NCCI released a study yesterday indicating drug spend for active claims increased 6 percent in 2014, driven by higher prices. That’s consistent with the finding from CompPharma’s Annual Survey of Prescription Drug Management in Workers’ Compensation, however more recent data indicates drug spend in 2015 dropped precipitously.

The chart below is from CompPharma’s to-be-released-momentarily 2016 Drug Survey; for the 30 payers surveyed (combined they account for just under a quarter of total work comp drug spend), drug costs dropped 8.7 percent in 2015.

Two observations.

Work comp PBMs are Unicorns; incredibly rare and completely unique, their business model is based on reducing their revenue.  In a very small, totally mature industry, PBMs compete for payers’ business by showing how they will reduce drug costs, and especially reduce overuse of opioids.

What other business does that?

In addition, work comp PBMs do this without the economic levers of deductibles, copays, coinsurance, and tiered formularies that group health and Medicare PBM programs use.  In fact, non-work comp PBMs can’t fathom how they do this.

“How they do this” is thru a deep understanding of drivers, a willingness on the part of the PBM to eat the cost of drugs that a payer decides aren’t compensable or related, a lot of analytics to identify potential issues and problems, many well-trained people dealing with patients, prescribers, pharmacists, adjusters, case managers, attorneys, sophisticated clinical management programs.  All this is necessary, highly effective, and expensive indeed.

I bring this to your attention, dear reader, for a couple reasons.

First, on a per-pill basis, work comp drugs tend to cost more.  That’s because it costs a LOT more to manage work comp pharmacy than to manage group, Medicare, or Medicaid.

Second, slashing fee schedules to Medicaid reimbursement means PBMs can’t afford to keep driving down costs and reducing opioid usage.

What does this mean for you?

PBMs and payers are doing great work addressing a major driver of work comp costs and disability; below-break-even fee schedules will force them to become pure transaction processors, something employers, taxpayers, and patients can ill afford.

Note – I am president of CompPharma.

How an investment firm can own a physician dispensing company and a work comp program administrator.

ABRY has acquired a controlling interest in NSM, an insurance program administrator focused on, among other things, selling work comp to smaller employers.

Yawn, right?

Not if you are one of NSM’s insurance companies or insureds.

ABRY – which now controls NSM, also owns Automated Healthcare Solutions, the physician dispensing “technology” company that makes big dollars by sucking dollars out of work comp carriers, employers, and taxpayers.

So, if you’re ABRY, what’s going thru your corporate mind? You know – better than perhaps anyone in the country – how lucrative the doc dispensing business is (that may be a key reason ABRY has held on to AHCS for 6 years, way longer than most investors hold on to companies).

And you know the dollars are coming (mostly) from workers’ comp – which means insurers, employers, taxpayers.  And you know that all credible research indicates physician dispensing increases medical and indemnity costs – plus the higher cost per pill inherent in the doc dispensing model.

Now you own a controlling interest in a company that – and this is important – administers worker’s comp programs but does not insure those programs.

So help me understand why this is not inherently a conflict of interest. As an owner, ABRY makes money when AHCS makes money from workers’ comp payors, but does not lose money when a company it owns pays AHCS’ bills.

I reached out to ABRY’s Brent Stone and NSM CEO Geof Mckernan early this morning in an effort to get their perspectives.  Here’s what I asked Mr Mckernan:

Given that NSM’s insureds and carriers expect NSM to effectively manage their workers’ compensation programs, how does that square with the business model of AHCS, which is based on generating the highest possible fees for physician dispensed drugs?

There is a conflict of interest inherent in owning a company that manages workers’ comp claims and one that profits by generating the highest possible revenues from workers’ comp claims.  How will this be addressed by NSM?

Specifically:

1. How will NSM work to mitigate the additional costs including extended disability duration and medical expenses inherent in physician dispensing?
2. Will ABRY keep AHCS and NSM entirely separate from an investment management perspective?
3. When conflicts arise between AHCS seeking reimbursement and NSM’s claims function (both internal and via YorkRSG), how will those conflicts be addressed?
4. Given the well-documented problems inherent in physician dispensing, how will NSM assure it’s carriers and insureds it is taking all possible steps to mitigate those risks?

I’ll keep you posted if I hear anything…

and thanks to WorkCompCentral for the tip!