Women in Work Comp

The first Women in Work Comp Forum took place today.  As Healthcare Solutions CEO Joe Boures said: “long overdue.”

The good news is there was a similar meeting held a block or two away, so we’re catching up quickly.

Some are focusing on the “conflict” between these two meetings, a focus that is misplaced.  Rather, it’s a good thing – two separate sets of people motivated to bring attention to an ongoing issue/opportunity.  There were about 300+ in attendance, indicating there’s a big demand…

A few observations from panelists worth remembering.

  • Danielle Lisenbey, CEO Broadspire – be flexible and adapt; be true to yourself; know the numbers too
  • Nanette de la Torre – VP Zenith – embrace opportunities as they come; don’t take things so much to heart, not everyone’s going to like you and that’s OK.
  • Nina Smith-Garmon EVP Mitchell Int’l – have sponsors who will support you and mentors who will provide direction – and don’t worry about titles.
  • Michelle Weatherson – Director Claims Medical and Regulatory Div, State Fund of CA – take risks, temper what you do when necessary
  • Eileen Ramallo EVP Healthcare Solutions – don’t ignore conflict, address it and seek to understand issues

An impressive group with some very useful insights.  As the father of two smart, motivated, successful professional women, I was wishing the younger Padudas were in attendance.

Kudos to Healthcare Solutions for taking the initiative.

And the first real news in Vegas is…

While no one from Medata will comment, word is the company has just implemented their bill review platform for AIG.

This has been very long in the making; we first heard rumors about the deal a couple years back.  It was all over the room at last night’s Medata event; evidently AIG went live within the last week or so.

There are at least two significant implications.

First, bill review application firm Medata is a force to be reckoned with.  Long a relatively small player, this relationship clearly moves them into the top tier with Xerox and Mitchell. No disrespect to Tristar, PMA, Amerisafe, and Medata’s other customers, but adding the 5 million plus bills flowing thru AIG is a whole different ballgame.

Second, AIG moved from Coventry.  This is a major loss for Aetna/Coventry’s bill review business; with Liberty Mutual likely switching over to Xerox the writing is on the wall.

Expect Coventry to either make a major investment in bill review (highly unlikely) or outsource the application to a third party (highly likely).

The Comp Conference begins…

I’ll be blogging from the NWCDC this week – here’s what we’ll be looking for…

  • latest and greatest new thing on the Exhibit floor.  In the past (waaaay past), it has been MSAs, drug testing, PBMs, disaster recovery, security.  What’s big now?
  • new announcements that are actually “new” and worthy of announcement. Every year we (pseudo) media types get flooded with press releases announcing hugely exciting events/deals/breakthroughs – many of which are not a) exciting or b) news.
  • best, most useful, and well-done presentation - looks like there will be several potential ones
  • wildest rumor on the floor. What will it be this year?
    • Aetna decides to invest in workers comp?
    • Examworks and MES are actually the same company?
    • Bob Wilson is a closet liberal?

And of course, we’ll be hoping the Latin Grammys are in the Mandalay Bay again this year. Gotta have some really exciting new stuff!

Bringing a knife to a gun fight

Employers, taxpayers and insurers got a very loud wake-up call last month. If there was any doubt about the financial power of dispensing companies and their owners (we’re talking you, ABRY) – and the unbelievable profitability of dispensing – that has been put to rest.

Physician dispensing companies spent over a half-million dollars on lobbying efforts to allow physician dispensing to continue in Pennsylvania.  Unlike battles in other states – Maryland, Florida, Hawaii come to mind – doc dispensing opponents were able to prevail despite an overwhelming disadvantage in financial resources.

In most other battles, we have lost, lost repeatedly, and lost badly.  That’s what happens when you bring a knife to a gun fight.

indy-vs-gun-with-big-knife

Yes, employers, injured workers, and taxpayers did win in PA, but only because we were there early, in force, and coordinated – an unfortunately uncommon event.  We managed to overcome dispensing companies’ overwhelming financial resources only with a concerted effort on the part of many, many people and organizations coupled with strong leadership from key influencers and committed and persistent legislators.

Meanwhile, we’re finding that the measures taken in Connecticut to reduce costs of physician dispensed repackaged drugs aren’t working out so well.  A just-released WCRI study indicates that, while prices are down from pre-reform days, doc-dispensed drugs still cost 30 to 60 percent more than the same drugs bought from a retail pharmacy.  In my view, there are a few reasons…

  • Docs are dispensing a lot of over-the-counter drugs at prices far higher than the OTC retail price.  We’re talking generic Tylenol(r), Prilosec, etc.
  • Dispensing companies are likely sourcing their drugs from manufacturers with high AWP prices; these manufacturers give dispensers a big discount, allowing them to make more money on the “spread” between their cost and what they charge work comp payers.
  • The “contract” manufacturers that have targeted the work comp dispensing industry are selling direct to dispensing companies at prices very close to – if not more than – the repackagers. This allows them to get around the “original manufacturer” price that’s set as the cap in CT.
  • PBMs get a hefty discount below the fee schedule which reduces employers’ costs rather dramatically – this discount isn’t available from doc-dispensed drugs.

What does this mean for you?

1.  Employers, insurers, and their allies need to get serious about physician dispensing.  It is costing taxpayers and employers about a billion dollars a year.

2.  Regulations/legislation based on “original manufacturer” language, while helpful, are readily circumvented by dispensing companies.

3.  Banning dispensing outright – as Texas, Ohio, Washington, North Dakota, Massachusetts, and New York do – is by far the best answer.

 

More on asbestos and workers’ comp

After reading last week’s post on asbestos and work comp, a good friend and colleague sent me the following.  As he is far more knowledgeable about this than I, his view is well worth consideration.

Interesting points you bring regarding the overlap in the asbestosis/mesothelioma latent injury litigation.
The individual states have always relied on the WC statutory time bars for reporting latent disease injuries.  The true reason why the plaintiff’s attorneys have historically chosen the general liability path to litigation is because the claim for conscious pain and suffering is excluded from workers’ compensation.  Also—the trigger theories for liability in GL permit the plaintiff to assert that he could not have known that he was injured until the long-gestating disease was “discovered.”  Hence, the trigger for coverage was extended until that point when the disease manifested, often some 30 to 40 years after actual exposure began.  Those characteristics and the chance to assert punitive damages were the catalysts for asbestos litigation in Federal courts; bigger damages and bigger awards.
That is also why some of the earliest asbestos-related work injury cases were filed in industries like rail, ship-building, steel and glass/insulation fiber industries.  Specifically with the rail employees—WC never applied.  Interstate commerce required FELA to be applied (the Jones Act and US Longshoremen & Harbor workers Act are built off the FELA model).  As a federal statute FELA permits conscious pain and suffering to be considered compensable.   Those claims are litigated under common law, hence a judge and—more specifically–a jury determine the facts of the case and render verdicts.  Juries determine if conscious pain and suffering were applicable in their jury verdict awards.  They also determine if punitive damages apply.  The verdicts can be gigantic.
The exhaustive litigation discovery over the course of the past 30 years of asbestos litigation demonstrated that manufacturers, distributors and users of the product (employers) in the “stream of commerce” knew of the dangerous characteristics of asbestos products—which always created a risk to them that punitive damage awards could be tacked on by jury trials.  That is principally why asbestos litigation defendants negotiate settlements rather than risk adverse jury verdicts.
One other note—of the two claims you cite—the defendant in the PA case is AK Steel—-which is a relatively “young” company.  Without doing any research, my guess that AK Steel is the successor to one of the old line Pittsburgh-based steelmakers.  In that case, the worker would have to demonstrate that his exposure while working for the steelmaker was latent and long-gestating.
Asbestos litigation has been troublesome for the insurance industry for more than 30 years now so the new rulings regarding WC create interesting discussions.

Monday catch-up

Here’s what happened last week.

First, the election.  A thorough butt-kicking to be sure.

Now, we will see if the two very distinct wings of the Republican party can work together.  With almost all of the moderate Dems losing their elections, projected majority leader McConnell will have to figure out how to keep his fractious caucus together while adding a few liberal Democrats if he is to have any hope of getting the 66 votes needed to overrule any Presidential vetoes.

This will be entertaining.

Reform implementation

Rates for most 2015 plans on the Exchanges are not going up much, and in some areas are dropping.  Average premiums are going down in 6 states, rising by 5% or less in 10, and increasing by >5% in only 2.

Obviously this somewhat discredits the warnings of rate shock, but we’ll have to wait for the expiration of the “3Rs” (which reduce insurers’ risks) before we’ll see fully market-based rates.

Healthgare.gov has released a web app for shoppers to quickly compare plans and benefits - without the registration requirement.  Should have been out earlier, but better late than never.

BTW, an excellent piece in The Economist provides objective insight into the goods, bads, and uglies of PPACA - along with solid recommendations on how it can be improved.

Hospitals are going to be screaming.  Even louder.  A research piece in HealthAffairs details the impact of Medicaid non-expansion on hospitals in poor financial shape. Briefly, PPACA ended subsidies for those hospitals, anticipating they’d benefit from higher Medicaid enrollment.  As an example, DSH payments to struggling hospitals in Texas will decline about 52% in 2018.

State officials determine what hospitals get how much money, so the lobbying will be intense.  Facilities without strong relationships with state governments may well not survive.

Methinks more cost-shifting may be in the offing.

Workers’ comp

In WorkCompCentral last week Greg Jones’ article on the California State Fund provides a brief summary of the huge changes at the State Compensation Insurance Fund over the last few years; premiums and employment have both dropped by about half, operations have been dramatically streamlined, and a new rating program developed that makes the State Fund a viable competitor in good times as well as bad.  There’s much work to be done, but credit should go to former CEO Tom Rowe and his colleagues for these notable accomplishments.

A great piece in Insurance Journal by Safety National’s Mark Walls on that bane of our existence – physician dispensing in work comp. The conclusion:

There is overwhelming evidence to support that physician dispensing increases costs, lengthens disability, and produces poor outcomes for injured workers. It’s time to end physician dispensing in workers’ compensation.

In yet another deal, Apax/Genex bought case management firm MHayes. Congratulations to owners Melinda Hayes and Helen Froehlich; they built a pretty solid company with an interesting affiliate approach.  With revenues in the $15 million range and an EBITDA likely a bit more than 10%, this isn’t one of the bigger deals done by Apax on their way to building an ever-larger behemoth.  However, it does remove a competitor that was successfully competing with Genex and had service niches (that may prove valuable.

Perhaps MHayes will help Genex resolve their long-standing billing issues.

It’s the last week before many lucky souls head to Las Vegas for the gathering of the work comp tribe.  Shameless plug – I’m moderating a session on Private Equity and Workers’ Comp; Thursday at 10:45, principals from three of the leading private equity firms will be giving their insights into:

  • the impact of outside investors on comp,
  • the reasons this is such a hot investment opportunity,
  • what investors look for, and
  • what we can expect in the future.

We’ll have a lot of time for Q&A too.

 

CorVel’s quarterly revenues up, profits down

I haven’t looked into CorVel for some time now, but a tipoff from WorkCompWire got my interest – specifically a passage that read:

Revenues for the quarter ended September 30, 2014 were $124 million, a 4% increase over the $119 million in revenue in the quarter ended September 30, 2013. Earnings per share for the quarter ended September 30, 2014 were $0.37 and were $0.41 for the same quarter of the prior year. [emphases added]

This was pretty much identical to CorVel’s press release.  Normally there’s a percentage given for any change over a prior period; that percentage was noticeably missing. A “normal” release would have read:

Earnings per share for the quarter ended September 30, 2014 were $0.37, down 10% from the same quarter of the prior year.

4 cents doesn’t sound like much, but 10 percent sure does.  It looks like the primary driver was a much higher cost of revenue, up 6.7 percent over the same quarter, prior year.  This isn’t a one-time thing, as CorVel’s cost of revenues increased 6.4 percent over the six months ending 9/30/14.

The stock, currently trading just over $34, is down rather precipitously from it’s 52 week high of $52.44.

The last earnings call transcript available from Seeking Alpha is, to borrow a term from “The Shawshank Redemption”, obtuse.  Whether it is the recording, the transcript thereof, or the comments made by Chairperson Gordon Clemons, I wasn’t sure what to make of their strategy, focus, or outlook.  Lots of comments about private equity’s involvement in WC, market consolidation, ACA and other matters but little clarity about how this would or would not affect CRVL.

What does this mean for you?

Perhaps we are now starting to see that effect.

Physician dispensing in work comp; two victories!

I know, you are as tired of reading about physician dispensing in work comp as I am writing about it.  At last, there’s some very good news.

Quick refresher – docs dispensing drugs adds about a billion dollars in excess drug costs – plus increases disability duration by 10 percent, medical costs, and total claims costs.  Dispensing docs also prescribe more opioids to more claimants.

Benefits?  None, except huge profits to dispensing docs, dispensing companies, and their owners – we’re talking about you, ABRY. (investment firm that owns dispensing “technology” firm Automated Healthcare Solutions)

First up, a court case in Louisiana found in favor of the employer, as the 3rd Circuit upheld a workers’ compensation judge’s determination that a claimant would not be reimbursed for drugs dispensed by a third party pharmacy, in this case Injured Workers’ Pharmacy, when the employer had provided access to other pharmacies and otherwise complied with regulations. According to Troy Prevot, Executive Director of LCTA Workers’ Comp -  “The result of this decision will allow us to continue to use retail pharmacies to control pharmacy cost by negotiating lower pricing thru PBMs” instead of paying much higher prices for doctor dispensed or third-party mail order drugs.  

I’d add that LCTA’s victory will enable all other employers in Louisiana to ensure the clinical management of pharmacy is handled correctly by one entity.

Big news from Pennsylvania too – a bill (HB 1846) limiting physician dispensing duration and cost, and specifically targeting opioid dispensing, will become law (there’s some technical stuff going on, but it will happen). Among other things, the law will:

There has been much heavy lifting here – kudos to AIA, the Insurance Federation of Pennsylvania (the leader of the effort) PCI, the PA Chamber and CompPharma’s member PBMs (full disclosure I am president of CompPharma; the PBMs did the work).

This follows the good results in North Carolina – but all is not rosy, as Maryland and Hawaii employers and taxpayers are still stuck paying far too much for drugs and the crappy outcomes they deliver.

What does this mean for you?

Better outcomes for claimants, lower costs for employers and taxpayers!

Drug formularies – much needed in workers comp

Controlling drug usage in workers’ comp is – far too often – the proverbial pushing on the rope.

Sure, PBMs and payers have done a remarkable job constraining costs and reducing the initial inappropriate use of opioids. Virtually all payers use PBMs and benefit greatly from PBMs’ clinical management and pricing that is almost always significantly lower than the state fee schedule or retail price.

However…the explosive growth of compounding, the fact that a quarter of drug costs are for opioids and a third for physician-dispensed drugs, the inability of clinical staff to get many prescribing physicians to discuss potential alternative treatments, and the frustration experienced by adjusters and employers unable to resolve claims due to long-term, highly-dangerous, and counterproductive use of drugs all argue for more regulatory help.

There are two valuable and too-little used tools in the box; evidence-based guidelines backed up by strong UR and formularies. While many jurisdictions dabble in guidelines, the litigious nature of comp coupled with the imprecise and nebulous wording of regulations often results in more problems, less clarity, and more delays.

In contrast, formularies established in regulation, whether the very tight version used in Washington State or the loose one in Texas, are clear, precise, and incontrovertible.  Drugs are either allowed or not.

CWCI’s just-released study analyzes the potential impact on work comp of those two formularies.  By comparing the drugs dispensed in the Golden State to what would have been allowed by Texas or Washington, Swedlow et al have determined that employers and taxpayers are overpaying somewhere between $102 million and $541 million annually – with no negative effects.

Before some naysayer starts screaming about the unfairness of payers influencing doctors’ treatment decisions, that naysayer should understand that formularies are in place in every group health, Medicare, Medicaid, and individual health plan.  Moreover, said naysayer should READ the CWCI study, and note that a “formulary” may be “set” to require dispensing of the drug that is the lowest-cost but otherwise identical drug instead of a higher-priced-but-otherwise-identical medication – or use any one of several other “levels” to establish a somewhat more restrictive formulary.

Formularies provide better care and tighter control without compromising.  And, a major benefit would be the huge reduction in the contentious and generally pointless UR dealing with drugs…a third of California’s IMRs are for drugs.

An excellent review is in this am’s WorkCompCentral – Greg Jones has penned a thorough, detailed, and well-researched piece that should be required reading.

Aetna’s sale of Coventry Work Comp Services…

Is off.

The latest intel from several folks in the know is consistent; APAX will not be buying Aetna’s Coventry Workers’ Comp business.

While its possible Aetna will look for another buyer, that is doubtful; the issues that reportedly led to the collapse of the APAX deal are real, material, and not going to resolve themselves. In fact, the key asset – the PPO network – continues to deteriorate. Aetna has a declining-value asset on its hands, one that, as time goes on, becomes ever less valuable.

According to reports, the biggest sticking point was APAX’ concern that the Coventry network will take at least 2 years to rebuild; when that onerous task is completed it will be nowhere near as valuable as it is today.

That’s far from surprising; I’ve discussed the network contracting issue ad nauseum. Fact is, without the real, committed, and ongoing support of a major group health/Medicaid/Medicare payer, providers aren’t going to give much of a discount to a work comp network.

Workers comp accounts for a bit over 1 percent of total US medical spend. Even if Coventry’s successor could claim 100 percent market share, their influence on a provider – outside of a relative handful – is never going to be appreciable.

But it wasn’t just the network. Sources indicated there were concerns in other business lines as well. Chalk this up to chronic under-investment in the business by Coventry pre-Aetna and the lack of focus on worker’s comp by Aetna since they bought Coventry’s parent company.

With earlier reports indicating Aetna wanted $1.5 billion for a business throwing off more than $200 million in free cash flow annually, a 7x multiple seemed reasonable. However, with no guarantee that the cash would keep flowing, I’d imagine APAX dropped the amount of their bid to account for the lowered expectations.

I’m sure there is much more to the story, but the net is APAX wasn’t willing to pay the price Aetna wanted, and Aetna wouldn’t accept APAX’ lowered bid.

What’s next?

Work comp represents just over 1 percent of Aetna’s revenue.  The company has a few other priorities on its hands at the moment – and as a $50 billion company, well it should.

Guessing here…but if I were at Aetna, I’d think about:

  • Working to keep the PPO network as functional as possible as long as possible without screwing up any of my other – much more important – business lines;
  • Selling off PBM First Script, an asset that should generate a very nice offer;
  • Replacing the bill review platform (BR 4.0) with one of the third party applications currently available. This would allow Coventry WCS to continue its very profitable bill review/PPO outsource business.
  • Leaving current management in place.  Art Lynch is running the show, and he’s the perfect person to do so.  He has strong relationships with current customers, is universally well-liked, and is just the kind of low-key, steady exec WCS needs now.

What does this mean for you?

Don’t delete Plan B - you’re still going to need it.