Workers’ comp – for hospitals, it’s where the money is

Two recent articles in Health Affairs highlight a growing issue for employers and taxpayers; some hospitals are increasingly looking to work comp as a profit maker.

Depending on the state, facility costs can account for anywhere from around 32 – 40% of total work comp medical expenses (different states classify locations-of-service differently).

Ge Bai and Gerard Anderson examined the fifty US hospitals with the highest charge-to-cost ratios and found their markups over Medicare-allowable costs were three times higher than the average hospital.

This is critical in work comp because state work comp regulations often base facility reimbursement on charges – despite NO evidence or requirement that those charges have any basis in reality.

Fully 20 of the fifty hospitals are in one state – Florida – that uses a percent-of-charges reimbursement methodology for hospital outpatient services (manual is here).

Bai and Anderson’s latest work provides a deeper dive into hospital profitability.  A few key quotes:

  • Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals.
  • Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics.

The methodology used by Bai and Anderson is somewhat different from that used by other researchers in that it excluded income from non-patient care services. I infer that they did this to focus specifically on the actual care delivery cost and not factor in other revenues from services such as parking, gift shops, investment income, etc.

So, what are the implications?

  • Work comp is a soft target for facilities in many states
  • The percentage-of-charges methodology is a license to…profit
  • More profitable facilities have likely already figured out how to make the most revenue possible from every source – including workers comp
  • Less profitable hospitals are going to learn from their more profitable competitors

Who’s running your company.

Is it the execs or the IT department?

The workers’ comp, and, for that matter, the entire property and casualty insurance industry, is chronically systems-poor.  While other industries view IT as a strategic asset, continually investing billions in IT, WC/P&C considers IT an expense category to be mined for pennies to add to earnings per share.

We all know how much execs HATE unallocated loss adjustment expenses

Execs at payers are hamstrung by IT departments that can’t/won’t/aren’t able to implement systems changes. In fairness, IT departments are hamstrung by a lack of strategic vision in many C-suites, which in turn is motivated by financial markets or executive comp plans at mutuals.  Suffice it to say there is plenty of blame to go around – but the result is insurers’ strategy is often greatly limited by IT.

For example, underwriting and distribution. Yes, Google’s initial foray into insurance was short-lived, but that wasn’t because they weren’t selling insurance. In fact profits were good – but “good” by insurance standards, not by tech standards.  Google just couldn’t make the profit levels they are used to.

At some point another tech innovator will figure this out and/or decide a lower profit level is just fine, and then woe betide insurers.

Another example – the medical management world is changing dramatically, and work comp insurers are very hard pressed to adapt. Bundled payments, narrow networks, electronic medical records and vertically integrated delivery systems are here today, and will grow dramatically in importance tomorrow. Flexibility, adaptability, and the ability to move quickly are essential – and equally impossible.  Changing vendors requires IT to design, implement, test and monitor new data feeds to multiple systems and stakeholders.

Conversely, some payers have tied themselves to external vendors who act as consolidators or pipes, thereby greatly reducing the carrier’s IT burden.  In exchange, a LOT of power is transferred to the pipe vendor.  That’s fine if:

  1. incentives are aligned over the long term, and
  2. the vendor is able and willing to make changes to providers, processes, and feeds as necessary, and
  3. there’s transparency.

However, expediency and underinvestment comes at a cost.


CEO T Rex: “Hey, when is that B2B platform scheduled for testing?”

CIO Triceratops: “18 months after I get the money to hire the staff you cut to reduce ULAE…”

The B2B and healthcare delivery market is evolving at a pace akin to that the dinosaurs saw after the meteor hit.  So, here’s a couple of questions you may want to ask yourself.

  1. Does your strategy drive your IT, or does your IT drive your strategy?
  2. What’s your plan to adapt to the revolutionary changes hitting distribution and medical management?
  3. Does your IT department, management, vendors, and infrastructure support that plan?
  4. What happens when – not if, but when – a carrier or new entrant builds the infrastructure and capability you can’t or won’t?

Friday catch-up

Got to love May!  Everything is greening up, baseball season is in full swing, college graduations, flowers are blooming.

While I was out smelling the new blossoms, a bunch of stuff happened.

Implementing health reform

There’s been a lot of press about UnitedHealthcare’s decision to leave the Exchanges, with opponents citing the move as more proof of the impending demise of wrongly-named “Obamacare” and others noting it’s much ado about not much.

A brief and compelling post by David Williams is in the latter camp; David notes:

[United] specializes in selling high-priced plans to corporate accounts. In the price-sensitive world of the exchanges that’s a losing proposition. No surprise — United wasn’t getting traction.

As a former UHC employee (albeit from two decades ago), I have to agree.  UHC never focused on the individuals or employers or demographic groups that seem to be signing up for insurance via the Exchanges.  There are several distinct attributes of health plans winning in the Exchanges; Health plans that have expertise in Medicaid, understand local markets and have very strong local brands, and/or are vertically integrated delivery systems are succeeding.

Bernie Sanders’ campaign appears to have “inspired” Hillary Clinton to talk more about offering a public option in the Exchanges, namely allowing a to-be-defined group to buy-in to Medicare. Notably, Sec. Clinton first broached the public option back in February, so this isn’t really new news. However, it does mark the first time she’s mentioned the Medicare buy-in. (a more detailed review of Clinton’s health policy platform is coming up next week)

From JAMA, the news that employer coverage of health insurance has not changed over the last few years.  This is a key reason the Exchanges have not enrolled more higher-income folks; they are getting their insurance thru their workplace.

Finally, before you get too wrapped up in the media nonsense about prices, enrollment, and the failure/success of ACA, read Larry Levitt’s piece in Vox on Obamacare 2017.

Workers’ comp

WCRI in partnership with the good folks at IAIABC published a must-have guide to State Workers’ Compensation Laws.  Order your copy at the link; investors, analysts, compliance departments and regulators all need this on the virtual bookshelf.

Friend and colleague Peter Rousmaniere’s Working Immigrants blog has been especially active of late; Peter’s been documenting the reality behind immigration trends, and his charts and graphs will speed your understanding of what’s ACTUALLY happening.

(spoiler alert – there is no big influx of Mexicans these days…)

Finally, a terrific post by a woman – a neuroscientist – who finally decided to treat her anxiety with medication.  It is an excellent piece addressing the balance between over-medication and the positive impact drugs can have – when they are the right choice.

Bob Hartwig’s prognostications

Back to NCCI…didn’t want to overload your inbox last week.

For anyone who has heard Bob Hartwig PhD speak, he violates all the common rules about presentations and presetting – and is excellent nonetheless.  Methinks it is because Bob is both deeply knowledgeable and enthusiastic beyond measure.

On to the content.

In the overall P&C market, we’ve just had three consecutive years of underwriting profits, an occurrence previously experienced 45 years ago. Back in the days before 1970, underwriting profits were common, primarily due to the  low investment returns available in those days.

One of the key drivers has been continued reserve releases as insurers and employers take down reserves, adding to gains.

Bob noted there’s been wide disparity among and between states in terms of premium increases, linked quite closely to each state’s underlying economy, but overall premium growth has been pretty modest.  With organic growth somewhat stalled, insurance M&A activity ramped u significantly in 2015 – not just in the US but in Asia and across North America.

Hartwig talked about the Trump v Clinton positions on matters of import to P&C insurers; see his presentation for the relevant slide.

Non-farm payroll is increasing at about a 4.5% annual clip since the great depression – due to higher employment, higher pay rates, and more hours.  This is GOOD NEWS INDEED.  There are also early indications that labor force participation has improved “modestly” since the beginning of 2016, and the number of “discouraged workers’ has also dropped significantly of late.

Manufacturing is a major issue in workers comp – while there’s been solid growth since 2009, it is contracting in the energy sector along with the entire non-durable sector.

The on-demand aka Gig economy – there are a plethora of regulatory issues which, in turn, have implications for insurance.  Independent contractor v employee, private passenger auto vs commercial auto, liability, etc are all of major concern. Notably, young, minority urban males are the most likely to offer gig services – this demographic group is also more likely to incur an occupational injury.  And, gig workers WANT more regulation – they seem to think of themselves as employees.

The sharing economy is going to have hugely disruptive effects on insurance; no longer does one entity own the asset that delivers the service or product, distributes it, services it, and employs those who do the work. This will require a rethinking of how and what is insured, and how “claims” are assessed/attributed/reported/paid.

Very glad there’s lots of smart millennials that can figure this out because it sure makes my head hurt.

41% of occupational deaths were due to transportation incidents – almost 2000 in 2014, 60% of those caused by roadway incidents.  Of course, that’s not the good news, what is the good news is increasingly-automated driving will likely reduce the death rate dramatically.  The “single greatest area where we can see a decrease in frequency of deaths due to improved automation.” (paraphrase, it’s impossible to type as fast as Bob talks)

Hartwig concluded with a discussion of the growing involvement of private equity and venture capital in the insurance industry.  Google Compare came to the US from the UK; after a brief run it closed up shop in February this year due to low profit margins.  When you have a hurdle rate (desired return on investment) of 18%, insurance is probably not a terribly promising industry.

Nonetheless, there are a plethora of insurance-related companies getting $10 million or more in funding to do something disruptive in P&C insurance.  Distribution, analytics, data warehousing, insurance technology are all areas of focus.

And that’s it!

Innovation in Insurance – we are soooo far behind

ACORD’s Bill Hartnett gave a compelling, entertaining, and pointed presentation on innovation, technology, and the impact of same on insurance (my title, not his).

You will be sorely tempted to ignore this and move on to the next email or project update; Do NOT do this.

His money quote – Insurance is the DNA of Capitalism.  Buildings and homes don’t get built or repaired…”

This set the stage for a discussion of the future that fortunately began with a back-to-basics primer on what insurance is for – risk assessment and management. One lightbulb went off for me – does big data give us great predictability, which obviates the “risk” issue inherent in the concept of insurance?

We will be able to predict weather events, identify medical conditions, greatly reduce “accidents”, deliver medical care designed specifically for that individual patient.

A few factoids – every minute, there are:

  • 4 million Facebook likes,
  • a million Vine users play videos,
  • 110,000 Skype calls,
  • 700 Uber rides scheduled, and,
  • 450,000 tweets

That’s a LOT of data.

And data mining uses this incredibly rich data trove to learn a LOT about you, about health issues, drug issues, crime, you name it.  Just by accessing, analyzing, and monitoring publicly available data.

Hartnett talked about vehicular changes dealing with autonomous vehicles – Ford and Tesla will have fully autonomous cars on the road before 2023. Given vehicular accidents are the single biggest cause of occupational fatalities, this is good news indeed – computers are better drivers than humans.  Yes, even me.

Moreover, frequency and severity will drop significantly within five years – this is going to greatly impact the auto repair business and auto insurance, but perhaps no industry will be more affected than long-haul trucking.

What will today’s drivers do?  How will they be classified for workers’ comp purposes? Will we get a spate of injuries as drivers see tech taking over the wheel?

New news to meGuardhat is a hard hat with technology specifically designed to avoid falls, notify when falls occur, and monitor other movement and risk metrics. Other technologies include wearables that address posture and monitor vital signs via a tattoo on the skin.

But hard hats may not be necessary, as 3-D printed buildings are coming – a 3-D construction printing rig can build a 2500 square foot house in 20 hours and needs 3-4 technicians to move it around.

I’ll stop with this – cognitive cognition – computers that can do pretty much everything we humans can in terms of pattern recognition, intuitive capabilities, and perhaps have emotions – exponentially faster and more consistently than we ever could.

Can you imagine the impact on health care?  Doctors? Diagnostics? Medical information? The health care delivery system will be revolutionized, with the potential to dramatically reduce costs as the role of people may well be greatly reduced.

Of course, I’ll be retired by then…oh, wait, I won’t be.

That’s how fast it’s coming.

Then there’s Distributed Trust

Workers’ comp – 2016 State of the Line

NCCI Chief Actuary Kathy Antonello’s State of the Line presentation – is the hot ticket at AIS. (Her presentation will be available here right after her presentation ends; the password is Transforming .)

Antonello’s use of new imaging and automation to present data was compelling and highly informative, really helping this non-actuary understand the import of the data and findings, and potential impact going forward.

Key intro points – Medical severity changes remain moderate, but drug costs are increasing at a troubling rate.  Definitions of “employee” are evolving as is the “workplace.

Key data points

  • Work comp net written premium for private carriers up 2.9% to almost $40 billion in 2015. State funds accounted for $5.8 billion in premiums, for a total of $45.5 billion – up from 44.2.
  • WC combined ratio improved to 94, a six-point drop from 2014 and the second best combined ratio since 1990
  • Most recent P&C industry cycle was a seven-year one, shorter than previous cycles
  • Unsurprisingly, net investment income decreased slightly across all P&C lines.

Private carrier details

  • direct written premium decreased in 9 states, with the biggest drop in OK due to reforms.
  • CA and NY had larger than average increases with CO DC and OH jumping by double digits.

Work Comp Drivers

  • Payroll is up 23% since 2010 – a pretty nice increase.
  • Construction employment has led the way, up 17%
  • Frequency continues its long term structural decline, down another 3 points – just below the long-term average of 3.6%
  • Medical is 58% of total benefits
  • Medical cost per LT claim DROPPED 1% in 2015 – more on this later…
  • Indemnity expense up 1 point from 2015 on a per-claim basis.
  • Loss ratio drop of 6 points is by far the most important contributor to the improved combined.
  • Loss adjustment expense (LAE) ratio increased somewhat, due to the improvement in losses.
  • Five-year investment gains dropped to 13 percent, down below the long-term average of 14.1 percent.
  • Reserve deficiency down to $7 billion

The operating gain jumped to 18 percent, a historic high – and far above the long-term industry average of 5.8%

Not surprisingly, all this good financial data is leading to premium price reductions.  Rates are decreasing, with 57% of agents seeing a decrease in rates at renewal in Q4 2015.

Most surprising is the data on medical severity – it is actually tracking BELOW medical CPI increases, a major change from prior years.

This despite a 6 point increase in drug costs, a finding that – argh! – will be discussed in detail in the research discussion which is scheduled at the same time as my panel on regulatory issues…

More – lots more – to come on the medical cost finding.  Spoiler alert – it looks like the reforms in California are working to cut unnecessary medical expenses…with Cali accounting for about a fifth of total work comp premium, that’s a big driver.

NCCI kicks off…

950 attendees this year – an all time high – as new President And CEO Bill Donnell kicks off the 2016 NCCI Annual Issues Symposium.  Key takeaways from Mr Donnell’s introductory talk

  • near term, solid financial results and continuing profitability
  • longer term, frequency rates continue their structural decline – consistent with other mature economies
  • Donnell highlighted programs at two very large American employers that have dramatically reduced claim frequency and severity.  That’s great – but large employers have a lot more influence on and ability to address these issues than do smaller employers.

What was encouraging – and different – about his talk was a focus on individual claimants, and what employers and insurers are doing every day to help injured workers.  He noted that industry critics don’t focus on these successes, choosing instead to highlight problems and errors.  He called for the industry to do a much better job talking about the good the industry does.

Hear hear.

Clearly Donnell is aware of – and concerned about – opt out.  Given the recent Oklahoma Supreme Court decision, I’m not sure he – or we – have much to worry about.  Nevertheless, his caution is far more appropriate than ignoring opt out.

Donnell’s “word” is the industry is Transforming – many changes in the economy, technology, the workers’ comp industry, employment are all forcing change in workers’ comp.

I agree.

The issue is, how can an industry that is not so much resistant to change as hidebound and unable to move at all – much less rapidly – catch up to the real world?

On the way to NCCI

Headed to Florida for the annual NCCI AIS confab, one of the best-organized conferences in the workers’ comp world.  Looking forward to NCCI Chief Actuary Kathy Antonello’s State of the Line presentation; will be live-blogging as she reveals the latest data on trends, costs, inflation and drivers thereof.

The powers-that-be have invited Charles Krauthammer back once again; the ever-irascible doc will certainly share his latest views on the political landscape, and for once I’m actually looking forward to it.   If I have to listen to yet another neocon/conservative ideologue, as least this time he’ll be as cranky about his candidate as I am…

A few of the topics Mark Walls, Bob Wilson and I will be covering in our talk on Thursday afternoon will be the impact of the ACA on workers’ comp (spoiler alert – too early to tell), whether the Grand Bargain is still grand and/or a bargain, what’s happening to opt-out, and medical trends.  Should be pretty lively, with ample-yet-polite-disagreement among the three of us.

Attendance is very solid this year; hope to see you there.

Sales – the least “professional” business role?

BY that I do NOT mean sales people are NOT professional – rather the role is not really considered so by many.  Just think of the titles sales people go by: Marketing representative. Account executive.  Business development manager.

Ever notice how people who are supposed to be selling stuff aren’t labeled as sales people?  Yet “nothing happens until a sale is made” and no company exists without customers.

There are far more “chief marketing officers” than “chief sales officers”, and – with some notable exceptions – the prestige is in the marketing title.

It isn’t just the titles on business cards, although that’s a symptom of the larger problem. It’s the lack of training provided by many companies, the failure to adequately vet and hire due to a lack of understanding of what works and what doesn’t in “sales”. You can see the impact of this in the relatively high turnover among sales departments.

All of the really good sales people I know are true professionals.  They do their homework, are persistent, listen a lot, ask a lot of questions, prepare carefully and thoroughly, and don’t waste time on likely-futile lunches and golf games. There’s a mistaken impression among many that this is “natural”, that these women and men just “get sales.”

Not true.  In fact, these “pros” are likely the ones fortunate enough to start their careers at companies that invested in sales training; had mentors who helped them grow and mature, worked for managers that supported them and helped them learn from their mistakes. These managers understand the sales process, and how it works both internally and externally. Did they learn this in business school? Highly unlikely.

Sales’ task is to find out what customers’ pain points were and figure out if and how their company’s offerings will alleviate that pain.  It is NOT convincing a prospect to use your stuff, but rather to know prospects so well that you can identify the ones most likely to buy your stuff.  There’s a VERY big difference.

In the work comp world, we all know sales people who are constantly on the move. Many are pure relationships sales people; they sell to their friends, and when they run out of friends to sell their current stuff to, they move on.  In contrast there are a relative few who are true professionals, able to mix the relationship with the consultative, skilled at leveraging their personal reputation to gain entre to a prospect where they work very hard to determine if there’s a fit.

As I look at the work comp services industry, not much has changed over the last couple of decades.  At many companies there’s a lack of appreciation for and of sales. That’s not to say senior management doesn’t want great sales people, they just don’t understand what makes one a great sales person, and what management needs to do to help sales continue to deliver.  There’s usually a distinct lack of training as well, little effective mentoring, and lots of internal conflict between operations and sales – a clear indication that not enough has been done to ensure sales and operations work together effectively.

What does this mean for you?

With the ever-changing landscape in work comp – mergers, acquisitions, vertical consolidation and internalization of services by many TPAs, retirement of many senior execs in “buying” roles, the growing role of the Procurement departments at carriers such as the Hartford and Liberty Mutual, it is becoming increasingly clear that work comp service entities will have to invest in their sales departments and staff if they are to succeed.



Opioids, spines, and dead people

Friend and colleague David Deitz, MD, PhD, was kind enough to provide his perspective on two seemingly-unconnected items in the current issue of the New England Journal of Medicine that are highly relevant for medical providers treating occupational injuries.  Here’s his view:

Deitz – The first is an editorial by Drs. Thomas Frieden and Debra Houry from the Centers for Disease Control (CDC) reviewing the new CDC opioid prescribing guideline. It’s a concise review of what led the CDC to develop the guideline, as well as a clear statement of what CDC hopes to achieve. The money quote is this one: “We know of no other medication routinely used for a non-fatal condition that kills patients so frequently.”

Included in the same issue is one of a regular series of Images in Clinical Medicine – this one entitled Resolution of Lumbar Disc Herniation without Surgery. You don’t need a medical education of any kind to interpret this one – the pair of MRI images beautifully demonstrates a large disc herniation which resolves over a 5-month period. Nothing surprising to students of low back pain, there is abundant literature demonstrating that the best care for the majority of patients with lumbar disc herniation is conservative – maintaining physical activity as much as possible while waiting for the natural resolution demonstrated again in this case.

While I don’t think the Journal editors intended the irony, it’s sobering to think about how many opioids have been prescribed to injured workers over the last 20 years for this condition, and its (often unnecessary) surgical consequences. One of the most common conditions in WC, and a routinely-prescribed medication with potentially fatal consequences. Hopefully, we’re starting to do better.

Paduda – In a related piece, Michael Van Korff ScD andGary Franklin MD MPH summarize the iatrogenic disaster driven by opioid over-prescribing.  Over the last fifteen years, almost 200,000 prescription opioid overdose deaths have occurred in the US, with most deaths from medically-prescribed opioids.

Doctors prescribed opioids that killed well over a hundred thousand people.

Here’s one


Today, about 10 million Americans are using doctor-prescribed opioids; somewhere between 10% – 40% may have prescription opioid use disorder – they may well be addicted.

Van Korff and Franklin note that 60% of overdose fatalities were prescribed dosages greater than a 50 mg morphine equivalent.

This despite evidence suggesting “neither high opioid dose nor dose escalation improves patient outcomes.”

The authors suggest three immediate steps we can take:

  1. Avoid ill-advised and unplanned initiation of COT (chronic opioid therapy). Don’t prescribe more than 10 pills initially, check the Prescription Drug Monitoring Program database, educate the patient.
  2. Regulators and legislators need to change policies and regulations to reflect what we KNOW about COT and its inherent dangers.
  3. Considerably enhance population surveillance of opioid prescribing and safety.  The FDA should expand its postmarketing surveillance program for long-acting opioids to patients using short-acting versions.

What should you do about this?

  1. Do NOT allow opioids for “herniated” disks.  (I know, easier said than done…)
  2. Require a pre-auth for ALL acting opioid scripts, and all increases in dosage above 50 mg MED.
  3. Wherever and whenever possible, ensure prescribing docs check PDMPs, educate patients, limit initial scripts, complete an opioid agreement.
  4. Educate patients – for those already on excessive dosages, have your nurses contact the patient to educate them on the potentially fatal risk inherent in long-term use of opioids.