and if you want to know why, read NCCI’s latest research brief on the decline in claim frequency.
That’s not to say some companies haven’t shot themselves in the foot – repeatedly – with over-hyped expectations, poor service, and lousy results. But the core problem facing vendors big and small is that there are fewer claims to work.
NCCI – usually the ‘first to market’ with real data, informs us that frequency dropped 4% last year, after a 2.7% decline in 2007. My bet is the decline accelerated this year, due to the crashing economy and attendant drops in employment in the heavy-injury industries (construction, transportation, manufacturing).
Lest readers think this is all a bad dream that will turn around with the economic recovery, recall that frequency has been declining for about twenty years, with a total drop of over 55% since 1991. This is a structural issue, a force that overwhelms other, more transient events. Sure we can expect to see a bump in frequency as employment recovers, but that will likely be a temporary situation; after that works its way thru the system, we’ll return to a downward trend.
And yes severity continues to grow faster than the medical CPI (6% vs 3.7%) (my sense is this number is far too low; clients indicate their medical costs are spiking rather dramatically, with some showing medical inflation nearing double digits). But frequency drives the comp managed care business – without claims to work, case managers, bill reviewers, physician advisers, network developers, and their support and management staff just have less to do.
Other key points
Notably, the frequency decline is sharpest in the northeast and midwest (23% over five years), with the west seeing the least (13%). The recent crash of the housing and construction industries likely means the folks ‘out west’ are catching up rapidly.
There’s been an increase in claim severity, but it wasn’t driven by older workers. In fact, the number of permanent and total claims suffered by younger workers increased eight times faster than for their AARP-eligible coworkers.
Implications
The lifeblood of the workers comp managed care business is a continued stream of new claims. In most respects, this is a mature industry, with vendors fighting each other for share; with a few notable exceptions there are no ‘greenfield’ opportunities. Fights for share, in a business that has largely been commoditized, usually leads to concessions on pricing, and then margins decline.
We are already seeing some of this in the PBM business. Although this sector is better protected from the frequency issue than other businesses (along with home health and DME), pricing is getting even more tight as vendors fight for share.
The bill review business is in a bit of upheaval, with payers switching bill review vendors, and bill review companies changing hands, adopting different strategies, focusing on network revenue or concentrating on pure bill review. The drop in frequency is somewhat balanced by the increase in severity (claims cost more), but this historically-competitive business is getting even more so.
The clinic companies are suffering badly. The big clinic outfits, and their regional and local competitors, are the front line of the comp industry, and they are feeling the decline most acutely. Reports indicate that there’s a bit of light at the end of the proverbial tunnel, but this can’t come soon enough.
Network vendors are experiencing a decline in volume that they are trying to make up with price increases. As one might expect, payers are quite reluctant to pony up more dollars for the same service…
TPAs continue to move more case management and related services inhouse; they’ve been just hammered by the combination of the soft market (employers buy insurance instead of going self insured) and claim frequency declines (many price their services on a per-claim basis) and are trying desperately to make up for lost revenue by capturing more managed care business.
The case management/utilization review business is very jurisdictionally driven. The reform in California was a boon (to say the least) for managed care firms in the Golden State. That windfall has kept many afloat as it has led to a dramatic increase in demand for UM/CM services. As that works its way thru the business cycle, expect to see a decline in demand as it is overwhelmed by the frequency drop.
Companies less vulnerable include PBMs and the catastrophic/complex case management services firms. While ‘frequency drives severity’, these vendors usually work cases for years, making them a bit less worried about cyclical issues.
Finally, despite all this gloom, some companies in the work comp managed care space are doing pretty well, thank you. I’m seeing no decline in the level of interest in this ‘space’ on the part of private equity/venture capital firms, and know of several specialty companies that are growing nicely.
There is a wealth of other important information in NCCI’s report; it is available free of charge here.
Jul
8
Is that to say then that care is being better managed by phsyicians operating under the often strict guidelines laid out by the various state workers’ compensation commissions? And if so, isn’t that what all of us in the workers’ comp. system should be fighting for anyhow? After all, managed care’s purpose in the comp. world is to ensure that claimants are receiving only the treatment necessary to care for their given diagnosis and to ensure that said claimants return to work in a timely manner. If the regulations and guidelines have laid out the foundation for this to occur without the use of “managed care” and providers continue to follow the guidelines provided, then I say good riddance to the “managed care” industry. They, like physicians, have seen the “golden era” of medicine pass them by.
In California, one of the goals of the Medical Provider Networks was to have treaters that adhere to evidence based treatment protocols provide all of the medical care. Properly implemented and scorecarded networks would reduce the secondary costs of UR and bill reveiw.