Sure, the show doesn’t officially start until today, but there was a lot going on Tuesday – not to mention a bunch of folks were here as early as Saturday setting up and prepping for the 72-hour sprint that is NWCDC.

So, quick first impressions…

Attendance is up 10 percent over last year – which was a very good year indeed.  With teh economy picking up and work comp doing better, that’s no surprise.  Kudos to Roberto Ceniceros and the folks at LRP – it’s come a long way from the basement of the Hilton in Chicago.

Tuesday is the day to get as many meetings done as possible before the madness starts Tuesday evening.  Great event at Skyfall hosted by Helios – well attended, convenient, conducive to catching up with old friends and colleagues.

Met with the principals at Social Detection to learn about their search engine customized/optimized for work comp investigations.  Pretty impressive, with wide application in comp.  As I understand it, their service aggregates social media and other sources from the web while getting rid of the noise.  So, instead of a gazillion hits on a person’s name, you get the stuff that’s most relevant.

More to come…

 

For those who have been following Examworks, yesterday’s collapse in the company’s stock price is a mystery indeed – why did it take so long for investors to realize reality is kinda important?

As I noted in a post a couple months ago:

… I don’t understand how the company’s stock can trade in the mid-thirties.

And that’s because I do understand the market, their services, and the growth or lack thereof, and I just don’t see the upside investors obviously are banking on. Their stock price makes sense for a high-growth business in a sector with a lot of upside.

That is not how I would describe the IME/peer/MSA business.

EXAM’s primary business is providing Independent Medical Exams to insurance companies – mostly workers comp, some auto, some disability.  Mostly domestic, some in other English-speaking countries.

I hasten to add that I am about as far from a credible stock picker as there is.  For several years I’ve been mystified by the steady rise of Exam’s stock price to stratospheric levels – it just made no sense. Yet increase it did, up to and over the $44 mark.

(as proof, here’s my quite skeptical review five plus years ago…)

After yesterday’s earnings announcement, Exam has a value less than half what it was just six months ago.

While I have no idea what finally caused investors to extract their heads from their nether regions, it may have been due to the earnings call itself.

Among the notable statements were these:

• “constant currency organic revenue is expected to be flat within an expected range of negative 1% to positive 1%”
• Total leverage on a net basis was approximately 2.95 times
• we really look at this as a pause that’s a temporary phenomenon frankly [talking about the annual growth rate].

First, it’s never a good sign when the Chairman starts off the call reminding investors of the “unique characteristics of our Company..The industry is approximately 40 years only [sic] and over the course of that time has grown in good times and bad times with little correlation to the general economy.”

Well, no.  As in, if you actually believe that, you clearly don’t understand your business. 

In fact, that’s pretty much totally wrong.  The workers’ comp industry (which is the primary buyer of Exam’s services) tracks the overall economic cycles pretty closely, albeit belatedly. That’s what you would expect from a business based on employment.

Moreover, as the US has moved away from high injury-jobs towards a service-based economy, the injury rate has declined rather dramatically – over 55% over the last 20 years.  So, if anything, Exam’s business – evaluating injured workers – is concentrated in a market that has structural declines baked in for the foreseeable future.

Which is particularly concerning when you read Chairman Perlman’s next remarks, to wit:

“As we understand it, healthcare is suffering from declining volumes as well as reimbursement pressures, neither of which apply to our industry.“[emphasis added]

Wait…did he actually say that?

Yup. If anything, his business – evaluating injured workers and people in a hyper-competitive industry – epitomizes that description. And, btw, healthcare is NOT “experiencing declining volumes”, at least health insurers, health plans, health care providers, and pharma aren’t.  How could they be, with the huge decline in the number of uninsured?

The IME (independent medical exam) business is brutally competitive.  Driven in no small part by Exam, prices have been slowly if steadily declining for some time. The reasons are simple; again noted a couple months ago:

…maintaining, much less improving margins (management expects they will get somewhat better in future quarters) depends on lowering cost of goods sold and increasing prices.  At least in the US, the latest quarter [Q2 2015] shows the price for their average service fell.  I’d expect that to continue, or perhaps level out.  Winning national accounts requires very competitive pricing, as well as, in many cases, payment of “management” or “administrative” fees to the payer customer.

Then there’s the cost end of things.  This is a pretty simple business with relatively low administrative expense and not much opportunity to reduce that expense. While Examworks may try to reduce payment (the biggest component of their cost of goods sold) to IME and Peer Review docs, those docs can just refuse to go along.  As claims adjusters and attorneys on both sides have very definite preferences for docs, those docs do have some pricing power – and if those physicians aren’t in an IME company’s network, than that IME company likely won’t get that adjuster/attorney’s referral.

What’s happened of late – as evidenced by the lower net revenue per service reported by Exam over the last two quarters – is this decline in pricing has affected their “mix of business”.  Fortunately word is pricing has stabilized somewhat – good news for Exam’s competitors.

There’s a lot of other fluff in the earnings call, fluff that I’ve described in detail in earlier posts (just type “exam” in the search box up there to the right), but the net is this.

These guys have no clue about their business, or they do have a clue and hope investors don’t.

Ok, I can’t resist.  Perlman does say “We have secured six of the 40 national accounts in the US and expect to continue to grow the national account business.”

That means the nice, well-dressed, smiling Examworks field reps have a “license to hunt.” It does NOT mean Exam is going to get all the business from those national accounts, far from it.  It means the Examworks field reps get to try to get into claims offices (an increasingly difficult thing to do as more and more payers are refusing to admit vendor staff) and schmooze Jane and Jack adjuster in hopes J&J will refer files to them.

Instead of the myriad other IME companies knocking on their cubicle “doors”.

Sorry, one more thing just begs to be addressed.

Exam makes a very big deal of their purchase of a Buffalo NY-based IME firm – First Choice.  This $24 million company with earnings in the $1 million range sold for 7-8x earnings.  Perlman said, and I quote, that this is a price “in line with what we have paid historically for businesses of this size and regional significance.”

Historically, EXAM bought smaller, regional companies for around 4x.  Unless my math is pretty bad, prices are going up, despite what Mr Perlman says. First Choice is somewhat larger than previous acquisitions, but the doubling of the multiple is NOT “in line” with previous purchases.

OK, I’m done.  For now…

What does this mean for you?

I don’t own the stock, although I wish I’d short-sold it a couple weeks back. You?

Note – I have nothing against Exam, don’t know Mr Perlman, and have no financial stake in this industry.  I do find equity analysts’ understanding of core business issues sometimes don’t have any grounding in reality.

For those heading to Las Vegas next week for the annual work comp meeting, it’s time to re-confirm meetings, check for double booked time slots (I always have at least 2), and finalize the sessions you’ve got to attend.

Here’s a list of must-dos when preparing for Vegas.  It’s far too easy to miss essential sessions or forget to stop by booths to meet with vendors so be sure to set that calendar up with the right alerts. To help navigate to sessions and around the exhibit floor, I strongly encourage all to download and use the NWCDC smartphone app.

Bob Wilson, the legendary WorkCompKing, John Plotkin and I will take the stage at 5:30 pm Nov. 11 at the Mandalay Bay in Vegas to discuss how social media can be used for good. Bob’s public discussion of SAIF’s appalling treatment of Plotkin is well known and but one example of the power of social media.  If you haven’t signed up for ISG’s Social Media: SAFE and Uncensored get-together, registration is here; cocktails and hors d’oeuvres will be served.

Random notes

Here’s a great post on how to know when to move on from a chance meeting; I expect a few colleagues will employ these techniques when they run into me unexpectedly.  No worries, no offense taken.

Be smart and don’t cross the stupid line.  Have a great time but remember someone’s within watching or listening range – and that someone could be a potential customer, boss, employee, or colleague.

Finally, it’s a long week – pace yourself.

I’ll be live blogging from Vegas when I get the time; planning to get a couple posts out each day but plans have a way of changing.

ProPublica and NPR have a new investigative report out on Opt-Out, the nascent industry seeking to allow employers to “opt-out” of workers comp. Perhaps more accurately, PP/NPR focused on one individual in the Opt-Out industry, concentrating their attention on Bill Minick, his company, and their clients and supporters.

As one who has fiercely criticized ProPublica and NPR for their slipshod, inaccurate, and biased reporting on workers comp, I am quite skeptical about their work.  Even after lengthy conversations with myself and other work comp experts, even after we sent numerous documents, studies, and papers refuting their many errors, even after sharing information with them about the myriad abuses of the system by profiteering docs and shady physician dispensing companies and surgery mills, these two refused to acknowledge those errors, expand their coverage, and correct their “reporting”.

Unfortunately, this taints not only their work, but the work of ProPublica as well. Grabell and Berkes are the lead authors on this new piece on opt-out, which makes me very skeptical.

I’d note that the tone of their writing remains hyper-critical, and while there are ample opportunities to give credit where it is due, Grabell and Berkes seem averse to reporting on any positive aspects of Opt Out – giving short shrift to the Texas Association of Responsible Nonsubscribers, (TXANS) even though that group is the largest association of non-subscribers in the state and nation. However, overall the piece does appear more balanced than their earlier hack-job on workers’ comp.

I do find it ironic that workers comp – an industry/benefit system pilloried by Grabell and Berkes – is portrayed by those two worthies as preferable to Opt Out.

There are big problems with opt-out; employers with minimal coverage protected by LLC status for one; the poorly-worded definition of “injury”, unrealistic reporting requirements, and failure to protect claimants from discharge are just a few. But perhaps the biggest is the total lack of meaningful regulation; in Texas and Oklahoma, employers have wide discretion as to what their plan covers and doesn’t, coverage limits, injury definitions, settlement conditions, and redress.

There are many good employers using opt-out as a means to avoid the worst of the work comp environment; claims that drag on forever, plaintiff attorneys seeking ever more care to jack up settlements, diagnoses that migrate seemingly at will. So let’s not tar every non-subscriber with the same dirty brush.

I fully understand employers’ frustration with the work comp “system”; I also know there are many injured workers who are treated poorly by that “system”.  There are problems aplenty on both sides.

The solution is NOT opt-out.  Rather we should getting employers to pay enough in taxes to fund adequate regulatory resources; promote speedy and clinically-sound, independent resolution of medical and disability disputes; and promulgate real evidence-based clinical guidelines.

What does this mean for you?

For every problem, there is a resolution that is quick, cheap, and wrong.  Opt out is a great example.

 

 

Claims were up less than 5%, while claim costs increased 29%.

That’s what’s been happening at North Dakota’s state work comp fund, aka WSI as published in their biennial report (note the time period referenced above is FY 2012 and 2013). Fortunately, premiums have been increasing rather dramatically as well, which should help address those rapidly escalating claims costs.

On the downside, the oil patch is suffering from declining prices and slipping employment, which means lower payroll and lower premiums going forward.  If claims costs continue to escalate while premium growth subsides, things are going to get a bit tight in Bismarck.

But let’s not ignore the differential between claim frequency and claim severity.  The biennial report doesn’t indicate much change in the type of injury, so it’s not clear what is driving the big jump in severity.

And the biennial report is all smiles, and precious little discussion of this rather shocking metric.

There’s also a $15 million hit due to WSI’s technology debacle; that’s a pretty substantial contributor to WSI’s “decline in net position” despite a 20% jump in premiums year over year.

So what does this all mean?

Here’s what’s scary.  Claim severity increased a lot, and claim frequency popped up just a bit.  If there are more job cutbacks in the Bakken oil fields, we may see more workers filing comp claims rather than suffer thru a layoff.  And, with fewer jobs to return to, disability duration is likely to increase.

What does this mean for you?

These are very nervous times for WSI.  And based on past experience, it doesn’t look like senior management is up to the challenge.

hat tip to WorkCompCentral for the head’s up!