Prescription drug in Workers’ Comp

HSA has completed the second annual survey of prescription drug management in WC. Here are the (very brief) highlights…
–overall trend rate was 12% (2004 over 2003)
–WC Rx costs nationally estimated at $3.4 billion in 2004
–party “most responsible for prescription drug costs” – respondents overwhelmingly voted for the treating physician, a significant change over last year.
–Third Party Billers considered to be a problem by all but 2 respondents, and most payers want their PBMs to deal with the TPBs
–utilization considered to be much more significant issue than unit price
The full survey will be available this month.


Workers Comp in California

The Workers’ Comp Research Institute, one of the three top research entities focused on WC, will be delivering a comparison of California’s workers comp to eleven other states at a seminar in San Francisco on March 23.
WCRI’s research typically lags eighteen to twenty-four months behind, for very good reasons. So, don’t expect to see any indication of the impact of recent changes in CA WC. With that caveat, I can assure you attendance at these seminars is well worth the time and travel.


Latest news on State WC initiatives

The recent changes in WC laws in California appear to be just the proverbial tip of the iceberg, as several additional states are seriously considering changing their regulations, rate-making process, managed care programs, or all of the above. Here is a summary of recent news.
According to Insurance Journal, legislation has been proposed that would have major implications for Texas Workers Compensation, including abolishing the Texas Workers’ Comp Commission.
“State Rep. Burt Solomons (Carrollton) recently filed a bill that would make major changes to the workers’ compensation system in Texas. According to an announcement released by the House of Representatives, House Bill 7 abolishes the Texas Workers’ Compensation Commission (TWCC) and focuses on four main system improvements: streamlining the regulatory process by moving regulatory functions to the Texas Department of Insurance (TDI), allowing workers’ compensation networks, applying group health laws and rules to the workers’ compensation system, and focusing the entire system back on the injured worker.”
While the OHP regs in Ohio were touted as leading edge, innovative, and a model for the rest of the country, these claims were, at the very least, overblown. The OHP program was not terribly innovative and, if anything, represented a me-too approach. Now, James Conrad, Administrator of the Ohio Bureau of Workers’ Comp, has proposed new legislation that has rather broad, if somewhat minor, implications for WC in the state. Here is a summary from Business First:
“The bureau is proposing more than 30 changes to workers’ comp law. The changes range from allowing people with traumatic brain injuries to earn minimal income without jeopardizing their disability benefits, to prohibiting doctors and other medical providers who treat injured workers from paying or receiving kickbacks for referral of services.”
Rhode Island
Twenty insurers licensed to sell Workers Comp in Rhode Island (free registration required) have notified the state that they will adopt NCCI’s revised rate guidelines, potentially lowering premiums on average by 20%. However, Beacon Mutual, with 75% of the state’s WC market, is not in favor or the move, claiming that it has already factored in the better performance of the WC market through “merit-based premium reductions”.
South Carolina
A bill has been introduced that would deny WC benefits to workers who failed to follow posted safety instructions and were injured on the job. Don’t look for this to succeed


Spitzer continues…

AIG thought it had successfully negotiated NY Attorney General Spitzer’s treacherous path, at least until yesterday. Evidently AIG is still under investigation for business practices that might be construed as unethical or illegal by the AG.
These business practices involve the sale of financial instruments that serve to “smooth” earnings for public companies, thereby making them appear to be more consistent, thereby pleasing analysts and investors.
To those of us in the managed care field, this is mildly interesting. What is more interesting is the spread of the investigations, from sham bids to contingent commissions to financial products to inappropriate business practices. Some industries, notably Workers’ Comp managed care, may be particularly vulnerable to this type of inquiry, as it is rife with special deals and considerations.
The Concentra subpoena is likely a reflection of the growing scope of Spitzer’s investigation. As other AGs, notably Blumenthal in Connecticut and Insurance Commissioners such as Garamendi in CA take note, they may well want to add their investigative prowess to the mix.


Concentra receives subpoena

Concentra (CISI) announced today that it has received a subpoena from the New York State Attorney General requesting “documents and information regarding CISI’s relationships with third party administrators and health care providers in connection with the NYAG’s review of contractual relationships in the workers’ compensation industry.”
Any speculation regarding the specific reasons for the investigation would be just that. However, some general statements can be made about business practices in the WC managed care industry that may be influencing the AG’s investigation.
1. It is common for managed care firms to pay third party administrators (TPAs) a percentage of their revenues from business referred by the TPA. Typically this is in the 5% range.
2. While most TPAs “disclose” this arrangement, it is often contained within language that makes it fairly difficult to discern the actual meaning. For example, there may be wording similar to “the TPA reserves the right to assess an administrative fee on vendors used by the client”.
3. There is a long-established tradition of gifts from managed care vendors to claims adjusters, managers, and other staff, with either an overt or subtle link between the gifts and future business. These gifts can occasionally “cross the line” into expensive territory.
4. At the very least, the “percentage of savings” method of paying for network services does incent the TPA to utilize networks that over-utilize and over-charge for savings.
This is not meant to imply that any of the above activities were or are going on at Concentra. As the largest WC managed care firm, they may just be the most apparent target.


What happened to First Health?

Over the last year or so, there has been quite a bit of speculation, especially in the workers comp arena, about First Health’s future. Consulting clients in particular were unsure of the future direction of the company, as it seemed to have lost its way, embarking on diverse acquisitions, gaining a (well-deserved) reputation for arrogance and heavy-handedness in client relations, and in the process losing credibility both among customers and in the equity markets. Now that First Health is part of Coventry Health Care, a little historical perspective may help shed some light on what went wrong.
The first question is – did anything go wrong? Past management would likely argue that all was according to plan. To refute that (potential) argument, one need look only at the stock price, which declined significantly over the last couple years. I doubt that was “part of the plan”.
One can categorize most of FH’s problems as due to the Innovator’s Dilemma, Clayton Christensen’s terrifically insightful explanation of what happens to companies that fight like hell to hold onto and improve products and services whose time has past. FH was very successful in building and growing a WC network business, one that came to dominate the WC industry and by so doing generated a disproportionate share of the company’s profits. As the market matured, FH did what most companies in maturing markets d – they grew by acquisition. CCN, HealthNet employer services, and Priority Services were all acquired to consolidate share, freeze out competitors, and solidify customer relations. What FH failed to do, and what caused them pain and is likely to continue to afflict Coventry, is innovate.

Continue reading What happened to First Health?


Oklahoma WC initiative

Oklahoma Gov. Brad Henry introduced a Workers Com reform program that calls for significant changes in the state’s workers’ comp laws.
Interestingly, the governor linked the WC reform to his efforts to reduce uninsurance in the state. According to the ClaimsGuides article;
“Gov. Henry believes a new health insurance program for small business will work in concert with the reform package to help drive down comp costs. Approved by Oklahoma voters in November, the Oklahoma Health Care Initiative includes a premium assistance program that will help business owners provide insurance to their employees. Industry observers believe Oklahoma’s high percentage of uninsured residents increases comp claims because uninsured employees are more likely to seek medical treatment through their employer.”
Key elements of the initiative include:
–revised network standards and provider eligibility/recruitment along w employee choice within the network
–adoption of treatment guidelines
–increased use of Independent Medical Exams
–faster implementation of insurer rate changes
–adoption of a Medicare-based fee schedule
–require use of generic drugs when possible
–require preauth on some medical procedures.
Remember, this is just the first salvo in what will likely be an ongoing and cumbersome process of redoing WC laws in OK. We can only be sure that whatever the final result is, it will not be identical to Gov. Henry’s proposal.


First Health and Coventry

The long-awaited acquisition of First Health by Coventry for cash and stock totaling $1.8 billion or so has closed. The “old” FH management (Wristen, Dickerson, Dills et al) has departed as of 1/28/05, leaving Mary Baranowski as the remaining SVP and Art Lynch as VP Workers Compensation.
Now, the only question is what will McDonough et al (Coventry exec tasked w managing the acquisition) do with the various pieces of First Health.
We’ll be paying close attention, as FH is the dominant player in the WC managed care business, has a major presence in the group health world, and has several ancillary businesses.


Hidden cost of obesity

Novation Inc. has just released a report (based on a survey of VHA hospitals) indicating that caring for obese patients increases the number of hospital worker injuries and requires the purchase of new equipment. I’m a little skeptical of the report’s claim that the cost of caring for the obese patient increased by 24% over the prior year; how do they find those numbers, what are they based on, etc.
That being said, the report’s other findings are more solid:
–90% of obese patients are seen in the ED
–53% of pediatric patients are obese
–28% of respondents indicated workers’ comp injuries increased due to dealing w obese patients
With the tight labor market for nurses and para-professionals, the rampant obesity in America certainly is not helping the labor shortage.


Health care spending stats

The journal “Health Affairs” reports that medical inflation in 2003 was 7.7%, significantly less than the prior year’s 9.3% rate.
However, the bad news is that the 7.7% was significantly higher than the rate of overall inflation, and the medical trend rate for workers comp (and probably other property and casualty lines) was 12%.
This likely is a result of cost shifting. To quote the report, “Financial constraints on the Medicaid program and the expiration of supplemental funding provisions for Medicare services drove the deceleration.” So, if governmental programs are paying less, some payers have to be paying more.
With the growing likelihood that Medicaid and Medicare reimbursements will continue to increase at a rate well under overall medical trend, we can expect cost shifting to continue, if not accelerate.