Sources indicate Coventry is still seeking a leader for the workers compensation business at First Health, although they have assigned the task to an outside search firm after their internal recruiters came up empty.
Spencer Stuart’s Chicago office is handling the search. Spencer is an interesting choice as the firm is not known as a major player in staffing for the managed care, health insurance, or HMO sectors. They are using their own internal resources, bolstered by a list from Coventry of individuals that have been vetted and found wanting. While this may help reduce the number of false negatives Spencer encounters, the firm may also encounter difficulty filling the slot if Coventry allows First Health’s present customers to weigh in on the decision.
Several sources have indicated that Coventry has asked present customers their opinions of previous candidates, and these opinions have had an impact on the company’s selection process.
In any event, given the significant profit contribution of the work comp business (11% of Coventry’s net comes from work comp) this is a key hire. And the fact that they have been looking since February with no apparent success demonstrates the difficulty inherent in finding a candidate who understands the HMO industry, knows workers comp, has a solid reputation among First Health customers, and can lead a customer-service-challenged company forward.
What does this mean for you?
Either very little or quite a lot.

The cost of workplace injuries in the US topped $50 billion in 2003, despite a 6.3% drop in the injury rate. These results continue a long-running trend of declining frequency that is more than offset by medical inflation.
The often-asked question is how can this be? If the number of injuries is dropping, how can total costs be increasing? While it appears that the severity of injuries may be increasing, that is actually a proxy for medical costs (the workers’ comp research firms equate severity with higher medical expense). The culprit is medical inflation, and more specifically increased utilization of medical services.
There are fee schedules in about half the states (most of the larger ones) that do a pretty good job of constraining price increases. With rates pegged to Medicare’s fee schedule, prices for most physician and outpatient services are under control. Unfortunately, that’s only part of the problem – the other two drivers are the percentage of claims that have a particular type of medical expense, and the volume of services per claim.
As an example, physical therapy occurs in about 26% of cases with lost time. However, given there are few treatment guidelines that are helpful in managing PT, and the propensity for therapists to overutilize, PT costs appear to be growing significantly. Without objective clinical guidelines to ensure the volume and specific treatment modalities are appropriate, work comp payers are essentially unable to constrain the delivery of PT.
The result – a recent analysis conducted by my firm, Health Strategy Associates, showed that over 55% of lost time cases treated at a national occupational medicine company had PT services. Sure, the price per service was low, and the average number of visits was quite low, but there is no doubt many of the patients receiving PT did not need it.
The work comp market is recognizing the extent and cost of the problem; MedRisk, a firm that specializes in managing physical medicine in workers comp has seen explosive growth, and now manages PT on a national basis for carriers and TPAs including Liberty Mutual, Zurich, ACE, Sedgwick, Gallagher-Bassett, and Amerisafe. (MedRisk is a consulting client.)
And physical therapy is but one example of a medical service that is a key driver of medical inflation. With work comp medical expenses trending up at double-digit rates, payers are finally beginning to adopt intelligent strategies that are specific to the key drivers of inflation.
What does this mean for you?
If you are a work comp payer and have yet to adopt a “specialty managed care strategy”, your medical inflation rates are likely higher than your competitors’. If you don’t get costs under control, you will not be a payer much longer.

Aetna’s workers comp managed care entity (Aetna Workers’ Compensation Advantage, or AWCA) is looking internally for a new leader to replace recently departed Robyn Walsh. Walsh retired from Aetna recently, joining several other senior execs in taking advantage of the vesting and retirement plan.
Sources indicate that Aetna’s search is concentrating on internal staff. While this is admirable, it is also somewhat curious. Aetna got out of the workers compensation business several years ago when it sold its P&C business to the Travelers. With one or two exceptions, most of the AWCA staff have very limited WC experience. Industry knowledge is critical in workers comp, both to build a credible product and to speak credibly to potential customers.
With the very limited success enjoyed by AWCA to date, I wonder if their internal push is more out of necessity than desire. It is indeed difficult to see how this venture has been able to survive as long as it has with one customer in a single state. Perhaps Aetna does not believe it will be able to attract outside talent, and therefore is concentrating its search internally.
On the other hand, given Coventry’s lack of success in finding a leader for its First Health WC subsidiary, perhaps Aetna is just being smart. Perhaps.
Other sources indicate Aetna made several runs at a workers comp pharmacy benefit management firm earlier this year.
This is another head scratcher. Most WC PBMs are independent; buyers do not see much synergy between regular medical networks and PBMs; and given the dollars on the table, there would have been better, more strategic places for Aetna to invest.
What does this mean for you?
Keep an eye on Aetna, and if you are interested in contracting with them, make sure you are contractually protected if they exit the business.