Continuing my predictions for workers’ comp in 2019, the first five were Wednesday.

But before I do, you may want to read this on the fallacy of so-called “experts” – I occasionally think I am one. (thanks To Tom Lynch of Lynch-Ryan for the link)

6.  The “advocacy” claims model will gain a lot more traction, as more employers, insurers, and TPAs embrace treating “claimants” as actual real people with medical and disability problems.

The problem is – how do we track this? That’s my challenge, but I hope you will let me know of payers embracing the model!

7.  “Opt-Out” will not gain traction.

Allowing employers to “opt out” of workers compensation is a solution in search of a problem – overall work comp is working pretty well, costs are under control, employers don’t see it as an issue, most patients recover and get back to work.

Most importantly, there is no significant political constituency that cares enough about it to make it happen.

Promoted by ARAWC and a few stakeholders invested in managing opt-out business, this isn’t going anywhere. Change does not happen unless there is a problem that needs fixing, and work comp’s problems are tiny in comparison to other issues confronting state legislatures…taxes, school funding, gerrymandering, Medicaid expansion, rural hospital funding, industrial and economic development, natural disaster preparation and recovery…

(Good friend and IAIABC Executive Director Jennifer Wolf Horesjh has a slightly different perspective…you can listen to Jennifer’s podcast here.) . She notes the advocates are working diligently to promote Opt-Out/Non-subscription.

8.   Service companies that deliver best-in-class customer service – and build that into their branding messaging – will win. 

In a commoditized business (which is how most buyers view most work comp services) customer service is critical to success – but most companies in commoditized businesses don’t understand this.

I’d go a step further – because workers comp is a declining, industry, being known for delivering great service is essential to survival.

Yet many businesses just don’t understand this, or if they do,

• they haven’t figured out how to deliver great service,
• or if they do deliver great service they fail to build that into their branding efforts
• if they even have anything that remotely resembles “branding.”

We will be doing some interesting research on this later this year which should help determine a) if my prediction is accurate, and b) what works.

9. More success in reducing long-term opioid usage by more payers.

We’ve learned that diligent, persistent, intelligent and caring approaches to managing chronic pain and long-term opioid usage produce results. The State Funds of California, Ohio, and Washington along with Sedgwick are a few of the payers achieving remarkable success in helping patients handle their chronic pain while reducing their opioid usage.

Vendors including Carisk are also delivering solutions to this knottiest – and most problematic – of work comp problems.

10. Payers will implement business models and processes using Artificial Intelligence  

These will include some or all of these:

• claims intake and triage;
• fraud/waste/abuse triggering and assessment;
• patient and provider communication;
• clinical assessment, including utilization review;
• policyholder communication;
• and more I can’t think of.

That’s it for this year’s predictions. So, what say you?

If there was ever an impossible-to-predict year, 2019 is it.

An unstable White House, divided Congress, uncertain-at-best economic outlook, contentious relations with Russia, China, and North Korea, Brexit…jeez I yearn for the days of boredom.

But, far be it from to miss an opportunity to demonstrate how fallible I can be, so here goes.

1. The work comp insurance market will harden – a little.

Over the last few years as more capital came into the sector, profits zoomed up, and medical cost inflation remained relatively tame, rates kept coming down almost everywhere. That can’t last, and I expect the insurance market to harden a bit. Specifically, we’ll likely see rates ticking up just a bit by the end of the year; earlier and more in individual states and for specific industry sectors.

This has been a very long soft and profitable market, and if we’ve learned nothing else, it is that the industry is adept at ending prosperity.  Watch quarterly rate reports from MarketScout and others to monitor this.

That said, I’ll hedge my bet on the upside, because…

2.  A very big external event/issue/mess will affect the economy – and thus workers’ comp

There’s something(s) scary behind the curtain.

By the end of 2019, we’ll see an economic recession, change in the resident of the White House, international crisis(es), and/or other really big event that will rock the economy and likely be felt more severely in specific industries – perhaps logistics, manufacturing, energy, construction. This will lead – over the slightly-longer term – to significant changes in claiming behavior, claim counts, claim frequency in the most-affected areas.

3. There will be significantly fewer M&A deals in work comp services – and those deals will be either pretty small or really big

While this is a gimme, I’m highlighting it more to get your attention than to come out with a bold prediction.

Workers’ comp services is a highly mature industry. As in all mature industries;

• Scale matters to gain efficiencies, reduce operating costs, gain leverage over vendors
• Margins shrink as competition is brutal
• Company growth comes from taking share from competitors – or buying them and/or diversifying into other verticals

Also, most of the biggest players are owned by private equity firms, carry big debt loads, and are tasked with growing a lot – fast – to give their owners a big return on their investment. And all this in a declining industry.

So, I would not be at all surprised to see Sedgwick buying up another large TPA, Mitchell moving aggressively into networks, Paradigm seeking a merger with another big player.

There are a lot of smaller companies that the big ones will try to buy to add revenue and margin. Owners of those that sell will do pretty well  – as long as the deal gets done before something big and bad happens.

4. Facility costs will be the new focus for payers and service companies

I’m going to write a series of posts on this in a bit, but for now – pay attention to hospital, Ambulatory Surgical Center, and similar cost areas. These entities are eating up more of the services pie, are very, very good at “revenue maximization”, and know workers’ comp is a soft target indeed.

And, most payers are woefully unprepared.

That has to change, and fast. Payers will be seeking out, and contracting with, vendors who can help them better manage facility costs.

5.  New business models for Pharmacy Benefit Management will gain traction

Expect to see much more focus on transparent pricing models, as the current business model is unsustainable.  Revenues are down by double digits over the last few years, the administrative burden – driven by more formularies and ever-increasing regulatory requirements – is increasing, and PBMs are consolidating like mad to stay financially viable.

At the same time, the transparency movement is gaining traction in the real world (that is, outside workers’ comp).

Different service models, different pricing methodologies, and an openness to new ideas from PBMs and payers alike will come in 2019. Several payers will adopt “transparent”-type contracts in 2019.

Tomorrow – the other 5.

Yesterday I recapped my first 5 predictions; today it’s the second 5 (predictions and details are here).

Most times I’m right, sometimes I’m not – at least that’s what I want to believe.

I’ll let you be the judge – here’s how I did on my predictions for 2018.

A lifetime ago here’s what I said would happen in 2018.

BTW I’m writing this from an airport – jeez I can’t stand Christmas Muzak. Ugh…

1. M&A  – specifically big deals – will increase.
   I expect we’ll see more very large transactions this year, mostly driven by strategic purchases of other companies. Work comp is a very mature industry, scale and size matter a lot, and that means getting bigger is key.  Expect to see several billion-dollar plus deals in the service sector.
   Verdict – correct – The big ones – Paradigm, Genex, Sedgwick plus Adva-Net, MCN, and Ascential Care make this a yes.
2. The (work comp insurance) market will stay soft.
   Claims frequency continues to decline, medical costs are pretty much under control, margins are healthy, and there’s still a lot of allocatable capital in the industry. Unless there’s some major  – as in huge – crisis I don’t expect a hardening of the work comp insurance market.
   Verdict – correct. Prices have been coming down along with rates. WC is a bit of anomaly, as other P&C lines have seen slight price bumps.
3. Cost containment’s focus will shift to facilities and hospitals.
   Hospitals are increasingly vulnerable due to consolidation among payers, reductions in governmental program funding (thank you Trump Tax Bill), changes to Medicare reimbursement, and the systemic shift of care to lower-cost settings.  Facilities have already – and will continue to – look for revenues from payers less able to reduce reimbursement. That’s us, kids. Expect to see payers more closely analyzing facility costs, looking for solutions, and implementing programs focused on the issue.
   Verdict – not really. Payers aren’t paying near enough attention to hospital and facility costs. Yes there are some good efforts in place… That said, the deterioration of WC PPO discounts along with what can only be described as complacency on the part of many payers makes this the fastest growing – and least controlled – part of the claims dollar.
   Time to get off the couch folks.
4. TPA growth will accelerate.
   Driven primarily by work comp insurers’ outsourcing. With a soft market, there’s little incentive for employers to self-insure, but the long-term decline in claims frequency is driving down insurer claim counts. Some insurers are making the strategic decision to shift claims to reduce fixed costs and capital investment requirements. Expect the big four TPAs to add significant new business from insurance companies and similar entities.
   Verdict – correct. I’m hearing insurer share of TPA business is up to about 15% for most, and growing. That growth will continue (see predictions for next year).
5. Tele-everything will take off
   Tele-triage, -medicine, -rehab, etc is going to grow quickly. Expect lots of activity from companies big and small; Concentra, MedRisk (HSA client), CHC Telehealth, Coventry, Work Comp Trust of CT and others are pushing this care delivery model hard – as they should. Expect thousands of “visits” will logged by the end of 2018.Verdict – correct, with a minor disclaimer. Growth has not been as rapid as many thought – but it is still pretty significant. More and more announcements are coming pretty much every week, and I’m hearing some of the bigger entities out there are finally getting significant traction in rehab, triage, and primary care for low-acuity conditions.

Later this week – the second 5.

Pharmacy costs are dropping, imaging is not an issue, physician expenses are growing modestly, and while PT payments are going up a bit, much of that is fee-schedule driven.

The problem area – and it is a big one – is facility cost. (There’s another, more insidious problem we’ll get to next week.)

A recent HealthAffairs article highlighted the facility problem; the median price paid by auto insurers and other non-conventional commercial insurers was 2.8 times Medicare reimbursement in 2010, and 3.8 times Medicare six years later.

First, what are the factors driving this?

• The hospital/health system industry is massively consolidating, and consolidated markets are higher cost markets. Simply put, market share = pricing power for hospitals.
• Medicare reimbursement is not increasing, and neither is Medicaid. Governmental payers account for more than half of most hospital’s patient loads, so facilities need to find other revenue sources that pay more.
• Not-for-profit hospitals are not doing well financially – so they are looking for nickels in the couch cushions.
• Niche payers – like auto and workers comp – are the softest of targets due to a) little buying power and b) inconsistent ability to direct and/or “manage” care.
• Many facilities are investing heavily in outpatient facilities, places where a lot of work comp patients seek treatment.
• Fee schedules in some states – we’re talking about you, Florida – can be highly lucrative and/or are easily gamed
• Health systems are buying up physician practices, so the care delivered in those practices now comes with a facility bill as well as a procedure cost.

It’s refreshing to see this problem hit the real media, but many payers have been quietly alarmed about facility pricing issues.

Unpacking the HealthAffairs article, there are a few key takeaways.

1. The study focused on Florida, which is hugely problematic. It reminds us that when you’ve seen one state, you’ve seen one state. So, payers need solutions targeted specifically to each jurisdiction.
2. That said, for-profit systems are way more costly than not-for-profits.
3. This is a price issue.
4. Network direction is hugely important. There are plenty of sources to identify lower-cost facilities, sources that most work comp payers don’t seem to be using.

What does this mean for you?