Dec

Are you ready for the hard work comp market?

Posted by Joe Paduda on Friday, December 4th, 2009 | Comments

The soft market that seemingly will never end will – probably by q3 2010. Are you ready? Many employers have lost focus on risk and cost management, lulled into passivity by the longest soft market in memory. Woe unto those that have forgotten the basics, for they will be in even more trouble than the employers who’ve merely been snoozing.
Here are a few suggestions for those risk managers looking to prepare for what’s coming.
1. The fastest growing segment of comp medical expense is facility cost. As health and hospital systems gain negotiating leverage and skill, PPOs with little leverage fund themselves at a distinct disadvantage. The big group and Medicare managed care plans have lots of patients to use as leverage in negotiating deals; not so for work comp networks. Check your facility cost inflation rate over the last few years; expect it will be near double digits, and don’t expect your PPO to be able to do much about it.
Instead look to specialty bill review vendors. I’ve extensive experience with one, FairPay Solutions, that has come to dominate the market on the basis of their results coupled with an impressive track record of wins in court when their recommendations have been challenged by hospitals. They’ve also got an interesting solution to the surgical implant problem. (And no, FPS doesn’t pay me to say nice things about them).
2. Drug cost inflation is increasing again. After five consecutive years of declining trend rates, inflation, driven by a big jump in brand pricing and higher utilization of high cost pain medications, is back. If your PBM doesn’t have answers that address these questions either you haven’t asked the right questions (pretty likely as most PBMs have solid clinical management offerings) or you’ve got the wrong PBM.
3. Getting the most out of UR and bill review – most UR determinations are not automatically fed into bill review applications, thus procedures that are not approved may well be performed – and billed – and paid – anyway. If your audit process hasn’t specifically addressed this you’d be well advised to make sure it does. This is especially important for payers with business in California, where UR costs have exploded since reform.
We’ll be looking at other areas next week. And apologies for typos as this entry comes via my iPhone.

Dec

If private health insurance worked, we wouldn’t need health reform

Posted by Joe Paduda on Wednesday, December 2nd, 2009 | Comments

Lost in the fight over health reform is a single, huge truth – if the private insurance market worked, there would be no need for reform.
We wouldn’t be in this mess if private insurers were able to control cost inflation. And at the end of the day, that’s what they are supposed to do. Sure they have lots of experience in underwriting and risk selection, and some have made some progress in some areas of disease management/mitigation, but UHC and Coventry and Wellpoint and HealthNet et al’s ‘experience’ have not been able to consistently deliver lower health care costs.
I know there are lots of reasons/problems/complicating factors, but the stark reality is when it comes to controlling inflation, none of them have been able to.
Why not?
Several reasons, some good, some not so good, but all worth considering as we contemplate a new world built on one of the bills before Congress.
Health plans’ best interest
As Maggie Mahar so eloquently and persistently reminds us, we live in a culture of ‘Money-driven Medicine’. Health plans, providers, brokers, and suppliers are in this business to make money. For health plans, controlling costs means lower revenues, and this is one of those wonderful industries where top lines grow every year by ten percent plus – regardless of any increase in the number of customers (members). Wall Street loves top line growth and rewards companies that consistently grow their revenues.
Quite simply, it is not in a health plan’s best interest to control cost, as most of their policyholders are going to stick with them regardless of the increase in premiums, and the business they lose they’ll make up by stealing customers from other health plans.
Churn
Employers change plans every three or four years, so any ‘investment’ in reducing long term costs is an expense incurred by the current healthplan for the benefit of a competitor. This is particularly true for smaller groups, and is further exacerbated by the increased mobility of the workforce, which tends to change jobs more now than a couple decades ago.
Mindset
After the great explosion triggered by providers’ negative reactions to capitation and employees’ negative reaction to small provider networks, healthplans, led by UHC, adopted an ‘open access’ model, wherein members could go ‘out of network’ to receive care, albeit at a higher copay rate. Employers are certainly to blame for a failure to explain the logic behind and lack of will to stick with the tighter managed care models, but they’ve certainly paid a high price for their lack of foresight and will. The result of the ‘dimming down’ of managed care is the current employer-based health cost inflation.
Regardless, since the adoption of the open access model in the mid-nineties, consumers have gotten used to, and highly attached to, that model. Undoing that mindset is going to be painful, and health plans don’t succeed by causing pain amongst their members.
Cost control by price control
Listen to health plan execs on their quarterly earnings calls, read their transcripts, review their press releases, look at their product offerings – see much in the way of real cost control? Strong disease management, medical homes, useful data on provider outcomes and costs presented in a way that Joe Sixpack or Maria Martinez can readily use?
Didn’t think so. Sure, a few health plans (Aetna probably being the best among the for-profits) are making an honest effort, but most are not. Instead, health plans rely on price control – squeezing providers down as hard as they can on reimbursement rates for specific procedures – a practice that solves one part of the cost equation but does nothing to control utilization, and may well exacerbate it.

For-profit health plans operate in the best interests of their stockholders – not those of their members, providers, or society. That’s how capitalism works. And not-for-profit health plans have to compete with the for-profits, a reality that has forced the Kaiser Permanentes and Group Healths to adopt many of the business practices of their competitors.

The net
The reason we need reform is the current ‘free market’ is not fixing society’s problem. The reform we need is real, meaningful reform, with true cost control, not a few pilots here and a bit of disease management there and a couple of billion of comparative effectiveness research sprinkled on top of a layer of slightly-modified fee-for-service reimbursement.

Dec

The implications of AIG’s price cutting

Posted by Joe Paduda on Tuesday, December 1st, 2009 | Comments

Eight months ago I reported AIG was buying business – slashing prices for property and casualty insurance coverage in an effort to hold on to current customers and hopefully land a bit of new business. Now comes a report from Bloomberg that analysts have confirmed what some brokers and most of their competitors have known for months – Chartis (the name of AIG’s core insurance business unit that’s been separated from the rest of the ‘old’ AIG) has been accused of ‘aggressive’ pricing by analyst Todd Bault of Sanford C Bernstein, a charge that’s been leveled for months by Chartis’ competitors.
Simply put, it appears that about a year ago AIG execs decided to cut prices on liability, workers comp, and some other lines of insurance to retain business and generate cash flow to prevent the company from going under. It worked then, but at a cost that’s becoming apparent now.
There’s a lot to consider here – the possible impact of AIG’s alleged pricing actions on extending the soft market; effect of underpricing on reserve adequacy; and consequences for the likely spinoff/sale of Chartis. I’ve discussed most of these topics here on MCM, but to save you the trouble of clicking thru, here’s the summary.
First, I’d be remiss if I didn’t acknowledge that AIG execs are denying the charges, with AIG Chief Financial Officer Robert Schimek claiming their rivals’ charges “reflect a big degree of frustration by the marketplace that they’ve been unable to unseat the Chartis organization in the vast majority of business.” That’s not exactly true, as AIG reported insurance sales dropped 13% in the most recent quarter while the combined ratio increased to 105.2, results significantly worse than those of competitors Liberty, ACE, and Chubb.

Reserve adequacy
Last winter, I heard from sources ranging from headquarters staff at large competitors to several brokers around the country that AIG was quoting rates for P&C coverage that had only a ephemeral relationship to the actual cost of risk. The sense then was AIG was doing anything it could to add premium, and thereby build up the companies’ financials. AIG’s desperate effort to add premium dollars, staved off deeper financial trouble, but as I noted back in March, “the shortsightedness of this approach will become obvious. Even more obvious than it is today. Claims will come in, reserves will be needed to fund those claims, and it is possible, if not likely, that there won’t be enough capital to fund future claims.”
Soft market
AIG’s pricing actions, to the extent that they were ‘real’, were but one of several factors contributing to the depth and duration of the current soft market . But those actions can’t be discounted; as one of, if not the, largest writers of property and casualty insurance in 2009, any discounting by AIG would send tremors thru the entire industry. The company had long been known, and highly respected, for its underwriting expertise. When brokers and risk managers received quotes from AIG at very attractive rates, many likely turned to the other carriers bidding on their business and said something along the lines of “if AIG can charge me this, why can’t you?” Sure, some, or most, knew that AIG’s pricing may not have been realistic, but all’s fair in love, war, and insurance, and using one company’s bid to beat down another’s is common practice.
Chartis sale
According to Bloomberg, “AIG shareholders and the federal government face considerably more uncertainty than they may have anticipated,” Bault said. “AIG would likely have to take some kind of reserve charge” before selling its Chartis property-casualty business or holding a public offering for the division.” That sale will be a key piece in the ‘taxpayer repayment program’; we’ve kept AIG from going under, and if we are going to get our money back, a sizable chunk will have to come from the sale of Chartis. I noted last month that the disposition of AIG’s assets was proceeding rather well, and should have added a reminder about the pricing issue.
What does this mean for you?
If you work for Chartis, know that I wrote this with reluctance. As I said in November, AIG’s destruction was the result of poor management oversight and a wildly out-of-control finance unit. The women and men who work at Chartis and most of the other AIG companies do a very good job, work very hard, and take justifiable pride in their work. Here’s hoping their talent and abilities are enough to overcome poor decisions by their erstwhile superiors.

Nov

Clarification – Last chance to avoid higher comp costs in Florida

Posted by Joe Paduda on Monday, November 30th, 2009 | Comments

Florida is scheduled to dramatically change the way hospitals get paid to care for workers comp patients, and if payers don’t get their act together, they’re going to be paying more – a lot more – for medical care.
WorkCompCentral reports today that a hearing, tentatively scheduled for this Wednesday to review the change, will not be held if no public comments have been submitted. That was the case as of the day before Thanksgiving.
Here’s why payers should shuck off their post-prandial lethargy and get their comments/objections/concerns in to DWC.
The revised fee schedule would have payers owing hospitals 174% of Medicare for surgeries and 395% of Medicare for other compensable charges. Workers comp is already the most profitable line of business for Florida hospitals, and this methodology makes it even more lucrative.
Clarification – in the original post, I noted that “according to an analysis performed by FairPay Solutions, this methodology will increase payers’ costs – today – by 181% for surgeries and 330% for other hospital outpatient services.” This was actually from FPS’ review of the Florida Dept of Financial Services’ 2006 analysis.
Not only are the hospitals going to prosper under this new scheme, work comp networks contracted with hospitals at a percent off charges are going to be rolling in dough, as the charges are going to be much higher, and their ‘savings’ are going to be as well.
It’s not just a price issue – Expect to see many surgeries and other services currently performed on an outpatient basis shifted to inpatient to take advantage of the much higher reimbursement. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
This isn’t just speculation. South Carolina put in a Medicare+ hospital fee schedule on 10/01/06. NCCI recently filed a 23.7% WC rate increase. Even though SC’s adoption of a Medicare+ hospital fee that pays hospitals less than the fee schedule proposed by Florida (140% of Medicare in SC vs 174% to 395% of what Medicare pays being proposed for Florida by DFS), paying SC hospitals more has significantly increased medical costs and utilization in SC.
For more detail on this (and be careful what you ask for), see here and here and here.
What does this mean for you?
If you’re a network or hospital, happy days.
If you’re a payer, higher costs – much higher costs.

Nov

Pharmacy costs in California work comp – time to reform the reform

Posted by Joe Paduda on Wednesday, November 25th, 2009 | Comments

In 2004, California implemented a set of far-reaching reforms to its workers comp system, including several specifically aimed at cutting medical costs. One of the more drastic changes changed the pharmacy fee schedule from one based on a significant multiple of AWP to one tied directly to the Medi-Cal fee schedule (California’s name for the state Medicaid program). Medi-Cal’s fee schedule is actually lower than most comp PBMs’ contracted rates with retail pharmacy chains; as a result most PBMs are ‘under water’ on their business in California or are at best at break-even.
While medical costs have come down dramatically after reform, especially in physical medicine, that has not been the case for pharmaceutical expenses.
In fact, costs increased significantly, driven by significant increases in both the average number of prescriptions per claim and the average payments per claim for prescriptions. In addition, payments for Schedule II narcotics, categorized as having a high potential for abuse and addiction, increased nine-fold after reform. Schedule II drugs are also strongly associated with extended disability duration, driving up both medical and indemnity costs.
According to the California Workers Compensation Institute, the average number of first-year prescriptions per claim increased 25 percent after the implementation of the Medi-Cal link, while the average drug cost per claim went up 37 percent. (Changes in Pharmaceutical Utilization and Reimbursement in the California Workers’ Compensation System, September 2009)
The problem with physician repackaging/dispensing has largely been addressed, yet costs continue to escalate. From conversations with PBMs that dominate the state, it is clear that California’s reimbursement levels don’t allow them to invest in utilization management and clinical programs, both of which are keys to controlling total drug cost. Studies conducted by NCCI clearly indicate the primary importance of utilization as the driver of comp drug costs; surveys conducted by my firm have confirmed this as well, as those payers focused on managing utilization have seen their drug costs drop while payers without strong utilization controls consistently see drug cost inflation rates well above average.
Clearly, the linkage to Medi-Cal has not reduced drug costs for California’s employers.
What does this mean for you?
If California doesn’t rethink its approach to drug fee schedules, expect your costs to continue to increase.

Nov

Some customers aren’t worth it

Posted by Joe Paduda on Tuesday, November 24th, 2009 | Comments

The work comp managed care world can be brutally competitive, with big dollars (well, big for this relatively small market) riding on buying decisions, and the success or failure of business plans also determined by those decisions. I’ll leave aside the all-too-common lack of objective, dispassionate analysis upon which many decisions are based – that’s a subject for another post.
Today I want to talk about why it can be more productive – and more profitable – to walk away from business than to tie your company in knots, bastardized your operations, cut prices to the bone, and make a host of other concessions in an effort to land or keep a big account.
Because the fact is some accounts just aren’t worth keeping. I’d bet if you look at your customer list there are at least two that take up way more time than any other, that constantly complain and whine and can never be satisfied and don’t pay their bills on time or in full and chew thru account execs like a puppy thru newspaper. Management spends hours each week trying to please the various people at the account, a difficult task because their contacts’ demands are either contradictory or pointless or poorly defined if not all three.
I’ve talked with several vendors over the past few months about this issue, more than once on behalf of the customer’s senior management. The top execs keep hearing about the vendor’s incompetence or unresponsiveness or poor service, which upon investigation is nothing of the sort.
Instead what I’ve found, albeit not in every instance but certainly in more than one, is a relationship that has no or poorly-defined objectives, and/or is overseen by an individual that is not competent or capable, and/or where there are ulterior motives on the part of that individual, perhaps to make the incumbent vendor look bad, or justify his or her existence by appearing tough, or to help out a friend who happens to work for a competitor.
Shocking, I know. Hard to believe this happens in today’s business world, but true nonetheless.
What’s a vendor to do? As tough as it may be, in some cases the best option is to walk away. Professionally and politely inform the most senior customer contact that you aren’t able to meet their needs and requirements (describe those needs in writing in detail), offer to facilitate a transition to another vendor, work diligently to make that transition smooth, and when it’s all over, conduct a post-mortem internally and with the now-ex-client.
And discover that you now have hours more time in the work week, much less stress, higher margins happier employees and a new appreciation for and time to focus on the customers that you actually like.
What does this mean for you?
An opportunity, not a problem.

Nov

When will we see Congress praise AIG?

Posted by Joe Paduda on Monday, November 23rd, 2009 | Comments

AIG will probably pay taxpayers backmost if not all of our investment in the once-dominant insurer. Asset sales are proceeding well, valuations of those assets are solid, the new Chartis looks to be off to a good start, and morale is slowly improving.
And where, one might ask, are the plaudits from the politicians? Or at least grudging respect for the AIG staffers who’ve been able to keep the company afloat while dealing with public and private ridicule?
As we enter Thanksgiving week, I’d like to acknowledge the people at AIG who’ve been able to continue performing as well or better than their competitors despite death threats, highly skeptical buyers, and a brutally soft market (in part due to Chartis’ desire to hold on to share and premium dollars).
They’ve got a long way to go, and are far from perfect, but they deserve respect.
Send this to your Congressperson and Senators. Perhaps they’ll have occasion to send their own message of congratulations and thanks.
There’s always hope…

Nov

The latest on vendor-TPA relations

Posted by Joe Paduda on Friday, November 20th, 2009 | Comments

If you’re wondering why your TPA has been changing specialty managed care vendors more often than you are used to, it may well be because the TPA is getting paid to change.
Word from several sources at the comp trade show is some managed care vendors have deals whereby the commissions/fees they pay the TPA for the privilege of doing business are increasing with volume.
The way it works is simple, if not necessarily, or even usually, in line with clients’ best interests. The vendor agrees to pay X percent for the first Y dollars of revenue, X+ for the next Y dollars, X++ for the next Z dollars, etcetera.
But some vendors are applying the higher payment levels retroactively. Yep, if the TPA delivers Z dollars, the X++ commission rate applies to ALL revenue. That’s why employers are being told they can get these services at very low – or no – cost. Hat seems like a great deal is – for the TPA. Unfortunately the TPA’s interests are not always, and in some cases are most definitely not, aligned with the employer’s.
Here’s an example. If a PT vendor controls utilization, and prevents cases from exceeding a reasonable number of visits, the employer wins. But if the case goes on and on, and the vendor does not or cannot or will not end the treatment, then more bills mean more ‘savings’ which mean more revenue for the vendor – and not coincidentally, the TPA.
What does this mean for you?
If your TPA hands you a deal that sounds great, watch your wallet. What drives revenue for many TPAs is driving up your costs.

Nov

Rumor has it…

Posted by Joe Paduda on Thursday, November 19th, 2009 | Comments

The exhibit floor at the workers comp conference is abuzz with rumors about sales; companies on the block, new transactions for TPAs, and new business for vendors.
Amongst the rumors are several that don’t appear to be based on fact, including the pending sale of Medata. When asked about the transaction, CEO Cy King looked incredulous. King stated “there’s lots of interest in the investment community and no interest on the part of Medata. It’s just wishful thinking.”
Sedgwick has been capturing business from competitors at a rapid rate. Loew’s will move to Sedgwick shortly as will Boeing. The word in the market is Sedgwick is pricing their claims services at extremely competitive rates; 20% to 30% under the incumbent. The big TPA is also pushing their managed care vendors hard for price reductions. OK so why?
It could be that Sedgwick is prepping for an IPO. Management stock options will vest in the event of a deal, UHC has been divesting other non-core assets, and the company is recruiting big names, all activities commonplace at companies looking to sell.
Among other companies reportedly on the block are MCMC (no surprise there), and Bunch and Associates (I’ve asked Bunch about this and it has been repeatedly denied, but the rumor persists).
More to follow, including corrections where necessary.

Nov

The National Work Comp Conference – first impressions

Posted by Joe Paduda on Wednesday, November 18th, 2009 | Comments

It’s good to be back in Chicago.
The ‘comp conference’, the shortened title given to LRP Productions’ annual National Workers Comp and Disability Conference, has recently been exiled to, of all places, Las Vegas. (Does anyone else see the slightest bit of irony in a risk management conference convening in the gambling capital of the nation?) Fortunately for wanna-attendees this year’s show is in Chicago (a city I like a while lot more than Vegas), a burg less likely to get the thumbs-down from corporate travel execs than Sin City.
I digress.
Here in random order are impressions from day one.
I’m impressed with the amount and variety of innovative approaches to old problems in evidence on the exhibit floor. That’s not to say that all are promising or even potentially useful but the level of effort is impressive.
For example, Coventry is actually talking about small networks. I know, I know, they’ve been talking about small networks for years but word is they may actually be doing something. More on that next week.
PMSI’s work on upgrading and strengthening their clinical programs, while not complete, is already bearing fruit. Look for more from this once-dormant PBM as it continues to invest in staff, systems, and technology.
Medata is promoting their proprietary UCR database, Tally. Unlike other UCR databases, Tally has not been successfully challenged in court. For payers concerned about litigation, this may well be a viable alternative.
Broadspire is reportedly working on new approaches to triage and early case management, building off their eTriage application/utility. This is not a standalone effort, but part of a larger initiative to revamp their approach to, and capabilities in, managed care.
Among other impressions – there are more private equity/venture capital types in attendance than in any other recent year. As I’ve indicated in earlier posts, activity has been heating up significantly of late, with the FairPay deal just the most recent.
And finally, there’s actually a Pet Insurance company exhibiting. Why, I don’t know. What pet insurance has to do with work comp or disability is not readily apparent.
Anybody have any ideas?

Author: Joe Paduda