Companies need strategies, Execs need success

And those two often don’t match up very well.

Example.  Work comp insurance companies benefit when medical and indemnity costs are lower than expected.  So, lower medical costs = better “outcome” for the company.

Many – if not most – managed care executives are evaluated in part based on “network penetration” and “discount below fee schedule”.  Thus, the more dollars that flow thru their network, and the deeper the discount those providers give the network, the “better” the executive’s performance is.

Superficially, this makes sense – more care thru lower cost providers equals lower medical cost, which benefits the insurance company.

“Superficially” being the key word.  Here’s the problem with this model.

Insurers contract with PPOs, which in turn contract with providers to deliver services at a discount. Most PPOs get paid a percentage of the savings that is delivered by that discount, typically 15 to 22 percent of the savings. So, the more the PPO ‘saves’ the more it makes. On the surface, this sounds good: the system rewards the PPO for saving money and does not pay it when it delivers no savings.

Under a percentage-of-savings arrangement, reducing total medical cost is ignored in favor of saving money on unit costs. The PPO gets paid for savings on individual bills. Therefore, the more services that are delivered and the more bills generated, the greater the ‘savings’ and the more money the PPO makes.

The system encourages over utilization because it is in the PPO’s best interest financially to have numerous providers generate lots of bills for lots of services. Also, the providers, squeezed by a per-unit fee schedule that is lower than fee schedule/Usual and Customary Rates (UCR), have a perverse incentive to make up for that discount by performing more services.

The fact is few carriers, TPAs, or employers have realized that per-bill ‘savings’ is the wrong way to assess a managed care program – or the executive running medical management. And unless senior management changes their evaluation methodology, their managed care departments will have no incentive to change their program to one that actually does reduce total costs.

This is by no means the only example out there; I’m quite sure you can come up with more than a couple off the top of your head.

What does this mean for you?

Take the time to understand  – really understand – what success is, and what drives success.  You may be unpleasantly surprised to learn your execs’ motivations are diabolically opposed to your company’s success.

HealthWonkReview’s review of ACA is up

And that’s just part of Jason Shafrin’s August edition; from premium increases to Christian health plans; from not enough regulation to dumb rules; from formulary exclusions to OSHA penalties, click here for your guide to all that’s worth Reviewing.

Trump will be GREAT for workers’ comp!

No, seriously, he will be.

It’s The Wall.

For a moment, ignore the fact that the Donald is not a builder, but a developer.  And that his string of developments-gone-bankrupt show he’s not very good at the financial stuff either.

And please, don’t get distracted by folks claiming you could just tunnel under it or climb over it.  Those “dummies” would never think of that!

But the Wall…the Wall will be the single largest construction project the Feds have done, in, well, ever.

It’s bigger than the Hoover Dam. More than three times bigger. At 1,964 miles, it will rival China’s Great Wall.  40 feet tall, 7 feet underground, made of pre-cast sections supported by steel pillars and concrete footers, the Trump Wall will require 9.4 million cubic yards of cement and concrete.  2.5 million tons of steel. 

Wage costs to build the wall alone will be around $8 billion (40,000 workers at mean annual salary of $41,000.)

Then there’s annual maintenance.  In order to keep the wall beautiful, it will have to be maintained.  And, of course, upgraded.  You don’t want our “big beautiful Wall” to start to look like this…


Or, *gasp*, like this…


Don’t know if the Donald is going to have murals painted on the wall, gild parts of it, or have TRUMP in giant letters spaced at random intervals; all would add expense and maintenance. Fortunately, there are LOTS of extra Trump signs available, just have to ship them from Atlantic City and Nevada and New York…These are ready to go!


Sorry, got distracted there…

Ok, forgot about the road construction, truck drivers, excavation workers, and concrete and cement plant workers.  Figure about $1 billion for their wages.

Now, some parts will be really remote, and others run right thru big cities, so land costs will be pretty variable.  But they will be real; landowners will have to be paid fairly as the Fedrul Gubmint is going to be taking their land.

But those costs aren’t labor, so never mind…

Here’s the calculation.  To keep it simple, we’ll use the $8 billion in construction labor plus $1 billion in additional labor, plus $500 million in annual maintenance labor multiplied by average work comp rates for industrial work – which is about 3.1 percent of wages.

That gives us $356.5 million in work comp premiums over the first five years of the wall, or about $71 million per year – a really nice addition to premium in the border states.

Of course, that’s assuming the Donald pays the premiums, something he’s had a bit of trouble with in the past.

True, he’d be using Mexico’s money.

REAL innovation in healthcare

What do these have in common?



Martin Shkreli


Answer – they are all on the leading edge of healthcare innovation.

More precisely, these examples show there’s no need to create really new products, develop new medicines, figure out how to keep people healthier longer, when you can just raise prices on your current product.  A lot.

Duexisis is just ibuprofen combined with an acid reducer, creating a brand medication that sells for about 50 times what it should.  Yep, you can just buy Advil and Pepcid instead of breaking your bank enriching Horizon Pharmaceuticals.

Valeant has made a business out of buying generic manufacturers and other pharma companies and jacking up the price of their medications, a practice that has earned the company the attention of the Department of Justice, presidential candidate Hillary Clinton, and the US House of Representatives.  Oh, its stock price has gotten hammered of late due to some of these issues.

Shkreli is the brilliant and totally tone-deaf former hedge fund exec who discovered it’s a lot easier to make billions by buying little-used drugs made by one company than raising the price by, oh, say 6000 percent.

Mylan makes Epi-pens, the life-saving devices used to prevent deadly allergic reactions. Altho late to the “let’s just increase the price by a gazillion dollars for our poorly designed device cuz people who need it HAVE to buy it” game, they’re making up time quickly. Mylan raised the price by 6 to 9 times recently, causing problems for paramedics, families with kids with deadly allergies while jacking up their profits.

There are many, many more examples, but you get the point.

For anyone looking to assign blame for our ludicrously high cost of health insurance and pathetically poor outcomes, there are plenty of convenient culprits; HMO executive salaries, mandated benefits under ACA, specialty physician income, device manufacturers, hospital inefficiency, stupid and counterproductive HHS regulations, legislators who bow before the PHARMA lobby, physicians who refuse to wash their hands.

But it all gets back to this – the US health care “system” is based on a capitalist ethos, one where the shareholder and profits are God.

These companies and people do this stuff for a very simple reason – because they can, and they are rewarded for doing so.  There’s no reason to spend millions innovating when you can make billions just by raising prices for your product or service.

What does this mean for you?

Reality sucks.

Big things that affect work comp

Perhaps the biggest factor driving workers’ comp is the economy, and more specifically employment trends.

In a down economy, payroll declines, claims cost increase, and it’s harder for recovering workers to find new jobs, resulting in longer disability duration. The result – lower total premium dollars and a challenging claims environment.

In an up economy, there are lots of jobs looking for workers, payrolls are up as employers have to pay more to get and keep workers, and it’s therefore easier to place recovering workers.  Plus premiums are up as payroll is higher.

We are now enjoying the classic “up” economy. While there are spots where the economy is not booming, overall things are pretty good in most places. And, the latest data is even more encouraging.

We are near a 16-year high for job vacancies at 5.6 million.

540,000 jobs were added in June and July, and unemployment is at 4.9 percent.

Wage growth is finally showing some movement, with BLS reporting private industry workers compensation over a rolling-twelve-months up by 2.6 percent last week.

This isn’t a post about who created what jobs, or who gets credit or blame, its about workers’ comp and what drives the business.  And right now, with comp carriers enjoying a string of financial success that’s all but unheard of in our industry, it’s good to know the macro factors out there are generally pretty positive.

What does this mean for you?

Good news until the pricing wars hit.

Opioids – the cost of the drug isn’t the problem.

Opioid Dependence Leads To ‘Tsunami’ Of Medical Services, Study Finds

That’s the headline for a study that you – dear reader – need to read.

Here’s why – “Medical services for people with opioid dependence diagnoses skyrocketed more than 3,000 percent between 2007 and 2014.”

And that’s for privately insured people.  Based on research covering 150 million insureds, the report indicates the problem is particularly severe for younger men (19 – 35 year olds in particular).

We’ve all hypersensitive to the societal and personal cost of opioids, the Fair Health research is proof positive that the dollar cost of the drug itself is the least of the cost issues; dependency is strongly associated with much higher utilization of drug testing, overdose treatment, office visits and (my assumption) higher usage of other drugs intended to address side effects of opioids.

What does this mean for you?

Three thousand percent means you can’t afford to NOT address opioid addiction and dependency.


ACA – a little perspective on who’s going to win

Premiums are SKYrocketing!

Deductibles are HUUUGE!

Insurers are DROPPING OUT!


Can’t we all just chill for a minute?

Truth is, premiums in the individual marketplace today are lower than they were a couple years ago.

Yes, rates are going up, but the proposed rate increases are:

  • lower than historical trend rates
  • still to be approved by regulators
  • not as big a deal as one might think because consumers are shopping around and getting better deals
  • for plans that cover 17% more benefits than pre-ACA plans

To be fair, deductibles and coinsurance costs are much higher than pre-ACA, continuing a trend that’s been around for years.

My take is these economic cost control mechanisms are going to run their course, and we’ll see much more focus around care management and network management going forward.

That said, isn’t this EXACTLY what we were supposed to get from consumer-driven health care plans?  Insurers that are using economic levers to incent consumer behavior, narrowing networks to use buying power to get lower prices and focusing care management efforts on the 5% that generate 50% of costs will succeed, those that don’t understand this market or how to compete will fail.

What does this mean for you?

Expect health plans totally committed to the new health care market to win.  And that success will make them much tougher competitors in the group health market in years to come.

Watch out, Anthem, UHC, and Aetna


Life is short. Live it like David did.

A few hours ago I found out David DePaolo was killed in a motorcycle-related accident over the weekend.  Friends, colleagues, business associates all have attempted to express their feelings at this shocking news, news that anyone who knew David finds tough to believe.

Because he lived life to the fullest.

Flying his plane, riding his bike at zero-dark-thirty, cruising on his motorcycle, opining on the weighty issues of the day, confronting us with the uncomfortable truths, all attacked with passion and energy.  David delighted in disagreeing without being disagreeable, a skill he exemplified.  Even if you really disagreed with his perspective, it was always impossible to ignore him.

His last post, a brutal and much-deserved takedown of pharma giant Purdue, is classic David.

There are so many battles left to fight, so many problems demanding our attention, so much left to do, and now we have to do it without him.  Suddenly it just seems a lot harder.

We all have lost a unique person, one that made the world a better place because he cared deeply.  I’m so sorry for his family and close friends, for they knew David far better than I ever did, and thus will miss him so.

The takeaway for me is simple – at the end of life, you have only your reputation, the good you’ve done, the life you’ve led.

David left more than most of us ever will.

The success killers

Sometimes you read things that make you squirm a bit; this article was one of those times for me.

The piece, entitled “How to Stop People Who Bog Things Down with Bureaucracy”, had me nodding my head as I replayed past experiences working for big insurance companies. We’ve all had them; there’s a problem that is readily apparent to everyone.  Maybe it’s a customer’s repeated complaints about a process or missed target or service change requirement.

A meeting is convened to figure out how to address the problem.

The discussion quickly expands the issue to identify underlying causes – changing the process means several departments have to communicate differently, share information faster, streamline a well-established workflow that will disrupt current operations as staff is re-trained.  Management metrics will be affected, and dashboards altered.

As the discussion progresses, you can feel the oxygen leaving the room.


(Scott Adams has a brutally funny understanding of management)

It’s just too big, there are too many people who need to buy in and take action to fix the problem, there are other priorities, no single person can own it and fix it.  An “action” plan may be agreed upon, which usually involves more meetings and memos and prioritization and risk assessment – and little action that actually addresses the original problem.



Fact is, the people who point out that this or that change will require lots of other changes may well be right.

But, while they may be technically correct, when you think about what they’re really saying, they are most definitely wrong.

Wrong because organizations – for-profit, not-for-profit, governmental – all exist to serve their “customers”, and the people who focus on the obstacles to delivering for customers are coming at this bass-akwards.  Instead of thinking about the issue from their organization’s perspective, they should be looking at it from their customer’s.

Here’s how the HBR article described these well-intentioned managers…

Energy vampires are often smart, well-intentioned managers who inadvertently slow the company down with too many questions, too much analysis, too much process—and not enough action. They exist in the organization to administer various systems and processes that in isolation seem necessary, but in aggregate simply clog up the works and slow the company down.

Customers don’t give a rat’s rear end about your internal processes or metrics or management meetings.  They have a need – get this service delivered this way to me in this amount of time – and successful organizations attack problems from that external perspective.

What caused me to squirm is this.  I’m really good at the strategic view, at understanding customer needs and verbalizing them, but I can also be too quick to point out the potential obstacles and organizational changes and issues involved in meeting those needs. That can flip the discussion from where it should be coming from – the customer’s side – to what’s best for the organization.

In so doing, one concedes the field to the energy vampires, the “this is the way we do it here” people who keep things running smoothly – and directly away from success.

A few relatively simple things you can do to address this very real problem.

  1. Keep problems simple.  Don’t overcomplicate things.
  2. Eat the elephant one bite at a time.  Sometimes there are issues that require lots of organizational change; don’t try to do it all at once.
  3. Start with high-value changes with a very high chance of success.  This builds momentum and credibility and support.
  4. Reward intelligent risk-taking, and dis-incent the overly cautious.
  5. Accept some downside, understanding that overall, the net result is what matters, not ensuring every effort is a successful one.

What does this mean for you?

Think about the last meeting you had about a customer issue, and what is happening as a result of that meeting.  I’m hoping your organization focused on the “how” and not the “why we can’t.”

The near-silence of the lambs…or, it’s still the work comp industry’s fault.

My post on the inability/unwillingness of work comp payers to talk publicly about the good work their employees do generated a bunch of emails and a few comments from the few payers that actually do try to get that message out.

Kudos to those payers for trying; doing something is far better than doing nothing. And I do NOT want the rest of this post to be seen as anything other than constructive criticism.  And thanks very much to the folks who got in touch and commented.


Two issues – these folks are very much the exception to the rule.  Fact is the vast majority of payers rarely if ever share the positive news.

Which leads me to the second issue.  The folks that are doing some outreach almost without exception are bringing the proverbial knife to the gun fight.  YouTube posts, blog posts, and press releases are very few and very far between.  Some are pretty well done, but even the most prolific payers’ messaging is sporadic at best.

It is also rarely picked up by other media, so it sits there on their blog or YouTube channel, garnering a few hundred readers after a year or so.

Contrast that to the stories about heartless work comp insurers screwing injured patients in pursuit of the almighty dollar.  The media reach of bad news; ProPublica/NPR series, the Department of Labor’s discussion of work comp, and local media’s coverage of alleged bad behavior on the part of workers’ comp payers, adjusters, and medical management staff buries the good news about comp payers.

One other point; many payers’ press releases are rife with stories about their successes in catching claimants doing things they shouldn’t be able to, showing that the insurance company will find out if the poor “claimant” (I hate that word) is really able to walk without a cane.

While that messaging may discourage the occasional “fraud”, it’s more likely this PR effort does more damage than good.

Come on, folks.  While you may think this discourages the very few potential bad actors out there who are looking to game the system, the overall message is the giant, omnipotent, all-powerful insurance company vs the poor guy or gal trying to get by on a paltry average weekly wage that’s nowhere near enough to meet their financial needs.

So, what to do?

  • individual companies need to develop a strategy – a long-term strategy – to figure out how they want to be perceived and why.
  • commit to it, follow thru, and be consistent
  • work together in local markets and nationally to get that message out.
  • don’t be an insurance company – be innovative, interesting, engaging, occasionally funny, compassionate.
  • tell stories – about claimants, about the real, live, moms and dads that work for your company trying to make sure the patients they are responsible for get better and their families are protected.
  • don’t let execs’ fear of doing anything remotely risky stop you.

What does this mean for you?

If you don’t say who you are and what you stand for in a way that connects with people, you’re screwed.