The skies are blue. This won’t last.

There are no challenges facing today’s work comp insurance industry. 

Profitability has never been this high for this long.

The combined ratio – the cost of claims plus admin expense – is historically low, and getting even better.

While rates continue to drop, that isn’t hurting profitability.

Employment and payroll is high and appears (to some) to be stable.

Reserves are far beyond adequate, eliminating fears of a major expense shock or premium jump.

All this joy helps squash any whisper of innovation, any fleeting thought of change, any “risky” initiatives.

The work comp insurance industry has never been better, and has never had better reason to see nothing but blue skies ahead.

That is a grave mistake.

While we must pay close attention to potentially disruptive forces that may well significantly alter the landscape, many are too easily – and far too readily – dismissed. It’s analogous to global warming; the deniers long scoffed, protesting that climate scientists were catastrophizing the likelihood of major change, and here we are.

While outright deniers have much to regret, those who sort of knew the climate is changing have done little to prevent it, adapt to it, mitigate it. That’s in our DNA; we humans survived and flourished through our ability to quickly recognize and address immediate threats.

Very long term threats, not so much.

Some of the external forces are obvious, others are hidden. But all should be acknowledged, objectively considered, and, if necessary, planned for. Over the next few days we’ll be digging into these in some detail.

I offer a few for your consideration.

  • Implementation of major national health reform
  • Failure to implement major national health reform
  • Expanded trade war
  • Consumer debt bubble pops
  • Impact of Amazon-Berkshire Hathaway-JP Morgan’s Haven Health
  • Global warming
  • Downstream impact of decreased opioid utilization.

What does this mean for you?

To be sure, some/many of these won’t happen and/or won’t affect workers comp. But it’s likely some will. The time to prepare is now.



Guns and public health

Guns are a major public health and safety problem. Guns are associated with tens of thousands of deaths every year, most preventable.

And we Americans are among the world leaders in death via firearm.

Before you make any assumptions – I own guns. I hunt – although I’m a pretty poor hunter.

My dad taught me to shoot, and handle firearms, and gun safety. Among the guns I own are his service rifle – a 1903 Springfield – from WW2 and the revolver he carried while flying in B-17s over Europe. They mean a lot to me, and one day I’ll pass them down to my kids.

A couple key factoids that are worth considering.

  1.  Most Americans – and most Republicans – want background checks and “red flag” laws.  And most Americans want stricter control of gun sales in general.

2. Firearms are used to commit far more suicides than homicides.

3.  People who attempt suicide with a gun are much more likely to die than those who use other means.

4. There’s a strong correlation between higher rates of gun ownership and higher suicide rates.

5.  Lastly, every day 65 people use guns to kill themselves.

Guns are a major public health concern, yet no other public health menace gets the same public support.  As a gun owner, I’m deeply troubled by the willingness of some to advocate positions that will get more guns into more hands – which will lead to more unnecessary tragedies.

What does this mean for you?

The data is clear – people want stricter gun laws – and for very good reason.


One Call reportedly retains investment bank

Debtwire reported (subscription required) yesterday that multiple sources indicated work comp medical services firm One Call has retained Centerview Partners “as liquidity tightens, covenant hurdles loom.”

Centerview, an investment bank with extensive experience in the workers’ comp service industry, will reportedly “help [One Call] navigate balance sheet pressure, including a potential liquidity shortfall and covenant compliance hurdles.”

(A “liquidity shortfall” means a company may not have enough available cash to pay its bills.)

Debtwire also noted other sources said a group of One Call’s lenders have retained Jones Day as legal counsel.

Ten days ago One Call CEO Rone Baldwin released a business update on One Call’s website indicating “One Call is in full compliance with all debt covenants.”

The Debtwire piece went on to indicate that the company had $11 million of available liquidity split between cash and a revolving debt vehicle (it was not clear if this was at the end of of the second quarter or at some other time). This was down from $18 million at the end of the first quarter.

Several other sources discussed “potential remedies” to the company’s current situation, naming a meaningful debt for equity swap and/or a fresh injection of additional equity.

I don’t see either as viable options.

Equity would have to come from current owner Apax (or, much less likely, another investor). Apax has already written down its original investment. Private equity firms have to get agreement from their investors before spending their dollars; I strongly doubt Apax’ investors will want to increase their financial exposure to a potential default. More detail on this here.

The debt for equity swap is also unlikely. If the covenants are breached, the debtholders likely get (some) control over the company. I don’t see why the debtholders would swap debt for equity now, when that may occur in the near future.

Debtwire’s reporting comes on the heels of Baldwin’s announcement of a layoff of about 50-60 folks; on Friday Michael Jordan, the former head of One Call’s effort to expand into group health departed.

My best guess is One Call’s daily revenue is around $5 million.  Unfortunately, the company’s headquarters was closed for at least two days due to hurricane Dorian. The closure plus the strong likelihood that Dorian prevented many claimants from scheduling or receiving services provided via One Call didn’t do anything to help the company’s tight cash flow.

For more detail on the company’s recent history, here’s information on One Call’s debt refinancing, and a detailed review of One Call as of December 2018.

I’ve asked Moody’s and S&P when they will update One Call’s credit rating and will report back if and when that occurs.


Surprise! Medical bills in workers’ comp

Surprise medical bills happen when you think you’re going to an in-network medical provider, only to learn some of your care was delivered by a non-contracted provider who can bill you whatever they want.

In work comp, this happens when your employee suffers a serious injury on the job, and you send her to the nearest emergency room – which happens to be at a hospital in your work comp PPO network. You then get a bill for $30,000 because the ER is operated under contract by TeamHealth or Envision, private-equity owned companies that aren’t in your network.

While state fee schedules may help, rest assured the hospital revenue maximization industry knows exactly how providers need to bill you to guarantee collection.

While this has made headlines in the private insurance world, it has yet to get much attention from work comp insurers. That may be because comp payers are pretty unsophisticated about facility billing, despite claims from bill review departments/vendors to the contrary. (there’s legislation in Texas that deals with a very narrow slice of the issue; it will have almost no impact on the problem save for patients treated at a federal medical facility)

Congress has been blathering about “solving” the surprise medical bill problem all year – making as much progress as usual, that being none. That’s largely because the PE-owned medical service companies are spending tens of millions fighting legislation intended to stop surprise billing.

What’s clear is while the PE firms may win this battle, they will certainly lose the war. The surprise bill fiasco will generate huge returns over the short run, but lead to major reform as voters get madder and madder about this legal theft. The PE firms fully understand this. They are fighting to preserve their right to rip off patients as long as they can, and will keep doing so until voters rebel.

So, to Blackstone, KKR, Welsh Carson et al, enjoy it while you can. This is yet another example of hugely profitable investors’ short-term fixation on short-term profits.  While it will lead to massive short-term profits, it is creating a massive backlash, one that will inevitably lead to laws and regulations that will crush their business model.

In the meantime, employers and taxpayers will pay the price – especially because work comp hasn’t woken up to the issue.

What does this mean for you?

Analyze your facility spend to find out.



Where have all the work comp opioid patients gone?

Workers’ comp has done an admirable job reducing the volume and potency of opioids dispensed to work comp patients.

This from our latest Survey of Prescription Drug Management in Workers’ Comp…

The question is – how many work comp patients really stop taking opioids?

A Canadian study offers a sobering possibility – many likely did not.

those injured workers that received…120 MED or more at the end of their claim were likely to have post-claim opioid use in approximately 80% of cases. [emphasis added]

Caveats abound – different country, different system, different approach to opioid management. Yet we need to ask ourselves questions that are deep and uncomfortable.

Did we really help these patients?

Were they addicted, dependent, and/or have serious chronic pain that we failed to adequately address?

Have we looked deep enough into what happened to those patients taking opioids after they stopped?

Perhaps most important – What is our responsibility to those patients?

This is not – an any way – justification for the opioid industry’s twisted and misguided attack on efforts to reduce opioid over-prescribing. It is crystal clear that industry has killed hundreds of thousands of people, devastating communities and families.

Rather, we need to make very sure we are doing the right thing for patients. In some instances this will involve telling patients what they don’t want to hear; we need to be prepared to do that and help them thru the process, while understanding that process is very difficult.

What does this mean for you?

Do you know whether patients no longer getting opioids via work comp are still taking them? What responsibility do you bear?


The Purdue Opioid “settlement” – key takeaways for workers’ comp

Reportedly Purdue Pharma, the fine folk behind OxyContin, is nearing a settlement with 23 state attorneys general and thousands of other governmental entities.

Here are the key takeaways:

  • this does NOT appear to be a universal settlement; other state AGs, local governments, employers, and other affected entities will almost certainly seek their own compensation from Purdue.
  • The Sackler family, Purdue’s owners, will lose up to $3 billion of their personal fortunes estimated to total $13 billion – most of which came from OxyContin sales.
  • Purdue Pharma will enter bankruptcy and future earnings will go to addressing the awful repercussions of the opioid crisis

What wasn’t included are criminal charges for the Sacklers; that is an outrage.

It is crystal clear many members of the family were intimately involved in Purdue’s efforts to shove more and more opioids down more and more throats. Not satisfied with those billions, the arrogant bastards were going to make yet more treating the addicts they created. (Note not all of the Sacklers were involved in the opioid disaster)

This from NY’s opioid lawsuit (credit Vox)

The unmitigated gall of the Sacklers is stunning; they knew their drugs were killing tens of thousands, and now wanted to profit from the untold damage they had done.

For workers’ comp, there are a couple of implications.

First, as the tort industry dives deeper into this, they will sue more and more participants. My informed opinion is payers are pretty safe for several reasons;

  • state regulations are the primary and ultimate driver of work comp coverage;
  • work comp entities led the charge to reduce opioids when they first grasped the size of the problem;
  • payers did not receive rebates from opioid scripts so there was no financial benefit to allowing the scripts; and
  • payers were damaged by the opioid industry due to much higher medical costs, extended disability duration and death claims.

I haven’t heard of any workers’ comp entity being sued for damages related to opioids – but it is possible.

Second, work comp payers have been damaged by the Sacklers and their ilk. While state funds may be involved in some of the suits seeking compensation for damages (it’s impossible for me to unpack all the plaintiffs in all the filings), I have yet to hear of any suits involving commercial insurers or reinsurers.

I’ll admit to being surprised at the work comp insurance industry’s seeming lack of interest in taking on the opioid industry. Every day:

  • Insurers go after claimants for double-dipping and false claims,
  • Insurers go after employers for falsifying payroll data,
  • Insurers go after providers for fraudulent billing for practices, and
  • Insurers sue each other over coverage issues and reinsurance claims.

Before anyone else could spell opioids, work comp payers saw the damage being done and took action.

What does this mean for you?

Work comp insurers must be a highly visible part of the solution; we owe it to policyholders and taxpayers, we owe it to patients, and we owe it to all of the insurer staff, regulators, researchers, and other stakeholders who’ve dedicated untold hours to fixing the damage done by the Sacklers and their ilk.

Need more incentive? Here’s David Sackler’s $22 million Bel Air mansion your workers’ comp dollars helped pay for.



The soft market’s impact on work comp service providers

Yesterday I briefly summarized today’s work comp market, which in a word is

While this has been very profitable for work comp insurers (that are enjoying double digit returns for the first time ever) and has saved employers and taxpayers hundreds of millions of dollars, it’s been causing agita amongst service providers – with several notable exceptions. (by “service providers” I am referring to TPAs, medical and disability management entities, networks and other parties)

TPAs are flourishing.  As insurers look to reduce their overhead costs, they are finding fewer dollars available to invest in systems, IT projects, training and recruitment. They are also facing the reality that claim frequency declines mean there will be fewer claims to handle next year than this.

The net effect – why spend dollars to get better at handling a shrinking business, when you can outsource claims to a third party?

That’s driving growth at ESIS, Broadspire, Sedgwick, GB et al; most TPAs have seen significant increases in carrier business over the last few years.  That growth will continue.

Medical management entities are in a different situation – but it’s not a simple one.

With fewer claims to handle, there’s less demand for case managers. With medical costs flat, the volume of bills to handle, visits to schedule, and services to provide is static. Of course, while that’s true for the industry as a whole, there’s wide variation amongst the individual companies in the space. Some are growing quite nicely, while others are losing share and revenues.

Of course that’s due primarily to service providers’ abilities, competency, customer service, and how easy they are to do business with.

Many are cutting prices and giving up margin as they try to stay competitive, hold onto current customers, and have any shot at adding new business.  In general this makes sense, but you have to wonder at the long-term viability of the strategy.

A somewhat different approach is worth contemplating.

What’s working for some providers is their ability and commitment to take work off their customers’ desks and do it for them quickly, easily, and with minimal disruption.  These days this tactic isn’t just a nicety, it allows insurers to reduce their internal workloads by offloading tasks to vendors.

Some are doing this intentionally, others may not even be aware they are solving their customers’ strategic needs as well.

There’s a wildcard out there as well – or rather two.

First, most payers require at least two service providers for most services (excluding pharmacy and bill review).

Second, should one of the big service providers stumble or hit financial difficulty, there will be significant opportunity for competitors able to jump in and help out.

What does this mean for you?

Even in a very tough market, there are opportunities for those who think strategically.





Work comp’s ongoing soft market

Work comp rates continue to drift ever lower, with new declines announced pretty much every week. While this is great for employers and taxpayers, the impact on insurers, TPAs, and the work comp ecosystem is rather less than “great.”

It’s going to end…someday…right?

It always does, but this time around feels different.

Here’s where we are today – and why.

Rates and payroll drive premiums; as we’re at or darn near full employment with pretty static average weekly wages, premiums are likely holding steady or up just a hair.

Graph shows changes in average weekly wages adjusted for inflation from the Bureau of Labor Statistics

Florida’s rates will likely drop for a third straight year, New Hampshire employers are even happier as rates have declined for 8 straight years – this time by almost 10%. California – by far the biggest work comp state in terms of premiums, gets another decrease in 2020. Same story in Missouri, Wisconsin, and Virginia.

Rates follow declines in claim costs, so insurers are making tons of money. Historically high profits result from low combined ratios (defined as the ratio of total losses plus admin expense to premiums earned). As long as claim costs continue to drop, profits will remain strong.

Result – insurers are really happy. So are employers.

With work comp medical costs static [see detailed report from NASI, free to download] and claim counts stable-to-lower, there’s little if any growth in the number of claimants, the number of medical bills, and the volume of medical services. This means payers have fewer dollars to upgrade systems, pay staff, invest in improvements and training. As premiums drop, overhead costs get squeezed too.

Think of it this way – a California insurer collects $1 million in premiums this year. If it keeps all its current business and doesn’t gain any new customers, that same customer base = $900,000 in revenue next year. The 10% decrease means 10% fewer dollars to spend on IT, marketing, staff training, process improvement.

The impact on service companies isn’t quite as straight forward – for reasons we’ll dive into tomorrow.

What does this mean for you?

Fewer dollars is good news for some, but is likely preventing many insurers from much-needed investment and upgrades.



No, hospital mergers do NOT reduce your costs

The takeaway from the American Hospital Association’s “study” of hospital mergers is NOT that mergers are good for patients, employers, and taxpayers.

It is that all of us should be skeptical readers of research conducted/paid for by entities that have a stake in the results.

The report authored by Charles River Associates – and funded by the AHA – on mergers and acquisitions in the hospital made several claims, all focused on the hospital that was acquired:

  • mergers reduced expenses at the acquired hospital;
  • quality at the acquired hospital improved; and
  • revenue per admission decreased.

Clearly the intended message is that mergers are good for us – quality goes up and the cost to us – the patients and employers and workers comp insurers, go down.

Except that’s highly misleading.

First, the study drew conclusions directly contradicted by every other study of hospital/health system consolidation.  This is likely because the study focused on the hospitals being acquired, and not the overall results of the newly merged entity. (Here is a very good review of mergers’ impact on costs and quality, here’s what NCCI had to say.
And here’s what happens to patients – spoiler – you get to pay more.
If the authors had included results from the acquiring hospitals this would have been much more useful.  Overall, the report provides no useful insights into the changes in costs, revenues, or quality resulting from mergers.
Second, the study reported expense reductions from mergers are relatively small at 1.5% to 3.5% of total expenses. As I mentioned to WorkCompCentral’s Elaine Goodman, most every merger outside the hospital industry produces expense savings at or very close to double digits, thus the “cost-reduction” benefits touted by the AHA are rather less than impressive.
Second, claims about improvements in quality of care are not convincing for two reasons.  First, statements about types of improvements consist of examples cited by interviewees. Second, as the acquired hospital may transfer, or more likely, not accept higher-acuity patients, it is not surprising that their quality measures (re-admissions, mortality rates, etc) improve. Healthier patients = better quality ratings.
Third, the report indicates ” acquisitions are also associated with a reduction in net patient revenue per admission “ at the acquired hospital. There could be many reasons for patient revenues to decline, including moving more critical patients  – who cost more to treat – from the acquired hospital to the acquiring hospital. Changes in Medicare and Medicaid reimbursement could also be a factor. Notably the report did not discuss revenue reductions across the newly merged entity.
Here’s what REALLY happens to hospital revenues…
What does this mean for you?
For workers’ comp payers, don’t think this is good news..
Hospital costs are hurting workers’ comp payers.  Revenue maximization efforts by hospitals and healthcare systems in non-Medicaid expansion states, are driving comp medical costs higher.

Note – For years I have been doing research on several issues important to work comp – pharmacy, bill review, claims systems, utilization review. Some of have been sponsored by companies active in the space – but they’ve never had access to respondent-specific data nor any input into the analysis or report writing process.

Still, you should read all my research with a careful eye – as you should read all research.


Chronic pain, opioids, and workers’ comp

The hammer is starting to fall on the opioid industry and the repercussions are echoing thru the comp industry.

  • J&J owes Oklahoma $573 million after losing its case in the state
  • Purdue Pharma’s owners are trying to settle all suits for $10-$13 billion
  • the huge case in Federal Court in Ohio will go to trial next month

In work comp, opioid spend has been cut in half over the last three years, but the reductions are not consistent across the states. WCRI’s latest report has insights into where the problem is most severe – which helps you figure out where to allocate resources. Kudos to authors Dongchun Wang, Vennela Thumula, and Te-Chun Liu for putting together the report.

Meanwhile, we’re being inundated with “alternative” treatments for chronic pain. One just-published study (hat-tip to Steve Feinberg, MD) shows that invasive procedures are pretty much useless; here’s the takeaway:

There is little evidence for the specific efficacy beyond sham for invasive procedures in chronic pain…Given their high cost and safety concerns, more rigorous studies are required before invasive procedures are routinely used for patients with chronic pain.

BTW for clinicians, Steve wants you to consider attending the CSIMS meeting coming up next month.

As we transition away from opioids, how do we help patients with chronic pain? What works, what doesn’t, and why? And most importantly, how do we work with treating physicians to solve the problem?

Of course, a key reason docs have over-prescribed invasive treatments is financial; there’s a ton of money in doing stuff to patients, compared to a few pounds of money for working with patients. But that’s only part of the story.

Simply walking into a physician’s office with a fancy dashboard and telling the physician that doing X is in their best interest does not work.

To get docs to change behavior, you have to understand why they are doing what they are, provide them accessible data showing why that’s not helpful, and get them involved in change.

Is that a lot of work? Well, maybe. Break it down into chunks and it’s not so daunting.  Identify a few docs you want to work with, talk with them about the issue, and develop solutions together. This takes time, patience, and most of all a commitment to listening and understanding.

The payoff is trust between you and the treating physician, which leads to a lot less work for your front-line staff, and a lot better outcomes for your work comp patients.

What does this mean for you?

You need a plan to help patients with chronic pain. And that plan has to include treating physicians.