Insight, analysis & opinion from Joe Paduda

Dec
18

Marsh’s future – post Spitzer

Risk and Insurance magazine, an industry publication focussed primarily on the property and casualty industry, has an interesting interview with Marsh CEO Michael Cherkasky. Cherkasky, a relative newcomer to Marsh who joined the organization when they acquired Kroll (investigations and security firm), was perhaps the best stroke of luck Marsh could have had.
Cherkasky worked with NY Attorney General Spitzer at the state level, and they know each other well. His appointment to CEO will go far to deflect Spitzer’s attacks, as their relationship appears to be positive.
The interview details Marsh’s plans for the future, and is required reading for any risk manager, broker, or regulator wondering what the impact of the contingency commission-sham bidding scandal will be on brokers.
One excerpt is particularly telling…
(Risk and Insurance editor Jack Roberts) “Do you think that if other competitors don’t accept that model-that all sides of the transaction ought to be transparent-that that will give Marsh a competitive edge?
(Cherkasky) – “We absolutely do. The attitude of caveat emptor-let the buyer beware-that’s not going to be our attitude. We think that will be a competitive edge and that we will be very tough to compete with if you don’t do it that way. But that’s up to the marketplace. We’re going to adopt that because that’s what we believe is going to be effective in the 21st century under this regulatory environment and we’re confident it’s going to make a fair return for our shareholders.”
That competitive return will likely be considerably less than it was pre-Spitzer, but better lower returns than none at all.


Dec
17

More on the Celebrex fiasco

Medpundit, a blog published by a practicing MD has an excellent and brief summary of the recent Celebrex news. The net is celebrex increases the risk of cardiovascular events significantly; and the higher the dose, the greater the risk increase.
While we can blame the FDA, the big pharmas, consumers, physicians, and the big bad wolf, our time will be much better spent learning from this fiasco.
Early lesson – stick with the proven meds, which in this case are Tylenol et al, and ibuprofen et al. They have the benefit of much lower cost, very similar outcomes, and a much longer track record.


Dec
17

Celebrex – another WC liability?

The FDA announced today that Pfizer’s Celebrex significantly increases the risk of cardiovascular problems. What does this have to do with Workers’ Comp?
A lot.
Celebrex, approved by the FDA for treatment of arthritis, has been one of the most popular drugs for treatment of musculo-skeletal injuries common in workers’ comp. Now, those patients who have been treated with Celebrex for a workers comp condition may find themselves with a heart condition, and that heart condition may be due in part to Celebrex.
While attorneys, researchers, and others argue over the causality issues, adjusters, insurers, and reinsurers will find themselves faced with claims for heart problems from patients with bad knees. Unfortunately, there does seem to be a strong linkage between Celebrex and cardiovascular problems, and these problems may not be limited to Celebrex and Vioxx…
“”We do have great concern about this product and the class of products,” said acting FDA Commissioner Lester Crawford. “ Commissioner Crawford’s concerns arise from the FDA’s analysis of the study, which indicates:
“800 milligrams of Celebrex had 3.4 times greater risk of cardiovascular problems compared to a placebo. For patients in the trial taking 400 milligrams the risk was 2.5 times greater.”
The good news is the marginally better outcomes delivered by these medications was far outweighed by their additional cost. Now, physicians can return to prescribing naproxyn, Tylenol, and ibuprofen for these conditions. Leaving aside the point that the docs should have been doing this all along, perhaps the tragedy (financial and personal) that has been and will be caused by these two over-hyped and under-researched drugs will lead doctors to practice more conservative prescribing behavior.
After all, the docs who wrote the scripts may have some liability as well…


Dec
15

Vioxx and Workers’ Comp liability

The recent disclosures related to Vioxx’ impact on cardiovascular disease should be raising some big concerns amongst financial folk at WC payers. Here’s why.
Vioxx was commonly used to treat musculoskeletal injuries – sprains, strains, and the like. These happen to be very common WC injuries, and thus lots of WC claimants received scripts for Vioxx.
The law in most states holds that WC is liable for treatments for conditions arising from occupational illness or injury. This has been consistently intrepreted to include liability for conditions arising from the treatment itself – whether that be pain meds after surgery, PT after surgery, Viagra to combat the ill effects of other meds, etc.
The implications of Vioxx for WC are thus obvious. WC payers are potentially liable for cardiovascular conditions for WC claimants who have incurred cardiovascular conditions, and especially those claimants who had CVD prior to receiving Vioxx.
While WC payers have the right to subrogate those claims back against Merck (manufacturer of Vioxx), this will be a long, messy, and expensive process.


Dec
9

Insurance Industry Profit Margins

Weiss Ratings has recently released their report on insurance industry profitability, and the news is both good and bad. Good if you compare it to past year’s reports, bad if you are expecting robust returns.
The report notes: “Of the 544 insurers studied by Weiss for the year ending 2003, 69 percent experienced either negative margins or profit margins of less than five percent.”
Makes the grocery business look like a great investment.
Breaking down the numbers further by category, here are the individual industry sector results:
HMO – 3.8%
Life Insurance – 8.2 percent
Health Insurance – 5.5 percent

and the overall winner for most profitable insurance sector is…
P&C at 8.3 percent
Not surprisingly for those who have been reading our blog, the culprit appears to be the industry’s inability to contain rising health care costs.
Melissa Gannon, Weiss VP, notes: “”Although the industry has enjoyed an increase in revenues by raising premiums, insurers have also had to deal with the rising cost of medical care as a result of more open networks, an aging population, expensive medical advances, and an inefficient healthcare system.”
While some in the media believe we are all wintering in St Bart’s except for those brief holidays in the Alps, the truth is we continue to work very hard to combat health care costs, and do not appear to be making much progress.
Note – For those unfamiliar with Weiss, they are perhaps one of the more critical rating agencies, but their tough standards have been validated time and again as the more recognized entities have missed such debacles as Kemper Insurance’s sudden demise.


Dec
6

Health care in the EU

The Global Medical Forum held their 2004 US Summit in Washington DC last week, focusing on the different systems’ approaches to health technology. Building on the 2003 Summit’s focus on Pharmaceuticals, the presentations provided compelling insights into the ways technology is reviewed, adopted, and reimbursed in the EU.
Some of the more intriguing points included:
—the evaluation process tends to be much longer in the EU than in the US, and involves stakeholders from the patient, provider, hospital, and governmental communities
—in Germany, this process includes consideration of appropriate reimbursement amounts (contrast this w the US “we approve, you pay” methodology)
cost-effectiveness is absolutely a consideration when reviewing new technology for possible reimbursement
—in Germany, only 20% of new health care technology applications are accepted..
I left with several other impressions and “take-aways”. First, the EU relies, to a surprising degree, on US health care data when evaluating their own situation or projecting into the future. Second, the evaluation of the cost-effectiveness of a specific technology makes a lot of sense, and is done rather well by the Germans. Third, in Great Britain’s much-maligned National Health System, there is surprising (at least to me) willingness to consider new technology, and to pay for expensive evaluations of same.
We can learn quite a bit from our colleagues in the EU. Health care systems in the EU tend to deliver excellent care for a lot less money than we do here in the US.
Paradoxically, I heard from several European experts that they see real value in some of the components and attributes of our system. For example, we are much better at collecting, analyzing, and using data.


Dec
2

Health care costs back on the rise…

Health care cost increases, which appeared to be moderating last year, appear to be stepping on the accelerator again. The Center for Studying Health System Change’s recent analysis indicates that health care costs continue to grow much faster than either overall inflation rates, or, more importantly, worker incomes.
CSHC’s analysis indicates that hospital price increases are one of the key factors driving health cost inflation, with prescription drug costs continuing to accelerate as well.
CSHC’s analysis and review of the numbers forecasts the impact of continued inflation, noting :
“Health care costs likely will continue to grow faster than workers’ income for the foreseeable future, leading to greater numbers of uninsured Americans and raising the stakes for policy makers to initiate effective cost-containment policies or accept the current trend of rapidly growing health care costs and gradually shrinking health coverage.”
With the number of uninsured exceeding 45 million by most counts, 18% of the non-Medicare population is now uninsured. This compares to an uninsured rate of 0.1% in Germany, a country with health care costs as a percentage of GDP some 50% less than ours.


Dec
2

The ongoing investigations into broker and insurer malfeasance continue to send shockwaves throughout the insurance industry. And, these investigations are causing those doing business outside the “broker-insurer-underwriter” world to revisit what have been long-established “ways of doing business.”
While Mr. Spitzer and colleagues have started their investigations at the sales end of things, they may well find themselves uncovering many other instances of inappropriate or unethical payments.
For example, managed care vendors often pay TPAs an “administrative fee” that is a percentage of the revenues they receive from the TPA’s clients. Typically these fees amount to 10-15% of total revenues, but fees in the 25% range are not unheard of. There is speculation in the WC industry that one large managed care firm pays one large TPA upwards of $10 million in “fees” annually.
These fees are rarely fully disclosed to the TPA’s clients, and when there is disclosure, it is obscured by legalese, buried in the depths of a lengthy contract, and often mistaken for innocuous boilerplate.
One very large WC TPA claims it has provided full disclosure by including language similar to the following.
“The TPA does not receive any payment from the managed care vendor, except it reserves the right to charge the vendor for administrative expenses related to implementing managed care programs.”
Clearly it is incumbent upon risk managers, TPAs, underwriters, and brokers to fully and completely disclose these arrangements. It is just as clear that until and unless the light of day is shone on a few of these deals, they will continue unabated.


Nov
16

Coventry and Workers’ Comp

Coventry’s acquisition of First Health represents a critical point for the WC managed care business.
As the market leader with some $190 million in annual revenues in WC bill review and network services, FH has long been a strong, and somewhat self-possessed, “vendor”. Carriers and TPAs have found FH to be inflexible, and in some cases dictatorial, regarding terms, conditions, pricing, and services. Some are hoping that the new management will adopt a more “customer-friendly” approach. Early reports from FH customers are that their FH contacts and account managers are saying the right things, but have no in-depth information about Coventry’s future plans for Workers Comp.
Coventry’s latest presentation may shed a little light on this issue. In it, Coventry notes the growth opportunities inherent in WC, the strong “bench strength” of FH WC management, strong growth opportunity in WC (mid teens to low twenty percent range), and potential for reform-driven growth.
I am highly skeptical. FH has, if not poisoned the waters with the market, at least rendered them highly distasteful. Their product offerings are primarily a large, deep discount network and a bill review system that they do not own nor effectively manage. Many payers, facing rising medical costs despite their long relationship with FH, are looking elsewhere for the next generation of managed care.
In the final analysis, Coventry’s future in WC will depend as much on the analysts’ opinions, and therefore the stock price, as anything. If analysts see no synergies, Coventry may decide to “pursue other options” with the WC assets.


Joe Paduda is the principal of Health Strategy Associates

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