Insight, analysis & opinion from Joe Paduda

Feb
16

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.
Texas
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.”
Ohio
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


Feb
16

Navigating the health care jungle

HealthAdvocate is a relatively new company that is making a business (and by all accounts a fairly successful one) by helping consumers deal with the increasingly complex, frustrating, convoluted world of health care. I don’t have any personal experience with them, but their approach and business model makes sense.
They sell their services to employers, TPAs, insurers, unions, and other organizations as an add-on to employee benefit programs. The service, which is billed on a per employee per month basis of $1-$4, provides several benefits:
1. assists employees in locating health care providers with specific experience and expertise
2. negotiates with health plans for coverage and payment for specific procedures and treatment
3. facilitates claims handling by working with providers and health plans
As Tom Schell of Paradigm Health puts it, ” this type of service offering will be the norm in several years as companies look to get more bang out of their healthcare dollar — since it enables the users to maximize the coverage they currently have and increase the overall patient satisfaction level.”
I agree. “Consumerism”, patient-directed health care, and all the other “make the patient responsible for their own healthcare” efforts have one major obstacle – people are mystified, overwhelmed, and frustrated by healthcare processes and requirements. And it is not likely to get any better. The worse it gets, the more valuable HealthAdvocate and similar firms will become.


Feb
15

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.


Feb
14

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.


Feb
14

The pharmacy-payer faceoff

The war between payers and pharmacies just got nastier. In a pre-emptive move, GM anounced that Walgreen’s would no longer be allowed to fill prescriptions for its insureds. It appears that GM made this move after Walgreens got into a dispute with Toyota over Toyota’s efforts to increase the use of a mail-order pharmacy by its employees. (Mail order pharmacies are generally significantly less expensive than retail. Retail pharmacies want people to come into their stores, buy drugs, and pick up other goods on the way to check out, thus they really do not like mail order) As a result of the Toyota-Walgreen’s dispute, Walgreen’s cut Toyota out.
Perhaps Walgreens hoped Toyota’s employees would rise up in arms and demand Toyota include the chain, or perhaps Walgreen’s just could not afford to participate on Toyota’s terms. Regardless, GM decided to pre-empt any similar move by Walgreen’s towards the GM employee benefit plan. As one of the largest private payers, GM represents significant dollars for many health care providers.
According to Reuters, “GM provides health care coverage for 1.1 million workers, retirees and their families in the United States. Last year, GM spent $5.2 billion on health care in the United States, including $1.5 billion on prescription drugs.”
GM’s move is a clear indication of how seriously large employers take this issue. And with prescription drug costs leading the inflationary charge, don’t expect them to back down.


Feb
13

Medicare drug costs – trigger for serious reform?

The announcement last week that the Medicare Drug benefit will cost $724 billion over ten years, instead of the Administration’s original forecast of $400 billion, may be the long-awaited trigger for fundamental reform. Perhaps this is wishful thinking, perhaps not.
Three recent reports from prominent media outlets present rather compeling arguments that the sticker shock may well cause Congress to rethink its approach to prescription drugs.
In an article labeling the issue “sticker shock and awe, the Christian Science Monitor reports that the price tag is “focusing the minds of many lawmakers” on confronting the rising cost of drugs in Medicare.
The San Francisco Chronicle quotes a Heritage Foundation spokesman who claims the drug cost issue, along with the seemingly unstoppable rise in other entitlement programs will “cast a shadow over the entire conservative domestic agenda.”
National Public Radio on Thursday featured a segment with Dan Schorr commenting on Medicare costs and the potential fallout from same.
Among the suggested fixes to the problem are the reimportation of drugs from Canada (a non-answer, as discussed in previous postings here) and the negotiation of prices by the government with drug companies. The former is no answer at all, but the latter may well offer some hope. Almost every other country negotiates directly with pharma manufacturers, and receives much better pricing than does Medicare. In addition, the US Veteran’s Administration negotiates drug prices directly and has done a very effective job in containing prescription drug costs.
While this may offer scant hope for commercial payers, it is important to recall that many physician, hospital, and ancillary reimbursement arrangements are based on Medicare rates (Workers’ comp fee schedules, DRGs, RBRVS, etc.). Therefore, it is possible that any Federal pricing standard would replace the much-maligned Average Wholesale Price as the basis for pricing drugs.
And that would be great news.


Feb
11

Medicare reform timing

Pres. Bush stated Wednesday that Medicare reform will be addressed after Social Security reform had been completed. According to the NYTimes, Bush’s statements were in response to the recent disclosure that the Medicare prescription drug program cost estimates are now in excess of $700 billion for the program’s first ten years, “with costs reaching $100 billion annually by 2015.”
By way of comparison, the Administration’s initial estimate of program costs for the first eight years was $400 billion, a number that was, according to reports, significantly less than that predicted by the Medicare Actuary. Readers may recall the mini-scandal that erupted when the Actuary disclosed that he had been threatened with dismissal if he went public with the discrepancy (the Actuary’s estimate was $534 over the same period.)
According to California HealthLine,
“lawmakers listed several possible changes to the present Medicare program. The potential measures include capping spending for the benefit; cutting payments for wealthy beneficiaries; allowing the government to negotiate bulk drug prices with pharmaceutical firms; banning Medicare coverage of “lifestyle drugs,” such as Viagra; and legalizing the importation of prescription drugs from Canada and other countries. ”
Implications
It is encouraging that our elected officials are becoming more realistic about the costs of this program, and may consider allowing the Federal government to negotiate with drug manufacturers. However, if the Feds are succesful in their efforts, there could be a massive cost-shift to private payers as drug companies seek to recoup lost income.
We’ll be watching this very closely.


Feb
10

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?


Feb
10

Innovation in cost control?

Weiss Ratings (yes, I’m a big fan) released an analysis of recent changes to employees’ health plans, and there is a notable lack of innovation.
According to Weiss, “Higher prescription drug co-pays were cited by 34.3 percent of consumers polled, while 23.8 percent indicated higher co-pays for physician visits.” In addition, in perhaps the most drastic move to control health insuranc costs, 11.3% lost their health insurance altogether.
This last statistic may be inflated due to the nature of the study, so I wouldn’t generalize the result to a larger population. However, it is important to note the large percentage of respondents who saw an increase in costs shifted to them from the health plan. Call it “consumerism”, “accountability”, “burden sharing” or what you will, it is clear that employers are fast running out of ideas.


Feb
10

AIG hammers execs

While this is somewhat off-topic, it is nonetheless quite important…
(NYTimes, free registration required) AIG revealed that it paid most of the $126 million penalty assessed by the Feds for wrongdoing out of a bonus pool for AIG Financial Products executives. The decision affected some 50-60 executives, most of whom usually received the majority of their compensation from the annual bonus. Many found their checks were missing a few zeros, and a few received no bonus at all.
This does AIG credit. The penalty was assessed by federal investigators for AIG’s sale of financial instruments whose only purpose was to smooth out earnings for public companies, thereby hiding the true nature of their results. By focusing his anger, and retribution on the individuals responsible for the malfeasance, Hank Greenberg (79), , AIG’s long-serving and highly successful CEO is sending an unmistakable message.
However, remember that the same execs who are paying the fine likely received bonuses in the past based on their financial successes, which undoubtedly included the sale of the financial instruments that led to the investigation. Here’s hoping that the execs affected were the only ones involved, and the wrongdoing did not go any further.
Kudos to AIG and Mr. Greenberg for this move.


Joe Paduda is the principal of Health Strategy Associates

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