Author: Joe Paduda

May
24

Random observations from NCCI

Posted by Joe Paduda on Friday, May 24th, 2013 | Comments

NCCI’s conference is perhaps the best-produced workers comp conference I’ve attended.  Great support for speakers (thanks Mona Carter, Peter Burton, Lisa Lancelotti, Linda Simmonds et al), well run, tightly organized, and substantive as well.

Several single-state payers I spoke with at the conference said they attend NCCI, and other national conferences and affiliate with national trade groups (AIA) for a very good reason – they know it is important to keep abreast of national trends, share ideas with other payers, and avoid the perils of navel-gazing.  Less insightful regional payers don’t see the value, and will regret their myopia.

The keynote – David Gergen – was excellent.  Great to hear his perspective; Gergen is even-handed, deeply knowledgeable, and a good speaker.  Posted on that elsewhere…

Aron Ralston’s talk (he of the 127 hours; he’s the guy trapped by a boulder in a canyon in Utah who had to chop his own arm off to escape) was compelling – to say the least.  He talked little of the pain, the horror of near death by dehydration (reportedly one of the more awful ways to die), the personal misery – he didn’t ignore it but did not make that a main theme of the speech.  One cannot imagine the terror, much less the physical misery he suffered while trapped for five days. He used the trauma to focus his attention – and the audience’s – on identifying the important things in life; Not your typical NCCI talk (but I’d rather listen to Ralston than Krauthammer any day).  A risky choice for NCCI, and one that – by all accounts – was an excellent one.

I spoke on Thieves, Profiteers, and Enablers, a quick summary of physician dispensing, overprescribing of opioids, and the growth of compounded medications, physician-dispensed durable medical equipment and physician-office-based drug testing.  Notice a common thread here?  These are physician-centric…

Alas, I felt like I was preaching to the converted…

Attendance at the end-of-the-conference research discussion was high, proving that there is a large audience for the more analytical presentations.  There was a lot of discussion, attendee input, and dialogue, with many relevant points, observations, and recommendations for refinement or methodological modifications.

A couple more posts to come on the annual confab, stay tuned!

May
20

Kudos to CorVel

Posted by Joe Paduda on Monday, May 20th, 2013 | Comments

I’ve often had issues with CorVel for their billing practices and other matters, but I’d be remiss if I didn’t applaud the managed care firm for their willingness to fire a doctor that was allegedly prescribing Wasabi Rub, theramine pills, Gaba-2k rubs, and surface EMGs, some of which were allegedly upcoded to needle EMGs – and then refusing to discuss these treatments with peer review docs.

The incident happened – of course – in California, where CorVel and Dr Douglas Rogers have been in litigation for several years over CorVel’s summary termination of Rogers from their workers comp MPN. The court case is somewhat complicated by CorVel’s failure to follow their contractual obligations in terminating Rogers, but the court nonetheless upheld the decision. (Decision is here)

What makes this case so important is it “balances” an earlier case, known as Palm Medical, where SCIF (the state fund of California) refused to admit a provider to its MPN.  Ultimately the court found in the provider’s favor, much to the dismay of the insurer and employer communities.

The CorVel v Rogers case gives payers hope that they can terminate a provider who fails to meet the obligations contained in their contract with the payer, obligations which should – and almost always do – include requirements that the provider follow applicable treatment guidelines, respond to requests for consultation with peer review physicians, and otherwise treat appropriately.

That said, CorVel could have lost the case as it did not follow the “three-step” process in terming Rogers.

What does this mean for you?

Word to the wise payer – if you’re asking the providers to follow the contract, probably a good idea if you do too.  

Thanks to WorkCompCentral for the heads’ up.

May
17

Where’s manufacturing going – and why should you care

Posted by Joe Paduda on Friday, May 17th, 2013 | Comments

David Chavern of the US Chamber of Commerce focused on manufacturing in his talk at NCCI, and his talk was one of the most important I’ve heard for we in the workers comp world.

Why? Because manufacturing jobs drive workers comp premium.

The manufacturing jobs we have lost are predominantly relatively low-skill level, low-tech, low-value-added sectors such as textiles, clothing.  That said off-shoring of higher-level jobs such as semi-conductors has also been significant – but this off-shoring is now viewed as a mistake.  We’ve lost the ability to innovate via rapid product evolution, by tapping into the knowledge and experience gained thru the manufacturing process companies that leads to continuous upgrades in products.  If the folks on the floor are 8 thousand miles away, don’t speak the same language, and there’s no way to for the engineers and designers to interact with the folks who make the widgets, American companies can’t increase productivity, reduce waste, eliminate unnecessary parts or processes, or improve product quality.

That’s been changing for some years now as manufacturing jobs have been returning to our shores – and this “trend” will increase.

To drive manufacturing, education and training is critical – you can’t run a CNC machine if you can’t do math.  There are 600,000 jobs open today for machinists, welders, technicians, and other higher-skill levels and many have been open for some months – there just aren’t enough trained people to meet the demand. Yet, as David Gergen noted earlier, we are failing to educate young people for the jobs that exist today; this has happened in my home town where the education budget is continually challenged as providing education on topics that voters didn’t have – and claim today’s kids don’t need.  That’s precisely the kind of short-sighted non-thinking that got us in this mess, and will keep us stuck here.

Energy cost reductions will help bring these jobs back as well; our electricity rates are much lower than competitors in Europe and some Asian countries.  Of course, energy production drives heavy industry jobs – another big driver of workers’ comp

The net – manufacturing drives workers’ comp, manufacturing is going to continue to grow. Many of these jobs are going to be higher-skilled and likely lower-risk, while others are going to be high risk – energy production and equipment manufacturing.

Again, no discussion of the impact of all this carbon production on climate change, and the impact climate change will have on the nation and the insurance industry.  Another big miss.

Much to consider.

May
17

NCCI – Gergen’s observations

Posted by Joe Paduda on Friday, May 17th, 2013 | Comments

A few random observations and perhaps an insight or two.

Keynote speaker David Gergen noted this morning that the recent favorable news about the deficit and its impact on debt may well be counter-productive as it takes the pressure off Congress and the President to deal with the debt while investing in education and infrastructure.  Soundbite – Mexico is investing more than we are in infrastructure.

Mexico.  

Gergen also does not believe there’s going to be much progress in Washington over the next few years; Obama’s over-reaching post-election has come up against the newly-energized GOP’s belief they can wait him out and win the mid-terms.  That reality, combined with the current crop of controversies, makes for a DC not focused on strategic issues such as long term deficit reduction, infrastructure, education – and therefore little of the important work will get done.

Long term, Gergen is much more optimistic, primarily due to American energy independence – lower energy costs and energy security will bring manufacturing back to our shores – and already is (Gergen didn’t have anything to say about the potential implications for climate change, a notable miss).

He is also a big fan of the millennial generation, citing their enthusiasm for helping others (a quarter of Spellman College graduates and a fifth of Harvard’s applied to Teach for America) and willingness to serve both in the military and other volunteer/low-paid-but-critically-important jobs).

May
16

NCCI’s regulatory and legislative update

Posted by Joe Paduda on Thursday, May 16th, 2013 | Comments

Day One is concluding with a discussion of legislative and regulatory trends, a panel of legislators and then your devoted author discussing “Thieves, Profiteers, and Enablers”; the bad actors infesting workers comp.

Peter Burton led off with his discussion of what’s happening nationally on workers comp reform/evolution/changes.  He led with medical cost containment initiatives; Peter sees this as the dominant theme in the regulatory world.  The Sandy Hook shootings are leading to legislative initiatives around expanding compensability of medical injuries (SB 823); there’s some concern that Connecticut’s workers’ comp costs, already ranked second highest in the nation in the Oregon premium rate ranking study, will increase if SB 823 becomes law.

Maryland’s privatization of IWIF (to be called Chesapeake Employers) which will likely happen in a few years did not make much progress this year; an effort to control pricing for physician dispensing of repackaged drugs was not successful.  Alas.

Much discussion of Florida; the resolution of the four-year-long repackaged drug problem; rate increases (6.9% this year, third straight year of increases), and the final resolution of a key court battle will have an impact on work comp in the Sunshine State.

Tennessee is looking or comprehensive reform, moving to an administrative from a court-based system (SB 200) which will be effective 7/1/2014; there will be benefit adjustments as well.

Some parties in Illinois are looking to potentially create a competitive state fund, while employes want to strengthen the industry causation standard.  No word on when – or more likely if – these or other possible changes will come co fruition.

Oklahoma’s the biggest mover, with opt-out passed and the state fund moving to a mutual model as the most visible changes; however other moves will result in a 14 percent reduction in work comp costs.

May
16

Bob Hartwig on macro factors – drinking from the firehose

Posted by Joe Paduda on Thursday, May 16th, 2013 | Comments

More discussion over macro factors driving workers comp – the always energetic Bob Hartwig Ph.D. followed Dennis Mealy.  Hartwig was his typically rapid-fire self, dispensing insights, quick takes on economic data, the impact of catastrophes and myriad other topics faster than I could record them.

You can get his presentation slides here shortly.

Overall, Hartwig was pretty optimistic, especially about the recovering economy; private sector employment was up 6.74 million jobs since 2009, while governmental employment declined more than 600,000 jobs.  Hartwig forecast unemployment to dip below 7 percent in the last quarter of 2014 – or perhaps earlier.  As payroll is a main driver of workers’ comp premiums, this is good news indeed.

Overall, the larger employment picture has returned to a level we haven’t seen since just before the recession; mass layoffs are way down, hours worked has moved back up, and hourly wages, while not all the way back, are up significantly.   The overall economy has been – and continues to be – dragged down by the sequestration to the tune of about a half-point of GDP growth.  Fortunately private housing starts are accelerating, driving up construction employment which has partially offset the impact of the political impasse. Manufacturing employment is also up by more than a half million jobs. 

Amongst all that good news is the number of discouraged workers – those who have stopped looking for work – has declined by some 14 percent, but is still quite high relative to historical levels.  More troubling yet is the growth in Social Security disability rolls, which has gone up dramatically over the last two decades.  SSDI claim frequency is up nearly 30% since 1996 – while WC lost time frequency has dropped by almost 50 percent.  (more on this here)

Hartwig made a major point of the P&C industry’s continued ability to pay claims, contrasting that ability with other financial institutions’ less-than-robust stability – evidenced by the 500 banks that failed post-recession.  However, the continued lower-than-low interest rates available in the bond market will require better underwriting results – a lot better – if workers comp payers are going to stay even, much less generate a bit more margin.

 

 

May
16

Work comp frequency and severity – Mealy reports on 2012

Posted by Joe Paduda on Thursday, May 16th, 2013 | Comments

Part 2 of The NCCI State o’ the Line; aka the Dennis Mealy farewell tour.

There was a good bit of discussion re frequency in his SoL report, with Mealy noting there was a sharp decline in relatively low-cost claims early in 2008/9, but little change in the number of high cost claims. This is consistent with other research indicating employees are reluctant to file claims in a recession for fear of losing their jobs; however those with major injuries really have to file.

Indemnity severity (cost for wage replacement) was up just a point over 2011; not surprising given the continued tough employment situation – wages weren’t up, so wage replacement costs weren’t either.

Medical severity was up 3 percent, overall “not bad” according to Mr Mealy.  Recall workers’ comp is just 2 percent of total national health spend, thus we are more affected by external factors than in control of our own destiny.  There are structural changes working their way thru the medical community, driven in large part by efforts to prepare for PPACA implementation in 2014 that are likely having a significant impact.

Somewhat surprisingly, the medical CPI is actually running a full point higher than lost time medical severity – only the second time in memory this has happened.

There was a bit of discussion about the impact of health reform on workers’ comp; I remain convinced the overall impact will be quite positive; I was puzzled by some comments that ACA might increase cost shifting.  As ACA will ensure somewhere around 20 – 30 million more Americans have health insurance, there’s no question there will be LESS need for providers to cost shift post-ACA than there is today.  

Those uninsured are getting free care today, and that care will be reimbursed tomorrow. Even if that reimbursement is at Medicaid levels, that’s a heckuva lot better than zero reimbursement.

That said, I’d also note access to key specialties – think orthopedics – is going to be very tight this time next year as pent-up demand meets insurance coverage.

May
16

Workers’ comp – the state of the line, aka Dennis Mealy’s farewell tour

Posted by Joe Paduda on Thursday, May 16th, 2013 | Comments

Dennis Mealy – NCCI’s chief actuary (and soon to be retired chief actuary) got further into the details of the data.  Lots to get into; here are my takeaways.

Work comp premiums written by private carriers jumped significantly, up 9 percent over 2011 to $35.2 billion, by far the greatest increase in the P&C industry.  State funds accounted for another $4.4 billion in premiums; recall there’s been a trend towards more self-insurance so growth would have been even larger if more companies hadn’t decided to self-insure their WC. 

The increase was largely driven by higher payroll – to be expected as we continue to (haltingly) recover from the recession.  However, there was also less discounting by carriers who’ve generally decided to get tougher on pricing and avoid cutting rates to win business – a clear sign of a hardening market.  

Mealy referenced firming/increasing pricing and other hardening-market-leading-indicators several times …

This pricing discipline – and a host of other contributors – led to a 5 point improvement in WC operating results for private carriers – from essentially flat to a 5% pre-tax operating gain.  Interestingly, state funds showed an ever larger improvement –  upwards of 7 percent (however their combined ratios remained much higher than private carriers at 124, balanced by a better return on investment than the private carriers).

One not-too-dark cloud on the horizon is reserve deficiency; NCCI estimates the workers’ comp industry needs to add $13 billion to reserves, up from $11 billion in 2011; as a percentage of total reserves it isn’t that much of an increase..

Another definitely-dark cloud is the continued lethargic growth in employment; this is particularly problematic in manufacturing and construction, industries that drive over a third of workers’ comp premium.

Finally we aren’t going to see investment returns anywhere close to the mid-teens we’re enjoying now (from long-ago bond purchases among other vehicles).  Thus there will be even more pressure on workers’ comp insurers to at least break even on an underwriting basis in the next few years.  Can’t make up for an underwriting loss if your bond portfolio is returning 2-3 percent…

What does this mean for you?

We’ve got to keep focused on underwriting discipline – and claims cost management – as our buddies in the investment dept. aren’t going to bail us out much longer…

May
16

NCCI – happy days are….

Posted by Joe Paduda on Thursday, May 16th, 2013 | Comments

Perhaps the best-produced workers’ comp conference is the annual issues symposium (AIS), held in Orlando each May.  The 800+ attendees got together last night for a pre-conference cocktail party in blessedly comfortable weather; the mood was upbeat, positive, and optimistic, terms not used to describe workers comp for several years. (presentations will be up here later today)

The reason for the optimism – a combined ratio of 109; waaay down from 2011’s 115.  Along with an investment gain of 14 percent, this makes for a profitable industry.

That said, those high return rates are things of the past, and investment officers aren’t going to replace expiring bonds with new ones returning anything close to double digits.

Lost time claims frequency dropped five points – a return to the twenty-year trend that was interrupted by an increase just after the deep recession.

Medical trend in comp remains in the low single digits, roughly paralleling the overall decline in medical trend we’re seeing (and I’ve posted on) recently.  This is very good news – but doesn’t parallel what several large payer clients are seeing.

NCCI CEO Steven Klingel explored the factors contributing to the lower medical trend – noting pricing increases are moderating somewhat(more fee schedules for hospitals); better control of drug costs and indications from two PBMs that they’ve been able to reduce the use of narcotics.

Klingel attributed some of the improvement to the growth in the use of networks; I don’t see networks as doing much of anything as the incentives aren’t there to control total claims expense.  They do control price, but the percentage-of-savings methodology provides the wrong incentives for all parties.

Kudos to Klingel for focusing attendees’ attention on the dramatic impact of medical expense on profitability.  He displayed a chart showing the difference in profitability attributable to a mere 3 percent increase in trend – that increased trend leads to an operating loss of around 8 percent compared to just about breakeven at the current 3 percent trend.  Here’s hoping the execs in attendance got it; in my view this was the key takeaway.

Klingel also focused on opioids, opining that this is the top issue on state workers’ comp agendas.  Here’s hoping IAIABC gets back to their model language; unfortunately sources indicate a recent meeting that was to focus on this was notable for the lack of progress.  Sigh.

Finally, Klingel opined that he’s encouraged by the current state of the WC market.  Which returns us to the lede; happy days – if not here again – are on the way.

May
15

What happened to the work comp Medical Director?

Posted by Joe Paduda on Wednesday, May 15th, 2013 | Comments

Late in 2011 I predicted medical directors would begin to assume more authority and responsibility as workers’ comp insurers/TPAs realized the significance of medical management.

Boy was I wrong.

My thinking was logical (I know, that was my first mistake); with medical expense totaling three-fifths of claims expense, the powers-that-be would realize that managing that medical expense required medical expertise.  Ergo, doctors (well, some doctors) should be heavily involved – in leadership roles – in managing that expense, setting policy, allocating resources, leading that effort.

Alas, with a few notable exceptions (Hartford, Broadspire), docs aren’t sitting in the big offices. Most are in high-level-but-primarily-supporting roles – advisers, conference speakers/representatives, in-house consultants, client and prospect presenters – while filling the traditional function of in-house medical expert addressing UR determinations and responding to claims queries.

That’s no knock – none at all – against the folks in the medical director role.  I know a few pretty well and others a bit; they are very knowledgeable, thoughtful, extremely capable, and way under-utilized.  That’s not to say they aren’t incredibly busy, but all too often they are busy doing things that, while necessary and important, aren’t the highest and best use of their expertise. More importantly, they aren’t setting policy and strategic direction for medical management – that remains the purview of business/claims folks.

Again, that’s not to say many claims folks are incompetent or unskilled or not capable.  That’s not my point.

My point is simply this – medical management is increasingly important, yet most workers’ comp payers’ claims operations are run by folks who grew up in an industry where indemnity was deemed (appropriately) more important. They know and understand that world very well, and are well-equipped to deal with claims in that environment.  Payer CEOs appear to view medical expertise as a supporting function.

The world has changed, dramatically. It is now 2013, yet medical management in workers’ comp is dominated by huge networks of deeply-discounted providers; results are measured by how much payers can squeeze out of providers on every bill (ignoring the services on that bill or how many bills come in) and how much margin their in-house “medical management” unit generates for the enterprise.  Moreover;

Outcomes are a sound bite with little meaning beyond RFP responses and conference Powerpoints.

Medical management directors are evaluated based on the totally-wrong-headed percentage of savings model.

Non-medically expert claims personnel are tasked with making critical decisions about medical services, decisions for which they are woefully unprepared and unqualified.

So, any surprise that medical costs are escalating, opioid use has reached epidemic proportions, back surgeries are far more prevalent in comp than other lines, utilization continues to increase, and loss ratios are way above 100%?

There’s another contributor to this situation – the hoary meme that doctors can’t manage or lead.  That is sooooo nineteen-nineties.

Fact is doctors are leading many organizations and business units within those organizations – and doing a damn good job.  Think Mayo, Lahey Clinic, Oregon (Governor is a physician), CDC, Wellpoint, Partners (Boston), United HealthGroup, McKesson Health Solutions, CVS/Caremark – and many others.  I know several workers’ comp medical directors that are more than capable of sitting in bigger chairs behind bigger desks, yet they aren’t.

Once again, we in the work comp world are stuck in the past.

What does this mean for you?

Those payers that recognize the critical importance of medical will be more successful than those that do not.  And that means putting medical directors in positions of authority and responsibility.