Insight, analysis & opinion from Joe Paduda


Amazon, JP Morgan, Berkshire Hathaway’s Haven – where is it today?

These giant powerhouses are working together to do something big in healthcare.  Haven, the name for the organization set up by the giant retailer, insurer/diversified company, and financial services firm will initially be focused on employees of those three companies. Later, they will “share [its] innovations and solutions to help others.”

Haven was introduced almost two years ago, albeit without that appellation.  Since then, it has been pretty quiet, at least as far as announcements of major innovations. (The company’s COO resigned after a year citing the Philly-to-Boston commute.)

There are plenty of skeptics, most citing the enormous complexity of healthcare, the Gordian knot of regulations, the lack of interconnection, perverse incentives – including for-profit stakeholders, and consumer expectations as all making it more likely that United Healthcare could build a successful commercial bank than JP Morgan will “fix healthcare.”

That’s fair, except Haven hasn’t focused on “fixing healthcare”, but rather fixing healthcare for the folks who work for the three owners.

What we know today – it looks like Haven will initially focus on drugs and virtual health.

Haven will operate on a non-profit basis.

Amazon had just over $41 Billion of cash on hand as of June 30. That hoard plus its distribution capabilities, existing customers and attractive stock make it a very capable acquirer.

Amazon is already selling prescriptions in Japan and distributing medical supplies in the US.

The company is building new product lines, and buying expertise, experience, and already-successful businesses. From FoxBusiness:

> Amazon [is launching] an exclusive line of 60 over-the-counter healthcare products, called Basic Care

> Amazon buys online pharmacy PillPack for $1 billion placing the online giant squarely against drugstore chains, drug distributors and pharmacy benefit managers.

> Amazon files for a patent for Alexa, its virtual assistant, which would detect when a user is sick and recommend and sell medications.

Aurohealth, a maker of generic pharmaceuticals, teams up with Amazon for an exclusive over-the-counter pharmaceuticals brand called Primary Health.

The common thread is medications – manufacture the drugs, encourage adherence, enable distribution.

Last month, Amazon’s Seattle-based employees were introduce to Amazon Care, which boils down to a pretty sophisticated virtual/tele-health platform using a local medical provider group. That ensures employee health records stay with their healthcare provider, and aren’t “owned” or handled by the employer.

Don’t expect that to last…from Huron:

Amazon recently established a stealth lab, called 1492, that focuses on healthcare technology. While little is known about the products being created, speculation is that the retailer is developing tools to mine data from electronic health records, new telemedicine technologies and healthcare applications for its existing products.

I would expect Amazon to do much of its building thru buying; there are a lot of great companies out there innovating different parts of healthcare and buying gets a footprint, talent, and experience that would take too long and cost too much to build.

What does this mean for you?

Nothing yet.  That will change. 

Homorrow, Haven and workers’ comp.


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.


What I missed, and fashion statements for safety professionals

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”.


See you next week

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!


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.


Quick update on One Call

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.


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.


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.


Credit cards, mortgages, and workers’ comp

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 trade war’s impact on workers’ comp

Among the several things that could affect workers’ comp, the toughest to handicap is the trade war.

[The details are below – a very conservative estimate is the trade wars have already cut annual work comp premiums by $686 million. (300,000 workers, 2080 hours per year, average WC premium rate $1.10 per hour). (source data here)]

That’s about 10,000 lost time claims.

Predictions are difficult mostly because one of the protagonists is entirely unpredictable. While we don’t know what will happen in the future, we do know how the trade war has already affected employment.

This from Yahoo Finance:

Moody’s Analytics estimates that Trump’s trade war with China has already reduced U.S. employment by 300,000 jobs, compared with likely employment levels absent the trade war. That’s a combination of jobs eliminated by firms struggling with tariffs and other elements of the trade war, and jobs that would have been created but haven’t because of reduced economic activity.

If the trade war continues thru the end of this year, Moody’s reports another 150,000 jobs will be eliminated. If the trade war isn’t over by December 2020 the total will double to 900,000.

Other data indicate manufacturing has already shrunk and the number of new jobs created dropped from 1.9 million last year to 1.3 million for the same period in 2019. Most troubling, the CBO is forecasting economic growth will slip below historical averages next year to 1.8%.

Sectors most affected are manufacturing, warehousing, distribution and retail.

Where we live in farm country, the impact of the trade war is visible next door.

Farm equipment sales are slumping as soybean and grain prices have plummeted while steel and aluminum prices jumped. Dairy is a big part of agriculture here; when Mexico – the largest overseas consumer of our milk products – slapped tariffs on US dairy, we lost $1.8 billion in sales. Equipment manufacturers including Deere have lost sales, and the effect is rippling thru communities throughout upstate New York.

What does this mean for you?

If things aren’t resolved by the end of next year, work comp will be losing $2 billion in premium annually.

That’s about 32,000 lost time claims.

Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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