Author: Joe Paduda

Oct
13

Are you paying for defective surgical implants?

Posted by Joe Paduda on Wednesday, October 13th, 2010 | Comments

The answer is probably YES.
When surgical implants are defective or implanted incorrectly, the patient has to go back in for more surgery. And the Work Comp insurer or healthplan or self-insured employer or reinsurer has to pay. The only way to mitigate risk is to track the model and manufacturer for each implant – yes, it’s work, and yes, it’s work worth doing internally or at the very least outsource it to a specialist firm.
How many dollars are we talking here?
Well, joint replacement devices are a $12 billion industry.
spinal_implants_L.gif
(image from www.algor.com/news_pub/cust_app/SMPES/default.asp)
One survey reported that the total world market for spinal implant devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report (note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.
(I’m working on getting more current data and will include it in a follow up piece later this week)
Today’s WSJ reports [link expires 10/15/10] on a new effort by the impant industry to set up a registry for joint replacements:
“manufacturers are backing the “American Joint Replacement Registry” and have chipped in start-up funding.
By joining voluntarily and influencing development, manufacturers may dodge having to face mandated rules down the road. They’ll gain product-durability insight that could help as new, higher-priced devices need to be justified by comparative-effectiveness testing… The nonprofit registry is incorporated in Illinois, which has strong data- protection laws…It also will produce detailed annual reports,”
Couple of notes.
First, this does NOT include spinal and other implants; it is limited to joint replacement implants.
Second, who gets access to the data, and how it is used, is still very much up in the air. Will insurers get to check on a member’s/claimant’s implant if the member requires additional treatment?
So, what to do?
Track those device serial numbers and manufacturers in a secure database. Follow the news to identify recalls and product liability issues and reference your database to identify possible matches.
It’s not easy, and it isn’t foolproof, but its likely to be very cost effective.
For a detailed albeit it somewhat dated discussion of the industry and it’s impact on workers comp, click here.

Oct
11

Selling your company? What NOT to do.

Posted by Joe Paduda on Monday, October 11th, 2010 | Comments

There are several potential deals in process now; for a change there appears to be more sellers than buyers, perhaps due to the pending changes in tax laws. For whatever reason, this is one of those very busy times for private equity firms, their research contractors, and the various people and firms that play some role in the deal assessment process.
I’ve participated in several transactions, and while I don’t pretend to be an expert I have seen enough to know some of the more common mistakes/errors in judgment/exaggerations and the impact of same.
For example.
Don’t claim that any payer that ever sent you a payment is a ‘customer’. Differentiate between real, honest to goodness customers – those you have a long-standing relationship with, and other revenue sources. Sure, you can argue with some basis in fact that anyone who pays you is by definition a customer, but when the smart young research people start digging deeper you’ll find yourself not being able to answer basic questions about this ‘customer’. Which will lead potential Investors to wonder if you know what a customer is and anything about your’s.
Don’t over-enthusiastically forecast. The research firm will vet that info carefully with folks who actually KNOW what’s going on in the market, and you’ll find yourself either a) answering uncomfortable questions or b) answering awkward questions post-deal when you don’t hit your numbers. Or possibly both.
Remember the old adage: pigs get fat and hogs get slaughtered. (hat tip to John Swan) Share the wealth between and among staff; they helped get you there and deserve your thanks. Think of it this way; is another million going to mean as much to you as it would parceled out among your employees?
Do your own due diligence on potential buyers, and absolutely stay away from potential buyers with heavy baggage. There are really good investment firms looking for deals and some on the other end of the spectrum. Ask around, talk to people who’ve sold companies before, and if at all possible who’ve dealt with the firms you’re negotiating with.
Watch the earn-out. It’s perfectly acceptable to have one in the final deal, as long as it’s achievable, provides a nice upside for over-achievement, and the worst case scenario is something you can live with.
Do spend a lot of time with the future board. You are going to have to live with them, and while you don’t have to like them you do have to understand and respect the board.
And finally, be reasonable. A business is just that. It is not a child or even a much-loved black lab.

Oct
7

Why is it acceptable to shift costs to workers comp?

Posted by Joe Paduda on Thursday, October 7th, 2010 | Comments

Last week WorkCompCentral’s [subscription required] Bill Kidd wrote about the battle in Illinois over reimbursement for surgical implants.
The quick-and-dirty is hospitals are resisting a reduction in compensation for the devices themselves from 65% of billed charges to the manufacturer’s invoice price plus 25% plus shipping and handling.
While the ‘invoice price’ is fungible at best, the change will almost certainly reduce comp payers’ costs in what is rapidly becoming one of the costliest states in the union.
That is, if hospitals’ efforts to overturn the change are successfully resisted. You can read Bill’s piece for the details – what i want to address is the larger issue – why do some providers think it is acceptable, if not standard business practice, to charge workers comp claimants more for care than other patients?
Sure, this makes sense for primary care and treating specialists – we all know it takes more time to deal w the rules, regulations, return to work process etc inherent in work comp. And it takes a good deal more work for a retail pharmacy to process a comp script than a Medicare or group prescription.
But that’s not the case for medical devices, or hospitals, or many other types of care and treatment. Yet hospital care for comp patients is almost always significantly more expensive, medical device costs are much higher, and outpatient facility charges are legendary for their high cost.
On one hand, I completely understand the providers’ perspective – with declining Medicaid and Medicare reimbursement, the money’s got to come from somewhere.
But I don’t agree with it. This amounts to a hidden tax, a surcharge on employers to pay for un- and under-compensated care that hurts employers, jobs, insurers, taxpayers, school boards, governments.
As reform becomes the law of the land, there will be less need for facilities to shift costs to workers comp. Here’s hoping there will be less shifting, as well.

Oct
6

The details on the AIG ‘investment’

Posted by Joe Paduda on Wednesday, October 6th, 2010 | Comments

There’s an excellent piece in the NYTimes detailing the results of the taxpayer investment in AIG.
Here are a couple highlights.
“First, the $180 billion headline figure [widely reported as the cost of the bailout] is not the right number to consider. Today, taxpayers have extended loans through the Federal Reserve and Treasury to the tune of about $130 billion, which is still a boatload of money. However, about $30 billion — and he is rounding numbers here to make this easier — of that total include assets that are owned in large part by the Federal Reserve through its Maiden Lane funds. Those assets, which were once considered troubled at the height of the panic in September 2008, have since increased in value and are now, as Mr. Millstein contends, “money good.””
A.I.G.’s sale of Alico to MetLife will be finalized in a couple months, for $6.8 billion in cash and $8.7 billion in securities.
The planned IPO of A.I.A. will produce about $12 billion.
Another $4.2 billion comes from the sale of AIG StarLifeInsurance and AIG Edison Life Insurance, to Prudential Financial.
“A.I.G is going to pay down the Fed’s remaining $20 billion stake in two special-purpose vehicles, which hold the rest of Alico and A.I.A, he [Jim Millstein, the man in charge of unwinding our investment in AIG] explained.
That reduces the total figure owed taxpayers to just under $50 billion.
And here’s the clincher.
“Treasury will own 1.6 billion shares, or 92 percent of the company. At A.I.G.’s share price on Monday, the government’s stake would be worth about $62 billion, a $13 billion profit. That’s if, of course, shareholders do not send shares tumbling because of the dilution.
Mr. Millstein is betting that investors will be bullish on the stock once they understand the government’s plan to exit its investment over time.”
There’s no certainty here; there’s a lot of moving pieces, markets can move, conditions can change, etc. However, the net is we taxpayers are likely to be out far less than $180 billion – far less.
What does this mean for you?
We dodged a bullet – but we better make sure we don’t have to do this again, when we may not be as fortunate.

Oct
5

Florida’s solution to the high cost of repackaged drugs

Posted by Joe Paduda on Tuesday, October 5th, 2010 | Comments

Mike Whitely of WorkCompCentral’s piece [subscription required] this morning about Miami-Dade Schools’ solution to the high cost of repackaged drugs should be required reading for any employer or insurer operating in the Sunshine State.
As noted here and elsewhere, a loophole in the Florida workers comp law allows drug repackagers and their affiliated technology and billing companies to set the price for drugs at whatever amount they desire. As the law requires payers to reimburse at AWP + $4.18 for dispensing, if the AWP for a repackaged drug is 5 times what the same drug would cost at a retail pharmacy, too bad – for the payer.
However, there’s another law on the Florida books that provides a solution – simply stated, employers and insurers that contract with a PBM or a retail pharmacy for drugs can pay that contracted amount for any script from any dispenser. That’s correct – the payer’s liability to the dispenser is the same as if that drug was dispensed through one of the payer’s contracted pharmacies.
Miami-Dade Schools began implementing this policy September 15 of 2009. Since that time, the Schools have saved an estimated $700,000 – the equivalent of about eight teachers’ pay and benefits.
A letter [opens .pdf] from Florida CFO Alex Sink (currently a candidate for Governor) cites the specific statute:

section 440.13(12)(c), Florida Statutes, which provides:
As to reimbursement for a prescription medication, the reimbursement amount for a
prescription shall be the average wholesale price plus $4.18 for the dispensing fee, except
where the carrier has contracted for a lower amount. Fees for pharmaceuticals and
pharmaceutical services shall be reimbursable at the applicable fee schedule amount.
Where the employer or carrier has contracted for such services and the employee elects to
obtain them through a provider not a party to the contract, the carrier shall reimburse at
the schedule, negotiated, or contract price, whichever is lower. No such contract shall
rely on a provider that is not reasonably accessible to the employee.

and makes this recommendation:

The Division urges employer/carriers providing reimbursement for prescription medication under Chapter 440, Florida Statutes, to take section 465.0267(1), Florida Statutes, into consideration when making prescription provider reimbursement decisions.

What does this mean for you?
Well, what are you waiting for? Talk with your PBM, ask them to implement Ms Sink’s recommendation, and start reducing your drug costs.
Disclosure – I gave $250 (or something like that) to Ms Sink during her campaign for CFO some years ago. She’s been a strong advocate for Florida’s employers – and workers – and I remain a supporter.
(Note – I received this in an email from a Florida Insurance consulting firm. I appreciate their correction.
“In reading your most recent article about physician repackaging, I noted an incorrect statutory reference. The referenced “section 465.0267(1)” does not exist in Florida Statutes. I am quite certain that it should read “465.0276(1).”. The mistake appears to not be yours as it actually originates from Alex Sink’s letter which had the numbers in the citation transposed in one place, but correct in another.”)

Oct
4

Why the AIG bailout was critical

Posted by Joe Paduda on Monday, October 4th, 2010 | Comments

The news has been full of reports about the recovery of insurance giant AIG, the once-mighty largest insurer in the world that crashed and burned when a tiny subsidiary gambled wildly and lost very, very big.
After the crash, the Obama Administration made the controversial, and much-debated, decision to bail out AIG and keep the company afloat. In a sound bite, AIG was judged ‘too big to fail’; a view many disagreed with, some vehemently. I opined then, and reiterate now, that AIG was far too big to fail, as failure would have had effects far more devastating than those resulting from a taxpayer bailout that was never repaid.
I just re-read my post of a year and a half ago; here’s the heart of the matter.
“AIG is not too big to fail; it is too ‘connected’ to be allowed to fail. AIG provides the underpinning for many pension funds and retirement plans; its financial instruments guarantee the returns for pensioners. It backs up the investment of many banks. It owns many of the airlines’ airplanes, planes that might be repossessed if AIG goes under. AIG insures many Fortune 500 companies, and is among the largest writers of workers comp in the nation. It is a large individual auto insurer as well.”
While free-market purists will argue that no business is too big to fail, I have to disagree. The economic impact of AIG’s demise would have crushed every sector of the US economy, and slammed the world’s as well. Everything from teachers’ pensions to airplane manufacturing would have been hit, with some seriously hurt and others facing an uncertain future.
At the time (early 2009), that may well have been enough to turn a severe recession into a depression.
Instead, we now face the very real possibility that we taxpayers will get all of our money back, a fortunate event indeed, but one that should not blind us to the incredibly scary position we were in two years ago.
In retrospect even the most vehement opponents of the bailout should be pleased that taxpayers will be made whole. Undoubtedly the opponents will also argue that no business should ever get to the point where it is so important that it has to be bailed out by the Feds, but therein lies the problem with the purists’ faith in the free market.
AIG’s near-demise was a direct result of its participation in what was an almost-completely-unregulated business: credit default swaps and other derivative instruments. The significance of AIG’s position as the leading firm in the business was such that its failure could have crippled the international banking system, with unknown, but likely far-reaching – and very bad – consequences for the world economy.
In retrospect, some experts believe other options could have, and should have, been considered before a bailout, but we’re much smarter now than we were then.
What does this mean for you?
We dodged a bullet. But we’d have been much better served if the bullet had never left the barrel. As difficult, and onerous, and frustrating as regulations can be, the collapse of AIG serves notice that not enough regulation can be just as bad – or even worse – than too much.

Oct
1

Workers comp, drug dispensing, political contributions, and jobs

Posted by Joe Paduda on Friday, October 1st, 2010 | Comments

Automated Healthcare Solutions, their execs and affiliates contributed $1.7 million to political campaigns over the last two years.
If anyone has any doubts about the financial returns enjoyed by the physician dispensing business, yesterday’s report in Health News Florida should put them to rest.
According to reporter John Dorschner, “The analysis of the $1.7 million in contributions by AHCS, related entities, executives and family members shows $615,000 has gone to the Freedom First Committee, linked to incoming Senate President Mike Haridopolos and $600,000 to the Florida Liberty Fund, linked to incoming House Speaker Dean Cannon. Another $200,000 went to the Florida Chamber of Commerce Alliance.”
It appears much of this then flowed thru to specific candidates, including Governor Charlie Crist.
That would be the same Charlie Crist who vetoed a bill that would have drastically cut reimbursement for physician dispensed medications.
According to the article, AHCS CEO Paul Zimmerman said the company supports politicians who “understand the risks employers go through and how we create jobs.”[emphasis added]
Another perspective on the job-creation front comes from a statement by Miami-Dade Schools’ risk and benefits officer Scott Clark. Miami-Dade Schools recently decided to stop paying inflated prices for drugs dispensed by physicians; according to the HNF article “Scott said he expects his moves to save the school board about $700,000 this year.”
That’s enough cash to hire – or keep – about 11 teachers.

Sep
29

The AHCS – Paduda lawsuit – quick update

Posted by Joe Paduda on Wednesday, September 29th, 2010 | Comments

I’ve gotten a number of calls and emails from friends and colleagues interested in – and concerned about – the news that AHCS has filed suit against me and my consulting firm for defamation etc.
Here’s where things stand.
1. I still haven’t been served with the suit. I doubt AHCS hired all those lawyers and PR flacks to just say they’re going to sue me, but as of today, no process server has appeared at my door. I further doubt they spent all their money calling reporters and filing suits, so perhaps they just forgot about letting me know…
2. To those folks interested in contributing to a legal defense fund, we’re working on it. As soon as we have all the details figured out, I’ll let you know. And in the meantime, thanks very much for all the moral support .
Which brings me to number 3.
In brief – AHCS just changed their website after some pointed questions from a probing reporter – not me.
Carol Gentry’s Health News Florida published a story today concerning the suit, a story well worth reading.
I’ll let the piece speak for itself, but do want to point out a couple of passages.
First, here’s this quote from AHCS’ CEO Paul Zimmerman – “We’re not a repackager. We don’t sell drugs. We don’t set the price on drugs,”.
Whoa, not so fast there. Here’s what followed that rather definitive statement…
“The AHCS executives said their company provides “healthcare IT” (information technology), not repackaging. “My mistake,” Paduda wrote later. “From reading their website they sure sounded like a repackager to me.”
Indeed, last week the company’s website, AHCS.com, said it had a “technology platform called ezDispense for point of care dispensing applications that enable [the company] to remove traditional barriers associated with physician dispensing.
“The company also provides [a] mail order program for physicians for certain medications; point-of-care drug testing procedure for the qualitative portion of the test; and custom-compounded topical solutions [emphasis added] for patients whose pain cannot be controlled with oral therapy alone.” ?
When Health News Florida pointed out what was on the website on Friday, Zimmerman said it was incorrect, that the company does not provide doctors with any drugs. [emphasis added] He did not explain how the website error occurred.
By mid-day Saturday, the section about providing some mail order and compounded drugs had vanished from the website.”
So.
AHCS sued me (I think) for defamation based largely on my statement that they were a repackager, which I based on reading AHCS’ website. Which Zimmerman then admitted was ‘incorrect’.
I’d note that I pointed out the selfsame passages on AHCS website in my letter to them asking for clarification – but instead of clarifying, they spent all weekend working on a 21 page suit (or so I hear) which they then filed on Monday.
Caught in a ‘misstatement’, Zimmerman, his crony Jerry Glass, and their horde of PR flacks may decide to accuse the HNF reporter, John Dorschner, of misquoting Zimmerman or otherwise getting his facts wrong. Good luck with that – Dorschner is a seasoned, highly respected veteran reporter, far more knowledgeable and experienced than a mere blogger from Connecticut.
Zimmerman has another problem – he “noted that Paduda is president of CompPharma, which describes itself as a “consortium of pharmacy benefit management firms.” Zimmerman said these firms, often owned by insurance companies, are competitors of AHCS because the PBMs try to steer patients to pharmacies and away from doctor-dispensed drugs…Zimmerman berated Paduda for not disclosing that relationship in his postings about AHCS.”
First, someone should tell Zimmerman that I disclose my relationship with CompPharma when the posting even remotely references that organization. The offending posts had nothing to do with the comp PBM industry, but had everything to do with companies that reap enormous profits by taking advantage of loopholes in the system.
Furthermore, Zimmerman doesn’t have a clue about the comp PBM industry. Of the ten PBMs that are currently members of CompPharma, not one is owned by a workers comp insurance company.
Not a one.
For all the money he’s paying Ron Sachs and Panza Maurer, (what’s with the owl?) you’d think he’d have enough to actually get his facts straight.
Then again, he wouldn’t have had to spend any money at all if he just responded to my original letter.
Part of me wants to suggest to Zimmerman, Glass, and AHCS that they just drop the suit and leave me alone, and leave it at that.
But another part of me wants to go after these guys. They’re starting to really piss me off.
(sorry for the language, but I couldn’t think of anything else that adequately conveyed my anger)

Sep
28

Work comp claims IT survey – your last chance

Posted by Joe Paduda on Tuesday, September 28th, 2010 | Comments

If you want to get a detailed copy of HSA’s first Annual Survey of Worker Comp Claims IT Systems, time is running out.
Respondents will receive a detailed version of the Survey Report; non-respondents will recieve an executive summary version. The survey will take you about fifteen minutes; click here to get started.
Friday’s the last day for you to complete the survey; We’ve already exceeded our goal for respondents, but will keep the survey up till then.
There’s quite a bit of interest in acquiring new systems or improving current ones; When asked “What would be the primary business drivers for a system change?”, the vast majority of respondents said “Enhanced functionality that will increase staff efficiency and improve customer service.”
The desire to “increase staff efficiency” was heard consistently in responses to several other questions, and will be one of the areas we’ll explore in detail in the final Survey Report.