Category: Workers Comp

Aug
25

Federalizing workers’ comp

Posted by Joe Paduda on Thursday, August 25th, 2016 | Comments

Insurance folks decry the difficulty inherent in operating in multiple states, each with their own rules, requirements, standards, and demands.  It would be all so much easier if there was one national standard, and some would argue this would make for a “fairer” system.

However.

States have the Constitutional authority to oversee and regulate most insurance functions. While federal legislation and resulting regulations can – and do – supercede State laws (think voting rights, interstate speed limits, education standards, firearm background checks), to date states have been left pretty much alone when it comes to workers’ comp.

Is that going to change?

I think not, but reasonable people can make a good case for some national standardization – which would almost certainly require Congressional action. Of course, given Congress can’t even bother to authorize spending to deal with the opioid disaster or take action on Zika, something as tiny and non-problematic as workers’ comp is not likely to get any Congressperson’s attention.  

Here’s where it gets ideologically sticky.

Folks who normally favor small, limited Federal government find themselves advocating for national standards to streamline work comp for insurers and employers. The hodgepodge of state regs creates a whole host of inappropriate incentives;

  • injured employees get higher wage replacement payments depending on the state “where they were injured”
  • while employers get lower rates in states with low wage replacement levels and
  • doctors get paid more to treat workers’ comp patients in Connecticut than in Massachusetts – a LOT more

Those just scratch the surface; talking with Bob Wilson yesterday about this, he noted many payers are most frustrated by EDI rules and regs.  Set up in an effort to normalize state requirements around a set of national standards, Bob noted many states seem to have a need to tweak things just a bit here and there. Once that begins, there’s no such thing as “standard”.

What does this mean for you?

Ideology sometimes conflicts with reality.

Aug
23

Tuesday update

Posted by Joe Paduda on Tuesday, August 23rd, 2016 | Comments

Not to rub it into my friends and colleagues who are “working” in Orlando this week, but here in Montana it is 73, dry, sunny, and the mountain views are spectacular. Of course, flying into Bozeman isn’t nearly as…challenging as the obstacle course of strollers, elderly folks (my mom is 95, so don’t flame me), clueless travelers, little-kids-running-in-circles and mouse-hat-wearing families that is MCO.

While the attendees at the Montana Governor’s Conference on Workers’ Compensation won’t be partying to ThirdEyeBlind, these westerners have just as much fun at their annual confab as anyone.  Some have even more.  Film at 11.

I’m sure Bob Wilson will report back after his keynote talk here tomorrow; in what might well be a preview of the Clinton:Trump debate the esteemed WorkCompKing and I will be on the stage discussing matters of great import.  As we are the last session before the cocktail hour, don’t expect us to run long.

On to more serious matters.  And not much is more serious than the goings-on in California these days.

In California, we’ve learned that a big chunk of the liens filed are the work of individuals convicted or criminally indicted.  A total of $600 million in liens fall into this category, with a total of $2.5 billion – yes, that’s with a “B” – filed by “68 businesses comprising the top one percent of lien filers [who] filed more than 273,000 liens totaling $2.5 billion in accounts receivable on adjudicated cases between 2013 and 2015.” 

The Department of Industrial Relations’ summary goes on to note:

The assignment of liens by service providers to those who file and collect on liens are, in essence, the buying and selling of injured workers’ treatments and fertile ground for presenting fraudulent claims.  DIR’s review of filing dates indicates that lien claimants tend to wait until after the primary case is settled rather than seeking early resolution of medical necessity.

My interpretation – these scam artists are waiting to file until AFTER the claim is settled because they know full well the fiduciary just wants the damn thing to go away, doesn’t have the resources to fight each and every lien, and is better off paying off these crooks than fighting them.

These people add no value, deliver no service, help no one, and want to get paid for it.  

Here’s hoping California’s legislature jumps on this issue, prohibits lien filing by criminals and for denied claims.  Time is short…

Staying west for a minute, the fine folk at CWCI (Stacy Jones in specific) just published their evaluation of medical fees post-reform.  A main takeaway:

The amount of the reductions [below pre-reform utilization levels] varied by the type of care, ranging from 11.4% for radiology services to 49.5% for medicine services (comprised primarily of ancillary services such as cardiovascular, nerve and muscle testing, and psychiatric testing and psychotherapy), with an overall reduction of 17.7% in all medical services. At the same time, changes in total amounts paid under the schedule ranged from a 44.9% reduction in medicine services to a 12.7% increase in physical medicine services, for a net reduction of 14.3% in payments for all services. [emphasis added]

The implication is this – adoption of Medicare’s fee schedule has increased the volume of and reimbursement for cognitive services – talking with patients, rehabbing patients – and a reduction in payments for doing stuff TO patients; MRIs, nerve tests and the like.

This is good.

Thanks to CWCI’s Bob Young for the info and background.

Housekeeping

The systems folks who do all the IT work on ManagedCareMatters updated our WordPress to the latest version last week, which led to a deluge of bounced emails from former subscribers with dead email accounts.  I’ve been ever-so-slowly cleaning up the subscriber list: this is a highly manual process, requires individually deleting a lot of addresses, and I’m absolutely sure I’ve screwed up and deleted addresses I shouldn’t have.

So, sorry about that.

This is going to take a little while, and in the interim I’m not going to be able to post as often as I’d like.  Hope to get this cleared up by the weekend, or I’m stuck sitting in front of a computer while my lovely bride and friends cavort on the lake.

Grrr.

Aug
16

What’s happened to all the private equity interest in workers’ comp?

Posted by Joe Paduda on Tuesday, August 16th, 2016 | Comments

For the last five plus years, the investment community has been all over workers’ comp services. Lately, not so much.

What’s going on?

From PMSI’s purchase by HIG to APAX’ acquisition of Align and One Call to form One Call Care Management, from Onex’ buyout of York Risk Services to United Healthcare’s purchase of Helios, there have been more than a score of meaningful transactions.  And that’s not counting the “tuck-in” deals such as MSC’s purchase of TMS, or One Call’s acquisition of MedFocus or EXAM’s dozens of deals to acquire small IME firms.

Of late, the transaction flow has slowed to a trickle, and the reasons for that change are well worth considering.

Before we jump into that, let’s review why work comp was so intriguing to investors.  I’ll summarize:

  • highly manual industry crying out for automation and process improvement
  • low regulatory risk compared to national health care deals
  • lots of smaller companies competing in different markets
  • relatively low prices, at least at the outset
  • horizontally- and vertically-fragmented service market (single region or state and/or single service e.g. DME)

Here’s what’s changed.

  • Far fewer companies to buy.  The PBM market alone has consolidated from 12+ down to 6 with meaningful market share.  EXAM has bought up many of the mom and pop IME firms.  Genex has bought case management and related businesses.
  • Buyers are scarcer.  After increasing interest in the private equity “industry” early on which I attribute to firms jumping on the bandwagon, PE firms have moved on to focus on other niches.
  • Some of the deals have yet to meet expectations.  This should NOT be surprising, as investments always carry an element of risk. However, the sometimes-high-profile “misses” have made potential buyers a bit more cautious.
  • Prices are high.  Multiples (buyers typically base their purchase price on a multiple of Earnings before Interest, Taxes, Depreciation and Amortization) were as high as 14x, well above historical levels that tended to be in the high single digits.
  • Buyers are smarter. After learning all about workers’ comp while looking at different opportunities, buyers no longer accept at face value marketing pitches based on growth, consolidation, and “white space”.
    Also, the state-specific nature of workers’ comp adds a level of complexity that PE firms often find problematic.
  • Structural factors. Workers’ comp is a declining industry, with claim frequency dropping by 2-4 points per year. That trend is structural, is not going to change, and, at the risk of stating the blindingly obvious, is not emblematic of a growth industry. Therefore, buyers can’t just base part of their investment thesis on underlying structural growth, a fundamental “given” in almost every other sector – telecom, mobile communications, pharma, medical devices, energy.

That doesn’t – by any means – imply that there isn’t still significant interest in the workers’ comp services space.  I am aware of four separate transactions that are in various stages, two of which have significant implications.

In addition, the debt markets, especially those firms that buy existing debt, remain pretty heavily engaged. I’d expect this to continue.

Rather it implies that investors’ interest has “matured”, they have become more selective and more discriminating.

This is good.

What does this mean for you?

Smarter buyers will lead to better service providers.

Aug
9

Help me understand…

Posted by Joe Paduda on Tuesday, August 9th, 2016 | Comments

How an investment firm can own a physician dispensing company and a work comp program administrator.

ABRY has acquired a controlling interest in NSM, an insurance program administrator focused on, among other things, selling work comp to smaller employers.

Yawn, right?

Not if you are one of NSM’s insurance companies or insureds.

ABRY – which now controls NSM, also owns Automated Healthcare Solutions, the physician dispensing “technology” company that makes big dollars by sucking dollars out of work comp carriers, employers, and taxpayers.

So, if you’re ABRY, what’s going thru your corporate mind? You know – better than perhaps anyone in the country – how lucrative the doc dispensing business is (that may be a key reason ABRY has held on to AHCS for 6 years, way longer than most investors hold on to companies).

And you know the dollars are coming (mostly) from workers’ comp – which means insurers, employers, taxpayers.  And you know that all credible research indicates physician dispensing increases medical and indemnity costs – plus the higher cost per pill inherent in the doc dispensing model.

Now you own a controlling interest in a company that – and this is important – administers worker’s comp programs but does not insure those programs.

So help me understand why this is not inherently a conflict of interest. As an owner, ABRY makes money when AHCS makes money from workers’ comp payors, but does not lose money when a company it owns pays AHCS’ bills.

I reached out to ABRY’s Brent Stone and NSM CEO Geof Mckernan early this morning in an effort to get their perspectives.  Here’s what I asked Mr Mckernan:

Given that NSM’s insureds and carriers expect NSM to effectively manage their workers’ compensation programs, how does that square with the business model of AHCS, which is based on generating the highest possible fees for physician dispensed drugs?

There is a conflict of interest inherent in owning a company that manages workers’ comp claims and one that profits by generating the highest possible revenues from workers’ comp claims.  How will this be addressed by NSM?

Specifically:

  1. How will NSM work to mitigate the additional costs including extended disability duration and medical expenses inherent in physician dispensing?
  2. Will ABRY keep AHCS and NSM entirely separate from an investment management perspective?
  3. When conflicts arise between AHCS seeking reimbursement and NSM’s claims function (both internal and via YorkRSG), how will those conflicts be addressed?
  4. Given the well-documented problems inherent in physician dispensing, how will NSM assure it’s carriers and insureds it is taking all possible steps to mitigate those risks?

I’ll keep you posted if I hear anything…

and thanks to WorkCompCentral for the tip!

Aug
5

Party Time for Florida work comp attorneys

Posted by Joe Paduda on Friday, August 5th, 2016 | Comments

AIG just increased reserves for workers’ comp claims in Florida by $109 million.

Attorneys reacted positively…

37

NCCI’s just-released analysis indicates this isn’t an anomaly; their experts estimate the unfunded liability may exceed $1 billion.

To give you some context, total workers’ comp premiums in the Sunshine state last year were $3.6 billion, making this potentially the largest unfunded liability ever seen.

Who’s affected

Insurance companies, self-insured employers including governmental entities, and employers with deductible plans.

What does this mean?

“Un-funded” means insurers won’t be able to increase premiums to cover the additional costs as those costs are for policy years that have expired and there is no mechanism to charge former policyholders higher premiums to recoup the losses.  So, each employer and insurer has to come up with the funds.

Who benefits?

Attorneys.  The additional funds will go to pay plaintiff and defense attorneys.

What caused this?

Three decisions by the Florida Supreme Court.  Taken together, the decisions essentially overturn the limits on plaintiff attorney fees, allowing those attorneys to charge hourly fees instead of a percentage of their client’s benefits.

Previous reforms were motivated by high plaintiff legal costs as attorneys were paid their hourly rate regardless of the amount awarded to their client.  This incentivized attorneys to litigate, as any work was compensated, regardless of the outcome.  Taken to the extreme, claimant attorneys would spend hours litigating a denied office visit or X-Ray, racking up legal costs far above the actual cost of the denied service.

The reform sought to remove this incentive by paying attorneys a percentage of the actual award instead of an unlimited hourly-rate-based charge.

What does this mean for you?

A totally miserable weekend – and many weeks to come – for Florida’s self-insured employers and insurers.

Party time for work comp attorneys.

Aug
1

More insured via Exchanges is good news for Work Comp

Posted by Joe Paduda on Monday, August 1st, 2016 | Comments

People who obtained private health insurance coverage thru the Exchanges in 2014 were less healthy than those previously insured. A just-published article in HealthAffairs provides details on their medical issues and conditions, more on this below. [sub req]

That’s not surprising; prior to ACA, many individuals and families weren’t able to obtain coverage at a reasonable price, and some couldn’t get any coverage at any price, due to insurers underwriting practices.

Now that medical underwriting and pre-existing exclusions are outlawed, folks with health problems can get insurance.  Before we jump into the implications discussion, here’s the specifics.

among those with individual private coverage, the likelihood of reporting fair or poor health and the likelihood of being obese increased by 1.5 and 4.2 percentage points, respectively (Exhibit 1). We also found that the likelihood of having at least one of ten specific chronic conditions5 increased by 6.7 percentage points for this group—a change that was driven by increases in the likelihood of having hypertension (a 4.0-percentage-point increase) and diabetes (a 2.9-percentage-point increase)

The good news is many of these chronic conditions respond well to relatively inexpensive treatment, and the cost of caring for these individuals is much lower if they have access to good primary care.

For work comp payers, the good news is a bit less obvious – but it is good news – for two reasons.

First, in general the working population will be slightly healthier – because more workers will have insurance, and the least-healthy are more likely to be improving their health status. Thus if they do get injured, they will likely heal faster as their overall health status is better.

Second, work comp insurers won’t have to pay to treat their non-occ medical conditions, as the patients are more likely to have health insurance.

 

Jul
22

Work comp pharmacy – different indeed

Posted by Joe Paduda on Friday, July 22nd, 2016 | Comments

The US spent $322 billion on outpatient drugs in 2015 – an 8.1% increase over the year before. (subscription required)

Over the next decade, CMS expects drug spending increases to outpace overall health care inflation by a significant margin at an average annual jump of 6.7%.

Things look remarkably different in the work comp world.

I’ve been surveying workers’ comp payers (insurers, state funds, TPAs, and large employers) for 13 years and the latest data indicates most are seeing a year-over-year decrease in drug spend.  I haven’t finished aggregating the data and checking the details, but this year looks like a continuation of the decreasing drug cost trend we’ve seen over the last several years (past Surveys available here).

More than 2/3rds of payers surveyed reported a drop in drug costs in 2015, and those that saw increases usually cited unique situations as primary drivers for those increases. Conversely, payers with decreases generally attributed their success to the same factors:

  • a strong focus on clinical management 
  • particular attention paid to opioid usage
  • ongoing, concerted effort to drive generic utilization

One other key driver – payers that work closely with PBMs on a variety of programs – retail network penetration, high risk patient identification, peer review, and outlier-prescriber outreach are seeing significantly better results.

I would note that work comp PBMs are spending a lot of money and resources to cut their revenues.  [I am president of CompPharma, a consortium of worker’s comp PBMs]

While there’s no question work comp can learn a lot from group health and other payers, the remarkable success workers comp payers have had in reducing the utilization of opioids shows that Medicaid and group health could and should carefully study what we’ve been doing.

What does this mean for you?

We are making progress, and work comp PBMs are leading the way.

 

Jul
20

Workers’ comp fast facts

Posted by Joe Paduda on Wednesday, July 20th, 2016 | Comments

Over the last few years I’ve had quite a few calls and meetings with folks in the investment community  looking to get up to speed on the workers’ comp industry and various aspects thereof.

While the volume of calls ebbs and flows, of late there’s been increasing interest, likely due to the credit market’s interest in OneCall Care Management and other transactions.

So, here are some key datapoints for anyone looking for basic information.

  1. Total workers’ comp premium and equivalents is about $85 billion.  That includes insurance premiums from private carriers and state funds, claims, administrative, and excess insurance costs for self-insureds, governmental programs e.g. FECA, and claims costs for minimum-premium or other “deductible” type insurance plans.
  2. Workers’ comp medical costs will be about $33 billion this year.
  3. That’s about 1.25% of total US medical spend.
  4. Medical costs account for about 60% of claims expense, with indemnity expense accounting for the remainder. (adding administrative costs to claim costs gets you close to total WC premium and equivalents)
  5. Claim frequency has been dropping by about 2-3% per year for more than two decades.  That will almost certainly continue.
  6. Drug costs will account for around 15-17% of that spend, with physical medicine in the same ballpark.
  7. Most states have some sort of medical fee schedule (FS) in place, however there’s MUCH variation among and between the states.  Some only have provider FS, others have provider, drug, facility, DME and other services covered by fee schedules.
  8. Almost all provider fee schedules are based on Medicare.  However, few states directly link their FS to Medicare, so when Medicare’s FS changes, it may – or more likely may not – change that state’s reimbursement.

There’s a lot more here; if you are looking for more information, try the search box on this page – it’s up there to the right.  With about 3000 posts on MCM, chances are pretty good there’s some discussion of pretty much every comp-related topic.

btw, good sources are:

NASI.org – see the workers compensation tab

WCRInet.org – everything workers’ comp

CWCI.org – California-specific

NCCI.com – their Annual State of the Line is really good.

Jul
13

Construction labor fraud is screwing everyone

Posted by Joe Paduda on Wednesday, July 13th, 2016 | Comments

Following up on last week’s post on construction industry’s workers’ comp premium fraud problem, I realized that it’s way more than that.

We’re talking about insurers put at huge risk due to liability for work comp fraud.

Taxpayers footing the bill for medical care when laborers without insurance get hurt AND paying higher taxes because laborers get paid in cash.

Laborers getting screwed out of a reasonable paycheck by labor brokers who force them to take lower pay in untraceable cash.

Honest contractors unable to compete with others who bid based on fraudulent labor practices.

Citizens not getting jobs because labor brokers know they can get undocumented workers to do the same job for a lot less, with zero risk of complaint from those workers.

I interviewed Matt Capece, of the United Brotherhood of Carpenters and Joiners of America, who’s been all over this issue.  Matt has been talking with insurers, agents, brokers, employers, law enforcement, and the the Feds about this for some time.  While progress is being made, it’s quite clear that this is a huge problem in several key states.

MCM – How do you know this is a problem?

MC – In FLorida, Georgia, Colorado, Oklahoma, Tennessee the vast majority of the industry is affected. When we go onto job sites in Florida, on 8-9 out of 10 sites we hear from carpenters that they are getting paid cash. [emphasis added] Malls, store fit-outs, office renovations, government buildings are all affected.

It’s a big problem in TX, but less so than those other states.In TX there is a base of contractors who are resisting lawless practices

.MCM – What will help slow this down or stop it?

MC – Fraud in the industry is growing. The problem is so large that legislation hasn’t shut it down but has given law enforcement more firepower when a case is found. One of the things that needs to happen is a step up in criminal prosecutions going up the contract chain, and not just stopping at the labor broker. When upper tier contractors start seeing accountability then you’ll see some roll back.

MCM – Are there legislative solutions?

MC – When we talk to legislators about this problem, they don’t know it is that big and are shocked it is that big, then we have to face the other vested interests who want to fight against improving the law or adequately funding law enforcement because they believe it is somehow hurting or over-regulating small businesses.

Good employers, including small businesses, are losing market share and revenue and need protection. Different states have different level of commitment to attacking this. There are very few national construction associations interested in controlling or addressing this issue.

MCM – What’s holding law enforcement back?

MC – When you have law enforcement agencies that aren’t properly funded, when laws are made difficult for them to enforce, when enforcement agents are laid off, when organized labor is weakened, then there are fewer referees on playing field. Bad guys can commit payroll fraud, get away with it, and take over markets.

MCM – What are the top three things that will most help control payroll fraud?

  1. Insurance industry practices need to change from tracking COI’s to underwriting and auditing practices to root our corrupt construction businesses.
  2. Contractors that use labor brokers are putting insurers at increased risk so their premiums should be higher.
  3. The insurance industry needs to join with stakeholders on investigating corrupt contractors and giving federal and state law enforcement agencies adequate tools and resources.
    [emphasis added]

So there you have it.

Corrupt construction firms, aided by crooked agents and brokers, are stealing from taxpayers, insurers, state funds, and workers.  

What does this mean for you?

This is an issue where labor and management can and should work together much more closely. 

Jul
8

Friday catch-up

Posted by Joe Paduda on Friday, July 8th, 2016 | Comments

A short but busy week; here’s a few “highlights”

Jobs!

Big jump in hiring – 287,000 new jobs last month. Even better, the jobless rate has stayed below 5 percent for the last nine months, AND hourly wages increased albeit by a marginal amount AND there are still 5.8 million unfilled jobs as of April.  Here’s one expert’s read:

“This report should ease any fears that a persistent slowdown or recession is coming soon in the U.S.,” said Dean Maki, chief economist at Point72 Asset Management. “The service sector is where the real strength is, with 256,000 hires, but the gains were widespread across sectors.”

But…real median household income is still below where it was ten years ago.

Off-label prescribing run wild

Fentanyl – now infamous for having killed Prince – is the subject of a devastating piece in the NYT detailing the arrest of two pharma marketers for allegedly “financially incentivizing” docs to prescribe Subsys, a fentanyl spray intended for breakthrough cancer pain.  According to Katie Thomas’ article, only 1 percent of Subsys scripts were from oncologists.

Suggestion – ask your PBM to tell you how many Subsys scripts you paid for, and what practitioners were writing them.  NDC codes here.  Thanks to Brian Grant MD of MCN for this one

How the pharma world works

From Drug Channels comes this easy-to-read flow chart showing the drug and dollar flows in the pharmacy market.  Boss Adam Fein is a must-follow for those interested in this business.

Hat Tip to WorkCompWire for the head’s up on the news that Minnesota’s Department of Labor and Industry just published their 2014 system report. A couple of not-obvious takeaways:

Medicare’s physician fee schedule is new and improved – a brief synopsis courtesy of HealthAffairs is here.  Couple of key points:

  • Until 2019, Medicare will give physicians a fee increase of 0.5 percent per year.
  • After 2019, there will be no additional fee increases; providers will have to pick one of two reimbursement methodologies

States adopting the MACRA (new acronym for the fee schedule) for workers’ comp are going to have to figure out what to do after 2019…

Enjoy the weekend – hope we get some rain.  Not used to drought in upstate NY…