Insight, analysis & opinion from Joe Paduda


This is about your children.

Once again children have been killed.

Yesterday’s slaughter of little children cut me to the heart, coming the day after I spent hours watching our granddaughter. Hours of delight, wonder, love, joy and promise.  Sitting together in a swing as she munched on goldfish, picking dandelions, working on puzzles and learning more colors, doing nose kisses and picking out her outfit for the day (rain boots, shorts, and a favorite shirt, with a pretty awful ponytail (as it always is when grandpa does it)).

I cannot imagine the heartbreak suffered by families in Uvalde Texas, nor can I imagine how this reverberated among parents of kids killed in Sandy Hook Connecticut a decade ago, ripping open wounds painful beyond measure. That’s awful indeed – what’s worse – if that’s possible – is there have been dozens of mass shootings this year alone.

Look at your kids, your schoolyards, your sports fields, your graduation ceremonies and school plays and imagine the impact of a Uvalde/Sandy Hook/Buffalo/Laguna Woods/Milwaukee/Brooklyn/Sacramento.

If we do not do something about gun violence, some of you, dear readers, may come to understand all too well the heartbreak and utter devastation suffered by families victimized by gun violence.

Make no mistake, this butchery would not happen without grandstanding by vote-seeking pols, lax background checks, wildly inadequate mental health care, incredibly permissive concealed carry laws in some states and easy access to guns, many of which serve no purpose other than killing people.

What does this mean for us?

We are failing to protect children, loved ones, parents and family. This is a national disgrace. 

Note – I am a gun owner and hunter. Family members are first responders, former law enforcement and national security.



The invasion of the techies

Artificial intelligence.  Block chain.  Wearables. Smart phones. Chatbots. Various combinations thereof.

All these tech wonder-things are working their way into workers’ comp…or at least trying to. I’ve been tracking this sporadically (who has time to monitor all the press releases announcing this revolutionary app or that whiz-bang solution??) and have come to a few conclusions.

  1. With rare exceptions, the companies developing and offering these “solutions” are founded and run by either a) clinicians or b) techies.
  2. Those run by techies seem to think they can stitch together a wearable thingie connected to a smartphone app and voila’! they’ve built a substitute for/adjunct to physical therapy.
    Of course, the techies KNOW tech, understand AI and video tracking of movements and integration of smart-phones with remote devices. What they do NOT know is medical stuff, what really happens in rehab, the role of the therapist/prescriber/patient, the realities of the therapy process, where things break down in the patient/therapist process/interaction and why. And a lot of other stuff I can’t think of this second.
    Oh, and patient engagement.  That’s kind of super-important.
  3. Those run by clinicians really understand the care process, clinical issues, the reality that effective therapy and recovery is driven largely by patient compliance. What they don’t get are the tech challenges, the singular importance of reporting information back to other stakeholders, the limits of technology and adoption/effective/consistent use of technologically-driven “solutions”.

So, tech-centric approaches rarely address patient engagement, compliance, or the obstacles thereto.

It doesn’t matter how great your tech is if people a) can’t figure out how to download it; b) don’t have a smartphone; c) can’t figure out the app/wearable/bluetooth connection/whatever; d) it isn’t specific to the needs of each individual patient (language, physical characteristics/comorbidities/functional limitations/pain levels, reading level, therapy needs and evolution of same…).

And it doesn’t matter how great your clinical expertise/knowledge/experience is if: a) the tech is clunky, b) your staff has to onboard/explain/coach/be tech support for your patients, c) the data collected isn’t automatically shared with stakeholders, and d) the data isn’t entirely secure yet accessible for reporting/analysis/research.

On that last point, no device/app/tech is helpful if other stakeholders (the therapist/prescriber/case manager/claims handler/employer) don’t get reports on progress and alerts on potential problems – especially if those reports and alerts aren’t easily accessible/pushed to them so they don’t have to go looking for them.

What does this mean for you?

Apple beat Microsoft because it made using a computer easy. Adoption of tech-enabled “solutions” requires making the entire process/use by all stakeholders “easy”.

Put more succinctly, Ideas don’t matter – execution does.



Sedgwick buys Orchid Medical

Sedgwick has acquired Orchid Medical in what is the giant TPA’s latest move to add more services to its portfolio. Sedgwick hasn’t posted on this yet; when it does it should be here.

Over the last few years Sedgwick added Managed Care Advisors (government contracting firm focused on work comp services) and CareWorks (WC services firm acquired as part of the York deal) to its portfolio; multiple sources indicate it is deep into discussions with start-up work comp PBM CadenceRx to supply back-office and perhaps network services (CadenceRx uses a third party for its retail pharmacy network).

The net effect of these acquisitions/ventures – which continue Sedgwick’s decade-plus expansion into work comp services – is to add top-line revenue to the company’s financials and increase profitability. (I’ve written about this here, and described how TPAs are growing here (the latter was a while ago…but a pretty accurate forecast.)

Here’s how this works.

When Sedgwick uses a specialty network like Orchid to arrange for durable medical equipment for a claimant, the actual cost of the DME is booked as “revenue” by Orchid. This makes Orchid’s top line bigger – and bigger is always better.

Now that Sedgwick owns Orchid, Sedgwick gets to add that revenue to its top line. If/when it launches its own PBM the giant TPA will look giant-er simply because drugs bought by its customers will count as revenue for Sedgwick.

I’d hazard a well-educated guess that Sedgwick will move as many customers as possible from external service providers to Orchid.

OneCall is the most likely casualty…reports indicate staffing reductions already occurred in Jacksonville.

Based in Orlando, Orchid provides a range of ancillary services including imaging, DME, transportation and translation to the work comp market. Sources indicate a large chunk of that business – perhaps half or more – flows through HealthESystems‘ ancillary pipe aka ABN.

What does this mean for you?

If you are a Sedgwick customer, you may want to have a detailed discussion re its plans re ancillary services. A very careful and studious analysis of costs and benefits might be a good idea.

If you are a current Orchid customer and Sedgwick is a competitor, make sure the powers-that-be are aware of the transaction.

If you are an Orchid competitor and Sedgwick is a client, you’re probably way ahead of me.


NCCI’s take on medical cost drivers, part 2

Last week I posted on Raji Chadarevian and Sean Cooper’s excellent presentation at AIS.

Here’s my what-this-means-for-you takeaways.

Drug spend decline

While NCCI’s reporting that dollars for drugs now account for 7 percent of annual isn’t too much of a surprise, there are a couple other factors at play here. First, the older claims are, the higher the drug costs.

During the 18-24 COVID months that were generally pretty awful, a lot of high-severity, higher-frequency jobs disappeared. Along with those jobs went a significant number. of high cost and cat claims (fewer workers; fewer claims). In what could best be described as a mirror image of the snake swallowing the pig (you know, the big slug of stuff/incidents/whatever works its way through the system), we’re going to see a long-term decrease in drug spend due to a decrease of X% in long-term claims incurred during COVID.

Obviously this will eventually work its way through the system…that said, it’s just one more bite out of pharmacy spend.

Similarly, rehab care and skilled nursing dollars will also decline along with home health care.

Peak network

With around 75% of physician and other treater dollars going through networks, we are at – or darn near at – peak network penetration. Some states – NY being a good example – are just not going to get there due to regulations on direction and very strong provider lobbying plus employers and insurers just aren’t pushing changes.

To be precise, that refers to overall network penetration – almost all work comp networks/PPOs have carve outs for specialty services.

I make the distinction because specialty network penetration will increase – at the expense of declining PPO penetration in specialty areas (PM, Imaging, DME/Home Health etc.). This will happen because those service areas lend themselves to more active management, often involve proactive scheduling, and  benefit from focused clinical management.

But, again that’s just one reason PPOs aren’t a growth thing – claims counts are declining and medical costs are flat too…

Oh, and big healthcare systems have A) figured out work comp is the golden goose, and B) are increasingly stingy with their discounts.

So, the average net discount after network fees (!!) is significantly lower than it was even five years ago.




Medical cost drivers in work comp – NCCI’s take

Sean Cooper and Raji Chadarevian delivered perhaps the most useful presentation I’ve seen at any NCCI Conference…There’s a LOT 0f important – and very timely – information in their presentation, so I strongly encourage you to watch it  – or watch it again here.

Let’s start with the top line – facilities and physicians (which includes physical medicine as well as MD costs) are by far the biggest chunk of spend. Note that NCCI reports annual drug spend is down to 7% of total spend. This aligns closely with what I’ve been reporting for some time.

The key takeaways…

The discussion focused on medical prices – which are the single biggest driver of total US healthcare inflation (see here for more details on this) – and utilization. Disaggregating cost increases provides/ed the audience with a deeper understanding of drivers – well done.

We are approaching network saturation.

Fully 75% of Physician services were delivered in-network – and, as in-network prices grew much more slowly than non-network, this helped reduce overall medical inflation.

Physical medicine is increasing…which is good.

The cost of physical medicine has been increasing while costs for surgery costs have not. What’s driving PM costs is mostly more utilization – indicated by the light green shading below. That is NOT necessarily – or even likely – a bad thing…A course of PT is way less expensive than the costs associated with a surgical episode. 


Sean noted facility costs have been “the biggest driver of increased medical costs in workers comp” – increasing twice as fast as physician services. (Long-time readers will recall I’ve been banging on this drum ad nauseam.)

There are a host of reasons for this – led by consolidation in the healthcare services industry (also covered in detail here at MCM). Net is when a hospital or health system buys physician practices, it gets to add a facility charge to the what used to be just a physician office bill.

Voila!  Instant profit simply by changing the “place of service”. That’s why private equity firms, large health care systems, UnitedHealthGroup, and dominant hospitals have been snapping up physician groups – they are gaming the system.

There’s more to unpack here – which I’ll do early next week.

What does this mean for you?

It’s facility costs.


Work comp loss drivers…NCCI’s 2021 findings

More details from NCCI Chief Actuary Donna Glenn’s presentation yesterday…

Claim costs are driven by employment, frequency (what percentage of workers gets hurt), the cost to provide medical care to those injured workers and the cost of paying their income benefits while off work.

While claim frequency bumped up in 2021, the increase just offset an almost-identical decrease in 2020. When you pull out the COVID stuff, the average annual decline in work comp claim frequency has been 3.8% over the last 20 + years.

This means – in three years there will be 11.4% fewer claims than there are today – that’s one out of ten claims.

Indemnity “severity” didn’t change last year compared to 2020, leveling off after a pretty consistent increase from 2016 to 2020.

Medical “severity” for loss time claims didn’t increase from 2020 from 2021 – it was dead flat – and has been pretty much flat since 2016.

Ed. note – while widely used in the work comp industry, the use of “severity” to describe what is nothing more than “cost” isn’t helpful. Medical severity should be a clinical measure, not a financial one. I would argue that the use of “severity” further distances the industry from increasing its understanding of the role of medical care in workers’ comp.

Glenn attributed the lack of movement in part to a shift to delivering care in outpatient facilities…more details to come in the final presentation today.

What does this mean for you?

Work comp medical costs are NOT increasing – my guess is the major progress most payers have made in reducing drug costs- and more specifically opioid over-use – has been a major help.


NCCI’s State of the Industry 2022

Work comp is still way over-priced, incredibly profitable, and the industry – defined as total revenues – is a lot smaller than it appears.

Those are my key takeaways from NCCI Chief Actuary Donna Glenn’s presentation just completed in Orlando (ed note – this was supposed to be distributed yesterday, but I missed the 10 am cutoff time)

I’m not at NCCI due to other client needs, but the fine folk at NCCI have provided a media feed – thanks Cristine Pike and Dean Dimke…

(Note NCCI has included data from most but not all states and payers; thus I suggest you pay more attention to overall trends rather than specific figures)

Premiums for private carriers were up just a bit last year – less than 2 percent.  Not a surprise as COVID was still rampant although shutdowns weren’t as prevalent…and employment was way up in 2021 compared to 2020.Rates are down in pretty much every state except Hawaii (betting its those damn physician dispensers in Hawaii…)

Overall, premium rates dropped significantly last year – continuing what has become a 9 year trend. The drop was driven by a decrease of one-third in losses, almost all of which was offset by a 28% increase in payroll. Interestingly “rate loss cost departures” i.e. discounts – have grown significantly over the last few years. See the para below for my reasoning as to why this has happened…

Combined ratio was 87 – again a hugely impactful continuation of 8 years of underwriting gains. WC – which used to be marginally profitable – continues to be a huge profit producer – which is why those “loss cost departures” i.e discounts – are growing. Insurers know how profitable work comp is, and know they can make bank even if they drop their rates.

Even better, NCCI projects accident year combined ratios will improve over time for 2020 and 2021… in contrast to reporting carriers’ initial forecasts, NCCI believes ultimate losses will be much lower. (the blue shaded areas above reflect NCCI’s predicted final loss ratios; the grey reflect carrier’s initial predictions and current predictions.)  One can see that carriers’ predictions have consistently been much higher than their final loss ratios – and there’s still more room to decline.

2021’s 25 percent operating gain (!!!) is just the latest in a 9-year string of operating gains. 

Not surprisingly carriers released a shipload of reserves last year – this reflects the disparity between what they initially report compared to what losses ultimately totaled. NCCI predicts there is more favorable development to come – as in a LOT MORE.

That said, NCCI indicated reserves are still $16 billion too high.

Donna Glenn, NCCI’s Chief Actuary, kept referring to these results as evidence of work comp’s “strong financial position”.

I’d suggest that Ms Glenn’s terminology while directionally accurate, is burying the lede.

Which is this:

  • work comp rates are still way too high,
  • carriers are making way too much profit, and
  • the actual industry size is significantly smaller than today’s premium levels suggest.

What does this mean for you?

More consolidation, more rate cutting, more growth for TPAs.


Wildly off-topic 5…Russia is losing

Putin is losing.

The West is winning.

Ukraine and Ukrainians are what we should aspire to be.

There is no way Russia will “win” in Ukraine; Putin is running out of troops, ships, armor, money and time.

Meanwhile his objectives for the war on Ukraine, namely:

  • easily capture Kyiv and install a puppet government in Ukraine;
  • split the West using his oil and gas as leverage,
  • damage NATO; and
  • scare smaller countries into abandoning the US-led alliance

are further away than ever.

Putin has strengthened NATO and the European Union, unified the West, pushed once-nominally neutral countries including Finland, Sweden, and Moldova into embracing the West, and shown the world that his armed forces are weak, poorly led, poorly equipped, and no match for a country a quarter the size of Russia.

A couple of things worth noting.

It is highly likely US intelligence assets (satellites, NSA, communications intercepts, aerial surveillance) have and are playing a major role in the war (as are the UK’s and almost certainly other western countries’). Reports indicate:

a downed Russian plane (likely a fighter)

Ukraine is showing the world how an incredibly motivated, really smart, and very creative people can defeat what used to be thought of as the world’s second strongest armed forces.

A few examples

Ukrainians have made drones – big ones, small ones, tiny ones; armed ones; ones with cameras and ones adapted to carry explosives; commercially-available ones and military-only ones – a major part of their arsenal.

Much of this is appears to be the work of regular Ukrainians…many of whom were are not in the military before Russia’s attack.

A drone drops what appears to be a mortar shell through the sunroof of a car stolen by Russian soldiers

A Ukraine-developed anti-ship missile is likely the weapon used to sink two of Russia’s biggest warships and destroy a troop transport.

Now that Ukraine has the latest artillery (thanks to France, Canada, the UK, the US, the Netherlands and other countries) it is using it to deadly effect.

Meanwhile Russia is calling up retired service members to fill “administrative” roles in its army. This shows just how deep into the morass Putin is, and how willing he is to keep digging himself even deeper.

What does this mean for you?

There are so many lessons we can learn from this…

  • preparation and constant attention to detail are critically important and way under-valued,
  • never under-estimate the power of very motivated people,
  • leaders that employ only those that agree with them will fail miserably.


Will work comp injuries increase?

WorkCompWire arrived yesterday with the news that new employees get injured much more often than their more-experienced colleagues.

The Travelers provided the research, which confirmed  – and added more detail – to what we already (sort of) knew – about a third of injuries happen to workers with a year or less on the job.

This makes sense; newer workers are less experienced, have had less training, are likely younger and don’t know what they don’t know.

Not surprisingly the incidence rate varies by industry…again from the umbrella people…

Couple additional observations.

  • Construction is a higher-severity industry, making newer workers even more susceptible to longer-term claims.
  • Hospitality, construction, and transportation are higher-turnover industries, making it more likely the entire workforce is less experienced – and more of the workers are in their first year than in other sectors.

And here are related issues that deserve your attention:

  • there’s a lot more turnover in employment than “normal” these days – which means more workers will be in that dangerous first year.
  • construction is ramping up with billions in spending on governmental and private projects.
  • logistics/transportation is under severe stress due to the ongoing supply chain problems

What does this mean for you?

All these factors suggest injuries may bump up later in 2022 and into 2023.

Kudos to the Travelers for the work; this is helpful indeed.


I’m back…

From a 5 day bike-packing trip from Pittsburgh to D.C. Great to get off the grid and out in the woods/mud/gravel/wind. Really…

So, next week is NCCI’s annual confab.  Looking forward to seeing old friends and colleagues and hearing the latest from Raji Chadarevian and Sean Cooper on medical drivers, Donna Glenn’s State of the Industry report, Roger Ferguson’s discussion of the financial scars left by COVID, and the ever-entertaining and informative Bob Hartwig.

Also on the agenda is Katie Williamson’s assessment of catastrophes’ impact on workers comp. As a long-time believer in anthropomorphic climate change, I’m looking forward to Ms Williamson’s comments (which will cover much more than weather and climate).

Also just out from our friends in Florida is a discussion of Medicare fee schedule changes and attendant impact on workers’ compensation. While pretty deep into the nerd zone, this is one of those “I wish I’d known this ahead of time” things you may reflect back on when wondering why costs changed/prices shifted/utilization bounced up.

Couple quick hits…

Some states are directly tied to CMS so when CMS changes, WC Fee Schedules quickly follow suit. However, other states are indirectly tied, use part of CMS’ methodology, or factor CMS in to their calculations.

Pic courtesy NCCI

Facility rates will also increase – by around 2.5%. No surprise there – although one can expect higher inflation in Florida because…well, it’s Florida.

Congratulations to Carisk’s Alana Letourneau MD MBA on being named a 2022 Rising Insurance Star Executives 35 Under 35 Award winner. I’ve worked with Dr Letourneau in the past; she is insightful, deeply committed to her work, practical and an excellent communicator.

While I was gliding along the C&O canal last week, WCRI was publishing Karen Rothkin’s annual guide to workers’ compensation laws and regulations.  Free to members and well worth the investment for non-members.

Ok, back to catching up on work stuff.


Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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