Medicare Set-Asides and Workers’ Comp

I’m gingerly stepping into a topic I’ve mostly avoided to date – MSAs.  I avoid it because it is mind-numbingly complex, seemingly illogical in application, and served by often-contentious vendors.

NCCI’s Barry Lipton et al just released an excellent synopsis of the MSA situation (opens .pdf) and summary of where things are today. The report focuses on the feds’ review process, wherein they examine payers’ proposed MSAs.  Based on an analysis of data submitted by Gould and Lamb and NCCI’s Medical Call database, a few of the Research Brief’s highlights include:

  • most MSAs are for Medicare-eligible claimants, with 45% over 60
  • MSAs make up 40% of the average total proposed settlement
  • Drugs make up fully half of the MSA amount
  • CMS’ processing time for MSAs has declined of late to a median of 41 days
  • The gap between submitted and approved MSAs has shruck dramatically.
  • 29% of settlements are for amounts over $200,000, while 45% of the MSA amounts are less than $25,000.
  • Most MSA settlements are paid as a lump sum.
  • More than 90% of MSAs completed in December 2012 were approved as submitted.  That came after CMS changed approval vendors in July 2012.

The report is stuffed full of great information and, for those of us who are relatively ignorant of MSAs yet encounter them on occasion, well worth a read.

What does this mean for you?

If you don’t have the time right now, put it in your research file so you’ll have it when you need it.  And you will need it.

Physician dispensing in workers’ comp is killing your financials

The cost of physician dispensing is far above the outrageous premiums the dispensers charge.  The real cost includes:

  • longer disability duration
  • higher medical expense – over and above the excess cost of drugs
  • higher indemnity expense
  • more and longer use of opioids

Lost in the conversation, ignored in legislation, and pooh-poohed by dispensers and their enablers, the research – real research by real scientists, not anecdotal BS by dispensers – proves dispensing is having cost implications far and above the cost of the drugs.

In addition to the ground-breaking work done by Alex Swedlow et al at CWCI, the folks at Accident Fund (kudos to Jeffrey Austin White) teamed up with Johns Hopkins to analyze the impact of dispensing on their claims.

The results – which will be discussed next week in an IAIABC-sponsored webinar – are striking.

Slots for the webinar are still available – it will be held next Wednesday, September 10 from 1-2 Central Time.

Kudos to IAIABC for their leadership on this.

 

 

What’s your Plan B?

The pending acquisition of Coventry Workers’ Comp Services by APAX will consolidate a very big chunk of the work comp managed care services market.  The potential impact bears careful consideration.

I’ve taken the liberty of quoting below from a piece I wrote back in April of this year, long before this was on the horizon. I believe it is even more relevant today, as payers consider how the aggregation of market power under ACOG (APAX-Coventry-OneCall-Genex) may affect them. 

Without further ado…

Coventry Work Comp was built by combining the “old” OUCH network with Healthcare Compare, followed by an acquisition of Concentra’s WC services division, which had acquired NHR, which had acquired MetraComp, plus the acquisition of a few other bits and pieces.  Along the way, the company became the dominant work comp PPO.  A few years ago, it was the “must have” network for workers’ comp payers as it was the largest, had the best discounts, and had the most coverage in the most states. While other vendors may have had better networks in one or a couple of states, Coventry’s was the best (defined as largest number of providers and deepest discounts) and broadest.

Coventry’s management (since departed) used this market leader position very effectively.  They forced (yes, that’s the right term) payers to use their network – and other services – by raising their fees for payers who carved out specific states where another network was stronger.  In addition, they discounted other services (notably PBM) if the payer bought their network and bill review services.

This put payers in a tough position.  Try as they might to seek out the best-in-class network, PBM, or bill review offerings, insurers would have to pay a LOT more for Coventry’s network if they didn’t buy everything.

For Coventry’s erstwhile competitors, the playing field was anything but level.  If they built a great network in a state or two, one that far exceeded the depth, effectiveness, and discounts of Coventry, they’d often find the big buyers would tell them they’d won their business, only to learn a bit later that the deal had been undone and Coventry was going to keep it, having told the buyer that their fees were going to go up – often way up – if the state/s were awarded to the competitor.

Things got even more one-sided after Coventry bought Concentra’s work comp services business.

Coventry actually raised their prices, telling customers that the larger network delivered more value, and therefore a higher price was warranted.  Never mind that the larger network would deliver more revenue just by virtue of including more providers; Coventry management very successfully leveraged their all-but-monopolistic status to increase prices and beat out competitors.

According to several colleagues who worked with Coventry at the time (remember this was a few years ago), Coventry knew they had the leverage, weren’t afraid to use it, and was only too happy to let their customers know it.  Even more troubling, customer service and responsiveness got steadily worse.  Managed care execs used words like “arrogant”, “uncooperative”, and “dictatorial” when describing their interactions; many were very surprised, if not shocked, by the tone and tenor of discussions and negotiations.

Which brings us to the current state of the market; it is highly likely a very few vendors will hold leverage akin to that enjoyed by Coventry back in the late 2000′s.  Managed care execs at insurers, TPAs, and large employers are apprehensive/concerned that this may well mark a return to the “bad old days.”

Tomorrow, ACOG will own the largest PPO, one of the largest bill review enterprises, the largest imaging, PT, DME/HHC network, case management vendor, and lots of other stuff. They will undoubtedly promote the benefits of one-stop shopping, data integration, leakage prevention, and consolidated IT interfaces, and streamlined vendor relations and billing, all of which, to the extent they are valid, are excellent selling points.

If I were them, I’d encourage customers to see the benefit of using ACOG, specifically using my dominant position to reward payers who bought all my services, and dis-incent payers thinking about using my competitors.  But that’s just me…

This isn’t bad or good, it is the nature of business.  And this approach worked very, very well a few years back – primarily because only one major customer - Broadspire – was ready and able to tell Coventry “no thanks” when informed about the price increase.

The rest, well, they had no other plan.

What does this mean for you?

You may want to think about a Plan B.  Just in case. 

 

The Apax-Coventry deal – implications aplenty

While it may be a bit premature, I’d suggest it is never too soon to being thinking thru the potential implications of a deal of this magnitude.  

Let’s do a very quick review of market changes, then jump into some detail on the network issue – we will look at other aspects in future posts.

The workers compensation medical management market is going through a period of rapid consolidation across all segments.  There are now five large PBMs; three years ago there were eight (plus two much smaller ones).  Bill review application companies now number four (mcmc, Medata, Mitchell, Xerox); four years ago there were eight.  (this does not include CorVel, it does not sell access to its application) There are now two PT firms; last year there were three.  The sector that has changed the most is IMEs; EXAM is now the biggest player, with its competitors far behind in terms of revenue and market share.  Similar consolidation has occurred in DME/HHC, transportation/translation, and other segments, and this will continue.

The work comp PPO landscape looks markedly different.

Coventry is still the big kahuna, but the gap between CWCS and competitors has narrowed considerably.  The expansion of other PPOS has been a major reason; Procura, Magnacare, Anthem, Prime, Rockport, MultiPlan are all bigger and have more share than they did a few years ago.  Other Blues plans have expanded into the comp network business (or expanded their existing WC PPO).

Simultaneously, Coventry’s PPO has weakened.  It has been increasingly difficult to get meaningful discounts from health systems and facilities, long the biggest driver of Coventry’s success.  That’s due to the consolidation of the provider marketplace and a lack of emphasis on WC on the part of Aetna (and pre-Aetna) provider contract negotiators.

For workers comp payers, big PPOs are the big “savings” driver, yet the biggest of the PPOs is losing its ability to deliver “savings” while its competitors are getting more competitive.

Way back in the day, Coventry used its leverage with the Federal Mail Handlers’ Program along with PPO HMO and Medicaid lives to negotiate discounts with providers – discount arrangements that included workers comp.  Recall total work comp spend is just about 1 percent of total US medical spend; governmental programs (Medicare and Medicaid) alone  are over a third of US health care costs.

While sources indicate Aetna has committed (not sure that is the right word, and may be too strong) to support the PPO re-contracting process for two years, this is one of those times where actions speak louder than words.  As noted yesterday, Aetna just inked a network deal with a relatively small health system in northern California which does NOT include work comp – but does cover medicaid, medicare, group, individual, and other health insurance.

More significantly, Geisinger and Aetna signed a major agreement earlier this summer that also excluded workers comp. Geisinger is the dominant health system in central PA; a very-well-regarded operation with a great reputation and outstanding quality (disclosure, I did a brief consulting stint there some years ago).

And this means…what?

By far the biggest contributor to CWCS’ value is the PPO.  It generates (or perhaps more accurately generated) at least $200 million in cash flow and provided Coventry with the leverage to get payers to use its PBM, case management, bill review and other services.  Clearly, that cash flow is, if not already significantly reduced, at some considerable risk.

That factor alone is why ALL the financial buyers I spoke with (several of the largest private equity (PE) firms) did not pursue the deal - they were very concerned about the long-term viability of Coventry’s PPO.  While the historical numbers looked good, none were convinced the PPO would continue to deliver those results going forward.

Without the market leverage and total commitment of Aetna, it is difficult to see how Coventry can maintain its lead over other work comp PPOs; its negotiating leverage with providers will be based on work comp, and work comp only.

APAX will pay something like $1.5 billion for Coventry’s work comp division.  I’m very sure it will have a very good communications plan, a well-developed strategy, and some talented and experienced people focused on this.  That’s all well and good, but – as other WC PPOs know very well – without the market leverage of a major national health plan, the real negotiating power will be on the other side of the table.

Aetna’s sale of Coventry – the deal is done

While it may not be closed, the deal is done.

Multiple sources indicated APAX is scheduled to close the purchase of Coventry Workers’ Comp a month from now.  The long-rumored sale will close October 1 – if everything goes according to plan.

Here are the details – at least as they’ve been relayed to me.

  • The sale includes all of Coventry’s work comp services division – PPO, bill review, Pharmacy Benefit Management, DME, IME, UR, case management, peer review, and the rest.
  • Aetna has “committed” to supporting the network for two years – don’t know what this means, how it will be measured, or what the guarantees are.
  • APAX is the purchaser.

A few related items worthy of consideration.

  • Coventry’s been working on an RFP for a new bill review system/strategic partner for some time.  No word on whether this will go forward or be mothballed, and I wouldn’t expect to hear anything until October.
  • Aetna recently announced they signed a 3 1/2 year contract with northern California’s Washington Hospital Healthcare System. The contract does NOT include workers’ comp – but does include every other payer type.
  • When the deal is done, APAX will own: the largest work comp PPO, imaging network, PT vendor, DME/Home health network, and case management provider; one of the largest PBMs; a major (but faltering) bill review operation; and a whole raft of ancillary businesses.

The implications of this transaction are rather dramatic. It puts control of many payers’ medical spend squarely in the hands of a private equity firm. (more on this here).

The news also refutes my (strongly-held) view that Aetna wouldn’t sell the business because it a) throws off so much free cash flow and b) can’t.  The latter is based on the premise that the network contracts will rapidly fall apart without Aetna’s combined medical spend as bargaining leverage.

Regarding the latter, we shall see.

What does this mean for you?

Opportunity for bill review firms and niche medical management providers.

A return to the days when Coventry owned the market.

 

 

 

Work comp claim reporting – why no data?

There’s very little publicly-accessible data about who reports work comp claims, via what channel.  We just finished up a brief project for a client interested in comparing their data to national benchmarks, and we found precious little data on the topic. It may be out there, but it sure is hard to find…

We know the sooner claims are reported the better; there’s some good research out there altho arguably the best – the Hartford study – is dated.  There is more info about the impact of delays in reporting on ultimate claim costs, which is certainly critical, but that’s “outcome” information.  What we don’t know is the “process” information – which helps payers understand where they stand and what they can and need to do to improve.

Payers need to know when and who and via what channel claims are reported, by type of payers, states, industries, employer sizes, class codes – if they want to set goals, figure out where to put their efforts, who to target.

In general, we learned that the vast majority of claims are reported by employers via phone.  Whilst many payers have web- or email-based reporting capabilities, these are rarely used.  Some have developed smartphone-based reporting, but with a couple exceptions (very large self-insured employers) very few claims come in via this channel.

What does this mean for you?

Should we do a Survey of Work Comp Claim Reporting?  I’m thinking this may be worthy of study; perhaps HSA should develop and conduct a quick study to gather some baseline intel on the current state of the industry.

If this makes sense to you, please say so in the comment section.

Thanks!

 

 

 

 

Workers’ comp – the near-term outlook

NCCI’s just-published assessment of work comp trends has a wealth of information, much of it well worth contemplation by anyone in the industry.

Here are a few takeaways that jumped out at me.

  • Overall the current state of the market is steady – the market and rates are firm, premiums are trending up modestly, frequency is continuing its structural slow decrease, and claims cost inflation appears to be well within acceptable ranges.
  • Employment has returned to its pre-recession level, yet the percentage unemployed remains above 6 percent.  Employment drives premium so that’s good news, however there’s plenty of room for that percentage figure to drop even more.
  • More specifically, employment in manufacturing and construction, traditionally high-premium industries, remains lower than it was before the recession.  If this picks up significantly, so will work comp premiums and rates.
  • If investment yields remain low, we may well see premiums increase as insurers seek to offset the decline in ultimate cash flow.
  • Medical trend is pretty low as well as the work comp world’s experience parallels group and governmental program results.

Which leads to the key questions – what could change the outlook from “steady”?

  • A surge in employment especially in construction will increase injury risk and premium volume.
  • Continued low investment returns may force insurers to raise rates.
  • An uptick in medical inflation – perhaps due at least in part to cost-shifting – could lead underwriters to push rates up quickly.

What does this mean for you?

Lots of ifs and maybes; fortune favors the alert.

 

 

Survey of Drug management in work comp – quick take

This is the eleventh (!) year I’ve been involved in surveying workers’ comp payers to get their take on pharmacy management.  Now that Yvonne Guibert (thank you Yvonne) has finished collecting the data, I’m working on the report.  It’s going to take a week or so, but I’ve pulled a couple highlights to whet your appetite.

  • Overall, drug spend declined for most of the 25 respondents, with some seeing percentage decreases in the double-digits.
  • In addition, total spending (across all respondents) declined as well – by about the same margin.
  • Top problem? close between opioids and physician dispensing, same as last year.
  • Biggest emerging problem? Compounds, without a doubt.
  • 21 of 25 respondents said prescription drug costs were more or much more important than other medical cost issues at their organization.
  • 88% of the 25 respondents (large, mid-sized, and small WC TPAs, state funds, and carriers) have a urine drug monitoring program in place today or will by the end of the year.

Much more to come – the data geek in me is getting all fired up about what we’re going to learn.

Thanks to the 25 organizations who spent time collecting their data, then sharing it with Yvonne.  This is not an easy task, but one that really helps all of us understand what is going on with pharmacy programs, utilization, solutions and cost drivers and how payers are addressing the issue.

Stay tuned…

Frequency, high finance, and the future of work comp managed care

NCCI’s recently-released report that indemnity claim frequency dropped another two points last year is just the latest indication that the market for traditional managed care services is shrinking.  

Fewer claims = fewer services needed = fewer bills; less need for UR, case management, and related services.

Sure, severity is increasing, so there may be more utilization for a subset of claims, but this is not likely to offset the structural decline in frequency that looks to be baked in to workers’ comp – frequency is down over 50% over the last two-and-a-half decades.  And yes, cost-shifting from providers scrambling to deal with tighter controls from private payers and reduced reimbursement from governmental payers will increase providers’ efforts to get more revenue from work comp payers.

Meanwhile the supplier market is consolidating, and managed care vendors are scrambling to capture enough of the shrinking market to survive the coming shakeout. If APAX/Genex/OCCM buys Coventry – which looks increasingly likely - they will control the largest network, case management company, PT vendor, DME/HHC vendor, and imaging network; one of the largest (albeit fading) bill review entities, a big PBM, and a ton of other services  - MSA, UR, peer review, IME.

Some may think the FTC may find this dominant position a bit too much and not allow the transaction.  I disagree; no one in DC cares about workers’ comp, there are many other networks out there, many other bill review entities and specialty managed care providers, and this is an election year and the focus certainly isn’t on a relatively small industry.

The implications are rather significant.  Leverage is all-important – and I don’t mean the financial leverage but the customer leverage.  With all these services, it would be surprising indeed if AGOC (APAX Genex OCCM Coventry) didn’t encourage payers to buy everything from them in return for discounts on some/most/all services, enhanced reporting, integration services and technology and/or some other incentives.  Some buyers, already hard-pressed by reductions in staff, low IT budgets, and increasing demands for more “savings” and higher network penetration might find it hard to resist such a pitch.

The pitch would be compelling – more cost reductions and less hassle at discounted fees.

The trade-off would be ceding effective control over medical costs to a third party, one with arguably different incentives and motivations.

That alone will give many pause, as well it should.

For those who say I have a dog in this fight, you are correct.  I work with several entities that directly or indirectly compete with these entities, and that is by choice.

More to the point, I also work with several very large payers on various aspects of medical management, and my opinion is control over medical management MUST reside with the payer. 

What does this mean for you?

Workers’ comp is a medical business.  Three-fifths of claims costs are medical, and that’s going to be two-thirds very soon.  It makes no sense to outsource two-thirds of your costs to a third party.

Great news for taxpayers may be bad news for workers’ comp

The just-released report of the Medicare Actuary finds that hospital costs have been increasing at a historically low rate – below 1 percent – for the last four years.

And that’s not likely to change.

Medicare is pushing facilities to reduce costs, driving down readmission rates, using a variety of tools including Value-Based Purchasing, MS-DRGs, and increasing the emphasis on other types of pay-for-performance (basing a small part of compensation on quality measures).  While these can be somewhat blunt instruments and may lead to some unwanted consequences, overall the strategy is working – costs are coming down.

In the 24 states that have not (yet) expanded Medicaid, the effects of Medicare’s changes are even more stark. Payments to safety-net hospitals under the Disproportionate  Share Program have been drastically reduced, while the additional revenue anticipated from Medicaid expansion did not.  The result is a budget shortfall that many are scrambling to address.  The issue is particularly acute in Texas, Florida, and Georgia, which account for about half of the 5 million people in the “coverage gap”.

Non-DSH facilities (which accounts for most of the hospitals) in non-expansion states have a similar, if somewhat smaller problem; their indigent patient loads are (very likely to be) significantly higher than they would be with Medicaid expansion.

Impact on workers’ comp

In a phrase, cost-shifting.  Sure, hospitals are doing better post-PPACA than they were before, however they are also much more focused on financials, developing ever-more sophisticated coding, reimbursement maximization, and revenue-enhancement tools. (Google “hospital revenue maximization” if you are curious…).  They don’t apply these just to Medicare or Medicaid patients; in fact they look for other payers where they can increase revenue to make up for projected shortfalls.

And folks, workers’ comp is a very soft target.

  • Work comp networks’ ability to get deep discounts from hospitals and health systems is diminishing.
  • More and more physician practices are being acquired by health systems.
  • Facility fee schedules have not kept pace with technological or billing practice changes, and any effort to address these via regulation or legislation results in a battle with the (very powerful) hospital lobby.
  • Some bill review entities are playing games with network facilities, trying to negotiate
    prompt pay discounts instead of using the network rate.

What does this mean for you?

Watch those facility costs.