May
27

Peter Rousmaniere’s piece in Risk and Insurance outlines precisely what needs to be done to reduce unnecessary medical costs in comp.
To date, most ‘managed care’ programs have had little real impact; most just shift costs around and develop phantom savings so sponsors can show what a great job they are doing by cutting reimbursement – oftentimes on bills for services that shouldn’t have been delivered in the first place.
The focus should be on:
– data data data – making sure it is high quality and consistent, and then using that data to develop a deep understanding of cost drivers and how they are evolving.
– managing chronic pain, opioids and addiction to same
– aggressively directing injured workers to excellent providers and paying them whatever it takes to get their attention and cooperation.

Of course, you can always just continue to do what you’re doing today…


May
23

Work comp TPAs; more consolidation

A well-placed industry exec shot me a note late last week re yet another TPA deal; Ohio-based Avizent will buy FARA, a Louisiana-based TPA.
Terms weren’t available, but there’s a bit of an outcry over the deal from some folks in Louisiana. Evidently FARA recently took over administration of the State’s Office of Risk Management as part of Gov Bobby Jindal’s privatization initiative. The deal was worth some $68 million to FARA (there was an increase of some $7 million that sparked heated comments by at least one LA legislator).
That increase seemed to fall just within the boundaries of the law, which enable an agency to increase funding up to 10% of the original contract value.
There are a couple other potential deals out there now; xChanging (formerly Cambridge) is rumored to be close to a sale to one of two very large TPAs.
I’d expect more to come in the not-too-distant future.
Much more.


May
17

Work comp claims systems – the webinar’s coming up

From the “shameless commerce division” of Health Strategy Associates, LLC – a Webinar reporting on our First Annual Survey of Workers Comp Claims IT Systems is coming up later this week – Thursday from 1:30 – 2:30 pm eastern, to be exact.
The Survey obtained input from front-line folks and execs in claims and IT, and we’ll be comparing and contrasting responses to show where there’s a disconnect/differences in opinions between the two groups. You’ll also find out about:
– decision processes,
– what execs are looking for in their new systems,
– the limitations of their current systems,
-pricing methodologies, and
– respondents’ opinions on vendors.
You can sign up by clicking here.
The webinar will be conducted by myself and Sandy Blunt; all attendees will get a detailed copy of the Survey Report as well.
From the Survey, here’s one not-surprising-and-quite-revealing item:
88% of the front-line representatives and managers said their current system is NOT fully integrated with their bill review and utilization review system (75% wish that it was); conversely, 68% of the executive leadership responses state that their system IS fully integrated with their bill review and utilization review system.
Lots more to present on Thursday at 1:30 eastern.


May
13

M&A – what’s happening next in the work comp world?

While there weren’t a plethora of deals announced at RIMS last week, that’s not due to a lack of activity.
The pending changes to tax rates (without another extension, capital gains will go up at the end of 2012) make it imperative that deals get closed before 12/31/2012. But it’s not just the tax code that’s driving activity. The continued soft market and drop in frequency during the recession have been particularly tough on TPAs; many work comp service companies are also hurting, while others look to be nearing the end of their initial run and readying themselves for the ‘equity event’.
Among TPAs, xChanging is nearing a deal to sell its former Cambridge TPA. A couple of suitors are still in the mix, both are big TPAs looking to get even bigger. Expect this to get done within a month or so, and at a price that will surprise.
The Align Networks deal is moving forward as well, with the field of potential acquirers now narrowed down. Financial suitors are rumored to be quite interested, but there remains interest from some looking to combine Align with other assets. I’m speculating here; my guess is it will be a financial buyer smitten by the company’s rapid growth and rosy outlook.
Unless… someone buys both Align and Universal SmartComp and puts them together in a bid to topple MedRisk (current HSA consulting client) from its long held position as the dominant player in the work comp physical medicine sector. I don’t see how that would work as the business/operational models are markedly different. Moreover, a lot of the ‘value’ of the assets lies in their network contracts, which would be redundant in any deal.
There are a couple of other deals rumored to be in the offing, but nothing verifiable as of yesterday. We’ll keep you posted.
Finally, there were rampant rumors at RIMS that one of the big PBMs was about to be sold; not true.


May
11

Examworks – questions I hope someone asked

Update (correction re revenue figures) While flying home from LA yesterday, thru the miracle of airplane wifi I got a note from a colleague stating “MES contributed $13.2 million in revenues in the first quarter of 2011. MES had approx. $129 million in revenues for 2010 (a run-rate of approx. $32 million per quarter).
Am I reading this right??” the net is not exactly, but the earnings report does raise. Few questions.
For those not immersed in this tiny little business, Examworks is a rollup of IME firms, companies that contract with independent doctors to do Independent Medical Exams, primarily for workers comp insurers. Among several other acquisitions last year, Examworks bought MES for some $175 million in cash plus $10 million in assumed debt plus 1.4 million shares of Examworks stock (worth about $25 million) for a total of about $210 million .
If their new acquisition generated about forty million for the first three months of 2010, (deal closed 2/28, so the $13 million was for one month) the obvious question is “was it worth $210 million?”
My colleague was referencing yesterday’s earnings release which was followed by a press conference/call last evening. I didn’t hear the call, so don’t know what was said (will see the transcript by the end of the week). As my investment portfolio demonstrates quite convincingly, I’m no Warren Buffett. But I do know a bit about this business, have helped on a few private equity deals, and can operate a calculator with some facility.
MES’ 2010 EBITDA was about $23.4 million. So, Examworks paid a 11x multiple for MES, a rather princely price. Especially given the Q1 revenue figures.
So, if I was on the call – which I was not – I’d want to ask:

How’s that MES deal?
Have you been able to negotiate more favorable rates with your physicians, and if so, how much lower?
What savings are you seeing from synergies? What kind of synergies have you found?

Here’s hoping someone did.


May
8

Regulatory and legislative trends – NCCI reports

To show just how much I need to get a life, one of the more interesting talks at NCCI las week was a very-well attended general session focused on legislative and regulatory reform. It began with an examination of federal actions beginning with the McCarran Ferguson Act and thru Dodd-Frank, both really important and highly significant legislation that are pretty far outside my area of interest/knowledge/focus.
Things got interesting when we moved into specifics on states. Peter Burton of NCCI noted the fall elections made for a much more Republican slant to most state legislatures and governors’ offices. Jeff Eddinger also spoke, starting off by noting the number of rate increases sought last year about doubled, with NCCI looking for increases in 15 states. Eddinger also reiterated frequency was up nine points last year…
Burton and Eddinger focused on four states – Montana, Illinois,Oklahoma, and North Carolina
The Big Sky State has the highest WC premiums in the nation, a condition that led to an aggressive move by both parties, and by both the legislature and governor, to address costs. The impact of the reforms passed and signed in April is pretty significant – a 22.4% rate decrease. Among the changes from reform, Montana is now an employer direction state, terminated medical benefits after five years (except for permanent claims), and codified usage of the 6th edition of the AMA Guides.
The biggie – Illinois.
IL is known throughout the WC world as a basket case. While Montana’s got troubles, there just isn’t that much business in MT, but there sure is in IL. Caterpillar Tractor has already threatened to leave the state due to work comp, and that, plus the Menard Correctional Center scandal moved comp reform to the top of the list.
As of this week, Gov Quinn has said there looks to be a decent chance that reform will pass despite the partisan battles.
Oklahoma
OK’s WC system is a mess with costs that are the fourth-highest in the nation. The Governor, along with a GOP House and Senate, are likely to get reform completed and signed into law. The bill tightens pharmacy reimbursement, alters the fee schedule, revises IME regulations and makes other changes that together look to reduce premiums significantly.
North Carolina
This is one of the states where government changed dramatically in the GOP landslide of 2009. As a result there is a bill presently under consideration that would, through a variety of specific measures, reduce work comp costs. It is not clear whether this will become law.
There’s a lot more detail available on NCCI’s website on goings-on at other states that wasn’t presented at the conference – you can access it here.


May
6

NCCI on frequency and the impact of older workers

I’m going to skip over two am speeches – while I could indulge my inner pundit and discourse on Charles Krauthammer’s highly selective use of data in his conservative monologue/analysis of President Obama’s psyche and disuss the insights of Arthur Laffer, he of the widely-discredited “Laffer Curve“, the pm sessions were far more interesting.
I do have to provide just one note re Laffer…
Laffer was not only THE supply-side economist; he was also the guy who in August 2006 famously said: “The United States economy has never been in better shape.” Laffer even bet stock broker and UC Berkeley alumnus [and Ron Paul adviser] Peter Schiff a penny that the economy wouldn’t crash.
Barry Lipton led off the research discussion with a drill-down on changes in frequency.

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Recall that frequency has been on an eighteen (or so) year long steady decline or around 3-5% each year. In 2009, overall frequency based on wage adjusted payroll declined by 8.4%, with that decline overcome last year as frequency (number of claims) jumping nine percent. (see NCCI for why it’s probably not really nine percent, but more likely around three percent)
Building off yesterday’s announcement that frequency increased dramatically in 2010, Barry provided background on which types of industry classes (what kinds of jobs in what industries) were seeing what changes in frequency and the relationship of payroll to severity.
Barry was followed by Harry Shuford discussing older workers and their impact on workers comp. This is rather an important topic as older workers – those over 55, are becoming an increasingly large part of the workforce. Shuford put uo a slide that clearly indicated claim frequency variation between age groups essentially disappeared over time. That is, there was wide variation in claim frequency (how often workers are hurt) among age groups in 1994, but very little variation in 2009.
This held true when corrected for job mix. Moreover, severity (cost of the claim) was pretty consistent regardless of age group (for workers over 35, while costs were lower for workers under 35). With that said, there was a rather significant difference in severity when the two groups (above and below 35 years old) were compared, likely caused by the different mix of injuries sustained by the two populations. In fact, about half of the difference in cost was attributed to injury type.
Disability duration was (unsurprisingly) longer for older workers, but a good chunk of the difference was due, again, to the different injury types incurred by the two groups. After considering the various adjustments, medical cost variation was pretty minimal.
The net is most of the impact of baby boomers is “already there”. That is, we likely won’t see much of an uptick in severity due to the aging population in the future.


May
6

Frank Schmid had the honor of conducting the final report at the 2011 NCCI Annual Issues Symposium, and he was well worth the wait. Dr Schmid discussed physician fee schedules, price levels, and ‘price departure’.
Schmid reported not results, but “findings” related to a lot of really intriguing issues. To wit
– how do price and quantity change in response to changes in fee schedule?
– what is the rate of inflation in MD services?
– what is the difference between fee schedule and the actual prices paid, known as ‘price departure’.
– do physicians increase or decrease the quantity of services if a fee schedule declines? are these permanent changes? are they symmetric (reversing the fee schedule reverses the response)
Frank and his colleagues looked at the impact of FS changes on physician service categories and total physician services. I won’t get into the methodology – mostly because it’s way too complex for me to understand, much less describe. NCCi examined four states, FL GA MD and UT.
Florida’s fee schedule increased significantly in January of 2004. Interestingly, prices paid increased when the FS went up, but prices, which before had been about 5% less than FS, were about 10% less after the increase. (note this is consistent with internal data HSA has from payer files). This was even more noticeable with prices for physical medicine, where prices went from 7% below FS to about 25% below after reform. A couple years post-reform, prices actually rose.
The opposite occurred in Maryland, with prices paid actually increasing after the fee schedule was changed midway thru 2004.
Schmid broke this down by actual types of service – evaluation and management codes, etc; the discussion of radiology in Florida was particularly interesting, as Schmid noted that “not only do prices respond to fee schedule changes, but fee schedules respond to price changes”.
There’s a lot of very useful, and interesting information here, and much more to come. I applaud NCCI for digging deep into the pricing and fee schedule issue, as my sense is there’s not near enough understanding of the inter-relationship between price and fee schedule. Future plans are to provide actual results across a score or more of states by the end of the year.
This is great stuff.


May
5

After this morning’s sobering announcement of a 115 combined ratio for work comp, things didn’t get much more rosy in Bob Hartwig’s presentation on the “post-crisis world”.
Since 2005, work comp net written premiums have dropped from about $50 billion to $35, a drop of about 30%. That’s a massive loss, and that’s why everyone, and every business even remotely connected to the work comp insurance has been hammered over the last few years.
It’s got to get better, right?
right?
For that we turn to Bob Hartwig,who covered everything from Bid Laden to jobs to
Hartwig is always entertaining, enthusiastic, and engaging – hard to do when you’re talking insurance. He started out discussing the Terrorism Risk Insurance Program, and specifically the question “now that Bin Laden is dead, do we still need it?”
Absolutely, says Hartwig, who cited the $40 billion cost of 9/11 and noted that any future disaster would almost by definition result in high claims – and high costs – for workers injured or killed in an attack.
Moving on to the Japanese disaster, total costs are estimated to fall somewhere in the $12 to $45 billion level, with most coming in around $25-30 billion.
With the insured costs of the Japanese catastrophe and domestic, primarily weather-related disasters well up above $40 billion, what’s the implication for work comp insurers? Most of the impact will be on the reinsurance markets, which, while they won’t directly impact comp, certainly will as comp insurers get renewals from their reinsurers. Hartwig noted that the impact – over the near term, will be minimal to nonexistent.
The job front is looking up – as there have been two million new jobs created since January 2011, with significantly stronger growth over the last two months adding almost a half-million jobs in February and March alone. This – of course – is great news for work comp as it adds billions in payroll to what – as we noted earlier today – has been a work comp premium base suffering from lower revenues.
The impact of small business and construction were discussed in detail – listening to Hartwig is somewhat analogous to drinking from the proverbial firehose – but the net is there aren’t enough small businesses starting (as of March 2011), too many went bankrupt over the last two years, and all forms of construction haven’t grown enough – or quickly enough – to add a lot of premium dollars over the near term. When construction and small business start-ups get going, that will be good news indeed for insurers.
Reserve releases have been helping to keep the overall P&C insurance industry combined ratio at a decent level (a bit above 100), but when (not IF) these releases stop, the combined ratio will bump up.
So, what does this all mean?
Hartwig appears to believe the work comp market will remain level, with the positive impact of increasing employment balanced by lots of available capital.
My sense is the impact of rising health care costs will be more significant than most think, and will overcome some of the positive factors noted by Hartwig.
We’ll see.


May
5

2010 work comp – results “deteriorated”

This morning NCCI released the 2010 results for private work comp insurers – and they aren’t good. The combined ratio climbed to 115%, an increase of a full five points over 2009. The combined ratio is a key measure of industry performance and the deterioration marks continued decline in the health of work comp.
While the number itself is discouraging, one carrier’s decision to add $800 million to reserves was a major contributor.
The economy and employment also added to the poor results, as premium declined by 1.3 points. Premium is based in part on the number of people working thus the recession’s impact on hiring helped drag results down.
As I’ve been predicting for some time, frequency popped up significantly last year. The ‘real’ bump was about three percent, although NCCI is reporting nine with the difference accounted for by “distortions in collected data.”
More to come later today.