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 (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.
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 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.
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.
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.
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.
CorVel Corp just announced its results for the quarter and nine months ending December 2004 , and the picture isn’t pretty. Both revenues (down about 7%) and profits (dropped about 30%) declined significantly from the same period in 2003, while G&A expenses actually increased by about 4%.
According to CorVel, the soft labor market and a purported decline in the rate of inflation in Workers’ Comp medical costs were responsible. While the former may have had something to do with the poor results, the latter appears to be a rationalization at best. Medical trend rates are running in the double digits, so it is hard to understand how that would increase would contribute to a decline in revenues and profits for a company primarily focused on WC.
CorVel has grown recently through acquisitions, and is still assertively pursuing this strategy. Meanwhile, their difficulty in handling large national WC accounts (due to distributed IT systems), spotty management (some regions are very well run, others less so), and poor discounts delivered by their PPO may be the more significant contributors to the bad news than the environmental factors cited in their press release.
As a maturing market, the Workers’ Comp managed care industry is seeing consolidation among the top players and significant growth among smaller, specialty entities. Expect this trend to continue, as the real innovation is occurring among specialty managed care firms such as Choice Medical Management (regional player in FL), MedRisk (physical medicine and claims workflow automation), OneCall (diagnostic imaging), and in selected firms in the PBM area.
(Note to reader – MedRisk and Choice are consulting clients of HSA)
To no one’s surprise, a recent study indicates the vast majority of patients for whom Vioxx, Celebrex et al were prescribed would have been fine with older NSAIDS – (non-steriodal anti-inflammatory drugs). In fact;
“only 2% of participants were at “high risk” for gastrointestinal side effects and should have taken COX-2 inhibitors rather than older nonsteroidal anti-inflammatory drugs (Dai et al., Archives of Internal Medicine, 1/24).”
Recall that the main benefit of COX-2s was their alleged benefits for those patients at risk for gastrointestinal side effects. Price was no benefit, as the COX-2s are much more expensive than a common substitute, ibuprofen (Advil).
California HealthLine summarizes the findings succinctly:
“Randall Stafford, a Stanford University internist and an author of the study, said that marketing efforts by Merck, which in 2000 spent $161 million to promote Vioxx, contributed to the increased number of COX-2 inhibitor prescriptions. Stafford said, “There’s an assumption that newly approved drugs somehow have proven themselves to be better than what’s already available” (USA Today, 1/24).
G. Caleb Alexander, a University of Chicago professor and an author of the study, said, “What we saw was widespread, rapid adoption of an interesting and promising but expensive and largely untested medication by millions of people with little or nothing to gain from long-term use” (Los Angeles Times, 1/22). ”
So, Merck paid $161 million in a single year to
–get people to take drugs which were not demonstrably better than much cheaper alternatives;
–get doctors to greatly over-prescribe to many people who would not benefit from their main selling point:
–thereby increasing health care costs by
—-forcing insurers and patients to pay more money for drugs they did not need;
—-selling a drug that causes cardiovascular problems (requiring treatment, not to mention killing patients) when used at high dosage over a long period of time; and
—likely leading to litigation against insurers, managed care firms, physicians, and employers brought by workers comp patients who received COX-2s for treatment of a WC injury.
An executive at a top-five WC TPA told me that their legal department is keeping a “very close eye” on COX-2s. Undoubtedly, so is the plaintiff bar.
The impact of California’s workers comp reforms is already being felt in insurance rates, as premiums are dropping by between 13.9% and 16.6%.
The reforms, which have included drastic reductions in reimbursement for prescription drugs, a tougher definition of disability, a requirement to utilize clinical guidelines, and the authorization of employer-directed care to certified networks, have been at least in part, responsible for the rate reductions.
Interestingly, perhaps the most significant component of reform, the Medical Provider Networks (MPNs) have only just come on the scene. The first batch was recently approved by the State, and rumor has it that the next batch is due out next week, with Liberty Mutual among those to receive notice.
Sources indicate that the State has over 300 applications pending, and is being quite the stickler on some of the applications, rejecting one because part of the documentation was on the wrong form.
If other states’ experience is any guide, once the State and the payers get comfortable with the process, things will flow more smoothly and quickly. For now, patience is the watchword if you’re waiting for your notice.