Category: Workers Comp

Jun
16

Workers’ comp profitability, Part 2

Posted by Joe Paduda on Tuesday, June 16th, 2015 | Comments

So, Liberty Mutual is de-emphasizing workers comp, a move that is increasing profits. But ProPublica/NPR reported “in 2013, insurers had their most profitable year in over a decade, bringing in a hefty 18 percent return.”

Just how “profitable” is workers’ comp?  Why is Liberty ratcheting things down while the industry is enjoying its “most profitable year in a decade?”

That’s a difficult question to answer for a number of reasons, but the long and the short of it is; comp is not very profitable.

First, the slide that PP/NPR used to make their 18 percent claim.

Courtesy NCCI
Courtesy NCCI

Let’s parse this out, shall we?

First, there are no perfect measures for calculating WC profitability.

Second, the operating gain is not the same as “profitability”.

Operating gain as a measure has several limitations, not least of which is annual operating gain figures jump around quite a bit for reasons completely unrelated to core financial returns. For example, 2013’s “gain” was significantly increased by one very large carrier’s internal financial transfer, a transfer that, in and of itself, was responsible for several percentage points.

Using a multi-year operating gain (OG) ratio is more meaningful than using a single year as it reduces the effect of one-time financial events.  The average NCCI OG ratio from 1990 to 2013 was 5.8%, with a maximum of 19.9% in 1995 and minimum of -10.0% in 2001. The most recent 5 and 10 year averages were 4.8% and 7.4% respectively.

A couple other factoids – The NCCI OG ratio only includes private carrier results, a subset of the total industry. State funds (which tend to be MUCH less profitable) are excluded from the calculations.  In addition, the NCCI OG ratio is pre-tax. 

Finally,  investment income (one key component of operating gain) can’t be allocated to one specific line of coverage (except if the carrier is a mono-line WC insurer).  Reserves and other funds are put into a single “bucket” and invested by the insurer in a variety of instruments.  Then, when funds are needed to pay claims, they are withdrawn.

So, what metric should be used?

The estimable Bob Hartwig PhD of III, in a piece questioning PP/NPR’s claim of profitability, suggested return on net worth;

According to the National Association of Insurance Commissioners, workers comp return on net worth was just 7.2 percent that year [2013], less than half the figure cited in the article. The average return over the decade from 2004 through 2013 was just 7.1 percent. The returns over that 10-year span ranged from 3.9 percent in 2010 to 10.1 percent in 2004

(PP/NPR’s response is here)

There’s more on the return on net worth discussion at III, in addition to a chart depicting financial returns for other industries. (the metric is also known as return on equity [ROE]).

By way of comparison, you can find representative industry ROE figures from Yahoo.

What’s the net?

Relative to other industries workers’ comp is not terribly financially rewarding.  Many industries deliver much better returns.

 

Jun
15

Workers’ comp’s “profitability”

Posted by Joe Paduda on Monday, June 15th, 2015 | Comments

If workers’ comp is so profitable, why is Liberty Mutual de-emphasizing the business?

Because contrary to what NPR and ProPublica have reported, comp is NOT very profitable.  In fact, over the past decade or so, it’s barely a breakeven proposition.

Today’s Boston Globe reports that the former industry leader (and my former employer and consulting client) has significantly cut back its work comp exposure over the last few years,

  • greatly ramping up personal lines and other business lines,
  • reducing WC premiums by over a third,
  • dropping to the 4th largest underwriter of WC,
  • selling off WC subsidiary Summit Holdings, and
  • paying Berkshire Hathaway $3 billion to take over a big chunk of its exposure for legacy WC and some environmental claims.

These moves have dramatically increased profitability; Liberty’s overall profits increased from $284 million in 2011 to $1.7 billion last year.

(thanks to CompToday’s TJ Allen for the tip)

Yes, the work comp insurer that dominated the industry for decades, consistently leading in market share, is moving away from the work comp business. The reason is simple, work comp just isn’t very profitable.

Or even moderately profitable. 

The “reporting” from ProPublica and NPR on the work comp system and all its ills grossly distorted many things, but perhaps most egregiously the industry’s financial returns, stating:

“In 2013, insurers had their most profitable year in over a decade, bringing in a hefty 18 percent return.”

What utter bullshit.  The reporters took a single NCCI graph way out of context, mislabeling the “finding” and grossly mischaracterizing the slide’s import.

I discussed this at length with NCCI’s Chief Actuary, Kathy Antonello; Ms Antonello was kind enough to send over the graph in question…I’m going to dig into that in detail tomorrow.

For now, ponder why the industry’s dominant player is slashing its work comp business if it’s so darn profitable.

 

 

 

Jun
11

Another one of workers’ comp’s good people

Posted by Joe Paduda on Thursday, June 11th, 2015 | Comments

Welcome to the second in an ongoing, occasional series about the good people in work comp; Bruce Wood led off the series and today’s exemplar of all that is good in workers’ comp is Medata’s Todd Brown.

Todd’s been in the business since, well, since forever.  He is expert – and I mean really knowledgeable, completely locked-in, unbelievably well-connected in the dense, complex, convoluted world of workers’ comp regulatory affairs.

Formerly Executive Director of the Texas Workers’ Compensation Commission, Todd has been tracking and reporting on changes in legislation and regulation in all fifty states for years.  Not only that, but he’s been good enough to share that with key stakeholders, an invaluable service that has made Todd perhaps the nation’s leading expert on the subject of WC regulatory and legislative changes. If something is happening, he knows about it; understands the implications, can relate the history of similar changes, and forecast the likelihood of adoption or passage.

Simply put, Todd’s a wealth of knowledge.

All that’s well and good, but what really sets Todd apart is he is one of the nicest, most approachable, decent people one could ever meet.  Patient and incredibly generous with his time and expertise, he’s one of those people everyone likes and respects.

I’ve been fortunate to count Todd as a friend and colleague for several years now; kudos to Medata for recognizing his talents and bringing him on board.

Jun
10

Health care cost drivers, or, Here’s where you’re getting screwed

Posted by Joe Paduda on Wednesday, June 10th, 2015 | Comments

Forgive the vulgarity, but it seems apt when considering two articles just published in the venerable journal Health Affairs.

First, as physician practices consolidate, markets become more concentrated.   A study indicates orthopedic fees paid by private insurers are measurably higher in those markets with higher concentration.  As “Physician groups are growing larger in size and fewer in number”, expect this trend will affect other, currently-less-concentrated markets, thereby driving up the price of orthopedic services.

While the research by Alex Sun and Laurence Baker focused narrowly on knee arthroplasty, it’s likely an examination of other orthopedic procedures would yield the same finding.

A couple key quotes that should resonate among workers’ comp payers:

  • Our results suggest that the potential for reduced costs [due to larger physician groups] may be outweighed by providers’ ability to negotiate higher physician fees.
  • the ACA encourages further concentration to some degree by incentivizing physician groups to form ACOs to provide care. Again, our results suggest that the potential benefits of the formation of ACOs must be balanced against the potential for these organizations to negotiate higher physician fees.

I’d suggest that if private insurers are paying higher rates, workers comp payers are likely paying way higher rates.

Which is an excellent segue to the companion article on hospital markups (hat tip to Richard Krasner for getting to this a day before I did). The authors identified the 50 hospitals with the highest charge to cost ratios; this is a simple analysis comparing their chargemaster, or published price list, to Medicare’s assessment of their allowable costs. Here are a couple enlightening excerpts:

While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges [emphasis added]

forty-nine (98 percent) are for profit, compared to 30 percent in the overall sample; one for-profit hospital system (Community Health Systems) operates half of the fifty hospitals with the highest markups (Exhibit 3). Hospital Corporation of America operates more than one-quarter of them.

Florida has 20 of the fifty hospitals with the highest markups; this is also a state with a fee schedule based on a percentage of “usual and customary” charges.

A notable finding; “markup varies substantially across medical services in the same hospital, and an overall hospital-level charge-to-cost ratio might not reflect the extent of markup for a specific patient. For example, among the fifty hospitals analyzed in this study, the average charge-to-cost ratio for anesthesiology is 112, for diagnostic radiology it is 15, and for nursery it is 3.”

What does this mean for you?

External forces are dramatically reshaping the health care delivery landscape; winners will be those payers who successfully adapt to those changes, not those who ignore them.

Jun
8

WC Rx Survey – early results are in…

Posted by Joe Paduda on Monday, June 8th, 2015 | Comments

We’ve finished collecting the data for CompPharma’s 12th (!) Annual Survey of Prescription Drug Management in Workers’ Comp;  working on compiling and analyzing the data now and expect to get the report out next week.

The survey uses both quantitative and qualitative questions; this enables us to track changes over time to key metrics including network penetration, mail order usage, generic efficiency, and compound drug growth.

The qualitative responses are really helpful in gaining an understanding of what’s keeping payers up at night, where they are seeing success, and how they view key issues.

Here are a few initial findings…

  • Drug management is viewed as more or much more important than other medical issues by 80% of respondents
  • 75% said drug costs will become more important over the next year
  • 2/3rds indicated compounds are the most concerning new issue in WC pharmacy

There’s a lot more analysis to be done as we dig into the qualitative responses. One key area will be the cost and quality control programs payers have implemented over the last 18 months and the results of those programs.

Once the final report is done and proofed, I’ll put up a link.

Public versions of the previous surveys are available free for download (no registration required) here.

 

Jun
4

A work comp exec’s MUST read

Posted by Joe Paduda on Thursday, June 4th, 2015 | Comments

The health care “system’s” problems are even worse for worker’s comp.

That’s the conclusion I reached after I finally got around to finishing “Overkill“, Atul Gawande’s latest piece on the clustermess that is the American health care system.

The top takeaway is this – there is huge over-diagnosis of medical “problems” due to an over-reliance on fancy diagnostic technology, technology that far-too-often identifies physical abnormalities that have little to no effect on one’s health or functionality.

An excerpt makes the point:

Studies of adults with no back pain find that half or more have degenerative disk disease on imaging. Disk disease is a turtle—an abnormality that generally causes no harm. It’s different when a diseased disk compresses the spinal cord or nerve root enough to cause specific symptoms, such as pain or weakness along the affected nerve’s territory, typically the leg or the arm. In those situations, surgery is proved to be more effective than nonsurgical treatment. For someone without such symptoms, though, there is no evidence that surgery helps to reduce pain or to prevent problems. One study found that between 1997 and 2005 national health-care expenditures for back-pain patients increased by nearly two-thirds, yet population surveys revealed no improvement in the level of back pain reported by patients. [emphasis added]

More specific to workers’ comp, the good folks at Liberty Mutual’s Institute for Research found claimants with back pain with:

early or non-indicated MRIs led to a cascade of medical services in the six-month period post-MRI that included electromyography, nerve conduction testing, advanced imaging, injections or surgery.

These procedures often occurred soon after the MRI and were 17 to nearly 55 times more likely to occur than in similar claims without MRI.

“Being a highly sensitive test, MRI will quite often reveal common age-related changes that have no correlation to the anatomical source of the lower back pain,” said one of the researchers, Glenn S. Pransky, MD, Center for Disability Research, which is part of the Liberty Mutual Research Institute for Safety, in a statement.

According to Pransky, evidence-based practice guidelines for lower back pain recommend against early MRI except for “red flag” indications such as severe trauma, infection or cancer.

Dr. William Gaines, associate national medical director, Liberty Mutual Commercial Insurance Claims, said that the National Committee for Quality Assurance and the American Board of Internal Medicine have emphasized for years that overuse of imaging does not represent good care for low back pain.

What does this mean for you?

Our health care system is very, very good at finding physiological and anatomical “problems”.  Unfortunately, it is also very good at assuming those findings actually indicate an underlying and significant pathology.

 

Jun
2

Hospital prices are up. Way up.

Posted by Joe Paduda on Tuesday, June 2nd, 2015 | Comments

And this means higher costs for those getting treatment outside of their core networks, and especially for work comp payers.

While Medicare reimbursement has remained pretty level, hospitals have been busy raising their list prices by more than 10 percent over the last couple of years. This doesn’t really affect most patients as their rates are negotiated by private insurers or set by CMS for Medicare recipients (or Medicaid on a state-specific basis).

Examples of procedures with the highest increases are:

  • Back and neck procedures except fusions – 22.5%
  • Medical backs – 17.5%
  • Most fractures – 17.3%

The impact is felt most directly by privately-insured patients seeking care outside of their network, as deductibles will almost certainly be much higher, as will copays and out-of-pocket limits.

For workers’ comp payers in states without DRG-or similarly-based fee schedules, the price increases are having even more of an impact. For example, employers in states such as Florida that base reimbursement on a percentage of charges are seeing significant jumps in the prices paid for facility-based care.

But that’s only part of the issue.  There’s a “multiplicative” effect as well.  With more and more physician practices bought out by health systems, and more and more docs working for those health systems, their services are increasingly billed as facility codes which tend to be higher and include costs that don’t show up on physician bills.

Medicare is doing an admirable job holding down costs while increasing its focus on quality.

That said, there are some pretty ugly side effects.

As facilities scramble to increase their quality ratings; staff is evaluated on “patient satisfaction” which is a pretty iffy metric. The understaffing of inner-city emergency rooms is gaining more attention, as well it should. These are just two of the unintended consequences of what are dramatic and often wrenching changes in the American health care system.

What does this mean for you?

Higher facility costs for comp payers means they will need to focus even more tightly on the amount paid, and not the network discount for facility care.

May
28

Walking to work

Posted by Joe Paduda on Thursday, May 28th, 2015 | Comments

One of the less significant ways tech will change workers’ comp is prostheses.  Alluded to in the introductory post to this occasional series, there are myriad issues that will affect workers’ comp due to new “high mobility” prostheses (my term).

Parker Hannifan is just one of the companies working on your claimant’s next prostheses; there model is the Indego. Currently in clinical trials at Shepherd, Rusk, Chicago Institute of Rehab among other elite rehab facilities, Indego has developed an exoskeleton that enables paraplegics to walk.

Indego20device

photo Craig Hospital

The Indego weighs a mere 26 pounds, has a battery pack that lasts 4 hours and can be readily switched out. According to the website “The user controls his movement by leaning forward to walk forward and returning to an upright position to stop walking. To sit, the user leans backward, and Indego dampens its motors until the user is safely seated.”

A related field is neuroprosthetics – small, powered devices that connect to the brain to simulate or stimulate sensory organs or muscles. Visual, auditory, and muscular control are three areas with a wealth of research.

One area with deep significance for comp involves orthoses for traumatic brain injury patients to control limb movement by reading neurons in the brain, calculating limb trajectory, and signaling the muscles and nerves needed to create movement.

These devices are likely going to be very costly, require ongoing expert maintenance and support, and likely replacement over time.

They will also enable paraplegics to walk, brain-damaged individuals to lead a more normal life, and some day, blinded people to see.

As medical care improves to the point that grievously injured patients actually survive trauma that would have killed them just a decade ago, there will be more and more candidates for these devices in future years.

What does this mean for you?

Very good news indeed for patients formerly consigned to a life of many limits; moral, ethical, and financial dilemmas and decisions for employers, regulators, and insurers.

May
21

The future isn’t coming; it’s here. And we are so unprepared.

Posted by Joe Paduda on Thursday, May 21st, 2015 | Comments

Inspired by a stunning presentation by Accident Fund Director of Innovation Jeffrey Austin White and a terrific session at NCCI by Salim Ismail, I’m going to be posting occasionally on the future of workers’ comp.  This future is one that is rarely discussed, mostly ignored, and often pooh-poohed.

I’ve been involved in comp since 1988 – some 27 years, and focused on work comp almost exclusively for 20+. There have been some changes over the last two decades, but these changes have been incremental, minor, relatively insignificant, and certainly not disruptive.

The next two decades will make the last look stagnant, stuck, frozen.

We aren’t talking offshoring of nurse case management to Manila, or document management to Ghana, or IT to Ukraine, or radiology reads to India.  That’s tweaking around the edges to arbitrage labor costs – but certainly not disruptive.

What is coming is DISRUPTIVE – disruptive like gunpowder was to warfare, steam to transportation, mechanization to industrial production, internal combustion to transportation.  

Driven by massive and almost free computing power, faster and better 3-D printing, incredibly cheap data storage and speed-of-light access to that data, artificial intelligence that in many ways is already far smarter than we biological beings, the future is:

  • automated logistics drastically reducing the number of humans “driving”
  • construction costs dropping just as rapidly as construction speed is increased, with ever-decreasing need for human participation
  • the all-but-disappearance of humans working in agriculture
  • computers doing accounting, sales, marketing, planning, customer “service”

Before we get too deep into this, let’s start with something that is directly affecting workers comp today – prostheses.

The science is evolving so rapidly that there are now prostheses that are controlled by nerves firing in the brain, prostheses that can essentially replace human limbs.  These are far better than your muscle-controlled artificial arm, which was a huge step up from the wooden leg and hook-for-a-hand “technology”

Think about this.  A worker loses an arm in a crushing accident.  The new arm is:

  • immensely capable, able to do anything the biological arm can, and 
  • extremely expensive
  • serviceable and upgradable, albeit at a hefty cost.

A few top-of-mind implications.

  • is the worker “disabled”?  one could argue absolutely not.
  • can this claim be “settled”? only if future maintenance and upgrades are covered.
  • is there a payment for “disfigurement”?
  • if the arm is more capable than the human arm, who pays for that additional capability and why?

This is already an issue in workers’ comp as judges are dealing with medical necessity issues related to prostheses every day.

And that’s just one thing – prostheses for amputees.

Future posts will scratch the surface of automated driving, big data-driven risk assessment and underwriting, return-to-work, and myriad other topics.

What does this mean for you?

The last 20 years are to the next 20 years as the Middle Ages were to the 1800s…

 

 

May
20

Controlling work comp medical – Swedlow and Victor weigh in

Posted by Joe Paduda on Wednesday, May 20th, 2015 | Comments

The capstone to an excellent NCCI AIS was provided by WCRI Exec Dir Dr. Rick Victor and his counterpart at CWCI, Alex Swedlow.

Rick led off with my LEAST favorite topic – physician dispensing of drugs to work comp claimants.  The usually-very-circumspect Dr Victor said that “the evidence is pretty clear in terms of costs and likely benefits of physician dispensing.”

All the evidence indicates:

  • physician dispensing is common in big states
  • prices are higher than for the same drugs in retail pharmacies
  • even after reforms, prices are about 30% higher
  • docs write scripts for OTC meds when they dispense those meds
  • dispensing docs prescribe unnecessary opioids 
  • the price focused reforms – eliminating the upcharge for repackaged drugs – will not deliver long term results.

As great as it was to see Dr Victor and NCCI focus so much time on an issue that I’ve been harping on/screaming about for about 8 years, I – as undoubtedly you – are sick to death of this subject. It’s time to kill the beast – ban physician dispensing and docs profiting from dispensing.

CWCI’s Alex Swedlow jumped full force into a quick review of utilization review in California.

The key takeaway is the decline in medical trend observed recently – which is leading to a reduction in rates – is very good news indeed.

Pharmacy is the fastest growing component of California’s work comp medical expense, now totaling 13.2% measured at 24 months maturity, or $1.2 billion. This despite two fee schedule reforms, implementation of chronic pain guidelines, and shortly opioid-specific guidelines and perhaps a formulary via legislation now under consideration. Yet 45% of UR involves drugs, and 45% of medical reviews do as well.

BTW doc dispensed drugs account for over half of drug spend in the Golden State.

Despite all that effort 29% of pharmacy spend is for Schedule II and II drugs.

That’s just appalling.

Which led Alex to the key question – why is California’s WC medical so much harder to manage?

Alex’ take – a fundamental lack of shared risk – no supply/demand controls, no contractual language that limits care, and a dispute process that features very high levels of litigation.

Which leads to the Independent Medical Review (IMR) process – intended to speed dispute resolution while increasing consistency.  CWCI has done quite a bit of research into this area, most of which is available on their website.

Briefly – 95% of ALL treatment requests are approved.  There is NO wholesale denial of care occurring in California.

Despite what you may have heard, the IMR process is working pretty well.

CWCI’s research (on their website) indicated that the average audit score for timeliness etc was 97%.  And, IMR isn’t nearly as cumbersome as some would like to portray.  

Here’s the real data…

75% of requests for initial treatment are immediately approved.

77% of the 25% that aren’t approved initially are approved after going thru UR. – that equates to 94.1% of all treatment requests are approved initially or after UR.

91.4% of IMRs agreed with UR that the UR-denied treatment was in fact not consistent with evidence-based medical guidelines.

44.7% of services going to IMR were for drugs; those decisions were upheld 92% of the time.  And a lot of the IMR challenges are coming from one area – Los Angeles.  Similarly, the top 1% of docs generated 44% of the letters; only 10 docs were responsible for 11% of ALL IMRs.

What does this mean for you?

Drugs are a big problem, and a relatively few docs are the ones contributing to this problem. 

The IMR process is working pretty well – and would be much better if a very few docs weren’t flooding the system.