The much-anticipated ‘State of the Line’ presentation by NCCI’s Dennis Mealy (which will be available on ncci.com’s website next week) is the highlight of the Symposium. Here’s what Dennis had to say.
First, the overall property and casualty (P&C) industry’s results weren’t too bad, despite a 3.7% drop in net written premium from 2008. And the combined ratio industry-wide improved three points to 101, led by property’s strong results. The decent news helped keep the combined ratio for the last seven years well under the historic average.
Dennis got into detail re the decline in comp premium over the last few years, and his numbers included high deductible plans and keeping everything consistent by putting historical costs on a common rate level. The net indicated comp in 2007 would have been $89 billion on a common rate basis if all comp was insured, declining to $76 billion in 2009.
The combined ratio – medical and indemnity expense plus admin expense – was up nine points to 110 in 2009, a big jump from their initial prediction back in September of a 106. The difference was driven largely by a big addition to reserves by one large carrier – an addition of about a billion dollars.
Without that reserve adjustment, the combined would have been about 107.
NCCI is making a big investment in, and focusing on, medical costs going forward. While they’ve always reported on medical costs, expect their emphasis to increase led by the Medical Data Call and results and uses thereof.
Comp medical costs per lost time claim went up five points, an improvement over last year’s 6.7%, but consistent with the last few years. (I’d note that the preliminary numbers for 2008 provided in the SoL indicated a 6.0% increase)
Medical costs now seem stuck at 58% of claim costs.
Frequency may spike just a bit as employment grows, but Mealy does not expect the two-decade-long downward trend in frequency to turn around.
Dennis closed with a discussion of the potential impact of the health reform bill and the implementation thereof, a topic I’m going to be speaking on later today (if you’d like a copy of my presentation email infoAThealthstrategyassocDOTcom). His main points were the direct impact of the Black Lung Entitlement and potential changes to Medicare reimbursement; this last is a two part process, first being what do the Feds do, and then what do the states do in response to any Federal changes in Medicare reimbursement.
Dennis noted that among the other issues worth watching are the effect of
– increased health care coverage among the general population
– consumers’ greater access to drugs, particularly generics
– new taxes on pharma, devices, and health insurance companies
– Medicare secondary payer issues
I’d highly recommend everyone affiliated with the comp industry get a copy of Dennis’ presentation; again it will be available next week on the ncci.com website. His historical perspective and awareness of national as well as state-specific issues provides insight that’s not available anywhere else.

NCCI President Stephan Klingel led off this year’s NCCI Annual Issues Symposium with a brief intro, and his lead in wasn’t exactly encouraging, predicting a ‘precarious’ outlook for the workers comp market.
The factors that led NCCI to characterize work comp’s future as precarious were the recession, recovery, Federal environment, and other external factors.

Remember, Klingel’s comments reflect what happened over the last couple years and the uncertainty driven by those factors. And there’s no question the recession and other factors have had a huge impact on comp; in fact private carrier net written premium (NWP) dropped by almost twelve points ($5.2 billion) over the last year.

That’s bad. What’s much worse is comparing 2009 to 2005, which shows a decrease of $13.7 billion in NWP for private carriers and state funds. That’s a drop of 29%.
This is a result of a decline in three areas: the number of workers employed; the hours those employed workers actually worked; and the industries most affected by the recession – manufacturing and construction. Those two sectors account for a fifth of payroll, but 40% of work comp premium.
As these are two of the most important industries to work comp, it isn’t a surprise that comp premiums declined dramatically.
As recovery continues, NCCI expects frequency will, if not increase, at least level off from teh past two decades of annual declines.
Klingel got into some detail re the provisions of the reform law that directly impact workers comp, focusing on the changes to black lung.
One of the more interesting points was a brief discussion of the potential for medical cost shifting; Klingel stated that work comp is the largest single source of reimbursement for the health care system that is not regulated in some way by the Federal government. (I don’t agree with the premise, which requires one to equate the mandatory medical loss ratio as Federal control over medical payments, an ‘equation’ that requires a couple leaps)
More Federal involvement with insurance is likely, according to NCCI’s President, who believes there will be a Federal office of insurance information (name tbd) – this requires legislation to be passed by Congress and signed into law by President Obama, after which the regulation writers would control the actual implementation.
The ‘Baca bill’ continues to languish, although there may (operative word being ‘may’) be some implications for a Federal insurance office.

Other conferences may be hurting, with corporate travel restrictions cutting attendance, but that doesn’t appear to be the case at this year’s NCCI Annual Issues Symposium.
While we’ll have to wait for a few more minutes to hear Dennis Mealy’s Annual state of the industry presentation, what is clear from conversations at the opening reception, and the number of people attending, is this is a dynamic time in work comp, with lots of external factors (reform, recession, investment returns, technology, CMS) pushing, pulling, and twisting comp companies in ways they’ve never been pushed, pulled, or twisted before.
here are a few of the early highlights from NCCI’s press release…
– the 2009 accident year combined ratio is up 5 points from the previous year to 107
– the calendar year combined was up even more, climbing 9 points to 110
– pricing continued to decline in 2009, not helping carriers’ reserve situation which also worsened albeit slightly
– medical cost increases moderated somewhat, although they remain a couple pointds above overall medical inflation
– indemnity claim costs also continue to rise, with a similar moderating trend.
more to come.

Heading out to NCCI’s Annual Issues Symposium this morning, where I’ll be ‘covering’ the conference on MCM and speaking on a panel with David Deitz, MD PhD and Barry Lipton FCAS on “Understanding Key Workers Comp Medical Issues”.
A good bit of the agenda is dedicated to exploring regulatory, reform, and post-reform issues; Dennis Mealy’s State of the Line presentation will also attract a lot of attention.
For those yet to attend an NCCI AIS, I found it to be the most productive workers comp conference I’ve been to. The presentations typically get into lots of data and detail, the NCCI folks provide a wealth of insight and information, much of which can be used to help comp industry participants determine where the industry is going and what it means for them.
See you in Orlando.

Numbers released by the Institute for Supply Management indicate manufacturing activity increased in April for the fifth consecutive month, while public construction was also up.
The manufacturing numbers were the strongest they’ve been since June 2004, and according to a piece in MarketWatch; “Norbert Ore, chairman of the ISM’s manufacturing survey committee, said there was no reason that the improvement in the factory sector couldn’t continue. [emphasis added] “Overall it is an excellent report. The manufacturing sector is in a significant recovery.”
Spending in the consumer market also increased significantly, to levels not only higher than just before the recession, but breaking previous all-time records. The rise was driven in large part by higher spending on autos, a welcome sign for manufacturers around the country and their distribution systems.
Overall economic indicators continue to trend up, a welcome sign for a work comp industry hammered by a long soft market, under-pricing, rising medical expenses, and reduced frequency.
Good news two days in a row…

When the huge Chinese treasure fleets up-anchored and raised their sails, their mission was simple, the execution of that mission anything but.
Expanding Chinese influence and trading was the goal, a goal that required designing, building, crewing, and training a navy that could sail into uncharted waters with unknown weather, currents, navigational hazards, and enemies and return to their home ports with valuable cargo.

Needless to say, the routes taken by the fleets are littered with wrecks, as the ships were driven ashore by typhoons, wrecked on unknown shoals, and sunk by rogue waves.
While the dangers were there, so were the skills of the shipbuilders, crews, and officers.
Therein lies the lesson for work comp.
Over the near term, premium receipts are likely to increase, driven by higher employment in the health care, manufacturing, logistics, and some day possibly construction sectors. There are some early signs, as Roberto Ceniceros reports in Comp Time. On the claims side, Concentra’s clinics saw an increase in initial patient visits in the last quarter of 2009, and that trend has continued so far this year.
NCCI has researched the relationship between increasing post-recession employment and injury rates, and the anecdotal information provided by Concentra is consistent with their findings. Their report read in part “Job creation is related to an increase in the proportion of workers who are inexperienced in their current job and, hence, more likely to sustain a workplace injury.”
As firms staff up to meet demand for new houses, cars, and services, the faster pace of work, coupled with the inexperience of the new hires, will likely result in more injuries both in total and as a function of hours worked. Again, according to NCCI, “On net, the effect of job creation dominates quantitatively, thus generating the observed pro cyclical behavior in the growth rate of workplace injury and illness incidence rates. Further, it is shown that the growth rate of frequency tends to overshoot during economic recoveries, although this effect is not common to all recessions.”
Concentra ‘battened down the hatches’ a couple years ago in an effort to hang in there while waiting for the economy to rebound. Investments in improving the ‘patient experience’ were also made, and according to CEO Jim Greenwood, these investments are probably contributing to the uptick in visits.
There’s no question work comp is largely driven by employment, and we’re seeing encouraging signs that things are looking much brighter.
The better-but-still-not-good-but-nonetheless-welcome employment news heartened several TPA execs I spoke with last week at RIMS. This is likely linked to evidence of firming TPA per-claim pricing in some areas and sectors; the sense was the improving economy, the Sedgwick deal, and specific growth in manufacturing and temp hiring will lead to a 2010 that is a significant improvement over ’09. News from the midwest indicates manufacturing activity, new orders, backlog, and employment all rose in April, led by Caterpillar’s announcement it is rehiring 9000 workers.
Across the country, the economy has grown for three quarters in a row, and some economists are expecting this to accelerate, creating hundreds of thousands of jobs in the process. If current patterns continue for the rest of the year, there will be about four million new jobs created since the signing of the Stimulus Bill.
Even Warren Buffet is excited…
On the medical expense side, the nearest term will likely be most affected by drug costs. Expect drug prices to level off (after last year’s 9.3% brand drug price increase) somewhat, but watch carefully: if pharma thinks the Feds are going to negotiate prices for Medicare Part D, we may well see another jump in price.
State drug fee schedules are already starting to change to reflect BlueBook’s demise; New York has decided to use RedBook and sources indicate other states are exploring that alternative as well. With the demise now ten months away, expect activity to accelerate.
What does this mean for you?
Good news on a Monday is always welcome. If employment continues to increase (April numbers will be out by 8:15 est today) insurers, TPAs, and managed care firms can expect decent growth after a year and a half of misery.

Big changes are in store for work comp, changes brought on by a much-altered economy, health reform, technological leaps, health care provider behavior, governmental influences, budgetary shifts, and demographics.
Driving home from RIMS yesterday, I was struggling to come up with a way of explaining what’s coming in a way that captured where we are today and what the next few years will look like. Fried after three days of nonstop meetings, I flipped on the stereo and there was the answer.
I’d been listening to a book-on-CD entitled ‘1421, The Year China Discovered the World’ by Gavin Menzies. An amazing read (or more properly listen), Menzies spent years reconstructing data from sources around the world, data that build a compelling (and controversial) case for his contention that huge Chinese treasure fleets comprised of hundreds of massive ships circumnavigated the globe seventy years before Europeans got in their tiny ships to sail to the Americas.
According to Menzies, the Chinese built a huge treasure fleet, far more sophisticated and capable than anything the West could even contemplate, and set forth to chart the world’s oceans and continents. They knew a lot about navigation, but there were big gaps in that knowledge. They also had little information about what they would find as they sailed thousands of miles from their home waters.

Their ships, square-rigged and large beyond comprehension for the time, could only sail before the wind, thus they were forced to go where prevailing winds and currents took them. China’s admirals, many of whom were brilliant navigators and leaders, had some charts from previous expeditions and well-built ships designed specifically for years’ long voyages; but by the very nature of their task they were indeed venturing into uncharted waters.
The parallels are certainly clear.
Work comp payers and vendors can’t do what macro influences, the law and the markets don’t allow – at least not for long. We can trim our sails, keep a sharp lookout, carefully question those who have some knowledge about where we appear to be heading, and plan and practice what we’ll do as we come across new challenges and perils.
What we can’t do is stay in the harbor. Like it or not, we’re on the seas heading for places we know not.
Over the next few days I’ll draw more parallels (for nautically inclined readers, pun intended) and climb to the highest crow’s nest to peer ahead.
(Note – Menzies has been severely criticized for some of his methods and conclusions; nonetheless there is ample evidence that Chinese sailors made their way to Africa and many other destinations thousands of miles from their home ports)

The comp industry spends millions on utilization review – certifying a procedure, hospital stay, therapy, or treatment as ‘necessary’ – or not. What most payers don’t realize, or, more correctly, probably realize and don’t discuss, is the reality that their UR systems are not linked to bill review platforms, so if the procedure/therapy/treatment is delivered and billed, in far too many cases it is paid.
That’s not to say payers don’t spend a lot of time, resource, and effort trying to link UR and BR, but the ‘link’ is largely manual, requiring bill review processors to stop what they’re doing, look at (in many instances) a different software application or database, interpret the free form text, and manually enter payment recommendations and explanation codes.
Which is a waste not only of administrative effort, but medical dollars as well.
I’d long heard about this, and seen it in many of the audits of managed care programs my firm conducted, but until I surveyed most of the largest payers in the nation last year I didn’t fully grasp how pervasive this is. (if you want a copy of the survey do not leave a comment to this post, rather email infoAThealthstrategyassocDOTcom)
The problem
The current challenge facing all bill review application vendors is a limited ability to interface with UR software products in general. Most UR software platforms capture their decisions in a narrative form, in text or free-form fields. Therein lies the problem; UR decisions must be capable of being placed in a file format that computers can recognize. Moreover, each payer has their own unique approach, set of UR guidelines, interpretation of state UR rules, and customer requirements, making the integration of bill review and UR doubly difficult.
Potential solutions
Now two bill review companies are working to address that problem. Mitchell, which markets the SmartAdviser application, will be releasing an internally-developed service, entitled Utilization Review Decision Manager, that is designed to automate the feed of utilization review determinations. The idea is to enable customers to auto-adjudicate bills and individual services that up till now people had to research and authorize manually. The new app is slated to be on the market in July of this year; it is currently about to enter the testing phase. That’s a very tight timetable, but SmartAdviser’s General Manager Nina Smith advised me in a call yesterday that Mitchell is committed to hitting the date.
The app, which is ‘enabled’ by SmartAdviser’s Capstone business rules engine, uses a proprietary approach to group procedure codes into a treatment group according to diagnosis, the idea being approval of a carpal tunnel release includes ‘approval’ of related services – facility charges, PT, anesthesia, etc. Mitchell expects the app to increase ‘throughput’ (bills not touched by a reviewer) by about 17%.
Competitor Medata implemented their solution about a year ago; according to Cy King, Medata’s CEO, the company rolled it out with a very large retail client who is quite pleased with the results. So far, client savings have increased from 5% – 7% depending on the month. Components of the solution are provided by Datacare through their Bill Zee product.
King reported that Medata is currently working on several additional implementations.
I’d note that it is entirely possible the other bill review vendors (CompIQ, Stratacare Coventry) offer similar UR-integration functionality, but at least as of last summer, no one was using them. If this is of interest, you can ask them at RIMS next week in Boston.
What does this mean for you?

Hopefully more efficiency and lower medical expense. Hopefully.

I posted on the growing problem of hospital costs in California a few days ago, and since then I’ve been working on a project to identify facilities to include – and exclude – from its MPN (California’s version of a certified work comp provider network)
It’s sometimes tough to tell which facilities are the ones to steer injured workers away from, and it’s even tougher to convince the treating physician to make a change.
Fortunately, some providers in California have decided it’s time to fess up, providing payers not only their names, but clear evidence on why they shouldn’t be treating work comp patients.
The list, available here (thanks to WorkCompCentral for the head’s up), identifies the hospital outpatient and ambulatory surgery centers that have opted to be paid as ‘outliers’. That is, these facilities don’t want to be paid based on the fee schedule’s standard 1.22 times the Medicare rate on all cases. Instead, they have notified payers that they are to be paid 1.20 times the Medicare rate on all cases plus an additional payment for specific outlier cases.
Fortunately, there aren’t that many providers on the list – probably less than fifty.
Even more fortunate, the good folks at California’s Division of Workers Comp have published each facility’s cost-to-charge ratio. Simply put, this is a comparison of what it costs the facility to deliver the service to what it charges payers for that service (on average). So, the lower the cost to charge ratio, the higher the charge in relation to what it actually costs to deliver the care.
There are some rather stunning revelations on the thankfully-brief list of ‘outliers’.
For example. The Long Beach Pain Center Medical Clinic, Inc. has a cost to charge ratio of .20. That means they charge payers five times what it costs to deliver the service. And they aren’t the…most ambitious.
There are seven (7) providers that charge more than five times costs, with two charging more than nine times costs. (Midway Hospital Medical Center and John F. Kennedy Memorial)
More information
This isn’t the only resource for payers trying to find out which providers charge ‘reasonably’ and which ones less so. For more background, CDC is an excellent resource with lots of information written in laymen’s terms; they also publish the average state cost to charge data here.
Our friends at HHS publish a variety of reports that help payers determine provider efficiency, here’s one for inpatient admissions (covers all states and all providers). Many states publish similar data; here’s Kentucky‘s,
Before I get flamed by providers telling me how their costs charges are justified because they only treat really sick patients or the cost evaluation isn’t fair or their treatment is just soooo much better, I’ll freely admit that cost is only part of the cost-benefit equation, and reasonable folks would argue it’s unfair to look at one without the other.
True. And as soon as these providers show exactly why they’re worth the added cost, we’ll consider their evidence.