It is Friday the 13th. That legendary day of mythical fears, the bane of the superstitious, the day of bad luck and portentous omens. A fitting day indeed to tell an all-too-real horror story.
We’ll begin with the dry, dull, numbers, ones that we all know so well their impact has been dulled by their very repetition. But sit up straight and open those eyes, because they tell a very scary story.
59% of work comp claims cost is from medical expense. That percentage has been steadily growing over the last fifteen years. WC medical trend is significantly higher than the medical CPI; comp is up 7.8% per year over the last five years while the medical CPI only increased at an annual rate of 4.2%.
Why? What else happened over the last fifteen years?
Comp carriers came to rely on discount-based generalist networks as the central pillar of their medical management program.
And now the networks are in control.
The industry’s addiction to the easy solution of discount-driven medical care is slamming up against the hard reality that it just doesn’t work. Nationally, workers compensation preferred provider organizations (PPOs) deliver discounts in the range of 10 percent to 12 percent before network access fees. The claim, therefore, is that they deliver “savings” of 10 percent to12 percent. This claim is based on the simple premise that without the network, the cost would have been 10 percent to 12 percent higher. While this argument is logical on its face, there are at least three problems with it. First, the argument assumes that the injured worker would go to the exact same providers without a network. Second, it assumes the providers would deliver care, and bill for it, in exactly the same way. Finally, it does not consider the impact of frequency or utilization of care, merely the price per service.
But there’s an even bigger problem. Consider the incentives of the provider in this model. The PPO has asked the provider for a discount, for without a discount there is no profit for the PPO. The provider agrees and delivers care at a lower price, and thus less profitably. Clearly, the provider has a financial incentive to deliver more services, for if it does not, its decision to join the PPO makes no sense. The incentives for the PPO are equally perverse. The higher the medical cost, the more the “savings,” and the more revenue and profit for the PPO. Everyone benefits from this PPO arrangement; that is, everyone except the payer.
Yet this is the network model in place at almost every payer in the nation. It has been so successful for the biggest managed care firms that they are powerful enough to dictate terms to their ‘customers’ – the insurers and employers.
But relying on vendors to manage medical has clearly failed. If it had worked well, trend rates would not be where they are, and medical would not be eating up so much of the claims dollar.
Many payers are only now beginning to realize the implications of their addiction – their network vendors have the upper hand. Payers are now being confronted with the awful reality that their addiction to the huge discounted network is at its inevitable endpoint of all addictions;
the drug is controlling the addict, while slowly bleeding it dry.
This is not idle speculation. Nor is it hyperbole or exaggeration. In conversations with executives at several very large insurers it has become all too clear that the power is on the other side of the table now. The networks are dictating terms, and payers are confronted with ‘take it or leave it’ ultimatums – ultimatums that include exclusivity across all states, much higher fees, required bundling of services, and lower customer service standards.
Workers comp is now a business of managing medical expense. Medical is core to work comp, a central part of the business. Payers must recognize this and restructure their thinking, their culture, their methods and practices to deal with the new reality.
What does this mean for you?
It is time to regain control.
Jun
13
