There is one industry that’s more highly regulated than workers comp – nuclear power.
Other than that, and perhaps commercial airline travel, comp is it. Sure, there’s varying degrees of regulatory control, there’s no getting around the fact that most of what happens in and around work comp is driven by regulations. Often, the regulators are tasked with developing rules and regs based on legislation written by (speaking generously) non-expert elected officials. This isn’t to slam state legislators, but rather to recognize that they are part-time elected officials working with very limited resources and support who have to develop and vote on legislation that in many cases is far outside their area of expertise.
The legislation on which regulators base their rules may be pretty broad, thereby leaving the rule-writers with a lot of discretion – and potentially opening the door to legal challenge by stakeholders disagreeing with the regulators’ interpretation of the law.
It may also be written with a lot of detail, thereby challenging regulators to develop regulations that will actually work in the real world (which is a different world than the one in which some non-expert legislators operate).
Which puts a LOT of responsibilty on – and vests a lot of authority in – regulators. In my experience, most of the folks tasked with developing and implementing work comp regulations are pretty reasonable, open-minded, and highly knowledgeable. They aren’t looking to antagonize or frustrate stakeholders, but rather take the legislation and laws they are handed and figure out how they can develop regs that a) abide by the intent of the lawmakers and b) can actually work to enhance the quality of care and reduce costs.
That’s harder than it may seem.
For example, let’s say a state legislature passes a law designed to reduce workers comp expenses, and that law includes a requirement to reduce medical expenses. This type of legislation may well include a cut in the fee schedule, as that looks to be a pretty straightforward way to reduce medical costs – if you cut the price, then you cut the cost.
However, there are several studies that show there’s a tenuous connection at best between low fee schedules and low medical costs, and quite a few people think reducing reimbursement can actually lead to higher costs due to increased utilization and decreased quality of care (this is a complex issue that can’t be adequately addressed in this post). Regulators, who understand this issue, are faced with a no-win situation – they’re tasked with figuring out how to reduce costs but are forced to use a tool that may well have the opposite effect.
Sort of a damned if they do situation…
There’s an enlightening piece in Risk and Insurance about the interaction between regulators and stakeholders that provides good perspective on this issue.

The last two speakers at IAIABC were Safety National’s Mark Walls and IAIABC Executive Director Greg Krohm.
Mark’s major concern is health reform will lead to access problems, especially with specialists such as orthopods and neurosurgeons. This may lead to delays in care for work comp patients.

Comorbid conditions are also problematic, driven by obesity, diabetes, and other lifestyle/choice related issues. Work comp has to pay for these conditions, albeit indirectly due to longer disability and more costly medical treatment.
Medical costs are a huge problem, and quality of care is the desired goal. Mark noted there are several related factors, including the number of ‘bad docs’ in the comp system. 4% of docs in Louisiana accounted for 70%+ of medical costs; Mark also cited Alex Swedlow’s data on over-prescribing of opioids in California and physician dispensing of medications as additional evidence of the difficulty in controlling costs when physicians are more interested in making money rather than treat appropriately.
Other cost drivers include use of Actiq in workers comp, a drug that is only approved for cancer pain. Mark pointed out that the state of Washington and Texas have dramatically limited the use of Actiq in their respective states, and called for other states to take similar action.
Greg – who will be retiring as Executive Director at the end of this year – closed the meeting. His forecast was positive and pretty cheery, as he believes disability will be reduced, frequency will continue to decline, and workers will get good care quickly and their wages replaced in full and rapidly.
Greg’s been a very effective leader, and his replacement will be filling mighty big shoes.

Three speakers in the final IAIABC session focused on the future of workers comp and factors affecting same. Allen Hunt of the University of Wisconsin started out discussing the factors contributing to the current deficit. In a nutshell, he doesn’t see the deficit as much of a problem. To support that statement, he shared a slide indicating the deficit was pretty much under control until the Bush tax cuts, wars, and economic downturn, and even after accounting for those issues the deficit just isn’t that significant when considered as a percentage of GDP.
Taxes aren’t high relative to our industrial competitors; overall tax revenue as a percentage of GDP is well under the OECD average of 44.8%; US tax revenue is 26.1%.
What really surprised me was the growth in the number of disabled workers, which has more than tripled since 1981 and is rapidly nearing a million working-age Americans.
Dr Hunt shared a good bit of information about the economy and changes thereto over the last thirty plus years and closed with his predictions for the future of work comp. The takeaways are this
– the injury rate (frequency) will continue to decline – declining employment in blue collar industries, better disability and claims management will drive the rate down for the foreseeable future.
– the underwriting cycle will continue – this is the soft/hard market cycle known all too well to us old-timers.
– Dr Hunt believes there are lot of WC claimants who are finding their way into the Social Security System and this may well continue.
– the percentage of 25-54 YO men who are not working has grown from about 2% in 1967 to 8% in 2003. More and more people are being pushed out of the economy – for whatever reason.
Dr Hunt’s top threats are:
– Political polarization and focus of political gain over solving problems
– Medical cost containment has been a failure
– Wage and employment trends aren’t looking good – the number of workers is not increasing, and given the slow employment recovery it will take another eight years to get back to pre-recession employment levels
– Over-reaction to the deficit threat – Hunt believes strongly that this has been much ado about very little.
– OASDI (Social Security) costs – can be dealt with if taxes are increased by a very small amount.
– commitment to work – Dr Hunt closed by saying we are all soft now…

OK, vacation’s over, and mail box is (almost) cleaned out. So here’s what’s happening this week.
The annual IAIABC conference is underway in Madison Wisconsin. The International Association of Industrial Accident Boards and Commissions is the trade group for the people who regulate workers comp in the US, Canada, and several other countries.
Among the sessions is one on the origin of workers comp in the US – which, fortuitously, occurred in the same town. This will be a great opportunity to take a step back and reflect on what WC is all about, how it has evolved, and think about where it needs to go. And how it can get there.
IAIABC Executive Director Greg Krohm has an editorial in yesterday’s Milwaukee Journal-Sentinel on the subject; here’s an excerpt.

Worker’s compensation was developed in an era when organized labor and employers were at each other’s throats. Labor was pushing for higher wages and better working conditions. Management wanted to rid itself of never-ending lawsuits from work accidents. Both sides, despite their heated arguments, came together to compromise and build something that was better for both sides.
This pragmatic spirit of cooperation in worker’s compensation is especially ironic given the supercharged political climate in Wisconsin of late.

I’m on a panel Thursday discussing the issue of addiction in workers comp. The experts are Gary Franklin MD, medical director for Washington state Labor and Industry (their work comp state fund). Gary’s been a driving force behind Washington’s effort to address addiction in work comp. Tom Jan DO will lead off the panel; Tom’s a pain management doc with extensive expertise in addressing addiction in comp on the patient level. He brings a real-world, street-level perspective that adds much needed perspective; often we policy geeks get too ‘intellectual’ about a problem that destroys lives and families.
This is also the week of the Florida Work Comp Conference; one of the largest in the country with a wealth of good information along with lots of ‘entertainment opportunities’. The quality of the show is even able to get people to Orlando in August…
Meanwhile there’s another news item that work comp payers should be watching.
On the economic front, work comp insurers and TPAs are a bit happier these days as employment seems to be reviving somewhat; payrolls were up in 31 states last month and the overall jobs picture brightened. The upper midwest led the charge with Michigan employers adding 23,000 jobs. To put this in context, things have been pretty dark on the employment front lately, so even a bit of light is welcome. We’ll get a bit more perspective soon as there’s a jobs report due out on Thursday that will help indicate if things are in fact improving or if we’re just bumping along…

I’ve been working on a project for a client that involves, among lots of other things, determining the volume of new and legacy claims in each state. Its been rather eye-opening.
For example, Ohio – which has pretty good reporting, as one might expect form a monopolistic state – had just over a hundred thousand new claims in 2010.
And over eight hundred thousand total open claims in 2010.
Think about that – eight times more open claims than new claims. I’m sure there’s lots of good and bad reasons for this, some due to Ohio’s unique workers comp system. But this disparity, if one can call it that, isn’t limited to Ohio.
Missouri had almost four times as many open claims as new claims, and of the (very) few states that report their open claims volume, most are in the 3x range (open to new).
Perhaps this shouldn’t have come as a surprise, and maybe it’s more of a reminder than a surprise, a reminder that legacy claims are a very, very important part of work comp.
Maybe the most important part.
It seems we spend a lot of time working on new claims – reporting the claim, getting the claimant into network, figuring out reserves, determining cause, etc. All of these are important and valuable, necessary steps in the workers comp process. I’m wondering if we spent the same amount of time/effort/focus on old claims we do on newer ones what we’d get. Maybe not much, maybe a little better results, maybe a few more claims closed a bit faster.
From talking with adjusters and case managers, most view these claims as just bumping along. They’re buried in the day to day stuff, the work that’s ‘urgent’, that has to be done to hit those targets for ‘good claim handling’. Sometimes a strong focus on the ‘urgent’ leads to a lack of focus on the ‘important’.

I can already hear it – “no, we’re all over these; just looked at them; not us, we’ve got our act together.” That may well be so – but are you sure? After all, it’s likely that you’ve got something like three times as many claims on your books as you’ll get reported this year. And those older claims are where the money is.

The healthplan company’s Q2 earnings were released last week. If you were looking for any insights into their comp business, the Coventry release wasn’t the place to look; there was no mention of workers comp results – this despite the sector’s three-quarters of a billion dollars in revenue and outsized contributin to margin.
The big news – actually it was pretty much the only news – was not related to operations, but rather the settlement of the Louisiana lawsuit. Coventry added $0.68 to EPS after the May 31 definitive settlement agreement reduced the company’s liability in the class-action lawsuit. Originally, Coventry had reserved for the full amount of their liability, which came to $1.18 a share; the definitive agreement resulted in a substantial reduction in the company’s liability. As to the merit of the suit, my take is Coventry was mistreated; this suit couldn’t have succeeded in many places other than Louisiana, where providers’ legal power is all out of proportion to any harm they may suffer.
The workers comp operating results appear to be pretty flat, notwithstanding CFO Randy Giles’ statement that Coventry “increased our fee revenue guidance slightly for the second consecutive quarter, driven by our Workers’ Compensation Services business. We continue to be pleased with this ability of these businesses and the very valuable nonregulated earnings that they produce for the company.” (thanks to seeking alpha for the transcript)
While the company does not break out WC financials from the rest of the business, the workers comp sector is the lion’s share of the “Other Management Services” product type. Sources indicate comp is about 88% of that sector’s revenue, making Q2 revenue somewhere in the $195-$199 million range, up slightly over Q1’s $191.6 million, (which was a 4% increase over the prior year’s quarter).
Coventry remains enthusiastic about this business, characterizing its offering as the “Most complete national offering…[with a] Long-term penetration opportunity…CVH offers unparalleled integrated capabilities…[in a] fragmented industry ripe for consolidation…] (from a June 2011 Investor Presentation)
I’d disagree with their characterizations in several ways. First, Coventry is a network and bill review company first and foremost. While it does have offerings in complementary product lines, they aren’t nearly as robust, and certainly nowhere near as dominant as their PPO (their bill review operation is far from industry-dominating). Second, Coventry’s work comp revenue is growing primarily via price increases; the company has lost business of late (Broadspire’s very public split being the most noticeable) and Anthem Wellpoint’s network offering is gaining traction both within, and outside, California.
Second, their integrated capabilities are not “unparalleled” — far from it. Moreover, the market doesn’t see the value of integrating what are pretty different services under one vendor. To the extent that Coventry has been able to sell combinations of services, they’ve been doing this by offering deals – “you buy our PBM offering and we’ll offer a price reduction in these other areas.”
Finally, Coventry is not investing in this business – in fact they’re harvesting margin from workers comp, margin they need to prepare for the post-2014 world of health reform. Don’t expect them to spend anything they absolutely don’t have to on workers comp; this is a cash producer, not a long term growth business.