Author: Joe Paduda

May
17

NCCI’s take on medical cost drivers, part 2

Posted by Joe Paduda on Tuesday, May 17th, 2022 | Comments

Last week I posted on Raji Chadarevian and Sean Cooper’s excellent presentation at AIS.

Here’s my what-this-means-for-you takeaways.

Drug spend decline

While NCCI’s reporting that dollars for drugs now account for 7 percent of annual isn’t too much of a surprise, there are a couple other factors at play here. First, the older claims are, the higher the drug costs.

During the 18-24 COVID months that were generally pretty awful, a lot of high-severity, higher-frequency jobs disappeared. Along with those jobs went a significant number. of high cost and cat claims (fewer workers; fewer claims). In what could best be described as a mirror image of the snake swallowing the pig (you know, the big slug of stuff/incidents/whatever works its way through the system), we’re going to see a long-term decrease in drug spend due to a decrease of X% in long-term claims incurred during COVID.

Obviously this will eventually work its way through the system…that said, it’s just one more bite out of pharmacy spend.

Similarly, rehab care and skilled nursing dollars will also decline along with home health care.

Peak network

With around 75% of physician and other treater dollars going through networks, we are at – or darn near at – peak network penetration. Some states – NY being a good example – are just not going to get there due to regulations on direction and very strong provider lobbying plus employers and insurers just aren’t pushing changes.

To be precise, that refers to overall network penetration – almost all work comp networks/PPOs have carve outs for specialty services.

I make the distinction because specialty network penetration will increase – at the expense of declining PPO penetration in specialty areas (PM, Imaging, DME/Home Health etc.). This will happen because those service areas lend themselves to more active management, often involve proactive scheduling, and  benefit from focused clinical management.

But, again that’s just one reason PPOs aren’t a growth thing – claims counts are declining and medical costs are flat too…

Oh, and big healthcare systems have A) figured out work comp is the golden goose, and B) are increasingly stingy with their discounts.

So, the average net discount after network fees (!!) is significantly lower than it was even five years ago.

 

 

May
13

Medical cost drivers in work comp – NCCI’s take

Posted by Joe Paduda on Friday, May 13th, 2022 | Comments

Sean Cooper and Raji Chadarevian delivered perhaps the most useful presentation I’ve seen at any NCCI Conference…There’s a LOT 0f important – and very timely – information in their presentation, so I strongly encourage you to watch it  – or watch it again here.

Let’s start with the top line – facilities and physicians (which includes physical medicine as well as MD costs) are by far the biggest chunk of spend. Note that NCCI reports annual drug spend is down to 7% of total spend. This aligns closely with what I’ve been reporting for some time.

The key takeaways…

The discussion focused on medical prices – which are the single biggest driver of total US healthcare inflation (see here for more details on this) – and utilization. Disaggregating cost increases provides/ed the audience with a deeper understanding of drivers – well done.

We are approaching network saturation.

Fully 75% of Physician services were delivered in-network – and, as in-network prices grew much more slowly than non-network, this helped reduce overall medical inflation.

Physical medicine is increasing…which is good.

The cost of physical medicine has been increasing while costs for surgery costs have not. What’s driving PM costs is mostly more utilization – indicated by the light green shading below. That is NOT necessarily – or even likely – a bad thing…A course of PT is way less expensive than the costs associated with a surgical episode. 

Facilities

Sean noted facility costs have been “the biggest driver of increased medical costs in workers comp” – increasing twice as fast as physician services. (Long-time readers will recall I’ve been banging on this drum ad nauseam.)

There are a host of reasons for this – led by consolidation in the healthcare services industry (also covered in detail here at MCM). Net is when a hospital or health system buys physician practices, it gets to add a facility charge to the what used to be just a physician office bill.

Voila!  Instant profit simply by changing the “place of service”. That’s why private equity firms, large health care systems, UnitedHealthGroup, and dominant hospitals have been snapping up physician groups – they are gaming the system.

There’s more to unpack here – which I’ll do early next week.

What does this mean for you?

It’s facility costs.

May
11

Work comp loss drivers…NCCI’s 2021 findings

Posted by Joe Paduda on Wednesday, May 11th, 2022 | Comments

More details from NCCI Chief Actuary Donna Glenn’s presentation yesterday…

Claim costs are driven by employment, frequency (what percentage of workers gets hurt), the cost to provide medical care to those injured workers and the cost of paying their income benefits while off work.

While claim frequency bumped up in 2021, the increase just offset an almost-identical decrease in 2020. When you pull out the COVID stuff, the average annual decline in work comp claim frequency has been 3.8% over the last 20 + years.

This means – in three years there will be 11.4% fewer claims than there are today – that’s one out of ten claims.

Indemnity “severity” didn’t change last year compared to 2020, leveling off after a pretty consistent increase from 2016 to 2020.

Medical “severity” for loss time claims didn’t increase from 2020 from 2021 – it was dead flat – and has been pretty much flat since 2016.

Ed. note – while widely used in the work comp industry, the use of “severity” to describe what is nothing more than “cost” isn’t helpful. Medical severity should be a clinical measure, not a financial one. I would argue that the use of “severity” further distances the industry from increasing its understanding of the role of medical care in workers’ comp.

Glenn attributed the lack of movement in part to a shift to delivering care in outpatient facilities…more details to come in the final presentation today.

What does this mean for you?

Work comp medical costs are NOT increasing – my guess is the major progress most payers have made in reducing drug costs- and more specifically opioid over-use – has been a major help.

May
10

NCCI’s State of the Industry 2022

Posted by Joe Paduda on Tuesday, May 10th, 2022 | Comments

Work comp is still way over-priced, incredibly profitable, and the industry – defined as total revenues – is a lot smaller than it appears.

Those are my key takeaways from NCCI Chief Actuary Donna Glenn’s presentation just completed in Orlando (ed note – this was supposed to be distributed yesterday, but I missed the 10 am cutoff time)

I’m not at NCCI due to other client needs, but the fine folk at NCCI have provided a media feed – thanks Cristine Pike and Dean Dimke…

(Note NCCI has included data from most but not all states and payers; thus I suggest you pay more attention to overall trends rather than specific figures)

Premiums for private carriers were up just a bit last year – less than 2 percent.  Not a surprise as COVID was still rampant although shutdowns weren’t as prevalent…and employment was way up in 2021 compared to 2020.Rates are down in pretty much every state except Hawaii (betting its those damn physician dispensers in Hawaii…)

Overall, premium rates dropped significantly last year – continuing what has become a 9 year trend. The drop was driven by a decrease of one-third in losses, almost all of which was offset by a 28% increase in payroll. Interestingly “rate loss cost departures” i.e. discounts – have grown significantly over the last few years. See the para below for my reasoning as to why this has happened…

Combined ratio was 87 – again a hugely impactful continuation of 8 years of underwriting gains. WC – which used to be marginally profitable – continues to be a huge profit producer – which is why those “loss cost departures” i.e discounts – are growing. Insurers know how profitable work comp is, and know they can make bank even if they drop their rates.

Even better, NCCI projects accident year combined ratios will improve over time for 2020 and 2021… in contrast to reporting carriers’ initial forecasts, NCCI believes ultimate losses will be much lower. (the blue shaded areas above reflect NCCI’s predicted final loss ratios; the grey reflect carrier’s initial predictions and current predictions.)  One can see that carriers’ predictions have consistently been much higher than their final loss ratios – and there’s still more room to decline.

2021’s 25 percent operating gain (!!!) is just the latest in a 9-year string of operating gains. 

Not surprisingly carriers released a shipload of reserves last year – this reflects the disparity between what they initially report compared to what losses ultimately totaled. NCCI predicts there is more favorable development to come – as in a LOT MORE.

That said, NCCI indicated reserves are still $16 billion too high.

Donna Glenn, NCCI’s Chief Actuary, kept referring to these results as evidence of work comp’s “strong financial position”.

I’d suggest that Ms Glenn’s terminology while directionally accurate, is burying the lede.

Which is this:

  • work comp rates are still way too high,
  • carriers are making way too much profit, and
  • the actual industry size is significantly smaller than today’s premium levels suggest.

What does this mean for you?

More consolidation, more rate cutting, more growth for TPAs.

May
9

Wildly off-topic 5…Russia is losing

Posted by Joe Paduda on Monday, May 9th, 2022 | Comments

Putin is losing.

The West is winning.

Ukraine and Ukrainians are what we should aspire to be.

There is no way Russia will “win” in Ukraine; Putin is running out of troops, ships, armor, money and time.

Meanwhile his objectives for the war on Ukraine, namely:

  • easily capture Kyiv and install a puppet government in Ukraine;
  • split the West using his oil and gas as leverage,
  • damage NATO; and
  • scare smaller countries into abandoning the US-led alliance

are further away than ever.

Putin has strengthened NATO and the European Union, unified the West, pushed once-nominally neutral countries including Finland, Sweden, and Moldova into embracing the West, and shown the world that his armed forces are weak, poorly led, poorly equipped, and no match for a country a quarter the size of Russia.

A couple of things worth noting.

It is highly likely US intelligence assets (satellites, NSA, communications intercepts, aerial surveillance) have and are playing a major role in the war (as are the UK’s and almost certainly other western countries’). Reports indicate:

a downed Russian plane (likely a fighter)

Ukraine is showing the world how an incredibly motivated, really smart, and very creative people can defeat what used to be thought of as the world’s second strongest armed forces.

A few examples

Ukrainians have made drones – big ones, small ones, tiny ones; armed ones; ones with cameras and ones adapted to carry explosives; commercially-available ones and military-only ones – a major part of their arsenal.

Much of this is appears to be the work of regular Ukrainians…many of whom were are not in the military before Russia’s attack.

A drone drops what appears to be a mortar shell through the sunroof of a car stolen by Russian soldiers…

A Ukraine-developed anti-ship missile is likely the weapon used to sink two of Russia’s biggest warships and destroy a troop transport.

Now that Ukraine has the latest artillery (thanks to France, Canada, the UK, the US, the Netherlands and other countries) it is using it to deadly effect.

Meanwhile Russia is calling up retired service members to fill “administrative” roles in its army. This shows just how deep into the morass Putin is, and how willing he is to keep digging himself even deeper.

What does this mean for you?

There are so many lessons we can learn from this…

  • preparation and constant attention to detail are critically important and way under-valued,
  • never under-estimate the power of very motivated people,
  • leaders that employ only those that agree with them will fail miserably.
May
5

Will work comp injuries increase?

Posted by Joe Paduda on Thursday, May 5th, 2022 | Comments

WorkCompWire arrived yesterday with the news that new employees get injured much more often than their more-experienced colleagues.

The Travelers provided the research, which confirmed  – and added more detail – to what we already (sort of) knew – about a third of injuries happen to workers with a year or less on the job.

This makes sense; newer workers are less experienced, have had less training, are likely younger and don’t know what they don’t know.

Not surprisingly the incidence rate varies by industry…again from the umbrella people…

Couple additional observations.

  • Construction is a higher-severity industry, making newer workers even more susceptible to longer-term claims.
  • Hospitality, construction, and transportation are higher-turnover industries, making it more likely the entire workforce is less experienced – and more of the workers are in their first year than in other sectors.

And here are related issues that deserve your attention:

  • there’s a lot more turnover in employment than “normal” these days – which means more workers will be in that dangerous first year.
  • construction is ramping up with billions in spending on governmental and private projects.
  • logistics/transportation is under severe stress due to the ongoing supply chain problems

What does this mean for you?

All these factors suggest injuries may bump up later in 2022 and into 2023.

Kudos to the Travelers for the work; this is helpful indeed.

May
3

I’m back…

Posted by Joe Paduda on Tuesday, May 3rd, 2022 | Comments

From a 5 day bike-packing trip from Pittsburgh to D.C. Great to get off the grid and out in the woods/mud/gravel/wind. Really…

So, next week is NCCI’s annual confab.  Looking forward to seeing old friends and colleagues and hearing the latest from Raji Chadarevian and Sean Cooper on medical drivers, Donna Glenn’s State of the Industry report, Roger Ferguson’s discussion of the financial scars left by COVID, and the ever-entertaining and informative Bob Hartwig.

Also on the agenda is Katie Williamson’s assessment of catastrophes’ impact on workers comp. As a long-time believer in anthropomorphic climate change, I’m looking forward to Ms Williamson’s comments (which will cover much more than weather and climate).

Also just out from our friends in Florida is a discussion of Medicare fee schedule changes and attendant impact on workers’ compensation. While pretty deep into the nerd zone, this is one of those “I wish I’d known this ahead of time” things you may reflect back on when wondering why costs changed/prices shifted/utilization bounced up.

Couple quick hits…

Some states are directly tied to CMS so when CMS changes, WC Fee Schedules quickly follow suit. However, other states are indirectly tied, use part of CMS’ methodology, or factor CMS in to their calculations.

Pic courtesy NCCI

Facility rates will also increase – by around 2.5%. No surprise there – although one can expect higher inflation in Florida because…well, it’s Florida.

Congratulations to Carisk’s Alana Letourneau MD MBA on being named a 2022 Rising Insurance Star Executives 35 Under 35 Award winner. I’ve worked with Dr Letourneau in the past; she is insightful, deeply committed to her work, practical and an excellent communicator.

While I was gliding along the C&O canal last week, WCRI was publishing Karen Rothkin’s annual guide to workers’ compensation laws and regulations.  Free to members and well worth the investment for non-members.

Ok, back to catching up on work stuff.

 

Apr
19

Quick updates

Posted by Joe Paduda on Tuesday, April 19th, 2022 | Comments

Quick as in this won’t take up much of your time, and “‘quick” as in how fast NCCI has published useful data.

NCCI’s Medical Indicators and Trends dashboard has been updated to include data up to September 2021…you can access it here. Kudos to NCCI for the timely updates; the fresher the data, the more actionable it is.

Couple key takeaways.

First, those darn facilities.

Ambulatory Surgery Centers (ASCs) and outpatient hospital care…

First, note that hospitals’ outpatient facilities account for almost one-fifth of all work comp medical payments…

while ASCs account for one-fourteenth of medical spend.

A big part of that differential is the cost of surgery…which cost about 70% more in hospital outpatient facilities than in ASCs.

Before anyone jumps to any conclusions, its critical to understand the nuance here…

The Florida WC fee schedule is very much slanted to benefit hospitals at the expense of everyone else (physicians in the Sunshine state have been screwed by the Three Member panel for years, while hospitals have been treated like royalty).

Second, ASCs do not handle complex cases and patients with significant health problems/co-morbidities…these patients must be treated at faciliteis that have access to emergent care resources incase something goes pretty wrong during or after surgery. So, case-mix is different.

More…

COVID’s impact continues…active claim counts were down an average of 13% from 2019 to 2020

And speaking of the guest who refuses to leave, this came across my virtual desk from a colleague who attended last week’s RIMS meeting…

I know of several folks who tested positive post-RIMS; if you went, please get tested.

Finally, Washington Labor and Industry is looking for physicians in various occupational medicine and related specialty positions…

Washington has been a leader in evidence-based policy related to injured worker care for injured and ill workers. There is no private workers’ compensation insurance in WA, as such, we are essentially a single payer system for work related injuries and illnesses.  We look at the workers compensation health care delivery system as a public health opportunity to prevent the disability that often results from injuries in the workers’ compensation system.
The work life balance opportunity is fantastic, and the salary range ($179-235,000) is very competitive for a public service physician position.

What does this mean for you?

Quick access to actionable data is great; actually acting is even better.

Apr
14

Moves and Implications

Posted by Joe Paduda on Thursday, April 14th, 2022 | Comments

Two things are happening that provide yet more evidence of rapid evolution in workers’ comp.

AFGroup grows

Yesterday AFGroup announced it is acquiring work comp insurer AmeriTrust. Located down the road from AFGroup, AmeriTrust is also focused on work comp and provides insurance in other P&C lines as well.

AmeriTrust started out as Meadowbrook, and grew from acquisitions over the last 25+ years. It carries an A- rating.

AIG completing transition of claims to GB

Not announced – at least externally – was the news that AIG’s internal managed care company – HDI – will be shutting its doors this summer as its functions transition to Gallagher Bassett.

This follows AIG’s earlier decision to move its internally-managed claims to the giant TPA. Notably, I asked AIG directly about this a couple months ago, and in part its response was:

AIG will continue to handle major loss and specialty claims and medical management

Evidently that is NOT the case, as all HDI employees – the people who handle telephonic case management, UR, peer review and other functions – will no longer be employed after July 1 2022 (except for a few staff who will remain on the job a bit longer).

While hair-splitting might indicate AIG meant to state medical management for major loss and specialty claims would still be “handled” by AIG, clearly that is NOT what is happening…rather GB will be assuming all medical management responsibilities in addition to handling claims.

Of course this just makes sense…you want your claims and medical management to be closely aligned.

That said, I’m not particularly enamored with GB’s medical management…there’s way too much emphasis on/use of percentage of savings-related services and fees. Notably GB has used Coventry’s “outcomes based network” for some clients – and there’s some evidence that network delivers better outcomes. (I’ve written lots about this here; briefly most employers and insurers using TPAs are not focused on the right managed care models, metrics, or incentives.)

Why this is happening…

Regular readers will not be surprised by these two events as they are simply rational moves made by payers in a declining, highly mature industry. AFGroup gains additional scale, will likely see an earnings bump due to synergies, and adds market share in some sectors/areas.

It is also one – and I would argue the smarter – of the two main ways to grow. Buying a competitor adds a lot of growth quickly, and (hopefully) at a lower price than buying share by under-pricing competitors to win share organically (by selling more business)

AIG just reduced its unallocated administrative expense and future capital investment requirements, a smart move when you expect your budget for capital investments to shrink every year for the foreseeable future.

What does this mean for you?

Grow or sell.

Apr
12

Wildly off-topic 4…

Posted by Joe Paduda on Tuesday, April 12th, 2022 | Comments

The war in Ukraine has entered what could be an even worse phase, primarily because Putin cannot afford to admit what has turned out to be a monumental mistake.

Russian rulers that screw up this bad sometimes end up dead – and not by suicide. Most recently Stalin thought he was about to be shot when the Germans invaded in 1941; Czar Nicholas II and his entire family were slaughtered during World War I.

And that, dear reader, is why Russia is “regrouping and resupplying” in preparation for a much-more-limited battle to take and hold territory in eastern Ukraine near the Russian border.

That is NOT to say this will be less intense or awful than what’s already happened – in fact the opposite appears likely. Putin has appointed a leader for his war on Ukraine – a general who oversaw the genocide in Syria, mass destruction of entire cities, towns and villages, and use of chemical and incendiary weapons against civilians.

No, this is going to be worse than we could imagine.

As far as “regrouping” goes, there’s a lot more to this than just getting a couple nights sleep, a hot shower, and some more gas and bullets. The Russians have two basic problems:

  1. not enough soldiers and
  2. a really bad supply situation.

Soldiers

There’s pretty credible data indicating the Russians suffered about 50,000 to 60,000 casualties so far – in six weeks of fighting. We don’t know precisely how many were killed, wounded, or taken prisoner, but that is a really high casualty count, so high that it renders a lot of the Battalion Tactical Groups that invaded “combat ineffective”.

Other evidence indicates Russia is trying to solve this by:

  1. calling up more recruits;
  2. using mercenaries (e.g. the Wagner group);
  3. stripping troops from other areas; and
  4. asking their allies to send fighters (Syria, Chechnya etc).

That’s not going to make much of a difference; recruits need a lot of training or they’ll just get in the way and do stupid stuff that results in them and others getting lost, hurt, in accidents, or killed.

There aren’t enough mercenaries or “volunteers” to make much of an impact.

Soldiers need a LOT of training to become effective, and mixing together units with diverse abilities requires a LOT of careful planning and oversight, two things in which the Russians have been notably lacking.

Supplies

see here.

Strategy

Russia relies on Battalion Tactical Groups, which for non-nerds is a name for a unit that includes tanks, infantry, and artillery – along with support elements (medical, logistics/transport etc). Without getting too deep in the weeds, BTGs have a ton of firepower but relatively few infantry. That’s fine when you are moving fast, but is very much NOT fine when you are stuck on roads and need infantry to protect your vehicles from enemy infantry.

Now that most of the BTGs that invaded are in pretty rough shape, Russia will have to mush together units that haven’t worked, trained, or operated together. This will be a big problem.

The other probably bigger problem is BTGs are NOT what you want to use in urban setting – all those vehicles are sitting ducks, and the lack of infantry makes them even more vulnerable. Since Russia appears committed to destroying cities, this leaves them with one option.

Sit back and level cities with rockets, bombs, and artillery.

Devastation in Kharkiv

This is why things are going to get awful fast.

What does this mean?

There will be a global food shortage that will likely lead to famine in Africa.