Feb

Workers comp medical costs – the real driver

Posted by Joe Paduda on Tuesday, February 1st, 2011 | Comments

Today’s NCCI report on the near-term future of workers comp should be required reading for work comp execs.
Here are the soundbites.
– indemnity costs will continue to rise, but very slowly.
– frequency will likely not increase.
– medical cost inflation will trend upwards.
For those interested in more detail, NCCI’s full report is here. [opens pdf]
I’m struck by the double-edged sword that drives workers comp; costs are held down because wages aren’t going up, and permanent, full-time employment isn’t likely to increase significantly till mid-year, keeping frequency low. Yet good-payng jobs with available overtime, and lots more of those jobs, are exactly what the country so desperately needs. I’d also note that the more jobs there are, and the higher paid they are, the more premium is created.
The bulk of the report is a thorough and highly readable discussion of the future labor market in the US, the factors influencing employment growth and a dissection of the impact of structural and cyclical drivers. Overall, a very well done synopsis with much grist for the strategic thinker’s mill.
The real driver has been, and will continue to be, medical costs. With medical price inflation forecast to rise at almost three times the overall inflation rate , the moderating influence of low indemnity costs will be more than outweighed by medical inflation.
I’d note that the above paragraph only speaks to the impact of price on medical costs; as we’ve all come to understand, utilization is the big medical inflation driver.
Simultaneous with the release of the NCCI report comes WCRI’s analysis of medical costs in Wisconsin (hat tip to WorkCompWire for the head’s up.)
While one state does not a national trend make, WCRI’s report that the Badger state’s medical costs per claim grew twelve percent from 10/07 to 10/08 should make anyone sit up and take notice.
That 12% annual medical inflation rate was driven in large part by increasing payments for outpatient hospital services.
There’s lots more evidence of higher medical costs and their impact on workers comp, but alas I’m on vacation this week and promised to limit my blogging to a half hour a day.

Jan

Spine surgery in California – some cheese with that whine?

Posted by Joe Paduda on Monday, January 31st, 2011 | Comments

WorkCompCentral’s [sub req] Greg Griggs reported the Division of Workers’ Comp’s public hearing last week was dominated by providers complaining about moves to reduce reimbursement for Ambulatory Surgery Centers (ASCs) and spinal implant hardware.
I have a [very] tough time ginning up much sympathy for the ASCs.
First, a quick review. Back in 2004, California’s Division of Workers Compensation (DWC) set payment for ASCs at 120% of Medicare – identical to hospital outpatient departments. The new recommendation is to pay the ASCS at 100% of the Medicare rate.
According to WCC, several of the provider groups attending the hearing stated they would suggest/encourage their physicians not treat workers comp patients because WC is a hassle and the reimbursement cut would be too deep. There’s no question WC is more of an administrative burden than your typical WC case; dealing with UR, complaints from adjusters, employers, and injured workers, documentation requirements and potential for involvement in litigation as well as addressing return to work are all present in comp – and not in Medicare.
And that’s precisely why physician reimbursement in comp, is higher than for Medicare – the docs, and their staffs, are the ones dealing with those issues. They should be paid more – and in California, as in most other states, they are.
For facilities, it is hard to see why they should be paid more for WC cases than for Medicare – the bricks-and-mortar, tools, staff, supplies and other operating expenses are what their reimbursement covers.
To listen to the ASC owners, any reduction in comp will be catastrophic: here are a couple of their comments as quoted in WCC, with my observations interspersed:
– “the reason I built the Pleasanton surgery center is because hospitals are so inefficient”… under the new FS this physician’s three surgery centers “will have some procedures where it just broke even “and many where there would be a significant loss.”
MCM – If hospitals are “so inefficient”, how can an ASC not be more profitable at the same reimbursement as those ‘inefficient’ hospitals? There’s a logical fallacy here that refutes the physician’s own argument.
– another CEO said “we need to select those parts of the business where we could make a profit, but the reality is a 20% cut is big for any business. The brutal reality is that will impact jobs.”
MCM – with all due respect to the CEO, your profits are employers’ costs. The “brutal reality” is high workers comp costs do impact jobs – especially for employers forced to pay for your profits.
What does this mean for you?
A helpful reminder that workers comp is a zero sum game – excessive reimbursement profits providers and penalizes employers.

Jan

No better candidate – Greg Krohm

Posted by Joe Paduda on Thursday, January 27th, 2011 | Comments

At the end of this year, Greg Krohm, currently Executive Director of IAIABC, will be retiring. I’ve come to know Greg over the last few years, and am only sorry it has taken this long to cross paths.
Greg is one of the nominees for this year’s LexisNexis 2010 Notable People in Workers’ Compensation – and I can’t think of a more qualified candidate.
I’d encourage all to acknowledge Greg’s many contributions to the work comp world by casting their ballot for him here.
A tip of the hat to Safety National’s Mark Walls for the head’s up; his Linked-In group is the leading social networking site for WC professionals

Jan

Paul Ryan’s blatant hypocrisy – and the abject failure of mainstream media

Posted by Joe Paduda on Wednesday, January 26th, 2011 | Comments

Wisconsin Rep Paul Ryan gave the ‘official‘ [pre-speech prepared remarks] GOP post-State of the Union rebuttal. I thought he was a fiscally conservative Republican – just the kind of person we desperately need on Capitol Hill.
After all, Ryan’s getting a good deal of press because he’s perceived to be a budget expert/wonk. Here’s a bit of what he had to say.
– Health care spending is driving the explosive growth of our debt.
– the President and his party made matters even worse, by creating a new open-ended health care entitlement. [referring to the health reform bill]
What Mr Ryan conveniently forgets, or more likely avoids, is this:
Seven short years ago he – and his GOP buddies – passed the single largest entitlement program since Medicare – the Medicare Part D drug benefit with no dedicated financing, no offsets and no revenue-generators – the entire cost – which is now around sixteen trillion dollars – simply added to the federal budget deficit.
The health reform bill has many warts – as I’ve noted time and time again – yet one it does NOT have is adding sixteen trillion dollars to the deficit. According to Bruce Bartlett writing in the Fiscal Times, “By 2030, Part D alone will cost taxpayers 1 percent of GDP.”
The complete failure of the mainstream media to note this blindingly obvious hypocrisy is stunning.
I couldn’t find a single instance where the MSM commenters noted this hypocrisy; there were a few in the blogosphere, but none from mainstream pundits and talking heads.
Let’s suspend reality and accept the GOP’s claim that health reform will add $700 billion to the deficit. That’s one-twentieth of the deficit from Part D.
That’s right – Paul Ryan’s Part D added twenty times more to the Federal deficit than even he claims reform will. Yet in his comments he didn’t once offer to end, or fix, or reduce Part D. Ryan was long on problem, and non-existent on solutions – perhaps because he’s a big part of the problem himself.
Where’s the accountability? How can he get away with this? Why isn’t the main stream media at least reporting on this? Commenting? Perhaps just noting in passing?
Folks, we have a BIG deficit problem. If we aren’t deadly serious about what we need to do, we’re screwed. Whether you’re a conservative or liberal, Glenn Beck-er or Rachel Maddow fan, red stater or blue stater, there are basic, immutable facts.
Part D’s $16,000,000,000,000.00 ultimate cost is one of the more obvious.
I’d hoped for a much better, more mature, more fiscally responsible – hell, more old-style fiscally conservative Republican Paul Ryan – one who would candidly discuss Part D, give specific suggestions about how its cost could be reduced, and take some responsibility for our current fiscal situation.
When the Ryan I – and undoubtedly many others – wanted to hear didn’t appear, it would have been nice if the talking heads noted his absence. I don’t know who is more disappointing – Ryan or the media.

Jan

In defense of the California state workers comp fund

Posted by Joe Paduda on Tuesday, January 25th, 2011 | Comments

The oft-maligned State Compensation Insurance Fund, aka California state fund, is back in the news again, this time for terminating the Fund’s long-time Medical Director, Gideon Letz. Dr Letz was at the Fund for over two decades, was an active and forceful advocate for appropriate medicine and assertive return to work and played an important role in developing some of the more innovative – and effective – care delivery models for workers comp claimants.
I don’t know the details – or even the broad strokes – of the SCIF-Letz split – and that’s not the point of this post.
Instead, I’d like to focus on the really difficult position the Fund is in – its highly-problematic role of carrier of last resort, quasi-public agency, and competitive provider of workers comp insurance.
The comp business is highly cyclical, vacillating between hard and soft markets every few years. As claims costs rise, for-profit insurers restrict underwriting and raise prices, forcing more and more employers to get their workers comp from the Fund. With more premium comes more claims, more injured workers, and more inquiries, policies, bills, claims, and procedures to administer. At some point, the cycle turns, the for-profits come back into the market, premiums dry up, and there are far fewer policyholders, new claimants and new claims.
Meanwhile, during the hard markets the politicians are fielding complaints from constituents about poor service, unanswered phone calls, letters, and complaints. Many elected officials – often with good intentions, sometimes not – demand answers and accountability from the Fund, which then has to educate newbies about the cycle, SCIF’s “carrier of last resort” status, and the business implications of the cycle and SCIF’s status. The Fund then scrambles to hire, equip, and train more claims adjusters, bill reviewers, clerks, administrators, and nurses, open offices in ‘underserved’ areas, contract with more vendors, and buy more stuff needed to handle the increased business.
Several years later, the market has turned – other insurers enter the market and start taking share from the Fund, new business declines along with new claim volume. Inevitably, a report comes out showing the Fund is overstaffed, has too many offices and claims reps, and administrative expenses that look to be much higher than their for-profit competitors. Now, the same (or new and different) politicians point out the inefficiencies of the Fund’s bloated bureaucracy, demanding to know why the Fund needs so many more people/offices/computers to handle claims than those much-more-efficient private insurers. Inevitably, offices are closed, staff reduced, services cut.
And then the next hard market arrives.
Think for a moment about the business challenges inherent in running a carrier of last resort. First, you’ve got public oversight. Not to say that’s a bad thing, but it does take a lot of time, patience, and tact on the part of senior management. Next, you’ve got the pressures of public finance, where taxpayers don’t want to pay more yet demand better and more services. Let’s not discount the challenge of managing a highly cyclical business where your operation MUST take on customers no one else wants, while constantly losing its most profitable customers to competitors.
This is NOT to say SCIF doesn’t suffer from poor managers, inefficient and outdated systems and processes, internal politics and nonsensical policies – hell, every comp insurer, whether private, public, for-profit or Fund, mutual or stock does. Sure, some have fewer warts, but all could be better/faster/smarter/more efficient. And perhaps SCIF has more issues than most.
But, given the conditions SCIF – and most other state funds, for that matter – operate under, it’s a wonder they don’t have many more.

Jan

Gould and Lamb responds

Posted by Joe Paduda on Friday, January 21st, 2011 | Comments

After my post earlier this week re PMSI naming Pat Sullivan to lead their Ancillary Services DIvision, I was contacted by Gould and Lamb (currently the leading MSA vendor) who took exception to my characterization of their recent history, to wit:
“I didn’t include Gould & Lamb in that list [of companies likely to ‘push ahead’ of their competitors], as I’ve heard several times they’ve had challenges on the technical side that may have contributed to the management shakeup last fall. We’ll have to wait and see if the issues are resolved.”
Not exactly a full-fledged assault on the company, their capabilities, or prospects for the future. At least I didn’t think so. I read it a couple more times, and thought it was actually pretty mild.
G&L’s reaction was…not exactly nuanced. After multiple emails to and fro and after a call from their corporate counsel to which I took exception (Tip – if you want to get along with media, do NOT have your attorney call the writer), I asked G&L to address the specific quote from the original piece.
Here’s the relevant parts of their response, with my observations.
G&L – “We have made a substantial investment in technology and talent and as such have developed the most successful reporting technology in the industry and we have not had any technical problems on the G&L side… It is important to note that G&L not only offers an excellent reporting solution, but we have been actively working with CMS in the development of a reporting solution for the industry as whole.”
Paduda – As I noted in the original post, I heard from several sources that one of the reasons for the ‘management shakeup’ was delays and higher than expected costs associated with development of their reporting application. G&L clearly states they had no technical problems. I leave it to the reader to make their own decision; I’m not expert enough in this issue to make a definitive statement one way or the other.
2) “As we have experienced no technology issues, it stands to reason that “technology” was not part of the decision to make a change in the executive leadership at G&L. It was necessary to make changes at the executive level for reasons other than G&L products/ services or technology.”
Paduda – In an earlier message, G&L had noted issues with vision, strategy, and direction led to the replacement of staff last year; turnover in the sales staff was also noted. Again, G&L’s response differs from what I’ve been told by other sources.
G&L – “Clearly, your sources are not “credible” as the information you have regarding G&L represents rumor and is grossly inaccurate. I would also like to add that Lloyd’s [a recent deal where G&L will handle reporting for Lloyd’s syndicate members) isn’t ” just any deal” and the fact that they vetted G&L competitors speaks to the lack of technical problems they identified in our program.”
Paduda – With all due respect to G&L, I’ll continue to assess the credibility of sources on my own. Undoubtedly I’ll make mistakes from time to time – mistakes which I will disclose (and be reminded of each time I see Rob Gelb). In a case such as this where there’s no definitive ‘answer’ (unlike the Gelb situation) I’ll put out what information I deem appropriate and trust the reader to use her/his judgment.
G&L – “As a reporter of information you are also aware that the most reliable source of information is directly from “the source”.”
Paduda – In some instances that’s undoubtedly true, but in many others that hasn’t been my experience, nor the experience of ‘real’ reporters. (I don’t consider myself a ‘real’ reporter, but more an observer and commenter).
For example, Woodward and Bernstein didn’t take Nixon’s word at face value. Sports Illustrated’s reporters aren’t taking Lance Armstrong’s word at face value. Companies, politicians, individuals, heck even consultants ‘spin’ the story to suit them, or perhaps more kindly, to fit their perspective.
I don’t mean to imply G&L is in any way similar to those examples, but rather to use those examples to make the point that the ‘source’ is often not the most reliable source of information. I’m hoping to continue the dialogue with G&L as time permits.
What does this mean for you?
A couple things.
First, media relations are best handled cordially and gently. Veiled threats are rarely productive. (he said with careful understatement)
Second, Don’t take anyone’s word – unless you know and completely trust the individual – as truth. That includes mine. I will continue to report and opine here, and I sincerely hope I am always right. I also know that I won’t be – and I’m sure you’ll let me know when I’m not.

Jan

Repeal, replace, renew, revise, revisit – what the bloggers say

Posted by Joe Paduda on Thursday, January 20th, 2011 | Comments

Anyone else feeling a bit of deja vu?
The blog world certainly is, with many of the entries for this edition of Health Wonk Review focusing on the ongoing battle over health reform, aka the Patient Protection and Affordable Care Act. (I’m always puzzled by pundits referring to PPACA as ‘ObamaCare’; the President signed a bill that was sent him by the Senate; BaucusCare would be much more accurate)
Before we dive into the reform pool (water’s awfully chilly this time of year here in New Hampshire), let’s take a quick look at the work comp world, which is being hammered by costs associated with obesity – proof that every business is affected by our growing BMIs. The always-erudite Jon Coppelman briefs us on two compelling studies that will give all work comp actuaries pause at WorkersCompInsider.
We’ll switch from waist to waste with Maggie Mahar’s great post which asks (my words, not her’s) ‘why in hell are we still doing so many spinal fusions for patients with degenerating discs?’ and then posits a possible (!) answer to her own question – money. (factoid – the number of fusions at US hospitals doubled between 2002 and 2008 – when costs hit $34 billion).
There’s a great read on David Harlow’s blog re the legal arguments around reform – quoting David, “The challenge to the individual mandate in federal health reform is grounded in the notion that the Commerce Clause of the US Constitution bars federal regulation of something so local as health insurance. Challenges to state health reform are grounded in the notion that Federal law (ERISA) pre-empts the field, making state regulation of something regulated by the federales (under authority of the Commerce Clause, by the way) impossible”.
Jeff Goldsmith’s contribution comes by way of the Health Affairs Blog, where he suggests a solution to the Medicare physician reimbursement ~~mess~~ ~~debacle~~ ~~conundrum~~ disaster. Jeff suggests “writing off the SGR “debt” to the federal budget as “uncollectable” and demanding both sacrifice and reform from the physician community in exchange.” While I am most certainly reluctant to challenge someone as insightful and knowledgeable as Goldsmith, my inner cynic tells me ‘no way’.
The economists’ (and psuedo-economists’) section
The argument/debate over whether reform costs or saves is a big part of the issue – perhaps as big as the legal one involving the Commerce Clause. We’ll begin with Austin Frakt’s take-a-step-back-and-think-about-this post; Austin reminds us that with – or without – reform, we’re still screwed. (my word, not his)
Jason Shafrin – hat tip to the economist with the most contributions to HWR! – offers his thoughts on legal issues that may hinder adoption and growth of the current rage – the Accountable Care Organization.
RIch Elmore isn’t an economist – but he knows his numbers. His post leads with this blast of ice water to the face – “The US, ranked just higher than Slovenia in performance among world health systems, has consistently higher prices than any other country surveyed by the International Federation of Health Plans.”
Avik Roy thinks more employers will drop health coverage due to PPACA, despite evidence to the contrary from Massachusetts, and that this will add cost to the system, cost that CBO doesn’t adequately address. I’d note that the CBO estimate also gives very little weight to the iPAC, a potentially very strong cost control mechanism.
My contribution discusses the conflicting claims by Ms Pelosi and Mr Boehner – Ms P says PPACA will save over a trillion while Boehner says it will cost $700 billion. You’ll be surprised to learn neither number is credible.
The experts’ section
Roy Poses gets my vote for most persistent, insightful, and thought-provoking observer of medical research, business, and ethics. His entry this fortnight discusses the fall of an apparently large and prestigious health care charity, which funded research projects at the most well-regarded academic centers – a charity that was involved with Bernie Madoff and some of his confederates.
We’re pleased to have a submission from the John Hartford Foundation, where Amy Berman dissects the definition of ‘good medicine’ – patient-focused, clinically sound, or some combination?
Louise’s contribution from Colorado is insightful as always – her state legislature is considering a bill that would repeal the Health Care Affordability Act, one authored by a physician who doesn’t seem to proffer answers to the problem – growing numbers of uninsured Coloradans – the Act attempts to solve.
Glenn Laffel’s back with an intriguing dissection of the microeconomics of flu shots – and why classical theory makes zero sense. Should be required reading for the ‘market solves everything’ crowd.
The creepiest entry I’ve ever read comes from David Williams, who’s dug out the news that two sisters’ life sentences in Mississippi were suspended on the condition that one donate a kidney to the other.

Jan

The cost – or savings – of repealing reform

Posted by Joe Paduda on Wednesday, January 19th, 2011 | Comments

Well, the GOP says repealing health reform will save $700 billion, while Nancy Pelosi (D CA) says it reform will save $1.3 trillion. Who’s right?
Surprise!
Neither.
FactCheck’s take is the CBO’s projection that repealing reform would add $230 billion to the deficit is the best available. The CBO itself says that’s just an estimate. But it’s the best we have.
What’s the basis for the politico’s claims? Pelosi’s basing her number on CBO’s estimate 20 years out – a looooong time from now, and one so far away as to be beyond nebulous. , something the agency says is an imprecise and uncertain calculation. That, and she’s spinning; there’s no ‘savings’ but rather is actually a reduction in the projected federal deficit.
The GOP’s claim that “the bill would add over $700 billion in red ink over the next decade,”? FactCheck said we “judge it to be mostly bogus.”
Boehner et al contend that about 400 billion dollars in the CBO’s Medicare savings are being “double-counted.” But,as FactCheck (and many others) have pointed out, CBO is simply not doing that.
Of the other $300+ billion in ‘costs’, there’s $200 billion for a permanent “doctor fix” to prevent a cut in Medicare payments to doctors. As many have pointed out, that’s completely separate from the bill – and oh, BTW, many Republicans endorse the “doctor fix” anyway.
The GOP also says reform’s administrative costs will be about $115 billion – that’s wildly inflated as well. CBO’s pegged these at about $15 billion over the next 10 years.

What does this mean for you?
Base your projections on the CBO. They’ve no axe to grind, unlike the pols.

Jan

Guidelines – part of the answer in work comp

Posted by Joe Paduda on Wednesday, January 19th, 2011 | Comments

Last week’s post on guidelines elicited quite a bit of discussion – both public and private, with many vendors/suppliers/writers weighing in on the subject of what works; the practicality of guidelines and the various research methodologies and their validity.
I had a conversation yesterday with a very well-respected researcher that made me realize the post missed a critical point – without the statutory/regulatory ability to enforce/use/require/mandate/give weight to guidelines, they’re nowhere near as useful as they should be.
That’s not to say guidelines without legal ‘enforcement’ authority aren’t still helpful – there’s solid evidence that suggests sharing guidelines with providers can lead to altered practice patterns over time. I worked with a PBM client some years ago on a project involving sending letters to physicians with prescribing patterns that were well outside norms (primarily lots and lots of Schedule II drugs); there was a statistically significant change in prescriptions in the 90 days after the letters went out. Not huge, but significant.
For guidelines to really be effective, adjusters, PBMs, and employers:
a) need statutory/regulatory language that provides ‘weight’ to guidelines that meet stringent criteria in determining what drugs are appropriate
b) must provide the treating provider with claimant- and condition-specific guidelines if and when they disagree with the course of treatment prescribed by the treating doc
c) should be required to discuss the options with the treating provider, with a pharmacist or physician tasked with reaching out to the provider and provide those guidelines when requested
d) need to have the statutory/regulatory authority to not pay for drugs if the treating provider doesn’t respond or refuses to alter treatment in the face of accepted guidelines.

Jan

Congratulations, Pat – and you too, PMSI

Posted by Joe Paduda on Monday, January 17th, 2011 | Comments

I’ve been remiss in not congratulating Pat Sullivan on his new position as head of PMSI’s Ancillary Services Division. [opens pdf] Pat’s a long time friend and colleague, and is one of those people universally respected for his business acumen, breadth of experience, and depth of character.
PMSI had been looking for a leader for Ancillary Services for several months (if not more), had carefully considered several candidates and took pains to ensure they picked the right person to lead a business that has been described by sources as critical to the future of the organization.
Over the near term, I’d expect an important part of Pat’s new role will be to solidify PMSI’s position as the third largest provider of MSA services. With the announcement in December of the sale [opens pdf] of industry leader Crowe Paradis (for $90 million to Verisk), the MSA vendor business is once again in the spotlight. I’d expect the top companies in the space, (Crowe, PMSI, and perhaps a couple boutique firms) will push ahead of their smaller/less agile/less technically adept competitors. The business is becoming increasingly capital-demanding and reliant on strong IT, and the downside of not ‘getting it right’ is getting more painful every month.
I didn’t include Gould & Lamb in that list, as I’ve heard several times they’ve had challenges on the technical side that may have contributed to the management shakeup last fall. We’ll have to wait and see if the issues are resolved.
These are indeed interesting times in the MSA business; CMS appears to be getting the message about reporting and AWP and other lines (liability et al) are starting to think about their exposure. The insular nature of the business and many of the companies in it has led to far too much internal focus and nowhere near enough consideration of how – and where – MSAs can best ‘fit’ into the vendor/supplier.
I’m expecting that will change.
What does this mean for you?
Nice to know good guys succeed.
Disclosure – PMSI is NOT a consulting client. They – and seven other PBMs – are members of CompPharma LLC.

Author: Joe Paduda