Thursday catch-up

I’m off for a few days; back to work next Wednesday.

Here are a few items of note you may have missed.

Pharma

First up, thanks to Ohio BWC Pharmacy Director John Hanna who sent me this MedPage piece on medicine in India in response to my post on generic drug pricing (scroll down for the info on pharma).  A lot of generic manufacturing is done on the sub-continent; one possible reason generic prices increased over the last couple years has been the FDA’s extreme caution in allowing drugs manufactured in India into the US.

Given the horrifically bad track record of medicine and pharma in India, methinks I’d rather pay a few dollars more for my meds than allow defective drugs into our health system.

Workers’ comp

Looks like California’s efforts to reform medical delivery for work comp are paying off. CWCI reported medical costs declined from 2013 to 2014 by 5.7% to 7% (depending on valuation point).  This is a significant improvement; report author John Ireland attributes the reduction to:

  • the phase-in of the RBRVS fee schedule beginning in January 2014;
  • the reinstatement of lien filing fees,
  • the reductions in ambulatory surgery center fees, and
  • the adoption of the IMR dispute resolution process.

Notably cost containment and medical management expenses increased substantially; this is to be expected as the flood of IMR requests.

WCIRB’s Greg Johnson reported similar results (hat tip to WorkCompCentral’s Greg Jones); the rating bureau saw medical costs per claim decrease 4.7% from 2013 to 2014.  The change in fee schedule to one based on Medicare’s RBRVS for physician services looks to be one of the main drivers.  What’s very interesting (really!) is the percentage of payments going to specialty docs declined last year, while dollars going to general and occ health providers went up significantly.

This is good news; it is entirely consistent with national trends to better compensate primary care providers.

A closely-related item comes from the esteemed Steven Feinberg M.D., one of the most thoughtful physician observers I know.  Dr Feinberg provides a template for health care providers seeking to obtain a favorable ruling on a utilization/IMR request.

 

The future

Another thought-provoking piece about the impact of automation on insurance: an analyst sees a distinct  possibility that the auto insurance industry will not exist in 20 years.  

 

Steroid injections – they kinda sort work some of the time…

Thanks to Steve Feinberg, M.D. for forwarding a study on epidural steroid injections.

Here’s the brief findings:

Epidural corticosteroid injections for radiculopathy [pain radiating from the spine] were associated with immediate reductions in pain and function. However, benefits were small and not sustained, and there was no effect on long-term surgery risk. Limited evidence suggested no effectiveness for spinal stenosis.

In a follow up, Dr Feinberg provided this:

I have a 68 year old physician colleague who is highly functional both at work and recreationally. He has rather severe cervical and lumbar degenerative disease and stenosis and a very damaged left knee. He has undergone a number of injections (more than would be allowed via EBM) and takes Vicodin 10/325 3 times a day and uses some oxycodone for “breakthrough” pain. He lives on 5 acres and takes care of 10 horses and the property. He told me that working on his property makes him hurt more but that he is not going to stop being active just because of the pain/discomfort. He has been on the same opioid dose for years and has no obvious negative side-effects. He told me that without his medications, he would have trouble practicing as a physician and he certainly would not be active on his property.

Dr Feinberg closed with:

“I ask myself everyday if so little works, what are we left with to treat?”

A colleague of the good doctor provided this as well: “Could it be that Osler’s words from over a century ago continue to direct our best efforts? “The job of the physician is to entertain the patient while nature takes its course?”

I bring this to your attention as a reminder to all that medicine can be as much art as science, that we often don’t know what works for whom why and when and how.

However, make no mistake that treatment can and should be guided by evidence-based clinical guidelines. There should be a way to navigate the care management and authorization process to allow Dr Feinberg’s colleague access to the treatment that works for him, just as there should be a high standard for approval of “non-standard” care that puts patients at risk.

I’d close with this note – there is far too much use of procedures similar to ESIs, and far too little challenging of that use.

What does this mean for you?

Promote EBM, and ensure your authorization processes work well.

 

I don’t get Examworks

More accurately, I do understand their business, what I don’t understand is how the company’s stock can trade in the mid-thirties.

And that’s because I do understand the market, their services, and the growth or lack thereof, and I just don’t see the upside investors obviously are banking on. Their stock price makes sense for a high-growth business in a sector with a lot of upside.

That is not how I would describe the IME/peer/MSA business.

EXAM’s primary business is providing Independent Medical Exams to insurance companies – mostly workers comp, some auto, some disability.  Mostly domestic, some in other English-speaking countries.

In their latest earnings call, Chairman Richard Perlman’s comments were totally confusing; here’s a sample (thanks SeekingAlpha):

Starting with the U.S. our largest market, reported revenues grew 12.6% and organic growth was 4.3% compared to the prior year quarter. The organic growth rate was negatively impacted by sales mix with volumes increasing by approximately 10%. National accounts contributed roughly 40% of the growth and the balance coming from singles and doubles. I think it is important to comment on the U.S. growth in greater detail.

The impressive results in the U.S. during 2013 and 2014 reflect a unique confluence of events that resulted from what we believe is an unsustainable sales trajectory [emphasis added] on a quarter-to-quarter basis. The timing of new accounts wins, the initiations of rollouts, the velocity of compliance coupled with the consequential impact of our national account wins and the smaller amount of top competitors allow us the opportunity to have outsized growth for seven quarters in a row. This was a perfect storm.

We believe that we are currently in a period of normal long-term growth which we feel is a pause before the next wave of the positive events I just described. [emphasis added] This is consistent with our repeated guidance of mid to high single-digit sustainable growth in the U.S. for the longer-term.

After puzzling thru those several paragraphs, I still have no idea what he is talking about.  It appears that some big wins, new client rollouts, less competition made for solid growth, but that isn’t going to continue..until it happens again (the “next wave”).

Or, not…?

In the earnings call management cited financials based on “adjusted EBITDA”, a metric foreign to and not understood by most accountants or analysts. Management said this metric amounted to 17.4% of total revenue for the quarter – a rather hefty margin indeed.

A few other items of interest.  CEO Jim Price claimed the Medicare Set Aside Market is $300 to $400 million [!!], with the 30 largest payers only accounting for 30% [!!] of that volume. And while organic growth (same business growth) increased 4.3% in the US, the number of services increased 10%.

It looks like the mix of business changed, with lower-cost services taking a larger slice of the services delivered by Examworks.

So, here’s what’s got me stumped.  My best estimate indicates the US IME and peer review market is less than $2 billion.  Likely a lot less. So, if Exam currently has $450 million in US revenue, how much more can it grow?  And what will that growth cost?

Some growth will be organic – that is, more revenue from the same customers.  But, as almost all payers refuse to single-source their IME and peer business, each additional dollar of revenue is going to be a tougher win than the previous additional dollar of revenue.

Acquisitions are still on tap, and management believes they will be able to pay about the same for new deals as they have historically – 5x earnings.

I don’t think so.  Prices have gone up rather substantially of late, driven by both strategic and financial buyers.  I’d expect prices to be in the mid-to-upper single digits (as a multiple of earnings)…and that’s at the bottom end.

Next, maintaining, much less improving margins (management expects they will get somewhat better in future quarters) depends on lowering cost of goods sold and increasing prices.  At least in the US, the latest quarter shows the price for their average service fell.  I’d expect that to continue, or perhaps level out.  Winning national accounts requires very competitive pricing, as well as, in many cases, payment of “management” or “administrative” fees to the payer customer.

Then there’s the cost end of things.  This is a pretty simple business with relatively low administrative expense and not much opportunity to reduce that expense. While Examworks may try to reduce payment (the biggest component of their cost of goods sold) to IME and Peer Review docs, those docs can just refuse to go along.  As claims adjusters and attorneys on both sides have very definite preferences for docs, those docs do have some pricing power – and if those physicians aren’t in an IME company’s network, than that IME company likely won’t get that adjuster/attorney’s referral.

Finally, workers comp claims volumes across the country continue to decline.  We are in a long-term structural decline of 2-4% every year.  That means there are fewer claims that need IMEs or peer review.

Over the longer term, I expect auto claims involving IMEs to decline markedly as well.  My sense is there aren’t all that many (compared to work comp), and the reduction in bodily injury claims that will result from more vehicle automation bodes well for passengers and pedestrians – but not for auto IME vendors.

All that said, I have no idea why or how equity investors value a stock at a certain level; long ago I came to the realization that I have zero ability to pick stocks.  Then again, a lot of supposedly professional investors do a lousy job despite getting paid to do just that.

What does this mean for you?

It doesn’t mean much to me, as I don’t own the stock nor have any financial position of any kind it it.  You?

Why have generic drug prices increased?

Over the last couple of years, generic prices increased rather substantially, spurring Congress to open an investigation after reports indicated retail pharmacy generic prices increased 37% over three months.  Congress is a bit late to the party, as it appears prices may be stabilizing after a rather dramatic run-up; more on that in a minute.

Generics make up about 80% of all drugs dispensed in the real world, and a slightly higher percentage in workers comp.

Usually, generic prices for specific drugs decrease over time.  The “usual pattern” changed about two years ago, when a popular and generally accurate price measure showed median generic prices were essentially flat over a twelve-month period ending in July 2014.  

More tellingly, the same assessment showed the average price increase for drugs that went up in price was almost twice as much as the average decrease for drugs with prices that dropped.

Of course, there’s a lot of variation among and between drugs.  Workers comp generic prices jumped from as much as 19% across the board according to TPA Broadspire.  And the largest work comp PBM, Helios, reported generic prices increased 10% in their most recent drug trend report.

So, what’s going on and why?

First, let’s stipulate that drug “price” is a very complicated term.  “price” is supposed to be what one pays for one unit of a service, or in this case, a good.

Things are a lot less clear in the world of drugs; there are many different pricing methodologies and definitions, all with pluses and minuses.  For our purposes, we’ll look at two generally-accepted metrics – AWP and NADAC.

AWP – known as “average wholesale price” or perhaps more accurately “ain’t what’s paid” is the price the drug’s manufacturer reports to the national drug price compendia – Medispan et al.  There is no auditing, no validation, no way to determine if an AWP actually reflects reality – and in many cases it doesn’t.

AWP is the basis for workers’ comp drug fee schedules in those states that have fee schedules.

NADAC is the national average drug acquisition cost, and is seen as a more accurate reflection of the real price buyers pay.

A shortage of some key drugs is a major contributor. Tetracycline and acetaminophen/ codeine drugs are among those in short supply; prices for tetracycline have exploded, up 7400% to 17,000% from 7/2103 to 7/2014.

There are anecdotal reports of shortages of chemicals needed to manufacture some drugs as well.

Some very old drugs have very few manufacturers.  Investors, seeing this as an opportunity, have snapped up companies making these drugs, consolidated the manufacturing, and gained pricing power.

Another reason for generic price inflation is a lack of competition among manufacturers.  The FDA has to approve new generics, and of late they’ve been quite backed up in their approval process for new generics.   In addition, there are reports that the FDA is loathe to approve many offshore drug manufacturers.  While this is in all likelihood due to significant concerns over processes and safety and other manufacturing and consumer protection issues, if many Indian manufacturers are not able to sell into the US, price competition suffers.

There’s also been significant consolidation among generic manufacturers, leading to fewer companies making specific drugs.  In turn, that means buyers have less success pitting one manufacturer against others.

Finally, my sense is drug manufacturers are raising prices for a simple reason – because they can.  With more Americans now covered by health insurance, there is a bigger market of buyers less concerned about price than they were before they had coverage.  And, there’s pent-up demand as people who needed but weren’t taking drugs now have access to those medications.

Recent price increases are no surprise to those who saw the same thing happen after Medicare Part D implementation; when seniors got their drug cards, the drug industry got a windfall.

Where next?

Of late, price increases have moderated significantly; about half of the generics increased in price (averaging 5.3%).  For those that declined in cost, the drop was almost the same at 5.1%.

I’d expect generic drug price inflation to continue to moderate; the FDA has committed to decreasing the approval backlog and new manufacturers will almost certainly see an opportunity, thereby adding suppliers.

The more things change…

Peggy Salvatore is early!  Her August edition of Health Wonk Review is up and running here.

This is an insurance- and policy-rich edition, sure to sate your search for sense in the health care system!

Drug formularies and workers’ comp

There’s a LOT of activity around the country related to drug formularies.  Four states (OH OK TX and WA) have implemented formularies and at least 4 more are considering doing so (CA, ME, MT, TN). (AR was scheduled to do so this year but pulled back)

The “Why?” is obvious; the proliferation of opioids, inappropriate prescribing of other drugs (Soma(r)), exploding volume of compounding, and rampant off-label use of drugs is seen as a major problem in work comp.

The “What”, as in, what formulary to use, is demonstrably not obvious.

There are (roughly speaking) three varieties of formularies;

  • Open – pretty much any drug is available to anyone
  • Closed – a binary, or yes/no formulary that is drug-centric
  • Disease state/Condition-specific – formulary based on the underlying diagnosis and disease state (e.g. acute v chronic)

The closed formulary has some advantages – it is very simple and easy to understand, and from a regulatory perspective, administer and evaluate.

The closed formulary also has some rather significant issues.

  1. it starts with the drug, not the patient’s medical condition.  This strikes me as backwards; guidelines should ALWAYS begin with the diagnosis.
  2. problems arise when “Y” drugs are dispensed, paid by the PBM, then the payer determines the drug is for an unrelated condition. Think antihypertensives, insulin replacements or asthma meds.
  3. it does not differentiate between acute and chronic stages of a disease or condition; treatment can be quite different for these different stages.

What does this mean for you?

While the closed formulary is easy to explain, it’s a lot tougher to manage on the back end for payers, PBMs, and prescribers alike.

And, while I’m no clinician, allowing antihypertensives and duragesic patches without a prior auth no matter the diagnosis, while requiring a PA for benadryl does seem problematic. 

Integrated services vs Choice – how do you want to buy work comp medical management services?

A prominent issue for many work comp payer execs is the continued consolidation in the medical management space; as the big get huge, there are fewer and fewer choices for payers to turn to.

The big, multi-product/multi-service companies tout the benefits of buying everything from them; cheaper, better coordination among various services, easier for adjusters, easier to connect IT systems.

Their competitors offering one or a couple different services have a different view.  Their position is a narrow, “hedgehog” focus allows them to be the best-in-breed.  Because they  only do one or two things, they are really, really good at those one or two things.

That’s the vendor viewpoint – but what about buyers?

My sense is buyers generally come down on the “choice” side.  That is, they don’t want to get everything – or even just one service – exclusively from one vendor.  Not that they don’t see the benefits of single-sourcing services – they clearly understand the potential for lower administrative burdens, less hassle for all their staff, fewer IT connections, and perhaps lower pricing.

As one of my coaches told me years ago, “son, you’ve got potential.  That means you haven’t done anything yet.”

Therein lies the issue – or more accurately, one of the core issues with the integrated/comprehensive approach.

To date, it just hasn’t delivered lower costs, lower hassle, better outcomes.

But even if it does, many payers will be leery of single-sourcing.  The concerns include:

  • complacency on the part of the vendor
  • difficult to break up and move the business
  • lack of control over referral processes
  • desire to give front-line staff control over specific service decisions e.g. IME
  • potentially mis-matched priorities and incentives

Each of these deserves its own post, but you get the drift – in one word, payers don’t like to lose “control”.  That happened years ago when Coventry bought Concentra, and payers have not forgotten what that felt like.

I spoke with a very experienced, very knowledgeable work comp executive recently; she said it well: “we tried the integrated approach years ago, and we saw how well that worked…it didn’t.”

What does this mean for you?

That’s not to say a work comp services company can’t deliver on the promises of integrated, comprehensive services. Like all young athletes, they do have “potential“.

Where was “Obamacare”?

In the GOP Presidential candidate debate last week, there were fewer mentions of Obamacare than there were candidates on stage.

Over the two hour debate, the biggest change to the American health care system in fifty years was mentioned 8 times.

Abortion, Planned Parenthood, ISIS, immigration, Mexico, Russia all garnered more time than health reform.

If there was any doubt whether the Affordable Care Act is here to stay, the lack of attention paid to PPACA by the moderators and candidates should lay that to rest.  That’s not to say all is bright and cheery in health reform land; rates are going up (albeit at much lower rates than predicted); there are still millions of Americans without coverage; and the wrenching changes in our health care delivery system (some – but by no means all – resulting from PPACA) are being felt far and wide.

While almost all of the 17 GOP candidates have positions on health care, health reform, and PPACA, health care reform is no longer an issue worthy of debate.

Perhaps the most telling evidence that PPACA is here to stay is this: Sen. Marco Rubio purchased health insurance thru the D.C. Exchange (and took advantage of a $10k federal subsidy), a decision that seems stunning but wasn’t worthy of mention by any of the moderators or fellow candidates.

What does this mean for you?

PPACA is here to stay.

PDMPs – what they are and why you should care.

Prescription Drug Monitoring Programs are state-based databases containing patient, prescriber, and pharmacy-specific information on controlled substances.

49 states have PDMPs; the lone holdout is Missouri, due to a whack job legislator who’s totally unfounded worries about privacy are preventing the Show Me State from showing dangerous prescribing and dispensing.

There is little consistency among and between the states.  Some require docs and pharmacies to access the PDMP before prescribing/dispensing drugs while most do not.  Some have data on all controlled substances, others do not. Some are relatively easy to use, many are not.

As a result, while 72% of docs know about their state’s PDMP, only half regularly access it.

Fortunately, at long last the AMA has gotten behind PDMPs, and is promoting best practices (after it determines for itself what those best practices are).

The AMA’s committee members would be well served to immediately and extensively collaborate with Brandeis University’s PDMP Center for Excellence. The CoE is the nation’s leading authority on PDMPs, and recently recommended payers have access to prescribing and dispensing databases.

For those looking for information on practical experience with PDMPs, a session at the most recent Rx Drug Abuse Summit provided a solid overview of current limits and best practices.  These include:

  • PDMPs should include data on all controlled substances
  • prescribers and dispensers of controlled substances should check the PDMP before prescribing or dispensing these drugs.
  • PDMPs should push information to prescribers/dispensers when there is solid evidence of high-risk behavior
  • payers and PBMs should be able to access PDMPs as they are responsible for authorizing and processing scripts.
  • PDMPs should be “interoperable”; that is, they should share data across state lines.

The reason we need PDMPs is blindingly obvious – abuse is rampant and deadly.  Extensive research shows effective PDMPs are implemented, opioid abuse – and use – declines, and the adverse impact of opioids does too.

After hundreds of thousands of deaths from opioids; billions and billions of dollars wasted on drugs that, in many cases, do far more harm than good; and the unspeakable tragedy inflicted on families and society, we now know that opioid manufacturers’ insatiable drive for profits led some companies to outright lie about the consequences and costs.

Here’s a brief but chilling film using Purdue Pharma’s own video to damn the company.  

Later this week, I’ll report on how PDMPs can be made much easier to use, cheaper to implement, and far more effective.

What doe this mean for you?

If anyone asks if payers should have access to PDMP data, the answer is yes.

Catching up…

Summer is supposed to be slow down time – this one is proving to be anything but.

Worker’s comp

There are several acquisitions likely to be announced over the next few weeks, one relatively small one as early as today.  When I get confirmation I’ll post.  A couple are  “tuck-ins”, additions that are seen as meshing well with existing businesses and/or add a strategic benefit.

Chris Brigham M.D.’s book Living Abled is getting considerable traction; employers would be well-advised to consider giving copies to injured workers.  Another target market would be treating providers, and I’d strongly encourage case management firms to make sure each of their staff gets and reads the book.

The feds have a great effort underway to get input on the best ways to establish work – employment – as a health “outcome” measured by health plans, exchanges, and other stakeholders. This is both long-overdue and very welcome.  Sign up and tell ’em what you think!

 

Exchange enrollment, Health insurance prices, and access to care

Renewals via Exchanges are proceeding apace, with an update from several large states indicating

  • enrollee retention is pretty high
  • enrollees are doing a lot of shopping around for price, coverage, benefits and networks
  • re-determining subsidy eligibility and levels is a challenge as it is based on income data and other information

In California, rates are up by 4% on average, a slight decrease from last year’s 4.2% bump.  About 2% of enrollees will have to switch plans if they don’t want an increase of 15% or more; in contrast 20% get good news; their rates all drop. 

Overall, folks who shop around will be able to find a plan – in the same tier – for about 4.5% less than they are paying today.

One datapoint on access comes from Michigan, where availability of appointments for Medicaid recipients actually increased after Medicaid expansion. I was surprised to learn that privately insured patients’ access decreased albeit by a very small margin.

Enjoy the weekend, and before you slather on that sunscreen, read this –  all that sunblock and sun protection may be doing harm too – it can lead to chronic Vitamin D deficiency, a very bad thing.