Thursday catch-up

Hope you, your family and friends have a terrific Fourth of July; we will be celebrating at home in upstate New York and watching the American women take on Japan in the World Cup Final.

The brief update on what’s happened this week and last.

The economy

A sizable increase in employment in June – 223,000 new jobs were added.  About 1.2 million jobs have been created so far this year. (edit – quoted May’s figure in an earlier version; apologies for my confusion)

The unemployment rate dropped to 5.3% from May’s 5.5%, but the labor force participation rate also decreased, driven by lower participation among teens and younger men.

This morning’s employment report shows an economy that is adding jobs in construction, retail and business services.

While wages were essentially flat in June, over the last twelve months employers have been (slightly) increasing wages in an effort to land and keep good workers – work comp folks can expect more premium dollars, and likely more injuries as newly-employed workers tend to get hurt more often experienced employees.

Overall, the report is good news; more workers making more money means they spend more – a virtuous cycle.  BUT there are some economic headwinds. The strong US dollar is hurting exports which isn’t good for manufacturing.

The ACE – Chubb deal

Looks like “Hank Junior” is following in Hank Sr.’s footsteps; with the acquisition of perhaps the most respected brand in the P&C business, ACE becomes one of the largest insurers in the industry with a diverse portfolio of insurance lines, complementary distribution, and very strong management and culture in Chubb.

Notably, the new company will take the Chubb name.

There’s a LOT of press out there on this deal, most authored by folks with a lot more insight than I have.  My take is this is a smart deal for ACE; IF they don’t screw up Chubb and thereby damage a highly-regarded brand.  Evan Greenberg et al are too smart to do that; they didn’t pay a 30% premium for Chubb without clearly understanding why the company is worth it.

Healthcare reform

Lots of information out there re who’s newly insured, what they are paying, and related matters.

There are more uninsured men than women, and they have more problems accessing and paying for care.

There’s been a lot of talk about premium increases for next year – and that’s caused a lot of confusion. The latest data suggests that people with the most common plan – the lowest cost silver – won’t see those big price jumps. KFF reports a survey of the benchmark plans in 11 cities indicates an average premium increase of 4.4%.

The range is wide, from a 16.2% jump in Portland OR to a 10.1% decrease in neighboring Seattle (go figure).

BUT – there have been some big jumps in some markets, and pricing is all over the place.  Some plans have filed for increases north of 20%. Expect the marketplace to reward those plans that have held the line – and expect those plans to have narrow networks and hefty financial penalties for out of network care…

The reason there’s been so much talk about big price jumps is healthplans planning on raising premiums more than 10% have to report that to regulators early on; that generates a lot of buzz. Obviously, that buzz doesn’t take into consideration the plans that are NOT planning on big price jumps.

Much more on this in future posts.

There are a couple of really interesting work comp research reports that came out this week; I’ll be reading them on the plane back from Seattle today and report back to you, dear reader, next week.

Enjoy the weekend, and cheer for our women on Sunday!

My favorite day of the year

This year Father’s Day and the Summer Solstice fall on the same day – making for a very long day here in upstate NY with lots of daylight so I can loll around while being waited on (well, maybe not that last part).

While I was busy inundating your inbox with posts on the profitability – or lack thereof – of workers’ comp, a bunch of other stuff happened.

Another shot in the subrogation/third party liability battle was fired by Kentucky’s Medicaid program.  According to WorkCompCentral’s Ben Miller, hundreds of letters have been sent to work comp insurers in an attempt to ascertain if specific individuals’ medical care is due to a work comp injury.  The rationale is clear; Medicaid doesn’t want to pay for medical care it doesn’t have to.  As a taxpayer I completely support this.  Where it could get really sticky involves settled claims; if the work comp insurer/employer has settled the claim, my assumption (always dangerous) is the settlement requires the claimant to use those funds to pay for injury-related medical care.

What if the claimant doesn’t have any of the settlement dollars left?  If the claimant doesn’t pay, is the work comp insurer/employer liable? Who’s going to be stuck with the bill; the claimant?  the provider? Medicaid? another insurer?

Oh boy.

A terrific article in Harvard Business Review on what private equity investors do when they buy companies notes three distinct types of “engineering”; financial, governance, and operational.  Lots of insight, data, and examples make this a must read for anyone considering a transaction, or trying to understand how PE firms work.

Activity in the oil patch is slowing down, but claims counts are not going up.  Reuters quotes a Travelers insurance exec who’s a bit surprised about this; I have a call into Travelers to see if we can get more insight into the issue, and will share whatever I learn.

The new, updated Washington Guidelines for Prescribing Opioids for Pain are out; a product of the Agency Medical Directors (AMD), the new guidelines address opioid usage for many different conditions, cover special population issues, and update and expand a variety of treatment- and risk-assessment-related topics.  With five years’ experience under its belt, the AMD have learned a lot, lessons that other jurisdictions would be well-served to consider.

Finally, for many families in Charleston – and elsewhere – this Father’s Day is anything but joyful.  If I may be so bold, I’d suggest we strive to be part of the solution.

Workers’ comp profitability, Part 2

So, Liberty Mutual is de-emphasizing workers comp, a move that is increasing profits. But ProPublica/NPR reported “in 2013, insurers had their most profitable year in over a decade, bringing in a hefty 18 percent return.”

Just how “profitable” is workers’ comp?  Why is Liberty ratcheting things down while the industry is enjoying its “most profitable year in a decade?”

That’s a difficult question to answer for a number of reasons, but the long and the short of it is; comp is not very profitable.

First, the slide that PP/NPR used to make their 18 percent claim.

Courtesy NCCI

Courtesy NCCI

Let’s parse this out, shall we?

First, there are no perfect measures for calculating WC profitability.

Second, the operating gain is not the same as “profitability”.

Operating gain as a measure has several limitations, not least of which is annual operating gain figures jump around quite a bit for reasons completely unrelated to core financial returns. For example, 2013’s “gain” was significantly increased by one very large carrier’s internal financial transfer, a transfer that, in and of itself, was responsible for several percentage points.

Using a multi-year operating gain (OG) ratio is more meaningful than using a single year as it reduces the effect of one-time financial events.  The average NCCI OG ratio from 1990 to 2013 was 5.8%, with a maximum of 19.9% in 1995 and minimum of -10.0% in 2001. The most recent 5 and 10 year averages were 4.8% and 7.4% respectively.

A couple other factoids – The NCCI OG ratio only includes private carrier results, a subset of the total industry. State funds (which tend to be MUCH less profitable) are excluded from the calculations.  In addition, the NCCI OG ratio is pre-tax. 

Finally,  investment income (one key component of operating gain) can’t be allocated to one specific line of coverage (except if the carrier is a mono-line WC insurer).  Reserves and other funds are put into a single “bucket” and invested by the insurer in a variety of instruments.  Then, when funds are needed to pay claims, they are withdrawn.

So, what metric should be used?

The estimable Bob Hartwig PhD of III, in a piece questioning PP/NPR’s claim of profitability, suggested return on net worth;

According to the National Association of Insurance Commissioners, workers comp return on net worth was just 7.2 percent that year [2013], less than half the figure cited in the article. The average return over the decade from 2004 through 2013 was just 7.1 percent. The returns over that 10-year span ranged from 3.9 percent in 2010 to 10.1 percent in 2004

(PP/NPR’s response is here)

There’s more on the return on net worth discussion at III, in addition to a chart depicting financial returns for other industries. (the metric is also known as return on equity [ROE]).

By way of comparison, you can find representative industry ROE figures from Yahoo.

What’s the net?

Relative to other industries workers’ comp is not terribly financially rewarding.  Many industries deliver much better returns.


Friday’s here…

at long last.  Here’s a quick review of what happened this week.

Health care costs

Predictions for health care costs indicate a decrease in the rate of increase for those with private insurance, with PwC calling for a 6.5% increase dropping to 4.5% due to higher deductibles and copays.

While costs continue to escalate, one has to wonder what we’re buying for all those trillions.

According to the Commonwealth Fund, not much – when comparing US health outcomes to those enjoyed by other countries, we are well down – if not at the bottom – the “quality” list on indicators such as life expectancy, disease burden, medical errors, avoidable deaths…the list just goes on and on.

A good part of that is due to the lousy-to-nonexistent care for the poor, exacerbated by states that have refused to expand Medicaid.  Kansas is but one example; the stories of people with jobs and no health insurance bankrupted, disabled, and suffering due to this short-sighted and cruel decision are all the more heart-wrenching because they didn’t have to happen.

You’ll note that many of the individuals dying from lack of insurance are now or have been employed – but don’t have insurance thru their employer.

This is NOT because they aren’t hard working solid citizens.  These are NOT lazy, shiftless, burdens on society.  These ARE people victimized by unaffordable health insurance and politicians who value demagoguery over compassion.

American exceptionalism indeed.

The jump in drug prices, specifically in generics continues to amaze, with the latest a huge increase in oxycodone/acetaminophen 10/325; from $1.29 up to $3.55. Thanks to a colleague for this tip; notably this is a Redbook AWP price; AWP is the basis for essentially all work comp drug fee schedules.

Workers’ comp

Had a conversation with two Concentra execs looking to provide a bit more perspective on the company’s plans.  The focus is on growing their work comp business via acquisition and by taking share from other providers.  Parenthetically, I also spoke with a colleague very knowledgeable about occ med in the northeast; he noted many health systems and hospitals are shutting down their occ med clinics as they focus on accountable care and other ACA, Medicare, and Medicaid – related priorities.

Sounds like a good opportunity for Concentra and other pure-play occ med enterprises. Expect to see Concentra somewhat less interested in urgent care opportunities; I don’t see the company doing anything that isn’t primarily occupational medicine.

The execs did note that prior owner Humana had split off the primary care operations from Concentra’s occ med operations some time ago.  The health plan’s strategy and implementation thereof evolved considerably over the five years it owned Concentra; it doesn’t appear that Humana took full advantage of Concentra’s in-house M&A expertise early on, choosing instead to develop its own capability. This may (emphasize MAY) have been one reason the acquisition didn’t evolve quite the way Humana wanted.

There is a lot going on in the worker’s comp bill review world:

  • Coventry has yet to announce the winner in the bidding process to handle their clients’ bill review needs; word is it is between Mitchell and Xerox/Stratacare with Mitchell rumored to be in the lead
  • A major municipality in California is in the bid process; several other large payers are as well
  • Mitchell is said to be increasing its focus on work comp as execs look to the long term future of auto claims and see a rather steep decline in future claims due to automated vehicles.

AIG’s implementation of Medata’s work comp bill review application is said to be all but complete.  Word is the switch from Coventry’s BR 4.0 system, although not flawless, is going well. While Medata CEO Cy King would not comment, other vendors indicated the Medata application and support thereof is particularly good at maintaining and applying fee schedules.

I’ve also heard reports that Medata is all but consumed with the new client, but I’m thinking this may be competitor carping as a major specialty network is said to have recently decided to use Medata’s application.

[note – Medata is not a client]

Finally, look for more news next week on the ongoing PT coding clustermess. While on the surface things seem to have quieted down considerably, that quiet is misleading. There are several ongoing audits/reviews/investigations in process, involving both payers and treating providers.

Friday catch-up

What’s up?

Implementing health reform

Remember the big concern that employers would drop employee health insurance in response to ACA, and employees would lose coverage?  Looks like that has not happened. The latest data indicates that the number of employees enrolled in employer health insurance actually increased over the last two years albeit incrementally.

The 1.1 percent increase may look small, but when compared to the 11 percent drop in employer coverage seen from 2000 – 2012, it represents a considerable change in direction.

Of course, this may not continue; that said, so far the “problem” predicted by notables including Douglas Holtz-Eakin has yet to appear. (note – Holtz-Eakin’s original article is no longer available on the web)

There’s been much talk about early indications of health insurance premium changes for 2016.  Friend and colleague Bob Laszewski is of the opinion that the increases are “eye-popping”; Bob also notes that the rate changes posted to date are ONLY for those plans that will see increases above 10 percent.

Others note the story is much more nuanced.

Several caveats.

  • data is only for federally-run exchanges
  • the insurers requesting the big increases appear to insure a population that is older/sicker than average
  • data does not include increases of less than 10 percent
  • all rate increases are subject to regulatory review and approval; historically many of the requested increases have been cut during the review process

I’d humbly suggest that before you cite the report as showing ACA is a big success/abject failure, read the citations.

Work comp service providers 

Humana’s sale of Concentra is done. The $1.06 billion deal was completed Monday, with Select Medical and PE firm Welsh Carson partnering on the acquisition.

Welsh Carson, one of the early investors in the workers’ comp/occupational medicine market(s), sold Concentra to Humana back in 2010 for $770 million.  While the original strategy – based on using Concentra as an entry point/primary care provider for Humana’s group insurance  and other members – made a lot of sense at the time (there were major concerns about a flood of newly-insured people overwhelming primary care docs), the predictions have not borne out.

Concentra just changed leadership – and indications are the company is returning to its roots in occupational medicine.  Former COO Keith Newton just rejoined Concentra as President and CEO.  Newton left the company after it was acquired by Humana five years ago.  While the company’s website has yet to reflect the transition, expect to hear more from the nation’s largest occ med provider as it reaches out to past customers and markets.

Humana pushed Concentra to change its focus from occ med to family practice to support Humana’s group health and other insurance business.  As a result, most of the physicians hired over the last 5 years were family practice docs, not occ med physicians. In some markets the change was dramatic; a former Concentra exec noted a key southeastern market did not have any Board Certified Occ Med physicians that treated in clinic. 

Concentra’s traditional employer customers were, understandably, not enamored with the change; there’s a multi-pronged strategy in place to win them back.  On-site clinics are dropping non-occ med services and many clinics are eliminating primary care as well. Hiring is focused on recruiting board eligible and board certified Occ Med physicians. 

CorVel had a tough quarter; net income was down 35% to $5.6 million while revenues increased 1.7% to $122 million. The stock was down 11.7% on the news, but still carries a healthy PE ratio near 22.  CorVel indicated the drop in earnings was due to investments in the company’s provider network…

Competitors opine CorVel is “giving away” their TPA services in an apparent effort to capture new employer clients.  With profits increasingly derived from managed care services (which are much harder for employers to predict, track, audit, and report), this isn’t a unique strategy by any means.

FWIW a source indicated Sedgwick recently took the North Carolina Dept of Public Instruction business from CorVel.

Finally, an anonymous commenter said my report that OCCM is acquiring MedFocus was incorrect.  If any non-anonymous reader has information, please send it to me.  I will respect your confidentiality if you email me directly.  (I responded to the commenter via email, but s/he used a fake address).


Will Banjo be the social media app that revolutionizes insurance?

It sure looks to be the front runner now.

Banjo consolidates all social media feeds into a single platform in real time, then maps then on a geographic grid so users can see what is happening instantly anywhere.

It’s an “event-detection engine”.

Ok, that’s cool.

What’s really useful is Banjo also establishes a baseline activity ‘profile’ (my word, not theirs) and triggers an alert when one of 35 billion geographic grid cells (each about the same size as a soccer field) goes “abnormal”.  And, users can look back in time to see what was happening just before the triggering event, and monitor how that event unfolded…

Want to track a hurricane and damage therefrom?

See where a tornado is headed?

Know instantly when a violent incident erupts?

Follow a demonstration in Egypt’s Tahrir Square as it moves and evolves?

Know which of your band’s songs are getting the most shout-outs?

See if an insured walked away from a “supposedly debilitating crash”?

The app has been used successfully to do all that and more.  Founded by perhaps the most eclectic entrepreneur in high-tech, a high-school dropout, former NASCAR crew chief, Navy veteran, crime-scene investigation expert turned coder, Banjo is now being used by a diverse group of commercial enterprises who want/need to find out instantly about key events happening anywhere – or in very specific places – around the world.

According to Inc., Banjo:

shows only geolocated public posts made from mobile devices; those posts are drawn from what [CEO Damien] Patton calls a “world feed” he’s created by aggregating more than a dozen major social networks (and counting), from Twitter to Instagram to Russia’s VKontakte to China’s Weibo…with all of the public posts in [a small geographic] area appearing as pins on the map and as cards, complete with text, photos, and video, alongside it. All this in real time.

What does this mean for you?

Early adopters are going to know sooner so they can react faster, and possibly profit more.

Friday catch-up

Gotta love the start of summer; hope your weekend is going to be filled with fun and family.

But before you go, here’s what’s been going on over the past couple of weeks.

First, your morning’s the latest from the world of “how do we suck as much profit from employers and taxpayers as possible”…thanks to a colleague at PBM Helios.

Drug costs

A report from AARP indicates generic drug prices, which have been falling for years, leveled off somewhat in 2013.  Couple caveats – the data is for drugs commonly used by seniors, and the data is 18 months old. Among drugs relevant to workers comp:

  • anticonvulsant prices increased 17.2% in 2013;
  • muscle relaxants decreased 0.7%;
  • opioid analgesics dropped 8.3%; and
  • NSAIDs were down 8.4%.

Two other data points worthy of consideration.

  • CompPharma is currently conducting the 12th annual survey of prescription drug management in workers’ comp; the top issue named by respondents so far is drug price increases (a major change from the historical focus on opioids)
  • All the major PBM drug trend surveys released to date have identified drug price increases as a major issue.

Health reform implementation

The latest data indicates the percentage of Americans 18 – 64 without health insurance decreased to 16.7% in 2014, down from 20.4% in 2013.

According to California Healthline;

The uninsured rate for U.S. adults under age 65 in [Medicaid] expansion states during the study period was 11.5%, a 3.4 percentage-point drop from 2013. By contrast, the uninsured rate for U.S. adults under age 65 in non-expansion states was 16.3% during the first nine months of last year, a 2.1 percentage-point decrease.

There’s a LOT of useless and some outright harmful medical care delivered every day – as has been well documented by many.  A highly readable and compelling analysis comes from Dr Atul Gawande in a recent New Yorker; thanks to multiple readers and friends for the heads up.

Macro factors

Bad news came this morning; the economy actually shrank by 0.7% in Q1 2015; however that comes on the heels of a 5% jump in the latter half of 2014.  Projections for the rest of the year look modest but positive; it also looks like unemployment may drop to 5% by the end of 2015; a major improvement over the 8% we saw two years ago.


Thanks to NCCI for updating our understanding of claim lag, the last broad-based analysis was the Glen Pitruzzello-authored study by the Hartford.


Summit’s acquisition of Paradigm is said to be close to completion.  While we don’t know pricing or details, expect the transaction will be in the $500 million range as Paradigm’s EBITDA is rumored to be around $60 million.

Finally, word from multiple sources indicate imaging network company MedFocus has been bought by OneCall Care Management.  MedFocus isn’t a major player with work comp revenues in the $25 million range, but the transaction does further limit the number of vendors available to serve comp payers.


Adjusters, management, and priorities

During a conversation with an industry executive this morning I was reminded of the rather different perspectives, priorities, and incentives for adjusters and managers.

Faced with a virtual pile of incoming mail, messages, bills, documents, and voice mail, adjusters are tasked with determining compensability, closing claims, resolving litigation, getting claimants treated as quickly as possible – but only for covered services, dealing with vendors, catching fraud, setting and managing reserves, taking CEUS, communicating with employers, spouses, lawyers, and judges, approving drugs and medical services, directing to network providers, setting IMEs…the list is both endless and growing.

This while being measured on claim closure rates, three-point contacts (!?), reserving accuracy, litigation rates, network penetration, claimant satisfaction, and whatever the most recent metric du jour happens to be.

Home office folks have somewhat different priorities; managed care execs are evaluated based on network penetration, “savings” rates, staff productivity for bill review and medical management and various other process measures.

While there’s some alignment between the field and home office, what’s really important to one may be much less lower on the priority list for their counterpart.

For example, field folks’ priorities are to get claims moved along, claimants treated/examined/assessed, claims closed, reserves set.

A conflict can, and often does, arise when a network provider can’t see a claimant for a couple weeks, but another treater has an opening tomorrow. What’s the adjuster to do? In most cases, they will go for the quicker appointment as it moves the claim along more quickly.  This holds true for IME providers, PTs, dentists, you name it.  Time is of the essence.

The conflict here is obvious and happens all day every day, forcing adjusters to balance what are conflicting priorities in what can be a no-win situation.

What does this mean for you?

Clear priorities known and understood by all affected parties can remove a lot of unnecessary stress while eliminating much unneeded back-and-forth.