A few possible contributors –

• more providers than average – which creates demand,
• facility costs  – and declining quality – due to significant healthcare system consolidation,
• attorney fees driven in large part by regulatory enablement,
• creative providers looking to suck dollars out of taxpayers and employers’ pockets, and
• the actions of a handful of providers seeking to crash the medical management process.

California has 380 physicians per 100,000 population, whereas the US has 295 per 100,000 – that’s many more docs looking to do many more procedures on the same number of patients. Unlike market-driven businesses, in healthcare supply creates its own demand.

The lower the number above, the fewer health systems competing for business

60 percent of healthcare markets in California are highly concentrated, so the dominant provider systems have much more pricing power – which leads to higher health insurance premiums – than in days past.  According to HealthAffairs:

the estimated impact of the increase in vertical integration from 2013 to 2016 in highly concentrated hospital markets was found to be associated with a 12 percent increase in Marketplace premiums. For physician outpatient services, the increase in vertical integration was also associated with a 9 percent increase in specialist prices and a 5 percent increase in primary care prices.

If health systems can jack up prices to giant group health insurers by 12 percent, imagine what they are doing to work comp payers – who represent perhaps 2 percent of their total business.

Unlike most other states, plaintiff attorneys are compensated for a seemingly endless variety of filings, medical management disputes, disagreements, hearings, UR and IMR disputes.

As reported by CWCI in last week’s annual meeting, Texas had 1506 dispute letters, while California had over 180,000. Texas saw a decline over time as providers realized that no matter how many times they asked to get a specific procedure authorized, the answer was consistently no.

Not so in California, where the same providers keep flooding the system with appeals for the same stuff, knowing full well they will be rejected.

The good news is several of last year’s top IMR appellants are no longer in the top 10, as they’re no longer allowed to deliver medical care.

What does this mean for you?

Attorneys get paid to dispute the higher volume of services prescribed by a larger number of providers employed by healthcare systems that have a lot more pricing power. 

 

 

Continuing my predictions for workers’ comp in 2019, the first five were Wednesday.

But before I do, you may want to read this on the fallacy of so-called “experts” – I occasionally think I am one. (thanks To Tom Lynch of Lynch-Ryan for the link)

6.  The “advocacy” claims model will gain a lot more traction, as more employers, insurers, and TPAs embrace treating “claimants” as actual real people with medical and disability problems.

The problem is – how do we track this? That’s my challenge, but I hope you will let me know of payers embracing the model!

7.  “Opt-Out” will not gain traction.

Allowing employers to “opt out” of workers compensation is a solution in search of a problem – overall work comp is working pretty well, costs are under control, employers don’t see it as an issue, most patients recover and get back to work.

Most importantly, there is no significant political constituency that cares enough about it to make it happen.

Promoted by ARAWC and a few stakeholders invested in managing opt-out business, this isn’t going anywhere. Change does not happen unless there is a problem that needs fixing, and work comp’s problems are tiny in comparison to other issues confronting state legislatures…taxes, school funding, gerrymandering, Medicaid expansion, rural hospital funding, industrial and economic development, natural disaster preparation and recovery…

(Good friend and IAIABC Executive Director Jennifer Wolf Horesjh has a slightly different perspective…you can listen to Jennifer’s podcast here.) . She notes the advocates are working diligently to promote Opt-Out/Non-subscription.

8.   Service companies that deliver best-in-class customer service – and build that into their branding messaging – will win. 

In a commoditized business (which is how most buyers view most work comp services) customer service is critical to success – but most companies in commoditized businesses don’t understand this.

I’d go a step further – because workers comp is a declining, industry, being known for delivering great service is essential to survival.

Yet many businesses just don’t understand this, or if they do,

• they haven’t figured out how to deliver great service,
• or if they do deliver great service they fail to build that into their branding efforts
• if they even have anything that remotely resembles “branding.”

We will be doing some interesting research on this later this year which should help determine a) if my prediction is accurate, and b) what works.

9. More success in reducing long-term opioid usage by more payers.

We’ve learned that diligent, persistent, intelligent and caring approaches to managing chronic pain and long-term opioid usage produce results. The State Funds of California, Ohio, and Washington along with Sedgwick are a few of the payers achieving remarkable success in helping patients handle their chronic pain while reducing their opioid usage.

Vendors including Carisk are also delivering solutions to this knottiest – and most problematic – of work comp problems.

10. Payers will implement business models and processes using Artificial Intelligence  

These will include some or all of these:

• claims intake and triage;
• fraud/waste/abuse triggering and assessment;
• patient and provider communication;
• clinical assessment, including utilization review;
• policyholder communication;
• and more I can’t think of.

That’s it for this year’s predictions. So, what say you?

If there was ever an impossible-to-predict year, 2019 is it.

An unstable White House, divided Congress, uncertain-at-best economic outlook, contentious relations with Russia, China, and North Korea, Brexit…jeez I yearn for the days of boredom.

But, far be it from to miss an opportunity to demonstrate how fallible I can be, so here goes.

1. The work comp insurance market will harden – a little.

Over the last few years as more capital came into the sector, profits zoomed up, and medical cost inflation remained relatively tame, rates kept coming down almost everywhere. That can’t last, and I expect the insurance market to harden a bit. Specifically, we’ll likely see rates ticking up just a bit by the end of the year; earlier and more in individual states and for specific industry sectors.

This has been a very long soft and profitable market, and if we’ve learned nothing else, it is that the industry is adept at ending prosperity.  Watch quarterly rate reports from MarketScout and others to monitor this.

That said, I’ll hedge my bet on the upside, because…

2.  A very big external event/issue/mess will affect the economy – and thus workers’ comp

There’s something(s) scary behind the curtain.

By the end of 2019, we’ll see an economic recession, change in the resident of the White House, international crisis(es), and/or other really big event that will rock the economy and likely be felt more severely in specific industries – perhaps logistics, manufacturing, energy, construction. This will lead – over the slightly-longer term – to significant changes in claiming behavior, claim counts, claim frequency in the most-affected areas.

3. There will be significantly fewer M&A deals in work comp services – and those deals will be either pretty small or really big

While this is a gimme, I’m highlighting it more to get your attention than to come out with a bold prediction.

Workers’ comp services is a highly mature industry. As in all mature industries;

• Scale matters to gain efficiencies, reduce operating costs, gain leverage over vendors
• Margins shrink as competition is brutal
• Company growth comes from taking share from competitors – or buying them and/or diversifying into other verticals

Also, most of the biggest players are owned by private equity firms, carry big debt loads, and are tasked with growing a lot – fast – to give their owners a big return on their investment. And all this in a declining industry.

So, I would not be at all surprised to see Sedgwick buying up another large TPA, Mitchell moving aggressively into networks, Paradigm seeking a merger with another big player.

There are a lot of smaller companies that the big ones will try to buy to add revenue and margin. Owners of those that sell will do pretty well  – as long as the deal gets done before something big and bad happens.

4. Facility costs will be the new focus for payers and service companies

I’m going to write a series of posts on this in a bit, but for now – pay attention to hospital, Ambulatory Surgical Center, and similar cost areas. These entities are eating up more of the services pie, are very, very good at “revenue maximization”, and know workers’ comp is a soft target indeed.

And, most payers are woefully unprepared.

That has to change, and fast. Payers will be seeking out, and contracting with, vendors who can help them better manage facility costs.

5.  New business models for Pharmacy Benefit Management will gain traction

Expect to see much more focus on transparent pricing models, as the current business model is unsustainable.  Revenues are down by double digits over the last few years, the administrative burden – driven by more formularies and ever-increasing regulatory requirements – is increasing, and PBMs are consolidating like mad to stay financially viable.

At the same time, the transparency movement is gaining traction in the real world (that is, outside workers’ comp).

Different service models, different pricing methodologies, and an openness to new ideas from PBMs and payers alike will come in 2019. Several payers will adopt “transparent”-type contracts in 2019.

Tomorrow – the other 5.

 

Yesterday I recapped my first 5 predictions; today it’s the second 5 (predictions and details are here).

Most times I’m right, sometimes I’m not – at least that’s what I want to believe.

I’ll let you be the judge – here’s how I did on my predictions for 2018.

A lifetime ago here’s what I said would happen in 2018.

BTW I’m writing this from an airport – jeez I can’t stand Christmas Muzak. Ugh…

1. M&A  – specifically big deals – will increase.
   I expect we’ll see more very large transactions this year, mostly driven by strategic purchases of other companies. Work comp is a very mature industry, scale and size matter a lot, and that means getting bigger is key.  Expect to see several billion-dollar plus deals in the service sector.
   Verdict – correct – The big ones – Paradigm, Genex, Sedgwick plus Adva-Net, MCN, and Ascential Care make this a yes.
2. The (work comp insurance) market will stay soft.
   Claims frequency continues to decline, medical costs are pretty much under control, margins are healthy, and there’s still a lot of allocatable capital in the industry. Unless there’s some major  – as in huge – crisis I don’t expect a hardening of the work comp insurance market.
   Verdict – correct. Prices have been coming down along with rates. WC is a bit of anomaly, as other P&C lines have seen slight price bumps.
3. Cost containment’s focus will shift to facilities and hospitals.
   Hospitals are increasingly vulnerable due to consolidation among payers, reductions in governmental program funding (thank you Trump Tax Bill), changes to Medicare reimbursement, and the systemic shift of care to lower-cost settings.  Facilities have already – and will continue to – look for revenues from payers less able to reduce reimbursement. That’s us, kids. Expect to see payers more closely analyzing facility costs, looking for solutions, and implementing programs focused on the issue.
   Verdict – not really. Payers aren’t paying near enough attention to hospital and facility costs. Yes there are some good efforts in place… That said, the deterioration of WC PPO discounts along with what can only be described as complacency on the part of many payers makes this the fastest growing – and least controlled – part of the claims dollar.
   Time to get off the couch folks.
4. TPA growth will accelerate.
   Driven primarily by work comp insurers’ outsourcing. With a soft market, there’s little incentive for employers to self-insure, but the long-term decline in claims frequency is driving down insurer claim counts. Some insurers are making the strategic decision to shift claims to reduce fixed costs and capital investment requirements. Expect the big four TPAs to add significant new business from insurance companies and similar entities.
   Verdict – correct. I’m hearing insurer share of TPA business is up to about 15% for most, and growing. That growth will continue (see predictions for next year).
5. Tele-everything will take off
   Tele-triage, -medicine, -rehab, etc is going to grow quickly. Expect lots of activity from companies big and small; Concentra, MedRisk (HSA client), CHC Telehealth, Coventry, Work Comp Trust of CT and others are pushing this care delivery model hard – as they should. Expect thousands of “visits” will logged by the end of 2018.Verdict – correct, with a minor disclaimer. Growth has not been as rapid as many thought – but it is still pretty significant. More and more announcements are coming pretty much every week, and I’m hearing some of the bigger entities out there are finally getting significant traction in rehab, triage, and primary care for low-acuity conditions.

Later this week – the second 5.

Pharmacy costs are dropping, imaging is not an issue, physician expenses are growing modestly, and while PT payments are going up a bit, much of that is fee-schedule driven.

The problem area – and it is a big one – is facility cost. (There’s another, more insidious problem we’ll get to next week.)

A recent HealthAffairs article highlighted the facility problem; the median price paid by auto insurers and other non-conventional commercial insurers was 2.8 times Medicare reimbursement in 2010, and 3.8 times Medicare six years later.

First, what are the factors driving this?

• The hospital/health system industry is massively consolidating, and consolidated markets are higher cost markets. Simply put, market share = pricing power for hospitals.
• Medicare reimbursement is not increasing, and neither is Medicaid. Governmental payers account for more than half of most hospital’s patient loads, so facilities need to find other revenue sources that pay more.
• Not-for-profit hospitals are not doing well financially – so they are looking for nickels in the couch cushions.
• Niche payers – like auto and workers comp – are the softest of targets due to a) little buying power and b) inconsistent ability to direct and/or “manage” care.
• Many facilities are investing heavily in outpatient facilities, places where a lot of work comp patients seek treatment.
• Fee schedules in some states – we’re talking about you, Florida – can be highly lucrative and/or are easily gamed
• Health systems are buying up physician practices, so the care delivered in those practices now comes with a facility bill as well as a procedure cost.

It’s refreshing to see this problem hit the real media, but many payers have been quietly alarmed about facility pricing issues.

Unpacking the HealthAffairs article, there are a few key takeaways.

1. The study focused on Florida, which is hugely problematic. It reminds us that when you’ve seen one state, you’ve seen one state. So, payers need solutions targeted specifically to each jurisdiction.
2. That said, for-profit systems are way more costly than not-for-profits.
3. This is a price issue.
4. Network direction is hugely important. There are plenty of sources to identify lower-cost facilities, sources that most work comp payers don’t seem to be using.

What does this mean for you?

Two faulty assumptions and a big change in fee schedules have combined with management missteps to make OneCall Care Management’s brief history a painful one.

The latest financials indicate things have deteriorated significantly over the last few years.

How did OneCall get here?

The original One Call was focused solely on the WC imaging space. Under Kent Spafford’s able leadership, the company was highly profitable, very creative, and pretty much without any significant competition. One Call was purchased by Apax, then merged with other companies in transactions valued at around $3 billion (some equity and a lot of debt financed the transactions).

The fee schedule change noted above was California’s switch to the CMS fee schedule in 2014, which occurred simultaneously with CMS’ significant cut in reimbursement for imaging. The result was a dramatic drop in margins in California; other states followed suit and the result was a significant decline in earnings.

Faulty assumptions

While the fee schedule change was an unpredictable event, other problems have been self-induced.

Founded in its present form 2013, OCCM struggled since its inception to validate investors’ belief that A) the whole is greater than the sum of the parts, and B) there is lots of “whitespace” open to service providers (not so much).

(I’ve written extensively about these challenges; previous posts are here.)

Fact is most payers don’t see added value in buying everything from one entity – unless each service line is itself best-in-class. Rather, most buyers want to be able to pick and choose the networks, specialty networks, UR and CM providers they work with – and change them when they find better options.

Financials

At its height, OCCM’s earnings were reported to be around $280 million. Those days are long past: sources indicate EBITDA has dropped by almost a third, and my take is it will continue to decline.

2018 has been a tough year; an investment industry source indicated Q3 EBITDA was down 15% from the prior year’s quarter, while revenues actually increased 3%. Annual EBITDA saw a smaller decrease of about 10% for the 12 months ending 9/30/18.

Reports indicate total debt is just shy of $2 billion, and debt service (the interest OCCM pays to its creditors) is about $160 million annually.

Here’s the important stat – with Pro Forma EBITDA (EBITDA increased by management adding stuff that isn’t normally accepted by accountants) of $190 million, there’s not a ton of free cash (about $30 million) available for investments in staff, marketing, and other expenses.

Reportedly total leverage is 10.3x based on total debt just shy of $2 billion.

A big chunk of expense is for Polaris, the much-anticipated platform solution that saw an initial “rollout” of what was described to me as an abbreviated version a couple months ago. Evidently, full rollout is scheduled for 2020, when the company will realize the majority of the costs of the project.

While the company is looking to Polaris to improve efficiencies and reduce costs, my opinion is Polaris is intended to address investors’ problems – not customers’.

This from a post on MedRisk’s resurgence a couple years back [MedRisk is a consulting client}:

One Call is all-in on a technology solution, investing millions in a customized application intended to deliver on the “One Call” promise (currently the seven different services offered by OCCM have separate systems and processes). “Polaris” is slated to be “fully implemented” in Q1 2018, although it’s not clear what “fully implemented” means.

I don’t believe “automating” and off-shoring key customer-facing functions is the right answer, not in a high-touch business where adjusters, therapists, physicians, and patients all are key parts of the rehabilitation process.

Cost cutting is a necessity if the firm is going to continue to invest in technology and other critical areas; a staff reduction in 2016 significantly reduced client-facing staff.  Four sales reps were let go last week, a move company representative said was in keeping with OneCall’s intention to shift account management and related functions from the field to internal staff.

So, getting more efficient may be at the cost of improved customer service. If it is, that’s the recipe for further trouble.

Investors may take heart from one very successful turnaround. PMSI was teetering on the edge of the abyss when Eileen Auen took over. Several years later it sold for about ten times what it was worth when Ms Auen started. The company then became the core of what is now OptumRx’s work comp PBM.

That said, the situations are quite different, the changes needed even more dramatic, and executives with Eileen’s talent and abilities are rare indeed.

What does this mean for you?

For investors, listen to people who actually understand the business before spending your gazillions. Many saw this coming.

This also brings to the fore the issues inherent in private equity investors’ fascination with work comp services over the last decade, chiefly what happens when things don’t go perfectly. High debt loads can choke off critical investment in customer service and product development, especially when revenues start to decline.

With sore feet, a pocket full of business cards, and an envelope stuffed with receipts, the work comp world is headed home.

My main takeaway from the NWCDC conference – Yin and Yang, black and white.

Serving patients and employees.

Congratulations to Starbucks and Noreen Olson, Claims and Risk Management for winning a Teddy Award. I met Noreen for the first time yesterday, and her passion for doing the right thing by her “partners” (that’s what Starbucks calls employees) came across loud and clear.

This from Risk and Insurance’ Autumn Heisler article on the award, quoting Steve Legg, director of risk management, Starbucks:

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” [emphasis added]

As a big Starbucks coffee fan, I like it even more now.

There was an entire track devoted to the advocacy model – which is terrific. But, we’ve got so far to go.

Let me explain…

The hall had too many vendors focused on how to reject claims, surveil patients, use tech to deny work comp benefits.  I spoke with one that touted their tech’s ability to help payers use AI to show a worker couldn’t possibly have gotten hurt at work.

Yes there are cheaters, but they represent a small fraction of patients.

Several sessions involved InsurTech/data analytics/Artificial Intelligence. Kudos to the session selection folks (I am peripherally involved, but don’t have any role in those decisions) for helping educate all of us non-techies on this.

Sedgwick’s George Furlong and Stephany Rockwell of JBS talked about using tech to improve decision making; their session provided real world examples while pointing out the dangers of relying solely on machines to assess data and come up with recommendations.

But much of this great tech isn’t focused where it should be – the customer interface. Reality is, dealing with insurance and insurers is a pain in the butt. Claimants are treated with suspicion, made to jump thru hoops, and generally not served well.

This from Gallagher Bassett SVP Jeff White’s presentation…

Contrast this with how Vegas treats visitors – everyone from cab drivers to housekeeping staff is welcoming, happy, courteous and out to make your stay a good one. The entire town knows its success – and each person’s livelihood – depends on you having a great time and telling everyone you know you did.

The contrast between the Vegas experience and how we treat “claimants” is a lesson in itself.

Opioids – progress – one patient at a time

I’m both very happy and deeply sad that opioids were the subject of several sessions. The solid attendance at these sessions speaks to the continued concern about opioids, and the focus on long-term chronic pain patients is critically important. The message – we CANNOT lose focus on this. We will be fighting this battle for years to come.

The good news is the growing recognition that we have to solve this one patient at a time. There are no general solutions, no silver bullets, but only a hard slog involving analyzing data, talking with each and every patient, designing a recovery plan specific to that patient, persisting when patients relapse.

One of the more realistic approaches is that developed by Carisk. I spoke at length with one of their customers, and came away heartened by the depth of understanding and focus on the patient.

Yes we are making real, meaningful progress; the work comp world has done so much more to reduce opioid use than every other payer system. We have much to be proud of – but there are still hundreds of thousands of patients taking way too many pills.

What does this mean for you?

Treat patients like Vegas treated you. And understand we are all individuals.

 

 

Random takes from the first day of the National WC Conference.

myMatrixx landed the party spot of the Conference; SkyFall atop the Delano last night. First class event, lots of fun people, and great way to start the week.

The Vegas venue is excellent. Everything you need is here, located close to the hall, hotel, meeting spots, and restaurants. It makes doing business at the conference easy and efficient.

Damn expensive, but easy and efficient. I just paid $4.65 for a medium cup of dark roast – but got it at 5 am. The gym is pricey indeed. And dining here is just stupid expensive. Wah Wah Wah…I know, first world problem.

Conversations with several folks highly knowledgeable about work comp pharmacy. The industry continues to consolidate, drug spend continues to drop, led by double-digit reductions in opioid spend, and the revenue model will have to change.

Paradigm announced it is rebranding it’s subsidiaries; all will carry the Paradigm name. That makes a world of sense.

• Paradigm has a strong brand name and is closely tied to catastrophic claims. When folks think cat claims, Paradigm is the name that comes to mind. Leveraging that brand awareness is just smart business.
• The company hosted a media dinner last night – a very intelligent move and one other companies would do well to consider. All the key media outlets were there – and even a few minor ones like MCM.
• Very few work comp services businesses understand the value of brand. As in almost none. Paradigm CEO John Watts does – and his company will be better off for it.

Paradigm paid very hefty prices for recent acquisitions, and itself sold for a billion dollars or so just a few months back. Watts et al will have to hit on all cylinders all the time to make that investment pay off. So far, so good. But the hard work is ahead of them.

Finally, among my many foibles is a terrible memory for names – I’m OK on faces, but can’t remember names at all. So, it’s not you – it’s me.

The annual gathering of the work comp tribes begins tomorrow – here’s a few thoughts from last year’s post.

1.  Realize you can’t be everywhere and do everything. Prioritize.

2.  Leave time for last-minute meetings and the inevitable chance encounters with old friends and colleagues.

3.  Unless you have a photographic memory, use your smartphone to take voice notes from each meeting – right after you’re done – or write down key points immediately.  Otherwise they’ll all run together and you’ll never remember what you committed to.

4.  Get the NWCDC app for your Droid or iPhone – there’s a web-based version for tablets too.  It has the schedule, exhibit hall layout, local map, and a bunch of other handy information and tools.

5.  Introduce yourself to a dozen people you’ve never met.  This business is all about relationships and networking, and no better place to do that than this conference.

6.  Wear comfortable shoes, get your exercise in, and be professional and polished.  It’s a long three days, and you’re always ‘on’.

A few sessions you may want to consider:

• Advocacy models for claims handling are gaining traction – as well they should.
• Frequency is declining, but cat claims are unpredictable and hugely expensive – but risk can be mitigated.
• Policy changes are always coming – get a sense for where things are headed.
• The more we understand about pharmacy, the better outcomes our patients will have.
• Sedgwick’s George Furlong will be talking data too – and he knows his stuff.
• Jeff White is a terrific presenter, with an ability to explain really complex things so even I can understand them. His InsurTech session is a must-go.
• Denise Algire and I will be talking about the liability aspect of opioids; who’s going to be left holding the financial bag when the bills come due.

Finally, in these day of YouTube, phone cameras, Twitter, Instachat and SnapGram, what you do is public knowledge.  That slick dance move or intense conversation with a private equity exec just might re-appear – to your dismay.

And beware the white man’s overbite!!!