Back from a week’s holiday with my wonderful wife in France; Paris, Mont St Michel and Normandy.  A few not-surprising impressions…

• it’s awfully hard to find a bad meal in France
• public transit is really, really good
• what is “old” here in the States…isn’t in Europe
• you can find a bar to watch the Eagles game
• a day touring Normandy makes me even more grateful there wasn’t a war for my mini-generation
• France’s fashion industry must be targeting you risk managers and safety professionals!

OK, here’s what I missed while marveling at all things French.

WCRI’s annual conference is back in Boston March 5 and 6. It sells out every year, so sign up here.

More less-well-off folks in states that haven’t expanded Medicaid are going to die. Patricia Powers is a minister living in non-expansion Missouri across the river from Illinois, which did expand Medicaid. If she’d lived a few miles further east, her breast cancer would likely have been diagnosed much earlier.

NCCI opined on the impact of a recession on workers’ comp. Key takeaways –

• frequency drops off sharply at the beginning of a recession, then bounces up as things start to improve
• as there are fewer people working in manufacturing or construction these days, actual injury counts likely won’t decline as much as they did in past recessions.

(I wrote on this a couple weeks ago, noting past recessions have had a couple other characteristics not discussed in NCCI’s piece.)

In DC, a bill to reduce drug spending is progressing thru the House. Among other measures, it would require the Feds negotiate prices on 35+ drugs with manufacturers. (I would encourage readers to focus on the actual components of the bill and not get caught up in critics/supporters’ use of inflammatory language.)

Key takeaway – it would reduce Medicare costs by $345 billion over the next six years (that sound you hear is taxpayers clapping…)

Other key takeaway – the public is really focused on drug prices.

Non-medical use of opioids will cost our economy about $200 billion this year.

The finding came from the Society of Actuaries’ report (available here). Almost half of the costs are from health care expenses and lost productivity, issues that are key concerns for workers’ comp.

Have any work comp insurers sued the opioid industry?

What does this mean for you?

Drug pricing and opioid litigation should have a major impact on workers’ comp. Note emphasis on “should”.

Off to Paris for a week with my lovely bride…will be studiously avoiding anything resembling work  till we return Thursday.

Most excellent flight over on Delta.

I’m  sure the world will get along just fine till then!

Late this afternoon Standard and Poor’s downgraded One Call from CCC to CC.  According to S&P:

An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred but S&P Global Ratings expects default to be a virtual certainty, regardless of the anticipated time to default.

S&P also stated:

We are placing the ratings on CreditWatch Negative as One Call may not make its interest payment on its second-lien notes during the 30-day grace period.

There is an overall rating (referenced above) and individual ratings on specific bonds. Readers will recall that One Call has three levels of debt; the most senior is rated CCC, while second lien (the most junior) is rated at C.  S&P does not rate the middle level aka the 1.5.

From S&P;

We lowered our debt ratings to ‘C’ from ‘CC’ on One Call’s second-lien notes due 2024 and senior unsecured notes due 2021, and placed the ratings on CreditWatch Negative. The recovery ratings on these debt issues are ‘0’, indicating our expectation for negligible recovery (0%) in the event of a payment default.

S&P on the senior debt’s CCC rating:

In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.

We will know by Halloween what the future holds for One Call – likely before then.  It is unlikely One Call is currently in compliance with its debt covenants.

From my June 26 post:

The issue at hand is a “7x first lien leverage covenant” which kicks into action when the company draws down its revolver debt by 20%.  According to a DebtWire article, OCCM had a “razor-thin” margin at 6.9x as of March 31.

I do NOT know what those specific covenants are, however in my experience debt holders put covenants into contracts so the debt holders can take control – partial or total – of a company that is at risk of defaulting on its debt.

Debtwire also indicated OCCM had drawn down $50 million of the $56.6 million revolver.

Allow me to translate into language we non-financial wizards understand.

Among other debt instruments – bonds etc – OCCM has “revolving” debt, which is kind of like a line of credit. The company can borrow from it and pay it back as cash flows dictate.

The “7x” is calculated by dividing the total long-term debt – which was reported to be $1.375 billion on March 31 – by cash flow (adjusted EBITDA) – which was $200 million over the 12 months preceding March 31.

So, as of March 31 OCCM had drawn down its revolver by way more than 20%, but had kept its revenue-to-debt ratio just below 7, which prevented the covenants from kicking in.

Things have deteriorated since then.

There are several things that will affect workers’ comp in the next couple of years. Perhaps the least obvious, but most significant is consumer spending.

Here’s why.

Consumer spending drives travel, cars, homes, clothes, tools, food, retail; pretty much everything except government, heavy industry and infrastructure construction.

In fact, consumer spending amounts to two-thirds of our economy, manufacturing just a tenth. When we consumers sneeze, the economy catches the flu.

So far, consumer spending is holding up. This from Bloomberg…

Easy credit drives a lot of this via credit cards. Essentially, some folks use their credit cards as consumer loans, allowing them to buy stuff they can’t pay just now.

That works great while wages are increasing and jobs plentiful – both true today.

While that spending is a bit shaky, what caught my eye was a report that those risky mortgages that cratered the economy a decade ago are back.

Nerd bomb alert – The Feds are backing $7 trillion in mortgages, way more than they (us) did before the debt crisis of 2008. With taxpayers holding the bag, mortgage lenders have no reason to not give mortgages to people who can’t afford them to buy over-priced houses. The Feds then package those loans and sell them off to other investors.

In fact, fully half of new FHA mortgages consume more than half of the borrower’s monthly income. 

If all this sounds familiar, it’s because it is. This is precisely what happened a decade ago.  Remember this?

If people run into trouble paying those really expensive mortgages, they’ll stop going out to eat, traveling, buying cars and furniture and washing machines and snowmobiles and anything else they don’t really really need.

The trickle down effect would hit trucking, manufacturing, retail, autos, hard goods, restaurants. Hours would be cut, workers furloughed, payroll slashed as employers conserve cash in an effort to stay afloat.

How does this affect workers’ comp?

We can expect a reduction in claim frequency at the outset of an economic slowdown as workers avoid filing work comp claims because they don’t want to lose income or be replaced. Severity also goes up, because those already out of work don’t have jobs to go back to – and can’t find new jobs.

Over time, frequency rises as we come out of a recession.

What does this mean for you?

Stay informed, and carefully monitor economic conditions in states where you do business. 

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.

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.

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. 

A recent email exchange with a client crystalized an all-too-common problem in our industry – complacency. 

Truth is, too many of us are not comfortable with being uncomfortable.  That is, we don’t want to be pushed, challenged, prodded, forced to defend our ideas, business practices, long-held beliefs.

When we’re confronted with the possibility that there’s a better way than the way we’ve always done it, we don’t listen – instead, we get defensive and withdraw. Yet we all can point to countless examples where complacency led to utter collapse and defeat.

History is chock-full of examples. Unsinkable ships, unbeatable foes, impossible achievements abound. The Titanic, the Tuskegee Airmen, Agincourt, Trump’s election all remind us to beware of assumptions.

The best part of sport is the victory of the underdog; Harvard’s 1998 women’s hoops knocking off no. 1 seed Stanford , the Amazin’ Mets, the Miracle on Ice in 1980, Texas Western’s NCAA basketball championship over Kentucky in 1966 are all great examples where what was supposed to happen…didn’t.

Yet we all know of companies whose cultures can’t possibly conceive that they aren’t the best, smartest, most experienced and knowledgable and expert in the business. The “If it wasn’t invented here it didn’t need to be invented” mindset prevails, killing off any and all efforts to challenge the status quo.

Like Goliath before David, companies afflicted with a culture of complacency will lose to unheralded competitors. In most cases this will happen because the culture of complacency’s rejection of outside ideas prevents it from seeing what in retrospect is obvious.

Unless you get comfortable with being uncomfortable, you’re at high risk. Each of us need to ask the awkward, difficult questions that make us squirm. Why do we do it this way? If we were competing with us, how would we defeat us? Where are our weak spots, and how can they be exploited?

More broadly, how else could our customers’ needs be met [and do we really understand what those needs are today, and will be tomorrow]? As the world changes, how are we sure we will evolve fast and smart enough to lead, if not keep pace? Why are we so sure of ourselves?

One more thought.  Really good athletes put themselves in distress all the time – because if they aren’t trying to perform perfectly when exhausted, stressed, when their muscles are screaming and lungs are burning, they won’t win.

In a word, they get comfortable with being uncomfortable. That’s why they succeed.

What does this mean for you?

When was the last time you were uncomfortable, and did you hide from it or use it to get better?

For a relatively small industry, there sure are a ton of conferences.

From WCRI to NCCI to AASCIF to CSIA to CLM to PRIMA to NWCDC to SIIA to WCI360 to RIMS to AFERM to the ExecuSummit and dozens of other national events, to state WC events in Montana, California, Georgia and every other state, to payer-sponsored confabs, to provider-centric events you could spend most of the year scheduling, traveling to, preparing for, and attending conferences.

While there’s no doubt a lot can be learned – at some events from some speakers – it’s also pretty clear we’ve got so many conferences it has become impossible to figure out which ones are the most useful, provide the most insight, and are the most efficient use of your time.

On top of the sheer number of events, there are three additional issues; many have become pay-to-present, and the emphasis on drawing specific types of attendees has affected – I would argue negatively – actual learning opportunities.

Lastly, there’s far too much navel-gazing and far too little emphasis on external factors that directly affect workers’ comp.

Allow me to explain.

It is damn near impossible to get a speaking slot at many events unless your employer is a conference sponsor or a very large employer.  That’s not to say some presentations aren’t useful and worthy of your time, and some listeners can’t come away with something useful. Rather it is to call attention to the lack of diversity among presenters, the seemingly repetitive topics, the lack of much of anything new or insightful.

Do we really need another session on return to work or managing cat injuries or heaven forbid, predictive analytics?

Yeah, I get there are always folks new to work comp that find value in learning the basics, but there’s far too much time spent rehashing things that have been hashed to death.

There are innovative, smart, insightful entities and people out there who are pushing the industry to be better, innovate, do stuff smarter. It’s often tough for them to get a slot because they aren’t able to sponsor internet cafes, refreshment breaks, newsletters or buy big exhibit space.

Second, some conferences push to include speakers from types of organizations that potential attendees want to meet, get to know and hopefully do business with. One example is the emphasis on employers, which appears to be based at least in part on the idea that more brokers and consultants will attend.

Ostensibly the point in having an employer talk about an issue, solution, approach or program is so other employers can learn from that. While there’s a kernel of value there, I’d argue that what is relevant for a big airline, a major big-box retailer, a multi-state manufacturer or large healthcare system is not going to be terribly relevant to the other employer types on the list.

I can’t count the number of times I’ve heard “well, if I had a thousand workers in XYZ city I could negotiate with an occ clinic too”, or “how do I apply that to my interstate trucking company” or “yeah that’s not going to fly with my unionized workforce”.

Finally, when was the last time a presentation dove into:

• the impact of provider consolidation on healthcare delivery and cost;
• why and how healthcare systems and hospitals are driving up expenses;
• how recessions impact workers’ comp;
• the second-order effects of opioids and the dramatic reduction of same on claim reserves, future premiums, and actuarial models; or
• the changing nature of our economy and how that will affect workers’ comp

I know these topics have seen some daylight, but nowhere near enough, for they are MUCH more important and will have MUCH greater impact than tweaks to RTW or cat injury management ever could.

What does this mean for you?

For conference planners, there’s an opportunity to break out from the usual and differentiate.

For conference attendees, reward those planners – and learn a lot more useful stuff.

When recessions hit, workers’ comp, healthcare, and healthcare delivery systems are deeply affected. Jobs are lost and so are benefits, claims decrease than increase, injured workers don’t have jobs to return to.

There are some indications that we may be on the cusp of a recession today.

• The inverted yield curve (short term interest rates are lower than long term rates) is one clear sign, 
• ” weakness in auto sales, industrial production and aggregate hours worked” are also factors, as is
• the weakening economy (growth fell from 3.1% in the first quarter to 2.1% in the April to June quarter).
• Job growth has fallen to 140,000 a month, down from 220,000 just a few months ago, signaling employers are being more cautious about expanding
• The trade war is hammering agriculture and manufacturing, with Goldman Sachs estimating it has cut GDP 0.6% so far. That’s going to get worse when the latest round of tariffs kick in, with some slated to start in 2 weeks.

One of the few positive signs, initial jobless claims, remain stable which argues against a recession.

And this from Forbes:

The New York Fed’s recession probability model is currently warning that there is a 30% probability of a recession in the next 12 months. The last time that recession odds were the same … was just five months before the Great Recession officially started in December 2007.

When the model is updated to use current data, the odds increase to 64%.

How long will it last?

Likely longer than the Great Recession of a decade ago, for a number of reasons:

• to get the economy moving during a recession, officials lower the Fed funds interest rate, making it cheaper for companies and consumers to borrow money and buy stuff.  This jump-starts the economy. But the Fed funds rate is very low already, so there isn’t much room to lower rates and increase demand.
• if the Fed can’t lower rates, it can try “quantitative easing”, which is a fancy term for the government buying its own debt. This dumps more dollars into the economy, dollars that – hopefully – are spent on new plants, equipment, houses, and washing machines. The problem with “QE” is that its impact is uncertain at best; it’s unclear if it made much of a difference last time around.
• Consumer debt is really high right now, at 19% of income. When people lose their jobs, they default on their loans and credit card debt, cut back on purchases, and that will further harm retail, construction, durable goods (think washing machines and cars). It can take a long time for people to dig out of these holes, and when they finally do, they are very wary of spending – and absolutely hate debt.

There’s another factor that’s both difficult to measure and, I’d argue, much more troubling.

The trade war, Trump’s on-again-off-again tariffs, the elimination of area-wide trade agreements all make business extremely nervous. Businesses thrive in stability, and don’t when they can’t predict what’s coming.

Columbia, Neato Robotics, Wolverine, John Deere, and Caterpillar are all hamstrung, unable to predict what their supply chain costs will be, how tariffs will affect the price of their products, and what sales will amount to. As a result, they’re hunkering down; Moody’s estimated 300,000 jobs have already been lost due to Trump’s trade war.

We’ve already seen the Chinese shift agricultural purchases from the US to Brazil. This has hammered Deere and Caterpillar, as well as their local dealers, and the manufacturers that make up their supply chains.

What does this mean for you?

Watch indicators very carefully, be objective and rational, and remember that fortune favors the prepared. 

The good news is those who are clear-eyed and thoughtful can do well; for work comp businesses, remember:

• claims drop, then increase;
• duration increases;
• premiums decline as payroll does.