Insight, analysis & opinion from Joe Paduda

Oct
10

Private health insurance – can it be fixed?

I’ve been thinking long and hard about why our health insurance and healthcare systems are such a clustermess. Hugely costly, lamentable outcomes, a morass of bureaucracy, red tape and stupid rules enriching a few and impoverishing many.

So, I think I have a solution – and it involves workers’ comp.

First, the problem.

Today I’m reprising a post from a couple years back – if anything it is more accurate today than it was way back then.

If you had “government” health insurance for the last decade, your costs would be 20 – 25% lower today.

That’s because private insurers have not controlled spending nearly as well as Medicare and Medicaid have.  This from KFN via Axios.

Doesn’t matter what your economic or political ideology is – that’s a fact.

You and your insurance company pay your doctors and hospital more than twice what Medicare does. Yes, the Feds can exert pricing power – but why can’t United Healthcare, or Aetna, or Blue Cross?

Those healthcare giants should be able to negotiate better deals with providers; they have massive buying power and millions of members to leverage. They should be able to use that power to give you lower insurance costs – but they can’t.

Those private insurers are (theoretically) more nimble, smarter, better run, and more efficient than the government. And they have hundreds of billions of healthcare dollars to leverage.

Yet they’ve failed to outperform a bunch of bureaucrats.

I won’t dive into the “whys” today, because that would take away from the over-arching truth – government has been much more effective than private insurers.

What does this mean for you?

Cutting your health insurance costs by a quarter = more dollars you could have spent on other stuff.

note – happy to hear other thoughts; please use citations to back up any assertions.


Oct
6

Work comp drug spend – profiteering rampant in LA FL and PA

WCRI’s webinar on interstate variations in drug payments reminds us that lax regulations and absent legislators cost taxpayers and employers millions.

Slides are here – and are free to access. The report itself is here – available free to members and a nominal fee for non-members.

There’s a ten-fold variation across the 28 states studied by WCRI, with WI MN and MA around $22 in quarterly drug spend per claim, but LA and FL right around $200. A far higher percentage of claimants get scripts in the two high-spend states than in those on the lower end – and I’ll bet most of those are from dispensing physicians and attorney-represented workers using mail-order pharmacies.

WCRI looked at data from non-COVID claims less than 3 years old in 28 states from Q1 2018 to Q1 2021.

Top takeaway – overall quarterly drug payments dropped from $102 in Q1 2015 to $68 in Q1 2021 – but PA FL and CT – states with physician dispensing and/or mail order pharmacy problems – actually saw an increase – and that increase was largely driven by dermatological agents.

Want more evidence of the rampant profiteering enabled by lax regulations and compromised legislators?

  • Dermatological payments account for about 20% of payments in the median state – although there’s a wide variation, from 6% in the lowest state to over half (52%) of payments in the highest state.
  • These dermatological agents are almost always combos of lidocaine, menthol, diclofenac sodium and other generics – profiteers mix ’em up and bill at a huge markup.
  • PA is especially egregious – the vast majority of these dermatologicals are pharmacy-dispensed, and the average price paid was over $300.
  • Physician dispensed drugs accounted for more than half of drug costs in several states including Florida
  • It’s not just dermatologicals…California saw a big jump in NSAIDS driven by fenoprofen and ketoprofen…both questionable medications that have become darlings of the physician dispensing/mail order profiteers.

There’s good news too…after dermos, NSAIDs have the next highest payment across all drug groups at 18%…while opioids account for about 7% in the median states – way down from 13% in the same quarter three years ago.

I’d note that this is for claims <3 years old, and likely reflects the successful effort to avoid prescribing opioids to patients better served by other therapies.

What does this mean for you?

PA FL LA and CT  – stop screwing employers and taxpayers.

 

 


Oct
5

You have to go

to comp laude.

It’s unlike any other work comp conference – it is focused on what people and organizations are doing right, the right way – and the impact that has on the people we serve – injured workers.

There are some pretty emotional moments…injured workers sharing their stories about horrific accidents and their months if not years of recovery. One came from Brance Tully, a young man of eighteen who fell through a skylight two years ago – when he was 16.

After dozens of surgeries, untold hours of therapy and what could have only been an incredibly painful and seemingly-interminable journey, he is back at work. He called his adjuster the day he returned to be met with incredulity – justifiably so.

That was just one. Injured workers recovered from shootings, fires, vehicle accidents, falls and all manner of accidents.

There are several other reasons to attend:

  • plenty of time to connect and network
  • solid attendee list with folks from large employers, payers, and other buyers
  • terrific location – the Pasea Hotel is pretty nice.

Kudos to Yvonne Guibert – a dear friend and colleague, and the best marketer in workers comp – for making this happen. Shout out to GB and Greg McKenna – his engagement with the “stories” folks are remarkable.


Sep
29

One Call’s credit rating – nerd alert

Fielded several calls and emails yesterday re the Moody’s credit review of One Call…while always (ok, mostly) happy to talk, rather than answering the same questions multiple times I’ll lay my thoughts out here.

These are in no particular order…

A colleague noted the possibility of a recession might affect One Call’s credit worthiness as a recession would affect employment – thus reducing claims.

Well, not exactly..

I’ve written extensively on how economic ups and downs impact workers’ comp; posts are here. Here’s a quick summary..

At the early stage of a recession, employees who get hurt are less likely to file a workers’ comp claim. While we don’t know why that happens, research suggests it’s because workers are concerned their bosses will eliminate their job while they are out on disability, and they’ll have no job to return to.

graph courtesy NCCI

As the recession deepens, frequency tends to bump up as employees realize their jobs are in real jeopardy.  Claims increase as a result, and it is tougher to find re-employment opportunities for workers ready to resume some level of work. This extends to part-time or other limited duty work that is essential to recovery and return to full duty. So, duration increases too.

In the final stages, as the economy recovers frequency appears to accelerate. Employers put older, less-safe equipment back on line, require workers to put in big overtime hours, hire temps who have minimal training on safety, and the pace of work picks up speed. The result – more injuries.

***If we are in a “recession” it’s a pretty weird one; employment continues to grow, employers are hiring anyone and everyone who applies, and there are more job listings than potential workers to fill them…not exactly what one expects in a recession***

Another suggested the current owners can “just give One Call more money” thereby alleviating cash flow worries.

That’s a possibility – but I’d suggest a pretty unlikely one.

The current owners took over One Call when it was on the brink of bankruptcy; if OC had gone down that route it would have made it less likely OC’s bondholders/lenders would recover all their funds. In my admittedly limited experience, credit investors are much less likely to send more cash to assets that are struggling than private equity investors. And PE firms aren’t exactly enthusiastic about bailouts.

One insightful question focused on whether OC has debt with variable interest rates; those of us with fixed rate mortgages are protected from rate increases while our friends and neighbors with variable rate mortgages are seeing pretty significant increases in their monthly payments.

nerd alert…

OC has several different debt vehicles/types/forms

The First Lien (think of this as your house mortgage) of $700M is Libor+550 Floor <.75 which means that when Libor moves so does their interest payments. Libor moves when the Fed moves so, away you go.

For example in the beginning of the year OC would have been paying the Floor and for September about 2.52%. With the recent Fed increase, that will be going up to over 3%.

Note that One Call may have bought financial instruments that protected it (either in whole or in part) from interest rate changes – these are known as hedges.

[if memory serves One Call also has to pay down principle every quarter to the tune of around $2.1 million; that’s pretty small potatoes for a $1 billion+ enterprise]

Finally word is One Call had recently been awarded new business from a large payer, and this would certainly benefit the company going forward.

This is definitely good news for OC and congratulations are due to the C-suite and sales team (as well as the behind the scene folks involved).

That said, work comp payers are notoriously risk-averse; its too early to tell if Moody’s announcement will give the new customer pause.

What does this mean for you?

This stuff is complicated and one has to be careful making assumptions (I continue to learn to question mine!)

note – if I got anything wrong or you have another view please comment below.


Sep
28

The latest on One Call

Since its last-minute recapitalization three years ago, things have been quiet on the financial front for One Call. That changed yesterday; credit rating firm Moody’s released the results of a credit review – which were not good. [you can access the review by registering with Moody’s – there is no cost]

Historical corp rating changes from Moody’s

First, the summary. [I’ve written about One Call extensively; you can find other posts here]

Moody’s downgraded One Call’s Corporate Family rating to Caa1. According to NASDAQ, Caa1 is:

“A rating within speculative grade Moody’s Long-term Corporate Obligation Rating. Obligations rated Caa1 are judged to be of poor standing and are subject to very high credit risk.”

Here’s Moody’s summary:

The ratings downgrade reflects the company’s challenges to grow earnings and reduce its very high leverage which stood at over 10x as of June 30, 2022. Despite initiatives to improve operating performance and preserve cash, and Paying-In-Kind interest on the second lien notes, Moody’s expects One Call to generate small positive free cash flow which will not allow for material debt repayment. Without a material improvement in operating performance and meaningful debt reduction, Moody’s expects One Call’s capital structure to become increasingly unsustainable.

There’s a lot to unpack here – here’s my attempt to translate the summary into English (corrections/suggested edits welcomed).
  • One Call has a LOT of debt – as in almost 11 times more debt than it has in EBITDA (earnings) – and it is growing.
  • One Call has to use a lot of its cash flow to pay interest on part of the debt.
  • it does NOT have to pay interest on another chunk of the debt, but if it doesn’t, the missed payments are [usually] added to the principal – which increases the amount of debt (this is known as Payment-in-Kind or PIK debt); this is kind of like credit card debt)
  • as this debt increases it constrains One Call’s financial flexibility, making it hard to invest in technology, people, product development, and other stuff.
  • Moody’s goes on to note that a lot of One Call’s revenue comes from a relatively few customers – this concentration (in Moody’s view) increases pressure on One Call as the loss of one or more of these customers would make it even harder to pay down the debt.
[Moodys also refers to “the loss of a large contract”; no, I do not know details ]
Notably, Moody’s did indicate the rating is “stable” and expects One Call to grow earnings “modestly” over the next 12-18 months.
Okay, nerd alert. One could find fault with one of Moody’s statements regarding a governance issue:
Governance risk is further exacerbated by private equity ownership, which increases the risk of shareholder friendly actions that come at the expense of creditors and has used debt exchanges and recapitalization transaction.
Not mentioned in the Rating action is the fact that the equity owners (affiliates of KKR, Blackstone and Chatham Asset Management) – who control the Board – also own a lot of One Call’s debt. That being the case, it’s hard to see why the Board would screw (sorry, easiest way to convey the point) debt holders.
I spoke with Jay Krueger, One Call’s CEO and a person I consider a friend and he was kind enough to provide responses to several questions.  These are provided verbatim below.

MCM – What impact – if any – will the rating change have on One Call’s customers?

JK – None. We have positive cash flow, strong liquidity, no pending debt maturities, and the backing of some of the world’s largest, most respected investment firms. We talked with many clients yesterday who expressed this was not a concern for them. They continue to be pleased with our strong value proposition, commitment to service, and superior solutions for them and their injured workers.

MCM – After One Call’s recapitalization two years ago, did the current owners (shareholders) continue to hold a significant amount of debt? If so, it strikes me that Moody’s concern about governance risks may be overstated. Thoughts?

JK – Our current owners hold nearly 50 percent of our debt. This is a very real symbol of their commitment to our mission of getting injured workers the care they need when they need it. I believe we are the only company in the industry with an ownership group that also supports the company by participating in the debt structure at such a high level. The shareholders have a high amount of confidence in our team and strategy. So yes, I believe Moody’s concerns are overstated.

MCM – As hiring has continued to increase, and employment as well, it appears likely that claim volumes may also see a slight increase. Any observations or trends relative to claim volumes you can share?

JK – Over the last three months, we have seen month-over-month, low to mid-single digit increases in referral volumes. Some of this increase is seasonal, some of it is related to the macro-economic factors you mentioned, and some of it reflects market share gains we have achieved in 2022. September volumes month-to-date are consistent with this trend, setting us up for a strong fourth quarter.

MCM – Can you elaborate on the large customer “loss” referenced in the Moody’s report?
JK – The Moody’s report referenced some minor adjustments to that customer’s vendor panel. The customer referenced is a large, national TPA that continues to be one of our largest and most important customers.  
Tomorrow, I’ll discuss factors not directly addressed by Moody’s that may impact One Call’s future.

Sep
26

Watch out for gabapentin…

The CDC recently reported gabapentin was involved in one out of every ten fatal overdose deaths in reporting states.

Similar to opioids, gabapentin can cause severe breathing difficulties  – which are exacerbated when the drug is combined with other central nervous system depressants (CNS) (e.g. opioids, antidepressants, antianxiety meds).

Illicit use of gabapentin appears to be on the rise…from JAMA:

Gabapentin can produce feelings of euphoria and intoxication and can potentiate opioids’ effects. Individuals who misused the drug reported multiple reasons in a 2019 study, including a desire to enhance the effects of opioids; to achieve a “high” when preferred substances were unavailable, such as when they were living in a treatment facility or were incarcerated; or to self-treat withdrawal or pain. [emphasis added]

Gabapentin is a non-scheduled drug which became much more widely prescribed as opioid scripts declined.  Back in 2018 one out of five chronic pain patients were prescribed gabapentin (or its cousin, pregabalin). There’s some evidence that misuse of gabapentin – which is almost always prescribed off-label – often occurs after the consumer had a prescription for the drug.

And, Parke-Davis, manufacturer of Neurontin – the brand name version of gabapentin – pleaded guilty to promoting off-label use and paid a $430 million fine.

So, what to do?

First – learn more.  Start here – myMatrixx’ Shanea McKinney, PharmD penned an excellent overview way back in 2019.

Then…

  • Dig into your data – what’s been happening with gabapentin?
  • When and where possible, require prior authorization for gabapentin and similar drugs.
  • Educate patients and caregivers about potential risks of the drug.
  • Pay special attention to patients prescribed gabapentin off-label and in combination of other CNS depressants.
  • Consider recommending urine drug testing for gabapentin patients and include it in  the drug test panel.

What does this mean for you?

This looks awfully familiar. 

 


Sep
23

Friday catch-up

Here’s what happened while we were all in full September mode…

Heat is much more dangerous than other environmental risks.  It’s also insidious, kills more of us than hurricanes, tornadoes, and floods. In July half of Americans lived in places that had excess heat alerts. And it is going to get worse – a lot worse…go here to find out how it will affect your home.

LWCC’s Jill Leonard, CA Joint Powers’ Jeff Rush and I will be discussing the impact of climate change on workers’ comp at National Work Comp Thursday October 20 at 12:30…see you there.

[I’ll also be on a panel focused on claim fraud mitigation with Change Healthcare’s Bill Barbato and Jennifer Gant and the Las Vegas PD’s Task Force Officer Jefferson Grace; that’s Wednesday October 19 at 1:30. ]

Merrill Goozner wrote a great piece dissecting Amazon’s repeated attempts to enter the health care insurance and delivery space.  The giant is looking to acquire One Medical.

From Merrill…

A recent analysis of One Medical’s 182 medical offices showed they are located in the top 10 percent of America’s most fortunate communities. Its clientele, which stood at 736,000 individuals at the end of 2021, is overwhelmingly urban, wealthy, non-Hispanic white, and college-educated.

My take is the bifurcation of our healthcare world is widening; for-profits continue to focus on the most profitable sector, namely fee-for-service employer plans. These plans pay much more than Medicare/Medicaid while avoiding any responsibility for expensive diagnoses.

If you’re curious as to how much your business is worth, here’s a useful piece offering guidance. Key takeaways:

  • most owners and managers of midsize, privately held companies (family-owned and otherwise) operate from day to day with no clear understanding of their value.
  • A close analysis of your firm’s most important value drivers [is key]: those characteristics of your business that make it unique. Even companies in the same industry and with similar metrics may vary widely on everything from the quality of their leadership to pricing power to brand equity.

Finally, WorkCompCentral’s annual Comp Laude celebration is just around the corner – registration is here – see you there.


Sep
22

The hospital shakeout

Is well underway.  Likely impacts include:

  • more hospitals shutting down their inpatient operations
  • a decline (!!) in hospital employment
  • even more aggressive land-grab efforts by rival health systems seeking highly profitable commercially insured patients (that’s you, dear reader)
  • doubling down on “revenue maximization” (that’s you, work comp payor)

(Kudos to the estimable Merrill Goozner for his cogent discussion of the issue)

What’s happening…

  • hospital admissions dropped precipitously last year – despite the major impact of COVID admissions. As I noted a while back, COVID patients aren’t very profitable; they rarely get surgeries or other procedures which generate big dollars for hospitals…
  • meanwhile expenses are climbing – driven mostly by labor costs (up $86 billion this year)
  • more than half of all hospitals are going to lose money…before COVID, the money-losing facilities amounted to only a third of the total.

Why this is happening…

  • states that didn’t expand Medicaid are getting hammered as the other safety net payment programs mostly stopped helping hospitals make up revenue shortfalls.
  • care has largely shifted to outpatient facilities which are way less costly – and generate way less revenue per admit – than inpatient stays
  • it’s really hard to find staff – many are way past burnout, driven by overwork and abusive patients.

What does this mean for you?

Facility costs will go up.

Quality likely won’t.


Sep
13

Wildly off-topic #9 – Russia’s military collapse

After seven months of brutal, grinding war, Russia’s military is nearing collapse.

The net – Russia is in deep trouble, so deep that its collapse may well lead to regime change. 

Ukraine has retaken over a thousand square miles of its territory in the past few days.  In the process it has captured hundreds of vehicles, Russian locomotives and rolling stock (freight cars etc), thousands of Russian soldiers, and untold quantities of ammunition and supplies.

First minutes after the liberation of Vovchansk by the Ukrainian defenders; Russian flag comes down, Ukrainian goes up.

you gotta watch this video of a Ukrainian farmer…he’s complaining there are dozens of abandoned Russian tanks but he doesn’t get to keep any…:(

You won’t find much support for that prediction (Russian military collapse) in your usual news feeds, but hear me out. (my past discussion of Russia’s invasion of Ukraine is here)

  1. Russia is running out of troops and there are reports it will NOT/cannot send any more to Ukraine.
    1. very scary thought – Putin may threaten to use tactical nuclear weapons
  2. Russia’s vaunted military turned out to be a paper tiger due to:
    1. lack of maintenance,
    2. poor training,
    3. very low morale,
    4. awful supply situation,
    5. terrible lack of communication security
  3. Western support (except for Germany, which has been pretty damn unhelpful) and commitment to suffering through energy cutoffs has been critical to Ukrainian successes.
  4. US and other NATO nations are undoubtedly sharing intelligence from intercepted Russian signals, intelligence that ensures the Ukrainians know what Russia will do before their field officers do.
  5. Even if Russia goes to a full-scale mobilization to dramatically increase the size of its military, that won’t work because:
    1. it won’t happen in time to stop the ongoing destruction of its forces in Ukraine
    2. there aren’t enough experienced, veteran, capable officers and soldiers to train up the new recruits
    3. there isn’t equipment, vehicles, ammunition supplies, and a logistical infrastructure and capability to supply new troops and no ability to build/buy/manufacture and transport everything they need to fight.

The net – Russia is in deep trouble, so deep that its collapse may well lead to regime change. Meanwhile, Putin is celebrating the biggest Ferris Wheel in Europe…which promptly broke down a day after Putin’s speech.

Metaphor, anyone?

What does this mean for you?

Hang in there.  Ukraine deserves your support.


Sep
9

If only Florida was like California

If only Florida (‘s commitment to patient safety and responsible prescribing and good workers’ comp medical care) was like California.

But…no.

The Sunshine State’s work comp regulators and legislators don’t seem to care about patient safety or employer/taxpayer costs – at least not when it comes to drugs.

 

If they did, payers wouldn’t have to:

  • pay an upcharge for physician-dispensed drugs,
  • argue that physicians aren’t pharmacists (yes, really),
  • argue that drugs dispensed by physicians should be evaluated for patient safety

Kudos to myMatrixx for weighing in on this and attempting to get insurers and employers involved. Alas if history is any indication, the vast majority of insurers won’t.

Neither will most employers.

I get workers’ comp premiums will continue to decline, leaving fewer and fewer dollars for administrative tasks, like, you know, government affairs.

I get workers’ comp is hugely profitable.

I also get that this will change – and when it does those insurers will be looking for nickels in the couch cushions – nickels (and dimes and dollars) they ignored when things were going great.

Right now, payers and employers need to weigh in and tell Florida regulators that Physicians are NOT pharmacies – and therefore patients don’t get to pick a physician to be their pharmacy.

This is a major patient safety issue; physician-dispensed drugs aren’t subject to many of the electronic edits that pharmacy-dispensed drugs are.

So, physicians are almost certainly giving patients drugs that:

  • duplicate patients’ other scripts
  • conflict with patients’ other scripts
  • aren’t appropriate for that patient.

What does this mean for you.

Fight your own battles. I’m not going to do it for you.

From a post way back in 2014…

There is NO reason, no rationale, no logic behind docs dispensing drugs to workers comp claimants.  

Proponents claim it is better care, leading to speedier recovery and lower costs.

We long suspected the opposite is true; that is, claimants getting drugs from docs get more treatment, incur higher medical costs, are out of work longer and run up bigger claim costs than claimants with the exact same injury who don’t get pills from their physicians.

Thanks to CWCI, we know that’s the real impact of doc dispensing.

Now, we know even more – we know that dispensing docs prescribe more opioids for longer times, thereby increasing the risk of addiction and drug diversion and overdoses and death.  Thanks to a research paper authored by Johns Hopkins University Medical School and Accident Fund, there’s clear and convincing proof that doc dispensing is a highly risky, very dangerous, and very expensive proposition.

Here is the money quote:

“we found 39% higher medical costs, 27% higher indemnity costs, and 34% higher frequency of lost-time days associated with physician-dispensed versus pharmacy-dispensed medication. We found even more striking differences related to physician-dispensed opioids versus pharmacy dispensed opioids. The effect was nearly doubled and revealed 78% higher medical costs, 57% higher indemnity costs, and 85% higher frequency of lost-time days associated with physician-dispensed versus pharmacy-dispensed medication. [emphasis added]


Joe Paduda is the principal of Health Strategy Associates

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