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.

 

In which I attempt to describe the top takeaways from the latest research and what it may mean for you.

Work comp pharmacy 

WCRI’s latest report on Interstate variations on Dispensing of Opioids is available; free for members, nominal cost for non-members.

• The volume of opioids dispensed to work comp patients decreased “substantially” in many of the 27 states studied.
• 17 states saw average MED reductions greater than 30%.
• BUT – problems persist as MEDs are highest in Delaware and Louisiana, where MEDs per patient are 3 times greater than the median.
• There’s been a decrease in the percentage of patients prescribed an opioid, with strong evidence that non-opioid medications have been substituted.

Key takeaway

Using your data to highlight problematic states – and regions within states – is critical to understand what’s driving opioid usage among your patients.  The industry has done a great job reducing opioid usage but can make a LOT more progress by figuring out the commonalities among chronic opioid consumers.

NCCI’s just released a report on the impact of formularies on work comp pharmacy, comparing what happened in Arizona and Tennessee after implementation of a closed formulary to similar states that didn’t adopt a formulary. Note the research was based on data from mid-2017.

Findings included:

• “N” drug utilization dropped more in the two states than in comparable control states
• The volume of opioid scripts wasn’t affected by Tennessee’s formulary implementation however it appears that there was a decrease in longer acting and likely more potent varieties.
• Compounds dropped dramatically in TN compared to similar states

Key takeaway  

Opioids have been the biggest driver of formularies; this report’s finding that in these states there was little change in the patients prescribed opioids is revealing.

I’m not a fan of binary formularies; they are the bluntest of instruments. While they may serve an initial good: they reduce the use of drugs that are usually inappropriately prescribed, they are not disease-state and/or patient-specific. Sure, Y/N formularies are easy to use; so’s a bone saw and ether.

We’ve moved beyond bone saws and ether, and need to do the same with formularies.

Future-casting

More thought-provoking work from NCCI focuses on the impact of enhanced vehicle safety systems and workers comp. Quotes of interest include:

• NCCI data shows that driving-related classifications account for approximately 25% of all WC payroll and about 50% of WC premium.
• a forward collision warning system coupled with autobrake can reduce front-to-rear crashes with injuries by 56%
• a 25% to 75% reduction in the frequency of claims related to MVAs [motor vehicle accidents] could yield an annual WC system savings of between $1 billion and $4 billion.

Key takeaways

With all the talk about autonomous vehicles, we may have missed out on a bigger and nearer-term sea change. Mostly-autonomous vehicles won’t likely be common for some time, but many of today’s car models come with lane-following, collision warning, autobrake and other accident-avoidance technology. 

We need to understand the impact of these “interim” technologies on MVAs and associated claims.

Who costs what?

New research from the Kaiser Family Foundation shows who we should be focusing on helping. Just 1.3% of patients rack up almost 1/5th of all medical costs; 5 percent of patients account for half of all costs.

Findings:

• people with persistently high spending (over the three years) spend 40% more on outpatient services than folks who are high spenders for just one year.
• persistent high spenders spent a lot on drugs – as in 8 times more than one-year high spenders
• it appears the one-year high spenders were trauma or other one-time issue patients, as they spent a lot more than persistent high-spender on inpatient services.

Key takeaway – the chronic patients cost the most over the long term – and are also likely to have the most modifiable health conditions.

Timing is everything.

Taken together, two seemingly-unrelated things that hit my inbox this morning – CorVel’s quarterly results and the daily alert from Harvard Business Review – provide perspective on how to handle a crisis.

Readers of MCM will recall that I reported last week that CorVel suffered some sort of internet/connectivity problem that arose on Sunday, July 21. It apparently took down much of the company’s customer-facing connections. Subsequently I reported the issue may have been a ransomware attack involving the Ryuk worm. Others followed:

From adjuster.com’s Lonce Lamont’s piece on July 27 (last Friday):

[an anonymous informant stated that] “CorVel management said the Ryuk virus was caught before it was active.  It was found during system upgrades.   But this management story has not made sense, because in that case of the virus being caught before going active, the IT technicians should have just been able to remove it.   However, the CorVel professionals seem to be completely replacing servers, so that indicates they were locked out.”

While I have heard from several internal and external sources, despite several attempts to contact CorVel I have not heard directly from the company. Further, CorVel has not, with the exception of today’s earnings release, released a public statement. I have heard from several CorVel customers that Corvel’s CEO and other personnel contacted customers directly to discuss the issue. Kudos to Corvel for doing this promptly. As of Friday, these customers were told things should be back up today.

Here’s what CorVel said in today’s earnings release:

After the end of the quarter, the Company discovered a security incident which impacted online systems and forced the Company to take those affected systems offline for a period of time. The Company discovered the threat in the early stages of the security incident which allowed for immediate initiation of their incident response plan and aided in the containment and eradication of the threat. Systems were largely offline for the week of July 22^nd and at the time of this release [Tue July 30, 2019 6:15 AM] the Company’s systems are incrementally coming back online.

[Side note – sources indicate as of last night scheduling and billing for some ancillary services were back on line; certain bill review functions were not. Suffice it to say that each customer will have been affected differently.]

Which brings me to the HBR piece authored by former Defense Secretary Ash Carter entitled “Managing High Stakes Situations; 5 Lessons from the Pentagon”.

The top Lesson from Secretary Carter was this:

Say something: Feed the beast with whatever you know for sure. The “beast” is the natural demand by news media and others for more facts when there is an appearance of danger or wrong. Leaders facing a crisis need to speak and act quickly even when they don’t know all the facts — it’s part of the job. If you stay silent, you leave a void that may be filled by statements from people who may be well-meaning but ill-informed, or, worse, from rivals or adversaries.

Carter went on to say:

While you must say something, stick to the facts you can verify, however scanty they may be. Don’t speculate or offer guesses that may turn out to be incorrect later… list the key questions you are investigating — What happened? Who was involved? What causes can be identified? What policies and practices apply to the situation? — and provide any specific, accurate answers that are available at the time.

Here’s where I believe CorVel could have done better.

It is highly likely CorVel leadership knew the cause of the problem very soon after it occurred. If the multiple reports about ransomware are correct, the company should have said so.

Be more clear and transparent about the problem and steps being taken to address it. Replacing servers can be a much bigger task than removing a virus from software/databases/applications; acknowledging this up front would have given CorVel some breathing room if it took a bit longer than expected to get everything back up and running.

Make a public statement. Without one, you lose control of the message and likely can’t get it back. Credibility is critical and once damaged is very difficult to regain. This is especially important in our industry: insurance people are genetically risk-averse and highly risk-conscious. “Skeptical” is too tame a word, “Cynical” is probably more accurate.

If and when I hear from Corvel I will update this post.

What does this mean for you?

From Carter:

The pitfalls are to stonewall, deflect, hedge, or use weasel words. But in war, hairsplitting won’t fly. Nor will it in cases when your brand or business is at stake. By speaking plainly and acting directly, you should be able to emerge with your reputation — and that of your organization — intact, and maybe even improved.

 

I screwed up and I apologize.

Here’s what happened.

I failed to explain or provide context in my initial response to an anonymous comment on my post entitled “One Call’s doing great!“.  Here’s the relevant comments:

My initial response to “bill smith”:

“Bill” then sent in a response. I sent an email to the address he provided in the post,; the email bounced back indicating it was a fake email address. I checked the website he listed as his in his initial response; the website is the personal one of an African-American woman; she is dealing with Alzheimer’s. btw Ms Smith is a remarkable woman, handling this awful diagnosis with grace, wit, and elegance.

As “bill” was being disingenuous about who he was, i ignored his response.

Next, he sent in another comment. “bill” was one of several anonymous commenters trolling me (and you), using fake emails and contact info. Getting tired of their antics and disgusted with their cowardice, I responded. The relevant conversation is below.

Here’s where I should have been more clear. I should have posted the actual website address “bill” used in his original post so you, the reader, could see for yourself that what this troll was up to.

In what used to me normal times, this wouldn’t be a big deal as I detailed “bill’s” dishonesty in a subsequent comment.

We aren’t living in “normal” times, and the casual reader may well have interpreted my response as a racist slur. I’m embarrassed by my mistake and apologize for it.

I’ll be more careful in the future. 

As a reminder, here’s my policy on commenters…

This post was triggered by reader D. Gregerson who sent in a comment yesterday about this. I thank D. Gregerson for his comment.

Hey Joe! Great insight as usual. Keep them coming. I do have a question though. As I reviewed the comment section (which has now been closed) I noticed that you replied to someone saying:”unless you are an African American with Alzheimer’s, your website is fake”. Now, one would argue that the statement could be deemed inappropriate and demeaning. Especially considering that the topic at hand was One Call’s financial debacle. Care to expound?

Yesterday’s executive order by President Trump requires HHS to develop regulations requiring healthcare providers and insurers to publicly post the prices paid for healthcare.

According to Trump, this is “a giant step towards a heath care system that is really fantastic.”

Let’s talk about what this means for you.

First, there’s enough wiggle room in the order to make the slinkiest of snakes comfortable. For example, there are no specific requirements about what information doctors, hospitals and insurers have to disclose.

Second, the executive order itself has no force of law.

Third, if prices are ever posted, patients won’t know what they – the patient – have to pay. The order discusses posting what insurance companies have agreed to pay for a procedure – not what the patient owes.

Fourth, there’s no conclusive research finding that publishing prices reduces overall cost – or even affects consumer behavior. But there is research indicating patients don’t use data to find lower cost care.

Fourth-and-a-half, despite what the President claims in his Executive Order most healthcare services aren’t “shoppable”. If your spouse has chest pain, you aren’t going to wade thru some government database to find the lowest cost heart surgeon. Plus, you aren’t walking in with a shopping list of specific procedures – you’ll get the procedures your doctor orders, and you won’t be in any position to go to one hospital for an MRI and another for anesthesia.

I see you want an MRI, an appendectomy, one assistant surgeon, 2 units of blood, and 5 visits from random doctors.

Want proof?…about one healthcare dollar out of twelve is spent by patients on shoppable services. 

Fifth, pricing agreements are proprietary, negotiated between insurers and providers. Both are now arguing that publicly disclosing those private, confidential contracts will result in higher prices as providers – who now have pricing power over insurers in many markets – find out how much their rivals are getting paid.

Sixth, credible research shows that prices increase when suppliers and buyers have to disclose prices. From the NYT:

The Danish government, in an effort to improve competition in the early 1990s, required manufacturers of ready-mix concrete to disclose their negotiated prices with their customers. Prices for the product then rose 15 percent to 20 percent.

The reason, scholars concluded, is that there were few manufacturers competing for business. Once companies knew what their competitors were charging, it was easy for them to all raise their prices in concert. They could collude without the sort of direct communication that would make such behavior illegal.

Seventh, most healthcare spending is for patients with multiple chronic, and expensive, health conditions.  Think high blood pressure, asthma, depression, diabetes, cardiovascular disease.  These folks blow thru their deductible in March. After that, their healthcare is free to them, so they don’t care what the cost is.

Eighth, any regulations will take years to develop, and will be subject to endless lawsuits. Too bad the attorneys don’t have to post their prices…

What does this mean for you?

This is political grandstanding and will have zero impact on healthcare costs – or what you pay for insurance premiums.

But is sure is easier than actually doing something to improve our healthcare system and lower your costs.

Spoiler Alert – Oh, and the Executive Order adds a whole new layer of bureaucracy and reporting requirements, which will increase healthcare administrative expenses.

 

 

 

With rare exceptions, work comp services companies don’t get marketing, don’t fund it adequately, and then complain when “marketing’ doesn’t work.

They build a product/service then try to convince buyers they need it.  Example – “buyers want to buy all ancillary services from one vendor!”

That’s bass ackwards.  Instead, they should identify an unmet need, then build their products/services to meet that need. 

Okay, you’ve already got products and services, so you aren’t looking to create any new ones.  Same rule applies –

• figure out what the market wants,
• adjust your offering so it meets those needs, and
• package it such that potential buyers see how it solves their problem(s).

More broadly, services companies must understand what drives buying decisions in work comp.  I’d suggest “fear” is a much more potent driver than “greed”.  Note these terms are very general and are not meant to connote actual fear or greed, but rather concern over lack of performance vs desire for optimal performance.

Buyers want to be assured the problem will be solved, the risk of non-performance is vanishingly small, and the cost will be borne by policyholders/clients/assignable to claims. They want as close to zero risk as possible – more for reasons of personal survival than corporate objectives.

And, understanding there are at least two “buyers” is critical – the exec in the home office who signs the contract and the desk-level person who actually uses the services. Both have to be comfortable that your product/service meets their individual needs, which are usually quite different.

The corporate buyers want solutions that deliver cost reductions with no compliance issues and minimal-to-no IT resource requirements.

The desk-level folks want seamless connectivity, proactive communications, and service that handles any and every issue.

What does this mean for you?

It isn’t about you or your products. Start from your customers’ perspective and not from your’s.  And stay there.

 

 

Happy Friday! It’s Research Roundup time.

Here’s my quick takeaways on new research – and how it affects you.

WCRI on the interaction of health insurance and workers’ comp

Bogdan Savych PhD of WCRI has provided an excellent review of the interaction of health insurance coverage and workers’ outcomes post-injury. 

The percentage of workers with health insurance increased from 84% in 2008 to 90% in 2017, driven primarily by the ACA.  Notably Medicaid expansion was responsible for most of this growth. Overall, workers who had private health insurance:

• got an initial non-ER evaluation a little earlier;
• recovered a little faster;
• were more  likely to return to work; and
• were a bit less likely to hire an attorney.

Note these differences were slight – but real – for workers who had employer-based coverage, NOT Medicaid. (Dr Savych separated out workers covered by these two payers.)

This means – health insurance coverage slightly improves work comp outcomes.

Implementation of the ODG formulary and opioid reduction

NCCI’s just-released analysis shows minimal correlation between adoption of the ODG formulary and decreased opioid dispensing. From the report:

The ODG Formulary had a limited observed impact on opioid utilization in the early period after implementation.

It appears other factors such as much more public and prescriber awareness of the dangers of opioids and general changes in prescribing patterns may have been a primary driver of the across-the-board decrease in opioid scripts.

This means…formularies are a relatively small part of the solution. Strong UR and external factors are likely much more important.

Drug prices and profits

Adam Fein’s excellent Drug Channels delivers details on where the pharmacy profits are piling up.

Dr Fein notes “many multi-billion-dollar businesses profit as drugs move through the U.S. reimbursement and distribution system.”

This means…most rebate dollars are passed thru to employers and PBMs.

Hospital prices

RAND’s research finds the gap between Medicare reimbursement for facility services and what other private health plans pay increased over the last few years; on average private insurers paid almost 2 1/2 times Medicare rates.

This varied widely among states; if you operate in Colorado, Montana, Wisconsin, Maine, Wyoming, and Indiana reimbursement is even higher, while Michigan, Pennsylvania, New York, and Kentucky’s commercial prices were only 1.5 to 2 times Medicare rates (yippee…).

This means…work comp payers are almost certainly paying way too much for hospital care.