Mitchell has been acquired. What’s next?

That didn’t take long.  On the same day Kelso and Stone Point did the PMSI-Stone River deal, giant PE firm KKR bought Mitchell International for $1.1 billion.

The transaction, reported to value Mitchell at 11-12 times adjusted earnings (no word on if that was trailing or forecast), was not as lucrative as some expected.

Mitchell, along with Stratacare, Medata, Xerox, and MCMC are the leading providers of bill review software to the work comp industry. Traditionally focused on auto claims software, Mitchell added work comp with its acquisition of CompReview several years back.  The foray into comp was not without its challenges, particularly staff turnover, product glitches and some customers’ concern about responsiveness particularly around fee schedule updates. That said they did add several customers over the last few years, customers who seem generally satisfied with their performance.

There’s an interesting question yet to be addressed; does it make sense for KKR to keep the work comp AND auto software businesses?  

A superficial analysis might lead one to think there’s synergy here; the same customer sector (P&C insurance), and similar issues and functions (process medical bills, deal with regulatory issues, integrate with treasury, medical management, and networks (albeit rare in auto).

In reality, I don’t see much in the way of synergy.  The folks who run PIP and commercial auto at P&C insurers are quite separate and distinct from the work comp operators, making it unlikely one would influence another’s systems decisions.  Second, auto is very different from comp – comp has indemnity, auto has property and liability; auto has medical limits and little in the way of medical management, comp has no limits and lots of med management; comp is functionality focused while auto is not.

And auto is a much bigger business than work comp bill review.

Competitor Stratacare has been rumored to be on the block for some months now; sources indicate Coventry’s work comp folks spent several days on-site earlier this year evaluating the software and operations.  At some point Coventry will have to invest in its aging and creaky BR 4.0 platform, either that or kill the thing and switch customers to another application.  That reality may well have been behind the on-site visit. If Coventry does not buy Stratacare, and I’d bet they don’t, there’s an argument to be made that splitting off Mitchell’s SmartAdviser platform (their work comp business) and merging it with Stratacare makes a great deal of sense.

There have been rumors that Mitchell attempted to merge with its largest competitor in the auto claims software business at least once in recently, a merger that may well have run into regulatory obstacles. A Stratacare-Smart Adviser “combination” would have no such problems, would generate a lot of cash for KKR, and would consolidate a business that needs consolidation.

What does this mean for you?

1.  The expectations for Mitchell were likely too high; An 11x multiple is, by any standard, quite rich.  Why the owners thought they’d get a 14x is puzzling.  Perhaps they thought the feeding frenzy in work comp deals would generate a bidding war…alas this is primarily an auto company.

2.  Watch this closely.  KKR’s next few moves will tell much about their plans for workers’ comp.

The Allstate – Prescription Partners suit; the details…

The big auto insurer’s civil suit against AHCS subsidiary Prescription Partners is comprehensive, thorough, and very, very persuasive.  Allstate is demanding a return of all monies paid to Prescription Partners, and a ruling preventing PP from billing Allstate going forward.

The insurer is seeking declaratory relief (a legal finding that Allstate does not have to pay bills going forward) and the return of all monies paid.  

They are demanding a jury trial; my sense is this is not just legal maneuvering, but intended to make a clear, very loud, and very public statement.

Allstate’s attorneys have done their homework.  The suit filed in Federal District Court lays out a detailed description of exactly how and why Prescription Partners, a “technology” company, has no legal standing to bill an insurer for drugs.

Prescription Partners/AHCS pays the physician 70% of the amount it expects to bill the insurer, keeping 30% for itself.  Remember, this is based on the price for a repackaged drug, an issue specifically addressed in the suit

“Michigan courts have stated explicitly that “medical care providers are prohibited from charging more than a reasonable fee…Prescription Partners appears to have charged Allstate the national average wholesale price (AWP) for repackaged drugs…[the]repackaged AWP for drugs is substantially higher than the amount charged by local Michigan pharmacies from which insureds can also receive prescription medication…The repackaged AWP is also significantly higher than the original drug manufacturer AWP...it is clear that the charges submitted by Prescription Partners using the former are grossly inflated and do not constitute a “reasonable” charge. [emphasis added]“

The documents cite several specific drugs with prices 70% to 1200% of the original un-repackaged drug, and include an AHCS price list in the Exhibits featuring a column showing the doctor their “guaranteed profit”, as well as a listing of each claimant, the amount billed, and the original manufacturer’s AWP.

That exhibit alone is worth the price of downloading the entire filing.

More, much more, to come.

What does this mean for you?

At last, the insurance industry steps up to take on the physician dispensing industry.  One wonders where the workers’ comp insurers are, as they’ve been victimized by the industry for years…

The Medicaid expansion and political choice

If Medicaid isn’t your business, you may be tempted to ignore the implications of the current kerfuffle over whether or not states should accept free money to expand Medicaid. That would be a mistake.
As all-powerful and influential as Medicare has become, the Medicaid expansion will make the joint state-federal program THE payer to reckon with, setting reimbursement, defining “care”, restructuring provider contracts and relationships, and dramatically affecting provider billing patterns and practices.
With the Medicaid expansion now up to invidiual states, we’re hearing some say “no way” and others say “Hell yes”. At first, this split mirrored political lines, but now it’s getting harder to tell which side of the argument a governor is on merely by the color of their political stripes. The indecision on the part of governors who would seem to be natural enemies of federal largesse is telling.
In every state capitol where the decision is uncertain, there’s fierce lobbying on the part of providers attempting to convince governors to take the money and expand Medicaid. Make no mistake – providers have a huge stake in this decision, and are pulling out all the stops. Perhaps the most powerful influence in this is going to come from states’ hospitals and provider communities – but mostly the hospitals. These are the ones most affected by the increase in uninsured’s, and they will be the ones that benefit the most – financially – from a Medicaid expansion.
States such as Florida and Texas are particularly important. 29% of the Sunshine state’s working-age population doesn’t have health insurance; bad as that is, it is better than Texas, where fully a third is uninsured. And these data are from 2010; it is highly likely those percentages have risen as a result of the recession.
Both Governors Scott and Perry say they will turn down the federal money (covers 100% of expansion costs initially, declining to 90% eventually), hospitals and other providers – currently struggling to meet the needs of very large populations with zero ability to pay for care – are going to be in ever worsening shape.
(Governors of Mississippi (27% uninsured), Alabama (22%), and Louisiana (25%) have also said they won’t expand Medicaid.)
They are going to have to make up the revenue loss from somewhere, and that “somewhere” is going to be from privately-insured patients. That will lead to health insurance costs increasing much faster in “non-expansion” states than in the rest of the country, which will lead to employers dropping out of the system, which will lead to more uninsured, which will lead to more uncompensated care…
You get the picture.
There’s already huge cost-shifting in our health care system, in effect a hidden tax on private payers, workers comp, and auto insurance coverage, a tax levied by providers desperate to cover the costs of the uninsured.
What does this mean for you?
If governors stand on principle and refuse the expansion, the result will be more cost-shifting, really unhappy providers, and higher insurance costs for everyone.

Physician dispensing and auto insurance

Over the last couple weeks I’ve fielded several calls from automobile insurance companies seeking information about the big drug bills they’ve been getting for physician dispensed drugs.
This is more of an issue in states with high dollar coverage for medical costs, but there’s increasing evidence that physician dispensing is hitting more and more auto claimants in many different jurisdictions.
There’s several reasons these bad actors are pushing into auto.
1. some states are controlling the pricing of repackaged/physician dispensed medications for workers comp, so docs – and their suppliers – are looking for greener pastures.
2. many auto insurers aren’t yet aware of the practice, so they’re just paying the bills without much scrutiny
3. it’s profitable – really, really profitable.
There’s a downside for consumers as well as their insurers. In addition to the added health risks inherent in physician-dispensed medications, these inflated charges also cause insureds to reach their policy limits much faster, thereby running out of insurance coverage for their medical costs.
This is happening in Hawai’i, Michigan, Georgia, Florida, and likely many other states.
So, what’s an auto insurer to do?

I suggest you start by figuring out the size of the problem. Find out the TINs these entities are billing under, total up their charges, scripts, and your payments, and see how bad it is.
If it’s not much, that’s great – for now. That won’t last.

Auto insurance and hospital cost shifting – so THAT’s why my premiums are so high!

Cost-shifting – the practice of seeking higher reimbursement from some payers and patients to cover shortfalls due to low or no reimbursement from others – is rampant in the US health care system. Having worked with providers, health care systems, and payers, I can attest to the pervasive nature of the beast – it happens all the time, everywhere.
More evidence came across my virtual desk yesterday in the form of a study by the Insurance Research Council entitled “Hospital Cost Shifting and Auto Injury Insurance Claims” [available for purchase thru IRC]. The study compared auto injury hospital costs in Maryland to those in 38 other states that don’t have the all-payer hospital rates mandated in Maryland. Thus, whether a patient is covered by a health plan or auto insurer in MD doesn’t matter – all are reimbursed at the same level.
Here are a few of the highlights.
- the “percentage of a state’s population without health insurance was found to be the strongest predictor of average hospital costs for auto injury claimants”
- “another important predictor of average hospital costs for auto injury claimants is the percentage of a state’s population covered by Medicaid”
- IRC estimated of the impact of cost shifting to auto insurers totaled $1.2 billion in 2007.
It is clear that cost shifting is rampant, particularly to property and casualty payers. Work comp payers are particularly vulnerable as their network arrangements are under growing pressure from hospitals seeking higher reimbursement.
What does this mean for you?
Your hospital costs are headed up. What are you going to do about it?

predictive modeling
And
artificial intelligence

How much are we spending on orthopedic implants?

According to market research firm Supplier Relations LLC, the total US surgical appliance and device industry’s revenue for the year 2007 was “approximately $30.4 billion USD, with an estimated gross profit of 46.15%”.
Note that this total includes more than just implantable devices – sutures, surgical dressings, and prosthetics and other stuff are also counted towards the totals. Without buying the report for $600, you won’t know exactly how much is spent on which categories. But research indicates the orthopedic and surgical device share of the total has been quite significant – well above 50%.
The growth of the implant market has been marred by allegations of illegal kickbacks, sleazy business deals between manufacturers and physicians, and hugely inflated prices to payers.
That hasn’t slowed the market.
Another report (more specific to orthopedics) predicts total implant demand will rise “9.8 percent annually to $23 billion in 2012. The four major product segments — reconstructive joint replacements, spinal implants, orthobiologics and trauma implants — will all provide strong growth opportunities.”
But the big growth will come from spine. According to an excerpt from the report,
“Spinal implants will show strong growth due to advances in product technologies and related surgical techniques, coupled with an increasing prevalence of chronic back conditions. Fixation devices and artificial discs used in spinal fusion and motion preservation surgeries, especially procedures for the repair of vertebrae and replacement of degenerative discs, will account for the largest share of the market and best growth opportunities.”[emphasis added]
What does this mean for you?
Higher costs with uncertain results.

ASCs — good, bad, or just ugly?

A recent court ruling in New Jersey could shut down Ambulatory Surgical Centers across the state.
The judge determined that physician-owned ASCs (almost all ASCs are at least partly owned by physicians) violate a state law banning physician self-referral. Not surprisingly, the 200 ASCs in the Garden State (there are about 5000 nationwide) are pulling out the stops to overturn a ruling that, if it stands, would effectively shut down most ASCs in NJ.

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Medicare sneezes

The adage goes something like – when the US sneezes, the world catches a cold, signifying just how much influence this country has on the rest of the world.
That’s analogous to Medicare’s impact on the health care sector. And Medicare is about to change the way it pays hospitals, a change that will have a dramatic effect on every private payer from HMO to individual carrier to workers comp insurer to self-insured employer.

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You need a P&T Committee

Pharmacy and Therapeutics committees have been around for ages in the provider community - they are the “link between medicine and pharmacy”. In the managed care world, P&T committees take on a somewhat different role, establishing formularies, reviewing medical device reimbursement (at some health plans), contributing to coverage determinations and benefit design.
Mostly, they provide the health plan or insurer with an expert opinion on most things pharmacy-related. Without a P&T Committee, these decisions often are left to a medical director, or worse, claims adjuster (in the P&C world), individuals who are not equiped to make educated decisions about pharmaceuticals.

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