Category: Workers Comp

May
18

Sedgwick buys Orchid Medical

Posted by Joe Paduda on Wednesday, May 18th, 2022 | Comments

Sedgwick has acquired Orchid Medical in what is the giant TPA’s latest move to add more services to its portfolio. Sedgwick hasn’t posted on this yet; when it does it should be here.

Over the last few years Sedgwick added Managed Care Advisors (government contracting firm focused on work comp services) and CareWorks (WC services firm acquired as part of the York deal) to its portfolio; multiple sources indicate it is deep into discussions with start-up work comp PBM CadenceRx to supply back-office and perhaps network services (CadenceRx uses a third party for its retail pharmacy network).

The net effect of these acquisitions/ventures – which continue Sedgwick’s decade-plus expansion into work comp services – is to add top-line revenue to the company’s financials and increase profitability. (I’ve written about this here, and described how TPAs are growing here (the latter was a while ago…but a pretty accurate forecast.)

Here’s how this works.

When Sedgwick uses a specialty network like Orchid to arrange for durable medical equipment for a claimant, the actual cost of the DME is booked as “revenue” by Orchid. This makes Orchid’s top line bigger – and bigger is always better.

Now that Sedgwick owns Orchid, Sedgwick gets to add that revenue to its top line. If/when it launches its own PBM the giant TPA will look giant-er simply because drugs bought by its customers will count as revenue for Sedgwick.

I’d hazard a well-educated guess that Sedgwick will move as many customers as possible from external service providers to Orchid.

OneCall is the most likely casualty…reports indicate staffing reductions already occurred in Jacksonville.

Based in Orlando, Orchid provides a range of ancillary services including imaging, DME, transportation and translation to the work comp market. Sources indicate a large chunk of that business – perhaps half or more – flows through HealthESystems‘ ancillary pipe aka ABN.

What does this mean for you?

If you are a Sedgwick customer, you may want to have a detailed discussion re its plans re ancillary services. A very careful and studious analysis of costs and benefits might be a good idea.

If you are a current Orchid customer and Sedgwick is a competitor, make sure the powers-that-be are aware of the transaction.

If you are an Orchid competitor and Sedgwick is a client, you’re probably way ahead of me.

May
17

NCCI’s take on medical cost drivers, part 2

Posted by Joe Paduda on Tuesday, May 17th, 2022 | Comments

Last week I posted on Raji Chadarevian and Sean Cooper’s excellent presentation at AIS.

Here’s my what-this-means-for-you takeaways.

Drug spend decline

While NCCI’s reporting that dollars for drugs now account for 7 percent of annual isn’t too much of a surprise, there are a couple other factors at play here. First, the older claims are, the higher the drug costs.

During the 18-24 COVID months that were generally pretty awful, a lot of high-severity, higher-frequency jobs disappeared. Along with those jobs went a significant number. of high cost and cat claims (fewer workers; fewer claims). In what could best be described as a mirror image of the snake swallowing the pig (you know, the big slug of stuff/incidents/whatever works its way through the system), we’re going to see a long-term decrease in drug spend due to a decrease of X% in long-term claims incurred during COVID.

Obviously this will eventually work its way through the system…that said, it’s just one more bite out of pharmacy spend.

Similarly, rehab care and skilled nursing dollars will also decline along with home health care.

Peak network

With around 75% of physician and other treater dollars going through networks, we are at – or darn near at – peak network penetration. Some states – NY being a good example – are just not going to get there due to regulations on direction and very strong provider lobbying plus employers and insurers just aren’t pushing changes.

To be precise, that refers to overall network penetration – almost all work comp networks/PPOs have carve outs for specialty services.

I make the distinction because specialty network penetration will increase – at the expense of declining PPO penetration in specialty areas (PM, Imaging, DME/Home Health etc.). This will happen because those service areas lend themselves to more active management, often involve proactive scheduling, and  benefit from focused clinical management.

But, again that’s just one reason PPOs aren’t a growth thing – claims counts are declining and medical costs are flat too…

Oh, and big healthcare systems have A) figured out work comp is the golden goose, and B) are increasingly stingy with their discounts.

So, the average net discount after network fees (!!) is significantly lower than it was even five years ago.

 

 

May
13

Medical cost drivers in work comp – NCCI’s take

Posted by Joe Paduda on Friday, May 13th, 2022 | Comments

Sean Cooper and Raji Chadarevian delivered perhaps the most useful presentation I’ve seen at any NCCI Conference…There’s a LOT 0f important – and very timely – information in their presentation, so I strongly encourage you to watch it  – or watch it again here.

Let’s start with the top line – facilities and physicians (which includes physical medicine as well as MD costs) are by far the biggest chunk of spend. Note that NCCI reports annual drug spend is down to 7% of total spend. This aligns closely with what I’ve been reporting for some time.

The key takeaways…

The discussion focused on medical prices – which are the single biggest driver of total US healthcare inflation (see here for more details on this) – and utilization. Disaggregating cost increases provides/ed the audience with a deeper understanding of drivers – well done.

We are approaching network saturation.

Fully 75% of Physician services were delivered in-network – and, as in-network prices grew much more slowly than non-network, this helped reduce overall medical inflation.

Physical medicine is increasing…which is good.

The cost of physical medicine has been increasing while costs for surgery costs have not. What’s driving PM costs is mostly more utilization – indicated by the light green shading below. That is NOT necessarily – or even likely – a bad thing…A course of PT is way less expensive than the costs associated with a surgical episode. 

Facilities

Sean noted facility costs have been “the biggest driver of increased medical costs in workers comp” – increasing twice as fast as physician services. (Long-time readers will recall I’ve been banging on this drum ad nauseam.)

There are a host of reasons for this – led by consolidation in the healthcare services industry (also covered in detail here at MCM). Net is when a hospital or health system buys physician practices, it gets to add a facility charge to the what used to be just a physician office bill.

Voila!  Instant profit simply by changing the “place of service”. That’s why private equity firms, large health care systems, UnitedHealthGroup, and dominant hospitals have been snapping up physician groups – they are gaming the system.

There’s more to unpack here – which I’ll do early next week.

What does this mean for you?

It’s facility costs.

May
11

Work comp loss drivers…NCCI’s 2021 findings

Posted by Joe Paduda on Wednesday, May 11th, 2022 | Comments

More details from NCCI Chief Actuary Donna Glenn’s presentation yesterday…

Claim costs are driven by employment, frequency (what percentage of workers gets hurt), the cost to provide medical care to those injured workers and the cost of paying their income benefits while off work.

While claim frequency bumped up in 2021, the increase just offset an almost-identical decrease in 2020. When you pull out the COVID stuff, the average annual decline in work comp claim frequency has been 3.8% over the last 20 + years.

This means – in three years there will be 11.4% fewer claims than there are today – that’s one out of ten claims.

Indemnity “severity” didn’t change last year compared to 2020, leveling off after a pretty consistent increase from 2016 to 2020.

Medical “severity” for loss time claims didn’t increase from 2020 from 2021 – it was dead flat – and has been pretty much flat since 2016.

Ed. note – while widely used in the work comp industry, the use of “severity” to describe what is nothing more than “cost” isn’t helpful. Medical severity should be a clinical measure, not a financial one. I would argue that the use of “severity” further distances the industry from increasing its understanding of the role of medical care in workers’ comp.

Glenn attributed the lack of movement in part to a shift to delivering care in outpatient facilities…more details to come in the final presentation today.

What does this mean for you?

Work comp medical costs are NOT increasing – my guess is the major progress most payers have made in reducing drug costs- and more specifically opioid over-use – has been a major help.

May
10

NCCI’s State of the Industry 2022

Posted by Joe Paduda on Tuesday, May 10th, 2022 | Comments

Work comp is still way over-priced, incredibly profitable, and the industry – defined as total revenues – is a lot smaller than it appears.

Those are my key takeaways from NCCI Chief Actuary Donna Glenn’s presentation just completed in Orlando (ed note – this was supposed to be distributed yesterday, but I missed the 10 am cutoff time)

I’m not at NCCI due to other client needs, but the fine folk at NCCI have provided a media feed – thanks Cristine Pike and Dean Dimke…

(Note NCCI has included data from most but not all states and payers; thus I suggest you pay more attention to overall trends rather than specific figures)

Premiums for private carriers were up just a bit last year – less than 2 percent.  Not a surprise as COVID was still rampant although shutdowns weren’t as prevalent…and employment was way up in 2021 compared to 2020.Rates are down in pretty much every state except Hawaii (betting its those damn physician dispensers in Hawaii…)

Overall, premium rates dropped significantly last year – continuing what has become a 9 year trend. The drop was driven by a decrease of one-third in losses, almost all of which was offset by a 28% increase in payroll. Interestingly “rate loss cost departures” i.e. discounts – have grown significantly over the last few years. See the para below for my reasoning as to why this has happened…

Combined ratio was 87 – again a hugely impactful continuation of 8 years of underwriting gains. WC – which used to be marginally profitable – continues to be a huge profit producer – which is why those “loss cost departures” i.e discounts – are growing. Insurers know how profitable work comp is, and know they can make bank even if they drop their rates.

Even better, NCCI projects accident year combined ratios will improve over time for 2020 and 2021… in contrast to reporting carriers’ initial forecasts, NCCI believes ultimate losses will be much lower. (the blue shaded areas above reflect NCCI’s predicted final loss ratios; the grey reflect carrier’s initial predictions and current predictions.)  One can see that carriers’ predictions have consistently been much higher than their final loss ratios – and there’s still more room to decline.

2021’s 25 percent operating gain (!!!) is just the latest in a 9-year string of operating gains. 

Not surprisingly carriers released a shipload of reserves last year – this reflects the disparity between what they initially report compared to what losses ultimately totaled. NCCI predicts there is more favorable development to come – as in a LOT MORE.

That said, NCCI indicated reserves are still $16 billion too high.

Donna Glenn, NCCI’s Chief Actuary, kept referring to these results as evidence of work comp’s “strong financial position”.

I’d suggest that Ms Glenn’s terminology while directionally accurate, is burying the lede.

Which is this:

  • work comp rates are still way too high,
  • carriers are making way too much profit, and
  • the actual industry size is significantly smaller than today’s premium levels suggest.

What does this mean for you?

More consolidation, more rate cutting, more growth for TPAs.

May
5

Will work comp injuries increase?

Posted by Joe Paduda on Thursday, May 5th, 2022 | Comments

WorkCompWire arrived yesterday with the news that new employees get injured much more often than their more-experienced colleagues.

The Travelers provided the research, which confirmed  – and added more detail – to what we already (sort of) knew – about a third of injuries happen to workers with a year or less on the job.

This makes sense; newer workers are less experienced, have had less training, are likely younger and don’t know what they don’t know.

Not surprisingly the incidence rate varies by industry…again from the umbrella people…

Couple additional observations.

  • Construction is a higher-severity industry, making newer workers even more susceptible to longer-term claims.
  • Hospitality, construction, and transportation are higher-turnover industries, making it more likely the entire workforce is less experienced – and more of the workers are in their first year than in other sectors.

And here are related issues that deserve your attention:

  • there’s a lot more turnover in employment than “normal” these days – which means more workers will be in that dangerous first year.
  • construction is ramping up with billions in spending on governmental and private projects.
  • logistics/transportation is under severe stress due to the ongoing supply chain problems

What does this mean for you?

All these factors suggest injuries may bump up later in 2022 and into 2023.

Kudos to the Travelers for the work; this is helpful indeed.

May
3

I’m back…

Posted by Joe Paduda on Tuesday, May 3rd, 2022 | Comments

From a 5 day bike-packing trip from Pittsburgh to D.C. Great to get off the grid and out in the woods/mud/gravel/wind. Really…

So, next week is NCCI’s annual confab.  Looking forward to seeing old friends and colleagues and hearing the latest from Raji Chadarevian and Sean Cooper on medical drivers, Donna Glenn’s State of the Industry report, Roger Ferguson’s discussion of the financial scars left by COVID, and the ever-entertaining and informative Bob Hartwig.

Also on the agenda is Katie Williamson’s assessment of catastrophes’ impact on workers comp. As a long-time believer in anthropomorphic climate change, I’m looking forward to Ms Williamson’s comments (which will cover much more than weather and climate).

Also just out from our friends in Florida is a discussion of Medicare fee schedule changes and attendant impact on workers’ compensation. While pretty deep into the nerd zone, this is one of those “I wish I’d known this ahead of time” things you may reflect back on when wondering why costs changed/prices shifted/utilization bounced up.

Couple quick hits…

Some states are directly tied to CMS so when CMS changes, WC Fee Schedules quickly follow suit. However, other states are indirectly tied, use part of CMS’ methodology, or factor CMS in to their calculations.

Pic courtesy NCCI

Facility rates will also increase – by around 2.5%. No surprise there – although one can expect higher inflation in Florida because…well, it’s Florida.

Congratulations to Carisk’s Alana Letourneau MD MBA on being named a 2022 Rising Insurance Star Executives 35 Under 35 Award winner. I’ve worked with Dr Letourneau in the past; she is insightful, deeply committed to her work, practical and an excellent communicator.

While I was gliding along the C&O canal last week, WCRI was publishing Karen Rothkin’s annual guide to workers’ compensation laws and regulations.  Free to members and well worth the investment for non-members.

Ok, back to catching up on work stuff.

 

Apr
19

Quick updates

Posted by Joe Paduda on Tuesday, April 19th, 2022 | Comments

Quick as in this won’t take up much of your time, and “‘quick” as in how fast NCCI has published useful data.

NCCI’s Medical Indicators and Trends dashboard has been updated to include data up to September 2021…you can access it here. Kudos to NCCI for the timely updates; the fresher the data, the more actionable it is.

Couple key takeaways.

First, those darn facilities.

Ambulatory Surgery Centers (ASCs) and outpatient hospital care…

First, note that hospitals’ outpatient facilities account for almost one-fifth of all work comp medical payments…

while ASCs account for one-fourteenth of medical spend.

A big part of that differential is the cost of surgery…which cost about 70% more in hospital outpatient facilities than in ASCs.

Before anyone jumps to any conclusions, its critical to understand the nuance here…

The Florida WC fee schedule is very much slanted to benefit hospitals at the expense of everyone else (physicians in the Sunshine state have been screwed by the Three Member panel for years, while hospitals have been treated like royalty).

Second, ASCs do not handle complex cases and patients with significant health problems/co-morbidities…these patients must be treated at faciliteis that have access to emergent care resources incase something goes pretty wrong during or after surgery. So, case-mix is different.

More…

COVID’s impact continues…active claim counts were down an average of 13% from 2019 to 2020

And speaking of the guest who refuses to leave, this came across my virtual desk from a colleague who attended last week’s RIMS meeting…

I know of several folks who tested positive post-RIMS; if you went, please get tested.

Finally, Washington Labor and Industry is looking for physicians in various occupational medicine and related specialty positions…

Washington has been a leader in evidence-based policy related to injured worker care for injured and ill workers. There is no private workers’ compensation insurance in WA, as such, we are essentially a single payer system for work related injuries and illnesses.  We look at the workers compensation health care delivery system as a public health opportunity to prevent the disability that often results from injuries in the workers’ compensation system.
The work life balance opportunity is fantastic, and the salary range ($179-235,000) is very competitive for a public service physician position.

What does this mean for you?

Quick access to actionable data is great; actually acting is even better.

Apr
14

Moves and Implications

Posted by Joe Paduda on Thursday, April 14th, 2022 | Comments

Two things are happening that provide yet more evidence of rapid evolution in workers’ comp.

AFGroup grows

Yesterday AFGroup announced it is acquiring work comp insurer AmeriTrust. Located down the road from AFGroup, AmeriTrust is also focused on work comp and provides insurance in other P&C lines as well.

AmeriTrust started out as Meadowbrook, and grew from acquisitions over the last 25+ years. It carries an A- rating.

AIG completing transition of claims to GB

Not announced – at least externally – was the news that AIG’s internal managed care company – HDI – will be shutting its doors this summer as its functions transition to Gallagher Bassett.

This follows AIG’s earlier decision to move its internally-managed claims to the giant TPA. Notably, I asked AIG directly about this a couple months ago, and in part its response was:

AIG will continue to handle major loss and specialty claims and medical management

Evidently that is NOT the case, as all HDI employees – the people who handle telephonic case management, UR, peer review and other functions – will no longer be employed after July 1 2022 (except for a few staff who will remain on the job a bit longer).

While hair-splitting might indicate AIG meant to state medical management for major loss and specialty claims would still be “handled” by AIG, clearly that is NOT what is happening…rather GB will be assuming all medical management responsibilities in addition to handling claims.

Of course this just makes sense…you want your claims and medical management to be closely aligned.

That said, I’m not particularly enamored with GB’s medical management…there’s way too much emphasis on/use of percentage of savings-related services and fees. Notably GB has used Coventry’s “outcomes based network” for some clients – and there’s some evidence that network delivers better outcomes. (I’ve written lots about this here; briefly most employers and insurers using TPAs are not focused on the right managed care models, metrics, or incentives.)

Why this is happening…

Regular readers will not be surprised by these two events as they are simply rational moves made by payers in a declining, highly mature industry. AFGroup gains additional scale, will likely see an earnings bump due to synergies, and adds market share in some sectors/areas.

It is also one – and I would argue the smarter – of the two main ways to grow. Buying a competitor adds a lot of growth quickly, and (hopefully) at a lower price than buying share by under-pricing competitors to win share organically (by selling more business)

AIG just reduced its unallocated administrative expense and future capital investment requirements, a smart move when you expect your budget for capital investments to shrink every year for the foreseeable future.

What does this mean for you?

Grow or sell.

Apr
6

Quick catch up

Posted by Joe Paduda on Wednesday, April 6th, 2022 | Comments

Watching our granddaughter this morning which precludes lengthy opining or research.

MedRisk is expanding

The leading physical management company in work comp added two well-respected and quite talented execs.  Sri Sridharan will join MedRisk’s C-Suite as Chief Client Officer. I’ve known Sri for more than a decade; he has one of the sharpest minds I’ve ever come across.  As Chief Client Officer he will head up account management and analytics. functions that fit him quite well

Daad McGovern will join MedRisk in the newly created position of Senior Vice President of International Operations…the company is expanding internationally and Daad will lead those efforts.

Employment is booming.

As in growing by more than 400,000 a month for the last year (well, 11 months to be totally precise).

From NYTimes

The economy has recovered more than 90 percent of the 22 million jobs lost at the peak of the pandemic’s lockdowns in the spring of 2020…

the share of adults who were working or actively looking for work rose to 62.4 percent, just a percentage point below the level on the eve of the pandemic. Among people in their prime working years, those ages 25 to 54, the return has been even stronger. [emphasis added]

That being reality, why are Americans so grumpy?

There’s concern about inflation – although wage increases are almost keeping up with those costs.

Then there’s the complaining about gas prices…which, btw, are due almost entirely to the economy recovering from COVID and Putin’s war on Ukraine.

C’mon people, we can all pay more for gas to keep tightening the screws on that genocidal murdering bastard. Think of it as our contribution to the Ukrainians…

Construction workers are among the most vulnerable to economic problems – with wage theft a major driver.

39 percent of all construction worker families rely on at least one public assistance to make ends me compared to 31 percent of all working families.  The cost to federal and state taxpayers is $28 billion.  The authors of the report attributed this high degree of reliance on low wages, wage theft and other abusive and illegal employment practices in the construction industry.

This results in taxpayers – me and you – paying more to help these people because they aren’t paid a living wage.

RTW

Solid piece from NCCI on return to work…based on interviews with several “insurance professionals”. Not surprisingly, the key factor was employer buy-in and support.  That means real, persistent commitment – which might be a big help in these days of labor shortages.

Ivermectin

Well, the final word is in – Ivermectin isn’t useful for helping patients with COVID.

For anyone who’s been following the issue, that comes as a stunning non-surprise. The study results published in JAMA are incontrovertible:

Treatment with ivermectin did not result in a lower incidence of medical admission to a hospital due to progression of Covid-19 or of prolonged emergency department observation among outpatients with an early diagnosis of Covid-19. [emphasis added]

What does this all mean for you?

Higher wages and more employment = higher work comp premiums

Science always wins.