Insight, analysis & opinion from Joe Paduda
Thanks to Brad Wright for putting together this week’s edition of Health Wonk Review, wherein he details the details of the latest Republican repeal fiasco.
The post from Roy Poses is worth a close read – the level of understanding among current Administration officials about even the basics of healthcare is, well, low.
There are two big takeaways – the price, and why Paradigm paid so much.
Sources indicate Paradigm has bought Foresight for around $150 million, a huge multiple for a relatively small company with trailing earnings of less than $5 million.
Foresight’s niche is narrow but important – the company’s core business is negotiating prices for implantable surgical devices. More recently the company entered the surgical services business with Encompass, a network of surgeons and facilities.
The announcement was pretty much what you’d expect, but the real news is why Paradigm paid what it did. First, a little history.
I’ll admit to wavering between being impressed with Paradigm and thinking it won’t ever become a significant force in the industry. As noted previously, the company has been around for the better part of three decades, and throughout that time has seemed to be just a year or so away from really breaking out.
Today’s no different.
That’s not to say Paradigm doesn’t have deep expertise and hasn’t produced excellent results for some clients – it most certainly has. The problem is two-fold; the original marketing message is tough – we can manage the really tough claims better than your claims staff can. Hard to see how a claims exec would jump at the chance to show a third party is better at a critical core skill than her or his staff.
The second is what Paradigm missed back then, and I’d suggest still doesn’t understand., Payers don’t like vendors that only solve part of their problem. What I mean is this – Paradigm asks a payer to give them data on claims that meet specific criteria. Then, Paradigm winnows thru those claims, picking the ones it can fix, and sending the rest back.
Wrong approach.
If a payer sends you a big bunch of problems, you should figure out a way to help with ALL OF THEM.
That may be one reason Paradigm recently bought a couple of case management companies; in addition to diversifying revenue sources and adding customers, the deals bring more ownership of nurses who will likely be used to service the cat claims that are Paradigm’s core business. That said, case management is a declining business under strong price pressure – just what you’d expect in a very mature industry.
Which brings us to Foresight.
Diversification, technology, and data on surgeries are all going to help Paradigm diversify even more. And, the surgical network may provide a consistent and growing revenue stream to complement the case management and somewhat-less-predictable catastrophic case business. It’s likely margins in the implant and surgical businesses are going to be much higher than case management and more in keeping with Paradigm’s cat case business.
From this outside perspective, this is the reason Paradigm’s owner Summit paid what it did. They’ve owned Paradigm for almost 2.5 years, and it’s time to get things ramped up for another equity event in the next few years.
What does this mean for you?
Good news indeed for anyone looking to sell their workers’ comp business!
With her announcement that she won’t vote for the Graham-Cassidy bill, Sen. Susan Collins (R ME) has ended GOP efforts to kill the ACA.
She also saved her party from the disaster that would befall it if the bill had become law.
here’s why.
This doesn’t mean future efforts won’t seek to slash coverage for kids via cutbacks in the Child Health Insurance program (CHIP), limits on Medicaid, or thru budget machinations. But these will be much lower-impact, subtler moves that won’t be as potentially devastating to the Republican brand as Cassidy-Graham. CG would have shown core supporters the GOP’s “solution” to the healthcare mess was far worse than the current one.
So, what now?
Nothing much is going to happen with healthcare in Congress for some time. That’s too bad, as ACA needs fixing – namely:
This would go a long way to giving certainty to insurers, certainty that would lower premiums and stabilize markets.
What does this mean?
While the result may be a failure to deliver on a core campaign promise, what’s really happened is the GOP didn’t do deeper and broader damage to itself.
That’s a conclusion, albeit one with caveats, of a just-released study by Princeton University’s Alan Krueger PhD.
Here’s Dr Krueger’s key takeaway, with emphasis added:
about half of prime age men who are not in the labor force (NLF) may have a serious health condition that is a barrier to work. Nearly half of prime age NLF men take pain medication on a daily basis, and in nearly two-thirds of these cases they take prescription pain medication.
Labor force participation has fallen more in areas where relatively more opioid pain medication is prescribed, causing the problem of depressed labor force participation and the opioid crisis to become intertwined.
Implications abound.
For workers comp – despite unprecedented drops in opioid prescriptions for work comp patients, there remains a large population of patients addicted to/dependent on opioids. Moving this population away from opioids will require diverse, creative, and likely expensive services, patience, and persistence.
For the economy – a double whammy of non-productive people means they aren’t generating tax and revenues while consuming lots of resources in the form of aid, government funds, healthcare services, and family income.
For health plans, especially those serving the indigent, a very expensive, and very tough to manage population will increase Medicaid costs significantly.
For opioid manufacturers, shiploads of cash.
The GOP has just eight days to pass legislation to repeal ACA, and the Cassidy-Graham bill is perhaps the most drastic effort we’ve seen to date.
Cassidy Graham would upend the health insurance and healthcare industries almost overnight.
Here’s the quick summary…
The ACA would end on January 1, 2020.
Over ten years, states would lose a total of $215 billion in funding for healthcare.
The federal subsidies that now go to the 31 states that expanded Medicaid would be spread across all 51, making Texas, Florida, Alabama and other non-expansion states big winners. New York, California, Pennsylvania and other expansion states would lose billions.
from CNN…
States that wanted to replace ACA would apply for federal block grants; each would come up with their own programs and approach.
Insurers would still be required to cover any and all applicants.
It’s likely at least 15 million, and probably more than 20 million, would lose coverage.
Implications
The individual insurance markets would be in turmoil starting October 1. Insurers would exit the individual markets as none would want to be the last option for folks desperate for insurance.
Many states would be unable to come up with their own solutions in that timeframe. Smaller states such as Delaware, Montana, Rhode Island and the Dakotas would be hard-pressed to develop and implement a program in 27 months.
The Medicaid programs in big states would be severely disrupted, with potentially devastating consequences for hospitals especially those in low-income areas.
What does this mean for you?
If Republicans marshal the votes necessary to pass Cassidy-Graham, they will blow up the health care industry, with devastating and far-reaching consequences.
Hurricane recovery
Thanks to NCCI for a very timely article by Chief Actuary Kathy Antonello on evaluating construction contractors based on information on experience modification rates.
Key takeaway – “It’s not appropriate to use E-mods to compare the relative safety of employers.”
Very interesting take on efficiency in construction; the Economist notes that the construction industry has become LESS efficient over the last few decades. While this may well be about to change, for those rebuilding in hurricane-ravaged areas, costs will be much higher, reconstruction take longer, and preparation to deal with the obvious impacts of climate change may not keep up with the speed of that change.
Blockchain continues to work its way into the insurance industry. An excellent piece in the Harvard Business Review notes that insurance is especially suited for blockchain. Both are predicated on spreading information, and in the case of insurance, that information deals with risk. Blockchain is uniquely suited to spreading risk as at its core it is a “trust and efficiency engine.”
Key takeaway…
it will require uncomfortable transparency [from established insurers] and price corrections in their business models. This will be toughest on the portions of the industry that are the least differentiated, where consumers often decide based on price: auto, life, and homeowner’s insurance. [emphasis added]
And there’s this telling point, which identifies a key reason insurers should be worried…
trust in business institutions, and the financial services sector in particular, is at an all-time low. While the large banks are at the center of this trust vacuum — with a seemingly steady stream of scandals, such as the recent Wells Fargo account rigging debacle — the erosion of trust is bad for everyone
Ignore at your peril.
Kudos to Louise Norris for her ongoing commitment to educate the rest of us about all things healthcare and reform related.
Today brings us her edition of Health Wonk Review – capping off a summer of never-ending health care legislative maneuvering with not one but TWO Senate bills that purport to fix everything.
One entry ruined my day – hookworm has returned to Alabama as many people can’t afford adequate sanitation – and the government there doesn’t give a rat’s ass.
Read it here!
Disasters are good for the economy – sort of. They are also very likely to be really bad for people.
Combined, Harvey and Irma will cost about $200 billion – or 1.5% of US GDP. That’s a huge infusion of capital and cash into the economies of Florida and Texas – and the other affected southeastern states.
Those dollars will go to pay workers, buy new equipment, replace ruined houses, buildings, furniture, technology, and infrastructure.
What’s not accounted for in the $200 billion figure is the cost – both personal and financial – that these disasters will levy on people involved in rescue, clean-up, and re-building.
One example – the bacterial and chemical stew pervading many areas in Houston will lead to immediate and long-term health problems for residents and clean-up workers alike. Living rooms, offices, factory floors, nursing home rooms, healthcare facilities, schoolrooms and firehouses – many will be polluted, requiring thorough cleaning and decontamination.
The real concern here is will the workers tasked with this job have the training, equipment, and clothing required to do this safely.
caption from photo reads: The #HurricaneHarvey clean up crews at our homes that were hired by management number about 200 and notice that none of them were given #Hazmat suits
Several factors are greatly concerning.
What does this mean for you?
While responsible non-subscribers in Texas will do the right thing, many other non-subscribers will not.
Florida’s a different story, but both states must be vigilant to catch unscrupulous labor brokers.
Is a question asked over and over by pretty much everyone in this and other businesses, but it is especially important in workers’ comp services, where companies and sales people are fighting over what’s been a shrinking pie for years.
And, except in Florida and Texas, that pie will continue to shrink.
New research provides pretty compelling insights into what works, what doesn’t, and why.
Caution – this is ONE study, in a very different culture, of a in a company selling tangible products.
The high-level takeaway…Sales force compensation is a tricky issue, requiring decisions based less on intuition and conventional “wisdom,” and more on hard, quantitative data.
Details (paraphrasing here…)
Salespeople were assigned to groups each with different compensation arrangements. Some people received unconditional bonuses, which were given irrespective of their sales performance. Some received “conditional” bonuses, where compensation was tied to sales quotas under three different treatments: standard, punitive, and real-punitive. In the standard treatment, a salesperson was paid a bonus after achieving a weekly sales quota that was set 20% higher than what that individual had previously sold. The punitive treatment was identical except for the framing: We told salespeople that failing to receive a bonus was a penalty for failing to achieve their quotas. And in the real-punitive treatment, a draw system was used, where payments were made at the start of the week but then withdrawn for those who didn’t meet their quotas.
For the unconditional bonuses, the thinking was these would encourage reciprocity; Salespeople would work harder in appreciation for the firm rewarding them with higher pay. These bonuses were awarded under two different treatments: delayed and immediate. In the delayed treatment the bonuses were communicated to the salespeople at the beginning of the week, and payment made at the end of the week. In the immediate treatment salespeople were simultaneously informed of and awarded the bonus at the start of the week.
Perhaps not surprisingly, the conditional bonuses were, on average, more than twice as effective as the unconditional bonuses… they increased sales by an average of 24%.
But it’s not that simple.
The researchers found that a conditional bonus could potentially demotivate salespeople over time: Salespeople’s performance was higher during weeks of a bonus treatment but lower in weeks after a bonus treatment. This result is consistent with past behavioral research that has found that too much extrinsic motivation may actually lead to a decrease in intrinsic motivation.
Unconditional bonuses tended to be more effective for salespeople with a higher base performance, which supports the idea that high performers generally have more goodwill toward the company and thus are more likely to reciprocate by increasing their selling effort.
Conditional bonuses were equally effective across all types of performers.
What does this mean for you?
Experiment with different approaches. Avoid basing decisions on your gut; rely instead on data.
Big doings at work comp physical medicine management firm MedRisk.
(MedRisk has been a client for over a decade)
Most significant, MedRisk is likely now the largest firm in the sector, passing OneCall’s Align Networks in total revenue. Two factors driving this result; Align dropped the ball on customer service, and MedRisk upped its game considerably.
As I wrote last year,
For years, [MedRisk] had the niche almost to itself, focusing its sales and service attention on corporate buyers. Along came Align Networks, a start-up that concentrated on the desk-level user, delivering stellar service to each and every adjuster and case manager. Align was quite successful, eventually becoming the largest vendor in the PM management space.
A misstep by MedRisk helped Align. Some years ago, MedRisk chose to outsource key functions, including some aspects of IT, billing, and outbound call center functions including patient scheduling. This did not go well, and the resulting dissatisfaction among desk-level users led some customers to switch from MedRisk to Align.
Confronted with the loss of business, MedRisk got back to basics. The lesson was apparent; a dramatic change in customer service was critical. That involved a major shift in understanding about the central importance of the desk-level customer, the provider and the patient, and a recognition that those customers required, above all, personalized service.
MedRisk’s results prove the back-to-basics approach worked; the company has taken major market share from Align, and continues to add new business. Operations expanded, and the company had to lease new space to accommodate the hundreds of new workers.
Now, One Call is all-in on a technology solution, investing millions in a customized application intended to deliver on the “One Call” promise (currently the seven different services offered by OCCM have separate systems and processes). “Polaris” is slated to be “fully implemented” in Q1 2018, although it’s not clear what “fully implemented” means.
I don’t believe “automating” and off-shoring key customer-facing functions is the right answer, not in a high-touch business where adjusters, therapists, physicians, and patients all are key parts of the rehabilitation process.
While many MedRisk people made this happen – including COO (and fellow Syracuse grad) Michelle Buckman, CIO Vic Pytleski, and EVP Marketing Rommy Blum, the effort was led by President Mike Ryan.
Mike is one of the best-liked people in our industry, and most respected as well. Today, MedRisk will announce he is taking over as CEO from founder and Board Chair Shelley Boyce.
I’ve known Mike for years, worked with Shelley and her team for almost two decades, and am delighted for all. They traveled a long road and it is truly gratifying to see MedRisk back on top.
What does this mean for you?
It’s all about customer service.
