Paul Carroll of Insurance Thought leadership penned (actually typed) a great piece on automakers’ rapidly growing focus on insurance.

Briefly, auto makers want to capture more – especially ongoing – revenue from the vehicles they sell. Way back when, they sold cars and spare parts to dealers – and that was it.

Then they got into financing; GMAC and other financial arms became huge moneymakers for the Big Three as loan originators and lease financiers.  We’ll leave aside the major mistakes the finance entities made (sub-prime loans, 2008, the Great Recession…) noting their foreign competitors were way less dumb.

Now, manufacturers are going all-in on insurance. There’s a bunch of reasons this makes sense; paraphrasing Paul and adding a couple of my thoughts:

  • manufacturers are building telematics into cars to monitor driving behavior (and other stuff) – essentially this really helps third-party auto insurers…at great cost to the manufacturers.
  • telematics can help manufacturers build safer/less risky cars, which they would then benefit from in the form of higher insurance profits – but only if the manufacturer is the insurer.
  • safer/less risky cars use fewer spare parts…which cuts into manufacturers’ revenues…which can be offset by profits from insurance.
  • buyers often finance their purchases at the dealer…so it’s pretty easy to package insurance with leases and sales.

GM, Ford, Toyota, Porsche, Tesla are all in the insurance business. Rivian (the upstart electric truck/SUV manufacturer) is also offering insurance (I have one on order). Most are offering to combine auto with home and other insurance.

Notably, Rivian is explicitly detailing it’s strategy…

Rivian Insurance integrates with our connected vehicle platform and suite of safety features to bring you tailored, data-driven coverage. We understand our vehicle, our technology and our repair costs better than anyone. Working as one team with Rivian Service and Parts helps us lower premiums and get you back on the road with quality repairs.

What does this mean for you?

If you’re an auto insurer, agent, or broker the time to plan is now.


Work comp/Auto medical bill review – initial takes

We are about a third of the way thru interviews for the third Survey of Medical Bill Review in Workers’ Comp and Auto; here are a few initial takes.

  • Bill review has progressed a lot in the last decade, with key advances in:
    • Auto-adjudication of more bills
    • Better coordination/integration with document management
    • Ability to more readily connect with other key systems e.g. treasury/finance, state reporting, claims
  • One area that still needs a lot of work – automated integration with UM/UR applications
  • E-billing is leading to more auto-adjudicated bills, but headaches as well.
  • In general, respondents don’t see a lot of differentiation among bill review vendors.
    • But some respondents point to key differences between vendors and application providers that should be top of mind for payers
  • The most common pricing methodology? so far, it’s a flat fee per bill for bill review and the old percentage of savings for everything else.
  • that said, there are some pretty innovative approaches to pricing out there that bear watching

The last time we did this survey was six years ago.  We will be comparing and contrasting results to document what’s changed and where things are going.

If you’d like to participate, shoot an email to infoAThealthstrategyassocDOTcom.  Substitute symbols for the caps.


Managing medical in Auto insurance – quick primer

Of late there’s been a resurgence of interest in managing the medical component of auto liability claims.  This happens every few years as insurers, entrepreneurs, and regulators look for ways to reduce costs and premiums.

The quick take – there’s not much opportunity here, and it doesn’t look like that’s going to change.

The details

With the exception of Michigan, which has no limit on medical benefits, almost all states have low minimum coverage requirements, often $5,000 – $10,000.  Some states – NJ, ND, MN, NY – have somewhat higher limits, and other state limits – e.g. UT – are lower.

If there’s an accident with bodily injury in a low-limit state, claims adjusters tend to set the reserve at the limit and do very little to “manage” the medical expense.  There are several reasons for this.

First, once the patient is transported to an ER, the bills pile up rapidly – diagnostics, specialists, medications, facility fees. (Mitchell’s latest report provides interesting detail on cost drivers; link opens pdf)

Second, most states don’t have fee schedules for auto medical care, so providers charge at or close to chargemaster rates – which are much higher than those for commercial health patients.

Third, this all happens before the auto insurance company is notified of and has accepted the claim.

Fourth, with rare exceptions, the insurer can’t direct the injured party to a specific provider or panel of providers.  Without that direction, providers are loath to offer any preferential pricing or other accommodations to the insurer or insured.

That’s not to say auto insurers don’t employ any medical management techniques. Independent Medical Exams, utilization review, medical bill audit, and nurse case management are tools that are occasionally used by payers seeking to ensure the care provided is appropriate.

Going forward, I don’t expect this to change.  While costs are up in some states, in my view that’s a temporary phenomenon.  Much more significant will be a massive reduction in injuries that is sure to follow widespread adoption of automated driving aids.

What does this mean for you?

Outside of Michigan and a couple other states, there’s not a lot of opportunity here.


Think about this…

There’s a driverless car on the way from California to the East Coast – today.  Right now.

As of now, the computerized Audi is three days into the trek; using “four short-range radars, three vision-based cameras, six lidars, a localization system, intelligent software algorithms and a full suite of Advanced Drive Assistance Systems” to navigate safely and efficiently on city streets, highways, parking lots, and all manner of other paved surfaces.

This isn’t just a “wow that’s cool” thing.

It portends huge changes in employment in this country – and others.

Traffic accidents kill about 32,000 people a year and injure over 2 million more. Property damage is in the scores of billions of dollars.

So, the computers driving vehicles don’t have to be perfect – they just have to be better than we texting, drinking, tired, distracted, angry, dumb, oh-so-human humans.  Doesn’t sound like much of a challenge for devices that crush we humans in chess, medicine, and Jeopardy

There’s no question – none at all – that automated transport will dominate within two decades – and will be common far before then.  Here’s my superficial sense for what that means.

  • millions of jobs are going away – drivers, body shop techs, spare part manufacturers, auto adjusters, claims personnel. There are 2.4 million truck drivers…
  • some jobs will be created – programmers, radar experts, robot polishers, things I can’t even conceive of.

What does this mean for you?

What’s going to happen to those newly-unemployed? Where are they going to get new jobs?  What will those jobs pay? If a worker is about to be computerized out of a job, are they going to be more likely to file a work comp claim?


Mitchell’s latest move

Is to acquire the leading auto PBM/pharmacy biller – Cogent Works and subsidiary AutoRx.

The announcement, out this morning, contains the usual corporate-speak, but in this case most of it makes sense.  Cogent has both work comp and auto PBM operations, as well as a billing unit that handles WC bills for Walgreens and auto scripts for most of the retail chains and food/drugs.

This puts Mitchell into the work comp and auto PBM business.

While (surprisingly) the auto claims billing aspect of the deal isn’t discussed at all, this may well be the most valuable piece.  By connecting retail pharmacies with the largest auto claims IT entity, Auto Rx adds a lot of value to those retail pharmacy relationships, while reducing administrative hassles for Mitchell customers and likely increasing Mitchell revenues as well.

On the work comp side, there may be some channel conflict.  Mitchell handles work comp medical bills for many payers, has connections with several work comp PBMs.  Now that Mitchell is a competitor (Cogent handles WC scripts for the Hawaii and Utah state funds as well as a number of self-insured entities in the west), it will be interesting to watch how things develop.

What does this mean for you?

KKR – owner of Mitchell – has made a smart buy.  Expect them to make others in the near future.


Mitchell has been acquired. What’s next?

That didn’t take long.  On the same day Kelso and Stone Point did the PMSI-Stone River deal, giant PE firm KKR bought Mitchell International for $1.1 billion.

The transaction, reported to value Mitchell at 11-12 times adjusted earnings (no word on if that was trailing or forecast), was not as lucrative as some expected.

Mitchell, along with Stratacare, Medata, Xerox, and MCMC are the leading providers of bill review software to the work comp industry. Traditionally focused on auto claims software, Mitchell added work comp with its acquisition of CompReview several years back.  The foray into comp was not without its challenges, particularly staff turnover, product glitches and some customers’ concern about responsiveness particularly around fee schedule updates. That said they did add several customers over the last few years, customers who seem generally satisfied with their performance.

There’s an interesting question yet to be addressed; does it make sense for KKR to keep the work comp AND auto software businesses?  

A superficial analysis might lead one to think there’s synergy here; the same customer sector (P&C insurance), and similar issues and functions (process medical bills, deal with regulatory issues, integrate with treasury, medical management, and networks (albeit rare in auto).

In reality, I don’t see much in the way of synergy.  The folks who run PIP and commercial auto at P&C insurers are quite separate and distinct from the work comp operators, making it unlikely one would influence another’s systems decisions.  Second, auto is very different from comp – comp has indemnity, auto has property and liability; auto has medical limits and little in the way of medical management, comp has no limits and lots of med management; comp is functionality focused while auto is not.

And auto is a much bigger business than work comp bill review.

Competitor Stratacare has been rumored to be on the block for some months now; sources indicate Coventry’s work comp folks spent several days on-site earlier this year evaluating the software and operations.  At some point Coventry will have to invest in its aging and creaky BR 4.0 platform, either that or kill the thing and switch customers to another application.  That reality may well have been behind the on-site visit. If Coventry does not buy Stratacare, and I’d bet they don’t, there’s an argument to be made that splitting off Mitchell’s SmartAdviser platform (their work comp business) and merging it with Stratacare makes a great deal of sense.

There have been rumors that Mitchell attempted to merge with its largest competitor in the auto claims software business at least once in recently, a merger that may well have run into regulatory obstacles. A Stratacare-Smart Adviser “combination” would have no such problems, would generate a lot of cash for KKR, and would consolidate a business that needs consolidation.

What does this mean for you?

1.  The expectations for Mitchell were likely too high; An 11x multiple is, by any standard, quite rich.  Why the owners thought they’d get a 14x is puzzling.  Perhaps they thought the feeding frenzy in work comp deals would generate a bidding war…alas this is primarily an auto company.

2.  Watch this closely.  KKR’s next few moves will tell much about their plans for workers’ comp.


The Allstate – Prescription Partners suit; the details…

The big auto insurer’s civil suit against AHCS subsidiary Prescription Partners is comprehensive, thorough, and very, very persuasive.  Allstate is demanding a return of all monies paid to Prescription Partners, and a ruling preventing PP from billing Allstate going forward.

The insurer is seeking declaratory relief (a legal finding that Allstate does not have to pay bills going forward) and the return of all monies paid.  

They are demanding a jury trial; my sense is this is not just legal maneuvering, but intended to make a clear, very loud, and very public statement.

Allstate’s attorneys have done their homework.  The suit filed in Federal District Court lays out a detailed description of exactly how and why Prescription Partners, a “technology” company, has no legal standing to bill an insurer for drugs.

Prescription Partners/AHCS pays the physician 70% of the amount it expects to bill the insurer, keeping 30% for itself.  Remember, this is based on the price for a repackaged drug, an issue specifically addressed in the suit

“Michigan courts have stated explicitly that “medical care providers are prohibited from charging more than a reasonable fee…Prescription Partners appears to have charged Allstate the national average wholesale price (AWP) for repackaged drugs…[the]repackaged AWP for drugs is substantially higher than the amount charged by local Michigan pharmacies from which insureds can also receive prescription medication…The repackaged AWP is also significantly higher than the original drug manufacturer AWP...it is clear that the charges submitted by Prescription Partners using the former are grossly inflated and do not constitute a “reasonable” charge. [emphasis added]”

The documents cite several specific drugs with prices 70% to 1200% of the original un-repackaged drug, and include an AHCS price list in the Exhibits featuring a column showing the doctor their “guaranteed profit”, as well as a listing of each claimant, the amount billed, and the original manufacturer’s AWP.

That exhibit alone is worth the price of downloading the entire filing.

More, much more, to come.

What does this mean for you?

At last, the insurance industry steps up to take on the physician dispensing industry.  One wonders where the workers’ comp insurers are, as they’ve been victimized by the industry for years…


The Medicaid expansion and political choice

If Medicaid isn’t your business, you may be tempted to ignore the implications of the current kerfuffle over whether or not states should accept free money to expand Medicaid. That would be a mistake.
As all-powerful and influential as Medicare has become, the Medicaid expansion will make the joint state-federal program THE payer to reckon with, setting reimbursement, defining “care”, restructuring provider contracts and relationships, and dramatically affecting provider billing patterns and practices.
With the Medicaid expansion now up to invidiual states, we’re hearing some say “no way” and others say “Hell yes”. At first, this split mirrored political lines, but now it’s getting harder to tell which side of the argument a governor is on merely by the color of their political stripes. The indecision on the part of governors who would seem to be natural enemies of federal largesse is telling.
In every state capitol where the decision is uncertain, there’s fierce lobbying on the part of providers attempting to convince governors to take the money and expand Medicaid. Make no mistake – providers have a huge stake in this decision, and are pulling out all the stops. Perhaps the most powerful influence in this is going to come from states’ hospitals and provider communities – but mostly the hospitals. These are the ones most affected by the increase in uninsured’s, and they will be the ones that benefit the most – financially – from a Medicaid expansion.
States such as Florida and Texas are particularly important. 29% of the Sunshine state’s working-age population doesn’t have health insurance; bad as that is, it is better than Texas, where fully a third is uninsured. And these data are from 2010; it is highly likely those percentages have risen as a result of the recession.
Both Governors Scott and Perry say they will turn down the federal money (covers 100% of expansion costs initially, declining to 90% eventually), hospitals and other providers – currently struggling to meet the needs of very large populations with zero ability to pay for care – are going to be in ever worsening shape.
(Governors of Mississippi (27% uninsured), Alabama (22%), and Louisiana (25%) have also said they won’t expand Medicaid.)
They are going to have to make up the revenue loss from somewhere, and that “somewhere” is going to be from privately-insured patients. That will lead to health insurance costs increasing much faster in “non-expansion” states than in the rest of the country, which will lead to employers dropping out of the system, which will lead to more uninsured, which will lead to more uncompensated care…
You get the picture.
There’s already huge cost-shifting in our health care system, in effect a hidden tax on private payers, workers comp, and auto insurance coverage, a tax levied by providers desperate to cover the costs of the uninsured.
What does this mean for you?
If governors stand on principle and refuse the expansion, the result will be more cost-shifting, really unhappy providers, and higher insurance costs for everyone.


Physician dispensing and auto insurance

Over the last couple weeks I’ve fielded several calls from automobile insurance companies seeking information about the big drug bills they’ve been getting for physician dispensed drugs.
This is more of an issue in states with high dollar coverage for medical costs, but there’s increasing evidence that physician dispensing is hitting more and more auto claimants in many different jurisdictions.
There’s several reasons these bad actors are pushing into auto.
1. some states are controlling the pricing of repackaged/physician dispensed medications for workers comp, so docs – and their suppliers – are looking for greener pastures.
2. many auto insurers aren’t yet aware of the practice, so they’re just paying the bills without much scrutiny
3. it’s profitable – really, really profitable.
There’s a downside for consumers as well as their insurers. In addition to the added health risks inherent in physician-dispensed medications, these inflated charges also cause insureds to reach their policy limits much faster, thereby running out of insurance coverage for their medical costs.
This is happening in Hawai’i, Michigan, Georgia, Florida, and likely many other states.
So, what’s an auto insurer to do?

I suggest you start by figuring out the size of the problem. Find out the TINs these entities are billing under, total up their charges, scripts, and your payments, and see how bad it is.
If it’s not much, that’s great – for now. That won’t last.


Cost-shifting – the practice of seeking higher reimbursement from some payers and patients to cover shortfalls due to low or no reimbursement from others – is rampant in the US health care system. Having worked with providers, health care systems, and payers, I can attest to the pervasive nature of the beast – it happens all the time, everywhere.
More evidence came across my virtual desk yesterday in the form of a study by the Insurance Research Council entitled “Hospital Cost Shifting and Auto Injury Insurance Claims” [available for purchase thru IRC]. The study compared auto injury hospital costs in Maryland to those in 38 other states that don’t have the all-payer hospital rates mandated in Maryland. Thus, whether a patient is covered by a health plan or auto insurer in MD doesn’t matter – all are reimbursed at the same level.
Here are a few of the highlights.
– the “percentage of a state’s population without health insurance was found to be the strongest predictor of average hospital costs for auto injury claimants”
– “another important predictor of average hospital costs for auto injury claimants is the percentage of a state’s population covered by Medicaid”
– IRC estimated of the impact of cost shifting to auto insurers totaled $1.2 billion in 2007.
It is clear that cost shifting is rampant, particularly to property and casualty payers. Work comp payers are particularly vulnerable as their network arrangements are under growing pressure from hospitals seeking higher reimbursement.
What does this mean for you?
Your hospital costs are headed up. What are you going to do about it?

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