Sep

Workers’ comp claim frequency is down, will it stay there?

Posted by Joe Paduda on Tuesday, September 17th, 2013 | Comments

Claim frequency dropped another 5% in 2012, continuing a 25-year trend of ever-decreasing frequency…well, except for that one-year uptick during the recession.

More tellingly, NCCI data indicates frequency has been steadily declining across all industry groups. However, this has been partially offset by a small but steady rise in medical costs. Although medical costs increased at an average rate of 5.7% from 2002 – 2011, NCCI reports trend over the last three years was substantially below that figure.

I must admit to being somewhat puzzled by this, as several clients are reporting higher increases. It could be that NCCI uses paid and estimated future medical expense (“developed to ultimate”) while the payers I work with look at paid data (when we project medical costs). Nevertheless, we are seeing medical trend rates in the mid to upper single digits, driven by facility costs.

One area of interest is the oil and gas industry, where employment has been steadily increasing over the last five years. Yet the frequency trend has been down in all but one segment of this industry, mirroring overall trends. Overall, payroll is up 16% in that time, while frequency declined over 20 percent; notably severity increases more than outweighed the positive effect of the drop in frequency, as costs were up 22%.

So, what does this mean?

First, frequency is continuing its decline, however I’d expect the rate of decline to decrease over the next couple years. Second, severity – NCCI estimates are it is in the low single digits, while I see it as significantly higher. I think the key is in the methodology. NCCI bases severity on a projection of what today’s claims will ultimately cost while my admittedly-anecdotal information is based on what’s actually been paid.

The net – as employment trends up (if the morons in Congress don’t find some principled-but-stupid reason to refuse to increase the debt ceiling) the number of claims will too, partially or completely off-setting the frequency drop. And medical costs are going to increase.

Sep

Buy this book

Posted by Joe Paduda on Monday, September 16th, 2013 | Comments

WCRI’s just published a comprehensive guide to physician dispensing in workers’ comp, complete with cost trends, state regulations and legislation, individual drug price differentials, and a wealth of other great information.

Here is the key take-away.

in four states – IL MD FL CA – physician dispensing accounts for more than 55 percent of all drug spend.
In four more – CT PA TN GA – it accounts for more than 30%.
and it continues to grow across the board.

What’s notable is that after regulations to limit upcharging for repackaged drugs were put in place in California, the percentage of scripts dispensed by docs didn’t change appreciably.

With other states, e.g. GA IL MI CT all taking similar action, we will know more about the impact of price controls on dispensing. My sense is the controls will not significantly reduce physician dispensing.

That is too bad, as CWCI research proves physician dispensing increases medical costs over and above the higher cost of the drugs – while extending disability duration and total claims cost.

All to enrich a few docs and their dispensing company allies.

What does this mean for you?

Higher costs. Worse outcomes.

Sep

Another transaction in the work comp space

Posted by Joe Paduda on Friday, September 13th, 2013 | Comments

Healthcare Solutions will be acquiring PBM/DME firm Modern Medical.

The deal brings together two companies with strong pharmacy clinical management programs, DME/HHC products, and somewhat different target markets. Modern has a solid customer base among self-insureds and on the West Coast. HCS has a broader product portfolio, offering networks, bill review, and other WC managed care services to large and mid-tier insurers.

This was the second recent transaction for Duluth, GA based HCS; a year ago the company purchased PBM ScripNet, adding a strong presence in the southwest and several marquee clients.

The deal is also the second PBM transaction in the last seven days, coming just a week after the announcement that Kelso and Stone Point are acquiring PMSI, which will be combined with Progressive/Stone River. It also follows the Mitchell transaction, while other sources indicate OneCall Care Management is also exploring an equity event.

There are at least a couple other shoes still to drop, as the private equity industry continues its pursuit of any and every asset doing business in the workers’ comp industry.

Regarding the HCS-Modern transaction, no official word out from either entity as of yet; stay tuned for further developments…

For more on what’s going on and why, read this.

Sep

Survey of Prescription Drug Management in Work Comp – results are in

Posted by Joe Paduda on Monday, September 9th, 2013 | Comments

CompPharma’s Tenth Annual Survey of Prescription Drug Management in Worker’s Comp is available for download here.

There are two key takeaways from this year’s Survey; the continued decline in drug costs for programs managed by PBMs, and the industry’s sophistication, knowledge, and expertise about all things drug-related. The latter is one of those findings that is not immediately apparent as it has gradually increased over the last ten years; it is blindingly obvious when one reviews the first Survey and compares it to this year’s.

Respondents’ knowledge of pharmacy is deep and broad; their comments on issues, concerns, and results reflects that knowledge as they discuss issues including:

the dangers of benzos and opioids prescribed together,
concerns about opioid addiction and treatment thereof,
rapid growth in urine drug monitoring,
safety issues inherent in physician dispensing,
and drug utilization review functions and programs

For the third consecutive year, respondents reported an aggregate flat or decrease in drug spend. Careful observers may find this puzzling as overall industry data indicates drug costs are up. However, the Survey’s respondents all use PBMs, with most taking full advantage of many of the programs and services offered by their PBM. Perhaps more telling, other data indicates spend on opioids on programs managed by PBMs was also down last year.

All good, right?

No.

Senior management remains quite concerned about drugs, with the long term impact of opioids the key driver of that concern.

And concerned they should be.

Sep

Mitchell has been acquired. What’s next?

Posted by Joe Paduda on Monday, September 9th, 2013 | Comments

That didn’t take long. On the same day Kelso and Stone Point did the PMSI-Stone River deal, giant PE firm KKR bought Mitchell International for $1.1 billion.

The transaction, reported to value Mitchell at 11-12 times adjusted earnings (no word on if that was trailing or forecast), was not as lucrative as some expected.

Mitchell, along with Stratacare, Medata, Xerox, and MCMC are the leading providers of bill review software to the work comp industry. Traditionally focused on auto claims software, Mitchell added work comp with its acquisition of CompReview several years back. The foray into comp was not without its challenges, particularly staff turnover, product glitches and some customers’ concern about responsiveness particularly around fee schedule updates. That said they did add several customers over the last few years, customers who seem generally satisfied with their performance.

There’s an interesting question yet to be addressed; does it make sense for KKR to keep the work comp AND auto software businesses?

A superficial analysis might lead one to think there’s synergy here; the same customer sector (P&C insurance), and similar issues and functions (process medical bills, deal with regulatory issues, integrate with treasury, medical management, and networks (albeit rare in auto).

In reality, I don’t see much in the way of synergy. The folks who run PIP and commercial auto at P&C insurers are quite separate and distinct from the work comp operators, making it unlikely one would influence another’s systems decisions. Second, auto is very different from comp – comp has indemnity, auto has property and liability; auto has medical limits and little in the way of medical management, comp has no limits and lots of med management; comp is functionality focused while auto is not.

And auto is a much bigger business than work comp bill review.

Competitor Stratacare has been rumored to be on the block for some months now; sources indicate Coventry’s work comp folks spent several days on-site earlier this year evaluating the software and operations. At some point Coventry will have to invest in its aging and creaky BR 4.0 platform, either that or kill the thing and switch customers to another application. That reality may well have been behind the on-site visit. If Coventry does not buy Stratacare, and I’d bet they don’t, there’s an argument to be made that splitting off Mitchell’s SmartAdviser platform (their work comp business) and merging it with Stratacare makes a great deal of sense.

There have been rumors that Mitchell attempted to merge with its largest competitor in the auto claims software business at least once in recently, a merger that may well have run into regulatory obstacles. A Stratacare-Smart Adviser “combination” would have no such problems, would generate a lot of cash for KKR, and would consolidate a business that needs consolidation.

What does this mean for you?

1. The expectations for Mitchell were likely too high; An 11x multiple is, by any standard, quite rich. Why the owners thought they’d get a 14x is puzzling. Perhaps they thought the feeding frenzy in work comp deals would generate a bidding war…alas this is primarily an auto company.

2. Watch this closely. KKR’s next few moves will tell much about their plans for workers’ comp.

Sep

PMSI’s acquisition

Posted by Joe Paduda on Friday, September 6th, 2013 | Comments

Yes, the deal is in process.

PBM PMSI’s new owners will be Kelso & Company and Stone Point Capital. And yes that’s the same Stone Point that owns Stone River/Progressive Medical.

Emry Sisson and Tommy Young will remain as Co-CEOS, with current PMSI CEO Eileen Auen taking the top spot as Executive Chair. The new company will have revenues near $750 million.

Given recent transactions, I’d hazard a guess that PMSI’s price was hefty, likely well above a double digit multiple of their EBITDA.

Auen has done a remarkable job turning around an almost-defunct PMSI; her leadership is key to the success of the new company and she will remain with the new organization in a full time role. Anyone who knows Eileen knows she’s full-time executive, with an excellent reputation in the industry and strong relationships with many payers.

More to come

Sep

Montana’s progress on work comp

Posted by Joe Paduda on Thursday, September 5th, 2013 | Comments

I was invited to speak at Montana’s annual Governor’s Conference on Work Comp, and came away with a few brief but telling impressions.

Governor Steve Bullock actually came and spoke to the 300+ attendees, and he knew what he was talking about. Impressive.
Lieutenant Governor John Walsh is heavily involved in comp, is quite knowledgeable and leads the Labor Management Activity Council.
The LMAC leaders spent an hour fielding questions from attendees, seeking feedback on recent reforms, asking what can be done better, and listening hard to any and all comments.

Several years ago, Montana’s work comp costs were the highest in the nation. Now, they’ve dropped substantially, driven by frequency as well as decreases in indemnity expenses. Perhaps the best news is their medical costs have inched up a mere 2 percent over the last three years, this while the rest of the nation has seen about a ten point jump.

The reforms, which include adoption of evidence-based medical guidelines, closing of medical after five years, and changes to wage-loss payments, have made a big difference. But they would not be nearly as effective if not for the State’s ongoing commitment to make sure they are implemented correctly, changed when needed, and supported by stakeholders.

They aren’t all the way there; but the folks from Big Sky Country are well on the way.

Sep

You won’t believe this.

Posted by Joe Paduda on Tuesday, September 3rd, 2013 | Comments

But it’s real…

One would think the Execs at a dominant workers’ comp fund in a state where premiums are exploding, claims costs increasing, and severity heading ever higher would make darn sure they managed the little things; as we all know, if you take care of the little things, the big things take care of themselves.

Alas, it appears that the denizens of North Dakota’s C-Suite kinda forgot this basic tenet of good management. Either that or they have come up with a unique way of encouraging honesty…

Seems that WSI issued brand new fancy ID Cards to all workers, complete with a phone number for the finder to call if the card is misplaced. Interestingly, the folks answering the call on said toll-free phone number seem to be more interested in satisfying callers’ prurient pleasures than simply re-connecting a WSI employee with their ID card.

Turns out the toll free number (above) connects to an organization staffed with “red hot babes”.

Babes that are very, very excited about talking with callers.

Perhaps this is a brilliant way to encourage finders to not be keepers, and get those cards returned quicker than you can say “hey, baby, whatcha wearing?”

Or, perhaps not…

I’m guessing there are going to be lots and lots of lost cards, and perhaps some very high phone bills as honest North Dakotans try get those cards back to their rightful owners.

Hopefully the guy who sits in the CEO suite, one who was propelled into that chair after last occupying the drivers’ seat of a state police patrol car, isn’t going to place the blame on some poor person lower down in the organization. That would be easy, and wrong. Because it is the CEO’s job to make sure the little things get done right, and if they aren’t, to correct her or his management style, directives, processes and metrics to make sure they are.

Sep

Tuesday’s goings on in work comp

Posted by Joe Paduda on Tuesday, September 3rd, 2013 | Comments

Bits and pieces from around the world of work comp…

PMSI has landed the PBM business from California TPA Intercare. Sources in the Sunshine State indicate the deal is worth around $7 million…

Drug testing firm Millennium Labs (and HSA consulting client) was awarded a contract to provide services to the Montana State Fund.

From Fitch comes news that “Property and casualty insurers’ and reinsurers’ 2013 first-half profitability grew compared to the same period in 2012, but the current pricing cycle may be reaching its peak…” [emphasis added]. The ratings guru found that the industry’s combined hit 93.5, a big improvement from just a few years ago. And, net earned premium growth was up 4.7%, reflecting improvements in the economy and pricing. However, there’s a troubling cloud on the horizon – the reinsurance industry is getting more competitive, increasing concerns that pricing may falter.

Here’s hoping that the industry’s leaders are smart enough to realize that we’re far from a happy place; rational pricing has to persist if we aren’t going to see another step over the stupid line and into a price war.

Finally, kudos to Mississippi for regulations to control the latest WC scam – so-called “pain creams”. [subscription required, good work Mike Whitely] Nothing more than re-formulated Ben-Gay look-alikes, these creams are only the most recent example of profiteers’ creative efforts to suck as much money as possible out of employers’ pockets.

I’ll have to disagree with friend Ken Martino of IWP; creams are rarely used when pills don’t work; they are prescribed – and dispensed – by docs to make money. Creams should be ordered AFTER pills have been tried and failed, yet these scam artists are using them as a first line. There’s no evidence docs try pills first, rather they prescribe the creams for financial reasons…

Aug

Opioid Survey – fixed!

Posted by Joe Paduda on Tuesday, August 27th, 2013 | Comments

Apologies to those who clicked on the (broken) link in yesterday’s post on our Opioid Survey – here’s the right one.

All respondents who complete the Survey (and only respondents) will receive a detailed Survey Report…so click away!

Category: Workers Comp