I’m hearing more complaints and concerns about the lack of results from projects involving “big data”, analytics, predictive modeling and the like. These have me scratching my head, as effective use of data is critical to any enterprise these days.

I think I’ve figured out why some of these projects haven’t turned out the way sponsors want.

An excellent article on the effective use of analytics identifies 6 keys to ensuring success hit my inbox a bit ago and I’ve read it seveal times, passed it on to respected colleagues, and gotten their feedback.

Targets and accountability. The Central Analytics Business Unit (ABU) was set up as a centralized profit center with ambitious targets and with direct reporting to the chief operations officer;

Support from the top. Obvious, critical, and bearing repeating.

Incentive scheme alignment. The returns generated by ABU’s analytics projects accrue to the departments, who do not contribute to the cost of the ABU. And the ABU team is paid using variable compensation, based on projects that have been fully implemented and based on their ROI.

Rigorous assessment of results. The contribution of analytics is always measured and in some cases is reviewed by the accounting department.

Communicating with strategic goals in mind.  The ABU emphasized communication

The right people. Recruited employees had:
(1) significant quantitative strength;
(2) negotiating skills and diplomacy;
(3) the ability to communicate with the business lines; and
(4) entrepreneurial instincts. Recruiting this high-demand skill set was not easy.

Most of the initial ABU recruits were external hires, and several of them had little knowledge of the banking industry.

BUT…information without action is nothing but a waste of time and money.

This from a physician executive colleague:

One of the things they don’t discuss that I see as an issue throughout the insurance industry (commercial as well as WC) is that analytics often produce counter-intuitive results, and/or suggest conclusions that are at odds with what passes for traditional wisdom.  

An example – I had 3 years of analytics (pretty good ones, too) that demonstrated a 5 or 6:1 ROI from the medical directors’ department (and that included all costs, fully loaded salaries, etc).  No one would believe it, and they dismantled the whole operation.  So, what I’d add to the HBR piece is that the CEO championing (which is one of their 6) has to include championing of business plans based on the analytics, no matter how uncomfortable that makes some people.  

Think analysis of the true costs of network discount strategies is going to be well received anywhere?

 

 

 

The world didn’t stop while we were meeting, learning, and socializing in Las Vegas at NWCDC. Here’s what happened…

Sedgwick is getting bigger – again. The acquisition of Cunningham Lindsey makes Sedgwick the largest TPA in the land, with about 20,000 employees handling various aspects of claims and related functions.

Pharmacy and related topics

California’s work comp formulary goes into effect in 3 weeks.  Make sure you’re ready by hearing from those who know it best – the folks at CWCI. Their webinar is available here (free to CWCI members, $50 for non-members)

An excellent primer on handling opioid treatment issues – specifically effective ways to end opioid treatment – comes from Coventry’s Nikki Wilson, PharmD via WorkCompWire.  It’s simple, clear, and concise.

Sticking with drugs, Adam Fein reminds us “In 2016, U.S. net spending on outpatient prescription drugs was $328.6 billion, up only 1.3% from the 2015 figure.” [emphasis added] In contrast, CompPharma’s latest Survey of Prescription Drug Management in Workers’ Comp shows a drop of 11 percent year over year. 

Employment

Employment is going to change – a lot – over the next decade. A thought-provoking report by McKinsey includes this prediction:

One result – “the share of the workforce that may need to learn new skills and find work in new occupations is much higher: up to one-third of the 2030 workforce in the United States” – with major implications for worker retraining, potential claiming behavior, and re-employment. 

A reminder about the unseen consequences of the gig economy: airport revenues are dropping as passengers increasingly use ride-sharing services instead of paying for parking, renting cars or using cabs. I’ve reduced my use of rental cars; even if Lyft is occasionally more expensive, the hassle reduction factor plus the ability to work in the car to and from the airport are compelling.

A total of $5.8 billion was collected by airports from cab companies, parking, and rental car fees, more than they get from hotels, shops and restaurants combined.

Auto mechanic employment is also going to change – as more people switch to electric cars, there’s going to be a LOT fewer problems for mechanics to fix and even regular maintenance is limited to tires and wiper blades.  We have an electric BMW i3; it has needed zero maintenance other than tires.

Takeaway – the downstream effects of the “gig economy” are far reaching indeed.

 

Frank Pennachio is one of those people every industry really needs. He’s blunt, outspoken, deeply insightful and completely unafraid to challenge established practices.

Especially when those practices need to be challenged. Thursday at NWCDC, Frank and Denise Algire discussed the ways employers pay for managed care services, and how those are often disconnected entirely from the quality of the care delivered to patients.

Frank’s key question is this; do managed care programs improve care or create revenue for intermediaries?

My take is both. I’d also echo Frank’s view that employers and brokers are just as culpable, if not more so, than claims payers and managed care companies. Employers’ desire for simplistic fee arrangements and unwillingness or inability to dive deeper into fee arrangements force (or allow, depending on your perspective) TPAs to seek revenues elsewhere.

Transparency is what’s missing; contracts between and among TPAs and employers don’t allow employers to see the financial relationships between the TPA and managed care companies and providers and understand the motivations and incentives inherent in those relationships.

 

Fee arrangements are the key to the puzzle. TPAs charge employers a flat per claim fee or a loss conversion factor (losses x X.XX%) to cover the cost of handling claims, and that’s pretty much the only thing the employer looks at or cares about.  Thus, allocated loss adjustment expenses are rarely addressed. What employers should be paying attention to are undisclosed side agreements and Allocated Loss Adjustment Expense bucket, where those fees end up charged to the file.

Frank showed a report from an employer that identified bill review fees of over $500,000 for some 4600 bills.  Of course, this was based on a fee structure using a percentage of savings below billed charges – an arrangement that like vampires just won’t die.  Frank noted that many bill review companies are quite willing to charge a flat per-bill fee that includes networks, medical management, and other “savings”. (I have a somewhat different perspective and believe the price per bill should be considerably higher, but fundamentally agree with Frank)Part of me is stunned that we are still talking about this. This has been a subject of conversation many times over many years, and yet, here we are. And here we’ll stay until and unless employers demand something different – and

 

Albertson’s is one of the few large employers challenging this paradigm. Denise shared Albertsons’ network contracting strategy, and of particular interest were the outcomes measures they use. Albertson’s is quite willing to pay for better outcomes, and is diligent in tying outcomes to providers.

 

So what can you do?

1. Require full disclosure of all fees and side arrangements among and between your TPA and other parties.
2. Require reporting of all funds transfers
3. Realize you are going to have to pay higher per claim fees and/or higher unallocated loss adjustment expenses.
4. Require documentation and reporting on quality measures for all medical care including networks.
5. Be willing to pay more for better outcomes.