Last week we dove into the fastest growing medical cost driver in work comp – facility costs. (I’ve dug into this many times over the last fifteen years.)

A key question – Why?

The simple answer is from Willie Sutton; when asked why he robbed banks, he said “because that’s where the money is.”

While it is indeed true that facility bills are orders of magnitude more expensive than most comp services, there’s a lot more to this. I asked Dr Anthony Pelezo of Equian to expand on Mr Sutton’s meme.

Dr Pelezo runs Equian’s Payment Integrity operation. A physician by training, Dr Pelezo’s depth of knowledge of all things coding, billing, reimbursement, and facility revenue cycle management coupled with his clinical background brings a level of practical expertise I’ve not seen anywhere else. (I consult with Equian’s Clinical and Coding Logic operation).

Here’s part of my conversation with Dr Pelezo about the soft target that is workers’ comp.

Briefly, “following the path of least resistance is a common theme for many things, and healthcare payment is no exception. As a simple matter of physics (Newton’s third law of motion), every action has an equal and opposite reaction. Market pricing pressures from both government programs and group health programs places pressure of other available revenue sources (such as Worker’s Compensation). 

From a purely financial perspective Worker’s Compensation is generally off the radar of many of the larger payment integrity companies. Overall Worker’s Compensation may represent 1% of the $3-4 trillion in U.S. healthcare payments…we add to this fact that Worker’s Compensation payment programs are unique State to State (like Medicaid)…[and] Programs like Medicare and Medicaid make up around 60% of the nation’s healthcare spend. Group health plans make up another third of healthcare payments. The result has been that many worker’s compensation carriers are dependent upon bill processing systems and limited internal resources to manage the entire spectrum of payment integrity. Worker’s Compensation payment has certainly not fallen off the radar of the provider community.

Dr Pelezo elaborated on work-comp specific issues:

Policy foundations (or lack thereof) are also an issue inside of Worker’s Compensation…Payment, administrative, and medical policies are all part of this equation. Some States have more comprehensive policies than others, though almost all lack any meaningful library of medical policy. In group health programs there are hundreds if not thousands of medical and administrative/payment policies in play; medical policy sets alone can number near 1,000 in some group health programs. Only a handful of States’ Worker’s Compensation programs have true fraud, waste and abuse legislation; insurance fraud is addressed, though healthcare billing fraud is rarely addressed. We also have the issue of State-specific code use, which contradicts the standard transaction code set adopted in 2003 as part of HIPAA; a lack of a standard transaction code set creates opportunity for confusion and errors within billing practices.

The net – most payment integrity firms focus on the big payers – group health Medicare and Medicaid because workers’ comp medical spend is tiny in comparison. Add to that the inter-state variation in policies, coding, reimbursement regulations and the lack of consistent payment policies along with providers’ ever-more-sophisticated billing techniques and the problem becomes apparent.

Tomorrow – solving revenue maximization. Also known as how to get Willie Sutton to look elsewhere.

I caught up with WCRI CEO John Ruser PhD last week to find out why the WCRI Conference is in Phoenix, what we’ll learn, and why this event sells out every year. (register here)

• Why move this to Phoenix?

Traditionally, our conference has been held in the Boston/Cambridge area (east coast). This year we want to make it easier for our members and others interested in our research who live on the west coast to attend. We know traveling can be expensive in time and money, so we sought to lower the threshold for those on the west coast to join us. Although we will be back in Boston next year, we will review the success of having this year’s conference in a different location and, based on that review, consider moving it around to other cities.

(Paduda comment – and Phoenix is a lot sunnier than Boston in March…)

• What is the hot topic this year?

Coordinated services – getting employers, providers, patients to work together. We have two sessions on this.

The first features Prof. Tom Wickizer, with the Ohio State University College of Public Health, who helped create a pilot of these coordinated services in Washington state. He will talk about how this program came to fruition and the challenges and successes they had.

Joining him is Jennifer Sheehy with the U.S. Department of Labor’s Office of Disability Employment Policy. She will talk about the considerable investment the federal government is making to stimulate this approach in eight states. She’ll explain to us the motivation behind this move as well as give us a status update.

The second session features Dr. Cameron Mustard, president and chief scientist at the Institute for Work & Health, who will discuss the challenges and successes a large acute-care hospital system and it’s three unions faced in developing an innovative and collaborative return-to-work program.

• How did Coordinated Services become the lead topic this year?

Whether it is in the political realm, the boardroom, or the workplace, when people fail to work together, it is difficult to innovate and address complex challenges. The workers’ compensation environment is no different.

At this year’s conference, we are featuring some of WCRI’s latest research, as well as engaging sessions on the latest trends and examples of industry stakeholders coming together to tackle some of the system’s most important challenges, such as opioid misuse, return to work, and providing the worker the highest standard of care.

It fits into a broader focus of many stakeholders in workers’ compensation who see the benefits of collaboration and working together to improve injured worker outcomes.

• On the topic of erosion of benefits, my guess is the lower frequency rate is a factor.  Is this a correct assumption? And have worker indemnity benefits on a per-claim basis actually eroded?

Yes, correct assumption. I will present National Academy of Social Insurance data to show that workers’ compensation benefits as a percent of covered wages are at their lowest level since 1980 and that this share has been declining for over a quarter century. Some say that’s an erosion of benefits, but there’s much more to it.

In my presentation, I will highlight contributors to this trend, emphasizing the ubiquitous declines in injury rates and workers’ compensation claim rates that are partially offset by increases in injury and claim severity. I will also identify factors responsible for these offsetting trends, including improvements in safety, changes in the mix of jobs and compensability rules, the aging workforce and economic conditions. 

• What other sessions should we know about?

I am very excited about our keynote speaker, Princeton University Professor Alan Krueger, who is considered one of the 50 highest-ranked economists in the world.

He will be giving a presentation on the economics of the opioid epidemic and how it affected the labor force participation rate. Then he will sit down with me to discuss his research and thoughts about the future of work and the impact of technology on the economy.

I will also ask him about his experience working in Washington, D.C. as the former chair of the White House Council of Economic Advisers (CEA).

• What will those attending the conference come away with?

Apart from networking with experts and other high-level workers’ compensation professionals, we want our attendees to walk away from the conference having learned valuable things they didn’t already know.

This conference sells out every year – so get your registration in soon here.

It’s been a crazy busy week – here’s the notable stuff you may have missed.

Pharma and Transparency

There’s a good bit to unpack here – the two big things you need to know are:

• list prices for branded drugs did not increase that much last year, and
• the Trump Administration is talking about changing regulations that would severely limit or end the use of rebates, potentially replacing rebates with discounts to consumers at the point of sale.

Rebates reduce what payers’ and PBMs’ pay for expensive branded drugs; the problem is patients that need those drugs don’t get the benefit of this cost reduction. While PBMs and payers argue that they use rebates to reduce the total cost of the pharmacy benefit, reality is the folks who need a lot of expensive branded drugs end up subsidizing everyone else’s pharmacy benefits.

There’s an excellent explanation of this by Adam Fein PhD here.

For workers’ comp folks, the impact of these potential changes to rebates will depend on your contract terms with your PBM.

Thanks to Steve Feinberg MD for alerting me to an NPR piece on the big growth in prescribing of benzodiazepines by primary care providers. It appears these drugs, usually prescribed for anxiety, insomnia and seizures, are being used by patients with back and other chronic pain. More troubling, the long-term use of these potentially-addictive substances is on the upswing.

Managing disability is the focus of a terrific new publication from Mathematica; included are some particularly useful articles about data mining to identify claims that may be good candidates for early intervention.

The soft target that is workers’ comp

Yesterday’s post on facility costs elicited several emails from hospital and health system folks asserting their billing practices and discount arrangements result in lower costs for workers’ comp payers. None provided any data supporting those assertions; hopefully that is forthcoming.

Next week I’ll be publishing an interview with Equian’s Anthony Pelezo MD; it is a deep dive into the world of hospital “revenue maximization” and what you can do about it. (Equian is an HSA consulting client)

Costs for hospital-based care – driven by large price increases – are increasing faster than any other medical service.

This from HealthAffairs:

in the period 2007–14 hospital prices grew substantially faster than physician prices. For inpatient care, hospital prices grew 42 percent, while physician prices grew 18 percent. Similarly, for hospital-based outpatient care, hospital prices grew 25 percent, while physician prices grew 6 percent. [emphasis added]

While there are any number of public policy changes that could address the problem, group health and workers’ comp payers can’t wait for legislative or regulatory action – they need solutions now.

First, we have to know why and where prices are increasing to come up with viable solutions. The study referenced above used case-mix adjusted data from 3 large health insurers – Aetna, Humana, and UnitedHealthcare, using the actual prices negotiated by these giant healthplans. (these plans cover over a quarter of all Americans with employer-sponsored health insurance.) I won’t get into the nits of the research – for wonks, it’s all in the link (subscription required).

Hospitals and health systems are able to raise prices because – in many areas – they have close to monopolistic pricing power. That is, even giant health insurers aren’t able to negotiate low prices because health systems have dominant market share.

If giant healthplans don’t have much bargaining power, workers’ comp networks and payers have next to none. Remember, the total amount of medical spend from all payers in the US is about 1.25 percent of total US medical spend. From another HealthAffairs article:

other insurers [defined as auto and work comp] typically lack sufficient patient volume to establish network contracts with hospitals because they usually insure only a small proportion of a hospital’s patients.

The article is well worth purchasing, however it does have a possibly significant limitation; it uses Florida data – the Florida work comp fee schedule is easily and usually gamed by hospitals, so the research may not be applicable to other states. That said, here are the key takeaways:

• For-profit hospitals charge significantly higher prices than not-for-profits
• For-profit hospitals generate almost a quarter of their margin from “other payers” (that’s you, auto and work comp)
• Hospitals affiliated with HCA had the highest price increases during the study period and the highest prices for “other payers”

So, what to do? There are two issues here – what facilities your claimants use, and how those facilities bill you.

1. Review your PPO contracts to identify for-profit health systems
2. Do a quick analysis to compare what you pay (NOT THE DISCOUNT, WHICH IS IRRELEVANT) different facilities for similar services
3. Direct your patients to the lower-net-cost facilities.
4. Or, skip the analysis and just direct patient to not-for-profit facilities.

Tomorrow, we’ll focus on cutting costs on individual bills.

What does this mean for you?

Work comp and auto is a very soft target for profit-maximizing providers – but you aren’t powerless.

HSA is conducting the second Survey of UR in workers’ comp – and we need your input – and will reward you for it. Click here to take the Survey.

Six years ago we completed the first survey of UR and UM in workers’ comp. Back then, the big findings included:

• Most payers’ primary UR was done by in-house staff
• Vast majority of respondents used UR to control medical costs and ensure appropriate medical treatment
• Executives surveyed were more concerned with implementing states’ UM/UR guidelines, while desk-level folks were more worried about states’ poor enforcement of those guidelines
• And while most execs thought UR was connected to bill review, most desk-level folks believed otherwise

We are well into a new Survey; preliminary findings from executive level respondents indicate:

• No company is recognized as the leader in providing UR services
• Today, management is more aware that UR is not connected to bill review – and surprisingly, it still isn’t
• There’s a lot of interest in – but many different definitions of – automating UR and technology improvements.

We are also surveying front-line folks to get your input.

The survey takes less than 9 minutes, and one respondent drawn at random will get a new 11 inch iPad Pro – or comparable Microsoft Surface.

The first ten respondents who complete the survey after this post goes live will each get a $15 Amazon gift card. 

All respondents get a copy of the Survey report too.

Click here to take the survey.

On its third CEO in four years and facing a tough financial picture, it’s time to think thru the challenges facing OneCall in 2019.

First, workers’ comp is a declining business – claim counts continue to fall. When you’re as big as OCCM, structural factors tend to have a bigger impact than they do on smaller companies. The Net – Fewer claims mean fewer specialty services needed.

Second, the list and type of competitors is changing as firms including Mitchell/Genex diversify. With Genex buying PCS (Priority Care Solutions), it would be logical for Mitchell to switch customers from OCCM to Genex/PCS (where this is possible). This would make sense for two main reasons: a) increases Mitchell/Genex’ top line revenue as the entire service cost is counted as revenue (for most services); and b) increases M/G’s total margin. Word is M/G has moved/is moving specialty business from OCCM to Genex/PCS and this will continue over time. Other entities such as VGM/HomeLink, HomeCareConnect, Paradigm Outcomes, and MTI America (HSA consulting client) are also working aggressively to gain market share. The Net – OCCM will likely see additional loss of revenue and associated margin.

Third, the new CEO doesn’t appear to have any experience with or expertise in workers’ comp. Rone Baldwin’s last job was with Centene, a health plan company with deep expertise in Medicaid, Medicare and some individual marketplace business. He’s also had stints at other benefits and insurance firms, but nothing I saw in property and casualty insurance or claims. Mr Baldwin left Centene in 2016; I asked OCCM what he’s been doing since then; they weren’t able to respond. The Net – With the workers’ comp business flat to declining, OCCM owners have brought in a new CEO who is a healthcare guy.

OCCM has been trying to push into the non-workers’ comp sectors for some time now, with limited success. Come to think of it, I can’t name any work comp entity that has had any appreciable success moving into healthcare.

The Net – I’ll repeat what an investment firm asked me about OCCM – What’s the end game? And I’ll repeat my reply – Either it gets sold intact to a strategic buyer (perhaps Optum or Mitchell), gets broken up and sold off piecemeal, or creditors take it over if/when it runs out of cash.

Note – I sent several emails starting yesterday at 8 am to OCCM asking for comment. As of press time there’s been no substantive reply.

CEO Dale Wolf is no longer with OneCall Care Management.

Wolf’s departure is to be announced internally early this afternoon; word is he was informed Friday that he would no longer be needed at OneCall.

In his two years at the helm, Wolf was unable to fix OneCall; frankly that was a Herculean task against long odds. From its inception as the combination of Align, SmartComp, OneCall, and various other bits and pieces, OCCM was a business based on an ill-conceived investment thesis hampered by crushing debt that – in my view – forced a strategy that was doomed to fail and, in my view, was poorly executed.

As CEO, one could blame him for a failure to right the ship – but I’d be loathe to lay it at his door. Wolf took over a business headed in the wrong direction, tied to a faulty business plan authored by his predecessor. The actions he took had to recognize a) the reality that debt service costs were a huge limiter and b) the “whitespace” touted by OCCM buyer APAX and former management was much smaller than they opined.

While at best unpleasant and at worst cruel. the layoffs under Wolf cut expenses. (that said, the way some of the layoffs were handled still rankles.) Layoffs and the investment in tech solution Polaris were designed to reduce admin expense, increase profits, and improve customer service, thereby allowing OCCM to continue to pay its debt costs while hopefully gaining revenue and margin to, perhaps, one day, allowing owner APAX to sell at a profit. (That looks increasingly…unlikely.)

Polaris is still months away from full implementation at all customers, and consuming lost of free cash flow. If OneCall is to survive intact, it will have to complete Polaris, have Polaris live up to expectations, reduce admin expenses, and add new business.

One bright spot – transportation. Partnering with Lyft, OCCM is making significant progress shifting a chunk of rides to the rideshare company while reserving higher-complexity cases for its standard WC transportation network. That’s the good news; the bad news is margin on those Lyft rides may be significantly lower than the rides they are replacing. Nonetheless, kudos to OCCM for working through this.

Having worked at a declining company in this space and still bearing the scars, I feel for the people in JAX going thru this.

Unfortunately, the company’s latest financials indicate things are not getting better, predicting an even more difficult path ahead for OCCM’s new leader. (Word is the new CEO, Rone Baldwin, comes from Centene,)

From December post on financials…

2018 has been a tough year; an investment industry source indicated Q3 EBITDA was down15% 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.

A few questions worth pondering: (I’ve reached out to OCCM, no response as of press time)

• Given the limited whitespace and to-date-inability of OCCM to win more business than it loses, is the new hire tasked with pushing OCCM hard into group health and other non-work comp sectors?
• Given limited cash, what is the near-term plan to stabilize the company’s work comp business?
• What are owner APAX’ plans for the business?

Buyers are asking healthcare intermediaries for “transparency”. We talked about why this is happening yesterday; today I’ll try to concisely describe what this transparency thing is.

The emphasis on try is an upfront admission that a blog post is NOT going to be the end-all and be-all answer. You aren’t going to read a 5000 word treatise on this – and I sure don’t want to write it.

With that caveat, here goes.

First up, we are dealing with intermediaries or middlemen. Think PBMs, bill review firms, networks; entities that contract with healthcare providers, pharmacies, durable medical equipment vendors, chiropractors etc.; also hospitals. The intermediaries aggregate buyers and providers and provide simple access to and communications, data, and financial flows between those entities.

Let’s take Pharmacy Benefit Management as an example. Of late large benefit buyers have been pushing PBMs to offer transparent pricing options. One, the National Drug Purchasing Coalition, is working with Express Scripts Inc. to provide its members with cost plus admin fee pricing for drugs. That is, buyers know and pay what ESI pays for drugs, plus a per-script admin fee. ESI won’t earn any fees from the dispensing pharmacies or it’s own mail order pharmacy, nor will it capture any rebate or similar revenue. (disclosure – ESI subsidiary myMatrixx is an HSA consulting client)

Express is also offering clients a choice of formularies; to quote the Washington Post, “…clients can choose between lists that include drugs with a high list price — and high rebate…or the new list with lower-price drugs but with little or no rebate.”

And that is one reason this whole transparency thing isn’t as easy or straight-forward as one may want.

Rebates – which in this example are payments from brand drug manufacturers to PBMs to financially incentivize the PBMs to offer their drugs – can be opaque and hard to pin down. Buyers demanding full transparency will want full financial credit for all rebates…but they may also want to keep total drug costs down.

In some cases, those buyers will find that those rebates they participate in mean their total drug costs are lower – while their members may pay more.

This is an admittedly simplistic scenario but one that illustrates the key question – what do buyers want when they say “transparency?” I’d suggest what many buyers want is lower cost – but they aren’t asking for lower cost, they are asking their vendors for a specific thing that the buyer thinks will reduce cost. (Of course, they also want to KNOW that they are getting a fair price)

After lots of analyses and back-and-forth data dumps and algorithm testing and forecasting, what usually happens is…the buyer picks a non-transparent pricing option, that usually has some cost-cap guarantee or other mechanism to manage risk.

What does this mean for you?

There’s a lot to unpack here – but my top three are:

• Ask for what you want as the end result, not a means to get there. Let the vendor figure out how to get you what you want.
• Transparency is defined different ways – make very sure your definitions are consistent within your organization and your vendor partners’.
• When you “go transparent” you’ll have to pay more for stuff your vendor was providing under a bundled price. Call centers, clinical support, formulary management, client and state reporting, script transfer programs…all cost money to deliver.

For those looking for a deep dive into PBMs, pharma, and pricing, here you go! Credit to KHN’s Julie Appleby.

In healthcare and work comp, “transparency” is becoming the latest popular word, or more accurately, customer request.

Nationally, the Trump administration is requiring hospitals post their list prices. More and more large employers and healthplans ask their pharmacy benefit managers for “transparent” pricing. In workers’ comp, HSA research shows a strong correlation between customer service rating and transparency of pricing and cost reporting.

I’ve thought a lot about this over the years; I’ll spare you the idle musings, and focus instead on what I believe is behind the growing demand for transparency – and the importance of transparency in some customer relations.

The problem is simple – healthcare services has no measurable “output.” If you can’t put your finger on what you get when you plunk down your dollars, that’s a problem. Unlike electricity, car parts, travel, or a new building, buyers really have no idea of the “value” of healthcare…more productive employees? sure, and that is measured…how?…more widgets being produced? sure, and that is correlated with healthcare spend…how? longer life? sure…and that helps an employer of a 28 year old…how?

Since we couldn’t measure value, instead we just wanted to spend as little as possible.

That didn’t work – costs continually escalated, and now healthcare costs are all but unaffordable. And we still can’t identify an output.

So, the next step is to strip out as much of the unnecessary cost as possible. In order to do that, one needs Transparency – to know what those “costs” are and where they are added onto premiums, so buyers can know exactly what their suppliers are paying – and negotiate from there.

Simple, right?

Anything but. We’ll discuss tomorrow.

The older I get, the more I understand the value of experience. (convenient, huh?)

The counter to that is one also learns – often the hard way – that assumptions – usually based on “experience” or “common knowledge” – can be dangerous indeed. Below, a few of the assumptions I’ve held at various times that turned out to be wrong.

More workers’ comp claims happen on Monday because workers hurt over the weekend wait till Monday to file so they can cheat the system.

Well, if there is a correlation, it is tiny. The NCCI did an excellent study last fall looking at the impact of the ACA on claims, here’s one of the study’s findings.

People without health insurance are more likely to file work comp claims.

Nope. In fact, the best research I’ve found – from RAND – indicates the opposite is true. That is, workers whose employers do NOT provide health insurance are LESS likely to file work comp claims.

This may be due to the employer-employee relationship; employees who perceive their bosses to be more benevolent may be more likely to file claims as they don’t think they will suffer retaliation.

People always act in their own self-interest.

This one is a bit more complicated. Generally, it is true – the key is how one defines “self-interest” – external entities can often convince people to act against what is their true self-interest via effective messaging. Poor white farmers joining the Confederate military to preserve a system that kept them desperately poor is one striking example; the anti-vaxxer campaign is another.

What does this mean for you?

Be ready to give up long-held beliefs in the face of solid evidence. It’s Ok to admit you’re wrong.

Apologies for my absence this week – getting back in action after dealing with the flu for a few days. I’m a lousy patient, as my long-suffering bride will attest.