Jan
3

2023 work comp predictions…how’d I do part 2

Here’s the second half of my predictions – and how they panned out…

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.

False – regulatory changes take way longer than they should. California is poised to mandate heat standards for indoor workers; the Golden State has had outdoor worker standards in place for almost two decades. Oregon instituted indoor and outdoor heat regulations in 2022 and Colorado, Minnesota and Washington also have regulations in place.

And the Feds are still dillydallying damn it.

source NRDC

But there were no other changes in 2023…

 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.

False. Complacency reigns supreme.

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.

Verdict – True. A soft landing appears far more likely than not, hiring remained solid in the last months of 2023.

And, WCIRB just reported premiums in California were up 2% for the first there quarters of 2023 over the same period in 2022…

Employment in manufacturing construction jumped bigly last year…

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.

Verdict — TBD. Awaiting input from folks more on top of this than I am.

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.

Verdict – Well…deals that closed were few indeed…those that did close were all strategic not financial buyers – while I got the strategic buyer thing right, I over-estimated deal volume…so… false.

Enlyte bought Therapy Direct.

Sedgwick tried and failed to do a recap..sources indicate valuation was a major sticking point. The giant TPA wasn’t alone, as at least two other attempted sales didn’t materialize.

Ametros sold for a ton of money – but that wasn’t a “work comp services” transaction per se.

accuro Solutions acquired Splashlight, adding to accuro’s service portfolio.

The drivers noted above – fewer buyers, lower prices, less interest from PE firms were major factors – along with interest rates.

Notably, as predicted international M&A activity dropped by about 20%… with private equity and venture capital deals down almost twice that. And, prices declined as well due to the factors listed above.

Overall – 5 True, 4 False, 1 to be determined.

Reflecting on these results, it’s clear my optimism overtook my cynicism (and experience); expecting regulators and work comp payers to get their acts together and do something meaningful about worker exposure to heat and widely-acknowledged rising facility costs was just…dumb.

 


Jan
2

Predictions for 2023…how’d I do?

Yikes!

A year has passed (good riddance!), and it’s time to own up to how I did on my annual predictions for workers’ comp – and stuff that will drive WC.

A view inside HSA’s intergalactic headquarters’ predictive analytics department…

Here we go…predictions and results thereof:

  1.  The soft market continues…
    And it won’t harden in 2023. Medical costs remain very much under control (with an exception), rates continue to drop, employment remains very strong (essential for return-to-work) and there’s lots of payers fighting for market share.

    True
    . The fine folks in Oregon’s helpful analysis of state work comp rates…indicate once again rates were down. For years work comp rates have been artificially high; that continued in 2023 driven in large part by the opioid hangover.
  2. Medical spend is NOT a problem – and will NOT be in 2023.
    With a couple notable exceptions – to be covered in a future post – medical inflation will remain under control. In part this is driven by much lower drug spend and more specifically the continued decline in opioid spend. The latter has a big impact on claim closure and total medical spend.

    True.
    Client data and early indicators point to relatively modest increases – if any – in medical spend. Facility costs are the exception, but a shift in location of service has – for now – moderated the impact.
  3. Behavioral health and its various iterations will gain a lot of traction.
    More State Funds, carriers and TPAs will adopt BH programs, more patients will benefit, and more dollars will be spent. There’s a growing recognition that medical issues aren’t hindering “recovery” near as much as psycho-social ones. This is great/wonderful/long-needed and will really benefit patients and payers alike. Kudos to early adopters, and LETS GO to you laggards!

    True – although there is not enough infrastructure to support BH. Sure there are companies that have BH-specific experience and expertise; Carisk among the leaders, AppliedVR is the only FDA-authorized virtual reality chronic pain solution and is gaining significant traction…unfortunately there are no national or even regional provider networks providing full BH services.This is in large part because payers want discounts (do NOT get me started on the stupidity of this) coupled with a national shortage of providers. (Carisk and AppliedVR are both HSA consulting clients)

  4. One Call will be sold. 
    I keep forecasting this…and one day I’ll be right.  It has to be this year. CEO Jay Krueger and colleagues have OCCM on a better track, but structural problems (i.e. declining claim volume) and internalization of One Call-type services by Sedgwick and others make the future…less than promising. Couple that with recent ratings actions by Moody’s and S&P and it’s time to do the deal.

    Wrong – Again.
    Well, can’t seem to win this one.  Any interested parties have run away –
    because OCCM’s current owners are suing each other. Gotta feel for Jay Krueger and colleagues…I’m quite sure if the circular firing squad hadn’t pulled out their guns OCCM’s staff, clients, and customers – and the investors as well – would be in a much better place.

  5. New technology will make its impact felt.
    Wearables, chatbots (I HATE THEM), and Virtual Reality-driven care are three ways tech platforms/systems/things will significantly ramp up in ’23. Expect several large/mid-tier payers to adopt new tech in a major way – aka not just a small pilot.
    Structural issues with health care (try to find a LCSW or Psych-trained counselor), lack of trained adjusters, and frustration with rising rehab expenses are all contributors.

    True – AppliedVR is working with several workers’ comp payers today – as well as the VA; Plethythe recovery support company – is rapidly expanding its client base, and many payers are trying other tech – with quite mixed results.
    Plethy’s data indicates consistently high patient adherence to home exercise and remarkable outcomes. Other wearable tech that requires provider
    training, uses vision technology to monitor movement and the like are struggling with low adoption and adherence. (Plethy is an HSA consulting client)

Tomorrow  – the other five predictions.


Dec
21

The Ametros deal – details and perspective

Ametros just sold for $350 million in cash, a rather stunning haul for the MSA administrators’ owners.  There’s a lot detail on how and why Ametros’ value was that high in the interview below,

Along with the Carisk recap, this was one of the (very) few recently-attempted sales in the industry that came to fruition. In the parlance of private equity Ametros may be a unicorn – from here it looks like its valuation wasn’t based on an earnings multiple, rather the company’s massive bank deposits and growth potential.

I spoke with CEO Porter Leslie earlier this week – he was refreshingly open and candid; I didn’t have to dig through gobs of corporate-speak to get to the real stuff.  Here’s our conversation.

Questions for Porter Leslie

MCM – Talk about how Ametros has grown to over $800 million in [bank] deposits.

Leslie – It has been a long grind, we identified something that the market needed, to take care of Injured Workers [IW] after settlements, over time a lot of large payers and attorneys came around… CMS highly recommends it, it helps IWs, and helps settlements happen – it all makes sense – it took time to scale and to get story out there, nothing fancy, just focused on building strong relationships

MCM – One aspect of Ametros I’ve been consistently impressed with is your marketing – talk about how leadership thinks about marketing and investing in brand.

Leslie – what we do is pretty complicated, no one understands WC or MSAs or professional admin of MSA – [so we’re at a] third level of complication – thrust has been to make it simple – mission is to make healthcare easy for IW, everything we do is thru lens of making it simple and practical – if IW can get it, then the expert that advises them can understand it

[we have] great people on the marketing side – Melissa [Coleman] works well with Helen [Knight of KingKnight]– we give them room to run, there are a lot of ideas and creativity across social media, websites, wherever they see opportunity to connect. We focus a lot on telling the stories of IWs that go through a settlement and how we can alleviate burden for them.

We do play in a lot of traditional publications, if you go to our website we highlight members. Few organizations really emphasize the human element and story around it – that’s what people care about – our people understand the space, we don’t spend on conferences so much as getting to people that matter to them and share story – message is around why do they give a darn about this and why should they – service is beneficial to all involved.

MCM – Has CMS done anything recently to increase payer interest in MSAs and professional administration?

Leslie – [recently there’s been a] Steady drumbeat from CMS on tightening up oversight and MSAs and professional admin…for instance, a few years ago with CMS’ electronic portal to submit reporting – we worked hard with CMS to make it work. Last year CMS put out messaging re MSAs in an attempt to move the market towards submitting MSAs for CMS’ approval– CMS did a webinar last month saying that in 2025, CMS will mandate that when you settle a case you have to put a $ figure for moneys that were set aside to protect Medicare …now the payer has to tell CMS when they settled the case, even if the MSA was not formally submitted to CMS for approval, the payer has to tell CMS [explicitly] the amount that was set aside to protect them. All this effort to drive extra visibility shows CMS is watching settlements and wants to make sure the injured workers’ medical funds are properly set aside and administered after settlement.

MCM – Unusual for a bank to acquire a workers’ comp services entity; talk about the rationale.

Leslie – Don’t think of ourselves as WC services business – receive business from WC but once injured workers land with us, the individual is a cash pay member of the healthcare system – in the [sale] process we did not want to be typecast into WC business – we do fair number of general liability and accident claims as well

Webster is top 25 bank and the largest bank-run administrator of HSA [Health Savings Accounts]. Webster acquired an HSA admin company that was tiny, now it is close to $13 billion in deposits…Webster held majority of Ametros’ deposits and made a loan to the business, knew Ametros well and was accustomed to investing and growing this type of business. The deal really was the natural evolution of a partnership that was years in the making.

MCM – While there haven’t been many transactions of late, in general valuations have declined from those a few years ago…this transaction bucks that trend. Valuation of $350MM was quite impressive, as was the all-cash purchase.

Context is Webster is a [recent] combination of Sterling Bank and Webster [which] doubled its size…they have been pretty active looking for differentiated source of deposits…Webster is not trying to be expert in WC…know Ametros has a team of experts that do that know that.

MCM – How will Ametros operate going forward?

Leslie – No team changes or system changes or tech changes – vision from W is to remain independent similar to HSABank – questions Webster is asking [of management] are how to grow faster; need people, systems, etc? – Ametros administers 8-9% of MSAs that are settled today, and we should be handling 80-90%…[expect we will] put forth budgets to really propel the business.

 

MCM – What changes will customers see?

Leslie – Keep same brand, same products, invest in making them better, no changes to staff

[There is] Not a workers’ comp dedicated bank out there, so may be other opportunities for Webster in WC.

[There are] Other entities [in MSA administration] that are 1/5th the size of them that could be acquisition candidates

What does this mean for you?

Great business ideas with great marketing executed very well can be very lucrative. 

You need all three.

 

 

 


Dec
18

Provider consolidation = Higher workers’ comp costs, longer disability

Healthcare provider vertical integration increases work comp medical costs, increases disability duration, and does not deliver better outcomes.

And, provider consolidation continues to increase.

The lede is the one-line summary of WCRI’s latest – and quite useful – research.

Olesya Fomenko and Bogdan Savich collaborated on a very well done study of vertical integration of providers’ impact on work comp, and their research bodes ill indeed.

Summarizing the experts’ findings, vertically integrated providers had: 

Some detail…courtesy WCRI

And if you think that’s bad…here’s the impact on disability duration…

These conclusions generally align with what we’re seeing from other payer types…consolidation leads to higher prices and negative to neutral impact on outcomes.

That isn’t stopping consolidation  – far from it.

What does this mean for you?

Find out how consolidated provider markets are where your business is. And watch for more consolidation, as that will predict higher costs.


Dec
14

Electric grids, infrastructure, jobs and payroll

In which we briefly discuss the power grid, jobs and what it means for you.

The good news is the Inflation Reduction Act (IRA) and bipartisan Infrastructure Investment and Jobs Act invest billions of dollars to upgrade the nation’s electrical grid.

courtesy Carbon Collective

(a connected grid enables operators to send power from places where there is plenty of electricity – say Arizona – to places where demand is super high – say Oklahoma during a deep freeze)

Dollars going to infrastructure are a major reason construction spending has jumped..it’s now more than a third higher than pre-COVID

Paralleling investment, construction employment has dramatically increased and is well above pre-pandemic rates..

source – FRED

What does this mean for you?

More investment = reliable infrastructure + more jobs = higher payrolls = higher premiums.

A very good explanation of the grid, transmission, and electricity production is here.


Dec
7

Work comp services – another deal is done

Private equity firms Lee Equity Partners and Elements Health Investors completed a recap of Carisk Partners last week, marking one of the very few deals to be done over the last many months.

While this may be an indication that things may be moving, there are several reasons we aren’t likely to see a return to the halcyon days of a decade ago.

First, over the last two years Carisk is one of the very few companies to actually get a deal done. Several others tried and failed, mostly because:

a) sellers’ expectations were out of whack with what buyers would pay;

b) due diligence revealed softness in numbers &/or growth plans &/or management depth;

c) current debt service costs made a deal too costly; and/or

d) the property is/was too large (more at the mercy of industry trends than smaller entities, very hard to grow share when you are already huge)

Carisk has very experienced and quite effective management, terrific marketing, some of the best sales people in the industry, a strong culture and a coherent strategy for growth and expansion.

Second the structural issues inherent in workers’ comp, namely it is a highly mature, consolidating/consolidated industry with very low to negative growth make it less attractive than, say, generative AI.

Third, debt – which makes up most of the purchase price of pretty much every sale – is still expensive compared to rates over the last decade or so. Investors will eventually get over mid-to-high single digit interest rates, but haven’t yet.

Lastly, reality is work comp is just not that interesting: many execs are highly risk-averse if not downright lazy; innovation is frowned upon if not actively avoided; and complacency is rampant as is chronic under-investment in IT and human capital.

The few transactions that have closed – HomeCare Connect and now Carisk most prominent- are really solid companies with great management teams, solid track records and a clear path to substantial growth. The ones that didn’t close were…not.

That’s not to say some companies won’t test the waters, but don’t get caught up in rumors about this or that company getting sold or preparing for a sale or going to market or talking to investment bankers.

Bankers are ALWAYS talking up potential deals…it is how they gin up business – and the work comp rumor mill loves to help ’em out.

What does this mean for you?

A great company will always be valuable. 

disclosure – I have a (very small) financial interest in Carisk.


Dec
5

Profit shifting aka work comp is funding the P&C industry’s losses.

Or, it is a GREAT time to be a monoline carrier.

The property & casualty insurance business is a tale of two extremes, with work comp profits offsetting losses across all other lines.

That’s one reason multi-line insurers are dragging their feet on cutting work comp and continuing to hoard billions of dollars in excess reserves.

Work comp is hugely profitable, with insurers raking in hundreds of millions in profits…with $10+ billion more in excess reserves, aka unrealized gains.

chart extract from S&P

Other insurance lines are the yang to WC’s yin.

S&P predicts all other lines will lose money on an underwriting basis again this year…

Here’s the money quote (pun intended):

➤ Dismal first-quarter 2023 direct incurred loss ratios in the homeowners and private auto business suggests a repeat of 2022, when highly favorable underwriting results in the commercial lines, aided in part by favorable prior-year workers’ compensation reserve development, were more than offset by the personal lines losses. [emphasis added]

and implications thereof:

The [2022] workers’ compensation combined ratio of 83.9% represented a decline of nearly 3.3 percentage points from the 2021 result. It ranks as the second-lowest such result in the last 25 years, owing to relatively benign trends in the current accident year and a fifth straight calendar year of favorable prior-year reserve development in excess of $5 billion. [emphasis added].

What does this mean for you?

Those who pay comp premiums are subsidizing insurers’ losses in personal and commercial lines – especially personal auto.


Nov
22

Getting smarter about PT.

Why do some patients need more PT than others?

Why does a therapist’s treatment duration vary for patients with the same diagnosis?

What conditions have the most impact on patient recovery?

Thanks to WCRI’s Vennela Thumula PharmD; Randall Lea MD; and Te-Chun Liu there are answers.

WCRI’s latest research based on FOTO data digs into just how big an impact mental and physical health co-morbidities – and other factors – have on improvements in functional status.

The methodology is robust indeed, the data solid as it gets, and the insights provided by the researchers quite valuable.

Using FOTO’s 100 point scale, their research indicates patients with both physical health and mental health comorbidities see about 20% less improvement in functional status than patients with no comorbidities.

courtesy WCRI

Co-morbidities – aka health conditions a patient has in addition to the one you’re focused on – may be physical – think obesity, hypertension, arthritis – or mental – depression, anxiety/panic attacks, sleep dysfunction.

Quick takeaways…

About two-thirds of patients have a physical or mental health comorbidity, and these comorbidities definitely affect the patient’s ability to recover.

The more comorbidities a patient has, the greater the impact on recovery.

More troubling still, the more likely these patient would have “very limited” function at the end of therapy.

The researchers also looked at the same metrics for non-work comp patients…and found comorbidities had similar if not more impact on recovery.

And…it isn’t just comorbidities.

Quicker access to PT had an even greater impact on recovery than physical or mental health complications. The details are on page 43 of the study. If you’re not a WCRI member, become one to get access to all their great work at no charge.

Non members will have to pony up a few bucks to learn more.

What does this mean for you?

Great research is really useful…use this to help injured workers get better faster. 

 

 


Nov
20

Forbes’ “rating” of workers comp insurers is…

A farce.

Ok folks, I’m gonna get snarky here.

First, there’s the title. I think they meant “insurers” not “insurance”… the latter is quite consistent across all insurers

A while back PropertyCasualty360’s reported on a “rating” of workers’ comp insurers by Forbes Advisor, an entity which doesn’t appear to take its ratings very seriously.

Everyone loves lists – done right they can reward the best and force others to up their game while helping consumers pick the best offerings. Done poorly they mislead, provide zero value, and result in buyers making decisions based on useless/misleading/wrong criteria.

In this instance, Forbes’ understanding of what makes for a “good” insurer is about as deep as my understanding of quantum mechanics.

In fact, the article looks like it was created by a beta version of ChatGPT with zero editing by anyone who passed a high school English course. (I did try to contact the author but there’s no link or contact info other than a name on Forbes’ website, and I’m not going to waste even more of my time trying to track this guy down)

okay, the details.

From PropertyCasualty360 (who really ought to know better):

Forbes Advisor based 90% of the scores [sic] the level of upheld complaints made to state insurance departments and collected by the National Association of Insurance Commissioners. The remaining 10% of the scores were based on the financial strength assigned to the company by AM Best.

Well. I’ll spare you, dear reader, my minor criticisms and focus on the major ones.

  1. What??? 90% of the “rating” is based on complaints which have little to nothing to do with how good a business partner a carrier is.
  2. What about cost, dividends, time to first report of injury, claim closure rate, claim frequency, sustained return to work…Jesus there’s about a million criteria more important than complaints to regulators.
  3. That said, a major driver of complaints would be certainly driven by claim volume…so the bigger the insurer, the more likely they would a) have complaints and b) the more complaints there would be. No discussion of this in the “survey.”
  4. Sometimes people complain because they don’t want to go back to work, don’t like having to go to specific providers, want brand drugs instead of generics, and on and on. Sure some of these complaints would likely be dismissed by regulators, but others would likely not be “dismissed.”
  5. Financial strength – well, given many carriers are A, A – or A+ rated, how useful is this? Might as well say “hey, only buy WC insurance from an A rated carrier!”
  6. What about:
    1. customer satisfaction?
    2. injured worker satisfaction?
    3. broker rating (be careful, but a whole lot more useful than “complaints”)
    4. claim closure rate?
    5. medical provider satisfaction?
    6. Net promoter score?
    7. employee rating of their employer e.g. Glassdoor?
    8. best places to work ratings?

The result is a wholly useless exercise which may encourage clueless buyers to make bad decisions based on a “survey” which looks like nothing more than clickbait.

I’ve seen better/more useful/more credible ratings for the top home margarita blender kits, highest rated shoelaces and best pencil erasers.

What does this mean for you?

Another sign of the impending apocalypse. 

 


Nov
9

When you’ve seen one state…

The brainiacs at NCCI have a must-read post detailing physician services’ costs and utilization in most states.

Gotta say this is one of the most useful and insightful analyses I’ve seen from anyone. Kudos to NCCI.

Couple highlights…

  • VERY wide range of physician costs – on a service year basis, state costs range from $800 to almost 4 times that.
  •  Using NCCI’s utilization metric (units), utilization varied almost as much – from fewer than 1000 to more than 2500 units.
  • one of the most insightful learnings is about the factors contributing to variations in utilization…

  • “service intensity” is the most important driver of variation; NCCI’s definition is the “collection and type of physician services rendered on average for a claim given its diagnosis and whether there was a major surgery.”

What does this mean for you?

Your medical management strategy MUST be state-specific.