Good news is bad news – Medical cost inflation’s continued decline

Perhaps the biggest news to hit this summer is the decline in medical inflation.

Make no mistake, this is very, very important.

Important – as in huge decreases in the federal deficit.

Important – as in low-single-digit health premium increases.

Important – as in placing huge pressure on health care systems, hospitals, and other providers – because low premiums for employers equals less income for providers.

Here’s what the data shows.

Today, CBO projects the 2019 Medicare spend will be $95 billion less than it projected four years ago.  That’s equivalent to a fifth of the military budget.  Or the entire budget for welfare, Amtrak, and unemployment.

Over a decade, the reduction is about $700 billion.  According to a piece in the NYTimes (link above);

much of the recent reductions come from changes in behavior among doctors, nurses, hospitals and patients. Medicare beneficiaries are using fewer high-cost health care services than in the past — taking fewer brand-name drugs, for example, or spending less time in the hospital. The C.B.O.’s economists call these changes “technical changes,” and they dominate the downward revisions since 2010…[CBO analysts say] the economy is playing a negligible role in what’s happening in Medicare, meaning that they’re more confident that the practice of medicine really is changing. (emphasis added)

That’s all good, right?  The fiscal cliff is farther away, and not nearly so steep and scary as it was even a couple years ago.

Not so fast. One person’s savings is another one’s income.  In this case, that “other one” is the healthy care delivery system – doctors, pharmaceutical companies, hospitals, device companies, health systems.

Those stakeholders are adapting as fast as they can, and making great strides.  But a big part of that adaptation is revenue maximization – making darn sure they are getting as many dollars from every patient as possible.

What does this mean for you?

Pretty obvious, methinks…

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.






Friday catch-up

The last couple weeks of the “real” summer are flashing by…things have been a little slow out there but a few items of note crossed my virtual desk this week.

Workers’ comp

From Insurance Thought Leadership comes a piece about M&A activity in P&C insurance claims.  While the article emphasizes the “supply chain” for auto, the author also believes work comp vendors are ripe for consolidation.  That’s a bit like calling the race after the horses have crossed the line, nonetheless author Stephen Applebaum’s views are worthy of consideration.

Just occurred to me that three very good and highly experienced work comp medical directors have departed/will depart their current employers over the next few weeks.  Rob Bonner, MD of the Hartford; David Dietz, MD of Liberty; and Luis Vilella, MD of the North Dakota State Fund are all free agents, or soon will be.

That’s a lot of talent.

Health cost inflation

The latest data indicate health cost inflation remains really, really low.  Like 3 percent. There’s plenty of opining on which factors are affecting the decrease in the rate of increase, but rather than apportion blame/credit, let’s just bask in the warm glow for a bit.

Health plans

While profits aren’t at an all-time high, early indications are the biggest health plans – which cover 56% of Americans with health insurance – are doing pretty well, with a good chunk of their growth coming from self-insured employers.  From Mark Farrah’s report on Q1 2014 results on the top 7 health plans;  “[the] uptick in ASO suggests more employers are opting for self-funded commercial plans to skirt some provisions of the ACA (Affordable Care Act). Increases in risk enrollment are mainly a result of continued growth in the Medicare and Medicaid segments.”

The data is supported by an insightful piece from Margot Sanger-Katz in the NYTimes’ Upshot blog.  Sanger-Katz notes employee insurance signups at Walmart are up significantly, a data point she uses to build a case for the ACA’s influence on employer signups.  Singer-Katz – “expanded employer insurance coverage illustrates how the Affordable Care Act is set up to build on the country’s existing insurance system rather than tear it down. The law doesn’t just create new public insurance programs. It also includes incentives designed to get more people enrolled in employer health coverage.” [emphasis added]

Ten days till the unofficial end of summer – relax like it’s your job!

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.



Monday catch-up

Had a great few days of vacation last week; completely ignored work, spent a lot of time with many old friends, and learned for the millionth time how unbelievably lucky I am to be married to Deb.

Here’s a VERY brief summary of some of the happenings that happened while I was doing everything possible to ignore them.

Workers’ Comp

NO acquisitions were announced.  Maybe it’s because August is a big vacation month – not that the investment world ever takes vacations – but no deals were announced, or even rumored to be done last week.   Word is APAX/OneCall is still the front runner for Coventry Work Comp, more accurately that’s the consensus of the rumor mill.  There are a couple other interested parties, but for now IF a deal gets done it will likely be finalized in October.  

The big Florida Work Comp conference is happening this week and it’s likely to be bigger than ever.  Your trusty author isn’t there, but Bob Wilson, Mark Walls, Roberto Ceniceros and the other real experts will be keeping us posted on the goings-on.  There’s also WCI-FWCI TV; the conference broadcasts selected sessions and does an update each day on happenings.

In what will likely be the top topic on everyone’s mind, a Florida judge ruled that the state’s work comp law is unconstitutional; the Miami Herald reported ““The benefits in the act have been so decimated,” [Judge Jorge] Cueto wrote, “that it no longer provides a reasonable alternative” to filing suit in civil court.”

More details here from the Herald.

Health reform roll-out

The latest PPACA Chicken Little story is that Exchange enrollment is falling off dramatically as newly-insureds drop out.  According to the Investor’s Business Daily, the attrition rate is around 30 percent…

Except that’s completely wrong.

IBD’s piece distorted the figures by using the initial enrollment data as a baseline – NOT the initial PAID enrollment figure. A chunk of those who originally signed up didn’t pay, so they never had coverage to begin with. Comparing the total number of those who signed up (regardless of whether they paid or not) to those who stopped paying is apples to oranges - unless IBD’s intention was to mislead.

In fact, the decline in paid enrollment pretty much parallels what health plans normally see in an individual health block – a couple percent a month.  That’s due to enrollees getting jobs, going on to Medicare, getting married, dying, losing their jobs – normal life events.

IBD – and their fellow ideologues – either don’t understand the basics of the health insurance business, or choose to ignore facts and figures that don’t fit with their ideology.  Either way, it makes one wonder how credible the rest of their reporting and opining is.

Methinks “IBD” stands for “Ideologues Being Deceitful”…


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…

Friday catch-up

The dog days of August are upon us, and I’m going to be on vacation for most of next week, so there won’t be much activity at the Intergalactic HQ of Health Strategy Associates – or here for that matter.

Let’s get caught up on what happened this week.

Workers Comp

First, from the arcane world of Pennsylvania billing comes this note – a recent Supreme Court case, Selective Insurance v Physical Therapy Institute resulted in a ruling favorable to Selective – and other payers in PA.  Allegedly PTI – a Medicare Part A provider – was providing billing services for Medicare Part B PT providers; as PTI was not the provider, the court found the insurer did not have to pay PTI for the services.

Thanks to Linda Schmac of Premier Comp for the heads up. Ms Schmac suggests payers may want to ask their PA patients to sign an affidavit from providers other than PTI to maintain this protection.

In the possibly-even-more-esoteric world of work comp pharmacy, the good folks in North Carolina passed legislation restricting physician dispensing to workers’ comp claimants.  Pricing has to be based on a non-repackaged drug, docs are prohibited from dispensing more than a five-day supply of Schedule II and III drugs.  Kudos to Industrial Commission Chair Andrew Heath and his staff for shepherding this bill thru.

Finally, we’ve just finished collecting the data for the Eleventh Annual Survey of Pharmacy Benefit Management in Workers’ Comp; I’ll do a quick post on highlights Monday.  If you want to peruse past editions, click here.

Health care inflation

Has stayed remarkably low over the last few years.  Now comes a solid analysis that indicates most of that “reduction in the rate of inflation” is due to economic factors.  In an article published in Health Affairs, the authors found that about 70% of the decrease was due to those economic factors associated with the slowdown; whether PPACA implementation will help keep rates down going forward is not yet known. That said, it looks like PPACA could only be responsible for about 30% of the decrease.

Don’t jump to conclusions – the impact of reform won’t be known for several more years. 

Health reform implementation

Those who think the problems with the Federal Exchange are behind us may want to wait just a bit before declaring victory.  Re-enrollment will require verification of income and other bits of data aggregation, assembly, and verification; word is some of these processes are not yet ready for prime time.  Here’s hoping they are before prime time arrives – in two months…

From “The National Memo comes a report on a recent Gallup finding that the uninsured rate is down 4 percentage points in the 21 states that have both “expanded Medicaid and set up their own state exchanges; in the 29 that have taken one or neither of these steps, it has fallen only 2.2 percent.” Given the Federal Exchanges’ problems, this isn’t surprising. 

Notably, “9 of the 10 states that have experienced the largest reductions in their uninsured rates are governed by Democrats (with the exception being New Mexico, where Republican Susana Martinez is governor).” GOP governors happen to run the ten states with the lowest reductions in uninsured rates. 

A big chunk of this is due to not expanding Medicaid; another study indicates:

  • 6.7 million residents are projected to remain uninsured in 2016 as a result
  • Non-expansion states are giving up $423.6 billion in federal Medicaid funds over ten years.
  • Hospitals in the 24 non-expansion states are going to lose out on $167.8 billion “in Medicaid funding that was originally intended to offset major cuts to their Medicare and Medicaid reimbursement.”

As I’ve noted, those hospitals are going to have to make up that revenue shortfall from somewhere…

Medicare Solvency

The Medicare Trustees’ Report is out – just in time for that beach reading!  NASI has produced their much-more-readable review, which finds that there’s currently enough funding to cover all hospital expenses till 2030 – that’s four years more than last year’s assessment.

Good news to be sure.  Now if we can just keep those providers from shifting costs to work comp patients…



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.