictive modeling approach, surveillance company, UR firm, disease management concept, network enhancement.

What reporters want to write about is stuff that's new, different, exciting, fresh. They're bored to tears writing up stuff they've written about countless times; they want something that's really new, really different, really interesting.

So here's the hard part, where most companies make a critical mistake. Writers and reporters don't care what YOU think is new and innovative. It has to be really new and innovative, obviously so. And, except in rare circumstances, if it takes more than fifteen seconds to explain and they still don't think it's cool, you're toast.

That's where the hard work of PR comes in. Developing and refining your approach, critically thinking about positioning, getting past long-held ego-based self-held ideas about how great/important/innovative your company is, and instead looking in from outside, comparing what you do and how you do it to competitors, and paring down your message to its core.

What does this mean for you?

Most won't be able to do this, as it can be painful. But those who can, and do, will be much more successful.

Posted by Joe Paduda at 6:55 AM | Link to this post | Comments (1)

After Dr Barth's high level background we dove head first into the details of hospital costs and trends and management thereof.

Indiana's Linda Hamilton shared insights into hospital cost regulation in IN, a state with a rather inadequate cost control history. Hamilton noted the substantial increase in providers appealing work comp payments for their services. A usual and customary state, IN has seen rather significant hospital cost growth, perhaps in part due to the lack of comparable hospital charge data on which to base "usual and customary". Many of these were addressed by paying bills at the 80th percentile, However as there wasn't adequate comparable data, the state didn't really know on what to base payment.

As a result, the cost of inpatient care went up 93% from 2003-2007, and there is no real solution in sight.

Hamilton showed slides indicating wide variation in the cost for similar services within the state: neighboring states are seeing much lower costs. That's one reason medical costs account for 75% of losses in the state.

If you are expecting a happy ending you'll have to keep that patience cap on...However Hamilton did note that the state is working on a certified database to help address the difficulty in ascertaining an "appropriate" reimbursement.

Mike Paladino, a WC claim and management exec from a health care system in Richmond, then entertained the audience with a revealing view of the financials of his system.

75% of their revenue is government paid. Paladino asserted that Medicare and Medicaid both reimburse below the actual cost of providing those services; medicare at 80% of costs and Medicaid at 94%. Clearly the health system has to cover those shortfalls by getting private insurers - and workers comp - to pay way more than cost.

A thoughtful and knowledgeable speaker, Paladino noted the services provided by the system benefit society as a whole. He did not claim that the cost shifting that occurs at the system is good bad or indifferent, but it is absolutely clear that it occurs.

My takeaway?

This is a hidden tax on employers and burden on taxpayers and insurers.

Posted by Joe Paduda at 2:27 PM | Link to this post | Comments (3)

The fall conference schedule comes to a close with this week's annual WCRI meeting in Boston. I'll be posting from my iPhone as the wifi access fee is $100(!) so watch out for typos...

Peter Barth began with a history of work comp, with particular emphasis on the societal issues that helped give rise to Wisconsin's first in the nation state comp laws. (more accurately the first WC law that survived legal challenges) Barth noted that one county in PA had more than five hundred workplace fatalities one year in the early nineteen-hundreds.

The National Commission on WC and the impact thereof was discussed in some detail. For the non-work comp folks out there, the Commission led to rather remarkable changes in many state work comp systems by shining a very bright light on the differences among and between the various states. By developing and promulgating universal objectives, the Commission helped accelerate the pace of change and modernization in those states that had long lagged more progressive jurisdictions.

This being the anniversary of the passage of Wisconsin's comp law, there have been many reviews of the history of comp; Barth's presentation was one of the better ones. Perhaps the most revealing takeaway was the drastic change in medical benefits from the early days.

Barth reported that several states allowed claimants a maximum of fourteen days to obtain medical care, two states had rather brief medical benefits periods (Massachusetts with 14 days) as late as1940.

Next up for public consumption is a discussion of pharmacy costs - which is a subject near and dear indeed.
.

Posted by Joe Paduda at 1:26 PM | Link to this post

I received a welcome email from a colleague Friday with the news that one company has solved a problem of monumental proportions that has bedeviled many a payer, regulator, employer and claimant - the rampant abuse of opioids.

Imagine my surprise and delight. The $1.4 billion catastrophe that has driven up costs for employers, kept many injured workers out of work for far too long, devastated families and led to addiction and diversion - is now fixed.

Talk about making my day!

I eagerly opened the email link, my fingers tripping over each other in my haste to discover who had achieved this epic success. As I waited for the link to open, my mind was filled with wonder at the achievement! Who could have done this? How could we reward them? For truly this wondrous accomplishment deserves all the recognition the industry can possibly confer!!!

At last (it was actually microseconds, but such was my excitement that it seemed like it took FOREVER) a window opened, and the screen filled!

It was none other than Integrated Prescription Solutions, formerly known as WorkCompRx.

Amazed. Stunned. Blown away. That was my reaction.

My bright hopes instantly burned to ashes as I read the screen. Imagine my pure, unadulterated shock; the bottomless pit of disappointment filled with crushed hope into which I fell as I discovered the party that had claimed this transcendental success.

For IPS/WorkComp Rx is the same company that, a mere two years ago, had taken my copyrighted work and without my permission, used it in a marketing presentation. Moreover, this company mischaracterized the work in such a way that it appeared I endorsed their approach and business model, if not them specifically.

Now, perhaps they had changed their ways, and had actually found the Holy Grail of opioid abuse prevention.

Alas, it was not to be. As I read their website, it became abundantly clear that while the name had changed, the company had not. In fact, I'm not sure they have progressed at all over the last two years.

There was precious little about opioids, and no "solution" I could find. Nope, same old marketing-speak claiming best-in-class this and industry-leading that. A mention here and there of opioids and utilization control but nothing new, insightful, innovative or even remotely promising.

There are no miracle solutions, no instant results. There is just hard work, careful analysis, thorough attention to detail, and persistent efforts. That's what it will take to reduce the problem of opioids in workers comp.

Anyone who tells you they've "solved" the problem either a) doesn't understand the problem - at all; or, b) doesn't think you do.

Posted by Joe Paduda at 5:50 AM | Link to this post | Comments (2)

Most workers' comp executives have moved opioid abuse and overuse to the top of their "we've got to fix this now" list.

Those who haven't, should.

Here's why.

Employers and insurers will spend $1.4 billion on narcotics this year; the vast majority of those dollars will pay for opioids - OxyContin, Percoset, Actiq, Vicodin and the like.

In all likelihood, hundreds of claimants are dying every year as a direct result of opioid abuse.

There's very little credible evidence that long term opioid use is appropriate treatment for work comp injuries. These are drugs primarily developed - and approved by the FDA for - treating end-stage cancer pain. Not much cancer in work comp.

There's ample evidence that long term opioid use leads to longer claim duration, long term disability, higher costs and much more medical expense. And that's on top of the damage it does to relationships, families, and society.

The insurance industry is beginning to focus on this as a critical problem, one that, although it is societal in nature, directly and dramatically affects employers and policyholders. Regulators and legislators are also keenly interested; I participated in an IAIABC webinar earlier this week along with Dr Kathryn Mueller, Medical Director for Colorado's work comp system and Dr Gary Franklin, Medical Director for the Washington State Fund. There were more than 170 folks on the call, a clear indication of how important the issue is.

The big insurance trade groups are also addressing opioid use, driven by members looking for so-far elusive solutions to a problem costing their policyholders billions in added, unnecessary cost.

It is also going to be the subject of at least one session in next week's workers comp conference and is on the agenda for WCRI later on this month as well.

This is long overdue but nonetheless very, very welcome.

To quote Gary Franklin MD, this is a "hair on fire" issue - and if your hair's not on fire yet, you're either a) bald or b) not paying attention.

Posted by Joe Paduda at 6:21 PM | Link to this post | Comments (3)

Following close on the heels of the National Work Comp Conference is the annual educational get-together put on by the Workers Comp Research Institute in Boston. This year marks the 28th (or perhaps 29th) edition; the agenda reflects how this industry has evolved over those three decades.

I caught up with WCRI Executive Director Rick Victor yesterday to discuss the conference and get a bit more detail on what's going to be shared with attendees.

MCM - What are the goals of the conference?

Rick - We are focused on most important issues e.g. narcotics, use and cost of medications, and other cost drivers. We want attendees to come away with hard evidence of the nature of problem and information about solutions, including hard data on their effectiveness.

MCM - Any changes this year from past?

Rick - The format continues to evolve; it is a pretty robust mix of research and includes practitioners who don't always agree with each other or with WCRI. We think it is important to not stack the deck.

MCM - The agenda has a strong focus on pharma - why and what's driving it?

Rick - We try to align our research agenda with very important national issues like abuse and diversion of narcotics; as you know this far transcends WC and is a national public health crisis. Public policies about pharmaceuticals in WC are about 10 years behind medical policies and medical utilization, and this needs to change.

Some of the actions that public officials have taken about narcotics are not very well informed and not very sophisticated; there ought to be good opportunities to address this issue, if they have good info to make good decisions. Moreover, public decisions don't make it easy for payers to get into they need to identify abuse and diversion; our research might help public officials to make better decision about what tools are appropriate.

MCM - There's a session re hospital expense - what will we learn?

Rick - We see in WCRI's CompScope(r) benchmarking that in a majority of states hospital costs are a bigger driver than non-hospital costs. Hospital price regulation is an area that is elusive for public officials and we would like to bring a bit more light to that. We've developed a new tool that will be unveiled at meeting, a hospital cost index, that will make meaningful and interesting comparisons among and between states.

MCM - I note there's a surprise ending to this year's conference - What's the surprise?

Rick - It's a big issue, an 'elephant'. Elephants are big and can be nasty, and we want to help show how you might step out of the way when the charge is occurring. We will focus on an issue that is significantly under appreciated, hopefully to move it higher on the radar screen.

You can register for the Conference here.

Posted by Joe Paduda at 9:42 AM | Link to this post

Is looking pretty busy. According to organizer Nancy Grover, this year's industry get-together will have more folks in attendance than last year. The vendor list is long as well, which bodes well.

Here's a few of the sessions that caught my eye.

Good friend and colleague Mark walls is moderating the General Session panel featuring many of the big names in comp: Maureen McCarthy of Liberty, Ken Martino of Broadspire, PMA's Tina Preisig, and Eileen Auen of PMSI are just a few of the headliners.

Tron Emptage of Progressive Medical is speaking on medical foods Wednesday afternoon. Medical foods have gotten big press in California of late and look to be one of those areas ripe for abuse. However, there's a lot more to this than you might think, and there's very solid science behind some products, products that offer a much-needed and safer alternative to certain drugs.

Dr Jake Lazarovic, Broadspire's Medical Director, and Dr Steven Feinberg of American Pain Solutions are leading a session Thursday am on Chronic Pain. These are two highly experienced and very knowledgeable experts who are certain to shed much-needed light on an issue that's at the top of many an agenda.

A session Thursday afternoon on managing psychosocial issues in comp has a strong panel focused on what may be the knottiest problem in comp.

Of course there's the usual menu of vendor entertainment options; the mail box has been flooded with invites for the past week. You west coast folks need to remember those of us from the east are three hours behind you; when you're just getting going we're nearing bedtime!

Posted by Joe Paduda at 8:27 AM | Link to this post | Comments (4)

A friend who happens to be a practicing physician here in Connecticut was approached recently by physician dispensing firm Rx Development with a great offer. The physician could dispense medications right from his/her own office, at no cost and no obligation, and make buckets of money!

How much money?

Well, how about a 4443% markup on Soma's generic?

Or 4330% on Mobic's?

2060% on Ultram's?

But wait. There's more. The doc can pick her/his own drugs, negotiate for a bigger share of the margin, and Rx Development does all the work, provides all the drugs, handles all the billing, and trains the doc's staff - all at NO CHARGE!

Of course, this only applies to work comp and auto accident patients.I guess increasing compliance, the avowed intent of physician dispensing, isn't that important unless you can get paid huge dollars.

Oh well, one should do well if one is doing good! And if one can't do well, what's the point of doing good?

I'm hoping the State of Connecticut is aware of this, and takes prompt action to address this practice - which is nothing more than abusing the system to make outrageous profits at the expense of Connecticut's employers. If you agree, please pass this on to the Connecticut Workers Compensation Commission Chair at

wcc.chairmansoffice@po.state.ct.us

We have GOT to stop this.

Here's the letter received by the physician.

"Dr. Jenson,

Thanks for taking the time to speak with me this morning. We work with Offices in your area that see workmans comp [sic] patients and assist them with almost every aspect of the visit. Here is some information regarding what we were discussing and what we offer. Also here is a link to the Website. www.rxdevelopment.com

Our largest asset is In-Office Medication. What we do at Rx Development is store only the medications you would like in prepackaged (30,60,90,120 Count bottles) in a cabinet for your workman comp [sic] and auto accident patients. The medication is bar coded and electronically scanned through our web based dispensing system. There is absolutely no out of pocket cost to the Doctors or Patients. We handle everything for you: supplies, collections, set up and training, and tracking of inventory. Not only do your patients have the convenience of having their medical needs addressed in one location, you also capture the profit your [sic] passing onto local drugstores. [emphasis added]

We would love the opportunity to give you a free no obligation consultation to show you what makes us different and show you how easy and effective this really is!!

Here is more information from our Website:

Point-of-Care physician dispensing makes sense for both doctors and patients alike. From the convenience of having prescriptions on-site to the extra revenue doctors can easily generate, Rx Development offers unparalleled medication dispensing services that are above the rest.

In-office medication dispensing or point-of-care dispensing, gives physicians a greater success rate when it comes to managing the treatment process. While patients enjoy the convenience of having their medical needs addressed in one location, doctors achieve maximum medical improvement (MMI) for the injured, getting them back to work as soon as possible. Medication dispensing programs not only expedite Workers' Compensation, personal injury, and automobile accident claims, but effortlessly yield supplemental revenue sources for the physicians.

· Obtaining Medications--It all begins with the convenience and availability of patient pharmaceuticals at your office. Rx Development will advance the amounts necessary to implement the program including medications that have been properly labeled and packaged in compliance with DEA and FDA regulations.
· Equipment and Supplies--Everything you need to properly dispense medication is at your fingertips. No out-of-pocket costs are necessary; all supplies are included as part of our management. This includes:

· Billing and Collections--Enjoy financial peace of mind while utilizing the Rx Development in-office medication dispensing program. A full suite of pharmaceutical A/R services is available so you don't have to concern yourself with billing and collections. Rx Development advances the funds to purchase the medications and handles all insurance company reimbursements.
· Inventory Consulting--The Rx Development point-of-care dispensing program helps you maintain adequate inventory without incurring out-of-pocket costs.
· Comprehensive Training--Staff members will be completely trained in administering pharmaceuticals, accessing reports, processing patient requests, and more.
· Supplemental Income--Earn residuals as you provide a convenient service of dispensing pharmaceuticals to your patients without ever leaving your office.
· Industry Updates--Rx Development helps you stay abreast of current industry standards, as well as local, state, and federal regulations. Our knowledgeable advisors will keep your staff informed of the latest updates."

I'm encouraging my friend to resist the temptation....

Posted by Joe Paduda at 8:03 AM | Link to this post | Comments (1)

There's an excellent thread in Mark Walls' LinkedIn group on the impact of opioid abuse on workers comp. Mark's asked members to publicize the issue and among the fifty-plus comments are many thoughtful and well-considered responses, including several by physicians very knowledgeable about and engaged in the issue.

The dialogue is remarkable for its depth and detail; providers, attorneys, claims professionals, clinical managers, employers and

There's also at least one provider opining that opioid abuse isn't a problem and we should just let physicians do what they want because they went to medical school and we didn't. His ignorance is stunning, but fortunately, his views are held by a minority of one.

The rest of the commenters are well aware of the dimension and impact of the problem, and several advance excellent, and pragmatic, approaches to addressing opioid overprescribing.

I think this social media thing just may take off...

Kudos to Safety National for encouraging Mark to engage in these issues. The impact he's having is pretty impressive for someone who describes himself as "just a claims guy".

Posted by Joe Paduda at 7:27 AM | Link to this post | Comments (1)

Here's a modest suggestion re an alternative fee schedule methodology that deserves careful consideration by legislators and regulators alike -

From the medical fee schedule section of the Code of Hammurabi (1730 BCE):

215 If a physician make a large incision with an operating knife and cure it, or if he open a tumor (over the eye) with an operating knife, and saves the eye, he shall receive ten shekels in money.

216. If the patient be a freed man, he receives five shekels.

217. If he be the slave of some one, his owner shall give the physician two shekels.

218. If a physician make a large incision with the operating knife, and kill him, or open a tumor with the operating knife, and cut out the eye, his hands shall be cut off.

219. If a physician make a large incision in the slave of a freed man, and kill him, he shall replace the slave with another slave.

220. If he had opened a tumor with the operating knife, and put out his eye, he shall pay half his value.

221. If a physician heal the broken bone or diseased soft part of a man, the patient shall pay the physician five shekels in money.

222. If he were a freed man he shall pay three shekels.

223. If he were a slave his owner shall pay the physician two shekels.

224. If a veterinary surgeon perform a serious operation on an ass or an ox, and cure it, the owner shall pay the surgeon one-sixth of a shekel as a fee.

225. If he perform a serious operation on an ass or ox, and kill it, he shall pay the owner one-fourth of its value.

Gary Anderburg of Broadspire was kind enough to forward this to my attention; he included the veterinary section just for comparison purposes. Gary says, and I agree, that we should give serious thought to reinstituting this, and go back to shekels.

That said, I'm wondering if Medata, Coventry, Mitchell, Stratacare, MCMC, and ACS/CompIQ can get this programmed...

Posted by Joe Paduda at 7:33 AM | Link to this post | Comments (3)

This morning's WorkCompCentral arrived with the welcome news [sub req] that Florida legislators are (once again) going to take up the issue of repackaged drugs and their effect on workers comp.

It's unbelievable incredible not surprising that the legislature still hasn't fixed this problem. Perhaps now that NCCI has shown system costs were $62 million higher - a full 2.5% - due to repackaged drugs dispensed by physicians, politicians will do the right thing for Florida's businesses.

Perhaps.

The latest report from NCCI indicated physician dispensers "charged more than pharmacies for all 15 of the top drugs in Florida..." The differential went from 45% on the low end to 680% for carisoprodol [aka Soma(r)], a drug that a good friend/Medical Director of a very large work comp insurer calls the "worst drug in workers comp".

For those unfamiliar with the issue, here's the briefest of summaries.

- Florida's pharmacy fee schedule is set at 100% of AWP plus a $4.18 dispensing fee for both generics and brand drugs. But AWP is based on the drug's NDC number, a code that can be created by the wholesaler/repackager. Thus, if a company wants to buy a million 800 mg ibuprofen tablets and repackage them into lots of 27, it can create it's own NDC, and thus set its own AWP.

That's how repackagers/physician dispensers make their millions.

- Florida tried to fix this a while ago, but then-Governor Charlie Crist vetoed a bill passed unanimously by both Houses that would have tied the repackaged drug's price to that of the original drug's 'underlying' NDC, thereby eliminating the huge markups.

Turns out Crist got a very large campaign donation from a very large physician dispensing/technology company - Automated Healthcare Solutions of Miramar Florida.

- then, under new Governor Rick Scott (!!) the legislature scheduled a vote on overturning Crist's veto, a vote that - given the previous unanimous passage of the physician dispensing fix - seemed like a mere formality.

Alas, physician dispensing companies pulled out their wallets and donated $1 million to political spending committees controlled by incoming legislative leaders Sen. Mike Haridopolos, R-Merritt Island, and Rep. Dean Cannon, R-Winter Park. And, the scheduled vote...never happened.

- now, NCCI and WCRI have both published reports conclusively showing physician dispensed medications increase the cost of doing business in Florida.

Now you're up to date. Disgusted; faith in politicians shattered; amazed by the hypocrisy of ostensibly pro-business elected officials, but hey, at least you're current.

Here's hoping Florida does the right thing - but don't bet on it.

Posted by Joe Paduda at 6:58 AM | Link to this post | Comments (1)

I've never used MCM as a recruiting tool, but there's a first time for everything.

An HSA consulting client is in the market for a managed care expert, specifically an RN with solid experience in workers comp medical case management/UR.

The client, an insurer in the midwest, is looking for an experienced, entrepreneurial and motivated nurse case management professional to manage the entire NCM function and support medical management in their workers comp claims operation. If you know someone who's got deep experience in work comp medical management, is looking to make a difference, and wants to work with great people in a very solid organization, let them know there's opportunity here. Or, if you've always wanted to help set up and run a nurse case management department, drive results and outcomes, and develop and manage relationships with NCM firms, you know this kid of opportunity doesn't come along very often.

Shoot me an email - with resume - at infoAThealthstrategyassocDOTcom. I'll pass it along to the client, and you'll hear back from them.

Posted by Joe Paduda at 1:21 PM | Link to this post

Up until this week, it looked like this fall M&A in the work comp services sector was going to be at an all-time high. Now, with Greece in default, the Euro in serious trouble, and markets looking for yet another bottom, things may slow down - or perhaps even stop.

While some would think foreign debt problems wouldn't have much to do with whether a private equity firm or larger rival buys a company, there's no question those kind of macro factors have a significant influence. Its not unusual for a merger or outright purchase to include substantial funding from debt as the buyers seek to leverage their equity investment. While this can make for even better returns for the buyer, it can also saddle the target company with a significant debt burden that can hurt cash flow, hinder investment, and drag down results.

Perhaps its folks trying to make a splash at the comp conference in Las Vegas in early November. It could be the expiration of the Bush tax cuts at the end of 2012 is driving owners to sell before Uncle Sam's take increases. Competitive pressures are also a factor; some owners are likely seeing some of these deals (OneCall buying RayTel, STOPS, Express Dental; MSC's purchase of Integrated Health, Sedgwick's continual pursuit of complementary businesses) as the big getting bigger, and figure they better sell before they can no longer compete with rivals who far outweigh them.

More sophisticated sellers likely realize the uptick in claims frequency we saw last year produced a nice bump in claims (and therefore business volume), a bump that has, in all likelihood, disappeared as the structural decline in frequency resumes it's 19 year long decline. Of course this only helps the frequency-driven businesses, and has little if any effect on sectors that are more affected by severity.

Then there's the impact of regulatory changes, with Illinois leading the charge (for now); ongoing cost pressures on traditional work comp services; and let's not forget the desire on the part of some investors to pull money off the table.

Remember private equity firms have a portfolio of investments - some are doing well, others so so, and still others have tanked. Their investors are expecting outsized returns, so occasionally a private equity company has to sell off one of its stars to balance a portfolio laden with underperformers.

Finally, it's become apparent to me that the level of involvement with and depth of knowledge about the work comp services space has grown significantly within the investment community. Sure, there's still a lot of noobs out there who don't know a claim from a claim, but the folks who've spent some time in this business are getting pretty good at spotting trends and opportunities.

Expect to see a few more deals announced before, during, or just after, the Vegas comp conference.

Posted by Joe Paduda at 5:10 AM | Link to this post | Comments (2)

Safety National's Mark Walls has started a great discussion about the use - and abuse - of opioids in workers comp on his LinkedIn Group.

I'm struck by the quality and volume of responses to his post - in a couple hours, Mark generated a couple dozen comments including one from MyMatrixx's Phil Walls RPh, one of the most thoughtful individuals I know in the PBM space, and another from a psychologist, David Dietz, with a different perspective. Dr Deitz notes that there's much more to this than just the drugs, and his views are well worth thoughtful consideration.

I applaud both - and (almost) everyone else - for engaging in the discussion.

Posted by Joe Paduda at 6:43 AM | Link to this post | Comments (1)

There are no work comp 'Preferred Provider Programs' approved by the State of Illinois - at least not as of today.

No provisional approvals, final approvals, conditional approvals, or any other approvals - if there were, they'd be announced here.

In fact, word is there are fewer than five (5) applications presently pending in Illinois, and most are entries from the currently-in place discounted PPOs from the usual cast of characters.

There's no doubt the folks tasked with approving PPPs are working carefully and quickly to get as many PPPs approved as soon as possible - but they're a bit hamstrung by the rapidity of events. Legislation passed just this summer, regs are still evolving, and this is a very, very hot political issue - better to get it right than to do it fast.

Much as we'd all like to have a small, expert workers comp network in place based on outcomes, strong credentialing, and appropriate reimbursement, these things take a bit more than three months. Usually quite a bit more.

What does this mean for you?

Patience, Grasshopper...

Posted by Joe Paduda at 6:04 PM | Link to this post | Comments (2)

The good folks at the University of California - Davis were kind enough to send me the entire study they are publishing re "...Predictors of Workers Compensation Costs". This is the one that generated headlines claiming financial returns are the best single predictor of work comp premiums.

That's not exactly what the study says. Sort of, but not exactly.

There's a rather large disconnect between the report itself and the press release issued by UC Davis about the report. Moreover the press release itself is misleading, poorly written, and stuffed with quotes that reflect a lack of basic understanding about workers comp. Here's one: "Increasing premiums had nothing to do with the number of injured workers, who often are incorrectly blamed for increasing premiums for employers."

By whom? When and where? This kind of misguided PR flackery is sloppy at best, if not outright harmful. It can, and will, be used to add credibility to and strengthen the position of those with their own unique agendas.

Reading the press release and the report, you'd be hard pressed to know they were about the same underlying research report. The firm, declarative statements in the press release were NOT supported by the much more heavily qualified and less direct statements in the report.

For example, the report said this:

We had two major conclusions. First, the year 1992 marked a sharp contrast in trends and correlations between unemployment and incidence rates for occupational injuries and illnesses. Second, for the entire time period (1973-2007), insurance carriers' premiums were strongly associated with returns on investments.

The press release read thusly:

Skyrocketing workers' compensation claims payments are often blamed for rising premiums, but a UC Davis study has found that the number of claims has dropped during the past two decades... the study shows that higher premiums are instead associated with decreases in the Dow Jones Industrial Average and interest rates on U.S. Treasury bonds. "Insurance companies appear to have been setting premiums according to their returns on the stock and bond markets, not according to the number of claims they have" said J. Paul Leigh, UC Davis professor of public health sciences and senior author of the study.

Note the first sentence especially the phrases "workers' compensation claims payments" and "number of claims". There's - at best - a marginal connection between the two. As NCCI, WCRI, CWCI, and pretty much every WC actuary has shown uncountable times, the COST of claims is separate and distinct from the NUMBER of claims.

Another problem with the press release - the report was about premiums, not costs. There's a BIG difference between the two and conflating them was a serious error.

Leaving aside the big problems with the press release, there's problems with the report too.

As a variable, the researchers selected regular ol' medical inflation as reported by the Dept of Labor. As all of us in the work comp world, trend rates in work comp are NOT the same as trend rates in the rest of the medical payer world. Moreover, we look at medical inflation in two ways - on a calendar year and an accident year basis. The researchers said there wasn't much of a correlation between premiums and medical inflation - well, given that there's a tail in work comp long enough to circle the block, annual trend just isn't viewed as - nor should it be - that significant. Which leads one to ask; so, why pick the medical inflation rate as a variable in a study specifically about work comp premium rates?

As I noted yesterday, the report uses OSHA reportable incidents instead of actual workers comp claims, then conflates the two - repeatedly. That's just outrageously sloppy work. The authors do note that NCCI reports these data, but complains that they don't cover the entire country. So, instead of using ACTUAL REAL workers comp claims, they use another dataset as a proxy and conflate the two - without any noticeable effort to correlate the two, identify differences, or account for them statistically. Why didn't the researchers just focus the study on the NCCI states, where there were actual data? If they wanted national information, the researchers could have looked at OSHA data in those states, compared it to claim rates, and come up with some sort of statistical correlation.

That's not all, but I have real work to do.

What does this mean to you?

And be wary of research conducted by well-meaning folks who seem to think they've discovered something brand new that the rest of us knew existed for decades...

Posted by Joe Paduda at 6:27 AM | Link to this post

Yesterday's news release from UC Davis claiming that workers comp premium increases are due to underlying shifts in financial markets will almost certainly generate a lot of conversation.

Here are quoted highlights with my comments in (parentheses).

- a UC Davis study has found that the number of claims has dropped during the past two decades...higher premiums are instead associated with decreases in the Dow Jones Industrial Average and interest rates on U.S. Treasury bonds. (I'm not sure UC Davis is the first to note that claims volumes have decreased over the last twenty years)

- premiums increased from 1992-2007, claims decreased 1 to 2 percent each year. Claims for serious illnesses and injuries varied, but decreased overall.

- for the entire 35-year timeframe of the study, rising premium rates were closely linked with the Dow Jones Industrial Average or Treasury bonds. As either the Dow or interest rates on Treasury bonds fell, premiums rose, and vice versa.

I've requested a complete copy of the study and will report back when I've a chance to read the entire document. For now, here are a couple observations.

1. The study used OSHA reported incidents as a proxy for WC claims. As all of us involved in workers comp are well aware, there is NOT a one:one correlation. I don't know why the researchers didn't find - and use - the number of actual workers comp claims. While it's a pain in the posterior to get this information, it can be found. We've found it for a client - it's out there, it just takes a lot of digging. By people who know where to dig. In any event, the study authors' conflating of 'claims' with 'incidents' may well lead others to miss this key issue.

2. NCCI's been reporting a decline in work comp frequency [opens pdf] of much more than 1-2% per year over the same period. From 1990 to 2009, frequency dropped by about 55%...

3. It's hardly surprising that investment returns influence premiums. The old rule of thumb is a third of claim dollars are paid out more than 36 months after a claim is incurred, making the RoI of invested premiums critical. That said, I doubt work comp payers invest a significant portion of reserves - if any - in stocks listed on the Dow. That would be rather risky.

I've got a few other thoughts circling around, but in fairness they've been triggered by other media coverage of the report and not based on a reading of the report itself. At this point, rather than react to some of the quotes in UCDavis' news release, quotes which may need context, I'll defer further comment till I read the entire document.

Posted by Joe Paduda at 5:53 AM | Link to this post | Comments (1)

I've spent much of the weekend reviewing responses to a client's Request for Proposals for claims and managed care services. Here are a few takeaways.

1. Don't tell how you've listened carefully and developed a customized approach designed specifically for the client and then talk about your California MPN if the client is only on the east coast. That's just dumb.

2. Have someone who can actually proofread - proofread your final. Just because you ran it thru spellcheck doesn't mean it is right. for example, 'medial' passes spellcheck, even when you are really trying to spell 'medical'.

3. Either learn to write a decent document or hire someone who can.

4. Don't talk about how you cap costs and guarantee a reduction in admin fees and then exclude case management, bill review, and other 'managed care' fees. The game's up, people - payers know that's where you make your money.

5. Don't blather on endlessly about outcomes and quality and results if you don't have data and compare that data to industry-wide metrics.

6. Can you really - with a straight face - say that 175 LT claims is a reasonable case load for an adjuster?

7. Address your cover letter to a person, not a title.

8. Don't price bill review on a percent of reduction below billed charges. That's a scam and everyone knows it.

9. Be clear about basis for pricing, include a definitions section, and be very precise about those definitions.

10. Don't overwhelm with boilerplate marketing babble. Listen to the prospect, and show you've listened by writing a proposal that fits. Throwing everything up against the wall to see what sticks works only when cooking pasta.

Posted by Joe Paduda at 7:03 AM | Link to this post | Comments (3)

First, David DePaolo's post on the industry's unfailing ability to believe it can keep doing the same things yet expect better results. David notes:

"A proposed rate filing in [Tennessee] would increase rates by 6.3% is causing regulators to take a look at the medical reimbursement schedule and proposing a reduction in the fee schedule. The same old arguments are at hand in both (or more?) sides of the debate - fees need to be cut because they are too expensive vs. access to care if physicians aren't adequately compensated.

Stop the madness!! This is the same set of arguments that go nowhere each and every time the issue is raised. And each and every time the issue comes up, adjustments are made to a fee schedule, then everyone goes back to business as usual with cost shifting, procedure manipulation, bill review and utilization review shenanigans and in a few years we again have another crisis." [emphasis added]

Isn't that the truth.

Second, Jennifer Wolf-Horesjh (incoming Exec Dir of IAIABC) reminded me that IAIABC hosted an excellent webinar earlier this summer offering a comprehensive look into the opioids issue including recommendations for regulators seeking ways to address the problem. You can download or listen to a recording of the webinar; IAIABC's making it available at no charge for members and non-members alike.

IAIABC is really focusing on this issue, and I applaud them for doing so.

Third, yesterday's WorkCompCentral webinar on Prescription Drug Abuse in Workers Comp (your's truly as presenter) is available for listening at your convenience. As the webinar was over-subscribed, those who werent' able to 'attend' can watch and listen to the replay (no charge). details and a link coming...

Posted by Joe Paduda at 10:01 AM | Link to this post

NCCI released its 2011 pharmacy study yesterday, and there's not much in the way of good news. Here are a few of the major take-aways from the research, which used 2009 data.

- per-claim drug costs grew by 12% in 2009.

- Pharmacy accounts for 19% of work comp medical expense, the highest percentage since NCCI started studying the issue.

- OxyContin is now the number one drug. Yippee.

- Utilization is the main cost driver, and physician dispensing closely follows. Physician dispensed drugs accounted for 28% of spend in 2009, up a full five points from the previous year.

Let's take a quick look into a few of the other findings.

The older the claim, the more the drug spend. For claims more than 11 years old, drugs account for more than 40% of costs; for drugs 1 to 2 years old, drugs are a mere 3% of spend.

Drug costs for claims 4 to 9 years old are " distinctly higher than in previous service years. Subsequent exhibits suggest that increases in physician dispensing might be contributing to this growth." [emphasis added]

Physician dispensing accounts for fully half of all drug costs in Florida; about 44% in Georgia, 35% in Maryland, and about 32% in PA. Bad as that is, the big problem is that physician dispensing rose dramatically in almost every state. (Note that Hawaii's decrease from 2008 - 2009 was a temporary situation, as all reports indicate physician dispensing has increased rapidly over the last two years.)

There's a lot more to the study, and we'll be digging deep into the research over the next couple days. For now, here's what this means to you.

It is NOT ABOUT PRICE. Utilization is the main driver of work comp pharmacy costs.

Physician dispensing is the single biggest problem in work comp pharmacy. It's beyond crisis stage.

With OxyContin the number one drug, we can expect claim durations to increase - people on high-power opioids are NOT going back to work.

And a big "well done" to NCCI's Barry Lipton, Chris Laws, Linda Li, and their unnamed research associates for what is their best work on drugs to date.

Posted by Joe Paduda at 6:45 AM | Link to this post

There is one industry that's more highly regulated than workers comp - nuclear power.

Other than that, and perhaps commercial airline travel, comp is it. Sure, there's varying degrees of regulatory control, there's no getting around the fact that most of what happens in and around work comp is driven by regulations. Often, the regulators are tasked with developing rules and regs based on legislation written by (speaking generously) non-expert elected officials. This isn't to slam state legislators, but rather to recognize that they are part-time elected officials working with very limited resources and support who have to develop and vote on legislation that in many cases is far outside their area of expertise.

The legislation on which regulators base their rules may be pretty broad, thereby leaving the rule-writers with a lot of discretion - and potentially opening the door to legal challenge by stakeholders disagreeing with the regulators' interpretation of the law.

It may also be written with a lot of detail, thereby challenging regulators to develop regulations that will actually work in the real world (which is a different world than the one in which some non-expert legislators operate).

Which puts a LOT of responsibilty on - and vests a lot of authority in - regulators. In my experience, most of the folks tasked with developing and implementing work comp regulations are pretty reasonable, open-minded, and highly knowledgeable. They aren't looking to antagonize or frustrate stakeholders, but rather take the legislation and laws they are handed and figure out how they can develop regs that a) abide by the intent of the lawmakers and b) can actually work to enhance the quality of care and reduce costs.

That's harder than it may seem.

For example, let's say a state legislature passes a law designed to reduce workers comp expenses, and that law includes a requirement to reduce medical expenses. This type of legislation may well include a cut in the fee schedule, as that looks to be a pretty straightforward way to reduce medical costs - if you cut the price, then you cut the cost.

However, there are several studies that show there's a tenuous connection at best between low fee schedules and low medical costs, and quite a few people think reducing reimbursement can actually lead to higher costs due to increased utilization and decreased quality of care (this is a complex issue that can't be adequately addressed in this post). Regulators, who understand this issue, are faced with a no-win situation - they're tasked with figuring out how to reduce costs but are forced to use a tool that may well have the opposite effect.

Sort of a damned if they do situation...

There's an enlightening piece in Risk and Insurance about the interaction between regulators and stakeholders that provides good perspective on this issue.

Posted by Joe Paduda at 8:02 AM | Link to this post

There has been a lot of discussion about the WCRI report on Washington State's workers' compensation pharmacy costs. Unfortunately a good bit of the discussion has been rather simplistic, citing some of the findings without placing those findings in the correct context.

Washington's workers compensation environment is unique. As one of the very few (that would be three) states with a monopolistic workers comp fund, the state's regulatory reach and control over all aspects of workers comp is broad and deep. Simply put, Washington state can dictate terms to all participants including employers, providers, pharmacies, and other stakeholders, terms that the stakeholders must comply with. Moreover, providers and pharmacies in Washington do not need to concern themselves with eligibility issues, questions about coverage or payment or fiduciary responsibility. Compared to other states, this is a markedly different operating environment for providers and pharmacies.

News stories following the study's release of the report stressed some of Washington's cost-containment tactics, implying that other states could replicate these tactics and thereby enjoy similar benefits. However, neither WCRI's news release or subsequent media stories stressed that Washington is a monopolistic state with a single payer system without the eligibility issues existing in states with multiple payers (carriers, third-party administrators and self-administered employers).

For pharmacies participating in the workers comp system in Washington, the single-payer system eliminates confusion and work associated with identifying their customer's workers comp payer. The defined formulary and coverage policies ensure pharmacies' 'risk' associated with dispensing medications to injured workers is quite low as pharmacies are all but assured that their bills will be paid. Moreover, pharmacies are tied electronically to L&I, further reducing their administrative expense and workload.

This environment could not be more different than the one in non-monopolistic states, where determining coverage is a complex and tedious task often requiring multiple phone calls and letters; ascertaining formulary compliance is difficult and uncertain; and pharmacies must assume substantial financial risk for medications dispensed to injured workers.

Given the differences between Washington and almost all other states, it is abundantly clear that what works in Washington will not work in non-monopolistic states. While simplistic solutions are often attractive, they are also often counter-productive.

Posted by Joe Paduda at 6:43 PM | Link to this post | Comments (1)

The last two speakers at IAIABC were Safety National's Mark Walls and IAIABC Executive Director Greg Krohm.

Mark's major concern is health reform will lead to access problems, especially with specialists such as orthopods and neurosurgeons. This may lead to delays in care for work comp patients.

Comorbid conditions are also problematic, driven by obesity, diabetes, and other lifestyle/choice related issues. Work comp has to pay for these conditions, albeit indirectly due to longer disability and more costly medical treatment.

Medical costs are a huge problem, and quality of care is the desired goal. Mark noted there are several related factors, including the number of 'bad docs' in the comp system. 4% of docs in Louisiana accounted for 70%+ of medical costs; Mark also cited Alex Swedlow's data on over-prescribing of opioids in California and physician dispensing of medications as additional evidence of the difficulty in controlling costs when physicians are more interested in making money rather than treat appropriately.

Other cost drivers include use of Actiq in workers comp, a drug that is only approved for cancer pain. Mark pointed out that the state of Washington and Texas have dramatically limited the use of Actiq in their respective states, and called for other states to take similar action.

Greg - who will be retiring as Executive Director at the end of this year - closed the meeting. His forecast was positive and pretty cheery, as he believes disability will be reduced, frequency will continue to decline, and workers will get good care quickly and their wages replaced in full and rapidly.

Greg's been a very effective leader, and his replacement will be filling mighty big shoes.

Posted by Joe Paduda at 5:21 PM | Link to this post

Three speakers in the final IAIABC session focused on the future of workers comp and factors affecting same. Allen Hunt of the University of Wisconsin started out discussing the factors contributing to the current deficit. In a nutshell, he doesn't see the deficit as much of a problem. To support that statement, he shared a slide indicating the deficit was pretty much under control until the Bush tax cuts, wars, and economic downturn, and even after accounting for those issues the deficit just isn't that significant when considered as a percentage of GDP.

Taxes aren't high relative to our industrial competitors; overall tax revenue as a percentage of GDP is well under the OECD average of 44.8%; US tax revenue is 26.1%.

What really surprised me was the growth in the number of disabled workers, which has more than tripled since 1981 and is rapidly nearing a million working-age Americans.

Dr Hunt shared a good bit of information about the economy and changes thereto over the last thirty plus years and closed with his predictions for the future of work comp. The takeaways are this

- the injury rate (frequency) will continue to decline - declining employment in blue collar industries, better disability and claims management will drive the rate down for the foreseeable future.

- the underwriting cycle will continue - this is the soft/hard market cycle known all too well to us old-timers.

- Dr Hunt believes there are lot of WC claimants who are finding their way into the Social Security System and this may well continue.

- the percentage of 25-54 YO men who are not working has grown from about 2% in 1967 to 8% in 2003. More and more people are being pushed out of the economy - for whatever reason.

Dr Hunt's top threats are:

- Political polarization and focus of political gain over solving problems

- Medical cost containment has been a failure

- Wage and employment trends aren't looking good - the number of workers is not increasing, and given the slow employment recovery it will take another eight years to get back to pre-recession employment levels

- Over-reaction to the deficit threat - Hunt believes strongly that this has been much ado about very little.

- OASDI (Social Security) costs - can be dealt with if taxes are increased by a very small amount.

- commitment to work - Dr Hunt closed by saying we are all soft now...

Posted by Joe Paduda at 4:39 PM | Link to this post | Comments (1)

Yesterday's PropertyCasualty360 reported on FitchRatings' latest views on the status of reserves in the Property and Casualty (P&C) insurance industry. For those new to this world, 'reserves' are the funds set aside to pay the future costs for claims.

Reserves can be "adequate", which means the dollars set aside look to be enough to cover future liabilities; "deficient", which means there aren't enough funds; or "redundant", which means they are more than adequate. In Fitch's view, "U.S. property and casualty loss reserves remain within an adequate range as of year-end 2010, and the potential for large deficiencies emerging in the near-term is limited".

That's good news, but before you start smiling, know that another analyst views reserves as "deficient".

So, who cares?

Well, you should.

If reserves are adequate, insurers won't need to charge new policyholders more to make up for losses already incurred. If they are deficient, rates are going up. And if they are redundant, than new customers may well get a discount, as there is 'extra' money lying around to help cover their claims.

It's not quite that simple, but you get the picture.

What is notable is where the two analysts agree: both believe workers comp is under-reserved. Keefe Bruyette Woods says the deficit is $2.3 billion and Fitch did not provide a figure in their release.

With work comp reserves at the end of 2010 totaling about $115 billion, that's a deficiency of about 2%.

What does this mean for you?

Another sign that the market may be firming. Or at least not softening any more.

Posted by Joe Paduda at 6:11 AM | Link to this post

OK, vacation's over, and mail box is (almost) cleaned out. So here's what's happening this week.

The annual IAIABC conference is underway in Madison Wisconsin. The International Association of Industrial Accident Boards and Commissions is the trade group for the people who regulate workers comp in the US, Canada, and several other countries.

Among the sessions is one on the origin of workers comp in the US - which, fortuitously, occurred in the same town. This will be a great opportunity to take a step back and reflect on what WC is all about, how it has evolved, and think about where it needs to go. And how it can get there.

IAIABC Executive Director Greg Krohm has an editorial in yesterday's Milwaukee Journal-Sentinel on the subject; here's an excerpt.

Worker's compensation was developed in an era when organized labor and employers were at each other's throats. Labor was pushing for higher wages and better working conditions. Management wanted to rid itself of never-ending lawsuits from work accidents. Both sides, despite their heated arguments, came together to compromise and build something that was better for both sides.

This pragmatic spirit of cooperation in worker's compensation is especially ironic given the supercharged political climate in Wisconsin of late.

I'm on a panel Thursday discussing the issue of addiction in workers comp. The experts are Gary Franklin MD, medical director for Washington state Labor and Industry (their work comp state fund). Gary's been a driving force behind Washington's effort to address addiction in work comp. Tom Jan DO will lead off the panel; Tom's a pain management doc with extensive expertise in addressing addiction in comp on the patient level. He brings a real-world, street-level perspective that adds much needed perspective; often we policy geeks get too 'intellectual' about a problem that destroys lives and families.

This is also the week of the Florida Work Comp Conference; one of the largest in the country with a wealth of good information along with lots of 'entertainment opportunities'. The quality of the show is even able to get people to Orlando in August...

Meanwhile there's another news item that work comp payers should be watching.

On the economic front, work comp insurers and TPAs are a bit happier these days as employment seems to be reviving somewhat; payrolls were up in 31 states last month and the overall jobs picture brightened. The upper midwest led the charge with Michigan employers adding 23,000 jobs. To put this in context, things have been pretty dark on the employment front lately, so even a bit of light is welcome. We'll get a bit more perspective soon as there's a jobs report due out on Thursday that will help indicate if things are in fact improving or if we're just bumping along...

Posted by Joe Paduda at 5:42 AM | Link to this post

I've been working on a project for a client that involves, among lots of other things, determining the volume of new and legacy claims in each state. Its been rather eye-opening.

For example, Ohio - which has pretty good reporting, as one might expect form a monopolistic state - had just over a hundred thousand new claims in 2010.

And over eight hundred thousand total open claims in 2010.

Think about that - eight times more open claims than new claims. I'm sure there's lots of good and bad reasons for this, some due to Ohio's unique workers comp system. But this disparity, if one can call it that, isn't limited to Ohio.

Missouri had almost four times as many open claims as new claims, and of the (very) few states that report their open claims volume, most are in the 3x range (open to new).

Perhaps this shouldn't have come as a surprise, and maybe it's more of a reminder than a surprise, a reminder that legacy claims are a very, very important part of work comp.

Maybe the most important part.

It seems we spend a lot of time working on new claims - reporting the claim, getting the claimant into network, figuring out reserves, determining cause, etc. All of these are important and valuable, necessary steps in the workers comp process. I'm wondering if we spent the same amount of time/effort/focus on old claims we do on newer ones what we'd get. Maybe not much, maybe a little better results, maybe a few more claims closed a bit faster.

From talking with adjusters and case managers, most view these claims as just bumping along. They're buried in the day to day stuff, the work that's 'urgent', that has to be done to hit those targets for 'good claim handling'. Sometimes a strong focus on the 'urgent' leads to a lack of focus on the 'important'.

I can already hear it - "no, we're all over these; just looked at them; not us, we've got our act together." That may well be so - but are you sure? After all, it's likely that you've got something like three times as many claims on your books as you'll get reported this year. And those older claims are where the money is.

Posted by Joe Paduda at 7:40 AM | Link to this post | Comments (1)

There's a lot of myth and fiction surrounding opioid abuse, addiction, and dependence, a situation that leads to misunderstanding the drivers, and solutions to the problem. With NCCI reporting narcotics account for a quarter (about $1.4 billion) in work comp drug spend, it's critical for adjusters, clinical staff, and execs alike to understand the issue.

There's a CEU course entitled "Understanding Opioid Addiction and Dependence: Therapeutic Options to Improve Patient Care" that's free for the taking. Originally developed for pharmacists, anyone can access the materials and take the tests. If you can't take the course now, make sure you click on the link and print out the flow chart illustrating the appropriate path for screening, diagnosis and treatment of opioid dependence, print it out, and stick it up on your wall. Especially if you're an adjuster.

A reader asked why this has become so important an issue. Several reasons.

1. Most claimants on opioids aren't going back to work driving the school bus, operating the printing press, or moving patients in the nursing home. Getting claimants off opioids is the first step to getting the claim closed.

2. Drug costs are going thru the roof, driven in large part by overuse of narcotics.

3. There's very little medical evidence to support the long-term use of opioids for individuals with musculoskeletal injuries. Yet many claimants are on opioids for more than three months.

Here's a couple takeaways to get you thinking...

- Among individuals 12 years or older in 2008-2009 who used pain relievers nonmedically in the past 12 months, 55.3% acquired the drug from a friend or relative; 17.6% reported that it was prescribed by a single physician

- Evaluating opioid dependence requires an understanding of the difference between addiction, tolerance, and physical dependence.

- the Diagnostic and Statistical Manual of Mental Disorders, 4th edition, defines substance dependence, which equates with addiction, as a maladaptive pattern of substance use over a 12-month period with evidence of 3 or more of the following
(anything here sound familiar?):

• Drug tolerance
• Withdrawal symptoms
• The amount or duration of use is greater than intended
• The patient repeatedly tries unsuccessfully to control or reduce substance use
• The patient spends much time using the substance, recovering from its effects, or trying to obtain it
• The patient reduces or abandons important work, social, or leisure activities because of substance use
• The patient continues to use the substance despite knowledge that it has caused ongoing physical or psychological problems

What does this mean for you?

Dealing with opioid abuse requires understanding the causes and solutions. If you handle claims or deal with injured workers, this is well worth your time.

Posted by Joe Paduda at 6:33 AM | Link to this post

Now that the debt limit deal is done, the hard stuff starts. While there's been a lot of focus on the Pentagon budget and lack of revenue increases, the real heavy lifting will come when the super-committee convenes to figure out how to save the next $1.2 trillion. And their focus will be on Medicare, Medicaid, and provider reimbursement.

Because that's where the 'super-committee' is going to have to find a big chunk of the additional savings required by the deal.

With Medicare and Medicaid accounting for a large and ever-increasing part of the deficit, by necessity the super-committee is going to have to look at provider reimbursement. As Bob Laszewski points out, they don't have time to fundamentally alter reimbursement methodology, can't change the eligibility parameters under the terms of the deal, and they are starting from a deficit projection that assumes the pending 29.5% cut in physician reimbursement is actually going to happen.

The 29.5% alone accounts for about $300 billion, so the super-committee has to find another $1.2 trillion on top of that $300 billion.

Where's it going to come from?

Physician reimbursement under Medicare and Medicaid is going to get hammered.

Hospitals are going to see substantial cuts in reimbursement as well.

Pharma and PBMs participating in Part D are another big target, and one with less political pull in DC.

Insurers heavy in Medicare Advantage have been reporting nice earnings of late; that's not going to escape the notice of deficit-cutters in Washington.

Expect to see means testing for Medicare as well.

What are the chances we see substantial cuts in reimbursement? I'd say about 100%.

Without higher revenues and given the requirements of the debt limit deal, there's no other place to cut the hundreds of billions needed, and do so by Thanksgiving.

What does this mean for you?

Cost-shifting was a problem before this deal. It is about to become THE problem for private payers and workers comp insurers.

Posted by Joe Paduda at 10:55 AM | Link to this post | Comments (2)

The healthplan company's Q2 earnings were released last week. If you were looking for any insights into their comp business, the Coventry release wasn't the place to look; there was no mention of workers comp results - this despite the sector's three-quarters of a billion dollars in revenue and outsized contributin to margin.

The big news - actually it was pretty much the only news - was not related to operations, but rather the settlement of the Louisiana lawsuit. Coventry added $0.68 to EPS after the May 31 definitive settlement agreement reduced the company's liability in the class-action lawsuit. Originally, Coventry had reserved for the full amount of their liability, which came to $1.18 a share; the definitive agreement resulted in a substantial reduction in the company's liability. As to the merit of the suit, my take is Coventry was mistreated; this suit couldn't have succeeded in many places other than Louisiana, where providers' legal power is all out of proportion to any harm they may suffer.

The workers comp operating results appear to be pretty flat, notwithstanding CFO Randy Giles' statement that Coventry "increased our fee revenue guidance slightly for the second consecutive quarter, driven by our Workers' Compensation Services business. We continue to be pleased with this ability of these businesses and the very valuable nonregulated earnings that they produce for the company." (thanks to seeking alpha for the transcript)

While the company does not break out WC financials from the rest of the business, the workers comp sector is the lion's share of the "Other Management Services" product type. Sources indicate comp is about 88% of that sector's revenue, making Q2 revenue somewhere in the $195-$199 million range, up slightly over Q1's $191.6 million, (which was a 4% increase over the prior year's quarter).

Coventry remains enthusiastic about this business, characterizing its offering as the "Most complete national offering...[with a] Long-term penetration opportunity...CVH offers unparalleled integrated capabilities...[in a] fragmented industry ripe for consolidation...] (from a June 2011 Investor Presentation)

I'd disagree with their characterizations in several ways. First, Coventry is a network and bill review company first and foremost. While it does have offerings in complementary product lines, they aren't nearly as robust, and certainly nowhere near as dominant as their PPO (their bill review operation is far from industry-dominating). Second, Coventry's work comp revenue is growing primarily via price increases; the company has lost business of late (Broadspire's very public split being the most noticeable) and Anthem Wellpoint's network offering is gaining traction both within, and outside, California.

Second, their integrated capabilities are not "unparalleled" -- far from it. Moreover, the market doesn't see the value of integrating what are pretty different services under one vendor. To the extent that Coventry has been able to sell combinations of services, they've been doing this by offering deals - "you buy our PBM offering and we'll offer a price reduction in these other areas."

Finally, Coventry is not investing in this business - in fact they're harvesting margin from workers comp, margin they need to prepare for the post-2014 world of health reform. Don't expect them to spend anything they absolutely don't have to on workers comp; this is a cash producer, not a long term growth business.

Posted by Joe Paduda at 6:08 AM | Link to this post | Comments (1)

WCRI's just published another in their excellent series of reports benchmarking workers comp costs and outcomes in key states. This latest, entitled "PRESCRIPTION BENCHMARKS, 2ND EDITION: TRENDS AND INTERSTATE COMPARISONS", provides additional insight into the difference in cost between drugs dispensed by physicians and retail pharmacies. It is based on 2006 - 2008 claims with more than seven days of lost time that had at least one script paid by work comp. Before we dig into the cost differential, there's one item in particular deserves your attention

Here's a direct quote:

"At $1,182, Louisiana had the highest average prescription cost per claim, [emphasis added] more than three times as high as that in Michigan, Minnesota, and Wisconsin, and 50-70 percent higher than the states with higher prescription costs."

Why?

Two reasons - utilization, and physician dispensing.

Well, claimants in LA received higher cost drugs, more of them, and a higher percentage of their scripts were brand drugs. Louisiana also had a 'medium' level of physician dispensing that had grown moderately over the study period. LA claimants were also much more likely to have carisoprodol prescribed than claimants in most other states.

In sum, claimants "filled more prescriptions for more pills per claim in Louisiana than in any other study state."

Ok, back to the premium paid for physician dispensed scripts. Here are a couple examples.

In Florida, ibuprofen dispensed by physicians cost 48% more than when dispensed in a retail pharmacy. In Illinois, it's 42%; Louisiana, 81%; Maryland, 63%; New Jersey 69%; Pennsylvania 57%.

Ibuprofen is a bargain compared to Soma(r) (carisoprodol); Florida's docs were paid 464% more; Louisiana 268%; Illinois 384%; Maryland 318%, Tennessee 300%.

In total, physician dispensed drugs likely add about a half-billion dollars to employers' workers comp costs - cost that brings no added value.

What does this mean to you?

Do you write comp in Louisiana?

Posted by Joe Paduda at 12:11 PM | Link to this post

One big reason - physician dispensing of repackaged drugs.

Two stories, seemingly unrelated, appeared in the last week or so that, when read together, clearly lay out the problem.

One described the costs borne by Florida's employers, costs much higher than necessary due to inflated costs from drugs dispensed by physicians. A loophole in the law allows doctors to dispense drugs at prices far above those for the same pills dispensed in a retail pharmacy. More on this in a minute.

So, why is this happening. In a word - money. Specifically, political connections fueled by large campaign donations from companies profiting from the current Florida fee schedule, a fee schedule that has added tens of millions in costs to Florida's employers and tax payers.

here's an excerpt from the article:

"Employees of one influential healthcare company, Miramar-based Automated Healthcare Solutions, accounted for $55,200, the second-highest amount of contributions to Haridopolos.

With Haridopolos' backing, the firm was active in pushing a bill tightening reporting requirements for a prescription-drug monitoring database [PDMP]. The firm, along with Haridopolos, also unsuccessfully fought a provision restricting many doctors from dispensing painkillers in their offices."

Now at first blush this is good news - and I'd say at second blush too. AHCS appears to be promoting a PDMP, a long- and desparately-needed tool that would enable much better tracking of narcotic prescribers, dispensers, and users by physicians, pharmacists, and, when appropriate, law enforcement. Doctors would be able to see if their patient was getting multiple scripts from other doctors; pharmacists would see if their customer was getting similar scripts filled at other pharmacies, and law enforcement's ability to identify potentially criminal behavior would be greatly enhanced.

So far, so good.

What's less good - much less - is AHCS' actual business. AHCS enables physician dispensing in Florida and many other states. Which leads to the next article.

WCRI's recent report indicates Florida's drug costs are 45% higher than the median state, largely due to physician dispensing - not of narcotics, but the run-of-the-mill generics that make up the vast majority of work comp prescriptions. Here are some of the study's conclusions.

- the average payment per claim for prescription drugs in Florida's workers' compensation system was $536 - 45 percent higher than the median of the states in the study.

- Over a two year period (2005/2006 and 2007/2008), the average cost per claim for prescription drugs in Florida increased 14 percent. By contrast, prescription costs per claim were fairly stable in most study states over the same period.

- Higher and growing costs of prescription drugs in Florida were largely due to more frequent and higher-priced physician dispensing.

- Physician-dispensing in Florida's workers' compensation system has been taking an increasingly larger share of prescription payments. The percentage of prescription payments for physician-dispensed prescriptions in Florida increased from 17 to 46 percent over a four year period (2004/2005 and 2007/2008)...

I'd note that WCRI's most recent data are from 2008 - three years ago. If physician dispensing continued to grow at the same rate, we're looking at drug costs in Florida that are probably twice as high as other states...

Here's the net. AHCS has contributed close to two million dollars to various politicians, political campaigns, PACs, and other entities. Sure, some of their activity appears to be focused on controlling narcotics in workers comp. But most of their donations occurred back when Florida's legislature was intent on closing the loophole that has generated millions in revenue for AHCS, AHCS' affiliates, and AHCS' dispensing physicians.

Nationally, physician dispensing of repackaged drugs adds more than a half-billion dollars to employers' costs. These added costs are passed on to taxpayers, customers, stockholders, and employees.

All at a time when employers and taxpayers are struggling to get though a horrendous recession.

Posted by Joe Paduda at 8:39 AM | Link to this post | Comments (2)

On the list of successful uses of social media in workers comp, one has to put Mark Walls' LinkedIN Work Comp Analysis Group at the very top.

Mark's group just passed 10,000 members. Yes, that's ten thousand members - a pretty amazing feat considering the group is just a few years old.

Kudos to Safety National for accommodating, and encouraging, Mark's work in social media. I have to believe it has been enormously productive for Safety National; Mark's now hosting speaking symposia at the National Workers Comp and Disability Conference; the group has several ongoing conversations at any one time; Safety National's name is far better known among the rank-and-file; and all at a cost of a few hours a week for one executive.

Safety National's decision to promote and support the use of social media has been rather unique in the industry. I'm not aware of any other carrier or TPA of any similar size that has been so forward-thinking and, to be blunt, courageous. This is a very risk averse industry, yet the LinkedIN Group shows what can be accomplished if one has a bit of foresight, a good measure of dedication, and an excellent platform.

By way of contrast, this blog has just under 2700 subscribers and WorkCompInsider about the same. Notably, Roberto Ceniceros' CompTime blog is gaining traction daily; it is likely among the leaders in any ranking. Undoubtedly this has greatly helped Business Insurance, which may be suffering from the same malady affecting all 'old school' media - a struggle to stay relevant and timely in the world of the internet.

I'd be remiss if I didn't note WorkCompCentral President David DePaolo's Work Comp World. David's thoughtful discussion of contentious and complex issues is must reading for all execs in the business. He's a professional with strong opinions, and the brains and diligence to back them up.

Finally, Pat Sullivan's WorkCompWire continues to highlight the latest research and reports, coupling intel with advertising in a new blend that the rest of us are watching carefully.

Posted by Joe Paduda at 6:12 AM | Link to this post | Comments (2)

Work comp PT network company AligNetworks has been sold to private equity investor General Atlantic. While terms weren't disclosed, sources indicate the company went for a premium well above the 'usual' 6-7 multiple of EBITDA.

Butch Hofstetter and his team did a remarkable job, building a serious competitor to industry founder (and HSA consulting client) MedRisk and Universal SmartComp in a few short years. Leveraging their relationships, Butch and his team went after adjusters, relying on those relationships to drive transactional volume. The focus was a success, and the numbers certainly showed they'd carved out a solid niche.

While there were at least two strategic buyers in the mix, General Atlantic made the winning bid, leaving those entities looking to add to their portfolios to keep looking. While the GA people are undoubtedly very, very smart, this is also their first major foray into what is a pretty weird business space. My bet is they use of their additional capital (along with debt) to invest in IT and operational infrastructure. Align's been able to handle their volume to date with a pretty thin operation, but they'll need to invest if they want to move beyond pleasing adjusters to nailing down deals with some of the big boys.

That's not to say Align hasn't begun some relationships with larger payers; emphasis on the 'begun'. However, that market has long been MedRisk's sweet spot, and anyone who knows CEO Shelley Boyce knows taking share away from MedRisk will be a serious challenge. MedRisk has been working very hard to consolidate relationships with current large payers, while building the infrastructure necessary to deliver the same savings results to individual adjusters.

Regardless, this is good news for payers. More focus on physical medicine, which accounts for about a fifth of all workers comp medical spend, is a welcome thing indeed. And competition, especially between two such organizations, will produce better outcomes, more efficient processes, and lower costs for all work comp payers.

Posted by Joe Paduda at 7:08 PM | Link to this post | Comments (2)

Five percent of people account for half of all medical costs.

That's true for group health, Medicare, Medicaid, workers comp - pretty much every line of coverage.

You know that, I know that, we all know that.

But what do we DO about that?

Why do most payers use the same generic approach across all members, geographic regions, provider types, disease conditions, employers, when we all know health care is local, people are very different, surgical cases are quite different from medical ones, and non-specific back pain is NOT the same as a spinal injury.

Not surprisingly, there's a strong correlation between obesity (and related conditions) and high cost claims. And half of the patients in the top five percent had hypertension, one-third had high cholesterol, and more than one-quarter had diabetes.

Here's one idea. Identify patients with hypertension, hyperlipidemia, obesity (use BMI) and/or diabetes, and triage them to a clinical resource (nurse) trained in, and equipped to, address their issues. Whether you're in the workers comp, group, or Medicare/Medicaid world, the impact of these unhealthy folks on your results will be mitigated if you pay attention right up front rather than discovering some months down the road that the 'simple bad back' has become a very expensive, long term, chronic pain case.

Posted by Joe Paduda at 8:01 AM | Link to this post | Comments (1)

From our friends on the west coast comes a story that demands much more discussion - the California State Fund's (SCIF) decision to change its contracts with treating physicians in SCIF's Medical Provider Network. [membership required] To read the response from a couple of California work comp groups, you'd think SCIF was stealing their kids and selling them.

It's not like SCIF is imposing onerous terms, slashing payments by half, or requiring treating physicians to do anything immoral or illegal. What SCIF is doing is addressing the ongoing, rampant overuse of opioids in California, a disaster that has been well-documented by CWCI. Among other provisions, the new provider contract language:

"requires physicians to limit prescriptions for opioid medications to 60-day supplies unless they can show cause for a prolonged regimen. [emphasis added]

CSIMS [California Society of Industrial Medicine and Surgery] charged that such limitations potentially run roughshod over tenets of California's statutory Pain Patient's Bill of Rights.

In establishing the legitimacy of opiates in the treatment of pain, California Health and Safety Code section 124960 allows physicians to prescribe opiates in a dosage deemed medically necessary, the group noted."

For several reasons, I'm having a very tough time understanding CSIMS' position.

1. Physicians CAN "show cause" for prescribing more than a 60 day supply.

2. the Safety Code allows docs to prescribe if medically necessary; (we'll ignore the likely unimportant distinction between opiates and opioids) one would think that the meds will be approved if 'medically necessary'; the reforms earlier in this decade addressed the definition thereof and have been thoroughly clarified in regulations and litigation.

3. Physicians can freely agree to participate in SCIF's MPN, or not. They have no legal right to participate, and SCIF has no legal obligation to include any specific provider or group of providers in their MPN.

4. Finally, and most troubling, is the head-in-the-sand attitude of CSIMS and their supporters. The widespread and wholesale abuse of opioids in California's work comp system is not a theory; it is real, it occurs every day, it kills claimants, runs up employers' costs, increases the tax burden, and does immeasurable harm to families.

CSIMS' position is untenable, illogical, and indefensible.

There's more to write on this, and I'll expand on the topic in future posts. Of course, I welcome dissenting opinions, as long as they're factual.

(thanks to Mark Walls' LinkedIN Work Comp Analysis Group for the tip)

As if we needed more evidence of the problem, the latest in the ongoing litany of news about the impact of prescription drug abuse is this:457 people in Michigan died as a result of prescription drug abuse in 2009, a twelve percent increase from the year before.

That's more than died from heroin and cocaine (and its various forms) combined.

Posted by Joe Paduda at 7:32 AM | Link to this post | Comments (2)

The number of of people dead from opioid analgesic use quadrupled over the last nine years. Opioids are synthetic opiates, and include methadone, OxyContin, Percocet, Oxycodone, fentanyl, and Actiq.

11,499 people died as a result of opioid usage in 2007, up from less than 3000 in 1999.

That's twice as many as died from cocaine, and five times more than died from heroin.

The data come from the CDC's National Vital Statistics System, and was published in the CESAR bulletin of May 31.

Another study published in JAMA indicates significantly higher risk of death for those taking more than 100mg/day.

This dosage level is not uncommon in workers comp, and the high dosage, coupled with long-term usage of opioids, significantly raises the chance of death from overdose. In fact, in comp, - over a third of claimants who start using opioids are on them for more than a year; a fifth are on for more than two years; and a seventh are on for more than three years.

And the usage of opioids in comp is exploding - the number of scripts is up 500% in California - in only four years.

The unknown is how many workers comp claimants are dying from opioid overdoses. I'm thinking that 'unknown' will not remain unknown for much longer, and when the data does come out, there's going to be a lot of 'energetic' conversation about who's at fault and what to do.

Here's hoping we get to solutions pretty quickly.

Posted by Joe Paduda at 8:29 AM | Link to this post | Comments (1)

In the last couple weeks there's been a wealth of new reports, analyses, and studies released about various aspects of the work comp world. Too many to give each the attention it deserves, so a synopsis of a few will - alas - have to suffice.

Yesterday David DePaolo posted on his contention that there aren't "any valid scientific studies demonstrating that the introduction of an RBRVS fee schedule would result in a mass exodus of physicians from workers' compensation". After asking for examples of same, he received seven plus an article that his own WorkCompCentral published six years ago. (thanks to Mark Walls' LinkedIn Group for the tip)

David hasn't reviewed each of the "studies" he received, but a quick analysis indicates the scientific rigor of most is rather less than, well, rigorous. Several appeared to be telephonic surveys of doctors' offices (several studies didn't provide any information on methodology). At least one [opens google docs] made several conclusive statements without any discussion of how they arrived at those conclusions. Another authored by the same writer provided background on the methodology, which was a phone call to physician offices where the person answering was asked if the physician accepted workers comp patients.

A quick read indicates the methodologies used appear to be rather less than scientific, the conclusions based on opinions of cause and effect rather than rigorous analysis. That's not to say that low fee schedules may well influence physician participation, but rather to point out there's not much in the research provided to conclusively demonstrate the linkage.

From the good folk at WCRI comes the latest research on narcotic usage in workers comp. While this particular aspect of the subject (interstate variation in usage of narcotics) has been explored in some detail by NCCI, WCRI's report looks specifically at usage for non-surgical lost-time claims in 17 states for the period 2006 - 3/2008. The report indicates usage on a per-claim basis was highest in LA MA NY and PA, with those four states plus CA, NC and TX showing a higher proportion of claims with long-term usage of narcotics than average.

Shockingly, few long term users were monitored according to medical treatment guidelines...

Meanwhile, the government shutdown in Minnesota means the state's WC Division is closed for all but critical services.

On the good news front, the 'low cost' (well, it's relative...) movement has entered the surgical device industry, with the WSJ reporting the emergence of a new business model; "Low-cost orthopedic parts [are] cheaper versions offered with a no-frills sales approach. This typically means not sending sales representatives into operating rooms to advise surgeons, which is a common but cost- and labor-intensive practice."

I'd note that there are several companies currently focused on this space in workers comp, but with a different model. They find out about a scheduled surgery, identify the devices to be used, and order them on behalf of the insurer - usually at a much lower price point than that charged by the facility.

Posted by Joe Paduda at 6:48 AM | Link to this post | Comments (2)

When Congress reaches agreement on a deal to increase the debt limit, there will almost certainly be parts that significantly affect workers comp. Medicare and Medicaid are on the table, with both likely to lose hundreds of millions in funding over the next ten years.

And as we all know, what happens in Medicaid and Medicare affects work comp via cost-shifting, fee schedule changes, reimbursement rules, and altered provider practice patterns.

It is not a question of 'if' these huge programs are cut, but rather "how much". Accounting for 23% of the Federal budget, Medicare and Medicaid have to be on the table if there's to be any measurable deficit reduction.

Here's what may happen in the ultimate deficit reduction agreement. along with my assessment of potential impact on work comp

- Reductions in the amount Medicare pays hospitals for bad debts resulting from Medicare beneficiaries' failure to pay deductibles and co-payments; right now CMS pays 70 percent of those debts after the hospitals make "reasonable efforts" to collect.
Impact - hospitals will look to increase reimbursement from work comp and other private payers; work comp is usually the most profitable payer for hospitals; I'd expect this to increase.

- Cuts to Medicare payments to teaching hospitals for physician training and other programs.
Impact - more incentive to seek additional reimbursement from work comp

- Allow or require CMS to negotiate directly with pharma for drug prices.
Impact - possible cost shifting to comp as pharma and other stakeholders seek additional funds to offset lower Part D reimbursement

- Reductions in Federal subsidies for Medicaid.
Impact - incentive for providers to cost shift; however Medicaid providers may not treat many work comp claimants so impact may be minimal.

- Give more power to the Independent Payment Advisory Board (IPAB) created by the Affordable Care Act; set a target of holding Medicare cost growth per beneficiary to GDP per capita plus 0.5 percent beginning in 2018.
Impact - possibly positive, as improvements in delivery systems, reimbursement, pay-for-performance, clinical guideline adoption and acceptance, and other tools/processes would help improve care and reduce errors.

- Reduce reimbursement for durable medical equipment (seen any scooter ads lately?)
Impact - lower margins for DME manufacturers and distributors will motivate cost-shifting, however fee schedules may mitigate those efforts. Watch for creative ways around fee schedules and 'upselling'.

Public opinion will help shape the outcome; recent polls suggest the public is more willing to accept some reductions rather than a wholesale overhaul of Medicare and Medicaid. That said, the health industry's various stakeholders are already hitting the phones hard to forestall - or more likely minimize - reductions to their favorite programs.

What does this mean for you?

We're the mouse; CMS is the elephant; keep your head up, watch out for those big feet, and be nimble. Work comp will be affected by the ultimate deficit reduction agreement; success favors the aware and the well-prepared.

Posted by Joe Paduda at 6:42 AM | Link to this post | Comments (1)

The former head of North Dakota's state workers comp fund has been - and continues to be - vilified by a few people who obviously don't know the guy. (more on the appeal in a future post).

Prosecuted for 'misuse of funds', Sandy's life has been ruined because he approved payments for balloons, small ($50) gift cards, sweets, and cakes for employee recognition events, along with refusing to seek repayment for relocation expenses for an employee terminated for performance (which was legal and appropriate).

Well, I do know the guy, and there's plenty wrong with him. Here's the real scoop on this horrible guy/abuser of the public trust/scofflaw...

Well, he worked for George HW Bush in the White House (our politics are pretty different, but I keep hoping he'll come over to the bright side).

He's an avid, very well informed - and extremely loyal - Cleveland sports fan. (Gotta respect that, even if you don't understand it)

He isn't a golfer. (Me neither, so that's actually a big plus)

I don't think he can dance.

He went to one of those fancy Eastern big-name business schools (Wharton, I think).

He is such an Eagle Scout (which he actually is) that he won't let his kids download music from file-sharing services because it is unethical. I'm sure the young Blunts think he's horribly unfair.

For a non-IT guy, he's pretty good at tech stuff, making me think he was an AV club guy in his high school days (and not, that's not meant pejoratively).

Sandy was COO of Ohio's Bureau of Workers Comp before he was recruited to professionalize the NoDak state fund (so much for that honest effort). By all accounts he was well-liked, and more importantly, very well respected in that role. But still, he was a workers comp exec, and you KNOW what those people are like...

He's unremittingly positive, unerringly cheerful, and undeniably an upbeat person. Despite what the 'criminal justice' system has done to ruin his life, Sandy's always positive. I don't get it.

He's a very, very good analyst. Sandy's helped me on several consulting projects involving analyses of big databases of medical and claims data and interpreting the results, and the guy knows his stuff. This ticks me off, because he sees stuff I don't.

He knows his college sports, and probably did pretty well in the NCAA pool. Those guys who a) know their sports and b) are analytical usually do. Again, pretty darn annoying.

There's more, but if I say anything else I'll embarrass the guy even more. Still, glad I've finally come clean on just what kind of bad actor this Blunt guy really is.

I feel so much better now!

Posted by Joe Paduda at 6:39 AM | Link to this post | Comments (1)

I'm in DC for a couple of meetings focused on the use, abuse, and impact of narcotics in workers comp. To say this is starting to get major traction would be an understatement; payers, policymakers, employers, and pharma are all recognizing the issue for what it is - one of the biggest problems in comp today.

For now, here's a few numbers to help put things in perspective.

- workers comp payers spent about $1.4 billion last year on narcotics. That's 'billion' with a 'B'.

- A study in Washington state determined that there between eight and twelve deaths were associated with workers comp claimants' use of opioids each year from 1999 - 2002.

- over a third of claimants who start using narcotics are on them for more than a year.

- a fifth are on for more than two years.

- a seventh are on for more than three years.

- this despite well-recognized treatment guidelines that suggest narcotics should be used for a limited dime during the acute phase of an injury.

- in a Washington study, only 16% of the low back claimants taking opiates saw an improvement in functionality; only 30% saw a reduction in pain.

- the extended use of opiates doubles the risk of duration exceeding one year.

The elephant in the room is the issue of addiction. Many payers don't want to hear about the likelihood that many of their long-term claimants are - in fact - addicted to or dependent on narcotics. For some reason, they appear content to ignore the issue; a couple claims people I've spoken with have said "we don't want to 'buy' the addiction."

Well, here's a news flash; You already have.

Whether you choose to acknowledge this or not, claimants who have been getting opiates (and/or opioids, the synthetic version) for more than 90 days at a dosage exceeding 120 morphine equivalents per day are are at high risk for dependency/addiction.

And the ones who are addicted are 'treating' their addiction by consuming drugs which:

a) employers are paying for - directly or indirectly

b) are preventing return to work

c) increase total medical costs and require claimants to take other drugs to address the side effects of narcotics

d) may be sold, given away, or taken by family, friends, or other users.

What does this mean for you?

It's time to get real, folks. Here are a few ways to get started.

Begin identifying the claimants at risk for addiction; develop a scientifically - and jurisdictionally - sound approach to addressing the risk; partner with your PBM on a comprehensive strategy; work with regulators to change rules where necessary and possible; task your medical director with developing - and implementing - a solution.

Washington State has what looks to be an excellent, well-researched approach.

Posted by Joe Paduda at 7:22 AM | Link to this post | Comments (3)

is that of claims adjuster.

Whether you know them as adjusters, examiners, file handlers, or claims case owners, these women and men are the ones who write the checks out of the checkbook - both literally and figuratively. What they do, and how they do it, has more impact on the success or failure of an insurer or employer's work comp program than any other position (although some underwriters would argue they're just as important).

Adjusters determine compensability; keep an eye out for fraud; authorize indemnity payments; encourage/direct/cajole claimants to go to preferred providers; interface (or, as one seasoned adjuster referred to his approach, 'in-your-face') with claimant attorneys; meet with employers' risk managers to review claims, discuss reserves, and encourage RTW planning; set, change, and justify reserves; encourage, and in many cases educate treating docs to think about RTW; try to figure out if this or that unpronounceable drug is appropriate for the claimant's condition; authorize, or deny, medical treatment; prepare and present cases to hearing judges; explain to their managers why they can't get a case closed or IME scheduled.

All this while looking every day at a case load that, a decade ago, would have seemed far too large. With claims case loads at many payers in the 150 range (lost time), adjusters have about twenty minutes a week to focus on each claim.

Twenty minutes.

Of course, this is before we factor in the other stuff; ongoing CEUs required in many jurisdictions and the training requirements for new products, vendors, programs, and technology innovations.

And recall that we've been hammered by a work comp market that's been soft as fresh WonderBread for several years, leading payers of all types to consolidate, cut staff, hold off on investments in technology and workflow improvements, and require everyone to 'do more with less'.

I'm often asked by those in- and outside the comp business what the secret to success is. In most cases, the answer is the same:

Take work off the adjuster's desk and put it on your's.

Mark Wall's LinkedIN group always has great insights; for more detail on what these folks go thru, and how those struggles affect their ability to handle claims effectively, check out this conversation .

Posted by Joe Paduda at 7:33 AM | Link to this post | Comments (1)

Employers and insurers decry the recent reform instituting PPOs in Illinois as 'California Lite'. Plaintiff attorneys claim it will lead to undertreatment and negative consequences for claimants.

What's the real impact?

The right answer is it's a bit early to say. The PPOs go into effect September 1; at least they CAN go into effect then; there's a lot to be done by employers, network developers, and regulators before an employer can activate a PPO, so it may well be several more months before we start seeing widespread adoption.

First, the State Department of Insurance has to certify Preferred Provider Programs - there's too much text to quote here - search for "Sec. 8.1a. Preferred provider programs" - relevant section starts on page 88 line 23.

When an employer does get a PPO certified and implemented, there's a couple key points to remember.

First, when an employee reports an injury the employer has to tell him/her of the PPP and the employee's need to choose a physician from the PPP.

Second, employees can opt out of the PPP - here's the relevant text:

"Subsequent to the report of an injury by an employee, the employee may choose in writing at any time to decline the preferred provider program, [emphasis added] in which case that would constitute one of the two choices of medical providers to which the employee is entitled under subsection (a)(2) or (a)(3)"

Essentially this allows the injured worker to choose their initial treating doc, who controls their referrals to specialists, ancillary providers, and facilities. My take on the network direction provision is it is pretty weak, and - realistically - will help with those claimants engaged in doctor shopping. However, payers' ability to control which physicians and other providers treat their injured worker, while certainly strengthened, is not greatly enhanced.

While some seem to have concluded that the initial opt-out decision is one choice, and the subsequent selection of a provider is the second, I'm not sure that's the case. The regulatory process will certainly clarify the issue, and if the other analyses are correct, the single opt-out choice will help employers - and in most cases, facilitate return to work and reduce unnecessary medical expense.

That said, note that an injured worker's initial opt out includes the treating doc, and anyone that treating doc refers the worker to. Physical therapy, imaging, surgery, hospitals, you name it. That's a lot of 'opt-out'. My sense is Illinois providers who want to maintain their current lucrative flow of work comp patients will get very good at complying with the (future) regulations to keep referrals within that initial treatment stream.

What does this mean for you?

The net is this - the regulatory process will greatly affect the actual impact of the reform law. We don't yet know what the specifics will be, but any employer would be well-served to identify PPPs that:

- a) contract with a relatively few physicians with demonstrated expertise in workers comp and focus on return to work;

- b) don't include every doc in the yellow pages (I'd run from any PPP that markets itself based on how many physicians it has); and

- c) include ancillary providers to keep care in the PPP.

Of course, discounts are important, but make sure the treating docs - the ones who order the scripts, arrange for surgery, prescribe PT, and facilitate RTW - are treated well. Look for deeper discounts on the ancillary/secondary providers - the ones that do what the original doc tells them to.

There's a detailed discussion of the issue at WorkCompCentral - subscription required.

Posted by Joe Paduda at 8:32 AM | Link to this post

Today's Insurance Journal arrives with this bit of positive news: while rates for most lines of property and casualty insurance are still soft, work comp premiums are firming, driven in part by increasing rates in California, and for the first time in several years, higher rates in other states as well.

The data come from Towers Perrin's Commercial Lines Insurance Pricing Survey (CLIPS), which is derived from figures submitted by insurers. That said, the database is rather small as the contributors account for about a fifth of the market. Given the highly competitive nature of the business, I'd be pretty confident these data are indicative of the larger market, as there's no way a subset of commercial carriers could sustain price increases if other insurers were not increasing rates as well.

Another note of interest from CLIPS; accident year loss ratios continue to deteriorate, with the latest information indicating about a 5% deterioration from 2009 to 2010.

The report follows on the heels of another report indicating the P&C industry's reserve cushion is getting slightly thinner. Fitch Ratings indicates industry reserves are likely just about 'adequate', but this is still reflects a deterioration from previous years.

What does this mean for you?

Work comp rates are firming.

Posted by Joe Paduda at 6:31 AM | Link to this post

Our colleagues at Workers Comp Insider sent us news of Florida Governor Rick Scott's latest idiocy - he issued an executive order requiring drug testing for all state employees every quarter.

The master of simple solutions to complex problems has done it again. Here's a bit from Jon Coppelman's piece.

"All current employees - regardless of what they do - must be randomly tested every quarter. Because drugs stay in the body for hours and even days after they are used, the governor is attempting to control every waking minute of the state workforce. Not even commercial drivers are subject to such stringent monitoring.

This policy does not stem from "business necessity" nor does it take into account individual freedom and the right to privacy. Using the governor's logic, you could argue that everyone in America should, for one reason or another, be tested for illegal drugs. This is bad policy and, to put it bluntly, unAmerican."

A few questions spring to mind.

- does this include Scott and his staff, and all political appointees? the language seems to say it does.

- is this Constitutional ? seems like a potential case could be made that this is a violation of due process, privacy...

- what are the legal implications? Scott's Order will result in hundreds of thousands of drug tests each year - many will be false positives, leading to...what? what is the next step? retest? what recourse will workers have if their tests are positive? do they get fired immediately? what if they metabolize meds differently?

- the drug tests are for 'illegal drugs' only, yet the abuse of prescription drugs has surpassed illegal drugs on the popularity scale. So, what does Scott's Order do about rampant abuse of opioids in Florida? anything?

- how much is this going to cost? let's see...

168,000 state employees.

tested 4 times each year

figuring a drug test (all in, staffing, reporting, actual test, etc) costs about $100 (they're much more expensive on a retail basis, but Scott will likely go for a low bid.

and the total is - $67,000,000.

Yep, $67 million dollars.

and this from the idiot who didn't want to implement a Prescription Drug Monitoring Program because it would cost less than a million dollars a year.

Now, let's add in the legal costs - because employees will sue if they get fired. And the cost of hiring replacement workers (who all have to get drug screens).

and remember this doesn't address abuse of OxyContin etc.

What does this mean for you?

next time you vote, consider the consequences.

Posted by Joe Paduda at 7:25 AM | Link to this post | Comments (5)

The major changes in Illinois' workers compensation system are stirring much conversation, modeling, and debate among stakeholders. One of the least-understood (at least by me) provisions of the reform legislation dealt with the adoption of impairment guidelines.

The person who probably knows more about impairment and disability assessment than anyone else alive was kind enough to offer his thoughts on the issue. Chris Brigham, MD, has been involved in this issue for thirty years. Here are his thoughts on the potential impact of the guidelines in Illinois:

In the past determining permanent partial disability was not consistent in the State of Illinois since the Industrial Commission did not make use of any standard guidelines, such as the AMA Guides to the Evaluation of Permanent Impairment (AMA Guides), which are used in the vast majority of state workers' compensation systems in the United States, in other arenas, and internationally. Historically, the Industrial Commission would determine the extent of PPD (Permanent Partial Disability) based on their "experience" and would not allow testimony for any doctor's opinion as to the percent of disability. Factors that the Commission considered (and will continue to consider until 9/1/2011) are nature of accident and injury, extent of lost time, physical findings, ability to return to work, description of job, average weekly wage, and subjective complaints. Adding the use of the Guides as a component in determining PPD awards has the potential of increasing the reliability and consistency of these awards.

House Bill 1698, Section 8.1b Determination of permanent partial disability, applies to injuries that occur on or after September 1, 2011. Since permanent impairment is not assessed until the claimant has achieved maximal medical improvement (MMI), which may not occur until a year or longer post injury if there is permanent loss, it is probable that this will not significantly impact actual claims until mid 2012. However stakeholders need to be prepared for this change.

The most current edition of the AMA Guides is the Sixth Edition, which reflects substantial improvement in impairment assessment. The Sixth Edition is currently used by fourteen states, for Federal Employee's Compensation Act (FECA) cases, and internationally by several countries.The assessments must be performed by physicians; this is consistent with the standards defined in the AMA Guides and makes sense since clinical judgment is required by the Sixth Edition. Based on our experience nationally reviewing several thousand ratings, there is a relatively high error rate in assessing impairment; therefore, steps will need to be taken to assure accuracy.

I asked Chris to expand on the issue of errors in determining ratings and impairment; here's his response.

We are observing a lower error rate with the Sixth Edition [compared to the Fifth Edition] which reflects significant improvement in the process of assessing impairment, using a more contemporary and consistent methodology - one that is less likely to result in errors.

Several steps should be taken to reduce the error rate, starting by recognition of the significance of this problem. This has been area that the property and casualty field has not adequately addressed, resulting in significant costs - both financial and personal (having some perceive themselves as more impaired than they actually are).

- Impairment ratings must be done when the individual is at maximal medical improvement; therefore clients should take steps to determine if someone is at MMI and then proactive steps to assure an accurate rating.

- The process of assessing impairment is based primarily on three steps: 1) obtaining clinical data (history, physical examination findings, and studies), 2) analysis of the clinical data and 3) applying the data to the criteria provided in the Guides (consistent with specific procedures as defined in the Guides). The traditional rating process has the same person (the physician, either treating or IME) perform all three steps; however this does not work well.

- Ratings should be performed by skilled IME physicians who have demonstrated competency in performing ratings and the quality of their work should be monitored. In advance, clients can have experts on the Guides review the clinical data (obtained from step 1, typically this information is available in clinical records), analyze this data, and either prepare a rating for review by an evaluating physician or provide guidance on how the rating should be done.

- All impairment ratings received should be "screened" based on certain criteria, and if impairment ratings are above a specific threshold or "red flags" are identified, the ratings should be involved by experts on the Guides. We find that this is a highly technical area requiring both significant experience with the Guides and working closely with physicians; we find that this typically is not within the skill set of an adjuster or attorney. If the expert finds the rating to be incorrect, than interventions should be taken to correct the rating. These interventions are dependent on the jurisdiction and case.

- We have developed an approach that works well in securing an accurate rating; this process involves assigning the three step process to two different parties, with the steps 1 and 2 being carried out by an evaluating physician (an IME physician following specific directives about what data to provide) and, using the resulting data, have step 3 completed by an expert on the rating process. This is similar to the process many of us use for our taxes, e.g. we are given directives about what data to obtain and this data is then reviewed by another party to complete the forms and compute the final result.

The Sixth Edition, the current Edition, will be used in Illinois, and this should be of tremendous benefit in achieving more reliable ratings. In the Fifth Edition there are differing approaches depending on which chapter is used, however in the Sixth Edition the approaches are consistent reflecting methodology used with the International Classification of Functioning, Disability and Health.

The impairment rating is only one factor that will be considered in determining the level of permanent partial disability. Other factors that must be considered: the occupation of the injured employee; the age of the employee at the time of the injury; the employee's future earning capacity; and evidence of disability corroborated by the treating medical records. No single factor shall be the sole determinant of disability.

Since impairment is not synonymous with disability, it is appropriate to consider other factors in determining disability. The amendment states "In determining the level of disability, the relevance and weight of any factors used in addition to the level of impairment as reported by the physician must be explained in a written order." The fact finder will need to use judgment; however the rationale for the decision must be documented. Significant weight should be given to the impairment rating in determining the PPD.

Chris' conclusion - To have the impact the House Bill was meant to have, we recommend the arbitrators give thoughtful consideration to the AMA Guides rating and how it was determined. It they do, we believe this process will result in both a more valid and reliable process to determine permanent partial disability. If they do not, the improvement hoped for will not be achieved. Requiring use of the current edition of the AMA Guides is a positive step forward in assuring more appropriate permanent partial disability awards.

What does this mean for you?

One hopes.

Posted by Joe Paduda at 8:33 AM | Link to this post | Comments (1)

With the passage of major work comp reform in Illinois, there's lots of interest in determining exactly what was passed, and more importantly what it means.

First, the bill. It's not easy to find it, as it is 'hidden' on the Illinois state site; when you click on the link for HB 1698 it brings up a bill addressing adoption; I have no idea why, probably due to parliamentary procedure requirements dealing with bill introduction.

The bill you're looking for is here.

There are several provisions that address key issues.

Tightening awards for carpal tunnel - this had to be in there. A report by the Belleville News-Democrat on a 'pandemic' of carpal tunnel claims filed by guards at a downstate prison incited outrage across the state. According to the story, "taxpayers paid almost $10 million to employees at Menard [the prison] for various workers' compensation injuries. In all, more than 500 claims were filed, and about half are pending."

Utilization review - while UR has been around for years in IL, it's been a pretty toothless UR. The new provisions put the onus on the worker to show why their treatment is appropriate if the payer finds it does not meet criteria for medical necessity.

Fee schedule reduction - the biggie. While there's so much spin around this from providers it's a wonder Illinois hasn't disappeared into a vortex, there's no getting around this - its a major reduction in provider reimbursement. Yes, their fees will still be among the highest in the country, but a thirty percent reduction is meaningful. There's a bit of confusion about the basis for the fee schedule; currently it is based on 90 percent of Ingenix' 80th percentile, split up into 29 geographic areas. There's an annual inflation rate increase pegged to the CPI.

Provider networks - the 'Preferred Provider Program' - yes, this brings employer direction to Illinois work comp. Well, sorta. Here are some of the details (there's lots to digest, so this is going to take some time).

- the State Department of Insurance has to certify Preferred Provider Programs - there's too much text to quote here - search for "Sec. 8.1a. Preferred provider programs" - relevant section starts on page 88 line 23.

- when an employee reports an injury the employer has to tell him/her of the PPP and the employee's need to choose a physician from the PPP.

- employees can opt out of the PPP - here's the relevant text:

"Subsequent to the report of an injury by an employee, the employee may choose in writing at any time to decline the preferred provider program, [emphasis added] in which case that would constitute one of the two choices of medical providers to which the employee is entitled under subsection (a)(2) or (a)(3)"

Essentially this allows the injured worker to choose their initial treating doc, who controls their referrals to specialists, ancillary providers, and facilities. My take on the network direction provision is it is pretty weak, and - realistically - will help with those claimants engaged in doctor shopping. However, payers' ability to control which physicians and other providers treat their injured worker, while certainly strengthened, is not greatly enhanced.

There's a lot more to this, and undoubtedly more to be determined through the regulatory process as well. I leave discussion of impairment ratings, disability determination, and other key provisions to those more expert than I.

What does this mean to you?

For employers, and most employees, and certainly taxpayers - this is long awaited and pretty good news. Costs will come down. Doctor shopping, while not fixed, will be more visible and better monitored. Providers will have to show payers and employers they are serious about treating with a focus on return to work.

And premiums, and the burden on Illinois' taxpayers, will come down too.

Posted by Joe Paduda at 7:27 AM | Link to this post | Comments (3)

Late last night the Illinois House passed major work comp reform legislation, legislation that will dramatically affect workers' comp providers, significantly reduce medical cost, and tighten up several key issues related to claim duration.

While most are focusing on the 30% reduction to the fee schedule (currently set at 80% of the 90th percentile of Ingenix' UCR), the major change will likely be the institution of employer direction in a state long tied to employee freedom of choice. The bill - HB1698 - allows employers to use medical networks that are approved by the state Department of Insurance, a change that will dramatically alter the provider landscape, greatly strengthening networks' ability to contract at rates lower than the fee schedule. While the new law will allow employees to opt out of the network at the time of injury, they have to do so in writing.

Governor Pat Quinn will sign the legislation, which also passed the Senate - this time easily.

More news is here.

A synopsis of some of the main provisions is here. (note this appears to be a plaintiff attorney's interpretation)

Posted by Joe Paduda at 8:41 AM | Link to this post | Comments (2)

The Brits finally threw in the towel. After several years of working diligently to make a go of the US TPA market, Xchanging cut its losses, selling what used to be known as Cambridge Integrated Services to Sedgwick for a price rumored to be in the low tens of millions.

Cambridge had been on a slow but steady downward spiral for some time, losing clients, adjusting talent, and revenues and failing to land much, if any new business. According to folks who had worked there, there was a good-faith effort on the part of Xchanging to reshape Cambridge's adjusting process into a more...Continental model, including changing workspaces to open tables. This didn't go over so well, helping to add to the talent loss.

With this latest deal, Sedgwick further elevates itself above the rest of the TPA pack. Notably, the deal includes a settlement services entity, yet another vendor Sedgwick will add to its portfolio. It also removes a potential competitor, although as noted above, Cambridge wasn't too much of a threat of late.

Here's hoping the folks left behind at Cambridge find the transition a good one, and their futures brighter than they were yesterday.

Posted by Joe Paduda at 4:10 PM | Link to this post

In the online edition of Risk and Insurance, fellow work comp consultant Maddy Bowling authored a piece focused on a rapidly growing segment of the work comp managed care industry - drug testing. Maddy's a very experienced, and very knowledgeable work comp professional, and I completely agree with her main point - payers would do well to make sure they "connect the dots".

That said, I have a somewhat different take re drug testing's purpose and value.

To be clear, I'm referring to the use of urine screening for claimants prescribed narcotic opioids - the Schedule II drugs that are potentially addictive, at risk for diversion, often quite expensive, and not indicated for long-term use for musculo-skeletal ailments. (I'm NOT referring to pre-employment screening or testing post-accident.)

Maddy asks some highly relevant questions:

"aren't our pharmacy benefit management (PBM) vendors identifying multiple prescribers, multiple prescriptions and potential drug interactions? Aren't they identifying cases that require detailed drug reviews and possible peer intervention? Aren't they identifying the top opioid prescribers in your book of business? Isn't your PBM reviewing your out-of-network pharmacy bills to ensure that they have all the pharmacy information on every injured worker and taking action if anything seems inappropriate?"

All these are important, necessary, and should be part of your pharmacy management program.

But PBMs can't do everything on their own, and neither can case managers. Maddy observes that on-site case managers can check bottles to see if drugs are being taken, ask about non-prescribed (illicit) drug seeking behavior, and ask the claimant specific questions about compliance. While I respect the ability of many field case managers, it is unlikely they will be able to consistently and accurately discriminate between truthful and less-than-truthful claimants.

Drug testing can provide quantitative evidence of compliance with drug treatment plans. It can also:

- identify illicit drugs in the claimant's urine (thereby providing evidence of compliance with opioid agreements)

- identify claimants with genetic tendencies to rapidly (or otherwise 'differently' metabolize opioids (this from the Mayo Clinic "To optimize treatment for individual patients, clinicians must understand the variability in the ways different opioids are metabolized and be able to recognize the patient characteristics likely to influence opioid metabolism."

Drug testing is also relatively cheap. We're talking a few hundred dollars per test;

- equivalent to a few hours of case management,

- a relative bargain when compared to the cost of a couple months of OxyContin and many other opioids,

- and a screaming deal when compared to extended indemnity benefits, settlement costs, and MSAs.

I'm pretty familiar with the monitoring, alert, and management tools in the PBMs' and payers' armamentarium. And there's no question most payers would do well to utilize more of those tools, to, in Maddy's words, help 'connect the dots'.

I'm also quite sure there's far too little use of drug testing in workers comp.

It's not just me. The State of Washington adopted strict guidelines for opioid prescribing (opens google doc), guidelines that include provisions for urine drug testing.

What does this mean for you?

The overuse and abuse of opioids in workers comp is a disaster - economically, financially, and socially. There's also no question some individuals metabolize opioids differently. Drug testing can help physicians - and patients - better manage pain, while adding a level of certainty that subjective opinion...can't.

Posted by Joe Paduda at 7:31 AM | Link to this post | Comments (1)

Peter Rousmaniere's piece in Risk and Insurance outlines precisely what needs to be done to reduce unnecessary medical costs in comp.

To date, most 'managed care' programs have had little real impact; most just shift costs around and develop phantom savings so sponsors can show what a great job they are doing by cutting reimbursement - oftentimes on bills for services that shouldn't have been delivered in the first place.

The focus should be on:

- aggressively directing injured workers to excellent providers and paying them whatever it takes to get their attention and cooperation.

Of course, you can always just continue to do what you're doing today...

Posted by Joe Paduda at 11:49 AM | Link to this post

A well-placed industry exec shot me a note late last week re yet another TPA deal; Ohio-based Avizent will buy FARA, a Louisiana-based TPA.

Terms weren't available, but there's a bit of an outcry over the deal from some folks in Louisiana. Evidently FARA recently took over administration of the State's Office of Risk Management as part of Gov Bobby Jindal's privatization initiative. The deal was worth some $68 million to FARA (there was an increase of some $7 million that sparked heated comments by at least one LA legislator).

That increase seemed to fall just within the boundaries of the law, which enable an agency to increase funding up to 10% of the original contract value.

There are a couple other potential deals out there now; xChanging (formerly Cambridge) is rumored to be close to a sale to one of two very large TPAs.

I'd expect more to come in the not-too-distant future.

Much more.

Posted by Joe Paduda at 7:17 AM | Link to this post

From the "shameless commerce division" of Health Strategy Associates, LLC - a Webinar reporting on our First Annual Survey of Workers Comp Claims IT Systems is coming up later this week - Thursday from 1:30 - 2:30 pm eastern, to be exact.

The Survey obtained input from front-line folks and execs in claims and IT, and we'll be comparing and contrasting responses to show where there's a disconnect/differences in opinions between the two groups. You'll also find out about:

- decision processes,

- what execs are looking for in their new systems,

- the limitations of their current systems,

-pricing methodologies, and

- respondents' opinions on vendors.

You can sign up by clicking here.

The webinar will be conducted by myself and Sandy Blunt; all attendees will get a detailed copy of the Survey Report as well.

From the Survey, here's one not-surprising-and-quite-revealing item:

88% of the front-line representatives and managers said their current system is NOT fully integrated with their bill review and utilization review system (75% wish that it was); conversely, 68% of the executive leadership responses state that their system IS fully integrated with their bill review and utilization review system.

Lots more to present on Thursday at 1:30 eastern.

Posted by Joe Paduda at 11:47 AM | Link to this post

While there weren't a plethora of deals announced at RIMS last week, that's not due to a lack of activity.

The pending changes to tax rates (without another extension, capital gains will go up at the end of 2012) make it imperative that deals get closed before 12/31/2012. But it's not just the tax code that's driving activity. The continued soft market and drop in frequency during the recession have been particularly tough on TPAs; many work comp service companies are also hurting, while others look to be nearing the end of their initial run and readying themselves for the 'equity event'.

Among TPAs, xChanging is nearing a deal to sell its former Cambridge TPA. A couple of suitors are still in the mix, both are big TPAs looking to get even bigger. Expect this to get done within a month or so, and at a price that will surprise.

The Align Networks deal is moving forward as well, with the field of potential acquirers now narrowed down. Financial suitors are rumored to be quite interested, but there remains interest from some looking to combine Align with other assets. I'm speculating here; my guess is it will be a financial buyer smitten by the company's rapid growth and rosy outlook.

Unless... someone buys both Align and Universal SmartComp and puts them together in a bid to topple MedRisk (current HSA consulting client) from its long held position as the dominant player in the work comp physical medicine sector. I don't see how that would work as the business/operational models are markedly different. Moreover, a lot of the 'value' of the assets lies in their network contracts, which would be redundant in any deal.

There are a couple of other deals rumored to be in the offing, but nothing verifiable as of yesterday. We'll keep you posted.

Finally, there were rampant rumors at RIMS that one of the big PBMs was about to be sold; not true.

Posted by Joe Paduda at 7:15 AM | Link to this post | Comments (1)

Update (correction re revenue figures) While flying home from LA yesterday, thru the miracle of airplane wifi I got a note from a colleague stating "MES contributed $13.2 million in revenues in the first quarter of 2011. MES had approx. $129 million in revenues for 2010 (a run-rate of approx. $32 million per quarter).

Am I reading this right??" the net is not exactly, but the earnings report does raise. Few questions.

For those not immersed in this tiny little business, Examworks is a rollup of IME firms, companies that contract with independent doctors to do Independent Medical Exams, primarily for workers comp insurers. Among several other acquisitions last year, Examworks bought MES for some $175 million in cash plus $10 million in assumed debt plus 1.4 million shares of Examworks stock (worth about $25 million) for a total of about $210 million .

If their new acquisition generated about forty million for the first three months of 2010, (deal closed 2/28, so the $13 million was for one month) the obvious question is "was it worth $210 million?"

My colleague was referencing yesterday's earnings release which was followed by a press conference/call last evening. I didn't hear the call, so don't know what was said (will see the transcript by the end of the week). As my investment portfolio demonstrates quite convincingly, I'm no Warren Buffett. But I do know a bit about this business, have helped on a few private equity deals, and can operate a calculator with some facility.

MES' 2010 EBITDA was about $23.4 million. So, Examworks paid a 11x multiple for MES, a rather princely price. Especially given the Q1 revenue figures.

So, if I was on the call - which I was not - I'd want to ask:

What savings are you seeing from synergies? What kind of synergies have you found?

Here's hoping someone did.

Posted by Joe Paduda at 7:10 AM | Link to this post | Comments (2)

To show just how much I need to get a life, one of the more interesting talks at NCCI las week was a very-well attended general session focused on legislative and regulatory reform. It began with an examination of federal actions beginning with the McCarran Ferguson Act and thru Dodd-Frank, both really important and highly significant legislation that are pretty far outside my area of interest/knowledge/focus.

Things got interesting when we moved into specifics on states. Peter Burton of NCCI noted the fall elections made for a much more Republican slant to most state legislatures and governors' offices. Jeff Eddinger also spoke, starting off by noting the number of rate increases sought last year about doubled, with NCCI looking for increases in 15 states. Eddinger also reiterated frequency was up nine points last year...

Burton and Eddinger focused on four states - Montana, Illinois,Oklahoma, and North Carolina

The Big Sky State has the highest WC premiums in the nation, a condition that led to an aggressive move by both parties, and by both the legislature and governor, to address costs. The impact of the reforms passed and signed in April is pretty significant - a 22.4% rate decrease. Among the changes from reform, Montana is now an employer direction state, terminated medical benefits after five years (except for permanent claims), and codified usage of the 6th edition of the AMA Guides.

The biggie - Illinois.

IL is known throughout the WC world as a basket case. While Montana's got troubles, there just isn't that much business in MT, but there sure is in IL. Caterpillar Tractor has already threatened to leave the state due to work comp, and that, plus the Menard Correctional Center scandal moved comp reform to the top of the list.

As of this week, Gov Quinn has said there looks to be a decent chance that reform will pass despite the partisan battles.

Oklahoma

OK's WC system is a mess with costs that are the fourth-highest in the nation. The Governor, along with a GOP House and Senate, are likely to get reform completed and signed into law. The bill tightens pharmacy reimbursement, alters the fee schedule, revises IME regulations and makes other changes that together look to reduce premiums significantly.

North Carolina

This is one of the states where government changed dramatically in the GOP landslide of 2009. As a result there is a bill presently under consideration that would, through a variety of specific measures, reduce work comp costs. It is not clear whether this will become law.

There's a lot more detail available on NCCI's website on goings-on at other states that wasn't presented at the conference - you can access it here.

Posted by Joe Paduda at 9:06 AM | Link to this post

I'm going to skip over two am speeches - while I could indulge my inner pundit and discourse on Charles Krauthammer's highly selective use of data in his conservative monologue/analysis of President Obama's psyche and disuss the insights of Arthur Laffer, he of the widely-discredited "Laffer Curve", the pm sessions were far more interesting.

I do have to provide just one note re Laffer...
Laffer was not only THE supply-side economist; he was also the guy who in August 2006 famously said: "The United States economy has never been in better shape." Laffer even bet stock broker and UC Berkeley alumnus [and Ron Paul adviser] Peter Schiff a penny that the economy wouldn't crash.

Barry Lipton led off the research discussion with a drill-down on changes in frequency. [presentation will be available in the near future here] Recall that frequency has been on an eighteen (or so) year long steady decline or around 3-5% each year. In 2009, overall frequency based on wage adjusted payroll declined by 8.4%, with that decline overcome last year as frequency (number of claims) jumping nine percent. (see NCCI for why it's probably not really nine percent, but more likely around three percent)

Building off yesterday's announcement that frequency increased dramatically in 2010, Barry provided background on which types of industry classes (what kinds of jobs in what industries) were seeing what changes in frequency and the relationship of payroll to severity.

Barry was followed by Harry Shuford discussing older workers and their impact on workers comp. This is rather an important topic as older workers - those over 55, are becoming an increasingly large part of the workforce. Shuford put uo a slide that clearly indicated claim frequency variation between age groups essentially disappeared over time. That is, there was wide variation in claim frequency (how often workers are hurt) among age groups in 1994, but very little variation in 2009.

This held true when corrected for job mix. Moreover, severity (cost of the claim) was pretty consistent regardless of age group (for workers over 35, while costs were lower for workers under 35). With that said, there was a rather significant difference in severity when the two groups (above and below 35 years old) were compared, likely caused by the different mix of injuries sustained by the two populations. In fact, about half of the difference in cost was attributed to injury type.

Disability duration was (unsurprisingly) longer for older workers, but a good chunk of the difference was due, again, to the different injury types incurred by the two groups. After considering the various adjustments, medical cost variation was pretty minimal.

The net is most of the impact of baby boomers is "already there". That is, we likely won't see much of an uptick in severity due to the aging population in the future.

Posted by Joe Paduda at 2:45 PM | Link to this post | Comments (1)

Frank Schmid had the honor of conducting the final report at the 2011 NCCI Annual Issues Symposium, and he was well worth the wait. Dr Schmid discussed physician fee schedules, price levels, and 'price departure'.

Schmid reported not results, but "findings" related to a lot of really intriguing issues. To wit

- how do price and quantity change in response to changes in fee schedule?

- what is the rate of inflation in MD services?

- what is the difference between fee schedule and the actual prices paid, known as 'price departure'.

- do physicians increase or decrease the quantity of services if a fee schedule declines? are these permanent changes? are they symmetric (reversing the fee schedule reverses the response)

Frank and his colleagues looked at the impact of FS changes on physician service categories and total physician services. I won't get into the methodology - mostly because it's way too complex for me to understand, much less describe. NCCi examined four states, FL GA MD and UT.

Florida's fee schedule increased significantly in January of 2004. Interestingly, prices paid increased when the FS went up, but prices, which before had been about 5% less than FS, were about 10% less after the increase. (note this is consistent with internal data HSA has from payer files). This was even more noticeable with prices for physical medicine, where prices went from 7% below FS to about 25% below after reform. A couple years post-reform, prices actually rose.

The opposite occurred in Maryland, with prices paid actually increasing after the fee schedule was changed midway thru 2004.

Schmid broke this down by actual types of service - evaluation and management codes, etc; the discussion of radiology in Florida was particularly interesting, as Schmid noted that "not only do prices respond to fee schedule changes, but fee schedules respond to price changes".

There's a lot of very useful, and interesting information here, and much more to come. I applaud NCCI for digging deep into the pricing and fee schedule issue, as my sense is there's not near enough understanding of the inter-relationship between price and fee schedule. Future plans are to provide actual results across a score or more of states by the end of the year.

This is great stuff.

Posted by Joe Paduda at 1:20 PM | Link to this post

After this morning's sobering announcement of a 115 combined ratio for work comp, things didn't get much more rosy in Bob Hartwig's presentation on the "post-crisis world".

Since 2005, work comp net written premiums have dropped from about $50 billion to $35, a drop of about 30%. That's a massive loss, and that's why everyone, and every business even remotely connected to the work comp insurance has been hammered over the last few years.

It's got to get better, right?

right?

For that we turn to Bob Hartwig,who covered everything from Bid Laden to jobs to

Hartwig is always entertaining, enthusiastic, and engaging - hard to do when you're talking insurance. He started out discussing the Terrorism Risk Insurance Program, and specifically the question "now that Bin Laden is dead, do we still need it?"

Absolutely, says Hartwig, who cited the $40 billion cost of 9/11 and noted that any future disaster would almost by definition result in high claims - and high costs - for workers injured or killed in an attack.

Moving on to the Japanese disaster, total costs are estimated to fall somewhere in the $12 to $45 billion level, with most coming in around $25-30 billion.

With the insured costs of the Japanese catastrophe and domestic, primarily weather-related disasters well up above $40 billion, what's the implication for work comp insurers? Most of the impact will be on the reinsurance markets, which, while they won't directly impact comp, certainly will as comp insurers get renewals from their reinsurers. Hartwig noted that the impact - over the near term, will be minimal to nonexistent.

The job front is looking up - as there have been two million new jobs created since January 2011, with significantly stronger growth over the last two months adding almost a half-million jobs in February and March alone. This - of course - is great news for work comp as it adds billions in payroll to what - as we noted earlier today - has been a work comp premium base suffering from lower revenues.

The impact of small business and construction were discussed in detail - listening to Hartwig is somewhat analogous to drinking from the proverbial firehose - but the net is there aren't enough small businesses starting (as of March 2011), too many went bankrupt over the last two years, and all forms of construction haven't grown enough - or quickly enough - to add a lot of premium dollars over the near term. When construction and small business start-ups get going, that will be good news indeed for insurers.

Reserve releases have been helping to keep the overall P&C insurance industry combined ratio at a decent level (a bit above 100), but when (not IF) these releases stop, the combined ratio will bump up.

So, what does this all mean?

Hartwig appears to believe the work comp market will remain level, with the positive impact of increasing employment balanced by lots of available capital.

My sense is the impact of rising health care costs will be more significant than most think, and will overcome some of the positive factors noted by Hartwig.

We'll see.

Posted by Joe Paduda at 11:18 AM | Link to this post

This morning NCCI released the 2010 results for private work comp insurers - and they aren't good. The combined ratio climbed to 115%, an increase of a full five points over 2009. The combined ratio is a key measure of industry performance and the deterioration marks continued decline in the health of work comp.

While the number itself is discouraging, one carrier's decision to add $800 million to reserves was a major contributor.

The economy and employment also added to the poor results, as premium declined by 1.3 points. Premium is based in part on the number of people working thus the recession's impact on hiring helped drag results down.

As I've been predicting for some time, frequency popped up significantly last year. The 'real' bump was about three percent, although NCCI is reporting nine with the difference accounted for by "distortions in collected data."

More to come later today.

Posted by Joe Paduda at 6:21 AM | Link to this post

Last week Coventry released their Q1 2011 earnings report, and things are looking good.

First, the workers comp results. Revenues were up slightly, to $191.6 million, a 4% increase over the prior year's quarter. For the last few months, Coventry's new CFO Randy Giles has been immersed in the business prior to assuming his new role. Given the inordinate profitability of the comp sector, it's not surprising Giles was focused on WC; the company is relying on the cash from WC to fund it's investment in other areas as it prepares for the brave new world of post-reform healthcare in 2014.

Overall, the Louisiana suit is still dragging on Coventry, as it placed "$150.5 million into escrow to fund a preliminary settlement of the Louisiana provider class action charge as disclosed in the Q4 2010." Note that this is a preliminary settlement reserve; there may - or may not - be an additional allocation when the final settlement is determined. And there's also the possibility the suit will be overturned at some point.

While Coventry doesn't report earnings for work comp, word is it remains extraordinarily profitable, driven in part by price increases pushed thru for network business over the last eighteen months or so.

Next week - after NCCI - we'll look at Coventry's other results.

Posted by Joe Paduda at 5:59 AM | Link to this post

After my post yesterday, I received a couple of 'what are you smoking' messages from industry colleagues reacting to my note on firming pricing for work comp premiums. (in fairness, I was reporting on a MarketScout study...)

Well, here are a couple other news items that may indicate where pricing is heading.

From Fitch Ratings (via PropertyCasualty360) comes this rather alarming item:

"Workers' compensation saw the most severe underwriting losses, the report notes, with a combined ratio of 113.3. [emphasis added] "While the workers' compensation line benefited from reform efforts in various states and continued declines in claims frequency, claims severity in this segment has steadily trended upward," Fitch notes. The rating agency adds that revenue was hurt by exposure declines as employment levels and payrolls fell during the recession."

Now that employment and business activity is picking up, I expect we'll see a bump in frequency as well - not a structural change, but a reaction to faster pace of work, more temps working in unfamiliar jobs, more overtime. This, combined with the tough employment market for the long-term unemployed (can't go back to work if there aren't any jobs you are trained for) will likely result in a double whammy - more claims, and more severe claims.

Add to this the recent heavy losses due to catastrophes abroad (Japan) and at home (flooding, tornados) and the financial implications thereof, and it looks like work comp carriers and self insured employers are going to be paying more for reinsurance and stop loss coverage.

In 'normal' times a combined ratio of 113 would be tough enough, but with interest rates at near-historic lows and an uncertain investment environment, work comp insurers - and reinsurers - will be hard-pressed to make up the losses with investment income.

What does this mean for you?

A hardening - but not yet hard - market looks increasingly likely this year.

Posted by Joe Paduda at 8:55 AM | Link to this post | Comments (1)

A family matter required my full attention last week, which was why you didn't see any new posts on Managed Care Matters. A lot happened which we'll reprise here quickly.

Alex Swedlow of CWCI published another report on the ongoing disaster in California, namely the rampant overuse of narcotics by workers comp claimants. This latest update focused on the use of fentanyl, a narcotic that is between 75 and 100 times more potent than oral morphine.

Fentanyl is NOT indicated for musculo-skeletal injuries, yet it was prescribed for almost 3500 claims out of the total population of sixteen thousand plus claims. Fourteen hundred claims with the diagnosis of 'medical back problems without spinal cord involvement' were prescribed fentanyl.

As with the top opioid prescribers, the top ten percent of docs writing scripts for fentanyl wrote the vast majority - in this case 84% of all scripts came from 917 docs, with the average doc writing over fifty scripts for fentanyl.

Actiq and Fentora are orally-administered versions of fentanyl - and are NOT FDA approved for injuries or conditions occurring in workers comp. Nevertheless, Swedlow et al found 77 claimants had scripts for these two wildly expensive drugs.

The ongoing effort to reform work comp in Illinois seems to be moving more sideways than forwards, with competing proposals and bills, intensive lobbying, and a bit of disarray on the business side all contributing to a very, very murky picture.

Meanwhile, there was a bit of good news on the work comp pricing front, as MarketScout reported that they are seeing more favorable pricing trends of late with rates essentially flat in March after pricing firmed in previous months. This mirrors news from the broader property and casualty lines, which, while still pressured by abundant capacity, seem to be showing more resistance to price concessions.

Finally, thanks to Sandy Blunt for the tip - USAToday ran an editorial last week noting 18,000 people a year die from prescription drug abuse. Eighteen thousand.

For the first time in many years, MCM won't be reporting 'live' from the RIMS conference. Too much going on to attend the annual property and casualty confab - work and the west coast location - and the conflict with NCCI's annual issues symposium later this week make it impracticable to get to Vancouver.

For those going to RIMS, have fun in Vancouver - and make sure to try the sushi - it's outstanding.

Posted by Joe Paduda at 7:46 AM | Link to this post

Conditions look ripe for a hardening of the workers comp market later this year. I've been known to get just a bit ahead of myself in my predictions about lots of things - and this time may be no different. That said, the stars look to be getting closer to alignment, with profits up, underwriting losses increasing, and medical costs heading north as well.

Yesterdays' PropertyCasualty 360 brought news that P&C insurers' "2010 net income rose to $34.7 billion from $28.7 billion the year before, the industry's net losses on underwriting for the year grew $7.4 billion compared to 2009."

So, you say, how could the market be hardening be income is going up? Doesn't that lead to more entrants to the market, more capital chasing less business?

Well, perhaps. But there's a couple other things going on that weigh against a soft market.

First, insurers' results aren't very good. Last year's 6.5 percent margin compares poorly to 9.1 percent, the average for last fifty years or so. As investors like to see a nice steady improvement in margins and a rosy outlook, those numbers are likely going to discourage the big money folks from allocating billions to the P&C insurance business.

The news from California isn't encouraging either. The state fund's loss ratio is above 157%.

157%.

Nationally, NCCI reports the picture is getting increasingly gloomy. This from Joan Collier's report:

- After very minor underwriting losses in 2007 and 2008, the combined ratio for workers' compensation (private carriers) shot up nine points in 2009--the largest single year increase since the mid-1980s.

- Deteriorating underwriting results, combined with a record low interest rate environment, left the line in an only slightly better-than-break-even position after investment income is considered.

- Combining the underwriting loss with the investment gains, the result is a pre-tax operating gain of 1.6 percent, the worst result since the 0.9 percent gain of 2003.

When you add a strengthening economy, growth in employment, and a faster pace of work - and the likely outcome of all that, which is an increase in claim frequency, coupled with the increased severity we've been experiencing for some time now, and the near-term outlook for workers comp doesn't look so bright.

What does this mean for you?

A tighter market by the end of 2011 and increasing prices.

Posted by Joe Paduda at 7:31 AM | Link to this post

The current political and cultural divide over health reform is not new - in fact, a century ago a very similar debate took place, and the result may be instructive.

At the turn of the century courts were stuffed full of tort cases brought against employers by workers injured in industrial accidents. Workers had no other recourse besides the court system, and for the years leading up to 1911, the courts offered little hope. That began to change in 1911, when New York passed legislation requiring employers to pay for industrial accidents. The day after the bill passed, a Earl Ives, a railroad worker, sprained his ankle while signaling to an engineer. His employer took the case to court, saying it was Ives' responsibility to be more careful.

Ultimately, the court found in favor of the railroad. This from Peter Rousmaniere's recent piece in Risk and Insurance:

"...what drove Werner's (judge in the Ives case) reasoning were cultural values. He magnified the responsibility of the self-reliant worker within his or her immediate sphere of influence. He chose, in effect, a narrative that made sense a generation before Ives' accident.

New York voters overrode Ives with a constitutional amendment in 1913. Other states responded by crafting legislative proposals meant to be challenge-proof.

The rapid and broad acceptance of the new system was mainly due to a new angle of vision on the individual at work. The cause of work accidents now was neither the worker nor the employer but industrial employment itself. The new mantra of a work accident "arising out of and in the course of employment" skirted the question of causality."

Workers comp took hold across the country, and within a decade most states had passed some form of comprehensive workers comp legislation.

There are a couple reasons why employers' efforts to battle workers comp legislation stopped. First, on a national scale, the cultural issues noted by Peter overtook the laissez faire theology of early industrial America.

Second, employers were starting to lose more and more court cases, an occurrence that struck fear into management and owners. Work comp was seen as a 'less worse' alternative to the increasing number of increasing verdicts.

Third, the growing influence of organized labor was being felt in corporate boardrooms around the country, and management wanted to eliminate industrial accidents as an issue.

So what does this have to do with health reform?

Health care is reaching a crisis point. Within six years, family premiums will exceed $30,000, plus out of pocket costs In an increasingly global economy, American employers are going to abandon ideology when confronted by the stark reality that they cannot and will not ever be able to compete if they aren't relieved of the burden of health care costs.

Similarly, taxpayers (as we're seeing every day) cannot and will not pay for ever-increasing health care benefit costs for Medicare, Medicaid, and public employees. But those programs, especially Medicare, control a LOT of votes. Thus politicians will be forced to come up with cost-reducing solutions that are dramatically different from the feeble attempts from Washington to date (and I include both parties in that).

Ryan's solution is no solution at all - in actuality it is nothing more than a 'throwing up of the hands and abandoning any pretense of cost control.'. And, it's from one of the guys who voted for the single largest increase in entitlement programs since Medicare - Part D.

The Accountable Care Act isn't a solution either, but it contains the seeds of real change, specifically with the IPAC.

What does this mean for you?

When things no longer can continue, they won't. We saw that with workers comp exactly a century ago, and we will see that with health care within five years.

Posted by Joe Paduda at 7:46 AM | Link to this post | Comments (1)

The annual property and casualty conference/gathering of the tribes known as RIMS is slated for Vancouver BC the first week in May. A great city, terrific restaurants, and lots to do around town.

I'll miss it this year - too much client work and I'll be at NCCI's Annual Meeting later that week. While it's a (much) smaller affair, it is also highly focused on work comp, content-rich, and well-attended by industry pros. Can't do both, so NCCI it is.

While I won't be liveblogging from RIMS, I daresay there will be more than a couple newsworthy items that will generate a lot of buzz. Here's what I'm hearing, and what may be 'ready for prime time' by May 1.

Word is giant work comp insurer Chartis (formerly AIG) is going to dump Coventry's bill repricing system in favor of Medata. While Medata CEO Cy King won't comment, I've heard this from two separate sources, both very knowledgeable about the process. Reportedly, Medata beat out StrataCare and Mitchell.

This would be a big win for Medata; a very big win.

UPDATE - Got a call from an AIG exec this afternoon who assured me no final decision has been made.

PT firm Align Network is on the block. Multiple potential buyers are looking at the company, and I'd guess (yes, that's a guess) a deal will be consummated this year. Align has grown rapidly, based in large part on management's strong industry contacts and relationships. The company has a customer-service-heavy operational model that some adjusters and nurse case managers like a lot; the scalability of that model will have a big impact on the multiple.

There's a good bit of activity in the work comp PBM world, with several large payers looking to improve their results this year. With WC pharmacy costs spiking up near double digits last year (my estimate), drugs are once again in the spotlight. Expect there to be a lot of activity around PBMs' booths, and even more in their hospitality suites and more discreet locations.

A couple other deal-related items are brewing; if they get closer to completion before RIMS I expect we'll hear about it/them.

Posted by Joe Paduda at 7:20 AM | Link to this post

For over two years I've been following - with a strong sense of outrage and disgust - the travails of Sandy Blunt as he's been pilloried by the prosecuting and investigatory authorities in North Dakota. At long last it appears there's hope justice will be done.

The prosecutor who's vindictive and unethical practices have made a travesty of justice is about to face her own fate. At the end of June, Cynthia Feland will be tried by a Disciplinary Board under the authority of the North Dakota Supreme Court for prosecutorial misconduct.

While Ms Feland tries to make light of the charges, the facts (something she's quite unused to dealing with) are most definitely not in her favor.

In 2009, there were 17 cases that went thru the Disciplinary Board Panel Hearing; that's where Feland is headed. And the odds aren't good.

Only 2 cases were dismissed. Of the remaining cases, the Panel reprimanded the attorney in 6, the Supreme Court suspended the attorney in seven, and disbarred the offender in 2.

Let's do the numbers.

- Feland has a twelve percent chance of acquittal - or about one in eight. She's got equal chance of being disbarred outright.

- She's got a thirty-six percent chance of reprimand, the next 'most favorable' outcome.

- It's more likely (forty-two percent chance) she'll be suspended (which would likely mean she loses her judgeship, which she won in an election last year).

So Feland has an 88% chance of being disciplined, disbarred, or having her license to practice suspended.

This has been going on far too long, and at a personal and professional cost to Sandy that's just appalling. But it's not just Sandy who's suffered. All of us who work in this industry, who push hard to do the right thing, to deliver better results for injured workers, their families, and employers, are being penalized by this injustice.

Sandy Blunt was persecuted because he didn't accept the status quo. He wasn't willing to go along to get along. He required more of his employees at the North Dakota state work comp fund, more than just punching a clock and doing their time. Sandy set standards for performance and responsiveness that some couldn't meet, and rather than acknowledging their own shortcomings, they turned on the person the State tasked with turning around their poor performance.

And the justice system, and many - but assuredly not all - of the people of North Dakota were complicit.

Feland's hearing will take about two days. It's to be held in the largest hearing room in the court building. It's going to be gratifying to see the person who's tried to ruin one of the finest people I know get her comeuppance.

Posted by Joe Paduda at 4:08 AM | Link to this post | Comments (1)

This am's WorkCompCentral reported that Florida Gov. Rick Scott spoke out in favor of a ban on physician dispensing of Scheduled drugs - those medications regulated/tracked by the DEA.

It's indeed encouraging that Scott has finally decided to do something positive about the pill mills that write scripts for more oxycontin than all other states combined. But the Gov, citing what can only be called specious arguments, still opposes a Prescription Drug Monitoring Program.

According to Jim Saunder's piece in HealthNews Florida, "Scott also at least partially endorsed a House proposal to prevent doctors from dispensing drugs in their offices. Scott, however, added a caveat that such a ban should include "appropriate" exceptions --- and didn't elaborate about what those exceptions might be."

Moreover, Scott's new position does nothing to address the $34 million problem.

That's how much more Florida's employers are paying for drugs dispensed by docs for workers comp patients than they would if the drugs were dispensed by retail pharmacies.

Here's how WCRI described the issue:

"Cambridge, MA-based WCRI found that the average payment per claim for prescription drugs in Florida's workers' compensation system was $565--38 percent higher than the median of the study states.

The main reason for the higher prescription costs in Florida was that some physicians wrote prescriptions and dispensed the prescribed medications directly to their patients. When physicians dispensed prescription drugs, they often were paid much more than pharmacies for the same prescription.

The WCRI study, Prescription Benchmarks for Florida, found that some Florida physicians wrote prescriptions more often for certain drugs that were especially profitable. For example, Carisoprodol (Soma®, a muscle relaxant) was prescribed for 11 percent of the Florida injured workers with prescriptions, compared to 2 to 4 percent in most other study states.

Financial incentives may help explain more frequent prescription of the drug, as the study suggested. The price per pill paid to Florida physician dispensers for Carisoprodol was 4 times higher than if the same prescription was filled at pharmacies in the state.

The study reported that the average number of prescriptions per claim in Florida was 17 percent higher than in the median state. Similar results can be seen in the average number of pills per claim."

To say Scott's position is inconsistent is like saying abuse of prescription drugs is bothersome; a wild understatement.

Posted by Joe Paduda at 6:48 AM | Link to this post

We usually find out about things first when there's a report out of California; growing facility costs, surgical implants, physician repackaging, compound meds, narcotic usage are among the cost drivers that received wide-spread attention after publicity in California.

Yesterday's news that medical costs have resumed their seemingly-inexorable rapid climb may be the most troubling revelation yet from the Golden State.

Here's what CWCI had to say about their review of recent medical cost trends:

The results confirm the findings of the earlier studies, again showing a sharp reduction in medical payments immediately after the reforms were enacted in 2004, followed by a distinct trend of increasing medical payments associated with work injuries beginning in AY 2006 and continuing through the end of the study period. This trend has pushed average medical expenditures per claim significantly above pre-reform levels, with all four of the medical expense categories continuing to rise. [emphasis added

According to CWCI, the growth in medical costs was far outweighed by the increase in medical management/cost containment expenses. That's concerning, but without these cost containment investments, medical costs would have been much higher.

CWCI again - "Although the utilization review and the Medical Provider Network access fees represent significant, ongoing medical cost containment expenditures for workers' compensation claims administrators, prior CWCI studies have shown that they are associated with an estimated $12.8 billion to $25.3 billion in medical cost saving between 2004 and 2008. [emphasis added] I would note the terminology is somewhat indirect, cost containment programs are "associated with" the savings. It is impossible to say what would have happened if those programs had not been in place, thus we can only make (well-)educated assumptions.

Which leads to this rather troubling conclusion - despite major reforms, huge investments in what look to be much-more-effective cost containment programs, and ongoing attempts to close regulatory loopholes, medical costs are once again zooming up.

And if its happening in California, a state with pretty strong managed care, it may well be much worse in other jurisdictions.

What does this mean for you?

Do you know where your medical costs are heading?

Posted by Joe Paduda at 7:11 AM | Link to this post | Comments (1)

A couple weeks ago I started a three-part series on what's going to affect workers comp in 2012. After a few diversions and current-events-driven-interruptions, we're finishing up today with the impact of MSAs

Pharmacy costs - and CMS' treatment of same - are causing many payers to delay or reconsider settling claims. While MSAs are not, (very) strictly speaking, required to close claims in most jurisdictions (Maryland being the exception), as a practical matter, payers are quite reluctant to settle claims without an approved MSA.

From conversations with several payers, MSA experts, and claims execs, it is becoming apparent that CMS' current 'policy' related to drugs has reached the point where it is severely affecting claims handling.

There are at least three major issues here - and likely a few others of just-slightly-less importance.

First, CMS is valuing drugs at the current AWP, regardless of the actual price paid, brand status, or likely future pricing. Many scripts are currently paid below AWP, due either to state fee schedules that are below AWP or PBM contracts that offer even more reductions. I'm not sure of the logic here, but it does appear counter-intuitive.

Second, a similar 'policy' appears based in the belief that the claimant's current treatment regimen will never change, that it is set in stone. The drugs dispensed to the claimant at the moment the MSA is developed are what the valuation is based upon. If there are brand drugs that are likely to go off-patent (a definite until the recent OxyContin re-branding), there's no change in estimates of future cost to account for that. If the meds are typically prescribed for a brief duration, no matter.

In the latter case, CMS has a pretty good case; there are far too many claimants taking drugs today that most reasonable practitioners would characterize as only appropriate for a limited duration - Schedule II narcotics as perhaps the prime example. I'd suggest that in this instance, we've done it to ourselves.

Finally, CMS takes a rather dogmatic view of off-label prescribing - it doesn't like it. This significantly complicates the picture as many claimants' drug treatment regimens include off-label use of meds. While off-label use can be completely inappropriate, in many instances it is not. Thus, the 'policy' can lead to confusion and difficulties in reaching agreement with CMS.

As a result of these and other MSA-related complications, most payers are not able to settle claims that they'd very much like to get off their books once and for all. Claim loads are increasing as a result, and reserves are as well.

Several industry stakeholders are working diligently to resolve these and other issues. What is clear is CMS is going to ensure they are protecting CMS' interests. While this is a generally good thing (we taxpayers are thereby protected as well), the current stalemate is not helping anyone.

Posted by Joe Paduda at 7:22 AM | Link to this post | Comments (2)

I wasn't there, but certainly heard enough about it to wish I was.

I'm referring to CWCI's annual meeting held yesterday in San Francisco, a meeting that might well have been subtitled "Opioids and the Doctors who prescribe them".

The report that triggered the excitement (CMS has been asked to review the information, national media has weighed in, and some in the physician community are circling the wagons and attacking the study methodology) was discussed in some detail earlier on MCM; more details on who some of the more 'liberal' prescribers were and what they prescribed were presented at the meeting yesterday.

As we get more information on what's happening with opioid prescribing, the revelations are getting even more frightening, particularly the information about Actiq(r) and Fentora(r), drugs that are only FDA approved for breakthrough cancer pain. Shockingly, there were essentially no diagnoses of cancer in the claimant population

The top 10% of docs who prescribed Schedule II opioids prescribed 84% of the Actiq and Fentora ; turns out that these high prescribers were usually prescribing these drugs for back injuries. (by the way, these drugs commonly cost upwards of $3000 per month...)