Insight, analysis & opinion from Joe Paduda

Nov
2

More on contingent commissions

I recently had a conversation with an attorney at a major insurer regarding the “Spitzer investigations.” When asked his opinion of the emerging scandal, he all but brushed it off, saying “these risk managers knew what was going on all along.”
My reaction was one of disbelief mixed with alarm. Disbelief at the cavalier brush off of what is becoming a rapidly growing scandal, and alarm that this attorney thought it was OK as long as the victims knew they were being victimized. I also felt somewhat na


Nov
1

Fallout from the Spitzer investigations

In the last two days I have been interviewed by two separate publications (Kiplinger’s and Risk and Insurance) regarding the potential impact of the Spitzer investigations into contingent commissions, bid-rigging, and other unethical and inappropriate activities in the insurance industry. Both publications were seeking information about the potential fallout, impact on policyholders and insurers, and prognostication about on whom the next shoe would drop.
Here’s the summary in brief.
This investigation has just gotten started. Garamendi in California and Blumenthal in Connecticut are but two of the other State Attorneys General who are beginning their own investigations.
Although Spitzer started with P&C insurance, the insurance investigations have expanded significantly. Expect to see more subpoenas of life and health insurers, especially those with significant blocks of AD&D, STD, LTD, and life business.
While the life and health industry will be a target, it is unlikely that the practices that have so enraged Mr. Spitzer et al are as prevalent on this side of the business as they evidently are in the P&C world.
Those who pooh-pooh the contingent commission and sham bidding practices by claiming that risk managers and their colleagues knew what was going on are whistling past the graveyard. These are precisely the kind of back-room, clubby relationships that have led to the drastic reforms in the mutual fund and investment banking industries.
There are many other relationships in the insurance world that share similar traits with these alleged offences. TPAs that receive payments from managed care firms, providers that steer patients to their own imaging clinics, and the “percentage of savings” fee system are but a few that come to mind.
Finally, AIG was recently indicted by Spitzer. This was the first indictment directed against a corporate entity rather than an individual. As the Wall Street Journal recently noted, no financial services company has survived an indictment. While it would be wildly inappropriate to suggest that the very existence of AIG is at risk, it would also be foolhardy to think that the company will emerge unscathed.


Oct
29

NCCI prescription drug survey

NCCI recently released the 2004 WC Prescription Drug Survey update. Key findings include:
Rx costs now account for over 12% of WC medical expense, up from 11.8% last year and 10.1% in 1997
Price has overtaken utilization as the primary driver of inflation, although utilization is still a significant contributor
– PBMs are seen as part of the answer, but certainly not all
The survey also notes that three classes of drugs account for 87% of scripts – painkillers, muscle relaxants, and antidepressants, with Celebrex(r) and Vioxx(r) holding down the top and third spot in terms of total dollars paid.
Watch this space for updates on HSA’s Second Annual Survey of Prescription Drug Management in Workers’ Comp(sm). This Survey will expand on the First Annual Survey.


Oct
15

Coventry to acquire First Health

Coventry Health Care announced yesterday it is going to acquire FirstHealth Group for stock and cash equivalent to about $18.70 per share. Coventry is a second-tier managed care company focused on small group, fully insured business, in 15 states.
This may well indicate a change in Coventry’s strategy, as it evolves from its tight focus on small group insurance in limited markets. The acquisition gives Coventry a national PPO for work comp and group, ownership of the federal MailHandler’s health benefit program, and ancillary or related services including PBM capabilities and Medicaid services.
Notably, there were no indications on the part of Coventry senior staff of a desire to retain FH senior management over the long term; while this is conjecture the tone and wording of their statements does not give one the sense that the top layer of FH management is around for the long term.
One interesting question is what will Coventry do with the WC business? Coventry is managed by people who have little past experience with WC, and actually worked for firms that rid themselves of WC subsidiaries (UnitedHealthGroup selling MetraComp and Focus) to focus on core business. My sense is Coventry will leave the WC alone for now, and see what develops – stay tuned over the next six months, as any change in this may happen around the middle of next year.


Oct
15

Oxycontin in WC

Interesting item from Workers Comp Insider today:
There is an interesting convergence of issues concerning the pain killer, Oxycontin. Originally developed to combat cancer pain, Oxycontin has been aggressively marketed over the past three years by its manufacturer Purdue, to the point where the drug is now the pain-killer of preference for work related injuries. This drug is twice as powerful as morphine and, while not technically addicting, it can create withdrawal symptoms when a person stops taking it. According to a study by NCCI, Oxycontin is prescribed for pain in 69% of permanent partial disability cases. This same study also points out that 49% of these prescriptions go to people with back injuries. When you combine that with the next interesting piece of data – Oxycontin is almost always dispensed in 50 day supplies (100 tablets) — you have a potentially volatile mix.


Joe Paduda is the principal of Health Strategy Associates

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