Pre-vacation catch-up

Headed out on a much-needed vacation; MCM will be on hiatus till the middle of next week.

Here’s a few items of note that came across the virtual wire over the last few days.

Mylan’s EpiPen Disaster.

In the story-that-will-not-die, EpiPen manufacturer Mylan continues to dig its hole deeper and deeper.  The latest news – the actual cost to make and fill an EpiPen is less than 10% of the product’s actual price.  And may be as low as four bucks – for a $300 injector.

Of course, when you need an EpiPen, you really, really need one – and could not care less what it costs. (it is used to reverse the most dangerous symptom of anaphylactic shock – asphyxiation)

But there are so many hands out in the EpiPen distribution chain, all making a margin as the product works its way down to the end user.  Most striking is the rebate Mylan likely pays to the insurer – one estimated by the estimable Adam Fein at around 40% of the product’s list price.

Now Mylan CEO Heather Bresch is providing all of us a lesson in how NOT to respond when confronted by reporters asking about price increases and huge compensation packages.  Bresch said, and I quote: “No one’s more frustrated than me.”

That takes some balls – and a whole lot of cluelessness.

The parents who can’t afford to replace their kids’ EpiPens every year when they expire and have high-deductible plans so they pay the $600 out of pocket might be a touch more “frustrated” than Ms. $19-million-a-year Bresch.

Beyond that, there’s a nastier, uglier, and way bigger problem here.  Health care in this country is a for-profit business, and Mylan is operating in the best interests of its stockholders.

And no, the “free market” won’t solve this issue – markets don’t care about people.

Provider consolidation continues

CMS’ changes in reimbursement are driving adoption of IT systems designed to track and report patient encounters with a focus on quality metrics.  These systems are expensive, difficult to implement, and require ongoing updating and maintenance.

More consolidation does not mean more efficiency or cost-effectiveness…in fact some data indicates costs go up.

Implication – more sophistication in billing, electronic medical records (EMR), coding and contracting means payers will find smarter and more knowledgeable negotiators across the table, and more sophisticated billing.

Work comp rates keep coming down

California, North Carolina, Kentucky, Tennessee all are joining the states that have announced decreased work comp rates.  I know Florida’s getting all Sunshine-y for plaintiff attorneys, and payers are in a justifiable uproar about that, but that’s an anomaly.

Implications – good news for employers and taxpayers, bad news for opt-out.

Which remains a “solution” (and a pretty poor one at that” to a problem that doesn’t exist.

Okay, gotta run.  see you next week!

Opioids – you have no idea.

Two people very close to me are on the front lines of the opioid disaster.  Working in ERs and ambulances in the northeast, they see – multiple times every day – how bad it is.

You have no idea.

The toll this is taking is wide, deep, and devastating.  Some public safety workers are burning out, beyond frustration and anger to a place of fatalism.

Yesterday an unconscious woman was admitted after her kids told their dad she was taking a nap on the kitchen floor.  The nap was induced by a very heavy dose of benzos on top of heroin; when dad came home from work – he’s a public safety worker too – she was unresponsive.

Revived with a hefty dose of Narcan, the woman “justified” her dosage as needed due to some unspecified mental trauma.

This one example is playing out multiple times every day for every ambulance crew, in every ER, in every neighborhood.  NPR’s morning news greeted me with a piece about elephant-tranquilizer Carfentanil, a made-in-China chemical that is exponentially more powerful than fentanyl, which is exponentially more powerful than heroin.  Now spreading rapidly thru Ohio, Florida, and the midwest, carfentanil will soon find its way into your town.

If you think I’m being alarmist, you’re wrong.

Here’s how this is impacting us today.

  • parents are dying in front of their kids.  who’s going to take care of those kids, and prevent them from following in their parents’ tragic footsteps?
  • To some public safety workers, Narcan is NOT saving lives, it is a Get-Out-Of Jail-Free card, allowing users to “safely” push the limits of dosing in their quest to get ever higher ever longer.
  • opioids may soon be replaced by drugs such as carfentanil.  Why grow poppies when you can just order this pill from a chemical factory in China?
  • Public safety workers are at the end of their ropes.  How can they not be white-hot with anger at users when confronted several times a day with parents “justifying” their using after being revived with Narcan.

This started with legitimate “prescription” drugs pushed by pharma companies making billions.  Make no mistake, these bastards are the ones who started the ball rolling, a ball that has gotten ever-larger and is crushing more and more of us as it picks up momentum.

The great late David DePaolo penned a piece on Purdue just days before he died.  It’s well worth reading, and remembering.

But the disaster unleashed by Purdue and their ilk is way beyond what any of us thought it would become.  As powerful and necessary as the Surgeon General’s letter to physicians is, it is so, so late.

Will this epidemic be solved by public health measures far greater than anything we’ve thought of or funded to date, or, like smallpox among Native Americans or the Plague in Europe, is it fated to burn out only after it kills most users, leaving no one else to infect?

Have a great weekend.

Workers’ comp hospital costs – implications for payers

WCRI’s report on variations in hospital outpatient costs is yet more evidence of the wide and seemingly nonsensical variations in work comp regulations, fees, payments, and practices among and between states.

Among the findings:

  • an eight-fold variation in costs from the lowest-cost state – NY – to the highest – AL.
  • Shockingly, fee schedule states’ costs are a LOT lower than non-fee schedule state costs.
  • Costs in percentage-of-charge fee schedule states were much higher than those in states with Medicare-based fee schedules.

There’s a wealth of information in the report; here’s my takeaways.

Captain Obvious Alert.

In many states, workers’ comp is a huge profit generator for hospitals and health care systems.  Anyone following the drama in Florida surrounding “negotiations” around facility reimbursement in past years saw this play out in vivid color.

Hospitals are almost always much more politically influential than workers’ comp stakeholders, giving them a decided advantage in influencing legislation, and sometimes regulation as well.

As Medicaid and Medicare continue to clamp down on costs, hospitals and health care systems will get even better at maximizing revenue from workers’ comp.  Moreover, network discounts provided to workers’ comp payers are fading as payers realize the opportunity inherent in comp, and work comp PPO contractors confront the “yeah but you’re only 1 percent of my revenue” argument.

There is an entire industry devoted to revenue maximization; claims adjusters and bill review folks would be well-served to brush up on the techniques used by these folks. Here’s just a couple examples from quick research…

Considering the dollars paid to facilities and hospitals account for at least a third of work comp medical spend in most states, this is a big problem.

So, what to do?

  1. Analyze your data! Where are you spending your dollars – by state, facility, employer.
  2. Compare it to WCRI’s information – not just in this report, but the others these brilliant researchers have produced
  3. Direct, channel, refer – even in states where you don’t have an absolute right to “direct”, you CAN influence where your patients go to get care.
  4. Find and work with a medical bill review specialist with expertise in the specific states of most concern.
  5. Get creative – talk to your adjusters with long and deep experience to find out what works and what doesn’t.

Kudos to WCRI’s Olesya Fomenko and Rui Yang for their work – they’ve taken a shipload of data and turned it into information that’s understandable  – and actionable.

Does workers’ comp have a future?

Not much, at least according to workers’ comp legend Frank Neuhauser. In an article published in last month’s Perspectives, the IAIABC journal, [sub req] Neuhauser argues that workers’ compensation is no longer needed for 90% of America’s employees, as the workplace has become safer than the non-occ environment.

Noting that the occupational injury rate has dropped precipitously over the last 25 years, he draws a contrast between today’s occupational risks and those extant 100 years ago when workers’ comp was just a few years old. This contrast is so compelling that Neuhauser makes the case that workers’ comp insurance is superfluous, unnecessary as the risks are so low in our largely service economy.  Further, he makes the case that this safe workplace is one of the primary reasons to do away with work comp. Moreover, the medical care that would be needed for those few injuries that do occur can be delivered via health insurance, while disability coverage can simply be added to workers’ existing short- and long-term disability.

I find Neuhauser’s case far from compelling.  In fact, it is so far-fetched at least one very knowledgeable colleague wondered if Neuhauser had penned the piece just to provoke discussion.

If that was his mission, it was accomplished. At today’s Maine Workers’ Comp Summit, all panelists at the Think Tank disagreed with the central premises of Neuhauser’s case, raising multiple objections to his data and logic.  Here are a few.

  • About a third of workers have disability coverage.  What about the other two-thirds?
  • About 15% of workers do not have health insurance.
  • Employers have worked diligently to reduce injuries and risks thereof in large part because they pay higher premiums with higher injury rates.  Removing that financial incentives would almost certainly result in higher injury rates.
  • Eliminating workers’ comp would also eliminate the tort protection enjoyed by employers in today’s no-fault system.
  • In some cases, there is no tort system as a recourse. As Think Tanker Alison Denham pointed out, some injuries, such as those suffered by fire professionals, have no “cause of tort.”  Who would an injured fire professional sue?

Pennsylvania Judge David Torrey succinctly addresses many of Neuhauser’s arguments, bringing a much-needed legal perspective.

The net?  Sorry, Frank.  Work comp is here to stay.

 

Companies need strategies, Execs need success

And those two often don’t match up very well.

Example.  Work comp insurance companies benefit when medical and indemnity costs are lower than expected.  So, lower medical costs = better “outcome” for the company.

Many – if not most – managed care executives are evaluated in part based on “network penetration” and “discount below fee schedule”.  Thus, the more dollars that flow thru their network, and the deeper the discount those providers give the network, the “better” the executive’s performance is.

Superficially, this makes sense – more care thru lower cost providers equals lower medical cost, which benefits the insurance company.

“Superficially” being the key word.  Here’s the problem with this model.

Insurers contract with PPOs, which in turn contract with providers to deliver services at a discount. Most PPOs get paid a percentage of the savings that is delivered by that discount, typically 15 to 22 percent of the savings. So, the more the PPO ‘saves’ the more it makes. On the surface, this sounds good: the system rewards the PPO for saving money and does not pay it when it delivers no savings.

Under a percentage-of-savings arrangement, reducing total medical cost is ignored in favor of saving money on unit costs. The PPO gets paid for savings on individual bills. Therefore, the more services that are delivered and the more bills generated, the greater the ‘savings’ and the more money the PPO makes.

The system encourages over utilization because it is in the PPO’s best interest financially to have numerous providers generate lots of bills for lots of services. Also, the providers, squeezed by a per-unit fee schedule that is lower than fee schedule/Usual and Customary Rates (UCR), have a perverse incentive to make up for that discount by performing more services.

The fact is few carriers, TPAs, or employers have realized that per-bill ‘savings’ is the wrong way to assess a managed care program – or the executive running medical management. And unless senior management changes their evaluation methodology, their managed care departments will have no incentive to change their program to one that actually does reduce total costs.

This is by no means the only example out there; I’m quite sure you can come up with more than a couple off the top of your head.

What does this mean for you?

Take the time to understand  – really understand – what success is, and what drives success.  You may be unpleasantly surprised to learn your execs’ motivations are diabolically opposed to your company’s success.

Federalizing workers’ comp

Insurance folks decry the difficulty inherent in operating in multiple states, each with their own rules, requirements, standards, and demands.  It would be all so much easier if there was one national standard, and some would argue this would make for a “fairer” system.

However.

States have the Constitutional authority to oversee and regulate most insurance functions. While federal legislation and resulting regulations can – and do – supercede State laws (think voting rights, interstate speed limits, education standards, firearm background checks), to date states have been left pretty much alone when it comes to workers’ comp.

Is that going to change?

I think not, but reasonable people can make a good case for some national standardization – which would almost certainly require Congressional action. Of course, given Congress can’t even bother to authorize spending to deal with the opioid disaster or take action on Zika, something as tiny and non-problematic as workers’ comp is not likely to get any Congressperson’s attention.  

Here’s where it gets ideologically sticky.

Folks who normally favor small, limited Federal government find themselves advocating for national standards to streamline work comp for insurers and employers. The hodgepodge of state regs creates a whole host of inappropriate incentives;

  • injured employees get higher wage replacement payments depending on the state “where they were injured”
  • while employers get lower rates in states with low wage replacement levels and
  • doctors get paid more to treat workers’ comp patients in Connecticut than in Massachusetts – a LOT more

Those just scratch the surface; talking with Bob Wilson yesterday about this, he noted many payers are most frustrated by EDI rules and regs.  Set up in an effort to normalize state requirements around a set of national standards, Bob noted many states seem to have a need to tweak things just a bit here and there. Once that begins, there’s no such thing as “standard”.

What does this mean for you?

Ideology sometimes conflicts with reality.

Tuesday update

Not to rub it into my friends and colleagues who are “working” in Orlando this week, but here in Montana it is 73, dry, sunny, and the mountain views are spectacular. Of course, flying into Bozeman isn’t nearly as…challenging as the obstacle course of strollers, elderly folks (my mom is 95, so don’t flame me), clueless travelers, little-kids-running-in-circles and mouse-hat-wearing families that is MCO.

While the attendees at the Montana Governor’s Conference on Workers’ Compensation won’t be partying to ThirdEyeBlind, these westerners have just as much fun at their annual confab as anyone.  Some have even more.  Film at 11.

I’m sure Bob Wilson will report back after his keynote talk here tomorrow; in what might well be a preview of the Clinton:Trump debate the esteemed WorkCompKing and I will be on the stage discussing matters of great import.  As we are the last session before the cocktail hour, don’t expect us to run long.

On to more serious matters.  And not much is more serious than the goings-on in California these days.

In California, we’ve learned that a big chunk of the liens filed are the work of individuals convicted or criminally indicted.  A total of $600 million in liens fall into this category, with a total of $2.5 billion – yes, that’s with a “B” – filed by “68 businesses comprising the top one percent of lien filers [who] filed more than 273,000 liens totaling $2.5 billion in accounts receivable on adjudicated cases between 2013 and 2015.” 

The Department of Industrial Relations’ summary goes on to note:

The assignment of liens by service providers to those who file and collect on liens are, in essence, the buying and selling of injured workers’ treatments and fertile ground for presenting fraudulent claims.  DIR’s review of filing dates indicates that lien claimants tend to wait until after the primary case is settled rather than seeking early resolution of medical necessity.

My interpretation – these scam artists are waiting to file until AFTER the claim is settled because they know full well the fiduciary just wants the damn thing to go away, doesn’t have the resources to fight each and every lien, and is better off paying off these crooks than fighting them.

These people add no value, deliver no service, help no one, and want to get paid for it.  

Here’s hoping California’s legislature jumps on this issue, prohibits lien filing by criminals and for denied claims.  Time is short…

Staying west for a minute, the fine folk at CWCI (Stacy Jones in specific) just published their evaluation of medical fees post-reform.  A main takeaway:

The amount of the reductions [below pre-reform utilization levels] varied by the type of care, ranging from 11.4% for radiology services to 49.5% for medicine services (comprised primarily of ancillary services such as cardiovascular, nerve and muscle testing, and psychiatric testing and psychotherapy), with an overall reduction of 17.7% in all medical services. At the same time, changes in total amounts paid under the schedule ranged from a 44.9% reduction in medicine services to a 12.7% increase in physical medicine services, for a net reduction of 14.3% in payments for all services. [emphasis added]

The implication is this – adoption of Medicare’s fee schedule has increased the volume of and reimbursement for cognitive services – talking with patients, rehabbing patients – and a reduction in payments for doing stuff TO patients; MRIs, nerve tests and the like.

This is good.

Thanks to CWCI’s Bob Young for the info and background.

Housekeeping

The systems folks who do all the IT work on ManagedCareMatters updated our WordPress to the latest version last week, which led to a deluge of bounced emails from former subscribers with dead email accounts.  I’ve been ever-so-slowly cleaning up the subscriber list: this is a highly manual process, requires individually deleting a lot of addresses, and I’m absolutely sure I’ve screwed up and deleted addresses I shouldn’t have.

So, sorry about that.

This is going to take a little while, and in the interim I’m not going to be able to post as often as I’d like.  Hope to get this cleared up by the weekend, or I’m stuck sitting in front of a computer while my lovely bride and friends cavort on the lake.

Grrr.

HealthWonkReview’s review of ACA is up

And that’s just part of Jason Shafrin’s August edition; from premium increases to Christian health plans; from not enough regulation to dumb rules; from formulary exclusions to OSHA penalties, click here for your guide to all that’s worth Reviewing.

What’s happened to all the private equity interest in workers’ comp?

For the last five plus years, the investment community has been all over workers’ comp services. Lately, not so much.

What’s going on?

From PMSI’s purchase by HIG to APAX’ acquisition of Align and One Call to form One Call Care Management, from Onex’ buyout of York Risk Services to United Healthcare’s purchase of Helios, there have been more than a score of meaningful transactions.  And that’s not counting the “tuck-in” deals such as MSC’s purchase of TMS, or One Call’s acquisition of MedFocus or EXAM’s dozens of deals to acquire small IME firms.

Of late, the transaction flow has slowed to a trickle, and the reasons for that change are well worth considering.

Before we jump into that, let’s review why work comp was so intriguing to investors.  I’ll summarize:

  • highly manual industry crying out for automation and process improvement
  • low regulatory risk compared to national health care deals
  • lots of smaller companies competing in different markets
  • relatively low prices, at least at the outset
  • horizontally- and vertically-fragmented service market (single region or state and/or single service e.g. DME)

Here’s what’s changed.

  • Far fewer companies to buy.  The PBM market alone has consolidated from 12+ down to 6 with meaningful market share.  EXAM has bought up many of the mom and pop IME firms.  Genex has bought case management and related businesses.
  • Buyers are scarcer.  After increasing interest in the private equity “industry” early on which I attribute to firms jumping on the bandwagon, PE firms have moved on to focus on other niches.
  • Some of the deals have yet to meet expectations.  This should NOT be surprising, as investments always carry an element of risk. However, the sometimes-high-profile “misses” have made potential buyers a bit more cautious.
  • Prices are high.  Multiples (buyers typically base their purchase price on a multiple of Earnings before Interest, Taxes, Depreciation and Amortization) were as high as 14x, well above historical levels that tended to be in the high single digits.
  • Buyers are smarter. After learning all about workers’ comp while looking at different opportunities, buyers no longer accept at face value marketing pitches based on growth, consolidation, and “white space”.
    Also, the state-specific nature of workers’ comp adds a level of complexity that PE firms often find problematic.
  • Structural factors. Workers’ comp is a declining industry, with claim frequency dropping by 2-4 points per year. That trend is structural, is not going to change, and, at the risk of stating the blindingly obvious, is not emblematic of a growth industry. Therefore, buyers can’t just base part of their investment thesis on underlying structural growth, a fundamental “given” in almost every other sector – telecom, mobile communications, pharma, medical devices, energy.

That doesn’t – by any means – imply that there isn’t still significant interest in the workers’ comp services space.  I am aware of four separate transactions that are in various stages, two of which have significant implications.

In addition, the debt markets, especially those firms that buy existing debt, remain pretty heavily engaged. I’d expect this to continue.

Rather it implies that investors’ interest has “matured”, they have become more selective and more discriminating.

This is good.

What does this mean for you?

Smarter buyers will lead to better service providers.

Trump will be GREAT for workers’ comp!

No, seriously, he will be.

It’s The Wall.

For a moment, ignore the fact that the Donald is not a builder, but a developer.  And that his string of developments-gone-bankrupt show he’s not very good at the financial stuff either.

And please, don’t get distracted by folks claiming you could just tunnel under it or climb over it.  Those “dummies” would never think of that!

But the Wall…the Wall will be the single largest construction project the Feds have done, in, well, ever.

It’s bigger than the Hoover Dam. More than three times bigger. At 1,964 miles, it will rival China’s Great Wall.  40 feet tall, 7 feet underground, made of pre-cast sections supported by steel pillars and concrete footers, the Trump Wall will require 9.4 million cubic yards of cement and concrete.  2.5 million tons of steel. 

Wage costs to build the wall alone will be around $8 billion (40,000 workers at mean annual salary of $41,000.)

Then there’s annual maintenance.  In order to keep the wall beautiful, it will have to be maintained.  And, of course, upgraded.  You don’t want our “big beautiful Wall” to start to look like this…

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Or, *gasp*, like this…

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Don’t know if the Donald is going to have murals painted on the wall, gild parts of it, or have TRUMP in giant letters spaced at random intervals; all would add expense and maintenance. Fortunately, there are LOTS of extra Trump signs available, just have to ship them from Atlantic City and Nevada and New York…These are ready to go!

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Sorry, got distracted there…

Ok, forgot about the road construction, truck drivers, excavation workers, and concrete and cement plant workers.  Figure about $1 billion for their wages.

Now, some parts will be really remote, and others run right thru big cities, so land costs will be pretty variable.  But they will be real; landowners will have to be paid fairly as the Fedrul Gubmint is going to be taking their land.

But those costs aren’t labor, so never mind…

Here’s the calculation.  To keep it simple, we’ll use the $8 billion in construction labor plus $1 billion in additional labor, plus $500 million in annual maintenance labor multiplied by average work comp rates for industrial work – which is about 3.1 percent of wages.

That gives us $356.5 million in work comp premiums over the first five years of the wall, or about $71 million per year – a really nice addition to premium in the border states.

Of course, that’s assuming the Donald pays the premiums, something he’s had a bit of trouble with in the past.

True, he’d be using Mexico’s money.