Insight, analysis & opinion from Joe Paduda

Jul
22

What the heck is going on in the Golden State?

For the second year in a row, claim frequency for self-insured employers is up (frequency is the percentage of FTEs that file a work comp claim). Over the two years the total increase in frequency was 12.4% while actual claim counts rose 10.8%.

Meanwhile, over that same period, work comp premiums declined…(also from CWCI); driven mostly by a drop in premiums charged for covered payroll (so this wasn’t due to fewer employees covered by work comp).

What is going on here?

For self-insured employers, it’s not more workers; the number of FTEs marginally increased – and frequency accounts for employee count variation. But, those workers are suffering injuries/illnesses slightly more often.

Insurers’ premiums are driven by payroll, past and projected future claim counts and costs – but also by insurers’ business priorities. With work comp insurance profits remaining high, it is indeed possible that underwriters are ignoring warning signs in their pursuit of market share and more premium dollars.

This has happened before – and it always ends badly.

It’s also theoretically possible the “LA Basin Effect” (cumulative trauma claims inspired by unscrupulous doctors and lawyers in the Los Angeles area) is having a disproportionate effect on self-insured employers. I kind of doubt it, as large employers are more attuned to this type of mischief than smaller, insured employers.

There’s another possible factor affecting premiums that I’m pursuing; too early to dig into it but suffice it to say that it might well offset the premium impact of any frequency increase.

What does this mean for you?

“I am on the verge of mysteries, and…the veil which covers them is getting thinner and thinner.” Louis Pasteur

 


Jul
19

I apologize.

I screwed up and I apologize.

Here’s what happened.

I failed to explain or provide context in my initial response to an anonymous comment on my post entitled “One Call’s doing great!“.  Here’s the relevant comments:

My initial response to “bill smith”:

“Bill” then sent in a response. I sent an email to the address he provided in the post,; the email bounced back indicating it was a fake email address. I checked the website he listed as his in his initial response; the website is the personal one of an African-American woman; she is dealing with Alzheimer’s. btw Ms Smith is a remarkable woman, handling this awful diagnosis with grace, wit, and elegance.

As “bill” was being disingenuous about who he was, i ignored his response.

Next, he sent in another comment. “bill” was one of several anonymous commenters trolling me (and you), using fake emails and contact info. Getting tired of their antics and disgusted with their cowardice, I responded. The relevant conversation is below.

Here’s where I should have been more clear. I should have posted the actual website address “bill” used in his original post so you, the reader, could see for yourself that what this troll was up to.

In what used to me normal times, this wouldn’t be a big deal as I detailed “bill’s” dishonesty in a subsequent comment.

We aren’t living in “normal” times, and the casual reader may well have interpreted my response as a racist slur. I’m embarrassed by my mistake and apologize for it.

I’ll be more careful in the future. 

As a reminder, here’s my policy on commenters…

This post was triggered by reader D. Gregerson who sent in a comment yesterday about this. I thank D. Gregerson for his comment.

Hey Joe! Great insight as usual. Keep them coming. I do have a question though. As I reviewed the comment section (which has now been closed) I noticed that you replied to someone saying:”unless you are an African American with Alzheimer’s, your website is fake”. Now, one would argue that the statement could be deemed inappropriate and demeaning. Especially considering that the topic at hand was One Call’s financial debacle. Care to expound?


Jul
17

The latest data on opioids in work comp

We’ve just about completed the 16th (!!) Survey of Prescription Drug Management in Workers’ Comp, and there are two key findings you need to know.

First – total opioid spend in 2018 dropped 23.2% across all 27 respondents (ranging from very large TPAs to state funds to insurers to small state-specific payers). The average decrease among respondents was just over 22%.

That dramatic reduction comes on the heels of a 16% reduction from 2016 to 2017, and a 13% decrease in 2016.

From last year’s Survey; each numbered column denotes a respondent’s results (2019 Report will be out in August)

Over the last few years, payers and PBMs have cut the amount of opioids dispensed to work comp patients by more than half.

While cost reductions are good news for employers and taxpayers, when you talk with payers its mostly about patient safety and return to functionality. Patients taking opioids over long periods aren’t getting better, aren’t going back to work, and most (but not all) are not functioning very well. That means they aren’t the parents, friends, daughters or sons, grandmothers or grandfathers they can or want to be.

Second takeaway: payers are anything but satisfied or complacent. All the 27 people I’ve talked with to date remain focused, committed, and completely engaged in continuing to fight the good fight against overuse of opioids. They’ve asked me what other payers are doing, what they can do differently, what works and what doesn’t.

That’s a great relief. One would understand if payers’ focus was shifting to other issues, now that they’re seeing massive progress in the battle over opioid over-prescribing.

With some exceptions, the knottiest problem remains how to help chronic opioid patients find other ways to handle their pain, to help them function at a higher level even with chronic pain. Payers are very creative and dedicate lots of dollars and time to solving chronic opioid usage. This focus will continue to help patients get better, while reducing costs for employers and taxpayers.

I’d be remiss if I didn’t note – once again – that work comp is leading the rest of the world on solving the opioid issue. You knew about it sooner, took drastic action much faster, and are delivering much better results than Medicaid, group health, or Medicare. 

Yeah, the workers’ comp industry is often maligned for its many faults and challenges. But this is one area – and a damn important one – where you’ve got much to be proud of.

What does this mean for you?

Well done. Stay focused. 

 

 


Jul
16

“Toxic Stews” and workers’ comp

Flooding and wildfires are causing increased rates of cancer, asthma, and other respiratory ailments among the people exposed. These events are getting larger and more frequent, a reality that will affect the work comp industry.

Notably, we understand a lot more about the long-term health effects of disasters due to tracking the health status of individuals affected by the attack on the World Trade Center. Data indicates higher rates of thyroid and prostate cancer as well as pulmonary fibrosis among those studied.

A well-researched article in the NYTimes this morning shows this is a much bigger issue, citing:

  • raised levels of carcinogenic PCBs from flooding in Puerto Rico,
  • significantly higher rates of asthma from Californians exposed to smoke from wildfires, and
  • sinus problems, skin irritation and respiratory ailments reported by individuals after hurricane Harvey flooded industrial areas around Houston.

Harvey is particularly scary. Research showed benzene, lye, vinyl chloride, butadiene, and dioxin were just a few of the 200+ chemicals and contaminants spread across thousands of acres of residential neighborhoods, parks, playgrounds, schools, and business district by floodwaters.

While the long-term effects are far from certain, what we do know that clean-up crews and construction workers likely face significant exposure risks. I wrote about this a couple years ago; given the growing intensity and frequency of “weather events” driven by climate change, we can expect more in coming years.

What does this mean for you?

Occupational illness/disease claims may well increase significantly over the next few years, an eventuality that most employers, insurers, and actuaries have likely not considered.

 

 

 


Jul
15

Monday morning quick hits; OneCall, WCRI, and a correction/expansion

Too darn busy last week to get my usual 3-5 posts up…things are calming down this week so expect to see posts in your inbox.

Followup on One Call; after the Debtwire article about OCCM debtholders organizing to prepare for a “potential liquidity event and expected covenant violation…” I was inundated with nonsense from anonymous writers accusing me of bias…this continued last week. [reminder – I reserve the right to know who is commenting]

A couple people told me OCCM owner Apax had offered $50 million to OCCM management, who turned it down.

Sorry, that’s just not credible; let’s walk thru the logic here.

  • Private equity firms such as Apax don’t have a pot of money to write checks from. All Apax’ funds are from investors, and Apax has to get investors’ approval before using any of their funds.
  • To do this, A) Apax would have to restructure the entire transaction, giving stock to B) investors who think sending money to a company that will likely be owned by creditors is a great idea.
  • There’s no way OCCM management would “turn down” a cash infusion. As Debtwire reported, “cash flow has been limited by high capex needs as a result of its effort to migrate users under a single system” (Debtwire is referring to Polaris’ development cost).
  • OCCM has a line of credit-type load that, according to Debtwire,

    “had USD 50m drawn at 31 March” out of a total available amount of $56.6 million….so, One Call had only $6.6 million available AND was paying interest on the $50 million it had already borrowed.

    Ergo, if management HAD been offered $50 million in cash, they would’ve been delighted to accept it. For the reasons enumerated above, I very much doubt that offer was made.  If you know otherwise, I’m all ears.

To my critics, reporting facts isn’t “biased”, Debtwire isn’t biased, and neither are financial statements. For non-believers, One Call has to report its second quarter results within 45 days of the end of the quarter. That’s a month from today.

It is possible, if not probable, that the debt investors will see the numbers before mid-August. If the numbers are consistent with Debtwire’s reporting, there may well be a “covenant violation.”

Update – One Call CEO Rone Baldwin provided a financial update this morning; he states:

One Call is in full compliance with all debt covenants for the second quarter of 2019 and expects to be compliant for the remainder of 2019, based on the full-year guidance that it intends to provide to investors in its second quarter conference call.

Will keep you posted.

Want to know how medical prices affect worker outcomes? Then WCRI’s upcoming webinar featuring Bogdan Savych PhD is a must.

Worker mis-classification – the usually-intentional is coming under increasing scrutiny, with the latest moves coming from the Garden State. Gov. Phil Murphy released a report which, according to Business Insurance, indicated “employee misclassification, which has grown 40% over the past decade…in 2018 alone 12,315 workers in New Jersey were misclassified as independent contractors.”

Finally, I heard from several folks about my York-Sedgwick post suggesting that my statement “a highly profitable managed care unit built by former leader Doug Markham” was inaccurate.

Fair point.

In my haste I failed to give credit to the many other people who built that business. Markham led Wellcomp prior to – and after – York’s acquisition of MCMC. The businesses were run separately for a time, then “combined” in a move that resulted in Markham running the new entity entitled CareWorks.

Mike Lindberg and his colleagues at MCMC – acquired by York – built a thriving managed care business that served, and continues to serve, a big list of customers. MCMC was kinda/sorta “combined” with York’s internal managed care entity under Markham when Mike Lindberg departed; I won’t get into the drama that surrounded that move. MCMC was a big chunk, if not the larger piece, of York’s managed care entity.

BJ Dougherty, Lisa Oskoui, Larry Brinton, Steve Junker are some of the professionals whose contributions made MCMC a successful company. (apologies in advance to those folks I failed to name)

 

 

 


Jul
11

With 20+ interviews to date, we are starting to see some patterns in responses.

For those unfamiliar with our annual survey, click here to get access to public versions of the last dozen-plus Survey Reports.

Respondents are the folks in charge of the pharmacy programs at major work comp insurers, TPAs, state funds, and self-insured employers. Drug spend ranges from $200 million plus to $1 million.

Quick takeaways:

  • Spend continues to decrease; haven’t totaled up the numbers yet but my guess is it’s a high-single-digit drop from 2017 to 2018.
      • A big cut in opioid spend is a major contributing factor
  • Transparency is the biggest single issue in work comp pharmacy; respondents aren’t happy with the level of transparency, are frustrated with the lack of clarity around AWP, and want more detail on pricing.
  • That said, respondents generally acknowledge it’s fine for PBMs to make a margin, they just want to make sure that margin is reasonable.
  • Opioids remain perhaps the biggest issue, but many payers have made remarkable progress in reducing both initial and chronic opioid usage.
  • Compounding is seen as all but dead, crushed by aggressive moves by payers, regulators, and legislators.
  • Specialty medications while not yet much of an issue, may well be especially if assumption laws for pubic safety workers gain more acceptance.

There’s a lot more to come; we’ll be wrapping the data collection part of this year’s effort in a few days.  If your organization’s pharmacy program management person  wants to participate – and get a detailed, respondent version of the Survey report, let me know via the comment box below this post…


Jul
10

Sedgwick gets bigger.

Monday’s news that giant TPA Sedgwick is acquiring York from Onex shouldn’t have surprised anyone. Sedgwick has been – and will continue to be – an acquirer. Posting revenues of $2.7 billion last year, the TPA’s recent growth – revenues increased by more than 50% in 2018 – has been driven largely by acquisition.

Bought by private equity firm Carlyle just last year for $6.7 billion (from KKR), Sedgwick’s value has likely tripled over the last few years. Of course, that growth required major expenditures, so it’s not like the owners didn’t invest a lot more than the original purchase price of the business.

Growth is critical to any private equity-owned company and in a highly mature industry the fastest, least expensive, and best way to grow is by buying competitors. VeriClaim and Cunningham Lindsey were two of the larger acquisitions during the last few years, and both were smart buys.  They were strategic, adding different skill sets, customer types and service capabilities in addition to hundreds of millions to the top line.

The York acquisition follows the same game plan; it adds several key assets/capabilities;

  • a highly profitable managed care unit built by former leader Doug Markham (York has it’s own proprietary bill review software…);
  • a wealth of experience in program business management; and
  • strong municipality and governmental entity offerings.

With international capabilities and claim handling expertise in all P&C lines, Sedgwick is positioned to grow by handling claims from extreme weather events driven by climate change. It is also gaining efficiency – which will lead to more growth – in shrinking lines such as workers’ comp.

While I’ve locked horns with CEO Dave North in the past, one has to respect the strategic vision, marketing prowess, and execution skill that has pushed Sedgwick to the top of the TPA industry. Senior management is capable indeed; there’s some solid talent at York that will make it even better.

Last point – and it is a critical one. Over the last decade there have been dozens of PE deals in workers’ comp and P&C services. Most private equity investments performed quite well despite – or more accurately partially because – they used debt intelligently.

One would do well to keep that in mind these days; in and of itself debt is not bad or harmful. What is “bad” is a faulty investment thesis and crappy execution.

What does this mean for you?

Strong leadership, management that can execute, and an industry-leading brand make for success. 

How do you stack up?


Jul
1

Key takeaways from what happened last week

Here’s what else was happening last week while we were tracking One Call’s financial troubles…

Who’s for Medicare For All? Who wants to “abolish private health insurance in favor of a public run plan?”

That was the question asked of the 20 (!) Democratic candidates for President at last week’s debate with the request that those in favor raise their hands.

While it was great to see politicians put on the spot, forced to give a “yes or no” answer, the reality is it’s not that simple: There are multiple and quite different versions of “MFA”, ranging from Sanders’ version which is the “no cost to consumers, covers everyone, administered by the Feds, paid for with a big tax increase” to others’ “you can buy into Medicare if you want or keep your employer-based coverage.”

When someone tells you Candidate X wants to do away with your health insurance, make sure that someone knows what they are talking about. Ask them to define exactly what Candidate X’s platform is, then fact check with Google.

Here’s a great side-by-side analysis of all the health reform bills now under consideration. Lots of nuance here…

Provider consolidation – costs and benefits

The California Health Care Foundation published a solid analysis of the implications costs and possible benefits of provider consolidation.

The net – costs go up, quality of care doesn’t.

Key takeaways include:

  • A study of US hospitals by Stanford University researchers found that “hospital ownership of physician practices leads to higher prices and higher levels of hospital spending.”
  • vertical integration increases hospitals’ bargaining power with insurers.
  • Physician groups owned by large hospital systems were more than 50% more expensive than those owned exclusively by physicians, and
  •  “Physician-hospital integration did not improve the quality of care for the overwhelming majority of [quality] measures,”

Drug pricing

Thanks to WCRI for sharing their Flash Report on Drug Trends. The researchers looked at very recent data from 27 states; key takeaways include:

  • compound utilization has fallen off a cliff
  • opioid spend dropped in every one of the 27 states
  • Louisiana’s opioid spend topped all study states at $100 per claim per quarter
  • total drug spend also decreased in 25 of the 27 states.

A brief video intro is available here.  And, the findings parallel what I’m hearing from respondents to our latest PBM in WC Survey.

Next up, another excellent piece from Adam Fein on spread pricing and rebates.

Dr Fein opines that spread pricing – the PBM makes its money on the difference between what it pays the pharmacy and what it charges the payer – isn’t necessarily a bad thing. He also discusses how some manufacturers use rebate payments as a way to force buyers to use their drugs.

head’s up – I’m about halfway thru the 16th (or is it 17th?) “Annual survey of pharmacy benefit management in workers’ comp”; pricing is a hot topic, but the respondents’ views are not what I expected. More on this next week…

Worker mis-classification

Excellent piece in WorkCompCentral about the ongoing effort to combat the real fraud in comp – sleazy employers, employee leasing companies, and labor brokers that lie to avoid paying workers’ comp premiums.

The piece reviews research by Harvard University’s Law School; the research was triggered by:

the USDOL [Department of Labor]…rolling back worker protections in a variety of ways, initially withdrawing a WHD Administrative Interpretation on misclassification, and piloting an amnesty program for wage and hour violators, called the PAID program. As a result of this retreat at the federal level, state enforcement has become more critical than ever.

The entire report is here; the takeaway [emphasis added] is:

“Misclassification and payroll fraud harm workers, depriving them of rights and protections to which they are legally entitled. Law abiding businesses also suffer, as they struggle to compete with companies that unlawfully lower their costs”

Have a great holiday week, enjoy friends and family, and get out and away from work.

I am!


Jun
28

OneCall’s doing great!

I think it’s only fair to allow One Call to tell their side of the story. So, here it is.

Yesterday One Call execs had an off-site meeting and subsequently released a letter to customers extolling the successes the firm is having; landing new customers, rolling out Polaris, improving patient experience, and really improving customer satisfaction.

Oh, and OCCM is fully compliant with its debt covenants and is meeting its financial obligations.

Allow me to make a few observations.

First, current financials will not be reported until some time after June 30 – two days from now – so Mr Baldwin is technically correct when he states that OCCM is “fully compliant.”  Until those financial results are reported (likely mid July, or in two weeks), the debt holders don’t know if OCCM is or is not in compliance; Q1 financials indicated OCCM was compliant – if barely so.

Second, congratulations to OCCM on landing “13 new customer relationships.” Not to be too picky, but I don’t know if that is expansions of existing relationships – say by adding transportation to an existing customer relationship, are entirely new customers, expanding from a one-state contract to multiple states, or what exactly.

Third, Mr Baldwin didn’t mention that Broadspire, Nationwide, and several of the Great American companies have terminated or are terminating or drastically reducing their business with One Call.

I do not envy Baldwin and the folks at One Call; they are in a very difficult position which Baldwin stepped into long after the die was cast. OCCM is loaded down with a huge and growing debt burden, has spent millions on an IT system that – in my estimation – will not improve customer satisfaction, and is trying to compete with other suppliers that are nimble, deliver excellent customer service, and aren’t trying to be all things to all people.

With the exception of Eileen Auen, Peter Madeja, or Mike Ryan I don’t know any leader who could salvage the situation. And even those august personages would face the greatest test of their prodigious talents.

But here’s the really awful thing – even after recent layoffs, OneCall still has thousands of employees who will be affected by this. They had nothing to do with the sale of various predecessor companies, the ridiculous debt, the frankly stupid decision by Apax to put the company together in the first place, the investment of millions into an IT system that could well be too little, too late.

Yet the folks who do the work every day are going to be the ones most hurt.

That sucks.

What does this mean for you?

Fortune favors the prepared. (borrowed from Louis Pasteur)

 

 


Jun
26

OneCall’s financial situation is…

Some of the investors that own OneCall Care Management’s debt holders are getting organized to prepare for a “potential liquidity event and expected covenant violation…”

That’s the lede from a piece [subscription required] authored by Associate Editor Paunie Samreth citing two sources (not me) writing on Debtwire, an Acuris company. Samreth:

The process is in early stages, with DDJ Capital among the firms spearheading efforts given its [DDJ’s] sizable position in the first lien debt, they said.

If you’ll bear with me for a minute, here’s the non-English version of what’s happening. The issue at hand is a “7x first lien leverage covenant” which kicks into action when the company draws down its revolver debt by 20%.  According to Samreth’s article, OCCM had a “razor-thin” margin at 6.9x as of March 31.

I do NOT know what those specific covenants are, however in my experience debt holders put covenants into contracts so the debt holders can take control – partial or total – of a company that is at risk of defaulting on its debt.

Samreth also indicated OCCM had drawn down $50 million of the $56.6 million revolver.

Allow me to translate into language we non-financial wizards understand.

Among other debt instruments – bonds etc – OCCM has “revolving” debt, which is kind of like a line of credit. The company can borrow from it and pay it back as cash flows dictate.

The “7x” is calculated by dividing the total long-term debt – which was reported to be $1.375 billion on March 31 – by cash flow (adjusted EBITDA) – which was $200 million over the 12 months preceding March 31.

So, as of March 31 OCCM had drawn down its revolver by way more than 20%, but had kept its revenue-to-debt ratio just below 7, which prevented the covenants from kicking in.

That was almost three months ago. Since then…citing Samreth:

[OneCall’s] earnings have been pressured in recent quarters as a result of customer losses and pricing pressures in the face of competition from peers including MedRisk, said two of the sources. [Medrisk is an HSA consulting client]

Compounding problems, cash flow has been limited by high capex [capital expenses for the Polaris IT system] needs as a result of its effort to migrate users under a single system, according to one of the sources.

It appears the debtholders are concerned that OneCall’s second quarter financials will indicate it is in violation of the covenants as the ratio will be over 7x and the revolver withdrawal over 20%.

The concern could well be that cash flow will not be enough to pay the interest and cover operating and other expenses. Decreases in revenue (customer losses), increases in expenses, and increases in the amount of debt could all play a role.

The latter – an increase in debt – may be happening as OCCM’s recent refi allows it to not pay interest on some of the new debt, instead adding that debt to the existing principal. I wrote about this a couple days ago.

It appears that the new debt from the refinancing may increase the company’s total first lien debt (that’s part of the covenant equation).  Add that to recent customer losses and the only way out is expense reduction. Rumor is the folks who were working on expanding OCCM into the group health market have been let go, and investments in Polaris have been cut back as well.

Am I full of crap?

Well, I’ve spoken with several current OCCM customers who tell me OCCM staff have assured them all is fine, there are no financial issues, and there’s nothing to worry about.

It could be that Samreth, Debtwire, and I have it all wrong. It could be that OCCM isn’t losing customers, hasn’t laid off staff, hasn’t cut back on investments in Polaris, isn’t in a cash flow crunch.

And I could be the next point guard for the Golden State Warriors.


Joe Paduda is the principal of Health Strategy Associates

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