How’d I do on my 2017 workers’ comp predictions?

Every year I dance the danger line, coming up with predictions for the upcoming year. And every year I hold myself accountable, reporting to you, loyal reader, exactly how those predictions worked out.

Clearly not a self-portrait; I could never grow that facial hair…

So here’s this year’s results…

(predictions are here)

  1. Premiums will rise as employment and wages continue to grow.
    It’s a yesRates continue to decline, but hourly wages have been ticking up for over a year now, and employment has been trending up for over 60 months. So, the combination has overcome the drop in rates. For now…
  2. Medical costs will remain flat or close to it.
    Not according to NCCI – at least not for last year in NCCI states. Medical costs increased 5 percent last year. California is not an NCCI state; trend was up 6 points last year. So, got that one wrong.
  3. Frequency will continue to decline.
    Because it always does. On average, by 3.6 percent a year.
    That means there will be about 10 percent fewer claims in three years, 20% fewer in six.
  4. Insurers will double down on efforts to reduce administrative expenses.
    Frequency’s down, investment returns are dropping, and medical costs pretty much under control; premium rates are headed lower as well. So, insurers have continued their efforts to slash admin costs by outsourcing more claims to TPAs (contacts in the TPA business indicate that’s their biggest source of growth).
  5. More payers will move their claims adjusters to home offices.
    No news on this – so I’ll count this as a no.  If you know of moves, let me know.
  6. Winners will focus on execution.
    Yes
    . MedRisk [HSA consulting client] has taken the top spot in physical medicine management from competitor OneCall by out-executing OC. PBMs that deliver seamless customer service, lower drug costs and reduced opioid spend are winning; myMatrixx is perhaps the best example. Kaiser Permanente on the Job is another example; K-PoJ is delivering better results for patients and employers by doing what KP does so well – focusing on what patients need, not what creates billing opportunities. And BWC Ohio has made amazing progress in reducing unnecessary opioid use – by developing and implementing a comprehensive, careful approach.
  7. Telemedicine is coming fast
    Yes indeed.  Coventry, MedRisk (HSA consulting client), CHC Telehealth (Mitchell has helped fund CHC), Kura, and other entrants were all over the NWCDC. MedRisk’s telerehab program is up and running, and case management firms are moving quickly.
    Unlike other “innovations”, tele-services is going to change everything.
    8.  Mitchell will continue to add work comp services businesses via acquisition.
    Yes –
    Unimed and PMOA are additions this year, adding breadth to both the UR and PBM businesses. I’d expect more in the future – although there are fewer businesses to buy that fit well with the company’s strategy.
    9. Drug cost decreases will flatten out somewhat, while reductions in opioid spend will continue to increase.
    Well, I got this one partially – but pretty badly – wrong. Costs dropped by double digits, led by a 13.6 percent decline in opioids.  And I’m supposed to know a lot about this business…sheesh.
    10. More value-based payment pilots will hit work comp.
    That’s a really easy prediction, so I’ll quantify it – there will be more than five new pilots or program seeking to deliver care via bundled payments or similar mechanisms that will start in 2017.
    Well, except for K-PoJ I can’t find any evidence that this happened – and in fact in a post a few months after my 2017 predictions, I backtracked bigtime on this prediction. Any new news on this is welcomed.
    11. Bonus pick – more consolidation in case management
    As frequency and severity continue to slide, field case management businesses are going to have to find new revenues from new services they can offer to current clients/cases and get more revenue from current cases.
    Argh…haven’t seen much evidence of this – perhaps because there’s already been a lot of consolidation.

The net – I got 4.5 wrong out of 11.  Ouch.

I’m hoping to do a LOT better with next year’s prognostications.

What we missed while we were in Vegas

The world didn’t stop while we were meeting, learning, and socializing in Las Vegas at NWCDC. Here’s what happened…

Sedgwick is getting bigger – again. The acquisition of Cunningham Lindsey makes Sedgwick the largest TPA in the land, with about 20,000 employees handling various aspects of claims and related functions.

Pharmacy and related topics

California’s work comp formulary goes into effect in 3 weeks.  Make sure you’re ready by hearing from those who know it best – the folks at CWCI. Their webinar is available here (free to CWCI members, $50 for non-members)

An excellent primer on handling opioid treatment issues – specifically effective ways to end opioid treatment – comes from Coventry’s Nikki Wilson, PharmD via WorkCompWire.  It’s simple, clear, and concise.

Sticking with drugs, Adam Fein reminds us “In 2016, U.S. net spending on outpatient prescription drugs was $328.6 billion, up only 1.3% from the 2015 figure.” [emphasis added] In contrast, CompPharma’s latest Survey of Prescription Drug Management in Workers’ Comp shows a drop of 11 percent year over year. 

Employment

Employment is going to change – a lot – over the next decade. A thought-provoking report by McKinsey includes this prediction:

One result – “the share of the workforce that may need to learn new skills and find work in new occupations is much higher: up to one-third of the 2030 workforce in the United States” – with major implications for worker retraining, potential claiming behavior, and re-employment. 

A reminder about the unseen consequences of the gig economy: airport revenues are dropping as passengers increasingly use ride-sharing services instead of paying for parking, renting cars or using cabs. I’ve reduced my use of rental cars; even if Lyft is occasionally more expensive, the hassle reduction factor plus the ability to work in the car to and from the airport are compelling.

A total of $5.8 billion was collected by airports from cab companies, parking, and rental car fees, more than they get from hotels, shops and restaurants combined.

Auto mechanic employment is also going to change – as more people switch to electric cars, there’s going to be a LOT fewer problems for mechanics to fix and even regular maintenance is limited to tires and wiper blades.  We have an electric BMW i3; it has needed zero maintenance other than tires.

Takeaway – the downstream effects of the “gig economy” are far reaching indeed.

 

Uncomfortable truths at NWCDC

Frank Pennachio is one of those people every industry really needs. He’s blunt, outspoken, deeply insightful and completely unafraid to challenge established practices.

Especially when those practices need to be challenged. Thursday at NWCDC, Frank and Denise Algire discussed the ways employers pay for managed care services, and how those are often disconnected entirely from the quality of the care delivered to patients.

Frank’s key question is this; do managed care programs improve care or create revenue for intermediaries?

My take is both. I’d also echo Frank’s view that employers and brokers are just as culpable, if not more so, than claims payers and managed care companies. Employers’ desire for simplistic fee arrangements and unwillingness or inability to dive deeper into fee arrangements force (or allow, depending on your perspective) TPAs to seek revenues elsewhere.

Transparency is what’s missing; contracts between and among TPAs and employers don’t allow employers to see the financial relationships between the TPA and managed care companies and providers and understand the motivations and incentives inherent in those relationships.

 

Fee arrangements are the key to the puzzle. TPAs charge employers a flat per claim fee or a loss conversion factor (losses x X.XX%) to cover the cost of handling claims, and that’s pretty much the only thing the employer looks at or cares about.  Thus, allocated loss adjustment expenses are rarely addressed. What employers should be paying attention to are undisclosed side agreements and Allocated Loss Adjustment Expense bucket, where those fees end up charged to the file.

Frank showed a report from an employer that identified bill review fees of over $500,000 for some 4600 bills.  Of course, this was based on a fee structure using a percentage of savings below billed charges – an arrangement that like vampires just won’t die.  Frank noted that many bill review companies are quite willing to charge a flat per-bill fee that includes networks, medical management, and other “savings”. (I have a somewhat different perspective and believe the price per bill should be considerably higher, but fundamentally agree with Frank)Part of me is stunned that we are still talking about this. This has been a subject of conversation many times over many years, and yet, here we are. And here we’ll stay until and unless employers demand something different – and

 

Albertson’s is one of the few large employers challenging this paradigm. Denise shared Albertsons’ network contracting strategy, and of particular interest were the outcomes measures they use. Albertson’s is quite willing to pay for better outcomes, and is diligent in tying outcomes to providers.

 

So what can you do?

  1. Require full disclosure of all fees and side arrangements among and between your TPA and other parties.
  2. Require reporting of all funds transfers
  3. Realize you are going to have to pay higher per claim fees and/or higher unallocated loss adjustment expenses.
  4. Require documentation and reporting on quality measures for all medical care including networks.
  5. Be willing to pay more for better outcomes.

 

 

 

The tax bill’s impact on healthcare or; If you like your cancer care, you can’t keep it.

The GOP “tax reform” bill will directly and significantly affect healthcare. Here’s how.

It removes the individual mandate, but still requires insurers to cover anyone who applies for insurance. So, millions will drop coverage knowing they can sign up if they get sick.

How does that make any sense?

Here’s the high-level impact of the “tax bill that is really a healthcare bill”:

The net – healthcare providers are going to get hammered, and they’re going to look to insured patients to cover their costs.

The real net – The folks most hurt by this are those in deep-red areas where there is little choice in healthcare plans, lots of struggling rural hospitals, and no other safety net.  Alaskans, Nebraskans, Iowans, Wyoming residents are among those who are going to lose access to healthcare – and lose health care providers.

Here are the details.

According to the Commonwealth Fund, “repeal would save the federal government $338 billion between 2018 and 2027, resulting from lower federal costs for premium tax credits and Medicaid. By 2027, 13 million fewer people will have health insurance, either because they decide against buying coverage or can no longer afford it.”

Most of those who drop coverage will be healthier than average, forcing insurers in the individual market to raise prices to cover care for a sicker population. This is how “death spirals” start, an event we’ve seen dozens of times in state markets, and one that is inevitable without a mandate and subsidies.

For example, older Americans would see higher increases than younger folks. Here’s how much your premiums would increase if you are in the individual marketplace.

So, what’s the impact on you?

Those 13 million who drop insurance, which include older, poorer, sicker people, will need coverage – and they’ll get it from at most expensive and least effective place – your local ER. Which you will pay for in part due to cost-shifting.

ACA provided a huge increase in funding for emergency care services – folks who didn’t have coverage before were able to get insurance from Medicaid or private insurers, insurance that paid for their emergency care.

From The Hill:

[after ACA passage] there were 41 percent fewer uninsured drug overdoses, 25 percent fewer uninsured heart attacks, and over 32 percent fewer uninsured appendectomies in 2015 compared to 2013. The total percent reduction in inpatient uninsured hospitalizations across all conditions was 28 percent lower in 2015 than in 2013. Between 2013 and 2015, Arizona saw a 25 percent reduction in state uninsured hospitalizations, Nevada a 75 percent reduction, Tennessee a 17 percent drop, and West Virginia an 86 percent decline.

If the GOP “tax bill” passes, hospital and health system charges to insureds (yes, you work comp payer) are going to increase – and/or those hospitals and health systems will go bankrupt.

 

 

Comp is getting it done on opioids.

Work comp drug costs are down 22% over the last five years.  Opioid spend dropped 16.7% last year.

That’s the key takeaway from CompPharma’s annual survey of Prescription Drug Management in Workers’ Comp.

These are truly remarkable results; payers and PBMs (mostly PBMs) have slashed over a billion dollars from pharmacy spend, cutting costs for employers and taxpayers.

There is much left to do; far too many patients still get far too many drugs. Opioid addiction is a crisis in workers’ comp, as is abuse misuse and diversion. There are still no comprehensive, completely (or even mostly) effective tools/medications/programs to help patients get off and stay off opioids.

But let’s focus on the positive. Last year, overall opioid spend in the US declined by 1 percent – while work comp cut opioid spend by almost 17 percent.

While the reduction is beyond substantial, it’s important to understand that a big chunk of this was driven by payers settling older claims, claims that have a disproportionately high drug spend. These settlements don’t “count” towards drug spend, while they do eliminate on-going dispensing and the attendant costs.

What does this mean for you?

Well done.

 

Purdue Pharma’s attempting to settle all state claims

Things must be getting tense in Stamford CT, headquarters of Purdue Pharma.  Reports indicate Purdue is working on a deal to resolve all state claims related to opioids.  

Remember – Oxycontin revenues to date are $31 billion and counting. 

Reports indicate Purdue’s owners, the Sackler family, have a net worth of around $14 billion.

Here’s what we’ve read so far about the legal situation:

A couple of factoids to remind us of the cause and effect of Purdue’s strategy.

So, what does this mean?

For workers’ comp payers, it is time to get together and develop a legal strategy and approach to suing opioid marketers. The human and financial damage caused by Purdue, Endo and their ilk is incalculable and continuing to grow. Without a successful legal action, employers and taxpayers will be footing the bills for decades to come.

There’s a deeper and even more troubling aspect to this.  One could argue – and with a lot of supporting data – that pharma companies figured out a way to legally addict people and get their insurance companies to pay for their drugs. 

There is no more damning indictment of the profit motive in the US healthcare system.

What does this mean for you?

Time to get moving.

 

 

 

Post vacation update

Back from a much-needed family trip to Sedona AZ where the mountain biking was phenomenal.

(son Cal and son-in-law Keith plus the old guy)

Here’s what happened while I was in the land of the vortices…

WCRI’s annual conference in March 2018 will be kicked off by the former head of the Bureau of Labor Statistics, Dr Erica Groshen.  Always a must-do; sign up soon or risk being wait-listed for the March 22/23 event in Boston.

The latest from the brainiacs from Boston is a report on California’s work comp medical benchmarks.

Colleague and good friend Frank Pennachio of Oceanus Partners will be opining on misaligned incentives in work comp at NWCDC in Vegas next month.  Frank’s terrific delivery, vast experience and deep knowledge of how things really work in work comp will make this one of the most valuable sessions for employers.

Climate change’s effects are being felt everywhere – and the insurance industry may be the industry most affected. An excellent Harvard Business Review article illustrates the major, if not central role P&C Insurance is playing in forcing us to acknowledge the reality of human-caused climate change.

Differential pricing for high-risk areas (we’re talking about you, south Florida, and you, coastal areas) and Catastrophe bonds are just two of the ways the insurance industry is forcing businesses, governments, and individuals to deal with climate change.

Finally, NCCI’s out with it’s assessment of the 2015 decline in work comp medical costs; key takeaways (note California and New York were not included):

  • a drop in utilization of physician services was the key driver
  • inpatient facility costs increased 6 points, driven by a huge increase in very expensive inpatient stays 
  • there was LOTS of intrastate variation…

Good to be back at work – enjoy the short holiday week.

Coventry work comp services will NOT be sold anytime soon

It’s been apparent for some time that the senior suite at parent Aetna has way too much on it’s plate to even begin to think about selling off Coventry’s work comp unit.

That plate just got heaped with a whole lot more; CVS Caremark is looking to buy Aetna for $66 billion. (thanks to Richard Krasner for the head’s up!)

Reportedly the two companies’ CEOs have been discussing the potential deal for several months, which implies they are in favor of the transaction.

There’s a lot more to this – but I gotta hit the campaign trail.

For now, Coventry work comp isn’t going anywhere.

Two big transactions; implications for work comp part 1

Yesterday we learned Concentra and USHealthwork are combining, and Aetna is selling it’s life and disability business.

Both deals have implications for workers’ comp.

Aetna

The Hartford is buying the life and disability unit for just under $1.5 billion. While this may seem like a lot to you and me, it isn’t to Aetna…the giant healthcare company’s pretax earnings for a three-month period were $1.8 billion this year.

Folks have been talking about a potential sale of the Coventry work comp business for what seems like years now, with more rumors coming over the last couple of months. I don’t see it. 

If a $1.5 billion transaction is “immaterial to 2017 earnings…[and] slightly dilutive for next year” then the work comp business may be even less significant to Mother Aetna. Sure, work comp is likely a more profitable business than the group benefits unit, but it would have to be an order of magnitude bigger to make it worth the time and attention of Aetna’s senior management.

Think of it from management’s perspective; their healthcare business is being whipsawed by the clustermess in DC, they don’t know from day to day what their Medicaid strategy should be, and the President’s talk about “giveaways” to insurance companies is anxiety-inducing indeed.

In light of all this, there’s just no bandwidth to think about selling a relatively tiny business that’s generating some reasonable cash flow.

Tomorrow, Concentra-US Healthworks.

What does this mean for you?

Remember, work comp is a very small business compared to the P&C world and healthcare.

Those businesses affect work comp far more than work comp affects them.

Run like hell…

Shockingly, compound drug fraudsters allegedly lied when they sold accounts receivable to investors.

Who’da thunk it?

Thanks to Greg Jones for his excellent investigative reporting on this; Greg reports today that:

Exhibits filed in the lawsuit by Shadow Tree Investment against Praxsyn Corp. reveals connections to three providers accused of accepting kickbacks from other compounding pharmacies. Praxsyn owns Mesa Pharmacy in Irvine, California.

Mesa was partnering with three providers who now face criminal charges for accepting kickbacks to prescribe compound drugs to injured workers.

The basis for the case appears to be Praxsyn allegedly didn’t tell Shadow Tree about pertinent details about the A/R deal…details such as the accusations about the source of the bills, the alleged nefarious activities of some of the parties involved, and relevant lien settlement information.

I was peripherally involved in something similar to this, when a compounding company was trying to sell its receivables a couple of potential buyers called me for my opinions.

Which, briefly summarized, were “run like hell.”

What does this mean for you?

That remains good advice for anyone approached by compounders, physician prescribing companies, and so-called “revenue cycle management firms” doing most of their work in these areas.