NCCI’s Bill Donnell on the future of workers’ comp

NCCI CEO Bill Donnell was kind enough to grant me an interview a few days before his talk at this year’s AIS…I was unable to attend due to another commitment (the great folks at the Workers’ Compensation Association of New Mexico invited me to their annual meeting)

Here’s my interview with Bill.

MCMWhat is the major focus of NCCI’s Annual Issues Symposium this year?

Donnell – Eighteen months into this role, I’ve been getting feedback from industry stakeholders and thinking about the industry. Our approach is the line of business has been around 100 years, and survived that long because we’ve adapted.  If we adapt, will probably survive into the future, if we don’t we’ll become irrelevant.

MCM – Is WC relevant today?

Donnell – We have a financially stable, healthy system, covering north of 90% of the workforce.  The industry and system has a pretty good history of getting injured workers back to work and our focus is on that, and workplaces are safer than they were a long time ago…[we have] a lot to be proud of.

Another component is the whole issue of technological disruption.  [The economy has] shifted from agriculture to manufacturing to service and now service is vulnerable.  This provides perspective as it is kind of scary, but look what’s happened over time; 70 years ago we would have been saying the same thing. The issues are always the same, but things will come faster than they have before…change will happen but this time it will be faster.

MCM – with the rise of automation, autonomous vehicles, the gig economy, increased robotics and artificial intelligence, what could we see in the future?  What we need to do to be relevant in years ahead?

Donnell -Workers’ comp could be a high risk business only with repetitive injuries [from decline in employment in industries with that risk] gone, it would focus on high hazard risks, there would be a smaller but higher risk pool and smaller overall business.

With the whole issue of industry evolution, we have to evolve, we need to move the ball forward. [We need to] talk about the industry’s past success and show where we’ve adapted to change…[the] good news is that we’ve done this before.  We’ll talk about examples of how the industry has evolved…

Thanks to NCCI’s communications chief Dean Dimke for setting this up.

 

 

Express Scripts buys myMatrixx – a smart move for both

This isn’t surprising; workers’ comp is a very mature industry which demands consolidation.  As the market shrinks, winners will be those with size, scale, and buying power.

myMatrixx has a very strong brand, excellent customer implementation and service, strong clinical capabilities and a solid portal. What it doesn’t have is buying power, and the biggest payers shied away from myMatrixx as it is one of the smaller PBMs with a dearth of hundred-million-dollar accounts.

Express Scripts’ work comp division has scale, a core group of really good professionals, and a few marquee customers.  What it doesn’t have is a strong brand image and the resources demanded by payers increasingly relying on their PBMs for all-things-pharmacy; opioid management, data reporting, patient enrollment and monitoring, physician profiling, high-risk-claim flagging.

Artemis Emslie will assume overall leadership.  I’ve known Artemis for 25 years; she has a very good reputation in the industry and knows work comp pharmacy deeply. As she takes over what is now a very large work comp PBM, I’d encourage her and her new bosses to consider a couple things.

Keep the myMatrixx brand.  Brand is all powerful, and the market message that will be heard is things are changing, ESI is investing in and providing resources for work comp. That is critical.

Keep doing the smart marketing mM has done for years – rides from airports to conferences, the Phil Walls webinars, the overwhelming focus on pleasing customers.

Get out to all customers today, and listen listen listen.  Don’t inundate them with corporate speak and blather, rather ask questions, dig deep, and document everything. This is a great opportunity to hear directly from customers – a very valuable opportunity.

Staff at both companies are excited about the merger; I’ve spoken with several who are pretty pumped.  This itself is unusual and speaks to their inherent grasp of each company’s challenges.

While terms weren’t disclosed (they likely will be at some point as ESI is a public company) my sources indicate the price was in the $300 – $350 million range, a hefty valuation indeed.

What does this mean for you?

The whole is rarely greater than the sum of the parts.  In this case, it will be – if the new entity has adequate resources and sticks with what made mM successful. A stronger PBM with more capabilities is good news for all payers.

 

 

More and stronger evidence that ACA is reducing workers’ comp costs

Is the Affordable Care Act lowering workers’ comp medical costs?

Sure looks that way.

Data from NCCI’s 2016 AIS and HSA clients suggested ACA’s impact was positive and sustained.  Flat-to-declining total medical costs over a two-year period that coincided with the full implementation of ACA were a strong indicator of the law’s positive impact on work comp. Later this week, NCCI’s Kathy Antonello will update us with a first look at the 2016 numbers, and we’ll see if that pattern continues.

I summarized the change in the employed population’s healthcare coverage a while back – noting that many more workers in high-frequency jobs are covered under ACA, a positive factor for work comp. (much more on this can be found here)

Wait, there’s more – Fitch’s just-released review of commercial insurance alluded to the impact of ACA on work comp…

Implementation of the Affordable Care Act (ACA) and a corresponding shift of individual medical care delivery away from workers’ compensation to other markets may also be a factor that bears further study.

Other research from Upjohn analyzes the impact of ACA on workers’ comp.  A couple key points:

  • immediately after workers turn 26 (and thus lose access to their parents’ insurance as allowed under the ACA), the amount of medical treatment paid by workers’ comp goes up – implying that lack of health insurance leads to greater use of workers’ comp benefits.
  • the evidence strongly suggests that the ACA will decrease the likelihood that health care is paid for by workers’ compensation, the size of the cost savings to workers’ compensation is difficult to asses [because]
  • the claiming behavior of people with minor medical needs is influenced by having health insurance. This would suggest that the overall savings to workers’ compensation would be modest. Heaton (2012), however, finds evidence that people with greater medical needs respond to health reform, which suggests that the cost savings to workers’ compensation could be large

There’s a lot more to the Upjohn analysis, and I’d encourage you to read it. Potential issues include access to care and the influence of lower Medicare reimbursement. That said, the authors’ overall summary strongly links ACA to lower work comp claims and medical expenses.

What does this mean for you?

Evidence strongly suggests ACA is positively affecting workers’ comp, lowering claims costs and medical expenses.

Liberty Mutual drops the Research Institute – a missed opportunity

A couple weeks ago Liberty Mutual announced it would be closing its Research Institute in June. The news came as a shock to many, including me. Just two months ago I had lauded Liberty for its ongoing support for research into disability.

Before we discuss the Institute’s demise, allow me to reprise that applause for Liberty’s decades-long commitment to the Institute. Just because they are shutting it down today does in no way diminish the great work it did for years, the commitment by Liberty and its policyholder owners to the greater good. We are all better off for that commitment.

On one level I understand why Liberty did this – it’s the dollars. While no one at Liberty has said so, it looks like a financial move, pure and simple. The Institute’s staff is well-paid, the research itself is likely expensive, and in these times of tight focus on unallocated expense management, cutting the Institute’s non-revenue-generating millions in expenses is a quick way to increase earnings.

But I’d suggest this is a mistake, for two reasons.

First, the financial benefit pre-supposes the Institute is “non-revenue-generating”. That’s true, but it could and should have been used much more effectively to advance Liberty’s brand. Yes, that’s not “revenue-generating” in the strictest sense of the term, but there’s NOTHING more important than a brand.

I asked Liberty’s Communications folks two questions; they kindly responded in a timely manner.

Here’s the first.

MCM – My take is Liberty didn’t aggressively promote the Institute or effectively utilize it in marketing and branding efforts. Yes there was the occasional press release or website mention, but it was rarely front-and-center. Why?
LM – We communicate to our customers and business partners in numerous ways on issues that are most important to help them best manage and mitigate risk. Our Research, Risk Control and Claims expertise all play important roles in helping employers and their employees manage current and emerging risks…
We are also keeping our Hopkinton facility open while discontinuing our peer-reviewed research efforts. Our Hopkinton facility will continue to house our Industrial Hygiene Laboratory and Driver Training program, as well as a personal insurance claims training center.
What is evolving is the way that people live and work, and the dynamics of today’s workplace reflect these changes. Liberty remains committed to helping people live safer more secure lives. We are revisiting our approach to accessing research while at the same time continuing to provide our Risk Control and Claims expertise to help commercial insurance policyholders improve both safety and return to work.

Liberty’s response didn’t address my statement about the relationship between the Institute and the company’s branding efforts. “Communicat[ing} to our customers” is talking to people you already do business with. And, communicating without weaving the brand message into that communication constantly and thoroughly minimizes its usefulness.

In my view Liberty didn’t effectively leverage the terrific work done by the Institute, never really connecting the work it does to support Liberty’s overall “lead safer, more secure lives” brand statement.

The lack of effective brand management is by no means unique to Liberty. Rather it is a major problem for the entire workers’ comp and P&C insurance industries. Every player talks about their people, their great claims management and effective underwriting, but few really differentiate. That is why this industry is commoditized; why buyers switch carriers for a few percent, why risk managers follow their consultants’ advice based on a spreadsheet.

Directly and consistently and broadly and cogently tying the Institute’s work to the impact it had on Liberty customers would have been expensive, arduous, in some cases tedious, and totally worthwhile. It would have greatly strengthened the brand by demonstrating Liberty’s depth of commitment to its brand statement.

My second reason is much more debatable.

In these days of awfully insensitive corporate behavior, the Institute stands as a shining example of doing good work without a direct dollar benefit. It is just the right thing to do. While corporations are obliged to support their shareholders, Liberty is a mutual insurer; its owners are its policyholders. One could, and I am, make the argument that the Institute was and remains prima facie evidence of Liberty’s commitment to its “owners”.

What does this mean for you?
Lots of terrific researchers are looking for work. Please reach out to them; here’s one source. 

What’s your company worth? part 2

A couple weeks ago I shared a post on company valuation – how to figure out what your company is worth to a potential buyer or investor.

We focused on customer value as a key driver.  Sure, There’s a lot more to this than just customer value – some obvious and some not. And it has been done with a lot of success by work comp service providers…one is referenced below.

External factors such as interest rates, industry attractiveness (for some reasons work comp is kind of hot again), success of other investments in the space,  Not much you can do about that – but there is a lot you can do to maximize the value of your customers.

A big part of that calculation is how long customers stick around – and how their “value” increases over time.  Customer longevity – or lifetime customer value – is much more than how many cases you get per month times the price per case times the length of time you keep a customer.

In fact, that’s a very limiting way to view your customers, especially if you show that calculation to potential investors.  Those investors want to see how you are going to manage, grow, improve your business. If you aren’t strategic enough to think about how you can deliver more to those customers so they drive more revenue, that isn’t going to impress smart investors.

Briefly, here’s a better way to think about customers…(thanks to Harvard Business Review)

Our customers become much more valuable when…

  • they give us good ideas
  • they evangelize for us on social media
  • they reduce our costs
  • they collaborate with us
  • they try our new products
  • they introduce us to their customers
  • they share their data with us

Even if you aren’t going to be selling your company anytime soon, you should be thinking about this – a lot.  A far-too-common mistake – and one I make all the time – is not focusing on the important stuff because I’m caught up in the urgent.

Final comment – the “old” One Call Imaging was very good at this.  OCI got their customers to share data with the company so it could figure out where “leakage” was going, and then worked to identify why and where and who was involved.  From there, OCI and their payer customers worked together to close gaps and plug the holes. This led to OCI dominating the workers comp imaging space for quite a while.  It also maximized the company’s value when it was sold to Odyssey, and later when Apax bought the next gen OCCM.

What does this mean for you?

I don’t know ANYTHING more important than thinking about your customers – what do they want, why, how do they want to get it, what makes them successful, how you can help them be successful – all will help you determine where you need to go.

Do laws directing injured workers to providers matter?

It’s about the details.

Anyone reading the quick headline from WCRI’s just-published analysis of employer direction may well draw the conclusion that there’s no difference in costs between states where the employee or the employer has the ability to choose the treating physician – a conclusion that would superficially right – but actually wrong.

A summary of the study notes it addresses “injuries that occurred mostly between 2007 and 2010 across 25 states in which either employers or workers control the choice of provider. It excludes states where workers can choose a provider within their employers’ established network.”

(I’m not sure if we’d see a difference if more current claims data were used as after 1/1/2014, full implementation of ACA may have affected claim allocation to work comp or non-work comp insurance.)

Note the nuance here; WCRI is careful to describe the “direction” metric as one dividing states into those where employers or employees have the MOST control. The “line” between employer-choice and employee-choice is really not a line at all, but rather a shading of white to black, with many permutations of grey.

For example, there are states where the employer can direct the patient to a specific doctor, others where the patient can choose from a panel, and still others where direction is only allowed if the employer has some sort of state certification.

Then there’s the ability of the patient to “opt out” for a course of treatment (Illinois) or change physician to another one, perhaps inside the panel or maybe completely outside the employer panel – after some defined period of time.

And let us not forget that employers can suggest, soft-channel, encourage, provide transportation to, or otherwise get an injured worker to a particular doc or facility in almost every state without violating the law – they just can’t FORCE the employee to go to a doc or choose from a panel of docs.

Or, as authors David Neumark and Bogdan Savych state; “it is common for employees to choose the medical provider when policies give employers control over provider choice, and for employers to choose the provider when workers have the right to direct this choice.”

A key statement: states that give “workers the most control over the choice of provider were associated with higher medical and indemnity costs among the small share of the most expensive back-related injuries…” In other words, claims that are harder to diagnose and where there is less unanimity in agreement on preferred treatment tend to be more expensive in employee-choice states. 

What does this mean for you?

My main takeaway is as it’s been for years – employers should do their damndest to get their employees to high quality physicians who know and understand workers comp.  And then get out of their way.

It’s not the price of the pill!

Some states and regulators are slashing workers’ comp pharmacy reimbursement. This is a huge mistake.

Work comp drug costs have dropped 11 percent over the last 6 years. Work comp PBMs have successfully reduced their revenues and profits, benefiting their patients, customers, employers.

(Contrast this with non-WC drug costs which have gone UP every year)

(Chart from CompPharma 2016 Survey of Prescription Drug Management in Workers’ Compensation; trend indicates decline in annual drug spend)

And for this, they are getting hammered.

Workers’ comp PBMs have done great work reducing the inappropriate use of opioids, protecting patients from deadly drug combinations, and cutting overall drug spend in the process. Fewer new patients are getting opioids and opioid spend is down significantly. Yet for reasons beyond understanding and contrary to all evidence, regulators in some states have decided that drug costs are now too high, so they are drastically slashing fee schedules.

This is not going to end well.

Managing prescription drugs is very labor- and technology-intensive, requiring

  • expert, highly trained, and very specialized staff, and
  • constant updating of critical information systems.

When regulators slash reimbursement, PBMs can’t afford the pharmacists, IT staff, business analysts, customer service personnel, legal and compliance experts, systems, and resources that have been instrumental in delivering better patient care and lower costs.

Folks, it costs money to do this. And fee schedules based on Medicaid ignore the fundamental differences between managing workers’ comp and Medicaid patients.

Without adequate reimbursement, we’re going to return to the bad old days of “fill it and bill it.”

A bit more explanation.  Work comp PBMs have dozens of clinical pharmacists focusing on:

  • developing, managing, and updating formularies for clients and individual patients
  • working with prescribers to alter patients’ drug regimens based on evidence-based guidelines
  • working with employers and insurers to develop and implement prior auth, medical management, and appeals processes
  • implementing comprehensive opioid management programs to prevent addiction and dependency
  • intervening when patients are prescribed multiple opioids, benzos, muscle relaxants, and other deadly combinations

Then there are the IT folks working on data links so claims adjusters get early, customized communications about potential issues, alerts when patients are prescribed long-acting opioids, information about multiple prescribers and/or multiple pharmacies, and dozens of other potential problems.  Problems that may kill patients, prolong disability, addict patients.

They work with PBMs’ business analysts mining data to find doctors with patterns of potentially-inappropriate prescribing patterns – such as the worthies in LA County.

Their legal and compliance teams work with insurers and employers to figure out what can and cannot be done to improve patient safety, alert law enforcement to potential fraud or diversion, and inform stakeholders of the frequent changes in all 50 states’ policies and requirements around work comp pharmacy.

And the front line – the customer service/patient communication staff that talks directly with prescribers, pharmacists, patients, adjusters, families, employers. These women and men have to be patient, kind, thoughtful, educated, knowledgeable.  It’s not like you can just put on a headset and start chatting about morphine equivalents, state regulations, the respiratory implications of increasing opioid intake, or polypharmacy. Initial and ongoing training and education is critically important.

There is much work left to do, as there are still hundreds of thousands of work comp patients taking way too many opioids. These are the most difficult, complex, time- and resource-intensive patients. They are also the patients that are going to be harmed most by the blunt instrument that is fee schedule reduction.

What does this mean for you?

Slashing fee schedules hurts patients, employers, and taxpayers.

If this continues, expect higher overall drug costs due to greater utilization, increased opioid prescribing and dispensing, and longer disability durations.

Note – as president of CompPharma, at some point I may be financially affected by big cuts in fee schedules. Hasn’t happened yet, and it may not.

John Hanna – one of workers’ compensation’s good people

There are few people in this industry I respect and admire as much as John Hanna.

John is the Pharmacy Director at Ohio’s Bureau of Workers’ Compensation, where he and Medical Director Steve Woods MD have done wonderful work on any number of issues.

Perhaps none so important as John’s work to revamp BWC’s formulary, pharmacy program, and pain management approach. After implementing a formulary AND the infrastructure to publicize it to providers and address authorization requests, here’s some of what John has accomplished at BWC:

  • Injured workers were prescribed 15.7 million fewer opiate doses in 2014 than in 2010, representing a 37 percent decrease
  • prescriptions for muscle relaxants and anti-ulcer medications decreased by 72 percent and 83 percent.
  • In 2014, BWC’s total drug costs were 16 percent, or $20.7 million, less than in 2010.
  • Opiate costs were down 36 percent ($19.9 million); muscle relaxant costs were down 78 percent ($3.3 million); and anti-ulcer costs were down 95 percent ($6.4 million).
  • By 2015, total opioid doses for injured workers declined by 41 percent, and
  • the average daily opioid load per injured worker in 2015 was below the 2003 level.
  • The number of work comp patients considered opioid dependent was cut almost in half.

Think about that.

Due primarily to John, over 4,000 people are no longer categorized as “opioid dependent”.

His work has undoubtedly saved dozens of lives, will keep families whole and return hundreds of Ohioans to a functional, productive, livable life.

When John reads this he’s going to be kind of upset, because he will point to and credit everyone else involved in what has been, and continues to be, a big effort. And he’s right. That said, he’s the linchpin; the quiet, steady, very persistent and totally committed driver behind the change. This would not have happened without him. He was instrumental in getting BWC to pay for addiction treatment, using creative and personalized approaches to help injured workers get back to living without opioids.

This cut claims costs by tens of millions of dollars too, and therefore costs for Ohio’s employers and taxpayers – but this wasn’t the intent.

As long as I’m getting on John’s cranky side, I’ll also tell you, dear reader, that he’s the most modest person I know. Just one example – read his bio.  See anything there about his service in Vietnam as a Green Beret medic?

What does this mean for you?

We hear too much about crooks, liars, and cheats in workers’ comp. Thank goodness for the John Hannas.

What’s your company worth?

With investors once again looking to buy into the work comp service sector, owners are looking to figure out what their company is worth. Truth is, many work comp services companies are tough to value, in large part due to their “non-contractual customers.”

Revenues and profits from “non-contractual” customers are often discounted by potential buyers, who much prefer locked-in, guaranteed-price, long-term deals for their inherent predictability.

But that isn’t the way the real world works; often case management firms, IME companies, UR vendors and other service entities don’t have formal contracts with many of their customers. Instead, they provide a service, and send a bill to the claims adjuster. There may, or may not be an upfront understanding of the service’s price.

Claims payers like this because it doesn’t lock them into a vendor, while service companies are eager to work with payers and the contracting and price negotiation process can take a long time and yield little real benefit.

Which brings us to a conundrum – how does a seller or buyer value “non-contractual” revenue. Here are six ways to think about that – ways that might get you a higher price. (this is a summary; I strongly encourage you to read the Wharton article and listen to the podcast)

  • How many people have made a transaction, used our product or service sometime within the trailing 12 months?
  • How many people have made a repeat purchase, have engaged with us at least twice over that trailing 12 months?
  • Of all the people who made a transaction with us back in 2015, how many came back and did it again in 2016?
  • With all the purchases that we had today, what percent of them are from customers who did something with us in the previous year?
  • Of all the customers who bought with us, what percent were with us previously? Or of all the orders that were placed with us this year, what percent of them are by customers who have bought previously?
  • Of all the customers who have done anything with us in the past year, how many things did they do? How many purchases did they make or sell on?

I can hear you groaning – how can I figure this out? I don’t have time for this. We don’t have the data.

All likely true – however, if you don’t have time to value your business, you won’t know what it is worth to you.  You also won’t know where you should be investing, what customers drive what part of your profits, and what that means for your strategy going forward.

What does this mean for you?

Knowledge is the most valuable asset you have. It’s worth the time to obtain it.

 

Latest news from the work comp world

A few items of interest from the workers’ comp world…

The sale of Mitchell proceeds, with multiple sources indicating four finalists have been selected. Word is one is a strategic, or industry buyer, while the rest are investment firms. Given current Mitchell owner KKR’s avowed intention to double their money (they paid $1.1 billion several years ago), it’s a safe bet the finalists are those with the deepest pockets.

Mitchell’s move to build their workers’ comp and auto pharmacy benefit management business is continuing; the latest deal is an acquisition of Mobile, AL-based PMOA. With this latest transaction, Mitchell has vaulted into the second tier of work comp PBMs, with revenues likely in the $175 – $200 million range.

The expansion into the PBM world makes sense, as it significantly increases top line (revenue).  I’d note that the PBM business is looking less attractive these days as margins have been hammered by states drastically cutting fee schedules.

Optum will announce today – or shortly after – that long-time workers’ comp exec David Young will assume leadership of the company’s workers’ comp subsidiary. Formerly CEO of Coventry Work Comp, David brings decades of experience to one of the largest service providers in the industry.

Congratulations to Gallagher Bassett and Pam Ferrandino; GB has hired the vastly-experienced Ferrandino to help run the TPA’s business development team.  Formerly leader of Willis Towers Watson’s casualty brokerage business, Pam will bring a wealth of knowledge and keen understanding of the buyer to GB. (Pam is a friend and colleague)

Finally, the transactions signal a bit of a resurgence in the work comp transactions. The work comp services world appears to be a focus of attention among private equity firms these days – there are at least two other deals that are in process, both have generated a lot of interest in the investment community.

There are several factors driving this. 

  • the mess in DC makes any business case or investment opportunity relying on or heavily driven by CMS or HHS dangerous at best. With the on-again-off-again ACA repeal effort, it’s impossible to predict what’s going to happen. Investors are well-advised to stay on the sidelines until things get clearer.
  • Interest rates are headed up, making now the time to do transactions before debt financing gets more expensive.
  • Private equity firms have a gabillon dollars in funds looking for investments.  They’ve got to find places to park that cash or risk alienating the entities and individuals who’ve bet on their ability to drive huge returns.
  • Sellers are getting multiples in the double-digits for work comp assets. (Prices for their companies are more than ten times the company’s cash flow) Smart owners know that will NOT continue; workers’ comp is a declining industry overall. The owners who are realists know this may be the last best time to sell.

What does this mean for you?

Pigs get fat, hogs get slaughtered, and investors, be careful.