Insight, analysis & opinion from Joe Paduda


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.


Yesterday’s executive order by President Trump requires HHS to develop regulations requiring healthcare providers and insurers to publicly post the prices paid for healthcare.

According to Trump, this is “a giant step towards a heath care system that is really fantastic.”

Let’s talk about what this means for you.

First, there’s enough wiggle room in the order to make the slinkiest of snakes comfortable. For example, there are no specific requirements about what information doctors, hospitals and insurers have to disclose.

Second, the executive order itself has no force of law.

Third, if prices are ever posted, patients won’t know what they – the patient – have to pay. The order discusses posting what insurance companies have agreed to pay for a procedure – not what the patient owes.

Fourth, there’s no conclusive research finding that publishing prices reduces overall cost – or even affects consumer behavior. But there is research indicating patients don’t use data to find lower cost care.

Fourth-and-a-half, despite what the President claims in his Executive Order most healthcare services aren’t “shoppable”. If your spouse has chest pain, you aren’t going to wade thru some government database to find the lowest cost heart surgeon. Plus, you aren’t walking in with a shopping list of specific procedures – you’ll get the procedures your doctor orders, and you won’t be in any position to go to one hospital for an MRI and another for anesthesia.

I see you want an MRI, an appendectomy, one assistant surgeon, 2 units of blood, and 5 visits from random doctors.

Want proof?…about one healthcare dollar out of twelve is spent by patients on shoppable services. 

Fifth, pricing agreements are proprietary, negotiated between insurers and providers. Both are now arguing that publicly disclosing those private, confidential contracts will result in higher prices as providers – who now have pricing power over insurers in many markets – find out how much their rivals are getting paid.

Sixth, credible research shows that prices increase when suppliers and buyers have to disclose prices. From the NYT:

The Danish government, in an effort to improve competition in the early 1990s, required manufacturers of ready-mix concrete to disclose their negotiated prices with their customers. Prices for the product then rose 15 percent to 20 percent.

The reason, scholars concluded, is that there were few manufacturers competing for business. Once companies knew what their competitors were charging, it was easy for them to all raise their prices in concert. They could collude without the sort of direct communication that would make such behavior illegal.

Seventh, most healthcare spending is for patients with multiple chronic, and expensive, health conditions.  Think high blood pressure, asthma, depression, diabetes, cardiovascular disease.  These folks blow thru their deductible in March. After that, their healthcare is free to them, so they don’t care what the cost is.

Eighth, any regulations will take years to develop, and will be subject to endless lawsuits. Too bad the attorneys don’t have to post their prices…

What does this mean for you?

This is political grandstanding and will have zero impact on healthcare costs – or what you pay for insurance premiums.

But is sure is easier than actually doing something to improve our healthcare system and lower your costs.

Spoiler Alert – Oh, and the Executive Order adds a whole new layer of bureaucracy and reporting requirements, which will increase healthcare administrative expenses.





Quick update on OneCall

Summer isn’t off to a sunny start for OneCall.

Two good-sized customers are moving their business to other suppliers. Sources indicate concerns over OCCM’s financial situation led to the switch to other vendors for transportation, PT, imaging, DME and home health.

Sources indicate MTI America, VGM HomeLink, MedRisk, HomeCare Connect, and Paradigm are among the winners. (MTI and MedRisk are HSA consulting clients)

Other customers have been in discussions with OneCall about ensuring payments for treating providers are made on a timely basis.

OneCall was carrying just under $2 billion in debt at the end of the first quarter; that has increased due to the refinancing of a big chunk of debt earlier this year. Despite the refi, debt service is eating up most of OneCall’s cash flow, dollars that would otherwise go to internal needs such as Polaris – the company’s name for their new IT platform..

The refi terms allow OneCall to not pay a portion of the interest on the new debt. Instead, the deferred interest becomes part of the debt owed. So, sort of like credit card debt, if you don’t pay the interest owed, you end up owing interest on the unpaid interest.

That saves cash over the near term, but increases the company’s total debt load and the cost of paying off that debt just gets bigger every month.

I’m hearing the customer-facing part of Polaris is gaining fans, but development of connections to and replacement of legacy internal systems isn’t keeping pace. This may be part of any cash-flow problem; Polaris was supposed to reduce headcount by replacing people with systems. If customer-facing staff hasn’t been reduced and customer service levels haven’t gotten better, OneCall has a couple challenges, namely:

  • continuing to pay for Polaris development, while
  • keeping more people on payroll, in an effort to
  • keep customer satisfaction at some reasonable level and
  • generate enough cash flow to pay the bills.

I’ve asked OneCall for their comments, but the company has been quite unresponsive of late so don’t expect anything substantive.



Marketing is NOT sales support

Marketing is not sales support.  If proposal writing and RFP responses are in “marketing”, you aren’t doing “marketing”.

Selling is one-to-one. Selling is finding out what that individual’s views, perspectives, challenges, biases, needs, opinions, fears and desires are. It is NOT “selling”, rather it is finding out what problem that person has and what she wants to buy, then packaging your offering so it addresses that individual’s needs and situation.

Marketing is one-to-many. It is doing the research to identify market segments, and those segments’ needs, wants, fears, and buying processes. It is developing and modifying products and services so they specifically address general and specific needs. It is promoting those products and services so potential buyers are aware of them and see the applicability to their situation.

Marketing can be squishy; it can be hard to assess the ROI on a marketing campaign or investment.

Work comp services execs often think marketing is easy, simple, and they are good at it. Hey, they can write an article, press release or “white paper” or give a speech or design a booth.

While a few execs understand Marketing, most do not.

And that is precisely why work comp services is a highly commoditized industry where price is critical. 

What does this mean for you?

Marketing’s budget should be 2 percent of your revenues, and led by someone who really knows the subject.


Marketing drives product – not vice versa

With rare exceptions, work comp services companies don’t get marketing, don’t fund it adequately, and then complain when “marketing’ doesn’t work.

They build a product/service then try to convince buyers they need it.  Example – “buyers want to buy all ancillary services from one vendor!”

That’s bass ackwards.  Instead, they should identify an unmet need, then build their products/services to meet that need. 

Okay, you’ve already got products and services, so you aren’t looking to create any new ones.  Same rule applies –

  • figure out what the market wants,
  • adjust your offering so it meets those needs, and
  • package it such that potential buyers see how it solves their problem(s).

More broadly, services companies must understand what drives buying decisions in work comp.  I’d suggest “fear” is a much more potent driver than “greed”.  Note these terms are very general and are not meant to connote actual fear or greed, but rather concern over lack of performance vs desire for optimal performance.

Buyers want to be assured the problem will be solved, the risk of non-performance is vanishingly small, and the cost will be borne by policyholders/clients/assignable to claims. They want as close to zero risk as possible – more for reasons of personal survival than corporate objectives.

And, understanding there are at least two “buyers” is critical – the exec in the home office who signs the contract and the desk-level person who actually uses the services. Both have to be comfortable that your product/service meets their individual needs, which are usually quite different.

The corporate buyers want solutions that deliver cost reductions with no compliance issues and minimal-to-no IT resource requirements.

The desk-level folks want seamless connectivity, proactive communications, and service that handles any and every issue.

What does this mean for you?

It isn’t about you or your products. Start from your customers’ perspective and not from your’s.  And stay there.




Happy Friday! It’s Research Roundup time.

Here’s my quick takeaways on new research – and how it affects you.

WCRI on the interaction of health insurance and workers’ comp

Bogdan Savych PhD of WCRI has provided an excellent review of the interaction of health insurance coverage and workers’ outcomes post-injury. 

The percentage of workers with health insurance increased from 84% in 2008 to 90% in 2017, driven primarily by the ACA.  Notably Medicaid expansion was responsible for most of this growth. Overall, workers who had private health insurance:

  • got an initial non-ER evaluation a little earlier;
  • recovered a little faster;
  • were more  likely to return to work; and
  • were a bit less likely to hire an attorney.

Note these differences were slight – but real – for workers who had employer-based coverage, NOT Medicaid. (Dr Savych separated out workers covered by these two payers.)

This means – health insurance coverage slightly improves work comp outcomes.

Implementation of the ODG formulary and opioid reduction

NCCI’s just-released analysis shows minimal correlation between adoption of the ODG formulary and decreased opioid dispensing. From the report:

The ODG Formulary had a limited observed impact on opioid utilization in the early period after implementation.

It appears other factors such as much more public and prescriber awareness of the dangers of opioids and general changes in prescribing patterns may have been a primary driver of the across-the-board decrease in opioid scripts.

This means…formularies are a relatively small part of the solution. Strong UR and external factors are likely much more important.

Drug prices and profits

Adam Fein’s excellent Drug Channels delivers details on where the pharmacy profits are piling up.

Dr Fein notes “many multi-billion-dollar businesses profit as drugs move through the U.S. reimbursement and distribution system.”

This means…most rebate dollars are passed thru to employers and PBMs.

Hospital prices

RAND’s research finds the gap between Medicare reimbursement for facility services and what other private health plans pay increased over the last few years; on average private insurers paid almost 2 1/2 times Medicare rates.

This varied widely among states; if you operate in Colorado, Montana, Wisconsin, Maine, Wyoming, and Indiana reimbursement is even higher, while Michigan, Pennsylvania, New York, and Kentucky’s commercial prices were only 1.5 to 2 times Medicare rates (yippee…).

This means…work comp payers are almost certainly paying way too much for hospital care.



The Arrogance of Ignorance

Your systems, savings, capabilities, and results are better than the competition.

You know that because, well, it’s true. You’ve seen reports that show it’s true, been told that by your bosses, or some independent third party said so.

I cannot count the number of times I’ve heard “we save X to Y points more than the competition.” – or something just like that. One problem – your competitors believe the same thing. All of them. They’re wrong…right?

I heard it again at the National Council of Self Insurers’ meeting in Orlando yesterday – several times. When I demurred, my demurrals were rejected out of hand.

Allow me to burst your bubble.

Utilization review should be used to ensure the medical care delivered to patients is the right care, for that specific patient, by the right provider. In most cases, it is nothing of the sort. Rather, it is done to comply with regulations, generate revenue and is almost never integrated into billing.

Bill review is merely applying relevant regulations and fee schedule edits, sending bills to network vendors, and adding in some high-cost bill audits and perhaps retro UR and clinical audit.

Network selection doesn’t account for lower cost providers – it is based on discounts not net costs.

This is really basic stuff – and compared to what happens in group health it barely scratches the surface. Fact is medical providers are way more sophisticated than payers when it comes to coding, billing, and revenue management. There’s an entire industry devoted to revenue maximization for workers’ comp.

Data point – work comp represents about 1 percent of a health system’s revenue, but more than 10% of profits.

If you’re doing such a great job managing medical, why are providers making so much money off your patients?

With the exception of the Workers’ Comp Trust of Connecticut – I’ve NEVER seen a workers’ comp medical management program worthy of an A grade. In fact, the metrics most to evaluate program results are prima facie evidence the programs can’t be succeeding. Metrics like:

  • savings below billed charges
  • savings below fee schedule
  • turn around time
  • UR denials
  • network penetration

are all process – not outcome – measures. And they measure the wrong things.

The right metrics include:

  • medical cost by claim – case mix adjusted
  • drug cost per claim
  • time from date of injury to correct diagnosis
  • disability duration – case mix adjusted – by provider and employer location

How am I so confident you’re not as good as you think?

I’ve audited dozens of programs and seen crappy data, inaccurate reporting, useless metrics, and poor analytical methodologies in almost all.

A fundamental problem in work comp medical management is complacency and an unwillingness to ask and demand answers to tough questions, borne out of today’s low medical expenses and continually dropping premiums. The result is many have grown fat and happy.

What does this mean for you?

You can do better.  A lot better.



A reminder – work comp is a tiny part of medical care

Work comp medical expenses total around $30 billion.  Total US medical expenses amount to $3.6 TRILLION.

Clearly work comp is a minuscule part of the healthcare world; less than one percent.

This matters because health care providers – doctors, therapists, facilities, clinics – see very few work comp patients.  While some providers tend to see more work comp patients than others, it’s rare indeed for a provider’s work comp patient population to amount to more than 10 percent overall.

Think about this in terms of regulations, network relationships, systems integration, clinical guidelines and UR requirements.

One patient out of a hundred – that’s how many work comp patients the average physical therapist, prescribing physician, pharmacy or clinic sees. When regulators require prescribers comply with a new formulary or UR prior authorization requirements, they are asking the provider, and the office and clinical staff that work with that provider to:

  • learn something new; and
  • develop, implement, maintain, and potentially modify new workflows and communications protocols and standards.

How would this work out in your world?

In your work, how much of a hassle would it be if one out of every hundred customers – or even one out of 25 – required unique and special handling, different processes, and a failure to comply with those requirements could lead to some type of legal sanction or unhappy customer?

I would suggest that many regulators don’t factor in the obvious challenge inherent in getting clinicians to change their practices for one out of every hundred patients.

Yes, regulators need to ensure regulations meet legislative intent, but often regulators can influence that intent, educate legislators, and if nothing else work diligently to hopefully reduce the potential friction inherent in changed regulations.

Unfortunately, this often isn’t the case. As a result, conflicts arise, conflicts caused by misunderstanding or misinterpretation, or just plain ignorance.  These conflicts may well lead to increased litigation, angry patients, and/or delays in patient care.

It can also lead to providers dropping out of the workers’ comp system, as the hassle just isn’t worth it.

What does this mean for you?

A bit of perspective is always helpful.  It is also essential.

As my late father used to remind me quite often, better to do it right from the start than have to fix it later.



The Golden Rule, Part Two

Back to the work comp services business…

A while ago I wrote about how some buyers’ attitudes are a bit overbearing. I know, unusual for me to be rather subtle.

The post itself generated a few comments; many more were sent to me directly with the request they not be made public. I will always honor that request.


Here are a few ways buyers mistreat “vendors”.

  1. The Jerk-Around
    This begins pleasantly enough, with lunches and dinners and meetings building rapport and “relationships.”  The buyer is really, really interested, voicing approval of the vendor’s product/service, requesting more information, discussing needs and priorities. The vendor is convinced the buyer is really interested, it’s just not the right time. Perhaps in a couple months.

    Then, a new management focus appears, and this is on the back burner for a bit. Oops, a change in systems resources is holding things up.  It may be because the buyer is really trying to get a deal done. More likely, the buyer just doesn’t want to say “no”. While understandable, this is the wrong thing to do – for everyone.A fast No is far better than a long maybe.Yes, the sales person is at fault too. They should be asking, probing, talking with others at the buyer’s employer. But if they keep getting the wrong information and are led the wrong way, it’s easy to succumb.

  2. The Disappearing RFP
    This starts with a voluminous request for proposal asking every possible question and attestation in multiple ways. It takes weeks of work by the vendor, pulling scarce resources away from other projects.

    And then…crickets.

    Days become weeks, weeks stretch out into months, and months disappear into the void. Eventually everyone involved forgets what happened, who wrote what why, and where things stand. And the vendor has lost tens of thousands of dollars in labor costs…so has the buyer. Why payers go thru all the work to write an rfp only to abandon it, often without informing – and apologizing to – the respondents, is a mystery.

    (Actually it isn’t…there are way more service providers with way more capacity then there are potential customers, so you’ve got no choice…you HAVE to respond to every RFP even though you know your chances are miniscule…)

    What you’d LIKE to say…

  3. The Change-a-Thon
    The original specs both parties agreed to are set forth in stone. Well, still-liquid mud actually, but mud is just stone that hasn’t solidified quite yet.

    Then, there’s a Note/email/change request… “due to regulatory issues, or a change in management, or because we just forgot something, we now need your data to feed this other system/comply with this standard/include these fields that we never told you we wanted, and/or your staff has to have the following credentials, and/or we need the reports on pink paper on Tuesday.”Oh, and we can’t pay you any more for this.Then there’s another change request, and another, and on it goes.

  4. The “We Need a Better Price”
    You’ve negotiated everything, and it’s pretty much a done deal. Then the buyer – often a procurement person – says they need a better price.  You’ve been hearing for months that the customer wants better service, is leaving their current vendor because of lousy service, and places a premium on service.Except they refuse to pay for it.

    So, you’re stuck.  It’s either agree to barely break-even or perhaps even lose money, or agree to the price knowing you’re going to reneg on service once the contract is signed.Which leads to the final problem (although I’m sure you have your own list)

  5. The Procurement Problem
    Oh boy.  The business people have written the specs, delved deeply into your capabilities, certifications, experience, and results.  They fully understand that the service they want – and what you are expert in – is hugely complex, requires deep experience and highly trained staff, and will evolve over time as you work together and learn how to do things smarter/faster.

    The procurement/purchasing folks have been involved, but up till now they’ve been pretty much silent.

    Now they start negotiating price, and the dreaded Service Level Agreement (SLA). They want performance guarantees with financial penalties, but won’t agree to bonuses based on stellar achievements. They may demand you agree to specific time frames and project specs, refusing to factor in possible screwups/delays on their side of the implementation process. They negotiate price like a pitbull; in fact they focus most of their effort ratcheting down the price.Your business contacts plead with you to agree to the terms, saying they’ll work it out. Then, you’re locked in, and once again stuck in the “we can’t afford to deliver this for that price” – so it’s lose money or be accused of failing to deliver.

    (Terrific insights into marketing and procurement here.)

    (Now that I’ve thoroughly angered my friends in purchasing/procurement roles, know that some – a few – are reasonable, thoughtful professionals that seek to understand these issues and recognize the price implications.)

    What does this mean for you?

    You get what you pay for.

    Workers comp services is a shrinking business in a highly mature market. The only way vendors grow is by taking business from a competitor. Buyers have all the negotiating power, and often use every bit of it to wring concessions from suppliers.

    That’s almost always a grave mistake, leading to poor service and poor results.


The next recession – Not if, but when, and how bad will it be?

This month marks the second longest economic expansion in US history; it’s been a decade since things turned around back in June 2009.

Like all expansions, this one is going to end – and there’s mounting evidence it will happen soon.

The latest Fed forecast shows GDP growth slumping to 1.3% this quarter, driven in large part by a drop-off in commercial and industrial construction.

Without Congressional action, we will see another government shutdown this fall; the Treasury will run out of money by early November. There’s hope the Republican-controlled Senate and Democratic-controlled House will reach some sort of deal. Whether an increasingly-volatile President – who has been public about his lack of concern about the possibility of the US defaulting on its debt – will approve it is anyone’s guess.

Absent a deal, $125 billion in Federal spending will be cut immediately, thanks to the 2011 sequestration bill.

Manufacturing growth is slowing. New data shows the U.S. Manufacturing Purchasing Managers’ Index is at its lowest point since the last recession. From Bloomberg:

customers were postponing orders due to growing uncertainty about the outlook. Similarly, new business from abroad contracted by the quickest pace since April 2016 to the first decline since July 2018.

One industry that’s hurting is autos. The president’s latest moves to slap tariffs on Mexico will increase US consumer and business costs alike; the auto industry is particularly vulnerable as Mexico supplies a lot of car parts – and 2.6 million cars – to the US. Analysts project the tariffs would add about $1,300 to the price of an average car. If Trump keeps his promise to continue to raise tariffs, that will jump to $10,000 on Mexican-made autos and trucks by October.

This has caused so much consternation amongst Congressional Republicans that they are actually considering going against Trump…

There’s a lot more data out there on this – the inverted yield curve is perhaps the one most worrying to economists.

So, we can fix this, right. Well, it’s going to be a lot harder to dig out of the next recession than it was to crawl out of the Great Recession. It’s increasingly likely the Fed will slash interest rates this year in an effort to keep the economy growing. Of course, rates are already near historic lows and the Fed has few resources left to buy back debt in “quantitative easing” without risking rising inflation…the tools available to the Fed to reverse a downturn are few and may be overmatched.

What does this mean for you?

It’s going to happen. When it does, worker’s comp payers will see a downtick in claims frequency but likely a rise in claims duration.

From here, my take is the next recession is going to be long and deep; we just don’t have the tools to claw our way out of it.

Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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