The workers comp insurance industry is booming – losses are down, profits are up, insurance rates are plummeting, and all is better-than-well.
Fooled ya!
While all the good news above is true, something’s about to ruin the party. That ‘something’ is rapidly rising medical costs.
According to a new study released by Conning & Co., medical expenses in WC are going up twice as fast as the medical CPI.
I’m blue in the face from trumpeting the inability of much of the WC industry to understand, much less do anything effective about managing medical expense. For all the lip service and print attention to medical expense, there is precious little real understanding of medical cost drivers.
If the industry did ‘get it’, it would not be –
— paying PPO networks a percentage of “savings” defined as the amount paid below the fee schedule or U&C;
— counting as savings bills/lines rejected for duplicate charges;
— using broad PPO networks comprised of any doc willing to sign a contract, regardless of their understanding of WC, experience handling WC,
— once again focusing on loss prevention as the ‘missing link’ in medical expense reduction.
While I have a lot of respect for Conning & Co, and admittedly do not have access to their entire report, their focus on loss prevention is itself a demonstration of the industry’s ignorance of the root causes of medical inflation.
Medical expenses are increasing because:
–PPOs are losing the battle with hospital and facility costs; WC PPO networks have little buying power and even less influence with facilities, which for most payers are now the fastest growing component of medical costs.
–Managed care firms do NOT control utilization, relying instead on price controls (fee schedules and PPO discounts) to manage cost. The result – gross overutilization of physical therapy, chiropractic, drugs, DME, imaging, and surgery (in some jurisdictions)
—Some payers are overly reliant upon certain occupational medicine clinics, which often over-prescribe PT and drugs, both delivered and billed by the clinics.
Yes, some of the more sophisticated payers do understand what’s driving up their medical expenses, and a few are actually doing something about it. I know of one large carrier that is projecting medical trend for accident year 2006 at less than 8%; and their programs may actually deliver on that projection.
That’s the exception, not the rule.
What does this mean for you?
Vendors need to deliver solutions, not ‘discounts’. Stop touting how big your network is and how deep your discounts are, and start reporting metrics that actually matter, like cost per claim trends, diagnosis-based and severity adjusted.
And payers, stop evaluating vendors on the basis of how thick their provider directory is and how cheap their procedures are.
I am curious…..in your opinion, are there any really good managed care companies, ie. third party administrators, OR insurance companies where a good telephonic Utilization Review Nurse can make a difference? I am an R.N. who has been doing this kind of work for 17 years.
I represent employers’ in workers’ compensation cases and your reporting is right on point. Ohio uses Managed Care Organizations to review requests for medical services. There is very little oversight of the grossly excessive requests for physical therapy, MRI’s and other diagnostic testing by certain chiropractors and physicians who know how to manipulate the ODG guidelines used by these MCO’s in Ohio. It is shameful.
Joe: What do you mean by: cost per claim trends, diagnosis-based and severity adjusted. What would a spread sheet look like for documenting the trending?
Thanks.
Mike
The broader issue is that of the WC legislative acts in each state. In many states, insurers do not have the control over treatment direction let alone enforcement of utilization controls. Even the best insurer programs do not work where they cannot be enforced. The AMA and trail bar is very strong in most states, and the insurance community and employers have yet to present a united front and place WC costs a priority above other benefits such as tax relief offered to counter balance the increased cost in the WC industry. Providers are looking to get as much as they can from an industry that lacks legislation because they are confronting decreased reimbursements in Medicare. Bottom line, we must push for stronger WC legislation where experts can ensure the injured worker is treated appropriately and returned to work as quickly as possible for the benefit of him/herself as well as the employer and industry as a whole.