Joseph Paduda's weblog on managed care for group health, workers compensation & auto insurance, covering health care cost containment, health policy, health research, and medical news for insurers, employers, and healthcare providers.
Avik Roy's edition of HWR is up at the Apothecary; Avik writes very well and his conservative leaning provides interesting perspective - check it out.
The investment community's fascination with the work comp services space resulted in a half-dozen deals over the last couple of months, on top of several more earlier in 2010.
Which has led some to ask? Why this industry and why now?
The 'macro' answer to the 'why now' question has to do with the tax treatment of investments, the expiration of the Bush tax cuts, and a desire on the part of many owners to cash out before those cuts expired. While they didn't, the work was still well under way by the time the final deal was cut so things just kept moving.
There's also a LOT of money sloshing around in investors' bank accounts waiting to be used, and lots of pressure on private equity firms to put that money to use.
The 'micro', or industry-specific answer is a little more complex.
First, private equity loves immature, technology-starved, process-heavy, decentralized businesses. By rolling up similar companies, investing in technology, standardizing processes and hiring strong leaders, owners can reap outsize rewards through increased efficiency, the removal of competitors, and lower cost structures.
Second, the comp industry has been moribund of late, stuck in the mud due to declining frequency, low claims volume, excess capacity (in insurance, claims administration, and related services) and a horrendous employment picture. But that's about to turn. According to an analysis by JMP Securities, "For the 2010/2011 filing season, 13 states increased rates compared to 8 in the prior period. Importantly, rates are rising in some of the largest states including CA, FL, and IL (collectively 27% of nationwide workers' comp premiums)."
Now that hiring is improving and injuries are trending up, investors expect to see significant organic growth. This growth may be somewhat artificial as it's coming after several awful years, and will in all likelihood taper off a couple years out, but it's growth nonetheless.
Third, many of the companies that populate the comp trade show floors were founded a couple decades ago by entrepreneurs, some of whom are now looking to take a few chips off the table. For those that have worked smart and hard, those chips have lots of zeros attached.
Fourth, over the last decade, TPAs (well, many TPAs) have changed their business model from making money from claims handling fees to making more money from managed care and claim service fees. This pumps up the top line and profits. The more aggressive TPAs have pushed beyond collecting fees and commissions from vendors to acquiring them outright, further enhancing their financials. This isn't necessarily a bad thing, as long as their customers know where their dollars are going.
What does this mean for you?
Make sure your contracts have a survivability or change in control clause.
UPDATE - yesterday I reported on GOP House members' commitment to cut a hundred billion from the discretionary spending this fiscal year (which, by the way, started October 1, 2010). After I posted this piece, the GOP reneged on the commitment, with aides to Speaker Boehner saying the $100 billion figure was 'hypothetical'.
No, it wasn't.
In the 'Pledge to America' the signatories said "We will roll back government spending to pre-stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone."
In a speech at the time of the midterm elections, Boehner himself committed to that number, saying "We're ready to cut spending to pre-stimulus, pre-bailout levels, saving roughly $100 billion almost immediately." (note Boehner's website had the link up yesterday, it doesn't work today.)
So why is this in a blog focused on health care?
Simple. The GOP has committed to overturning, or at the least de-funding, health reform. Not some of the Accountable Care Act - all of it.
That includes:
- the prohibition against medical underwriting that effectively prevents those of us with pre-existing conditions from obtaining individual coverage in most states.
- the closing of the doughnut hole in Part D that will save seniors thousands on their drug bills
- the requirement (already in place) that insurers cover kids till age 26
- the requirement (already in place) that prohibits medical underwriting or pre-ex exclusion for kids
- vouchers for less-well off folks to use to help cover the cost of insurance
- prohibition on lifetime maximum coverage limits
I find it...interesting that many of the same folks who passed Part D and its $16 trillion addition to the deficit in an attempt - successful at that - to woo seniors, would now want to upset seniors, and moms, and families by killing provisions that most voters like.
We'll see.
The investment community finished 2010 in a frenzy of deal making - Odyssey sold York Claims to ABRY, Progressive Medical was bought by Stone Point, Genex bought Intracorp from CIGNA for stock, Sedgwick is buying SRS, Humana bought Concentra - and I'm sure there are others I'm forgetting. Now, just when you thought it was time to take a breath, along comes info that another deal is done.
Word[opens pdf] is that Genex has bought PT manager Network Synergy Group.
[note release came out after initial publication of this post]
NSG will operate as a separate organization under Genex with current leader John Hanselman staying on as NSG head.
How this will work at Genex is TBD; their current PT network provider is Universal SmartComp, whose President, Chris Feeney, has strong ties to Genex' founders. I find it hard to believe Genex will switch their business from USC to NSG, but Genex wouldn't have bought NSG unless there was some significant financial - or strategic - benefit.
This will be interesting to watch.
This is the latest in a series of 'recent work comp space' deals that involve Stone Point - who owns Genex, third party biller Stone River (and soon Progressive Medical), and a chunk of Sedgwick. Less recently, Stone Point acquired TPA Cunningham Lindsey and broker Lockton. Stone Point, like ABRY Partners, is staking out a major position in the work comp services business, consolidating their holdings, adding service providers and rolling up TPA business while taking out competitors.
While the Genex-NSG deal is almost certainly one of the smallest in terms of valuation, it is yet another indication of the drive to increase top line revenues that appears to be a major driver of private equity's work comp strategy.
Many of the Republicans in the House have committed to cutting discretionary spending this year by $100 billion. That's a pretty big chunk out of the $477 billion total, and because the Federal fiscal year is well under way, this would amount to a thirty plus percent cut in current spending.
(to track how they're doing, bookmark PolitiFact's Pledge-O-Meter)
Leaving aside the obvious...difficulty in cutting almost a third of current non-military, non-entitlement or debt discretionary spending, I'm struck by the rather dramatic change demonstrated by this interest in cutting spending, especially as much of it comes from the same guys and gals who voted for the Medicare Part D program, the drug benefit with no dedicated financing, no offsets and no revenue-generators - the entire cost - which is now around sixteen trillion dollars - simply added to the federal budget deficit.
Heck, the fiscal fighters in the GOP could cut $62 billion this year alone just by canceling Part D - but wait, that would alienate seniors, whose votes are critical, and getting more so.
Among the hawks - now salivating at the chance to show their fiscal responsibility credentials - who voted in favor of an unfunded $16 trillion addition to the deficit are current Speaker Boehner, Barton of Texas, Cantor, Issa, Hoekstra, Hensarling, Nussle, fiscal hawk Ryan, Rohrabacher and LaHood.
We have a problem - a huge, and growing problem. Cutting a hundred billion from current non-military, non-entitlement, non-veterans, non-debt service spending is a great political sound bite. It's also fiscally irresponsible.
If these politicians are really interested in cutting the deficit, they should kill Part D.
This always seems like a good idea in January, looks like a not-well-thought-thru idea in July, and by December morphs into a well-it-coulda-been-worse idea.
But I've got a short memory, so here goes - in no particular order, predictions for the comp world in 2011.
1. Business will pick up - a lot. Hiring numbers are up, there's considerable growth in high-frequency areas like logistics, construction, and health care, and frequency itself is trending higher. What's been a looooong, cold winter in the work comp world is getting much brighter.
2. We'll see several new comp writers enter the market - as things pick up, the capital that has been parked, waiting for a better, more promising opportunity, will start coming into comp, providing increased underwriting capacity in selected markets. I don't see this as a flood, but more as selective entrance into specific markets.
3. Sedgwick will continue to snap up TPA operations, supply-chain pieces, and managed care vendors as it expands its leadership position. And there will be plenty from which to select, as a few TPAs are just barely holding on.
4. The exploding growth of opioid usage in narcotics in comp will become even more prominent, with several states seeking ways to attack the issue via regulation - or even legislation. NCCI and CWCI have done excellent work identifying the problem, now it's time for regulators to give payers the tools they need to really impact overuse of opioids.
5. Obesity's impact on work comp costs will gain more attention, as additional research will show significantly higher costs, longer disability durations, and lower RTW rates for the obese and morbidly obese. Employers will get tougher on new hires and existing employees alike, requiring both to meet and maintain body mass standards to get - and stay - hired.
6. Congress will not solve the Medicare physician reimbursement conundrum, choosing instead to kick the ever-growing deficit into 2012. As all comp provider fee schedules save one (California, for now) are based on Medicare's RBRVS, there will be no change forced on states due to political possibilities in Washington.
7. Hospital and facility costs, both inpatient and out, are going to get a lot more attention in payers' C suites. Look for a lot more action on the part of big payers and self-insured employers as they seek to hold the line on cost increases driven by declining discounts and exploding utilization; action that will take the form of network shopping, intensive specialty bill review, and, for the smarter and more data-driven payers, more assertive direction to lower cost facilities.
8. We'll see more litigation around 'silent PPOs' in more states. As providers learn more about the layering/stacking/combining of multiple PPOs, more will decide to litigate, driven in part by the success of other efforts in states such as Illinois and Louisiana. This will be driven - in large part - by the legislative/judicial environment in specific jurisdictions, and in equal measure by outraged providers angry that they are giving discounts to patients who just happened to stumble into their practices.
I've saved the two biggest for last.
9. Social media is going to make its presence felt broadly and deeply in comp, in ways obvious and not, good and bad - The time-to-implementation for new and better ways of doing things, quick vetting of new ideas, and dissemination of best practices and alerts about new dangers/problems in the work comp world are all accelerating/improving as more and more of us use the myriad social networking tools. From the start of 'social media' in comp - which was probably marked by the publication of Workers Comp Insider more than seven years ago (!!) , through the explosive growth of Mark Walls' Work Comp Analysis Group on LinkedIn, to Facebook, Twitter, photosharing sites and user groups, there are now dozens of ways to share, send, find, and uncover information that - back a mere eight years ago - was either never going to be found, or would have taken days if not weeks of digging, or was outright impossible to get without convening a few thousand WC pros in a room and asking them to respond to a question.
This is a powerful force for efficiency, a terrific tool for claims and underwriting and medical management and planning. It is also one fraught with danger - the danger of believing everything you read on the Internet just because it agrees with your mindset; the risk of taking action based on unsubstantiated rumors, the potential for privacy violation, and perhaps most common, the risk of embarrassment that comes from passing on 'information' to others before vetting it yourself (especially MCM's annual April Fool's posts...)
10. The impact of health reform on workers comp will happen in ways mostly subtle. The industry was served notice late last year of just how much reform is going to affect comp when Humana announced it was buying Concentra, the largest provider of primary occ injury care in the nation - for reasons completely unrelated to work comp. We can expect to see:
- consolidation in the health plan industry as size becomes even more important
- more vigorous enforcement of anti-trust regulations that may well block some of these deals
- providers getting increasingly hard-nosed in negotiations with comp networks
- changes to fee schedules as RBRVS changes flow thru the system
- changes in provider practice patterns and utilization as physicians adapt to reform initiatives
And, equally likely, not see other effects early on because they are very subtle and we aren't even able to track them until they become blindingly obvious.
There you have it. What to watch for, where I think things are heading and what the impact will be. As sure as I am that I'm correct on a few/some of these, I'm just as sure there are some big ones I missed completely, and others I predicted that won't happen at all.
But January always brings out the optimist in me!
Here's to your New Year - may your positive predictions come true, and your negative ones not.
For a couple weeks now there's been a rumor that PBM Progressive Medical is acquiring third party biller Stone River.
There is a grain of truth in this.
In reality Stone Point Capital is acquiring Progressive which will operate as an independent company, reporting up thru a holding company structure to be called Progressive Enterprises. PE will include Stone River.
A highly placed source indicated current Progressive Chairman Dave Bianconi will remain with PE and has invested in the company. I'm betting Dave has a somewhat much greater ability to do that - or will when the deal closes. Dave is very well regarded in the comp world and well liked by all. I may be a bit biased as Dave is a friend as well, so I'm happy for him personally, as well as the rest of the Progressive folks.
As to how this will be perceived in the market, that's a very good question. SR is not well liked by most payers. It remains to be seen if the new alliance will help Progressive add market share, a task that has been somewhat daunting of late for the 24-year old company.
The official announcement will be released tomorrow; like most it's pretty obtuse and lacks any substantive details.
So, how'd my predictions for 2010 turn out?
Well, I won't e jumping for joy - or out any windows either.
Here's what I predicted back in January for 2010, and a (mostly) objective assessment of the accuracy thereof.
1. Acquisitions will accelerate.
IntraCorp, SRS, Sedgwick, Bunch, York Claims, CS Stars, and Concentra were among the WC entities bought or 'recapitalized' in 2010 - a significant increase in both the number and size of deals over 2009.
Have to score this one as 'correct'
2. Coventry (the big Coventry, not the WC entity) will be acquired.
OK, I predicted this last year (and the year before) and was wrong (or more generously premature) - again.
This one - wrong.
3. The basis for WC Drug fee schedules will start to move away from AWP.
This was a 'gimme'; AWP was supposed to disappear in early 2011, leaving regulators and legislators little choice but to move to another metric. The announcement of AWP's demise was premature as Medispan announced its intention to keep publishing AWP for the foreseeable future.
Wrong again.
4. (Some/Many) WC physician fee schedules will change significantly
Some fee schedules did change when Medicare's RBRVS was altered, but the failure of Congress to act on a more permanent fix meant the changes were not significant.
Have to score this as another wrong. This is getting painful.
5. The WC insurance market will harden, bringing more business to case management, UR, bill review, and network vendors.
Twelve months ago I said "As the economy recovers and the jobs picture brightens, hiring will pick up and so will the raw number of injuries as well as frequency. That, along with rising medical expense, is the 'cost-side' driver. The 'supply side' of insurance is somewhat cloudier, as there still appears to be excess capacity..."
There's some evidence the comp market is hardening (as opposed to softening) but is by no means 'hard'. There is certainly evidence that hiring has picked up and anecdotal reports that so have first reports and claimants seen at occ med centers. But - bill volume remains down and - likely due to internalization of CM and UR at many payers, external CM and UR volumes are not increasing.
Looks like a push.
6. The rise of the Medical Director
Last year I said "I'd expect to see the 'market' for assertive, data-driven Medical Directors heat up considerably in 2010."
Definitely a 'correct" (and about time!). Broadspire's Jake Lazarovic has played a major role in the company's new network strategy as well as their DME 'formulary'. David Deitz at Liberty continues to be one of the most influential medical leaders in comp. And at least three other payers have hired or are looking for MDs that fit the definition.
This isn't to say there is a market-wide trend, but rather a growing recognition of the need for smart, data-driven clinical leadership in comp.
7. Drug costs will return to the fore.
A yes. Drug costs are once again rising at near double rates, execs are concerned, and the focus on opioids is both very welcome and long overdue.
8. Florida's attempt to redo facility fee schedules will continue to plod along
Yes - without much progress. The three member panel just published their latest thoughts on facility fee schedules, and payers still seem unconcerned.
9. TPAs will continue to try to make up lost margin by internalizing managed care services.
A definite yes. Led by Sedgwick, most TPAs have pushed hard to grow their internal bill review, case management, and UR functions, taking business away from their vendors while increasing the TPA's top - and bottom - lines.
Here's the final score:
Correct - 5
Wrong - 3
Push - 1
A lot happened in the work comp world in 2010 - here are the top issues discussed here on MCM.
Mergers, acquisitions, and buyouts
This has been a very busy year for the financial folks. OneCall Medical, Intracorp, Sedgwick, SRS, Concentra, and CS Stars were all bought/acquired/recapitalized in 2010, and there may have been a couple more if the tax treatment of these deals had changed in 2011. More on what 2011 may bring in my annual predictions post later.
Opioids in work comp
WCRI, NCCI, CWCI - pretty much everyone who's anyone in work comp research highlighted the growing problem of opioid usage in workers comp this year. California saw a five-plus-times growth in the use of opioids, and other states were equally challenged. One can only hope that all the attention will force states, payers, providers, and employers to take major steps to attack the overuse of opioids.
Federalizing workers comp
This gets the award for 'non-story that refuses to die'. The ongoing game of whack-a-mole continued throughout 2010, as any junior legislative aide who mentioned-in-passing workers comp became 'NEWS' to those who saw evidence of nefarious plans by the national gubmint to take over workers comp. This started with inclusion of coverage for one condition in one town in one state in the reform bill, continued with the Baca bill (introduced for the umpteenth time and tabled for the umpteenth time), and now comes the 9/11 responders bill as yet more evidence of the 'drive to Federalize'. (Jon Gelman is a very well respected attorney and effective advocate for workers' rights, but his decade-plus long effort to reveal this 'Federalization' appears to be a classic case of finding links where there are none.
PPO litigation
The Louisiana appellate court's ruling against Coventry was notable not only for the amount of the penalty/fine -$262 million - but because it negated, or more precisely subordinated, provider - PPO contract terms to onerous statutory notice requirements.
This marks yet another assault on the work comp PPO business, and follows several successful 'silent PPO' suits in Illinois.
Most Bizarre Story of 2010
Finally, the winner of the 'Most Bizarre Story of 2010' has to be new Florida GovernorRick Scott's claim he will cut Florida work comp costs by 35%. I guess the guv likes a challenge; before he even got into office he convinced the State Senate to keep employers' costs $34 million higher.
This is the same Rick Scott who received over $275,000 from AHCS (and affiliates), the Florida physician dispensing company that played a major role in forcing Florida employers to keep paying $34 million more for work comp drugs. According to the Workers Compensation Research Institute, physician dispensed drugs are the main reason Florida's prescription drug costs were 38% higher than a 16-state average.
And the gravy train is still running; Green Solar, an affiliate of AHCS donated $25 grand to Scott's inaugural...
Next - recapping my predictions for 2010.
MCM will be off the virtual air till after Christmas, when I'll revisit my predictions for 2010 and make a few for 2011.
We're in Maine for Christmas, where it's snowing and beautiful.
Have a wonderful weekend.
The second edition of the 'Benefits Package' is up at Evan Falchuk's SeeFirst blog.
It's a quick synopsis of some pretty good thinking on what's up and why.
In an announcement a few minutes ago, Third Party Administrator (TPA) Sedgwick announced it will be buying SRS from the Hartford for $278 million in cash, with the deal scheduled to close early next year.
That's a nice multiple over 2009 revenues of $230 million, and sources indicate this will be a clean deal, with the Hartford cutting ties completely post-closing.
SRS, like many TPAs, was hit hard by the soft market then slammed again by the recession, events that reduced market demand for TPA services while reducing claims volumes for those self-insured employers that remained. TPAs typically get paid based on claim volume, so this double hit has been tough for the entire industry.
Including private-equity-owned Sedgwick, which has some pretty lofty top line growth goals. The company has been working hard to increase revenues both organically (quoting very competitive prices for administrative services) and via acquisition (most recently of Factual Photo).
The release had this statement from Sedgwick CEO Dave North - "Sedgwick CMS and SRS share remarkably similar philosophies on issues of quality and accountability for client results. We look forward to bringing these two exceptional organizations together for the benefit of our customers, industry partners and company colleagues."
I'm reasonably familiar with both organizations and don't see the similarities Mr North does. Or perhaps more accurately I don't see them as very similar organizations.
Sedgwick has been quite aggressive in pursuing new business and has done so at least in part through aggressive pricing. Their scale may well contribute to that strategy, but there's a big variable cost component to the TPA business - you have to have so many adjusters to handle so many claims. SRS has been somewhat less successful in acquiring new business over the last few years, choosing to hold the line on company policies and, as much as possible, on pricing
In the Work Comp Analysis Group roundtable at the Vegas Comp Conference, SRS CEO Joe Boures stated that SRS does not take commissions or share in revenue from their managed care vendors in any way, shape, or form. I applauded Joe at the time, and do so again. That's not to say that vendors sharing revenue or paying commissions or fees to TPAs is inherently unethical or immoral - in fact it's a way of doing business for many TPAs. This stance may well have contributed to the Hartford's decision to sell SRS, as the numbers may have been a bit bleak of late.
I don't know Sedgwick's policy re vendor commissions or revenue sharing; that's something current SRS customers may want to discuss with their account execs.
For those who were following with bated breath the efforts of many to forestall the end of PBMs in Texas, Friday brought official confirmation of the rumors that we reported last week: the Division of Workers Comp published emergency regs [opens pdf of actual rules] that:
- make the Attorney General's opinion moot;
- enable PBMs to operate in Texas after 1/1/11; and
- call on the legislature to pass a permanent fix.
So, on 1/1/11, PBMs can continue operating just as they do today.
Hallalooya.
Here's the key language from DWC's memo [opens pdf]:
"The rule amendments may remain in effect for a maximum of 180 days if renewed.
The adopted amendments permit insurance carriers to continue to reimburse prescription drugs dispensed on or after January 1, 2011 at rates either above or below the fees determined by the Division's fee guideline using written contracts between insurance carriers and pharmacies or their processing agents, if applicable."
I'm waiting for guidance on the 180 day issue: you'll know when I do.
I'm reluctant to post this. There have been so many false starts and so much confusion around the issue of PBMs' status in Texas that the latest 'news' sounds too good to be true.
I have heard from two credible sources that Texas' Department of Work Comp will file emergency regulations permitting PBMs to continue operating until legislation addressing the issue around their status is passed in the next legislative session.
Unless DWC - or another entity intervenes, as of now - 7 am in Phoenix - PBMs will be out of business in Texas after 1/1/11 - they are considered 'involuntary networks (well, at least they 'appear' to be considered involuntary networks, but some disagree...) which cannot operate after the first of the year.
While some are saying involuntary networks should continue as legislation will retroactively permit their operation, that's a very - very - high stakes gamble - loss of license plus a $25 grand per day fine for transgressors.
For more on the history click here.
That depends on whether the rest of the reform bill survives without that clause. I've heard from a couple of sources that the Accountable Care Act doesn't include a severability clause. If that is true, than the entire bill may be thrown out if the mandate is ruled un-Constitutional.
That's for others steeped in the details of the ACA and law to figure out. As I'm sure they will.
(Lest we get all excited about the Virginia case, note that there have been about twenty suits filed so far re the ACA, 12 have been dismissed and in two other cases both judges ruled the mandate is Constitutional.)
If the rest of the ACA does survive the demise of the mandate, we'll have a very, very interesting situation. Health insurers will be required to take all comers, the rates they can charge will be highly regulated, benefit plans consistent across most insurers and employers, and there will be no upcharging or medical underwriting or discrimination based on age, pre-existing conditions, or sex.
It would be tough to design a better recipe for disaster for insurers.
Nonetheless, that's what we'll be faced with if the mandate is removed; the rest of the Act will become law, and individuals and employers would - at least theoretically - be able to buy insurance when they need health care, and drop it when they don't.
There's already a precedence for this - in the Massachusetts experiment, loss ratios in the individual market for at least one health plan were about 600%.
The White House recognizes the problem - in a response to the latest court challenge to the mandate that is notable for its focus on individual responsibility for the costs of their care:
"However, unless every American is required to have insurance, it would be cost prohibitive to cover people with preexisting conditions. Here's why: If insurance companies can no longer deny coverage to anyone who applies for insurance - especially those who have health problems and are potentially more expensive to cover - then there is nothing stopping someone from waiting until they're sick or injured to apply for coverage since insurance companies can't say no. That would lead to double digit premiums increases - up to 20% - for everyone with insurance, and would significantly increase the cost health care spending nationwide. We don't let people wait until after they've been in a car accident to apply for auto insurance and get reimbursed, and we don't want to do that with healthcare. If we're going to outlaw discrimination based on pre-existing conditions, the only way to keep people from gaming the system and raising costs on everyone else is to ensure that everyone takes responsibility for their own health insurance."
Whether the President and/or Congress would try to overturn the ACA, or remove the underwriting language is to be determined. While the White House's statements to date acknowledge the issue, AHIP et al have few friends left among Democrats, and those friends would be hard pressed to convince the Administration to be nice to an industry that has been anything but to the Democrats.
According to AHIP, over the last ten years, private insurers' hospital costs in California are up 159%.
One hundred and fifty nine percent.
Instead of an intelligent and helpful discussion of the causes and impact, there's an all-too-familiary orgy of finger-pointing and 'oh yeah, sez you' as hospitals blame insurers and insurers wail about the unfairness of it all and everyone complains about Medicare.
Time to call Whine-one-one...
Here's what we should be focusing on.
1. Clearly (some) private insurers and health plans cannot - or more likely will not - do anything to control hospital costs. For all their bitching and complaining, this is yet more evidence that health plans have not fulfilled their primary mission - control costs and deliver quality care.
Here's how a healthplan exec put it: "The report's focus on California hospital costs just reinforces what we have been saying the past couple of years. Steep increases in medical costs must be addressed. Our country and state cannot sustain this kind of growth," said Patrick Johnston, president of California Association of Health Plans.
No kidding. I don't get the AHIP strategy - bitch about government intervention then complain that outrageous health care cost inflation isn't your fault.
2. Private insurers are clearly asking for help from government - the same government they pillory in their multi-gazillion dollar PR and lobbying campaign as too incompetent to run a health plan.
3. Controlling costs will require health plans to build small, tight, highly-managed networks of excellent providers, an approach most seem quite unwilling to pursue, citing the 'managed care backlash' from the late nineties. (there are a few notable exceptions)
Execs, that was then, and this is now.
4. If health plan execs think their life is tough, they should sit behind the desk of a work comp claims exec. Work comp is getting murdered by facility costs; many payers would kill for a 159% increase over a decade.
Last week Kaiser Health News reported several large health plans appear to be frustrated with AHIP and are looking to set up their own DC lobbying entity - albeit one that is a 'subcommittee' within AHIP. Evidently they feel the smaller health plans and not-for-profits have hijacked AHIP and aren't representing their interests.
Bob Laszewski sees a historical parallel: "This reminds me of the early 1990s. In the wake of the insurance industry being made to be the bad guys during the Clinton Health Plan debate, many of the largest members exited the historically dominant Health Insurance Association of America (HIAA) for the competing HMO dominated trade association.
At the time, many observers saw a cynical irony in the move; it was those dominant members that drove much of the policy that got the industry in trouble."
What does this mean for you?
At this rate we'll all be covered by the VA health plan in a decade - which is just fine with me. They are the only ones that consistently control costs and deliver quality care.
After mulling over Texas Attorney General Greg Scott's just-released opinion [opens pdf] on the use of PBMs in workers comp, I'm still confused.
That wouldn't be so bad, except so is everyone else.
The opinion appears to contradict itself, with declarative statements about the legality of paying less than fee schedule for drugs in one place, and apparently contrary statements a few sentences later.
Then, the opinion concludes ""...although a WCHCN [work comp Health Care Network] must not provide prescription medication or services, an insurance carrier may enter into a contract with a WCHCN to obtain a contract with a health care provider to pay for prescriptions at a negotiated rate after January 1, 2011".
Sounds great, right?
Except experts opine that PBMs don't meet the definition of 'providers' under Texas law.
So, does this mean an HCN will have to contract with pharmacies directly? In the next two weeks? Because that's when PBMs turn into pumpkins under the involuntary network 'sunset' provisions.
Or does it mean that HCNs can actually subcontract with PBMs? In which case the dominant HCN - Coventry - may well require its customers use FirstScript - Coventry's inhouse PBM.
The DWC has prepared two different regulations in anticipation of the AG's opinion - one in case the opinion killed PBMs, which reduces the fee schedule to a rate that, according to Bill Kidd of WorkCompCentral, "to adjust fees in an attempt to maintain overall costs in the workers' compensation system."
I'd emphasize Bill's use of the word "attempt".
Drug prices are NOT the same as costs.
Drug COSTS are driven more by the type and quantity of drugs than the the price of the pill. If low fee schedules controlled costs, we wouldn't have seen pharmacy costs in California explode after adoption of the lowest fee schedule in the country.
In fact, CA's drug costs increased significantly, driven by significant increases in both the average number of prescriptions per claim and the average payments per claim for prescriptions. In addition, payments for Schedule II narcotics, categorized as having a high potential for abuse and addiction, increased nine-fold after reform. Schedule II drugs are also strongly associated with extended disability duration, driving up both medical and indemnity costs.
According to the California Workers Compensation Institute, the average number of first-year prescriptions per claim increased 25 percent after the implementation of the Medi-Cal link, while the average drug cost per claim went up 37 percent. (Changes in Pharmaceutical Utilization and Reimbursement in the California Workers' Compensation System, September 2009)
So, where does this leave us?
1. The opinion doesn't provide enough clarity to ensure PBMs can legally operate after January 1 2011.
2. The penalty for operating an involuntary network in Texas is huge - $25,000 per day plus loss of license to operate.
3. Pharmacy costs in Texas account for around 15% of loss costs - with PBMs operating. I don't see how PBMs can continue to operate in Texas, which means they won't be able to address either the price of the pill, the types of pills, or the quantity of pills, dispensed to injured workers.
4. Realistically, legislation to 'fix' the problem won't be completed until sometime this spring. Which means employers, insurers, governmental entities, and taxpayers are going to have to foot the bill for higher drug costs - for at least several months - until this gets fixed.
Joseph Paduda is the principal of Health Strategy Associates.
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