Jan
26

CMS just reported US healthcare spending topped $4.3 trillion in 2021…almost $13,000 per person.

Meanwhile work comp medical spend for 2021 was likely around $32.5 billion…or 0.74% of US healthcare spend.

Government accounts for about 2/3 of total spend, among private employers Amazon has more health plan participants than any other company…

chart courtesy Mark Farrah and Associates

Old friends and colleagues Adam Fowler and Kevin Tribout’s latest edition of the Policy Guys podcast is up here. Honored to be part of the pod, especially with such distinguished hosts!

Off to Baton Rouge to get together with my friends at LWCC – looking forward to great food and better people.

 

 


Jan
18

Why hospital costs are going up

Because they can.

Healthcare  – and more specifically facility-based healthcare – is a very mature industry and – with one huge exception – exhibits all the hallmarks of such…continued widespread consolidation, shuttering of marginal locations and elimination of unprofitable business lines and centralization of core services.

The “huge exception” is margin compression and price reduction. When any other sector matures, competition becomes fierce and prices come down.

Not so in healthcare, where pricing is opaque at best, and more often opportunistic if not downright predatory.

Over the last 70 years, the percentage of hospitals in health systems has grown by a factor of ten. Unusual indeed is the standalone facility.

That decades-long trend continued in the 2010s, although the pace slackened somewhat as there were fewer hospitals to acquire.

The net is this – most healthcare markets are pretty consolidated, which means one or two systems have pricing power.

Those systems use that power to force ever-higher reimbursement from commercial payers – and workers’ comp.

What does this mean for you?

Facility costs are going up.

 


Jan
10

Workers’ comp 2023 – what does the year hold – part 2

Yesterday the annual crawling-out-on-a-limb began, today it concludes with 5 more predictions for workers’ comp in 2023.

6. The growing impact of global warming will force changes in risk assessment, management and mitigation; technology adoption; and claims.
The predicted (heat injuries, wildfires, hurricane intensity, sea level rise) and unforeseen (atmospheric river-driven flooding, landslides, and destruction and others) changes in climate and weather will lead to more and different injuries and illnesses, higher risks for fire fighters and public safety workers, and unpredictable problems related to polluted storm water runoff, water-borne disease and perhaps invasive species.
Expect revisions to both federal and state OSHA regulations especially around heat and outside workers along with calls for better planning to prepare for severe weather events.

7. Payers and perhaps regulators will make significant efforts to address rising facility costs.
As for-profit healthcare systems look to pad record profits and not-for-profits seek to survive, payers will be looking for better cost control answers than simply doing more of the same stuff they’ve been doing for the last two decades. Network discounts (NOT THE SAME AS SAVINGS) are declining as facilities wise up to most payers’ lackadaisical/ineffective attempts at employee direction and unsophisticated contracting strategies.
Smarter payers will deploy multiple payment integrity layers  – both pre- and post-payment. All should demand more – much more – from their bill review vendors/technology suppliers, all of whom have long refused to entertain the thought that they could do better – much better.

8. Premiums will increase – mostly late in the year.
As infrastructure, green energy, re-shoring of chip manufacturing and EV incentives ramp up in the fall so will employment. While there’s disagreement among economists (yeah, who woulda thought??) expect big hiring in categories from archeologists and bridge builders to wireless broadband construction workers.  Manufacturing, heavy construction, trades, logistics will all be hiring…as these tend to be higher frequency (more claims than average) and higher severity (claims are more severe and costly) this means higher premiums and more claims.

Good news indeed for my friends in Cincinnati!

Oh, and mark me down for one who does not see a significant recession in our near future.  I know, I’m no economist (who disagree a lot about this) but hiring is too strong, these major investments are on the horizon, and inflation is coming under control  – all indications that a “soft landing” is more likely than not.

9. SB1127 – aka the CAFE Act (California Attorney Full Employment Act) will cause heartburn and consternation among Golden State employers and tax payers.
SB1127 shortens the time period for employers to determine the compensability of claims, a change which will lead to – among other problems – more initial denials and less time for injured workers to receive medical care while their employer researches the claim. Further, AB1127 appears to allow for penalties of up to $50,000 for claims that are “unreasonably rejected” by the employer – but the bill a) doesn’t define what constitutes an “unreasonable rejection” and b) doesn’t exclude claims that are already closed.

Expect attorneys to look for the Golden Ticket case – one that they think will establish precedence – and pursue it like a starving person at a Vegas buffet (or Cafe’).

There’s good news too…I don’t see much else on the regulatory horizon that is cause for concern.

10. More consolidation among payers and service providers.

Despite a major drop-off in financial investors’ interest in work comp, we’ll see  more consolidation as “strategics” aka TPAs and service providers acquire smaller TPAs and service providers. This is classic mature industry…scale is key, significant growth will mostly be driven by acquiring competitors or companies in complementary or related service and margins are in peril.

The bad news is 2023 prices will likely be a good deal less than in the recent past. Fewer potential buyers, less interest from PE firms, and a growing recognition that workers comp is a declining business (what took these people so long to see this?!) are all contributors.

What does this mean for you?

Prepare for climate change and more employment in higher frequency and severity sectors, and make your bill review company get its act together.


Jan
5

2022 Predictions for workers’ comp – How’d I do part 2

Yesterday we dug into my prescience – or lack thereof – as laid out in my first 5 predictions about workers’ comp in 2022.

Today, it’s the second 5.

6. With one or two exceptions, don’t expect much in the way of private equity investments.

There may be one or two large transactions, and a couple small ones, but outside of that, the bloom on the workers’ comp rose appears to be fading.

Verdict – True.

Enlyte’s sale didn’t happen; sources indicate the price offered didn’t hit the level its owners needed for the big bonuses to kick in. Not good for the employees with options…

Other efforts – MTI America and Medata among them – also didn’t result in sales, while TRISTAR bought Risico and Carisk acquired Advanced Claim Review Specialists – both deals make a lot of sense strategically. There were a few other, smaller transactions, but nothing like what we saw 5+years back.

Oh, and the deals that did happen were NOT PE firm acquisitions, rather strategic investments by other companies in the space.

Adding to that is the reduction in the number of firms interested in workers’ comp services…unlike the halcyon days a few years ago, there are far fewer PE firms focusing on work comp.

7. OneCall will be sold and/or split up. 

The BlackRock and KKR entities that are the current owners are not operators; they are debt owners. CEO Tom Warsop has squeezed out all the squeezable costs – and then some. Growth – defined as new business from new customers – is not happening. Add the overall drag on work comp services from the still-real drop-off in claims and claims services, and the reasons to hold on and hope are few indeed.

Plus, if interest rates increase – which is a distinct possibility – and if private equity interest in workers’ comp continues to diminish from it’s current modest level – also a distinct possibility – OCCM’s owners may well decide to sell soon rather than watch values decline.

Verdict – Nope. OCCM continues to soldier on, although Sedgwick’s move to internalize those services and the continued structural decline in claims frequency make the future uncertain at best.

8. COVID’s impact on costs and rates will prove to be minimal.

COVID claims are cheap, few are anywhere close to catastrophic cost levels, the effect of presumption laws and regulations is not much of an effect at all, and many employers – especially health systems – are forcing employees to use PTO rather than file for WC when they test positive/have symptoms.

Most research organizations and actuaries would do well to reflect how their early predictions were so…bad.

Helpful hint – two places to start; a) the tendency for WC “experts” to catastrophize and b) the almost-complete lack of understanding of healthcare drivers, costs, cost structures, reimbursement, and epidemiology.

Verdict – True.

All the credible research indicates COVID hasn’t been expensive – if anything claims are less costly than non-COVID claims.

9. There will be no big issues in workers’ comp. “Big” defined as important, needle-moving, disruptive, revolutionary.

No, medical marijuana is NOT a big issue – neither is COVID, or presumption, or the mid-term elections (there is ZERO interest in workers’ comp on the federal level) or remote work (does anyone seriously believe office workers tripping over toys will amount to any real dollars?)

Oh, and with rates at all time lows, frequency continuing to drop, and medical costs (with the exception of physical therapy and facilities) flat, coupled with ongoing supply chain and labor market issues, execs at big employers are (justifiably) completely uninterested in workers’ comp.

If the big girls and boys don’t see any issues, there aren’t any.

Verdict – True.

While some pundits/erstwhile “experts” would have you think medical marijuana, COVID, employment, or other issues even more tangential are going to be big issues, reality is there are no big issues in workers comp – save the decades-long drop in claims frequency.

10. Here’s the kicker – the biggest long-term concern for workers’ comp is global warming...yet this is getting zero attention.

There’s going to be an inevitable increase in issues related to heat, flooding, fires, drought, tornados and hurricanes. This is getting more real every day yet remains all-but-ignored by pundits, policy-makers  and rate-makers.  We can expect more heat-related claims. Hurricanes, fires, and tornados will increase in number and severity; affecting logistics, labor, construction, and claims. The research is clear.

Verdict – True.

Yep this is going to be a controversial finding, especially among the human-driven climate change deniers (and other flat-earthers).

Storms are getting more severe, heat-associated “injuries” increasing, and other major weather events (tornadoes, massive blizzards, deep cold snaps) are happening more often and with more intensity.

The verdict.

I got 8 correct, one flat-out wrong, and one is TBD.  


Jan
4

2022 Predictions for workers’ comp – How’d I do?

Proving I never learn, we return to score how I did on my 2022 predictions for workers’ comp…

a sneak peek inside Health Strategy Associates’ intergalactic HQ as the analytical team finalizes its prediction algorithm

today we’ll look at the first 5.

  1. Prediction – The soft market will continue.
    Carriers are still over-reserved, rates are still too high (see the opioid hangover), capital is still flowing into workers comp (gotta love that looooong tail), and employment growth may continue to be modest (low wage workers have discovered that working at crappy jobs isn’t always a have-to, especially when child care is unavailable and unaffordable).
    On the other side, wage growth will likely continue (thus partially mitigating the above drivers) as more employers finally figure out that people aren’t interested in crappy jobs for crappy wages.
    Caveat – towards the end of 2022 we may well see a bit of tightening as construction, infrastructure, green energy and other initiatives start up and get operational.
    Verdict – True. The most recent reporting from NCCI has the combined ratio at 87.2% – a clear indication that rates remain too high, and it’s a sure bet reserves are as well. The same report says “NCCI expects premium to decrease in 2022 by 7.5%, on average…”
    That, dear reader, is proof positive the soft market continued…
  2. TPAs will add more business, mostly from carriers.
    As work comp continues to shrink, insurers will ramp up efforts to shed assets and expenses to reduce their cost structure. By outsourcing claims, carriers are trading the high fixed costs of a claims infrastructure for the variable cost of a per-claim admin fee.
    The smarter carriers will negotiate hard so they don’t get screwed by medical management and other non-fixed fees…but many carriers aren’t that smart.
    Verdict – True.
     Gallagher Bassett is now handling the vast majority if not all of AIG’s WC claims. Other TPAs – Tristar, Broadspire and Sedgwick among them – added carrier business as well.
  3. Insurers will reduce staff, particularly in claims.
    Well, of course. see #2 above. However, TPAs will look to add claims staff, so experienced, well-trained claims folks will be highly sought-after.
    Verdict – True
    . AGI slashed staff – but GB hired many.
  4. IF total medical costs go up – and I doubt they will  – the increase will be marginal.
    Yeah, I know there’s lots of press and punditry about work comp medical costs aka “severity” increasing – and most of it is flat out wrong.
    Verdict – no conclusive data available yet.
     It’s too early to tell.
  5. That said, facility and therapy costs will go up.
    Mostly because a) Medicare is increasing reimbursement for therapy which trickles down to work comp fee schedules, and b) some healthcare systems and for-profit entities (looking at you, HCA, especially in Florida) have figured out how to bust open the work comp piggy bank.
    Verdict – True
    anecdotal reports of higher facility costs abound, as does news of higher costs for physical medicine (PT, OT, and chiro). I will come back to this after NCCI’s annual meeting in May to finalize the verdict.

Tomorrow – the other half.


Dec
20

Congress actually gets good stuff done!

I know – who woulda believed it?

Nothing like an end-of-the-year deadline and a looming change of power in the House of Representatives to motivate elected officials.

Here are the big items and what it means for you. Hint – work comp stuff is at the end…

  • a bipartisan bill to greatly increase our ability to prepare for and deal with future pandemics will become law this week.  The Prevent Pandemics Act was pushed by Democratic and Republican Senators…details at the link above.
    This means – the Feds will be much better prepared, activities will be better coordinated, and (hopefully) fewer of us will be affected by the next pandemic.
  • Improvements to Medicaid are great news for new moms and infants, (quoting WaPo) including:
    • allowing states to permanently extend postpartum Medicaid coverage for 12 months and
    • barring children from getting kicked off Medicaid or the Children’s Health Insurance Program for a continuous 12 months
      This means – kids will be healthier and off to a better start  – with big time implications for their future (and ours)
  • and good news for our fellow citizens in Puerto Rico...federal funding for Medicaid in the territory has been extended for 5 years, welcome news for an island that has been devastated by hurricanes and other weather-related disasters.

But all is not good news…the really dumb way we pay providers treating Medicare patients leads to unnecessary, counter-productive, and completely waste-of-time fist fights pretty much every year. Physicians face a 4.5% cut in Medicare reimbursement starting January 1st, and boy are they mad.

I doubt the entire 4.5% cut will go into effect…and the latest news indicates the cut will be 2% in 2023 with a smaller reduction in 2024.

What this means…

Work comp fee schedules tend to be driven or at least affected by Medicare’s fee schedule. States such as California will see an almost-immediate impact.


Dec
16

Friday catch-up

Lots happened this week while I was hunting, driving, and finishing up the annual survey of pharmacy management in work comp.

A quick update on pharmacy data points…

  • across the 30 respondents we have so far (a few more to come), drug spend was down one percent...however
  • there’s a ton of variation between respondents with some seeing big jumps and others steep drops in spend.
  • 91% of all scripts are generic…that’s a big increase from a few years back
  • pharmacy is viewed as being just a bit more important than other medical categories such as facilities, surgery, E&M.
  • and opioid spend is down again (YAY!!)

From HBR comes this trenchant observationIn Supplier Negotiations, Lying Is Contagious

“Lying once can be contagious. It can pave the way for lying again in other interactions or negotiations with people at other companies.”

The brief article is intended to provide guidance to buyers, but sellers would do well to internalize the researchers’ observations.

Health spending in the US is almost twice (as a percentage of GDP) as high as other developed countries’.

The graph is here if the pic above is hard to read.

Which means far fewer dollars to spend on wages, R&D, IT investment, and stock dividends – and much higher taxes to pay for civil servants’ health benefits.

Oh, and costs zoomed up in 2020 and 2021 due to COVID…due in large part to staffing shortages and concomitant labor costs.

What does this mean for you?

Next time someone starts comparing US healthcare to those with national systems, ask them if they have any idea how much more money we spend than those “socialists” do.


Dec
9

Solving “problems” by making bigger ones

Leave it to some misguided folks in the California legislature to come up with solutions to non-problems, solutions that will do more harm than good.

That’s just what AB1127 does…shortening the time period for employers to determine the compensability of claims, a change which will lead to – among other problems – more initial denials and less time for injured workers to receive medical care while their employer researches the claim. Further, AB1127 appears to allow for penalties of up to $50,000 for claims that are “unreasonably rejected” by the employer – but the bill a) doesn’t define what constitutes an “unreasonable rejection” and b) doesn’t exclude claims that are already closed.

That last is pretty bizarre – then again the entire thing is a mishmash of unfounded assumptions and poorly conceived “solutions” that will add litigation expense while doing little to improve the lives of injured workers.

One of the major problems is the timeframe to investigate some claims is shortened – but much of what happens during that investigation is beyond the control of the employer/adjuster.

As a result, payers facing down a deadline may have to issue a provisional denial if they can’t get evaluations scheduled, obtain medical records or med-legal reports or those records and reports are incomplete.

There’s a lot to unpack here – the fine folks at CWCI have provided a detailed analysis of AB1127 here – free to members and at nominal cost for others.

What does this mean for you?

How this benefits injured workers is a mystery indeed, how it benefits applicant attorneys is crystal clear.


Dec
5

Pandemic’s impact on workers’ comp financials has been…

A new report ($25 to download) from the National Foundation for Unemployment Compensation and Workers’ Compensation sheds light on the pandemic’s impact on work comp financials.

MCM readers will not be surprised that the impact has been pretty positive – Mark Priven and I predicted this back in September of 2020.

Several key takeaways.

  1.  Medical costs plummeted  – by over $3.5 billion – almost 12%, likely due to lower employment resulting in fewer claims, coupled with the relatively lower cost of COVID-related claims (much more on this here).
  2. Total benefit payments dropped by almost $3.9 billion…
  3. Over the last decade, the national average benefit cost per employee dropped by 10.2% – BEFORE adjusting for inflation. After adjusting for cumulative inflation of 17%, the real decline in benefit cost per employee was 27.3%. 

What does this mean for you?

Workers’ comp financials are pretty strong…for insurers and employers.

Mark Priven is a really insightful actuary. 

 


Nov
29

Work comp and P&C – diabolical opposites

The property and casualty insurance industry is looking at increasing underwriting losses in 2022...while workers’ comp (which represents perhaps 1/10 of total P&C premiums) continues to be hugely profitable.

Which begs the question..will multi-line insurers try to use work comp to offset lower profits in other lines?

According to the Insurance Information Institute;

The (P&C) industry’s combined ratio — a measure of underwriting profitability in which a number below 100 represents a profit and one above 100 represents a loss – is forecast to be 105.6, a worsening of 6.1 points from 99.5 in 2021. [emphasis added]

Amidst troubling trends from other P&C lines – personal and commercial auto, property, multi-peril and homeowners, workers comp stands out…this from Milliman’s Jason Kurtz:

“The workers compensation line continues to stand alone, with its multi-year run of strong underwriting profitability forecast to continue for 2022 and into 2023-2024.”

Premium rates are increasing for pretty much every P&C insurance sector – except workers’ comp – where rates in almost all states are headed in the other direction.

Actuaries at III and Millman project an overall P&C combined ratio of 105.6 for 2022 – while work comp’s looking a combined of 87.2…almost 20 points better (yeah I know those are different years, but not that different).

courtesy NCCI

What does this mean for you?

While multi-line insurers may try to jack up work comp rates to offset losses in other lines, the soft work comp market makes it extremely unlikely that will work…employers will find plenty of carriers very willing to write their business.