Each year I make a list of predictions — a dangerous habit to be sure, but one I can’t seem to break. Here are my nine projections from six months ago, commentary on where we are today, and how I think I did.
1. Acquisitions will accelerate. We’ve seen an upsurge in the number of deals of late, with FairPay and One Call Medical the two biggest and most recent. I would expect this to continue. Bunch may be the next to go, but ownership’s demand for a 9x + multiple is not likely to fly. If they manage their expectations and get a bit more realistic, it could happen.
Count this as a yes. On the vendor side, the Bunch deal is reportedly close to closing, OneCall acquired transportation/translation vendor STOPS earlier this month, and Stratacare’s owners bought CS Stars’ MedBillPro business. Payer deals included Sedgwick (rather equity in Sedgwick)’s sale and the acquisition of Zenith by Fairfax. I would expect a few more deals later this year, depending on how much the credit markets loosen up.
2. Coventry (the big Coventry, not the workers’ compensation entity) will be acquired.
OK, I predicted this last year and was wrong (or, more generously, premature). But now that the health reform picture has cleared up, credit markets are (somewhat) functional again, and stock prices of other health plan companies are up, I would expect CEO Allen Wise et al to sell the company, perhaps to United HealthGroup.
As to what happens to the workers’ compensation group if it does get bought, that is worthy of another column and some deep thinking by big workers’ compensation payers tightly tied to Coventry workers’ compensation.
3. The basis for workers’ compensation drug fee schedules will start to move away from AWP.
I rate this one a “gimme.” AWP (average wholesale price) is disappearing in early 2011, leaving regulators and legislators little choice. The big question is obvious: What replaces AWP, and how will the new fee schedules compare to current ones.
I do know regulators in several states are already deep into this and are looking at multiple options. Where they end up will have a dramatic impact on workers’ compensation drug costs (not just prices, but total cost), payers, and Pharmacy Benefit Managers (PBMs).
The jury is still out, but this is a done deal. That said, many states do not rely on the FirstDatabank/Medispan databases, so they will be theoretically OK with RedBook. However, Redbook does not include some generic pain medications commonly used in workers’ compensation, is not updated as frequently as the soon-to-be-departed BlueBook, and pharmacy chains are not enamored with it. More drama to come.
4. (Some/Many) workers’ compensation physician fee schedules will change significantly.
Congress is very likely to change the Medicare physician fee schedule, which is the basis (to a greater or lesser degree) of all workers’ compensation physician fee schedules except California’s (which may adopt a Medicare-based fee schedule). When that happens, some state fee schedules will change immediately, some will probably not change at all, and others will go through a process that may well result in modifications.
Another “gimme.” Congress is still futzing around with the Medicare fee schedule, but they have to act and will. Some states will see an immediate change, while most will see more of an indirect effect as billing companies and physicians alike figure out what it means and how to protect themselves.
5. The workers’ compensation insurance market will harden, bringing more business to case management, utilization review, bill review, and network vendors.
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. Fitch and others believe the fundamentals point to an extended soft market well into 2011, and there is still a lot of capital sloshing around looking for a home. All that said, the current hard market has been around far longer than most, and when things can’t continue, they won’t.
Well, not so fast. The market is still relatively soft, and we are still waiting for a bit of firming. This could be a bit optimistic.
6. The rise of the medical director.
Several large payers are revisiting the role of medical management, examining medical costs in detail from multiple angles. What they will, and some are, finding is a need for better medical management of claims — a lot better.
The stuff that passes for medical management in workers’ compensation is mostly driven not by a desire to better manage medical care, but a need for revenue. Medical management programs have become a revenue and margin generator, a role that has come to supersede their original purpose.
As medical costs rise despite payers’ “investments” in managed care, more payers are revisiting the roles and results of their programs. Some are finding there is precious little medical management going on. Instead, they see outdated guidelines, bill review driven by throughput rather than accuracy, networks constructed to deliver phantom savings, and case management that is more highly paid secretarial work than anything else. Payers are turning increasingly to their medical directors for more guidance. The MDs can be forgiven if they respond grumpily, as many have been all but ignored for years. That is going to change, and fast. I would expect to see the market for assertive, data-driven medical directors heat up considerably in 2010.
One of the largest workers’ compensation payers has significantly elevated the medical director position this year, and several MDs are influential forces on a national scale. Moreover, several payers who heretofore did not have medical directors are looking hard for leadership in this critical area. On MDs, think “evo-,” not “revo-lution,” but it is going to happen.
7. Drug costs will return to the fore.
Drug prices are up over 9% so far this year, on top of a 7.5% increase in costs in 2008. After five years of decreasing trend rates, the monster is back. Fortunately we know a lot more today than we did years ago about drivers, due to the great work by EVP Alex Swedlow et al at the California Workers’ Compensation Institute and the excellent analyses by NCCI. Unfortunately there are still far too many payers choosing their PBMs on the basis of price per pill rather than drug cost per claim.
But that is OK, as the price-driven buyers will find their costs go up, while the cost-aware will find the opposite.
8. Florida’s attempt to redo facility fee schedules will continue to plod along.
The ongoing battle over the workers’ compensation hospital fee schedule in Florida continued last month, as challenges to the pending changes were filed by two hospitals, the Florida Hospital Association, and FairPay Solutions. These challenges prevent implementation of a dramatic revision to existing fees pending further action by an administrative law court. This is good news, as the changes will result in dramatically higher costs.
Here’s hoping payers get off their collective duffs and get focused on this before it is too late. However, I am not hopeful.
“Plod” is the correct adjective.
9. TPAs will continue to try to make up lost margin by internalizing managed care services.
This is an easy one, as it simply acknowledges a continuation of a current trend. As employers have abandoned self-insurance, TPAs have struggled to compete, with many forced to slash claims administration fees to hold on to business. They’ve got to get the dollars to keep the doors open from somewhere, and that “somewhere” is increasingly their managed care departments. What started out as demands for commissions and fees from managed care vendors has evolved into TPAs increasingly internalizing those functions.
This isn’t good or bad. It is simply an industry dealing with a market reality. Employers who complain should be ready to pay higher fees.
The trend continues unabated. Managed care vendors, especially case management and bill review firms, are suffering from the double whammy of lower volume and lost business to internalization. This will continue.
What’s my net?
So far, pretty good. I’m no swami, but I have been around long enough to remember what tea leaves were positively correlated with what outcomes. So far, the record, while not unblemished, is close to it.
We’ll see where we are when the snow flies up here in New England.
Joseph Paduda is the principal of Health Strategy Associates based in Madison, Conn. He may be reached at 203-314-2632 or firstname.lastname@example.org.