• Direct written premium was flat,
  • combined ratio stayed low,
  • loss costs decrease, and
  • reserve deficiencies disappeared.

Later this week I’m going to do a series of posts unpacking these findings and opining on what it means for you. For now, here are the key takeaways

The big number – the combined ratio – got a lot better – declining to 83 from 2017’s 89. That is a historically low number.

Here’s the entire presentation.

We’ll focus on indemnity and medical expenses for a moment, as these are key cost drivers. Note that these data are ONLY for NCCI states – which don’t include some big states such as New York.

The graph below shows that indemnity claim severity – the cost per claims did increase – albeit modestly.

Medical costs barely increased last year. I’ll have a lot more to say about this in a future post.

Kathy does an excellent job making really complex data understandable while making it relevant.

For example, payroll increased by 5.3% in 2018, more than offset by total loss costs (driven by frequency and claim costs) which dropped almost 9%. The takeaway – claim costs decreases are more than offsetting increases in payroll and employment. That happened despite a big increase in employment in construction, which is a higher frequency, higher severity industry.

The result, only 5 percent of surveyed respondents saw an increase in their WC premium rate this year; almost everyone had no increase or a decline.

Let’s pause here.

This has never happened in workers’ comp. We have never seen this level of financial performance, and it is clear insurers are still trying to figure out why this is happening, when it will end, what will cause a change, and what the warning signs will be.

What does this mean for you?

Life is pretty great right now. We do know it will end.  We do NOT know what will cause that event.




Explaining pharmacy pricing, part 2

Yesterday was post 2 of Pharmacy Week at MCM, an intro to drug pricing. Today we’ll get you up to speed on why the list prices for drugs are irrelevant – mostly. 

Recall that almost all work comp drug fee schedules are based on Average Wholesale Price – a metric that is three falsehoods in one, as it is neither “average”, “wholesale”, or the “price”.  Regardless, when calculating the “savings” from a PBM contract, buyers almost always use AWP as the baseline. And that’s what buyers report to their bosses and customers; here’s what we saved below states’ fee schedules…

As we discussed yesterday, brand drug manufacturers pay PBMs (and other entities in the drug supply chain) rebates on their drugs so the PBMs will allow patients to get those drugs without going thru the Prior Authorization process.

That’s quite effective in the commercial health insurance world, where insurers have complete control on what drugs are “on formulary” and drive consumer behavior by setting co-pay amounts. It’s a lot less effective in work comp, where formularies are driven by a) state regulations and/or b) treatment guidelines. In either case, work comp payers can’t encourage patients to use preferred brand drugs by setting the co-pay lower than non-preferred brand drugs.

That’s not to say work comp PBMs don’t get paid rebates for brand drugs – in many cases they do, although the amounts can be a lot lower for comp.  And, PBMs often, and with some justification, use these rebates to offset price reductions.

You’re wondering: “well, how many dollars are we talking about?” I’ve heard different things from different people, from an average of $35 per brand script to $74.  Or, in percentage terms, up to 30%. Those payments aren’t for ALL brand drugs, and it’s highly likely the manufacturers don’t even know they are sending those dollars to work comp PBMs and payers; Work comp is such a tiny piece of total drug spend that most entities don’t bother to track it.

What does this mean for you?

Rebates are being paid to work comp PBMs and payers. Some payers don’t want the rebate payments; they’re afraid those payments could be construed as affecting decisions about medical treatment.

Others look at this as a fiduciary responsibility issue; they want to know so they can better manage their customers’ dollars.


Explaining pharmacy pricing, part 1

With all the attention being paid to pharmacy prices, it’s time we dug deep into  PBM pricing, rebates, and what this all means to you.

We’ve learned from all the lawsuits, Congressional hearings, media blitzes and punditry is that this is everyone else’s fault.

We’ve heard that Ohio is suing Optum over alleged improprieties related to the state’s work comp and Medicaid pharmacy programs [to be clear, Optum’s Ohio work comp problems arose from Optum’s acquisition of Catamaran, which served BWC. The ensuing debacle was not due to Optum’s work comp PBM.]

We’ve heard testimony before Congress that it’s the manufacturers’ fault, the PBMs’ fault, the gubmint’s fault, employers’ fault.

To unpack the issue we have to begin with the list price of drugs vs the actual price.

And we have to separate brand drugs vs generics;  most of the press about prices pertains to brand drugs. These are medications that are still covered by patents; only the patent holder can sell the drug, and they can set any price they want. In work comp, brand drugs account for about 15% of scripts, but a bit over half of total drug costs; as the manufacturer has monopoly pricing power, that’s not surprising.

(Generics are drugs that have lost patent protection and can be made and sold by any FDA-approved manufacturer.)

In work comp, most states with fee schedules use “Average Wholesale Price”, a metric that is published by several entities- Medispan is one of the more common. It’s critical to understand that AWP is NOT the real “average wholesale price”, it is merely the price the manufacturer sent to Medispan et al. There’s no checking, auditing, or verification of this price by any outside entity; there’s no independent confirmation that the manufacturer’s AWP is what it charges for the pill.

To estimate the actual price, one has to factor in rebates and other financial mechanisms used by manufacturers to market their drugs. Rebates are paid to Pharmacy Benefit Managers – that then pass most of the rebate $$ along to employers and insurers – to encourage the PBM to “put the drug on formulary.” In English, that means the PBM makes it easy and cheap for you, the consumer, to get that medication.

source – Milliman

If a medication is not on a preferred formulary, it will cost a lot more, and you have to go thru the “prior authorization” process to get approval for it.

Clearly manufacturers are highly motivated to get their drugs “on formulary” – and they use rebates to incent PBMs, insurers, and employers to do just that.

So, when calculating the price of the pill, one has to factor in the rebate paid to the PBM/insurer/employer to get to the TRUE price – which is usually a lot less than the published AWP price.

Tomorrow, what this actually looks like – and a few more pricing definitions.

What does this mean for you?

Rebates are critical to understanding pharmacy pricing.



California’s State Fund is on the way to making UR work way better

Pick any eight – Utilization Review is:

  • a pain in the neck for everyone involved
  • marginally useful
  • mostly manual, with limited cross-platform integration (claims, bill review, medical management, reporting)
  • annoying, frustrating, and a time waster for providers
  • forcing everyone to jump thru hoops to stop a few unnecessary procedures
  • delaying care for workers’ comp patients
  • necessary to reduce inappropriate care, helping patients recover and employers and taxpayers save money
  • pretty much pointless unless tightly aligned with Evidence Based Clinical Guidelines

California’s State Fund is working to fix many of the issues, while better delivering on the intent – ensuring patients get the right care, quickly. The UR Connected program is starting with the Fund getting its own house in order.

The intent is to automate much of what is now manual, and in so doing eliminate much of the administrative burden, speed up decisions, and reduce frictional costs for all parties.  Paper, fax, or clearinghouse submissions will still be accommodated.

I’d hazard a guess that after initial teething problems, the Fund and treating providers will also see a significant reduction in errors, and much faster turn around times.

Phase One, now pretty much complete, is best described as an automated rules engine development and construction project. It is focused on figuring out all the State Fund’s back office functions involved in care approval and payment. Internal business rules, processes, regulatory requirements, and workflows have been documented and automated; they will be continuously updated.

In May, the State Fund will push to get larger providers electronically tied into the system, which should drastically reduce all parties’ workloads. Today, the doc’s office sends Requests For Authorization by fax, State Fund staff enters the data into their system manually and then sends the determination back – via paper.

This isn’t much different from how every payer handles UR in every state, and yet it is mind-boggling that we work this way in 2019.

In the future the goal is to have as many of these RFAs possible handled electronically, with providers accessing the system via a portal or direct electronic integration.

Expect the State Fund to being pushing this out to their larger providers first, then to those with a high volume of legitimate RFAs. In a discussion with State Fund staff, a spokesperson noted that while workers’ comp patients are a relatively small portion of the typical providers’ case load, the administrative burden is greater – which will motivate them to build connections to the Fund.

Down the road just a bit is integration with bill payment. As an RFA is a request for approval for the entire care process, when automated the bill review process becomes more of an invoicing function; when the services come to BR most of the information needed to process the reimbursement request is already there.

What does this mean for you?

The State Fund is going about it in the right way – the result should be improved care, lower barriers to access, and less frustrated providers.




Research roundup

The information every work comp professional needs is ready – the annual comparison of every state’s workers comp laws is available here.  Put together by the experts at WCRI and IAIABC, it includes laws for each of Canada’s provinces too.

Oh, and in case you missed it, you can still get WCRI’s compilation of state laws on treatment guidelines and medical management here.

From NCCI we get a report on the impact of changing workforce demographics on injury frequency. One major change from previous research – older workers are getting injured more often than their younger co-workers. That’s a significant change, and one we need to monitor carefully.

Sticking with work comp, CWCI released it’s analysis of the impact of California’s formulary  – more drugs that are “exempt” from review were prescribed, but that’s just one finding

If you want to know what your REAL cost of healthcare is, check out the Kaiser Family Foundation’s healthcare cost calculator. Plug in some basic information, and – spoiler alert – be shocked.

Finally, there’s much talk about Medicare for All, who supports what, and all that stuff. And, a majority of people in a Fox News “town hall” indicated they support MFA, surprising Bernie Sanders and his interviewers. Find out how much support there really is here.

And happy spring!



Research Roundup

in which I attempt to summarize recent research into workers’ comp and medical management and describe what it means for you.

Thanks to Elaine Goodman of WorkCompCentral, we learned this morning that folks who consumed marijuana during recovery from an injury were likely to use more opioids  – for much longer – than individuals who did not use marijuana.

Implication – This calls into question the idea that marijuana use reduces opioid use.

California’s WC Insurance Rating Bureau reported premium rates declined again in 2018 – they are now down 24 percent over the last four years. The combined ratio is at a very solid 91 – BUT that’s a big jump from 2017’s 85.

Big driver – “Pharmaceutical costs per claim decreased by 69 percent from 2012 to 2017”

Implications –

  • California reforms continue to reduce costs, but the it’s getting late at the party…
  • Drug costs are dropping big time.

Predictions are the number of retail stores, and the jobs in those stores – are continuing to drop. 75,000 more stores will close by 2026 – that’s seven years from now. Sears, Payless Shoes, Gymboree, ToysRUs, RadioShack, GNC are among those closing stores.

Implication – fewer jobs, lots of empty storefronts, distressed malls mean less retail construction – and lower employment in retail.

Healthcare costs for working families  “rose 27.7 percent from 2010 to 2016…while median household income rose 19.8 percent…” There’s a lot of variation among states. The percentages in the map indicate premiums as a percentage of family income.

Implication – Voting families are finding healthcare is increasingly unaffordable, ergo more focus on healthcare in the election.

Need to know what states’ work comp UR guidelines are? WCRI’s State Policies on Treatment Guidelines and UM‘s got you covered.

If I missed something – and I’m sure I did – please provide a BRIEF summary and a link in the comments section.

And happy April to all!


The Two-Way Street

A few years back an acquaintance called me to ask for help finding a job; s/he’d been let go after a merger.

While we had known each other for some time professionally I’d always found him/her to be hard to reach, not responsive, and somewhat arrogant. When s/he needed something, the expectation was I – and no doubt others – would respond fully and immediately.

Now s/he was reaching out for help. And again the expectation was a full and immediate response.

I attempted to gently inform the person that they were in a different position now, and would make a lot more progress – and get a lot more help – if they handled things a little more diplomatically.  I won’t characterize the response, as I may have misinterpreted it.

I sort of understand this; as a buyer, the person was used to being accommodated – if not outright fawned over – by vendors eager to curry favor. The golden rule applied – S/he who has the gold rules.

As I think back on this, I recall being in meetings with this person where vendors were told to improve results. When those vendors attempted to meet his/her needs by suggesting program changes, IT connection improvements, or different communications procedures, the answer was always the same – we don’t have the resources to do that, that’s your responsibility, you figure it out.

The net is this.  Buyers do not help themselves by bossing potential vendors around, being unnecessarily difficult, demanding, unrealistic and dictatorial. And, often vendors can’t meet certain objectives unless the client pitches in as well. Sure, every payer has limits, resource restrictions, and budget constraints, but expecting a vendor to deliver data to your system seamlessly, consistently, and accurately while refusing to upgrade your technology to allow that is not only unrealistic, it is certain to fail.

That’s on the business side.

On the personal side, individuals who conduct themselves this way may well find things change when they no longer “have the gold”. Their calls go unanswered, references aren’t provided, job leads not shared.

What does this mean for you?

Many vendors have excellent ideas they’ve learned from working with other payers, ideas that can make your program more effective, efficient, impactful. Ask them what you can do to better work together.

And remember the real golden rule



What worked then, works now.

In 1992, worker’s compensation case managers were finding their patients were often unable to get to their doctor’s office, PT appointments, or to the drug store to get their prescriptions filled. Many didn’t have their own vehicles or relied on friends, family members or public transportation, all with their own challenges.

Without prompt care, therapy, and medications, recovery was hampered and disability extended.

One case manager found a college student to help, and Cem Kus started transporting her patients using his own vehicle [Cem and the case manager – Janet Kus – are now the co-owners of MTI]. Cem did this for five years – in addition to scheduling and later hiring and managing additional drivers.

MTI’s first transport vehicle and driver

Cem got to know most of the patients personally – and what each needed. One particular patient stands out. A fireman was hurt in a fire; as his friend carried him out of the building on his back, he missed the last step. They fell and the friend landed on his back, injuring his spinal cord; since then he has been confined to a wheel chair. Cem; “We have helped him get to and from treatment ever since that injury. We bought wheelchair vans to accommodate this patient and others; since there were very few wheelchair-accessible vans available in the 1990s, MTI customized the vans ourselves.”

As time passed, the company hired more drivers, handled the communications with payers, payroll, and dispatching. Just a few years after that first trip, Cem and Janet formed Medi-Trans Inc (MTI) and hired their first person to take incoming calls, handle the scheduling, and arrange for dispatching.

What drove MTI’s initial growth was simple – responding to their customers’ need for prompt, accurate, and comprehensive communication. Patients, adjusters and case managers wanted and expected timely updates, status reports, and notice of issues, and wanted their transportation partners to stay on top of files to make sure everyone was picked up on time, arrived, and returned according to plan.

It wasn’t just communications. Work comp patients needed a lot more flexibility than the normal cab service was able or willing to provide.  So, MTI was flexible in terms of pick up and drop off locations and accommodated patients who needed to pick up medications. The company became adept at handling everything from scheduled care on an ongoing basis – PT visits, for example, and one-time services such as trips to an MRI facility.

Fast forward 20+ years, and nothing’s changed. Simply put, MTI thrived for two reasons – because it took work off their customers’ desks, put it on their’s, and treated patients as individuals with unique needs.

It’s still about people handling each service, communicating with the parties, and adapting as things change.

According to Cem; “we have to be flexible to meet the patient’s needs and keep adjusters and case managers aware if something unusual occurs.  That is why we take special instructions and communicate with claimants and update service on a ongoing basis – different customers and different situations require it.

The company has just completed a major systems upgrade, allowing for more timely communication and integration of its various services – transportation/translation, DME/Home Health Care, imaging, and PT. But the system won’t replace the personal touch – because it can’t.

Patients, physicians, adjusters and case managers needs’ change, sometimes from minute to minute. Quick access to a person who is knowledgeable, experienced, and thorough is critical.

It is also something no automated system, no matter now sophisticated, will ever be able to replicate.

What does this mean for you?

It always has been, and always will be, about customer service.

[disclosure – MTI is an HSA consulting client]



Didn’t see this coming – the Republicans’ healthcare “plan”

In a move that caught all Capitol Hill – and me – by surprise, President Trump and key Senators finalized the outline of the GOP’s new healthcare plan over the weekend.

Set to be announced later today, the plan builds off the faith-based “sharing” programs already in place in the ACA, greatly expands their reach, incentivizes employers to adopt faith-based coverage, and enables these programs to compete in the senior market. There are a half-dozen or so ministry/faith-based programs now in operation with total membership around the million mark.

Unlike regular insurance, members “share” the cost of care by paying into a central fund that then reimburses individuals for needed medical services.

Currently faith-based coverage is provided by entities including Liberty HealthshareChristian Medi-ShareSamaritan Ministries, and Altrua Healthshare. As of today, these entities don’t have to provide the same level of benefits, coverage, or financial protection insurers do under the ACA. And, they are pretty much exempt from regulation as they aren’t “insurance” per se.

Faith-based sharing programs will compete with the big healthplans for members in the federal – and perhaps states’ – healthcare exchanges. The plans, which are much less expensive than “regular” health insurance, may well see huge gains in membership.

On ABC’s thisweek Sunday talkshow, Whitehouse Chief of Staff Mick Mulvaney  asserted the plan would deliver on the President’s promise to protect Americans with pre-existing conditions. “We’ve heard it over and over again, Americans trust their churches and ministers to do the right thing [which includes addressing pre-existing condition coverage]. So, we’re going to build off the amazingly successful faith-based programs now in place, expanding their reach and helping them compete in the free market.”

When asked how the new plan would maintain or expand the number of Americans covered by health insurance, Mulvaney didn’t get into any details other than claiming “faith-based programs will have much lower administrative costs as they don’t have all the overhead the big insurers do…this will make insurance much less expensive, which means more people can afford it.”

It appears Vice President Mike Pence has been strongly advocating for the faith-based approach for some months.  Evidently Pence, a self-described evangelical Christian, was prepared when the President publicly called for Republicans to be “the party of great healthcare” last week. The VP met with Trump, Mulvaney, and key Senators over the weekend and finalized the outline of the plan.

Mulvaney, who is one of the members of Trump’s team leading the charge on repealing Obamacare, said Sunday “There’s absolutely zero daylight between the president and vice president on this issue.”

Interviewed on CNN’s State of the Union yesterday, Mulvaney went further, describing the plan as fulfilling Senate Republicans’ request that the Administration provide them with “principles” that they could build a healthcare plan around.

Here’s the issue. Faith-based programs don’t have to keep a certain level of financial reserves, can deny payment for any reason, exclude any condition, and cancel coverage. And, in most states no regulator is watching over the programs.

Sure, this will make “coverage” cheaper, but there’s no guarantee it will be there when the buyers need it.

I’d expect this approach to face tough sledding in the Senate, and likely won’t be considered at all in the Democratic – controlled House. However, it’s likely Trump will try to do much of the heavy lifting via regulatory means and Executive Orders. However, these efforts will undoubtedly be challenged in court, where Trump has had a pretty poor record. I’d also expect the big healthplans will roll out their lobbying big guns.

But…the move further cements Trump’s standing with evangelical. As he’s clearly playing to his base to prep for the next election, it will serve him well.

What does this mean for you?

Just when you think you’ve heard it all…


Arkansas is the canary

Facility costs are the fastest growing cost in workers’ comp.

Rural hospitals are in deep financial trouble – many are shutting floors, wings, or are closing entirely.

Medicaid is all that is keeping many rural hospitals afloat – Mercy Hospital’s days are done…And work requirements will cost hospitals billions.

Arkansas has already kicked 18,000 people off Medicaid – mostly because the state’s Medicaid work requirement program is unbelievably poorly run, its leaders don’t know a damn thing about challenges faced by poor people, and no one at the state or federal level is demanding they get their stuff together.

(A federal judge just blocked the state’s work requirement.)

So, what does this mean for work comp payers in Arkansas?

  • 18,000 more Arkansans are now uninsured
  • Rural and urban hospitals are looking for pennies in the couch cushions.
  • Work comp has lots of pennies.