Category: Workers Comp

May
25

New risks in workers comp – the rise of mining

Posted by Joe Paduda on Friday, May 25th, 2012 | Comments

While construction is still in the dumps, there’s been a remarkable recovery in what was once thought to be a gone-forever industry – mining. While the mineral mines in Michigan, oil shale projects in North Dakota, copper mining in the southwest and oil and gas in near-shore and Arctic areas have yet to hit their full stride, the growth in employment in extractive industries has been significant – up almost sixty percent over the last ten years, with an increase of 12 percent since the beginning of 2011.
The BLS projects employment to grow by almost 25% from 2010 to 2020, and current hiring levels make that projection appear to be conservative.
Wages are also high at over $28 an hour, and the average work week is well over full-time. This is balanced by a decline in frequency for OSHA reportable injuries/illnesses, but the underlying trend is clear – the mining and extractive industries are experiencing a rebirth, one that will dramatically affect workers comp albeit in selected states.
This has already hit North Dakota, where the state’s monopolistic fund, already under fire for what can fairly be termed gross incompetence and possibly intentional negligence, is hard pressed to deal with the huge growth in oil and gas in the western part of the state. Tough to focus on business when you’re consumed with circling the wagons to hold off legal inquiries into denying injured workers benefits.
The implications for comp are obvious.
Injury rates in extractive industries are higher than average, and the types of injuries tend to be more severe.
There are fewer opportunities for transitional duty to help recovering workers get back on the (a) job.
Job sites are often located far from cities and comprehensive medical care services.
New employees may not receive adequate training in safety and loss prevention.
What does this mean for you?
Work comp executives, regulators, and service providers would be well-served to closely monitor employment projections; while these shifts will only affect certain states, the impact they will have on those states is likely to be significant.

May
22

Inflation in Medicare, private insurance, and work comp

Posted by Joe Paduda on Tuesday, May 22nd, 2012 | Comments

Credible research indicates health cost inflation rates will remain fairly low during this decade, driven by “greater cost-sharing in private insurance, new Medicare payment policies, slower growth in prescription drug spending, and an upcoming tax on high-cost insurance premiums.”
Note two of the primary drivers are reduced payments to providers by Medicare and Medicaid and more spending by individuals. These ‘cost-moderators’ are countered (somewhat) by the growth in Medicare eligibles.
The result is overall inflation rates will be about the same for private payers and Medicare at 5.7%. However, on a per-enrollee basis, Medicare’s trend is substantially lower (more than two points) than private insurance. Again, cuts in Medicare’s reimbursement to providers is the primary driver.
It is important to understand the difference between overall program and per-enrollee
cost inflation; it’s also important to think thru the implications for other payers – work comp and auto specifically.
With significant growth in Medicare and Medicaid enrollment coupled with low growth in the number of privately insureds, providers will see flat to declining compensation from a large chunk of their patient population. The latest figures indicate physician compensation rates have been relatively stable; given low overall inflation this is likely “acceptable”. Notably, some specialities saw increases while others dealt with reduced compensation.
However, as patient mix changes, the decline in compensation is inevitable, and will have far-reaching consequences.
What does this mean for you?
Expect utilization to increase, along with charges for services billed to all payers. Those payers without strong fee schedule or contractual controls on price will likely see significant price inflation as well.

May
17

Cost shifting to work comp – sure, go ahead!

Posted by Joe Paduda on Thursday, May 17th, 2012 | Comments

An article in Physicians News yesterday suggested providers look to workers comp to make up revenue losses from Medicare and commercial payers’ declining reimbursement. That wasn’t stated explicitly, but you don’t have to be a code-breaker to get author Franklin Rooks’ message.
Rooks’ main point appeared to be for physicians to think carefully before agreeing to work comp PPO contracts. Can’t disagree with that, but I do take exception to the several statements which are the basis for his arguments.
As Rooks cited me in his piece, I posted a comment, which is excerpted below.
1. The article stated “Employer direction of medical care tends to erode workers compensation reimbursement to levels below the state fee schedule.” without providing any data or backup whatsoever to support this assertion. Physician News’ editors should have caught this.
In fact there is ample evidence from multiple sources that there are many factors impacting reimbursement, with market concentration of providers and the relative level of workers comp fee schedules [compared to other payers’ reimbursement amounts] chief among them.
2. The article cited the recent effort by Florida’s legislature to ban egregious over-charging for physician dispensed medications. As readers know all too well, in Florida, physician dispensing of medications to workers comp patients has increased employers’ costs by over $60 million with no benefit to injured workers. Data from several sources indicate physician dispensing adds over a billion dollars to the national workers comp tab, again with no discernible, demonstrated benefit to patients. There is, in fact, a critical issue of patient safety in the practice of physician dispensing, as work comp physicians often do not know precisely what medications the patient is taking, and therefore cannot be sure there are not potentially hazardous drug-drug interactions.
I’d also note that workers comp is NOT intended to be the payer used by physicians and other providers seeking to make up for lost revenue from other sources. Mr Rooks’ unstated but clearly intended message is for providers to seek the most reimbursement possible from comp to compensate for declines in other sources.
That is inappropriate and unethical.
Thanks to Sandy S for the head’s up.

May
14

NCCI research wrap-up; disability duration drivers

Posted by Joe Paduda on Monday, May 14th, 2012 | Comments

Late on Friday the true work comp nerds stuck around for the research workshop, while the smarter NCCI attendees headed home or hit the golf course.
Barry Lipton led off with the latest info on NCCI’s research into temporary total disability. Duration has been increasing significantly over the last 6 years, driven by the recession. Duration increases moderating over the last couple years, likely due to small claims coming back into the system and the improvement in employment.
One of the primary drivers is…SURPRISE our old nemesis, opioids.
The duration of claims with opioids is 50% longer, with some claims seeing disability duration twice as long when case mix adjusted. Opioids were defined as schedule II drugs plus tramadol. Liberty Medical Director David Deitz raised the point that looking at diagnoses and the potential impact of opioids on changes in diagnosis or severity may be helpful in assessing impact.
The next update was on the impact of comorbidities on cost. The work done by NCCI was enlightening. 4% of all claims (MO and LT) between 2000 – 09 had treatments, paid for by workers comp, for comorbidities, with hypertension the most common. These claims cost twice as much as those without comorbidities.
For those hoping health reform is overturned, remember over a quarter of the working age population in Texas and Florida is without health insurance…if reform sticks, many more of these folks will have coverage, and work comp won’t have to pay for these comorbid treatments.
Drug abuse was the second most common diagnosis followed by diabetes and chronic pulmonary issues; about 2/3 of comorbid claimants are male, with a much higher percentage of males diagnosed for drug abuse.
The vast majority of treatment for drug abuse is hospital-bsaed, unlike all other comorbid conditions.
The cost of claims with comorbidities is, not surprisingly higher. When case mix adjusted, comorbid claims cost twice as much as those without comorbid treatments. The audience raise a number of questions and brought up a number of points many of which will be factored into future research by NCCI.
And that wraps it up. Overall, an excellent conference, and no, I wasn’t able to make Peggy Noonan’s talk. Alas.

May
10

NCCI – the state of the line 2012

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

This was the tenth year NCCI Chief Actuary Dennis Mealy gave the State of the Line presentation (I’ll post the link when it’s available).
Claim frequency – on an adjusted basis – was down slightly (a single point). This continues a long term downward trend (interrupted last year by a big bump up, likely driven by employment factors) but the rate of decline may be flattening out.
Total premiums jumped 7.4%, and when state funds are included, premiums were $36.3 billion, down from a high of $47.8 in 2005. The increase was driven by higher payroll and audit results (insurers audit payroll to make sure employers are accurately reporting their employee count and payroll).
Mealy noted that data from Goldman Sachs indicates prices are firming; a survey of agents had over three-quarters of respondents indicating prices were increasing, with 11.5% reporting prices up more than 11%. These were markedly different from results from the 2011 and 2010 surveys. These trends indicate premiums will continue to grow in 2012.
If and when manufacturing and construction employment increases substantially, we’ll almost certainly see premiums rise even more. For now, employment in both sectors is still way under pre-recession levels, although manufacturing is recovering somewhat.
The calendar year combined ratio deteriorated; while the 115 stayed the same, three points of last year’s 115 number was driven by big additions to reserves from a single payer. When you remove that “outlier”, it is clear results have deteriorated.
Accident year losses were a touch lower at 114.
Reserve deficiency isn’t much of an issue as the ‘real’ deficit about half of the reported $11 billion due to accounting practices.
Medical cost per claim was up four points, with total spend (in NCCI states, including state funds) hitting $28 billion. (note California is not included)
Break time…

May
10

NCCI – first take on the state of the work comp industry in 2011

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

(I’ll be live blogging from NCCI again this year with several updates throughout the day)
Higher combined ratios, spotty market hardening, spikes in medical costs, ups and downs in claim frequency, more hiring in some sectors – for whatever reason, there’s a lot of interest in work comp this year, and the all-time high in attendance at this year’s NCCI meeting is evidence of this interest.
NCCI CEO Steve Klingel described the work comp market as “conflicted”; some markets are getting better, indicators show positive and negative trends, and frequency is bouncing around a bit too. Here are the highlights.
– the combined ratio for accident year 2011 indicates an improvement, dropping two points to 114. (the calendar year combined ratio was 115, marking a deterioration.
– claim frequency declined in 2011, but the decline was minimal at best at 1%.
– medical costs for lost time claims bumped up four points
– written premium volume increased significantly, up 7.4%. While that’s good news indeed, remember premiums have dropped 27% since 2005. Clearly there’s a lot of ground to make up…
And the big news, for the third consecutive year, operating margins were essentially flat.
That’s no surprise – investment returns are awful, hiring is not where it needs to be, there’s a lot of competition for comp premium.
So, what are the factors, the wildcards that may move the market? Klingel cited major shifts in the economy, potential legal issues with health reform, and political gridlock.
My take is Klingel missed the major wildcard with reform; if PPACA is overturned, the number of uninsured will grow, there will be more cost-shifting to work comp, and we’ll see medical costs increase. And that’s on top of the issues inherent in treating claimants who don’t have medical insurance for their non-occ conditions.
If health reform sticks, the number of uninsured will decline by more than thirty million, there will be less incentive on the part of providers to shift costs to work comp payers, and insurers won’t have to cover treatment for conditions that inhibit healing and return to work.
Thanks to NCCI’s Greg Quinn for providing the details behind Klingel’s presentation. NCCI is pushing social media even more this year; they’ve got a mobile app, social media site, and ten different publications are reporting from the conference.
NCCI was the first industry conference to welcome bloggers and online media, and kudos to them for recognizing early on what has taken others a bit longer to figure out.
Next up – Dennis Mealy’s annual state of the line presentation – I can’t wait…

May
8

NCCI’s 2012 conference – what’s on tap

Posted by Joe Paduda on Tuesday, May 8th, 2012 | Comments

The Annual Issues Symposium starts tomorrow, and here’s what’s on tap.
The highlight for fellow work comp geeks is the State of the Line Report, the annual update on results, cost drivers, and trends delivered by top actuary Dennis Mealy, with Friday’s afternoon research workshop a close second.
There are a couple sessions focused on or addressing the role of the federal government in insurance regulation. There’s some internal conflict in the industry over this; historically payers have chafed under the burden of complying with the whims of fifty-one regulators, while state regulators have proclaimed the primacy of their role. With financial regulatory reforms taking effect (Dodd Frank et al), there’s certain to be a lively debate over who’s in charge of what.
The powers-that-be at NCCI will once again have a keynote delivered by a conservative political figure; this year it is Peggy Noonan, who will be speaking on “America’s Ongoing Quest for Patriotic Grace.” What this annual right-wing proselytizing has to do with workers comp is beyond me.
Finally, the guy who wrote Freakonomics is also speaking; Steven Dubner’s insights into why people do what they do will provide a great counter to the “cold hard logic” employed by NCCI’s economists in their research and presentations.
I’ll be live blogging from the conference; see you in Orlando.

Apr
30

Pharmacy Benefit Managers – if they report, why doesn’t everyone?

Posted by Joe Paduda on Monday, April 30th, 2012 | Comments

Last week’s post on the recent release of Annual Reports by PBMs Progressive, PMSI, and Express Scripts, got me thinking (spurred by a friend’s query); if PBMs produce these reports as a matter of course, why don’t other specialty medical management companies?
The wealth of information contained in these reports provides readers with insights into cost drivers; pricing; changes in prescribing and treatment patterns; differences due to geography, claim duration, and diagnosis; new treatment options; and changes over time in all of these categories/metrics.
It strikes me that industry/speciality appropriate information would be pretty valuable and help differentiate as well.
PBMs have raised the annual report to an art form; PMSI’s is extremely detailed and clinically robust; Cypress Care’s upcoming report differentiates between older (> 3years) and new claims; Express focused on opportunities to reduce costs thru increased use of step therapy and generics; Progressive’s discussion of regulatory changes was comprehensive and thorough.
The short answer is “it takes a lot of resources.” True, but the payoff is likely commensurate with the investment. Others are concerned that somehow competitors will learn the ingredients of their “secret sauce” and use it against them. Possibly, but not if you’re smart and careful.
There’s precious little real differentiation in the managed care services industry. Clearly it’s working for PBMs; undoubtedly it will work in other sectors as well.
and a “thanks for the thinking” to Peter Rousmaniere.

Apr
27

Coventry’s Q1 2012 earnings report – the work comp story

Posted by Joe Paduda on Friday, April 27th, 2012 | Comments

While Coventry’s work comp division revenues were pretty much flat quarter over quarter, the company views the results as better than expected. .
In comments during this morning’s Q1 2012 earnings call, CFO Randy Giles said Coventry had experienced “higher than expected revenue from the workers comp business”; he went on to note that the overall improvement in Coventry’s overall SG&A (sales, general, and administrative) expenses was driven by workers comp (I’m paraphrasing here).
(Coventry broke out work comp revenues separately from other lines this quarter)
While revenues may have been higher than expected, comparing Q1 2012 to the same quarter in 2011, workers comp revenues were flat. As there was considerable growth in the governmental businesses, comp as a percentage of overall revenues declined to 5.2% from 6.3% from Q1 2011. Sources indicate comp is still extraordinarily profitable, with margins at least double overall operating margins of 7.5%.
The impact of recent customer defections has yet to be felt; it remains to be seen if Coventry can make up for the losses by adding new customers and increasing pricing and selling more services to current ones. Given today’s more competitive work comp services environment this may be a ‘heavy lift.’
The macro factors affecting work comp are well-known, but perhaps misunderstood in terms of their impact on Coventry. For example, work comp claim frequency may have leveled off last quarter or perhaps even declined. This affects bill review, network, and UR volume.
Work comp medical costs are increasing due to pharmacy and facility drivers,while disability duration – and attendant medical costs – also looks to be increasing. The consolidation among health care systems and hospital has increased providers’ negotiating leverage, making it ever-harder for WC network staff to squeeze discounts out of providers. These drive bill review and network business.
Coventry PBM FirstScript generates a disproportionately large portion of the division’s revenue, and has been benefiting from industry-wide drug price increases. More detail on this next week.
The earnings call this morning was preceded by release of the Q1 earnings report

Apr
26

Work comp drug trends reports – tis the season

Posted by Joe Paduda on Thursday, April 26th, 2012 | Comments

Tis the season for drug trend reports. Recent releases from PMSI, Express Scripts (ESI), and Progressive Medical show an ever-increasing level of sophistication and growing insight into cost drivers in workers comp pharmacy. Moreover, the layout, graphics, use of charts and layout are far superior across the board.
I’d caution readers against using these reports to directly compare PBMs; mix of business/client base, average age of claim, jurisdictional market share, and other factors make direct comparison of statistical results inappropriate. For example, one PBM might have significant share of the state funds, other PBMs typically service large carriers; some may have a large book of older claims (with higher spend, more opioids, and lower generic fills) while other, newer PBMs will have fewer legacy claims.
Here are some of the highlights from each.
Industry founder PMSI has been producing reports longer than most; their latest release includes chief clinician Maria Sciame, PharmD’s video discussion of the report. It needs a bit of highlighting, as at 72 pages, it is by far the most voluminous of the studies. PMSI saw an average cost increase of 3.2% with a higher cost per script somewhat mitigated by lower utilization. (in fairness, PMSI’s book likely has a higher proportion of legacy, long-term claimants than other PBMs, again making direct comparisons inappropriate; their average claim is 4.9 years old)
Average blended prices (weighted brand and generic) were up 6.3%, driven almost entirely by an 8.3% jump in brand AWP. These increases were somewhat mitigated by PMSI’s high mail order penetration and the attendant lower customer pricing; due in part to their mix of business, 27.5% of their scripts were home delivered. Narcotic utilization per claimant also declined.
Of particular interest is the lengthy discussion of differences in drugs used by claimants as claims age. In general, costs, and the number of scripts, go up rapidly over the first six years, level off somewhat, then cost trends upwards again after ten years while the volume of scripts stays level.
ESI released their drug trends report a couple weeks back. The big news is spend – measured on a cost per user-per year basis – decreased by 1.8%, driven primarily by a drop in utilization. Notably, narcotic spend decreased 3.6%, influenced by a 6.2 percent decline in OxyContin(r) spend. Overall costs could have dropped further if claimants had taken full advantage of home delivery/mail order, maximized generic substitution, eliminated physician dispensing, and used in-network pharmacies.
Express focused their report on opportunities for payers to reduce costs by addressing unnecessary spend, or waste. Their estimates indicate payers could reduce costs by some $2.1 billion by eliminating “waste”. While most of this reduction would come from greater use of generics, ESI also noted a significant increase in the cost of compounds; over the last four years costs have more than doubled. Substituting commercially-available alternatives for compounds would save hundreds of dollars per script…
Progressive Medical reported a 1.3% drop in spend per claim for 2011 as well, with narcotics down 3.9%, this despite an average increase in AWP of almost six percent on a per-claim basis. PMI’s report provided detailed explanations of legislative/regulatory changes during 2011, as well as a lengthy, and informative forecast of issues including new drug approvals, FDA activities and societal issues affecting pharmacy management. Unlike other PBMs, PMI does not see third party biller activity as an issue. This is unsurprising, as their ownership by Stone River enables PMI to apply their negotiated discounts to all bills coming thru Stone River Pharmacy (the leading third party biller).
As with other PBMs, Progressive focused on compounded medications, with their data indicating a very small (1.2%) increase in the average cost of compounds, offset by a 3.9% decline in the percentage of claimants using compounds driven by PMI’s requirement that all retail-dispensed compounds go thru a prior-authorization process.
There should be a couple more reports out shortly; when they are we’ll get them out to you as well.