Nov
20

Workers comp is A) doing great, or B) a big problem

Where you sit determines what you see; this adage applies to the work comp industry.

For payers, employers, and taxpayers, all is great.  Rates are low and dropping, insurers are enjoying record profits, frequency continues to trend down, medical costs are flat.

The very things that make payers happy have the opposite effect on service companies. For most entities involved in medical management, pharmacy management, investigations, technology, claims systems, Medicare Set-Asides, and litigation defense the drop in frequency and flat medical costs are unwelcome news.

The trickle-down effects of this dichotomy are many and varied.

  • There is little-to-no pressure to revise state workers’ comp laws and regulations.
  • Insurers are looking to increase their work comp business as it is a big profit maker.
  • Claims execs are trying to balance hiring and training new claims adjusters while planning for long-term decreases in claim volume.
  • Execs are also extremely careful about investments in new IT projects, as the long-term payoff is also challenged by structural declines in claims.
  • The consolidation of service companies continues unabated; IMEs, bill review, specialty networks, PBMs, investigations, case management, cat case management services are all subject to this consolidation.
  • Selling services to payers is getting increasingly difficult.  Payers aren’t seeking solutions to major problems; they are reluctant to switch vendors unless there are serious service problems.
  • Work comp conferences are struggling due to the structural issues above; the lack of big problems driving intense interest in solutions and an arguably-over-saturated conference market is hurting attendance.

So, what to do?

If you are a service entity, you’ve got to differentiate. You must also deeply understand what individual buyers want, why they want that, what their decision process is, and who else is involved.

Unfortunately many service entities are cutting marketing budgets and pressuring sales staff to deliver deals. While sales targets are important indeed, they must also be realistic.

If you are a payer, I’d echo the last sentence above. Many payers are planning to write more workers’ comp, an obvious impossibility.

 


Nov
18

Work comp rates are still too high – and will continue to drop

Today, I’m going to convince you that despite years of continued decreases, work comp premiums are still too high.  And will likely remain too high for the next few years.

That’s how long it will take the impact of reduced opioid consumption to work its way through comp financials. Sure, continued declines in frequency and high employment along with declining worker benefits are also factors – but I’ll argue what’s way more important is the drop in opioid prescriptions.

A decade into this, the dramatic drop in work comp opioid prescriptions is continuing unabated.

  • CompPharma’s 16th Annual Survey of Prescription Drug Management in Workers’ Comp [free to download] shows payers have slashed opioid spend by 40% over the last two years.

  • myMatrixx [HSA consulting client] reported a 15% drop in opioid spend in 2018.
  • Optum Workers’ Comp reported a 2.9% reduction in opioid spend for the first half of 2019 compared to the first half of 2018.
  • CWCI’s just-released report analyzes data from lost time claims incurred between 2008 and 2017:
    • the percentage of claimants receiving opioids dropped 51% over that time period
    • chronic opioid use dropped by 77 percent, from 13% of claimants to 3%
    • acute use declined by 40 percent

My key takeaway from CWCI’s report isn’t the drop in opioid usage, it is that claims without opioids are much less costly, therefore the drop in opioid prescriptions is driving lower claims costs.

Those reductions have yet to be fully factored into work comp rates – so rates will continue to drop.

Key data points:

  • Average benefits for claims without opioids were 30% less than for claims with opioids (at 12 months).
  • Claims without opioids had 25% fewer TD days than claims with opioids.

The net – “Cumulative savings from the decline in opioids are projected at $6.5 billion for 2010 – 2017 claims.”

Report authors Steve Hayes, Kate Smith, and Alex Swedlow provide suggestions for actuaries on page 15 and in Appendix 4.

What does this mean for you?

Rate reductions haven’t caught up with the reality on the ground. 

Barring major unforeseen events, work comp rates will continue to drop for several more years. 

For those so inclined, an extensive discussion of rate-making is here.

 

 


Nov
13

Opioids and work comp premiums

Two seemingly-unrelated papers hit the inbox yesterday; CWCI’s just-completed analysis of opioid usage in the Golden State, and NCCI’s report on 2019 workers’ comp financials.

The key takeaways from NCCI’s report include:

  • Premiums are expected to drop 10 percent in 2019, driven by rate/loss cost filings. In other words, losses are declining which leads to lower insurance costs.
  • This marks the sixth consecutive year of decreased premium levels.
  • Not coincidentally, 2019 is the sixth consecutive year of underwriting profitability.

So, even though premiums are dropping like a rock, insurer profits are better than they’ve ever been.

Why?

Well, declines in frequency are certainly a big contributor. Reduced worker benefits are likely a factor as well – and a big problem we’ll address in a later post.

If anything, investment profits are a drag on profitability (NCCI reports 2018 investment gains averaged 9.2%.

Which brings us to CWCI’s report “The Impact of Declining Opioid Use on Lost-Time Claim Development & Outcomes in California Workers’ Compensation” [emphasis added; disclosure – I provided input as a peer reviewer for the final report]

Key takeaways:

  • “from 2008 to 2017, chronic opioid use…declined from 13% to 3% of all lost-time claims (a relative decline of 77%)”
  • the strength of the opioids dispensed within the first 12 months of treatment, measured in cumulative morphine milligram equivalents, declined 59% for chronic opioid use claims

Tomorrow – the connection between opioid reductions and premium levels – and what it means for the industry and you.

 


Nov
1

What’s up?

The inbox has been stuffed with important new research and news; here’s what most interested me.

Work Comp

Perhaps the best annual summary of the state of the workers’ comp world is just off the press.  The National Academy of Social Insurance’s report is here. Free to download, NASI’s latest finds:

  • Employers’ costs have fallen from just over $1.50 per $100 of covered wages in 1997 to $1.25 in 2017.
  • Worker benefits decreased even more, from $1.17 twenty years ago to $0.80 per $100 of covered wages in 2017.

My takeaway – workers are getting less in benefits than they have in the past – and that’s a bad thing.  It is great that employers’ costs are declining, but that shouldn’t be at the expense of injured workers and their families.

The fine folk at CWCI published their latest research on UR in the Golden State. Despite what some on the applicant attorney side argue;

Results show that 94.1 percent of services performed or requested from January 1, 2018 to October 31, 2018 were either approved (92.5 percent) or approved with modifications (1.6 percent)…

Yup, 17 out of 18 services were approved. 

WCRI’s annual conference returns to Boston – register herenow.  Or risk missing out, as the event fills up every year. Don’t be one of these people!

[I don’t think the guy on the right is Andrew Kenneally…]

Check out WCRI’s upcoming webinar on medical prices paid and work comp fee schedules – lots of great information on facility costs – the biggest problem (outside of opioids) in work comp today.

Drugs!

From Alan Fein at DrugChannels, a most excellent video by John Oliver on everything you should know about compounding pharmacies. You gotta watch this… [can you believe Oliver actually knows about stuff we work comp pharmacy nerds think about???]

The video is both hysterically funny and terrifying. Watch it.

From the funny to the deadly serious; if you haven’t read Gary Anderberg’s most recent GB Journal, you likely don’t know this:

research showed that “57% of those who died from opioid-related deaths had at least one prior workplace MSD. [musculoskeletal disorders]

I’ve long opined the opioid industry has done horrendous damage to the work comp industry, injured workers, taxpayers and employers. Gary’s reporting shows it is even worse than we thought.

When are you going to hold the opioid industry accountable for their criminal actions?

That’s it for now…for those attending the NWCDC next week in Vegas – make sure to say thanks and farewell to Peter Rousmaniere and Roberto Ceniceros.  These gentlemen are both retiring, and our industry will be much the worse for it.

I’ve known them both for decades, learned much from them, and deeply respect their contributions to our industry. They’ve certainly earned a respite…here’s hoping Peter and Roberto weigh in from time to time. Their wisdom and experience are irreplaceable.

I won’t be there – family vacation in Zion Utah…with three grown kids, we have to work around their schedules, proving once again that I am completely not in control of anything.

 


Oct
29

What’s next for One Call.

One Call’s got a cash injection and reduced its debt burden (so the company doesn’t spend most/all its earnings on interest payments).

Congratulations to the debt holders for coming up with a very creative solution – and for doing a masterful job of cat herding.  KKR, GSO, and their advisers somehow convinced all the debt holders to agree to losing millions of their investment – and got some debt holders to dump hundreds of millions more into One Call in return for ownership stakes.

Darn impressive work.

So, what’s next?

Well, I tried to find out from One Call…I sent One Call several questions early yesterday; Jessica Taft, OneCall’s VP of Marketing and Branding,  was kind enough to send a statement earlier today.  I’d note the response was not very “responsive” as it didn’t fully address my questions; I’ve pasted the communication in at the end of this post verbatim so you can judge for yourself.

Management

In response to my question about management changes, Taft said there are “no planned changes to the management team.” Ms Taft may not have full visibility into the new owners’ plans – and I don’t either. Now that Apax is no longer involved, the new owners will undoubtedly install their own Board; I expect major changes to, if not wholesale replacement of ,the Board of Directors.

It would be surprising if the new Board didn’t install new folks in the C-Suite.  (As I mentioned in an earlier post, execs were dealt a pretty poor hand to start with, so it’s unfair to blame the entire mess on them.)

Business lines

I asked:

What business lines will OCCM focus on going forward, and which lines will be de-emphasized? For example, there have been recent efforts to sell the hearing business; will those efforts continue or be halted?

OCCM responded:

One Call will continue to focus on delivering products and services to enable our customers to get injured workers the care they need when they need it…Finally, there are no plans to sell our hearing business…

I don’t expect One Call to sell any of its businesses at this juncture, although the new owners may look to do so after things settle down. It may be that the parts are greater than the entire operation; time will tell.

Provider reimbursement

I asked;

Management acknowledged extending payments to some providers out an additional 15 days in a recent call. When will OCCM reduce days outstanding for provider payables, or is that not being contemplated at this point?

OCCM responded:

Our provider network is one of our most valuable assets, and we intend to continue to enhance the value we deliver to our provider partners and continue to pay them timely.

I would expect One Call to work on strengthening relationships with providers, but don’t know what to make of Taft’s response.

Polaris

I asked a question about future investments in Polaris; the response was marketing-speak.

My view

With somewhere north of $300 million in the bank (if the entire equity payment went to the company’s coffers, and not to any other entities) and the annual debt load reduced from around $150 million to $60 million, One Call is in waaaaaay better shape than it was before the infusion.  

That’s good news indeed for the company’s workers and customers – and for the industry at large.  More competition for payer business is better than less.

The next steps are critical.  The industry wants to see a highly credible exec installed, one with deep experience in workers’ comp and a very strong brand. The company would also benefit greatly from more IT strength; it’s reliance on Polaris(r) for much of the customer-facing functions makes that platform essential to One Call’s future.

Happier and more connected workers would also be a big plus; sharing equity or otherwise rewarding workers who’ve stuck by the company during a very tough time is relatively inexpensive and would get more folks to buy in to the future.

 

 


Oct
28

OneCall’s Halloween is going to be all treats!

Thanks to a massive restructuring, OneCall lives to fight another day. This is excellent news for the folks who work there; not so much for the original investors.

Briefly, absent a new injection of equity and major reduction of debt, OCCM was headed to bankruptcy – on Halloween. That’s when the grace period on a $15 million debt payment expired. Late Friday a deal was reached that keeps the company operating.

Look, it’s cash!

Here’s how it happened.

As I’ve reported in the past, when OCCM was put together it was highly leveraged – in English, that means it had a ton of debt. That debt, which was restructured several times over the last few years, was a big drag on the company. The $150 million a year (or so) in interest payments soaked up cash that could have been used to pay workers and invest in systems.

The use of debt by Apax, the private equity firm behind OCCM, is commonplace in this type of deal. By using debt to help buy the pieces that made up OCCM, Apax hoped to double or triple the equity it originally invested in OCCM. That works great if a business is growing and consistently profitable; the PE firm’s investors make a ton of money when an “equity event” occurs.

But that high debt load can be a real problem if the company doesn’t grow. Late Friday OneCall announced the company is going thru a complete financial restructuring. In essence, debtholders traded a big chunk of their debt for equity, which a) injected much-needed cash into the business and b) reduced the company’s debt burden, freeing up cash for ongoing operations.

Apax – the private equity firm that owned OCCM – lost control of the company, and its entire $750 million +/- investment when OCCM’s finances deteriorated to the point that it was days from bankruptcy.

At that point, control shifted to the debtholders.

Those debt holders agreed to swap much of their debt for stock – and pump more capital into the business in an effort to keep it going. This will reduce OCCM’s debt payments, freeing up cash, hopefully allowing it to a) make needed improvements to Polaris; b) reduce accounts payable and c) reward employees who have stuck with the company through some pretty tough times.

Six weeks ago I opined:

[a] 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. [emphasis added]

Reports indicate the restructuring was driven by two debtholders – KKR and GSO – who recently snapped up lots of OCCM’s distressed debt. The two firms convinced other debtholders to agree to a deal to:

  • reduce annual debt service costs by $90 million, down from $150 million +/-;
  • inject $375 million in capital into the business; and
  • eliminate short-term debt.

Tomorrow – what the future holds for One Call. (I’ve asked One Call several questions, and will report back if/when the company responds.


Oct
21

Switching workers’ comp TPAs – have a plan and stick to it

United Airlines’ Joan Vincenz spoke on changing TPAs at the California Self Insurers’ Association’s Employer Summit meeting, one of those rare events that has focused, highly useful presentations narrowly targeted to the attendees.

Joan’s career is pretty diverse, with experience as a flight attendant, in marketing, working on safety. She’s a stickler for details, for customer service, for metrics, for doing things the right way and living up to your commitments.

UAL changed TPAs a couple years ago in a process that has created opportunities for ‘step change’ improvements.   United had experienced progress with the previous TPA, e.g., over 6 years the number of open claims dropped by more than 40% – while employee head count increased.  However, to take the program to a new performance level, United decided to change TPA partners.

United had been with one TPA for 19 years; in 2015 the workers’ comp and procurement teams collaborated on a full RFP for TPA services.  The process was both quick and intense, taking only 6 months from beginning of the RFP process to selecting a new TPA. [editorial comment – other procurers could learn a lot from this] Moving the business would be tough, as all the closed and open legacy claims would be moved to any new vendor – if one was selected.  Vincenz was not going to “leave those claims behind.”

At the end of the RFP, Vincenz and the other decision makers decided to stick with the current TPA and not move. Later, after more diligence and a determined and focused effort to improve some areas and be more collaborative, she decided to move the business to the top candidate from the RFP.

Staying with a current vendor is an easy ‘default’ since moving ‘run in’ claims is expensive and there is considerable risk in making sure all the financial and claim data is moved on time, accurately and without any negative impact on injured employees.  Moving the ‘run in’ claims cost UAL several million dollars, plus took lots of management time and staff resources to change. Vincenz was sure to get everyone on board (especially the Chief Financial Officer and the company’s external actuary)  as to why this is necessary.

A big part of Vincenz’s business case to senior management was the move would pay for itself within three years, with process improvements in claims handling and other key program parameters wins.

Lessons learned

Vincenz strongly emphasized the importance of making sure you’re moving your program for the right reasons and not just because of a few mistakes or because you think there are greener pastures elsewhere.  It’s key to document the pluses and minuses of moving, make sure you are clear on the goals you will achieve by moving, commit to those improvements and measure them post-move.

If you’re going to move, give it enough time to get it done right, but don’t leave claims with prior TPA any longer than necessary.  United moved their entire program in 3 ½ months.

Watch out for problems with recent claims that go into a ‘shell’ status, which is the time period (~3 weeks) immediately after the move when the new TPA doesn’t have access to history on some of the claims.  United set up a ‘war room’ for the month after the move and the staff kept access to the prior TPA’s claims system so that they could help the new examiners with information.

Technology issues are also key to manage – there are multiple feeds and connections that all have to be programmed, tested, verified, and secure.

Other key recommendations included:

  • Pick a hard date, plan for it, and commit to it.
  • Have a comprehensive communications plan using corporate communications, involve the TPA, and be prepared to handle questions via a hotline to make it as seamless as possible for active claimants.
  • Make very sure the indemnity payments are on time – UAL prepaid all TTD payments for the month post-move date to make sure employees wouldn’t be affected negatively.
  • Stay close to the current TPA during transition to make sure things are handled appropriately.
  • Train the new TPA’s staff to handle YOUR standards and processes, not the new TPA’s best practices.
  • Performance guarantees should be managed by actuarial data, e.g., United’s performance guarantee required that all financial data had to be complete and accurate as validated by United’s external actuary.
  • Celebrate success – UAL had a party to thank all the folks involved internally from all areas.

Lessons learned:

  • Keep your intent to move confidential until you tell the current TPA.  Leave with grace by acknowledging all the positive things they handled for your company over the years.  Demonstrate your appreciation for what they did for your employees
  • Keep your focus on your injured employees and make sure there is no interruption in their medical treatment or pay
  • Clear and consistent leadership is key; the new TPA’s leadership responded and took responsibility for problems and worked to fix them
  • Build partnerships – these are essential to solving unforeseeable problems

One question I asked Joan was around TPA differentiation; during the process did the competing TPAs stand out from one another? The response was there wasn’t much differentiation in responses to the RFP, but there was in the onsite meetings – particularly around technology,  and the questions the TPAs asked Joan and her team.

What does this mean for you?

Learn your prospect inside and out, ask them lots of questions, and make very sure your solution is specific to the prospect. And spend more time preparing for the onsite than in doing the RFP response.


Oct
10

My future career with the Golden State Warriors

The latest news from Bloomberg put a damper on my plans to play point guard for the Warriors.

As loyal readers know, in a previous post on One Call I alluded to the company’s  survivability having the same chance as me playing point guard for that esteemed NBA franchise.

Alas my hoops career appears stillborn.

We are now 10 days past the date One Call failed to make a $15 million debt payment, and it appears little progress is being made. Some have pinned their hopes on the company‘s future on One Call’s debt holders all getting together, joining hands and singing Kumbaya. Somehow I don’t think that’s likely.

Why would the most senior debt holders agree to take a haircut to help more Junior debt holders? The senior debt holders accepted a lower interest rate in return for their seniority in the event of a default. I doubt the senior debt holders are going to give up anything to help junior debt holders, who got higher interest payments in return for less security. However it’s possible – if some of the senior debt holders also own some of the more junior debt, they could work something out – if all the other debt holders agree.

IF they somehow manage to convince ALL debt holders to do this it’s possible a restructuring could occur. Notice the emphasis on ALL.

There’s also been a lot of talk about some sort of a debt-for-equity swap.

Again, I just don’t see this happening. The debt holders will end up owning the company if it enters bankruptcy, so (Sorry to repeat myself here) why would the senior debt holders agree to give up some of their ownership – – when they probably don’t have – to just to be nice to the junior debt holders? All debt holders would have to agree and that’s pretty unlikely.

Far more likely is the worst case scenario; the company runs out of money, defaults, and ends up going into bankruptcy.

I just don’t see how the company makes it given its huge debt load and cash flow problems, coupled with client losses and I would argue, feckless and far-less-than-forthcoming management.

I’ve heard from several colleagues that One Call management has repeatedly characterized my efforts to shed light on the problems at OCCM in pretty insulting terms. Those still undecided on who is right and who has been telling tales may want to reflect back on management’s multiple  “all-is sunshine-and-puppies” pronouncements given today’s Bloomberg piece.

For the mid-level managers and other workers who have stock or stock options, this slow-motion train wreck must be beyond painful. While there are certainly some who contributed to this debacle, I’m sure there are many talented and hard-working folks in Jacksonville who deserve another chance.


Oct
7

What’s up with California work comp?

Friend and colleague Alex Swedlow took the podium at the California Self-Insurers’ Association to discuss what’s going on in the Golden State, and what you need to do to manage your program.

First up – why are California’s admin expenses so unbelievably high?

Well, the medical delivery system is quite expensive.  The volume of medical services delivered is just high – especially for pretty expensive services.

Second, there are few controls that limit demand – we’re talking deductibles and copays – and no shortage of supply of providers willing to meet that demand.

Third, dispute resolution is challenged by lots of litigation, by a UR/IMR process that is expensive and (my words not his) abused by a relatively small number of docs and attorneys.

Fourth – this all drives medical management expenses up.  Waaaaay up.

The result – medical payments that are 58% higher than the median state – and second highest of all states.

Myth bust – there’s no association between Fee Schedule levels and medical costs – so it isn’t a problem fixable by cutting the fee schedule.

Of course, some protested that the reforms – UR, employer direction, IMR, MTUS (clinical guidelines) etc – were going too far and harming workers. Citing the huge influx of UR, they contended a lot of needed care was being blocked.

Except that wasn’t true. In fact, the vast majority of care performed and/or reviewed was delivered – that includes the 95% of IMR requests submitted by applicant attorneys.

The good news is there are fewer UR/IMRs for drugs these days – which tracks a similar trend in drug spend overall  – and in particular a major decline in opioid consumption.

Shout out to Peggy Sugarman who runs work comp for the City and County of San Francisco – she moderated the session, which in this case meant she clarified, provided her own insights, interpreted, and generally added a ton of value. Peggy made me re-think the “moderator” role.

CWCI will be releasing an update on current goings-on in the UR/IMR space, providing stakeholders with specific attention paid to modifications rather than approvals or denials.

What does this mean for you?

Costs can be driven up by admin expense- but without those admin expenses, costs would be even higher.


Oct
4

One Call missed a debt payment. What’s next?

Three days ago One Call failed to make a $15 million payment to some of its bond holders. Last night I asked the company for a comment; the company responded saying they “…chose to take advantage of an available 30-day grace period for paying interest under the terms of one of our debt agreements…”

Simultaneously they released a statement about the situation – kudos to OCCM management for working to get their message out before the payment problem was revealed elsewhere. That was smart marketing.

In a followup email, I asked “Was one call’s very tight cash position a factor in the failure to make the payment on the due date?”

As of yet there has been no response.

Let’s parse this out.  “Taking advantage” of an “available 30-day grace period” is not a tactic commonly used to “provide additional time to further advance these constructive lender discussions as we work together on a comprehensive capital structure solution that will best position One Call for the long term.”

You may recall One Call did a major debt restructuring earlier this year, one that allowed the company to forgo paying monthly interest but added that interest cost to the principal amount. That saved cash flow but increased the total debt burden.

That higher debt burden coupled with debt covenants made for a potentially bigger long term problem. Simply put, the higher the debt, the more pressure on the company to make sure it has adequate cash reserves and didn’t have to dip too deep into its line of credit.

If you can’t make a debt payment, you know that well before that payment is due.

If you haven’t been able to figure out how to come up with the cash to make that payment, chances are you won’t be able to do so in another month. Reports indicate One Call has been working on this for over three months

If you haven’t been able to “advance constructive lender discussions” when you’ve been working on it for more than three months, and after a major debt restructure a few months before that, one wonders how constructive those lender discussions have been – and will be.

Here’s what we know.

At the end of June the company had about $6 million in cash and equivalents on hand.  That’s equal to about one day’s expenses…perhaps a bit more.

We also know there are three levels of debtholders – the first, “1.5”, and second lien holders. That’s the order of seniority in case of default; the first lien holders get first crack at any assets, followed by the 1.5, with second lien holders hoping there’s something left.

We also know One Call has debt covenants that way well be in play here as the company has drawn down its line of credit, which triggers certain rights for debtholders.

We also know One Call said everything was fine just three months ago; now we hear they are in “constructive lender discussions”. Quoting CEO Rone Baldwin;

 I would like to share that One Call is stable and secure. The company is fully compliant with its debt covenants and meeting all of its legal and financial obligations, and we expect this to continue to be the case.

Finally, we know the three sets of lien holders are each working with financial advisers.

More to come later today.

One Call’s official statement is here.