Author: Joe Paduda

Jul
30

Where is the work comp insurance industry heading?

Posted by Joe Paduda on Monday, July 30th, 2018 | Comments

Work comp is doing very well – so well that one may want to be a bit nervous.

A couple things you should consider:

Today’s WorkCompCentral arrived with the news that the Hartford’s profits improved markedly last quarter driven in part by “favorable development” in its workers’ compensation business.

Essentially the Hartford determined that it had set aside more funds than necessary to pay for old claims, so a chunk of those funds were removed from “reserves” and became profits.

A bit further down in the Hartford’s filing came a bit more detail, detail that may be illuminating.  For example, “margin deterioration in workers’ compensation and a higher expense ratio” in the company’s middle market sector put a slight dent in that sector’s financial results..

Yet, while work comp renewal premiums for the small commercial sector were down, 4 percent growth in middle market revenue was “principally driven by workers’ compensation” new business.

So, we have better results than expected from old claims, tighter margins, higher expense ratios, and premium growth in a key sector. This may seem inconsistent – but it isn’t.

  • With lower premium rates come higher expense ratios – that’s just math.
  • Lower historical claims costs help reduce current premium levels; insurers may see this as lowering the cost of risk and therefore cut premium rates and/or offer discounts.
  • In turn these lower rates may generate more business especially from employers who want to buy insurance from top-rated carriers.

Quick aside…At Liberty Mutual, work comp accounts for 6 percent of net written premium. As a former Liberty employee, this is a pretty amazing statistic coming from the company that dominated US WC for decades.

From Liberty’s Q1 2018 earnings presentation

In the not-too-distant past, Liberty was at or very near the top of the largest writers of workers’ compensation insurance.  Not anymore.

This from Chubb’s Q2 2018 earnings call (thanks to Seeking Alpha):

Well, the macro picture, you have record low unemployment, which actually can play – cut both ways on workers’ comp. You have less experienced workers on the job, so you have to be careful. We’ve been seeing frequency up until now, frequency of loss has been down. Severity has been reasonably tame. And so overall loss cost trends have been good in comp. I think you have to – in my own mind, the market is reacting to that, the insurers, and comp has become more competitive. And I think you have to be careful that you’re not too aggressive, you overshoot the market.

Work comp premiums for the big carrier were down just under 6 percent this quarter over last, while YTD premiums were slightly higher.

I won’t attempt to link these data points to strategic moves; you can ponder those yourself.

Rather, my sense of what’s happening is some carriers are really trimming back their work comp books, others are growing it carefully, and all are waiting for an indicator that this historically-long-lived soft market is about to turn.

What does this mean for you?

We do know that very few – if any of us – will time that market turn correctly.

That’s the perspective of my alter ego…Captain Obvious!

Jul
27

Friday catch-up

Posted by Joe Paduda on Friday, July 27th, 2018 | Comments

I thought summer was supposed to be slow…

Sorry for lack of posts last two weeks – just slammed with client work.

here’s what I should have been posting on.

Economy drives employment drives workers comp

The economy boomed in the last quarter, with growth around 4 percent, a number we haven’t seen for four years.

Chart from Statista.

That’s the headline; the real story is less positive. Growth was partially driven by:

Here’s hoping things continue without overheating; forecasts aren’t so positive.

Implications – Lots of jobs open means higher wages and incentives for employers to keep workers on the job and get them back to work ASAP.

For those who just can’t get enough of the tariff issue – here’s the Harvard Business Review’s historical perspective.  Yes, I am a nerd.

Heat = more work-related illnesses/injuries

Deadly fires in Yosemite and California and Greece and Siberia and Sweden. A heat emergency in Japan. Temps in LA at record levels – even overnight. Scorching temperatures here in upstate New York.

Yes, climate change is happening. Yes, humans are the cause. And yes, it’s going to impact workers.

If the wet-bulb temperature (equivalent to that recorded by a thermometer wrapped in a moist towel) exceeds 35°C [95 degrees Fahrenheit], even a fit, healthy youngster lounging naked in the shade next to a fan could die in six hours.

Shifts in weather patterns are far more significant than overall global warming as they lead to very hot and dry conditions some places, hot and wet others, and exacerbate storm intensity among other effects.

Kudos to NCCI – they’ve been producing some highly relevant, much needed, and very useful research of late. Detailed, thorough, and diverse, and well worth your careful review.

One different angle is their ongoing work to highlight the good done by the  workers comp industry every day. Today’s installment is another example of this; there’s a lot more recognition that work comp is about the patients and employers.

Well done.

Opioids in the Federal workforce

Thanks to the great folks who handle my social media, website, and all that technical stuff I don’t understand at all, we’ve got video of testimony before the House Committee on Education and the Workforce.

 

Jul
25

Doing diligence on a potential acquisition

Posted by Joe Paduda on Wednesday, July 25th, 2018 | Comments

When they buy a company, investors are betting the story they’re told is accurate, that it fairly represents future opportunities and risks.  They’re betting on management – the people who built the company, that they’re who they appear to be – honest, insightful, decisive, well-connected.

When they get it right, it’s rewarding indeed. But when they don’t, it may be career-limiting.

Investors do diligence – often a lot of diligence – to make those bets as sure as possible. But, most investors aren’t expert in the specific niches occupied by the companies they are buying, so they rely on “Subject Matter Experts.” These are long-time industry people who know the ins and outs; probably know the business and its management; understand markets, regulations, and where things are headed; and have the contacts and relationships who will help give them the real story.

In the ten years or so I’ve been doing this, I’ve learned a lot. Here are a few takeaways.

Dig Deep into the Details

The proof is in the details. Dig deep into the stuff that drives the financial results. Investors are really good at financial analysis, but they don’t understand what drives those finances. Things like procedure codes, billing processes, discount arrangements, fee schedules, workflows and systems connections are where the business succeeds or fails.

Example – Read the actual provider contracts. What do they cover? What are the rates? What is the time frame? Compare the contracts to those provider’s bills – do the billing results match the contractual terms? Is the patient a member of a contracted customer? Did the customer do what was required to “earn” the discount?

If the seller won’t get into those details, you’ve got to ask why. Either A) they don’t have that information available, which is troubling in and of itself, or B) they have it but don’t want to share it, which is also troubling, and/or C) they are paranoid their “secret sauce” will become not-so-secret.

Push, and push hard. Make very sure your client knows exactly why this information is critical.

Pay attention to…

Overnight successes. Businesses that sort of float along, then experience a sudden jump in profits and/or revenues need extra-careful analysis. The seller will claim this was all part of the plan, they built carefully, invested heavily, and now are seeing the benefit of that strategy.

Perhaps…and perhaps there’s been some deep cost-cutting, a change in how they determine what’s revenue and when they can recognize it, a shift in accounting for old receivables, a new billing process. That’s not to say those things are inherently bad, they just may not reflect anything more than a one-time bump, or they may not be sustainable, and/or their suppliers (in many cases these are healthcare providers) may decide they don’t like whatever’s changed.

Vague claims. Stuff like “we keep all our customers”, “our program is clinically based” – where’s the supporting documentation? If the seller says it, they should be able to back it up convincingly.

The SME’s job

The seller will do a fine job of “selling”, my job is to be the realist.

In my view, my job is not to blow sunshine up the buyer’s shirt, but rather to find the potential issues, problems, roadblocks, and concerns and clearly illustrate what they are, the potential implications, and how much of a problem they represent.

There’s a lot of pressure on investors to do deals. They’ve taken millions of investor dollars into their funds, and need to park it somewhere. As potential deals become scarcer and more expensive, the pressure increases.

Strive to be just a bit on the skeptical side, and you’ll serve your client well.

Stick to what you know

I’m often asked “would you invest your money in this business?”  To which I reply, “Look at my investment portfolio and you’ll see why I’m the wrong person to ask about investments.”

Point being, buyers value companies for reasons that escape logic, or at least what I think of as logic.

For example, there’s CorVel. Why this company has a price:earnings ratio of 30 is beyond me. Revenue growth is minimal, operating income grew 10 percent in 3 years…hardly a growth company worthy of that multiple. But hey, what do I know.

Instead, focus on the business itself – let the investors figure out what it is “worth” – they understand valuation, I don’t.

Be clear about your biases

As you know all to well, dear reader, I have strongly held opinions. You should too. Be very careful to support your opinions with facts, based on data, supported by logic. Be transparent to your client.

That doesn’t mean you don’t share your views, just be clear about what they are, and on what they are based. That allows the client to assess how they should value your view on that issue.

One advantage of spending decades in a business is you just know stuff, you see things and instantly have a sense that this is BS, or wow, this is innovative, or huh, that doesn’t look right. You can’t exactly put your finger on it, but it’s there.

Your client is paying you for those decades of experience, the judgment it brings, and must know how you arrive at a conclusion, statement, or opinion. Telling the client that something just doesn’t feel right is fine – but understand they’re going to push you hard to figure out why.

Tomorrow, a couple other things I’ve learned

What does this mean for you?

It’s critical to be critical.

Jul
23

Sloooooow progress in California’s work comp system

Posted by Joe Paduda on Monday, July 23rd, 2018 | Comments

That’s the quick takeaway from a review of CWCI’s just-published report on drug prescription management in the Golden State. (there’s a lot more to this study than this…)

As cognoscenti (a fancy word for nerds) know, the utilization review (UR) and Independent Medical Review (IMR) processes were intended to help ensure patients got the drugs they needed quickly, were protected from dangerous or potentially unsafe drugs, and prescribers would learn what was likely to fly and what wasn’t.

This last was based on decades of experience in healthcare, observing what happens when evidence-based guidelines protected by utilization review processes to encourage/require compliance are put into place. In most every other instance, providers adapted their care models to meet the standards, and after a flurry of appeals at the outset, things settled down a lot.

But, well, hey, this is workers’ comp…

The first two (better care and patient safety) seem to have worked pretty well, but up till now, it appeared that WC prescribers were militant non-learners as the volume and type of UR/IMR requests just didn’t taper off.

My assessment of CWCI’s report is (equivocation alert) prescribers MAY BE changing their behavior – a wee bit. 

Here’s what’s driving my optimistic take (from CWCI):

After the formulary took effect last January, prescription drug requests declined from 44.5 percent to 40.7 percent of all UR decisions in the study sample – a relative decline of 8.5 percent.

I mean, how could one not dance in jubilation, right?

Well, perhaps prescribers have decided to not keep pushing that stone up the hill. Or perhaps it’s just a temporary hiatus.

I’m going to remain optimistic, and you should read the entire report because there’s lots of good info in it.

What does this mean for you?

Less hassle, better care. We hope.

 

Jul
20

The big story – work comp rates continue to drop

Posted by Joe Paduda on Friday, July 20th, 2018 | Comments

Spent most of this week doing a long bike ride with two great friends – riding thru a 90 minute downpour, falling into a mud puddle, and marveling at two century-old engineering feats.

Glad I missed the poison ivy and horse poop…

Work comp premium rates keep tumbling

This is one of those very big stories that isn’t getting near enough attention. This morning’s WorkCompCentral had two stories that highlight just how much the world is changing.

WCC’s Greg Jones (one of the more diligent reporters I’ve read) noted that California may lose it’s place as the state with the highest work comp rates. 

Ohio’s public employers are looking at a 12 percent drop, capping off a seven-year run of decreases that have slashed premiums by almost 42%.

Meanwhile, despite high medical costs and lots of litigation, Louisiana’s rates have also declined some 30 percent over the last decade.  (thanks to LCTA’s Troy Prevot for the head’s up). While the reduction in employers’ and taxpayers’ costs is a very good thing, too-high medical costs and too-long disability duration are problematic indeed. But the story here is rates are dropping despite these significant cost drivers.

The biggest driver appears to be claims volumes – frequency declined 6 percent last year alone. While some argue that frequency is not a number, and therefore isn’t relevant, as we get very close to full employment, the “gap” between frequency (claims per 100 FTEs) and the actual volume of claims becomes pretty meaningless. (cue disagreement, which is welcomed)

What does this mean for you?

Lower rates will force insurers to reduce administrative expenses, overhead, staff, investments in technology.

Lower rates reduce premium taxes, a funding source for regulatory entities.

Historically low injury rates are continuing to drop, reducing the number of claims – which reduces the need for case management, claims adjusting, bill review, UM, peer review, IMEs…pretty much all claims services.

Insurers seeking to cut fixed costs to reduce Unallocated Loss Adjustment Expenses are moving claims to TPAs, a trickle that may become a flood.

Jul
13

Friday catch-up – Hospitals and a BS alert

Posted by Joe Paduda on Friday, July 13th, 2018 | Comments

Glorious week here in New York’s Finger Lakes – high 70s, lots of sun, nice breeze.  I know, Florida friends, you’ll be gloating in February when it’s 10 below and snowing sideways…

Hospitals

NCCI’s just-released research indicates facility costs are rising, driven at least in part by less competition among hospitals. Key takeaway:

Reductions in hospital operating costs do not translate into price decreases. Research to date shows that hospital mergers increase the average price of hospital services by 6%−18%.

Kudos to NCCI for this research and the piece itself. The article is very well-written, concise, and understandable for us laypersons. NCCI has upped its game considerably of late, producing excellent work and explaining what their findings and implications thereof.

I’m going to focus on this in a post next week – there’s a ton of insights here that demand careful consideration from payers and employers.

For those looking to better understand how hospitals set prices, determine what their actual costs are, and how they use data to reduce costs while improving care, read this piece in HealthAffairs.

And there’s this – a hospital in the Cayman Islands is delivering excellent care at a fraction of the cost of US facilities. The facility is fully accredited, provides a simple, bundled price for each procedure (instead of bills for each doctor, facility fee, procedure, implant…) and will be a very attractive option for many Americans with specific health needs.

Medicaid

My bullshit detector went nuts when a press release hit the inbox this week.

In what has to be one of the crappiest, most distorted, unscientific and biased pieces of “research” ever done, a so-called “non-partisan” entity calling itself one of the nation’s “leading public policy organizations” claims:

in some states, up to 70% of able-bodied adults enrolled in Obamacare expansion earned $0 in income

I’m going to dig into this steaming pile of nonsense next week, but for now, know that this is flat out wrong.  There are so many errors, distortions, flat-out wrong statements, conflations, and unsupported conclusions in this “research” it just boggles the mind.

It’s one thing to have principled disagreements on policy. It’s entirely another thing to lie your ass off.

For those interested in real research by unbiased experts, the Kaiser Family Foundation’s recent report on Medicaid Work Requirements is required reading.

OK, rant over – till next week.

 

Jul
12

Health Wonk Review’s July edition is up!

Posted by Joe Paduda on Thursday, July 12th, 2018 | Comments

July’s Health Wonk Review has:

  • intel on how Purdue deceptively marketed OxyContin;
  • the ACA’s role in tackling the opioid crisis via expanded coverage for mental health
  • a great review of so-called “faith-based” alternatives to health insurance

Just in time for your lunch break too.

Jul
12

Workers’ comp drugs – its NOT about the cost

Posted by Joe Paduda on Thursday, July 12th, 2018 | Comments

The reaction to yesterday’s news that pharmacy costs have dropped by over a billion dollars was a bit disappointing – and missed the key takeaway.

That is – we’ve made a ton of progress, and we still have a long way to go.

Instead, some asked “where are the savings going?”, claiming employers and patients aren’t benefiting from the reduced cost.

A Kansas legislator was among those positing that question; perhaps he was unaware that Kansas employer’s premiums dropped 7.6% this year. Kansas’ results mirrored the nation’s and other states:

Of course, there are many other reasons rates and premiums are dropping across the board:

  • a nine-year long economic expansion;
  • a solid job market;
  • continued decline in claim frequency and anecdotal reports of a drop in total claim counts;
  • better control of medical costs; and
  • lots of capacity in the insurance market

are the most significant contributors.

Another critic complained that “the savings are going into insurers’ pockets.” There is some truth to that, as workers’ comp insurer profits remain at near-record levels despite the continued decrease in premiums.

(Re increased benefits for patients, that is a state regulatory issue as indemnity benefits are almost all driven by a formula involving cost-of-living benchmarks)

But the key point is this – work comp has done great work eliminating opioids – and that is wonderful news by any standard.

As CompPharma’s report details, a key driver of the drop in drug costs is lower opioid utilization. That is very good news indeed; fewer patients are getting opioids, and other reports indicate dosages and treatment duration are declining as well. Moreover, the drop in opioid usage in work comp is far greater than the overall decline in drug spend, indicating we are doing a far better job than the rest of the insurance world despite the difficulties inherent in managing drug utilization in comp (no economic levers to influence consumer behavior, few states with pharmacy network direction, widely varying regulatory environments).

For fifteen years I’ve been interviewing the people most responsible for addressing the opioid crisis in work comp. While costs are important, without exception these professionals see their job as improving patient care, reducing the risks and dangers inherent in opioid prescribing, and helping patients recover quickly.

Their relentless focus is leading to healthier patients and lower costs for employers.

We have a very long way to go. While lots of work from lots of people has helped dramatically reduce the initial (or even more problematic second) opioid script, the much tougher challenge is helping long-term opioid patients reduce and end their use of the drug.

Some payers are making solid progress; you can hear from four of them at IAIABC’s annual meeting this fall. I’ll be moderating an intensive review of how these payers are successfully helping patients reduce opioid consumption and get back to being themselves.

What does this mean for you?

Congratulations on making major differences in many patients’ lives. Now the hard work begins. 

 

 

 

Jul
11

A billion dollars and better care

Posted by Joe Paduda on Wednesday, July 11th, 2018 | Comments

Work comp drug costs have dropped by over a billion dollars over the last eight years.

What’s even better news is this has been driven largely by sharply lower opioid utilization.

The bad news is there are still far too many patients suffering from Opioid Abuse Disorder brought on by massive overprescription of opioids.

Across all 29 workers’ comp payers surveyed by CompPharma, drug costs dropped almost 10 percent last year compared to 2016. (Total US drug costs decreased last year by 2.1 percent)

The results come from our annual Survey of Prescription Drug Management in Workers’ Comp, a project now in its fifteenth year.

Payers cited clinical programs as the primary driver of lower opioid and total drug spend. A key takeaway come from payers’ views of formularies:

many respondents did NOT want to abandon their internal formularies in favor of a one-size-fits-all blanket formulary. These payers noted patients are all different, their needs evolve throughout the course of treatment and recovery, and therefore their pharmacy needs would change as well. While they were in favor of managed (state-mandated) formularies for initial fills, they want flexibility to adapt to the patient’s condition and needs without putting undue burden on the prescriber and pharmacy to comply with prior authorization requirements.

The public version of the Survey Report is available here for download; respondents received a more detailed version of the Report.

As the author of the Survey, I’d be remiss if I didn’t thank the respondents who have provided data and their views and opinions over the last 15 years. Their willingness to share their insights and perspectives has gone a long way to helping improve patient care.

I’d also note that work comp Pharmacy Benefit Managers have been largely responsible for reducing employer’s drug costs and opioid overuse. Another way to put this – PBMs have dramatically reduced their revenues by improving their customers’ and patients results.

 

Jul
9

High deductible health plans don’t work

Posted by Joe Paduda on Monday, July 9th, 2018 | Comments

High deductible health plans do not work.

These plans, also known as HDHPs are the bluntest of instruments, intended to make patients more cost conscious and better consumers by making them pay the first few thousand dollars of their healthcare bills.

Instead, patients avoid care they should get, go bankrupt trying to pay sky-high deductibles, and even worse, don’t do a damn thing to get high utilizers to modify their lifestyle or care decisions.

Lazy benefits managers and employers looking for a quick fix to rising premiums continue to tout HDHPs despite the warning signs. Now, over a decade after these plans first became widely popular, some employers are finally getting the message.

I’d go so far as to argue that HDHPs help drive health care costs up; sick folks get sicker because they can’t afford preventive and routine care, while the 20% of members who incur 80% of the healthcare costs blow thru their deductible in March and then have no financial inhibitions.

Research shows most of those high utilizers don’t shop for care. I don’t see this as dumb behavior, rather a result of dumb plan design. If you’ve already paid your annual out-of-pocket maximum, you have no incentive to ask what something costs or even if you need that care.

I’ve been railing about this for years…alas, with the same effectiveness as Cassandra…

So, if you’re looking to benefit design to control costs, what’s a better alternative?

Simple.  Replace deductibles and copays with co-insurance.  That is, have consumers share in the actual cost.  If treatment costs $100, then the consumer pays $20; if it is $4000, then the consumer pays $800.  This will make the consumer cost conscious without breaking their bank.

I understand that this will require the consumer, provider, and health plan to know what the cost of care is, ideally before treatment.  That is another major benefit of a co-insurance based program; it will speed adoption of transparent pricing and make consumers much more discerning buyers.

Yes, keep an out of pocket limit to protect consumers.  High utilizers will feel the pain of paying co-insurance far longer than they do today.  As a result, they will be better consumers overall.

What does this mean for you?

This isn’t that complicated, nor is it difficult.  Health plans that do this will gain a competitive advantage.