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 3

We’ve seen that work comp’s “profitability” isn’t very good, whether measured (inappropriately) as operating gain or (appropriately) as return on net worth/return on equity (ROE).

Today we’ll dig deeper into the data; below is a chart provided courtesy of CWCI, it is NAIC’s 2004-2013 Profitability Report, comparing average rates of return on net worth among California and US WC, property & casualty (P&C) insurers and all industries.

2004 2005 2006 2007 2008 2009  2010 2011 2012 2013 04-13Avg
Calif WC 12.6% 14.2% 16.4% 12.1% 7.0% 4.6% 5.2% 7.4% 3.9% 3.0% 8.6%
Calif All Lines 14.8% 14.5% 17.1% 11.9% 6.0% 9.4% 9.7% 8.4% 7.4% 7.6% 10.7%
US WC 10.1% 9.6% 10.0% 9.0% 5.1% 4.2% 3.9% 6.2% 5.9% 7.2% 7.1%
US All Lines 10.0% 5.3% 14.4% 12.5% 2.4% 6.3% 8.0% 4.9% 5.8% 9.0% 7.9%
NAIC P&C 8.0% 8.3% 12.2% 9.7% 2.2% 5.7% 6.0% 3.4% 5.2% 8.0% 6.9%
Fortune All Ind 13.9% 14.9% 15.4% 15.2% 13.1% 10.5% 12.7% 14.3% 13.4% 16.6% 14.0%

First up, look at the last row, Fortune’s All Industry average is higher than the US WC results every year for the last decade.

Over the last decade, WC’s returns have been just half the All Industry average.

Next, kindly allow me to direct your attention to the bolded red numbers – California WC insurers’ return on net worth for 2013 and the national average for the same year.  Fellow WC geeks will recall 2013 was identified by ProPubica/NPR as WC insurers’ “most profitable year in over a decade, bringing in a hefty 18 percent return.”

Oh were it only so.

(We dissected PP/NPR’s interpretation of profitability yesterday)

PP/NPR’s series of “reports” on workers’ comp allege that this “hefty” return is due in large part to reductions in benefits for workers pushed by employers and insurers and “reforms” that have taken away workers’ ability to choose their doctors – among other changes.  The reporters specifically cited big problems in California, where insurers’ doctors “deny” care without seeing the patient, where benefits have been slashed and workers made to suffer due to ill-conceived “reforms”.

This is a classic example of writers looking for “facts” that support their pre-conceived bias.  NAIC’s data shows just how wrong reporters Grabell and Berkes are; if the “reforms” in California were so one-sided, so employee-unfriendly, designed to benefit insurers at the expense of injured workers, those reforms have clearly NOT delivered the intended financial results.

By way of reference, historically the target ROE for US companies is in the 12-15 percent range, making the US WC insurance industry’s 7.1% return over the last decade look shabby indeed.

Remind me again why anyone would want to be a workers comp insurer???



Health care cost drivers, or, Here’s where you’re getting screwed

Forgive the vulgarity, but it seems apt when considering two articles just published in the venerable journal Health Affairs.

First, as physician practices consolidate, markets become more concentrated.   A study indicates orthopedic fees paid by private insurers are measurably higher in those markets with higher concentration.  As “Physician groups are growing larger in size and fewer in number”, expect this trend will affect other, currently-less-concentrated markets, thereby driving up the price of orthopedic services.

While the research by Alex Sun and Laurence Baker focused narrowly on knee arthroplasty, it’s likely an examination of other orthopedic procedures would yield the same finding.

A couple key quotes that should resonate among workers’ comp payers:

  • Our results suggest that the potential for reduced costs [due to larger physician groups] may be outweighed by providers’ ability to negotiate higher physician fees.
  • the ACA encourages further concentration to some degree by incentivizing physician groups to form ACOs to provide care. Again, our results suggest that the potential benefits of the formation of ACOs must be balanced against the potential for these organizations to negotiate higher physician fees.

I’d suggest that if private insurers are paying higher rates, workers comp payers are likely paying way higher rates.

Which is an excellent segue to the companion article on hospital markups (hat tip to Richard Krasner for getting to this a day before I did). The authors identified the 50 hospitals with the highest charge to cost ratios; this is a simple analysis comparing their chargemaster, or published price list, to Medicare’s assessment of their allowable costs. Here are a couple enlightening excerpts:

While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges [emphasis added]

forty-nine (98 percent) are for profit, compared to 30 percent in the overall sample; one for-profit hospital system (Community Health Systems) operates half of the fifty hospitals with the highest markups (Exhibit 3). Hospital Corporation of America operates more than one-quarter of them.

Florida has 20 of the fifty hospitals with the highest markups; this is also a state with a fee schedule based on a percentage of “usual and customary” charges.

A notable finding; “markup varies substantially across medical services in the same hospital, and an overall hospital-level charge-to-cost ratio might not reflect the extent of markup for a specific patient. For example, among the fifty hospitals analyzed in this study, the average charge-to-cost ratio for anesthesiology is 112, for diagnostic radiology it is 15, and for nursery it is 3.”

What does this mean for you?

External forces are dramatically reshaping the health care delivery landscape; winners will be those payers who successfully adapt to those changes, not those who ignore them.

WC Rx Survey – early results are in…

We’ve finished collecting the data for CompPharma’s 12th (!) Annual Survey of Prescription Drug Management in Workers’ Comp;  working on compiling and analyzing the data now and expect to get the report out next week.

The survey uses both quantitative and qualitative questions; this enables us to track changes over time to key metrics including network penetration, mail order usage, generic efficiency, and compound drug growth.

The qualitative responses are really helpful in gaining an understanding of what’s keeping payers up at night, where they are seeing success, and how they view key issues.

Here are a few initial findings…

  • Drug management is viewed as more or much more important than other medical issues by 80% of respondents
  • 75% said drug costs will become more important over the next year
  • 2/3rds indicated compounds are the most concerning new issue in WC pharmacy

There’s a lot more analysis to be done as we dig into the qualitative responses. One key area will be the cost and quality control programs payers have implemented over the last 18 months and the results of those programs.

Once the final report is done and proofed, I’ll put up a link.

Public versions of the previous surveys are available free for download (no registration required) here.


A work comp exec’s MUST read

The health care “system’s” problems are even worse for worker’s comp.

That’s the conclusion I reached after I finally got around to finishing “Overkill“, Atul Gawande’s latest piece on the clustermess that is the American health care system.

The top takeaway is this – there is huge over-diagnosis of medical “problems” due to an over-reliance on fancy diagnostic technology, technology that far-too-often identifies physical abnormalities that have little to no effect on one’s health or functionality.

An excerpt makes the point:

Studies of adults with no back pain find that half or more have degenerative disk disease on imaging. Disk disease is a turtle—an abnormality that generally causes no harm. It’s different when a diseased disk compresses the spinal cord or nerve root enough to cause specific symptoms, such as pain or weakness along the affected nerve’s territory, typically the leg or the arm. In those situations, surgery is proved to be more effective than nonsurgical treatment. For someone without such symptoms, though, there is no evidence that surgery helps to reduce pain or to prevent problems. One study found that between 1997 and 2005 national health-care expenditures for back-pain patients increased by nearly two-thirds, yet population surveys revealed no improvement in the level of back pain reported by patients. [emphasis added]

More specific to workers’ comp, the good folks at Liberty Mutual’s Institute for Research found claimants with back pain with:

early or non-indicated MRIs led to a cascade of medical services in the six-month period post-MRI that included electromyography, nerve conduction testing, advanced imaging, injections or surgery.

These procedures often occurred soon after the MRI and were 17 to nearly 55 times more likely to occur than in similar claims without MRI.

“Being a highly sensitive test, MRI will quite often reveal common age-related changes that have no correlation to the anatomical source of the lower back pain,” said one of the researchers, Glenn S. Pransky, MD, Center for Disability Research, which is part of the Liberty Mutual Research Institute for Safety, in a statement.

According to Pransky, evidence-based practice guidelines for lower back pain recommend against early MRI except for “red flag” indications such as severe trauma, infection or cancer.

Dr. William Gaines, associate national medical director, Liberty Mutual Commercial Insurance Claims, said that the National Committee for Quality Assurance and the American Board of Internal Medicine have emphasized for years that overuse of imaging does not represent good care for low back pain.

What does this mean for you?

Our health care system is very, very good at finding physiological and anatomical “problems”.  Unfortunately, it is also very good at assuming those findings actually indicate an underlying and significant pathology.


Controlling work comp medical – Swedlow and Victor weigh in

The capstone to an excellent NCCI AIS was provided by WCRI Exec Dir Dr. Rick Victor and his counterpart at CWCI, Alex Swedlow.

Rick led off with my LEAST favorite topic – physician dispensing of drugs to work comp claimants.  The usually-very-circumspect Dr Victor said that “the evidence is pretty clear in terms of costs and likely benefits of physician dispensing.”

All the evidence indicates:

  • physician dispensing is common in big states
  • prices are higher than for the same drugs in retail pharmacies
  • even after reforms, prices are about 30% higher
  • docs write scripts for OTC meds when they dispense those meds
  • dispensing docs prescribe unnecessary opioids 
  • the price focused reforms – eliminating the upcharge for repackaged drugs – will not deliver long term results.

As great as it was to see Dr Victor and NCCI focus so much time on an issue that I’ve been harping on/screaming about for about 8 years, I – as undoubtedly you – are sick to death of this subject. It’s time to kill the beast – ban physician dispensing and docs profiting from dispensing.

CWCI’s Alex Swedlow jumped full force into a quick review of utilization review in California.

The key takeaway is the decline in medical trend observed recently – which is leading to a reduction in rates – is very good news indeed.

Pharmacy is the fastest growing component of California’s work comp medical expense, now totaling 13.2% measured at 24 months maturity, or $1.2 billion. This despite two fee schedule reforms, implementation of chronic pain guidelines, and shortly opioid-specific guidelines and perhaps a formulary via legislation now under consideration. Yet 45% of UR involves drugs, and 45% of medical reviews do as well.

BTW doc dispensed drugs account for over half of drug spend in the Golden State.

Despite all that effort 29% of pharmacy spend is for Schedule II and II drugs.

That’s just appalling.

Which led Alex to the key question – why is California’s WC medical so much harder to manage?

Alex’ take – a fundamental lack of shared risk – no supply/demand controls, no contractual language that limits care, and a dispute process that features very high levels of litigation.

Which leads to the Independent Medical Review (IMR) process – intended to speed dispute resolution while increasing consistency.  CWCI has done quite a bit of research into this area, most of which is available on their website.

Briefly – 95% of ALL treatment requests are approved.  There is NO wholesale denial of care occurring in California.

Despite what you may have heard, the IMR process is working pretty well.

CWCI’s research (on their website) indicated that the average audit score for timeliness etc was 97%.  And, IMR isn’t nearly as cumbersome as some would like to portray.  

Here’s the real data…

75% of requests for initial treatment are immediately approved.

77% of the 25% that aren’t approved initially are approved after going thru UR. – that equates to 94.1% of all treatment requests are approved initially or after UR.

91.4% of IMRs agreed with UR that the UR-denied treatment was in fact not consistent with evidence-based medical guidelines.

44.7% of services going to IMR were for drugs; those decisions were upheld 92% of the time.  And a lot of the IMR challenges are coming from one area – Los Angeles.  Similarly, the top 1% of docs generated 44% of the letters; only 10 docs were responsible for 11% of ALL IMRs.

What does this mean for you?

Drugs are a big problem, and a relatively few docs are the ones contributing to this problem. 

The IMR process is working pretty well – and would be much better if a very few docs weren’t flooding the system.


Is ACA affecting work comp medical waiting times?

Research to date says no.

Equian’s Glen Boyle shared some research with me that indicates there doesn’t seem to be any delays in claimants getting physician appointments.  Glen was following up on my post on NCCI’s research report at last week‘s AIS which also didn’t find any ACA-related delays.

Here’s Glen:

I tracked 10,000 claims for [an insurer client] (2012-2013 – matured 24 months with a minimum of 6 months maturity).  

The study focuses on Indiana, Iowa, Minnesota, Illinois, and Wisconsin.

The claims were placed into agreed benchmark categories and we are measuring dozens of data elements. Aside from DOI to first medical visit (and the time between subsequent visits), we are tracking the time to first major surgical service, the time to first PT (and the time between subsequent visits), and the time from the first medical treatment to the last medical treatment.  

 The 10,000 claims created our “foundational benchmarks”, and we just completed our first comparison of claims from the 1st quarter of 2014 (post ACA) with maturity through 9/30/14. We’ve also just completed another data pull with two additional quarters of new data, while updating the claims already in the mix. We were able to take our first look at some post-ACA benchmarks – many are still VERY immature, but DOI to first DOS develops immediately (FYI we show no delays to first office visit in any of the jurisdictions). [emphasis added] You had pointed me to the Robert Wood Johnson report and that seems to indicate that newly insured patients are NOT flooding into waiting rooms – so you wouldn’t expect any delays from that perspective.  

(this references a previous post on the RWJ study; excerpt below)

A Robert Wood Johnson Foundation report (thanks to AthenaHealth) report indicates docs are not getting swamped with newly-insured patients seeking primary care.  Key findings include:

  • New patient visits to primary care providers increased from 22.6% of all appointments in 2013 to 22.9% in 2014.
  • The percentage of visits with patients with complex medical needs decreased from 8.0% of appointments in 2013 to 7.5% in 2014.

So far, doesn’t look like primary care providers are overwhelmed – HOWEVER that is national data, and things certainly vary from region-to-region.

While primary care isn’t being overloaded, the health care delivery system is undergoing wrenching changes – with small, safety-net hospitals probably the most affected. Expect to see closings, consolidation, and takeovers as these most-vulnerable providers lacking scale, resources, and brand find they can’t survive.  For a glimpse into the near-term future, track what’s happening in California.

What does this mean for you?

17 months into full ACA implementation, there’s no indication that WC claimants are seeing delays in getting medical care.

Where’s the economy going?

In MCM’s ongoing effort to help you, dear reader, know things that will likely greatly affect your work world, here’s a quick review of economic predictions and implications thereof.

Moody Analytics is pretty optimistic about the future of hiring, employment, wage growth and the economy in general.

However that optimism is somewhat dampened by concerns overseas as key players in Europe and the BRICs are entering or going thru recession.

One key data point is the “quits rate”, which is simply the rate at which people are leaving jobs.  This is tracking higher, indicating people are moving among employers – according to Moody’s Adam Kamins this presages higher wages as employers have to increase compensation to attract and keep good workers.

Housing starts are a very big part of the recovery, and part of the reason things haven’t gotten better faster. There’s a good bit of pent-up demand, driven in part by millennials living with their parents at historically high rates. Obviously, houses can’t be built without construction workers (at least until 3-D printing of buildings gets a lot more prevalent – which it will…). According to Kamins, we are about 40% below the level we should be for housing construction – which equates to perhaps a couple million workers.

Expect this to be most heavily felt in the west and south, where construction permits have moved up nicely over the last few quarters.  Not surprisingly, the west has led in job creation for several years, with the south catching up over the last year.

Internationally, China’s economy is slowing – which isn’t surprising as it has been growing at a breakneck pace for several years.  Interestingly, Kamins said (I’m somewhat paraphrasing here) “Fortunately, the Chinese government has pretty tight control over the economy.”  With other countries’ economies in a bit of trouble, the dollar is strengthening leading to problems with trade – our stuff is really expensive, while their’s is cheap.  In turn this could hurt domestic manufacturing as demand for US goods drops off.

The dollar’s strength hurts tourism too; it’s really cheap to travel abroad for us but the US is a pretty pricey destination for Europeans and Asians these days.

NCCI’s PM sessions – hard core research geeks only

NCCI, with the assistance of payer medical directors (shout out to Employers’ Dwight Robertson MD and David Deitz MD among others) presented on 4 research topic areas late Thursday afternoon.

After a long day of great talks (this NCCI has been the best I’ve been to in a dozen plus years) it was time for the real dense, pithy stuff.  I’ll summarize so you don’t have to write your own notes…There’s some really good stuff here.

Joint injuries

Barry Lipton discussed an analysis of knee surgery across six states; you may be surprised to hear costs, even after correcting for price variations, ranged rather dramatically across the six – by around 60 percent.  What’s a lot more surprising is the variation in diagnoses, particularly among strains.  The percentage of knee injuries that were attributed to strains varied by somewhere around 20 points from highest to lowest state.

Shoulders exhibited differences as well, however there were similarities between the two joints.  Namely, the variation in utilization for both was driven by surgery and physical medicine.  A question from the audience asked why there is such variation when treatment should be uniform…

Therein lies the issue.  According to the handout, “Utilization differences across our selected states are driven more by differences in the treatment for given diagnoses than to the mix of diagnoses.”

There was quite a bit more to Barry’s presentation; check out NCCI for more.

Next up, Drug Fee Schedules

NCCI looked at differences in the prices paid for drugs in an effort to assess the effect of fee schedules [FS] on prices paid.  Some quick highlights from Natasha Moore’s talk…

  • Just because states have similar fee schedules doesn’t mean the prices paid for drugs will be similar.
  • Prices in high FS states are generally higher than states without fee schedules
  • There’s quite a bit of variation in prices paid even a) after correcting for drug mix and b) among states with similar fee schedule levels.
  • However, lower fee schedules are correlated with lower prices paid.
  • Brand drugs are 22% of scripts, but 56% of cost

Time from injury to treatment – preliminary results

NCCI is workign on a long term study on the impact of the Affordable Care Act; their first effort focuses on time from injury to treatment.  Highlights are from data between 7/1/2010 – 12/31/2012:

  • 85% of trauma cases are treated within 3 days from date of injury
  • there are longer “delays” in seeing some specialists in some states

My view is this is not likely to bear much fruit; looking at time to treatment by specialist as a way to somehow evaluate the impact of ACA is likely to be confounded by multiple issues, including:

  • practice pattern variation
  • supply of various provider specialties
  • expansion of Medicaid – or not
  • state support of ACA enrollment e.g. California vs those antipathetic to ACA e.g. Texas

Perhaps an analysis holding provider populations level and using the uninsured rate would be more illuminating.

Impact of report lag on claim severity

Following on the ground-breaking work by the Hartford’s Glen Pitruzzello fifteen years back, NCCI looked at the impact of claim reporting lag on claim severity.

There’s a wealth of data shared; the net is the longer the delay, the more likely the claim will cost more – HOWEVER, the correlation is by no means linear and varies by type of injury (e.g. the most expensive fractures are those reported on the actual date of injury, next is during the first week).

A long day indeed…

First up at NCCI – Work comp is looking better…

Workers’ comp net written premiums for funds and insurers were up substantially – 6 percent – over 2013, making for the 4th consecutive year of premium growth.

Meanwhile, the combined ratio for private carriers improved as well – down 4 points to 98, driven by a drop in loss adjustment expense, underwriting expense and loss costs.  State funds saw their combined stay flat at 115.

And yes, the industry returned a pre-tax operating gain  of 14% – NOT to be confused with “profits” or “return” – more on that in a later post.

This was driven in part by a decline in claim frequency – a continuation of a two-decade-plus downward trend in frequency.

This was the introduction to NCCI’s 2015 AIS provided by President and CEO Steve Klingel.  Klingel noted that the industry is rarely able to sustain profitability for very long; factors that may drive changes include the Feds’ moves on interest rates, employment growth, and changes in what defines “employee” and “employer”.

Noting the March OSHA document – essentially an indictment of workers’ comp, legal challenges in FL and OK, and press reports about individuals apparently mis-served by the work comp system (likely referring to the ProPublica/NPR series, much of which has been challenged here and elsewhere), Klingel’s sense is there may well be storm clouds in the near future for work comp.

Next up – the State of the Line…