Author: Joe Paduda

Feb
5

yet ANOTHER work comp service company’s been sold

Posted by Joe Paduda on Wednesday, February 5th, 2014 | Comments

This time it is MSA firm Gould and Lamb.  The purchaser is IME firm Examworks, and according to WorkCompWire, the price is $75 million, or about 7.9 times earnings.

Back in the day, this would have been considered a pretty healthy price – but things have changed – big time.  With PMSI/Progressive going for 10x+, Align for 17x, OCCM for 13x, and other deals mostly in the double digits, this may be a reflection of the rather muddy forecast for the IME business.

And I’m not sure I see the strategic link between IMEs and MSAs.  Sure, there’s some “relatedness”, but it’s a bit of a stretch to see how 1 + 1 = 3 with this deal.

Feb
4

The GOP’s Alternative to Obamacare

Posted by Joe Paduda on Tuesday, February 4th, 2014 | Comments

Three republican senators have proposed a bill – the Patient CARE Act – to replace PPACA aka Obamacare.

Kudos to Senators Burr Coburn and Hatch for their efforts – and for staying away from the useless ideas of selling insurance across state lines, high-risk pools which are never adequately funded, and that favorite non-solution, tort reform.

In a nutshell, the GOP bill does away with most PPACA regulations including the mandate, reduces the tax break on employer-sponsored insurance, does away with Medicaid expansion, and gives low income folks tax credits to buy insurance.  There’s not a lot of detail, and it’s clear this is a work in progress.  I would note the GOP’s claim that their bill expands coverage without increasing taxes is sophistry;  according to many in their party, eliminating a tax break IS raising taxes.

There is no mechanism or approach or tools that would reduce health care costs, no assurance that those with pre-existing conditions will get coverage (unless they constantly maintain insurance, something that many folks don’t do), no control over benefit design (which is skillfully employed by insurers to discourage the unhealthy from signing up)

While a home-team analysis indicates the GOP bill will reduce uninsurance by about the same amount as Obamacare, the analysis isn’t credible.  For one thing, the “coverage” provided under the GOP bill would be a LOT thinner than that provided under Obamacare – they’d have to be, as the maximum credit for young singles would be $1,560, hardly enough to pay for anything but the skimpiest of catastrophic coverage.  This may be “insurance” but it certainly isn’t “coverage” .  In addition, doing away with the Medicaid expansion would dump millions of just-covered folks back on the safety net, aka emergency rooms, charity care, and community health centers that have been hammered by budget cutbacks.

 

Finally, the provider, payer, information technology, supplier and health system communities have all been working feverishly to prepare for and implement Obamacare.  This train left the station four years ago, and Burr, Coburn, and Hatch are just now showing up trackside with a revised itinerary.

Moreover, the passengers on this train – the middle class, health care providers, and older folks – are going to be adamantly opposed to the GOP plan as it:

  • raises taxes on the middle class;
  • undoes Medicaid expansion thereby harming health care providers; and
  • increases insurance costs for older people.

Politically brilliant it’s not.

As Jonathon Cohn notes; “It would have been a lot more productive if these three senators, or any other Republicans, had been similarly constructive back in 2009…”

He also thinks it is better late than never – I disagree.

Obamacare is the law of the land.  It is not going to be repealed.  The triad would have better spent their time working on something more productive; say immigration reform or revamping the tax code.  Alas, this is an election year, and the GOP bill is a political ploy.

But it’s not a very smart one.

What does this mean for you?

Not much.

 

 

Feb
3

Opioid guidelines are about to get a whole lot better

Posted by Joe Paduda on Monday, February 3rd, 2014 | Comments

In about ten days, providers and payers struggling with opioids will get a big hand up.

ACOEM will be releasing their just-completed Opioid Guidelines; they are comprehensive, extremely well-researched and well-documented, and desperately needed.

I learned about the guidelines from a presentation delivered by Kurt Hegmann MD MPH, Professor at the University of Utah and Chair of the Occ Med Division at the University of Utah’s Compensable Disabilty Forum.  In his spare time, Kurt is also responsible for ACOEM’s guidelines as the Editor-in-Chief, a role he’s filled for eight years.

Affable and engaging, Dr Hegmann walked the audience through the development process (quite rigorous, involving 26 professionals with NO conflicts of interest using the Institute of Medicine methodology), the research and (960) references behind the guidelines and the ranking/categorization of individual guidelines.

Here are a couple of takeaways.

  • Of the 220 pages, the vast majority are tables of evidence – some practitioners may peruse them, but most will focus on the couple dozen pages specific to individual treatments
  • The guidelines address acute and chronic treatment, with chronic defined as > 3 months
  • The detail, specificity, and depth of research and their application to guidelines are impressive indeed.  What these guidelines add to our understanding of what works, why, and what doesn’t is impressive by itself; how they blow apart pre-conceived notions of “appropriate” care and challenge long-held conventional wisdom was – at least for me – rather jarring.

    For example;

  • Other guidelines say it is Ok to be on safety sensitive jobs and take opioids – that is NOT supported by the research
  • The researchers found NO link between opioids and improved function – studies that show there is a link almost always use self-reported data.
  • No trials indicate opioids are superior for acute pain than NSAIDs.
  • The MAXIMUM dosage recommended is 50 MEDs (morphine equivalent dosage), significantly lower than most guidelines which use 100-120.  The reason is the research – there is a much lower risk at this level, with the data indicating a sharply higher risk profile for higher dosage.
  • Drug testing is recommended with a baseline and random tests 2-4x a year; the higher the dosage – more screening
  • Pain rating scales are all but useless as data points as lots of patients indicate their pain is a 10 and yet are working full time.  This is not possible, and indicates the uselessness of subjective ratings/scores/data.

Are they perfect?  No.  But that’s due to the lack of research on specific issues, and not to the diligence and perseverance of the developers.  If the research is solid, it is in the guidelines.

What does this mean for you?

A lot of confidence in the guidelines, and hope that we can begin to gain control of the epidemic of opioid overprescribing.

Jan
31

Friday’s catch up and quick takes

Posted by Joe Paduda on Friday, January 31st, 2014 | Comments

The week flew by, so I’m running to catch up on things I should’ve posted on earlier.

Looks like mother Aetna is getting her arms around Coventry work comp; reports indicate about three dozen Coventry work comp IT folks were laid off earlier this week, including most of the staff supporting BR 4.0, their bill review application.  This will come as no surprise to current clients and loyal readers; under the former ownership, there was little investment in the application over the past several years.

The question is – what happens to those current clients?  

First, indications are Coventry will not be doing bill review either on an application or service basis. If this the case, ALL Coventry BR clients will have to transition to a new provider.

Some payers have been planning for years to move to a competitor; expect Medata and Stratacare to pick up a couple of very big payers.  Mitchell will likely be very active, and MCMC is well-positioned to take on business too.  I would not expect ACS-CompIQ to be much of a factor as contacts indicate their service and performance levels of late have been less than acceptable.

Coventry WC may do a “renewal rights” deal with one of the other BR companies to transition clients, private-label one of the four competitors’ application, or – least likely – tell current BR 4.0 clients they are on their own.  As all Coventry BR clients will have to implement a new application, expect a lot of focus on this in the coming year.

Which may delay other critical IT upgrades/implementations/projects for some time…

Health reform

On the subject of health reform, looks like the trickle of uninsureds signing up for coverage thru the exchanges is going to increase.  A just-released Gallup poll indicates 56 percent of uninsureds who are going to get coverage will do so via the exchanges. Of all uninsureds, 53 percent are planning to buy insurance and 38 percent say they will pay the fine…

One of the less-well-known components of PPACA, outcomes research, has continued to make major progress.  The latest from the Patient Centered Outcomes Research Institute lists key initiatives and reviews the current process.  Of interest to work comp folks;

  1. Strategies for preventing the progression of episodic acute back pain into chronic back pain
  2. Compare the effectiveness of innovative strategies for enhancing patients’ adherence to medication regimens. Studies should take into account the needs of patients with chronic conditions who are prescribed medications for short- and/or long-term indications.
  3. Compare the effectiveness of specific features of health insurance on access to care, use of care, and other outcomes that are especially important to patients.
  4. Treatment options for people with opioid substance abuse

This is truly important work.

A good piece on working with work comp PBMs appeared in Claims Management. Authored by Jeffrey Austin White and Cathy Whitford of the Accident Fund, it includes some very helpful suggestions on how to get the most out of your PBM.

Jan
29

How Texas Mutual is successfully addressing opioids

Posted by Joe Paduda on Wednesday, January 29th, 2014 | Comments

A few states – very few – are getting some measure of control over the overuse of opioids in workers’ comp.  I’ve been speaking to folks in these states, and will report on those conversations, what is working, what isn’t, and what we can learn.

We’ll start with Texas, where Kim Haugaard of Texas Mutual has been working closely with TM’s Medical Director Nick Tsourmas MD – and pretty much everyone else at TM and in the provider community on this issue for years.  Notably, Texas has the advantage of a strong regulatory environment with clinical guidelines and strong UR rules.  While this combination makes it somewhat easier to address opioid overuse, the regs are only good if they are fully embraced.  That, Texas Mutual has done.

Here’s part of our conversation.

MCM – What was a key factor motivating TM to address opioids and drugs?

Kim – We are meeting with our actuaries constantly, monitoring the trend lines, average paid per claim and other data points.  We separate out claims with and without opioids.  [From those analyses, we learned] The longer claims were open, the higher the chance there were drugs involved, and drugs were the driving cost factor.  Once you address the drugs, you reduce length of disability.

MCM – What are the results of your efforts to date?

Kim – We have had a lot of success addressing opioids and all drug overuse, probably more than any other company. Our drug costs have seen a steep drop since Q1 2010.

Overall opioid usage is down by over 40%. I can tell you that of the 1,249 claims no longer receiving “N Drugs”, 46% of those injured workers are receiving no drugs whatsoever. The other ones have moved away from the N-status drugs to Y-status drugs. 

You may remember at AASCIF, Dr. Tsourmas presented the findings on a program that I implemented several years ago. For the top 400 most costly Rx claims, the average Rx cost per claim per year was $14,700. After our program – outreach for doctor-to-doctor, average cost per claim was $3300, average savings of $11,400 per claim.

MCM – What’s the key to your success?

Kim – You have to attack the drug issue from all angles, this is a team effort, involving prescribing doctors, and various carrier stakeholders, including, front-line staff, actuary, medical operations staff, medical director, legal, and the PBM.

MCM – You noted this is a team effort – who else is on your “team”?

Kim – We are working very closely with the Texas Medical Society and Pain Society, we’ve spoken at their conferences and met with physicians and physician leaders individually.  Some physicians we had issues with are now collaborating closely to address the opioid issue.

On drug testing, we are working with Millennium Labs on developing a “best practices” program, setting up testing protocols based on patient risk scores.

MCM – How do you focus your efforts?

Kim – In everything we do, we focus on outliers – reward the high performers and analyze and address the low performers.

What does this mean for you?

Yes, you can dramatically impact opioid overuse.  

While strong regulations are a big help, a) you have to use them effectively, and b) much of what Texas Mutual has done can be done anywhere – perhaps with a bit less success, but success nonetheless.

Jan
27

Sedgwick under KKR – quick takes

Posted by Joe Paduda on Monday, January 27th, 2014 | Comments

Talked with several folks in the industry about this deal, including Sedgwick CEO Dave North.  Couple points worth highlighting.

This has nothing to do with Mitchell International and there will not be any combination of the companies.  

For some reason a few folks are advancing the theory that there is some grand strategy at KKR involving buying up some/most/all work comp service firms (I exaggerate, I know) to build some Mega-Corp that will own the industry.

Please disabuse yourself of this notion.  Of course, KKR sees work comp services/P&C services as an attractive market, but that does NOT mean they are looking to mush a bunch of disparate entities together.  According to North, he “hasn’t had a word with anyone from Mitchell and there is nothing that is part of this deal that contemplates Mitchell as part of the scenario.”

I believe him.

As a side note, Stone Point (current owner of Sedgwick) owns/has owned several other work comp services businesses including Cunningham Lindsay and Genex.  There was very little communication between these entities, and a lot of competition.

Moreover, investment companies aren’t monolithic; they manage different internal investment funds, with different outside investors in those funds.  It is highly likely the investors in Mitchell are NOT the same as those buying into Sedgwick.

Sedgwick management is sticking around; many have also invested in the company going forward. That’s from several internal sources.

Finally, while management is staying, the same business model will be followed, and Sedgwick will remain Sedgwick, there will be changes – as North noted, “any time you have the backing of a company like KKR there should be opportunities for change that didn’t exist in the past.”

KKR is huge, has tremendous resources, and may well decide to deploy some of them to further enhance their new asset.  But they certainly wouldn’t have bought Sedgwick with the assumption they would make big changes.

You don’t pay a multiple in the double digits for a company that needs major changes.

Jan
27

Sedgwick’s been acquired

Posted by Joe Paduda on Monday, January 27th, 2014 | Comments

Investment firm KKR will buy a “majority interest” in TPA Sedgwick for $2.4 billion in a deal announced officially minutes ago.

The transaction is the latest of several high-multiple deals for workers’ comp assets, second only in size to Apax’s total cost for the combined OneCall/Align transactions. Estimates of the valuation are in the 11-12x on a trailing basis or perhaps around 10x of forecast earnings.  However, what isn’t known is exactly how much of Sedgwick KKR bought. It is likely management owns a piece of the company; I’d be somewhat surprised if the sellers – Hellman & Friedman and Stone Point – retain any significant stake.  I would speculate that the total valuation – after accounting for minority ownership – is between 10x – 11x of forecast earnings.

(I need to revise my expectations, as I’d forecast a sale price of “as much as $2.4 billion.”

Regardless, a double-digit valuation for a TPA is a pretty rare occurrence.

So, what does this mean?

First, there’s been no decrease in deal flow in the work comp space, and there are at least two others in process.  At some point this will slow down/end, perhaps because there’s nothing left to buy and/or prices get so high that even the most enthusiastic will stop bidding.

Second, investors that have been bidding on assets are now selling into the market. This tells me they see the opportunity as pretty darn attractive, making it hard to hold on to investments when they can sell them for double digit multiples.  Arguing with myself, perhaps this implies the deals will continue as today’s owners find the returns just too good to pass up.

Third, I’d expect current management will stay at Sedgwick.  Dave North et al have made the current investors happy indeed (doubling the value in four years), and KKR will want to continue that trajectory.  I don’t see North as ready to ride into the sunset just yet.

Fourth, don’t look for any combination of Sedgwick and KKR’s other recent P&C acquisition, Mitchell International.  Too much channel conflict, very different companies, little overlap, and synergies would be relatively small.

Fifth, times are relatively good for TPAs these days; that said the competition should see this as a loud and sustained wakeup call. New owners will demand even more top-line and bottom-line growth from Sedgwick, so expect they’ll be as competitive as ever – if not more so.

 

 

Jan
25

It’s (un)official – KKR is buying Sedgwick

Posted by Joe Paduda on Saturday, January 25th, 2014 | Comments

The deal is close to done, a $2 billion transaction that will make KKR one of the biggest investors in the workers’ comp transaction business.  If it goes thru, Sedgwick will join bill review technology company Mitchell on KKR’s list of investments, raising questions about:

  • how/if/where the two companies will join forces or work together, and
  • what else is on KKR’s acquisition radar.

Sedgwick’s current owners, Hellman & Friedman and Stone Point, are going to do quite well on this transaction.  As I said a couple weeks ago,

Reports indicate Sedgwick’s earnings are around $200 million. With current multiples above 10x, a price in the $2 billion range is certainly possible; don’t be shocked if the final deal is worth as much as $2.4 billion.

There are a host of reasons for the TPA’s current owners to sell the company, with the primary reason likely the high valuations currently on offer.  Doubling one’s money over four years is reason enough for the owners to consider a deal; when one considers the (high) likelihood that H&F and Stone Point undoubtedly leveraged the deal, the RoI picture becomes even more compelling.

KKR is clearly betting big on P&C transactions – the Mitchell purchase and this deal represent over $3 billion in total investment, almost as much as Apax paid for OneCall Care Management and Align Networks. (however most of the price is likely debt as investors almost always leverage their investment capital).  To buyers, this makes sense, as bill review and claims processing are both “sticky” businesses; customers don’t like to move unless they HAVE to, making for good long-term relationships that, properly managed, generate increasing profits.

I’d expect the relationship between Mitchell and Sedgwick to become closer, however there may be some channel conflicts as other large payers may not like the joint ownership.  Undoubtedly Mitchell and KKR will move as quickly as they can to assure clients there will be no such issues, however competitors will, however subtly, raise doubts.  Recall there will be a “quiet period” during due diligence during which Mitchell et al won’t be allowed to say anything about anything.

Finally, Stone Point is still an investor in this space – they, along with lead investor Kelso, own PBM PMSI/Progressive.

What does this mean for you?

There’s no decrease in the private equity industry’s focus on workers comp; expect more deals in coming months.

Jan
24

Friday catch-up and fast reads

Posted by Joe Paduda on Friday, January 24th, 2014 | Comments

Physician dispensing – it’s not just for Americans any more!

From the Harvard Business Review comes this item; Chinese docs prescribe waaaay too many antibiotics – because that’s how they make money.

Antibiotics are often prescribed unnecessarily for colds in China, in part because hospitals sell medications directly to patients and doctors’ bonuses often depend on drug revenue, says a team led by Janet Currie of Princeton. In a past study by other researchers, two-thirds of patients visiting clinics with mild cold or flu symptoms received inappropriate prescriptions for antibiotics, and many were advised to take powerful “second-line” antibiotics that are supposed to be reserved for serious illnesses. These prescriptions impose substantial costs on patients, raise the risk of side effects, and foster growth of drug-resistant “superbugs,”

Here’s hoping WC docs don’t “reverse engineer” Chinese business practices.

Hiring

The Hartford is looking for a medical director; evidently Rob Bonner MD will be retiring.  This is one of those great opportunities for business-oriented work comp docs; the Hartford’s Medical Director has real authority and responsibility.

Journalism

Much as I respect the folks at R&I, their latest “editor’s choice” had me scratching my head about a piece from the Washington Examiner – It’s a climate-change denier piece asserting that we may be in for a century of cooling due to…wait for it…sunspots.

C’mon.  There have been 2528 peer-reviewed articles about climate change over the last year.  A grand total of one – yes, that’s one – rejected man-made global warming.  And that lone article was in the Herald of the Russian Academy of Sciences.

Principled and soundly-researched discussion is critically important – but only when it is reality-based.

Exchange enrollment

Exchange enrollment data is pretty mixed; numbers are way up in California and New York but most folks who are eligible for Medicaid or for subsidies via the Exchanges don’t know they are eligible.  Not surprisingly, the Latino enrollment data in California has been disappointing – to say the least.

On the federal side, enrollment seems to be much below expectations, even after the end-of-the-year push.  Whether things will pick up a lot before the March drop-dead date remains to be seen…

One factor affecting enrollment in many states may be that fourteen have enacted so-called “navigator suppression” laws; legislation that hinders/prevents/makes it difficult for the people who are supposed to help the uninsured enroll do their job. (thanks to Julie for the tip).

Impairment ratings

In one of the more esoteric  – but nonetheless significant conversations of the last week, I learned that many of the impairment ratings done in Texas are wrong – for a multitude of reasons.  Evidently those done by chiros are often (like 80% often) much higher than they should be, and medical doctors aren’t a whole lot better.  TX payers that aren’t reviewing ratings to make sure they are right may be paying out a whole lot more than they should – especially if those ratings are above 15%, the “magic number” where big payouts kick in.

Enjoy the frosty weekend – high this week in upstate NY has been 8 degrees.  Get out and enjoy!