Author: Joe Paduda

May
4

Workers comp pricing – where’s it headed?

Posted by Joe Paduda on Wednesday, May 4th, 2011 | Comments

After my post yesterday, I received a couple of ‘what are you smoking’ messages from industry colleagues reacting to my note on firming pricing for work comp premiums. (in fairness, I was reporting on a MarketScout study…)
Well, here are a couple other news items that may indicate where pricing is heading.
From Fitch Ratings (via PropertyCasualty360) comes this rather alarming item:
“Workers’ compensation saw the most severe underwriting losses, the report notes, with a combined ratio of 113.3. [emphasis added] “While the workers’ compensation line benefited from reform efforts in various states and continued declines in claims frequency, claims severity in this segment has steadily trended upward,” Fitch notes. The rating agency adds that revenue was hurt by exposure declines as employment levels and payrolls fell during the recession.”
Now that employment and business activity is picking up, I expect we’ll see a bump in frequency as well – not a structural change, but a reaction to faster pace of work, more temps working in unfamiliar jobs, more overtime. This, combined with the tough employment market for the long-term unemployed (can’t go back to work if there aren’t any jobs you are trained for) will likely result in a double whammy – more claims, and more severe claims.
Add to this the recent heavy losses due to catastrophes abroad (Japan) and at home (flooding, tornados) and the financial implications thereof, and it looks like work comp carriers and self insured employers are going to be paying more for reinsurance and stop loss coverage.
In ‘normal’ times a combined ratio of 113 would be tough enough, but with interest rates at near-historic lows and an uncertain investment environment, work comp insurers – and reinsurers – will be hard-pressed to make up the losses with investment income.
What does this mean for you?
A hardening – but not yet hard – market looks increasingly likely this year.

May
3

What happened last week?

Posted by Joe Paduda on Tuesday, May 3rd, 2011 | Comments

A family matter required my full attention last week, which was why you didn’t see any new posts on Managed Care Matters. A lot happened which we’ll reprise here quickly.
Alex Swedlow of CWCI published another report on the ongoing disaster in California, namely the rampant overuse of narcotics by workers comp claimants. This latest update focused on the use of fentanyl, a narcotic that is between 75 and 100 times more potent than oral morphine.
Fentanyl is NOT indicated for musculo-skeletal injuries, yet it was prescribed for almost 3500 claims out of the total population of sixteen thousand plus claims. Fourteen hundred claims with the diagnosis of ‘medical back problems without spinal cord involvement’ were prescribed fentanyl.
As with the top opioid prescribers, the top ten percent of docs writing scripts for fentanyl wrote the vast majority – in this case 84% of all scripts came from 917 docs, with the average doc writing over fifty scripts for fentanyl.
Actiq and Fentora are orally-administered versions of fentanyl – and are NOT FDA approved for injuries or conditions occurring in workers comp. Nevertheless, Swedlow et al found 77 claimants had scripts for these two wildly expensive drugs.
The ongoing effort to reform work comp in Illinois seems to be moving more sideways than forwards, with competing proposals and bills, intensive lobbying, and a bit of disarray on the business side all contributing to a very, very murky picture.
Meanwhile, there was a bit of good news on the work comp pricing front, as MarketScout reported that they are seeing more favorable pricing trends of late with rates essentially flat in March after pricing firmed in previous months. This mirrors news from the broader property and casualty lines, which, while still pressured by abundant capacity, seem to be showing more resistance to price concessions.
Finally, thanks to Sandy Blunt for the tip – USAToday ran an editorial last week noting 18,000 people a year die from prescription drug abuse. Eighteen thousand.
For the first time in many years, MCM won’t be reporting ‘live’ from the RIMS conference. Too much going on to attend the annual property and casualty confab – work and the west coast location – and the conflict with NCCI’s annual issues symposium later this week make it impracticable to get to Vancouver.
For those going to RIMS, have fun in Vancouver – and make sure to try the sushi – it’s outstanding.

Apr
28

HWR – spring is here!

Posted by Joe Paduda on Thursday, April 28th, 2011 | Comments

The Incidental Economists have discovered that spring is in the blogosphere, with good and bad implications. Check out their edition this morning.

Apr
22

Florida’s dispensing legislation clarified

Posted by Joe Paduda on Friday, April 22nd, 2011 | Comments

There’s a good bit of confusion out there about the two physician dispensing bills on the table in Florida.
There are two separate issues here that are often conflated in the media.
First are the pill mills – those storefronts that dispense millions of doses of OxyContin and other narcotics to anyone and everyone who shows up. Florida’s got a well-deserved reputation as the OxyContin supplier to the nation – due almost exclusively to the pill mills.
pillmill2_754502c.jpg
Second is specific to workers comp – according to NCCI, physicians dispensing drugs to comp claimants added $62 million to employers’ costs last year – with no measurable benefit to claimants, employers, or anyone else but the dispensing physicians, drug repackagers, and dispensing companies.
The House version, which passed yesterday in a near unanimous vote, would ban physician dispensing of Scheduled drugs – mostly narcotics, anti-depressants, and muscle relaxants, but allow continued dispensing of non-Scheduled drugs. This bill now moves to the Senate, where a somewhat different ‘pill mill bill’ (SB 818) is under consideration.
Another Senate bill (attached to the budget resolution) is designed to close the loophole that enables physicians dispensing drugs to work comp claimants to charge prices far above retail pharmacies’. This issue has a far smaller constituency, isn’t really recognized as an issue by anyone but a few employers and comp payers, and many seem to think that the House bill would “fix” the work comp problem.
Both bills are desperately needed.
My bet is the politics are such that we’ll see the pill mills banned and no action to fix the work comp problem.

Apr
21

A hardening workers comp market?

Posted by Joe Paduda on Thursday, April 21st, 2011 | Comments

Conditions look ripe for a hardening of the workers comp market later this year. I’ve been known to get just a bit ahead of myself in my predictions about lots of things – and this time may be no different. That said, the stars look to be getting closer to alignment, with profits up, underwriting losses increasing, and medical costs heading north as well.
Yesterdays’ PropertyCasualty 360 brought news that P&C insurers’ “2010 net income rose to $34.7 billion from $28.7 billion the year before, the industry’s net losses on underwriting for the year grew $7.4 billion compared to 2009.”
So, you say, how could the market be hardening be income is going up? Doesn’t that lead to more entrants to the market, more capital chasing less business?
Well, perhaps. But there’s a couple other things going on that weigh against a soft market.
First, insurers’ results aren’t very good. Last year’s 6.5 percent margin compares poorly to 9.1 percent, the average for last fifty years or so. As investors like to see a nice steady improvement in margins and a rosy outlook, those numbers are likely going to discourage the big money folks from allocating billions to the P&C insurance business.
The news from California isn’t encouraging either. The state fund’s loss ratio is above 157%.
157%.
Nationally, NCCI reports the picture is getting increasingly gloomy. This from Joan Collier’s report:
– After very minor underwriting losses in 2007 and 2008, the combined ratio for workers’ compensation (private carriers) shot up nine points in 2009–the largest single year increase since the mid-1980s.
– Deteriorating underwriting results, combined with a record low interest rate environment, left the line in an only slightly better-than-break-even position after investment income is considered.
– Combining the underwriting loss with the investment gains, the result is a pre-tax operating gain of 1.6 percent, the worst result since the 0.9 percent gain of 2003.
When you add a strengthening economy, growth in employment, and a faster pace of work – and the likely outcome of all that, which is an increase in claim frequency, coupled with the increased severity we’ve been experiencing for some time now, and the near-term outlook for workers comp doesn’t look so bright.
What does this mean for you?
A tighter market by the end of 2011 and increasing prices.

Apr
20

Prescription drug abuse – are you complicit?

Posted by Joe Paduda on Wednesday, April 20th, 2011 | Comments

This morning’s NYTimes has a heart-crushing story about a town in Ohio devastated by abuse of OxyContin and other prescription narcotics.
Here’s what prescription drug abuse has done to Ohio.
– in 2007, deaths from prescription drug abuse (PDA) in Ohio surpassed deaths from motor vehicle accidents.
– more people died from PDA in Ohio in two years than died in the World Trade Center in 2001.
– almost one in ten babies born in Scioto County tested positive for prescription drugs.
Around the nation, the numbers are equally terrifying.
– Prescriptions for opiates (hydrocodone and oxycodone products) went from 40 million in 1991 to nearly 180 million in 2007
– The U.S. consumes 99 percent of the world total for hydrocodone (e.g., Vicodin) and 71 percent of oxycodone (e.g., OxyContin).
– PDA grew by 400% from 1998 to 2008. Four hundred percent.
And that’s just the statistics.
There’s no figure, no number or percentage, that can describe the pain felt by parents, spouses, siblings who lost someone to PDA.
These abusers are getting the drugs from somewhere, and some portion of the drugs that are killing these people are paid for by insurers. At some point, some enterprising attorney is going to ask the question; “What did you know about this person’s drug profile, when did you know it, and what action did you take?”
Play that conversation thru in your mind.
Which leads to the question, what are we going to do about it?
And more precisely, what are YOU going to do about it?
If you work for an insurer or TPA, are you monitoring potential PDA? Looking for possible abuse or diversion? Tracking provider prescribing patterns? Identifying claimants at risk for doctor shopping or use of multiple pharmacies?
Or are you thinking about it, debating, discussing, having meetings and writing memos? Getting ready to get ready?
Not only is there a societal cost of PDA, there’s also a fiduciary obligation. Payers have the technology, data, and analytical abilities to identify potential PDA. It’s time to stop ignoring the problem, get off our collective butts, and take action.

Apr
18

Controlling Medicare costs – Obama v Ryan

Posted by Joe Paduda on Monday, April 18th, 2011 | Comments

Last week we saw two starkly different views of how to control future costs of Medicare. President Obama is seeking to use the negotiating and regulatory power of government, while Rep Ryan wants to abandon any pretense that government can control costs and cede responsibility to individuals and private industry.
The contrast strikes at the heart of the current political divide; what is the role of government in our society.
Rep Ryan’s approach is to get government out of the health insurance business entirely, passing responsibility along to private insurers. In 2022, Medicare recipients would get a check/voucher for $8,000, (based on CBO estimates of Medicare’s average per-beneficiary funding). They’d then have to buy insurance with the eight grand, probably from private or not-for-profit health plans. There’s no way that would cover the entire cost; the CBO estimates that under the GOP privatization plan, the average health insurance policy would be more than $20,000 per year, so the average senior would have to pony up the additional twelve grand.
There are a few other complicating factors not discussed in Rep Ryan’s proposal. Here are the most ‘complicating’ ones.
– What about seniors with pre-existing conditions? What insurance company would want to cover them? Sure, there’s a mild risk-share arrangement in Ryan’s plan, but I seriously doubt don’t know that any insurer would willingly enroll a senior with hypertension, history of melanoma, signs of memory loss, and osteoarthritis.
– Who’s going to help seniors understand their options and ensure they are treated fairly by their insurers? If there isn’t a government regulatory and watchdog function, are we to rely on private insurers to police themselves? Really?
– When costs go up faster than the overall rate of inflation, what’s to be done? Ryan’s plan caps annual increases at the overall inflation rate; medical inflation is usually two to several points higher. We’ve already seen private insurers can’t control costs (or at least haven’t been able to so far), so if anything costs may go up even faster.
To Ryan et al, these are beside the point. His plan is designed to get government out of the health insurance business, and let the chips fall where they may. His plan doesn’t address these issues, and I seriously doubt he or his fellow Republicans have any intention to address them.
President Obama’s strategy is markedly different. His vision is of a more energized and focused Federal approach using the government’s leverage and regulatory power to control cost and improve outcomes.
As a start, last week the President appeared to call for the Feds to negotiate drug prices with big pharma; strengthen, greatly increase the power, and enlarge the role of the Independent Payment Advisory Board; and speed up adoption of new models to deliver care.
Notably, the President’s IPAB would make significant cuts whenever Medicare spending rose more than the increase in gross domestic product plus one percent. And, if Congress failed to act to control costs, the Secretary of HHS could act independently to initiate changes in Medicare. Finally, the IPAB could sequester Medicare funds if neither Congress or the Secretary acted.
What does this mean?

Well, at the most simplistic level, both plans would control costs by limiting future cost increases by capping future spending.
But there are two markedly different ways to do that. Ryan gets government out of the insurance function, while Obama calls for a more activist, engaged, and assertive role for the Feds.
This will be interesting.

Apr
15

What to do about Managed Care Matters?

Posted by Joe Paduda on Friday, April 15th, 2011 | Comments

Hard to believe, but it’s been six-and-a-half years that I’ve been writing, and some of you have been reading, Managed Care Matters. In that time, I’ve done over two thousand posts, accumulated 2539 subscribers, 3920 (legitimate) comments, and now average about sixteen hundred visitors a weekday.
So, where to next?
Content
No plans to change what we talk about here – heavy on the workers comp area, good coverage of national health policy and doings in the group health and Medicare markets, and I’ll keep working to explain why national, global, economic, cultural, societal, and business ‘macrofactors’ influence and affect work comp.
With the coming battle over entitlement reform, there will be much to discuss and dissect, as pro- and op-ponents of various proposals engage in hyperbolic predictions of catastrophe, rodents falling from the sky, and other signs of doom if their particular version of reform isn’t made into law. Rest assured I’ll keep this fact-based and use lots of references to support my views.
Occasionally I take some nasty shots from anonymous individuals complaining that this blog is just a way to schmooze my consulting clients, that I slant stories or pick fights solely to benefit clients.
My response is two-fold; transparency and stature. Re transparency, I ALWAYS disclose when a company or individual is a client or partner.
Re stature, I’m fortunate in that I’ve got as much work as I can handle and don’t need to work for clients I don’t like, respect, and believe in. Of course I write positively about my clients; they are all good companies doing business the right way, looking to get better.
Presentation
It’s important to refresh the look every so often, and we’ll be doing that this summer. Don’t expect laser light shows and pop-ups, but do expect a new and bolder look.
Along with that, we’re going to be starting video blogging; every week or so I plan on doing a ‘live video’ comment/report on something of interest. We’ll work to keep bandwidth requirements low so those using smartphones aren’t frustrated. Don’t know how this will turn out, but looking forward to blog-casting from the Intergalactic Headquarters of Health Strategy Associates, LLC.
Ads
My several month experiment with ads is over, mostly due to my unwillingness to change the blog’s layout to drive more click-thrus. Turns out that putting the ads in the posts themselves, or just below or to your left increases click thrus dramatically. I didn’t like the way that looked as it chopped things up and put emphasis on the ads and not the content (which I suppose is why it works better). So, they’re gone.
Comment policy
You would not believe the spam comments I get – over a hundred a day, and sometimes two hundred. We’ve tried everything to ensure your comments get thru (even ones I take issue with) while blocking spam; for now I have to review all comments before they go thru. We’ve got to change that, so look for something new soon.
As always, rants and comments disagreeing with me will not be posted unless they are backed by sources. That’s not to say I won’t post different opinions; always have and always will.
MCM ‘attitude’
Every now and then I get myself into a bit of hot water (or more) over a post, a characterization within a post, or an honest mistake. I’ll continue to retract and apologize for errors. I will also continue to opine assertively when I think the issue merits assertive opining. When I hear something that’s newsworthy, I’ll post it (after verifying thru at least two sources). And of course you can always rely on MCM to debunk stories, press releases, and flat out BS, with the tone and histrionics directly in proportion to my level of outrage.
Finally, through the blog I’ve been introduced to many great people and terrific companies. Sandy Blunt is a man I truly admire and respect; he’s now working with me on several projects and his work is exemplary. The work done by Alex Swedlow and CWCI is just outstanding, as is their commitment to shining a very bright light on issues sorely needing that attention. Similarly, NCCI publishes studies and research that add perspective and depth to our understanding of the work comp world. Maggie Mahar is a great writer and strong advocate for her positions on health policy. Jason Shafrin remains one of the best health care economists I’ve come across. Roberto Ceniceros, Peter Rousmaniere, and Julie Ferguson have much to say and manage to say it economically and in ways that often makes one stop and think.
And then there’s you, dear reader! Thanks for reading, keeping me on the straight and narrow, and letting me know when there’s something worth writing about.
Thanks for reading, and keep those comments coming.

Apr
14

The future of health reform – lessons from workers comp

Posted by Joe Paduda on Thursday, April 14th, 2011 | Comments

The current political and cultural divide over health reform is not new – in fact, a century ago a very similar debate took place, and the result may be instructive.
At the turn of the century courts were stuffed full of tort cases brought against employers by workers injured in industrial accidents. Workers had no other recourse besides the court system, and for the years leading up to 1911, the courts offered little hope. That began to change in 1911, when New York passed legislation requiring employers to pay for industrial accidents. The day after the bill passed, a Earl Ives, a railroad worker, sprained his ankle while signaling to an engineer. His employer took the case to court, saying it was Ives’ responsibility to be more careful.
Ultimately, the court found in favor of the railroad. This from Peter Rousmaniere’s recent piece in Risk and Insurance:
“…what drove Werner’s (judge in the Ives case) reasoning were cultural values. He magnified the responsibility of the self-reliant worker within his or her immediate sphere of influence. He chose, in effect, a narrative that made sense a generation before Ives’ accident.
New York voters overrode Ives with a constitutional amendment in 1913. Other states responded by crafting legislative proposals meant to be challenge-proof.
The rapid and broad acceptance of the new system was mainly due to a new angle of vision on the individual at work. The cause of work accidents now was neither the worker nor the employer but industrial employment itself. The new mantra of a work accident “arising out of and in the course of employment” skirted the question of causality.”
Workers comp took hold across the country, and within a decade most states had passed some form of comprehensive workers comp legislation.
There are a couple reasons why employers’ efforts to battle workers comp legislation stopped. First, on a national scale, the cultural issues noted by Peter overtook the laissez faire theology of early industrial America.
Second, employers were starting to lose more and more court cases, an occurrence that struck fear into management and owners. Work comp was seen as a ‘less worse’ alternative to the increasing number of increasing verdicts.
Third, the growing influence of organized labor was being felt in corporate boardrooms around the country, and management wanted to eliminate industrial accidents as an issue.
So what does this have to do with health reform?
Health care is reaching a crisis point. Within six years, family premiums will exceed $30,000, plus out of pocket costs In an increasingly global economy, American employers are going to abandon ideology when confronted by the stark reality that they cannot and will not ever be able to compete if they aren’t relieved of the burden of health care costs.
Similarly, taxpayers (as we’re seeing every day) cannot and will not pay for ever-increasing health care benefit costs for Medicare, Medicaid, and public employees. But those programs, especially Medicare, control a LOT of votes. Thus politicians will be forced to come up with cost-reducing solutions that are dramatically different from the feeble attempts from Washington to date (and I include both parties in that).
Ryan’s solution is no solution at all – in actuality it is nothing more than a ‘throwing up of the hands and abandoning any pretense of cost control.’. And, it’s from one of the guys who voted for the single largest increase in entitlement programs since Medicare – Part D.
The Accountable Care Act isn’t a solution either, but it contains the seeds of real change, specifically with the IPAC.
What does this mean for you?
When things no longer can continue, they won’t. We saw that with workers comp exactly a century ago, and we will see that with health care within five years.