Author: Joe Paduda

Oct
5

Texas’ report on workers comp networks – fatally flawed?

Posted by Joe Paduda on Monday, October 5th, 2009 | Comments

Texas’ Department of Insurance has been analyzing the performance of workers comp networks for the last couple of years, and the latest report has some pretty interesting results.
Unfortunately, those results look to be based on a faulty analysis, making the whole report questionable.
Before we delve into the results, here’s the problem. On page 2, it reads “Utilization measures represent the services that were billed by health care providers, regardless of whether those services were ultimately paid by insurance carriers. [emphasis added].” Thanks to a comp insurer’s managed care exec for the tip – should have caught this myself, but really, who would have thought they’d count ‘charges’ as ‘costs’?
There is little to no correlation between medical charges and actual costs – defined as amount paid. Providers, especially facilities, charge much more than they’re reimbursed. Reimbursement is affected by fee schedules, medical management determinations, network discount arrangements, prompt pay deals, and bundling/unbundling edits, among other factors.
The findings from the report are also somewhat misleading. For example, several of the networks are based on the Coventry work comp network – Liberty, Travelers, and Texas Star (the Star network was designed by Texas Mutual, and is much smaller than the overall Coventry network). There was significant variation among and between these three Coventry networks, variation that may well be due to the relatively small sample size and relative “newness” of the claims analyzed – the claims haven’t developed sufficiently to draw ‘conclusive conclusions’.
I contacted Coventry in an effort to get their take on the report – which at first blush was pretty damning. I was quite surprised to get a call back from one of their execs – as loyal readers know I’ve been trying – till now unsuccessfully – to get Coventry to talk with me for as long as I’ve been writing this blog – which is now more than five years. This is the first of what I hope will be an ongoing dialogue.
We’ll see.
Coventry’s take on Texas’ report was rather limited as it was just released. They were pleased with the return to work results; but noted their medical resutls (which, according to the report, were not good) may have been tainted by seven outlier cases. Perhaps, but the other networks and the non-network results may suffer from the same issue.
More compelling was the Coventry exec’s observation that much of the “Non network” business actually is handled by the Coventry network. That adds a bit of wonder to the report’s first finding: “Overall, networks had higher average medical costs than non-networks.”
I asked the Coventry exec to get back to me asap with a more complete analysis, but I’ll suggest he save the dime. I may be missing something here (and if I am I’m sure you’ll tell me), but I’m hard-pressed to see how anyone can draw any meaningful conclusions from an analysis based on medical charges.
Lest my comments be construed as damning Texas for their efforts – absolutely not. I applaud the Texas REG for the efforts. I don’t know what limitations they have in terms of resources, access to data, or access to payment data. I do know that they are one of the few states making a serious effort at analyzing cost drivers and the impact of managed care programs. I’ve done enough data analysis to understand you’ve got to use what you can, even if it is far from perfect. Here’s hoping the REG continues to improve their analysis.
What does this mean for you?
An object lesson in not jumping to conclusions, and why abstracts and executive summaries can be misleading.

Sep
30

Workers comp results are going to get worse. And medical will drive the decline.

Posted by Joe Paduda on Wednesday, September 30th, 2009 | Comments

The property and casualty industry will get worse before it gets better, led by the work comp business. That’s one of the key takeaways from a session at AmComp yesterday.
The session featured a panel of CEOs from workers comp insurers asked to tell the audience at the AmComp NY meeting what keeps them up at night. None of them mentioned medical costs, although in a response to a question (from your reporter) they all said it was a big problem.
How are they addressing it? One said they just factor 6-9% of medical trend into their rates, another said it was up to the health insurers and the third said you had to have good claims and medical cost control.
With all due respect, I’d suggest that medical is a very big problem in comp, that very few insurers or TPAs have anything approaching effective medical management programs, and there are any number of programs, tools, processes, vendors, and methods that can have a dramatic impact on medical expense.

Which will impact claIms costs which in turn affects losses and reserves and premiums and profits.
I have no knowledge of these insurers’ managed care/claims programs; t is entirely possible that one – or perhaps even all – of these insurers have strong, outcomes-oriented medical management programs built around small, workers-comp focused physicians, specialty programs for PT, facility, drug, and imaging, and evidence-based clinical guidelines. If they do, they’re well ahead of the market.
As one who started out working in HMO consulting decades ago, the CEOs’ statements were reminiscent of what we heard from executives at big indemnity insurers – medical costs were medical costs, they had cost containment programs. They dominated the health insurance industry back in the mid-eighties.
They are all out of business, with one exception. And that exception – Aetna – is the only one that successfully transformed itself into a health plan company.
Workers comp is becoming has become a medical management business. Some smart insurer will figure this out, and when they do, they will win.
And win big.

Sep
29

John Burton on the history of Federal oversight of workers comp

Posted by Joe Paduda on Tuesday, September 29th, 2009 | Comments

John Burton is one of the true experts in workers comp. He has a long record of invilvemt in the comp system including participation on the Federal comp review
conducted back in the early nineteen-seventies.
Dr Burton spoke at today’s AmComp meeting in New York, giving details about that experience and sharing data about the decline in wage replacement adequacy over the last twenty-five years. He noted that standards of eligibility for comp claims have been steadily tightened over that time; reported that his data indicates well over ninety percent of medical costs for occupational diseases are missed by workers comp; and lamented the end of the second injury fund system.
With tongue firmly in cheek, Dr Burton said the myriad failures of states’ workers comp systems can only be attributed to a conspiracy on the part of mysterious forces with the goal of forcing Federal regulation of workers comp. There is no other explanation, except, Burton noted, inattention on the part of legislators and regulators.
In response to a question Burton lamented the lack of research done by states, many of which don’t have any formal research function.
This was written ony iPhone. Apologies for typos.

Sep
28

Handicapping health reform

Posted by Joe Paduda on Monday, September 28th, 2009 | Comments

The odds that comprehensive health reform will pass are up – a bit. Word from Washington is the Democrats in the Senate Finance Committee are ‘coalescing’ around Baucus’ original bill’s provisions. While there’s been much discussion, few of the 564 amendments have passed.
While the public option will be offered up as an amendment, odds are it won’t become part of the Finance Committee’s bill – but may be added when that bill is combined with the Senate HELP Committee’s version later on.
The Democratic strategy appears to be focused on maintaining unity, while peeling away the one Republican Senator (Snowe, ME) that has voiced some support for Baucus’ bill. The White House is working every angle, including schmoozing Snowe’s fellow Maine Republican Senator, Susan Collins. Whether they can keep the Dems together is anyone’s guess, but with White House Chief of Staff Rahm Emanuel focused on this issue, it would be difficult indeed for the Democrat who wavers.
Meanwhile, the for-the-moment-still-unified GOP is facing dissension among the ranks of traditional supporters. Big business, and small business as well, appear to be rallying behind the Baucus bill, due in large part to the lack of an employer mandate. What’s pushing the usually-reliable GOP base to back reform is a recognition that health care costs are out of control – one statistic released by the Business Roundtable has focused attention on the issue: “the cost to insure a single employee, including the person’s own out-of-pocket expenses, would jump to more than $28,000 a year by 2019, from around $11,000 a year now.”
Even the US Chamber of Commerce said nice things about Baucus’ effort, notably that the bill: “will actually…get health-care costs under control.”
“The reality with the business community is that we want reform, while some Republicans want to stop this train and start over,” said Bruce Josten, the chamber’s chief lobbyist. “That is just not going to happen.” [emphasis added] (WSJ)
THIS IS BIG NEWS.
The traditionally fractious Dems are banding together, while a critical GOP constituency is breaking with the Party.
What to watch for
If the Baucus bill comes out of committee with unifed Democratic support, that tells a lot. And if Snowe signs on, that’s even more telling.
But remember, nothing gets passed without sixty Senators voting ‘aye’. And right now there are exactly 60 Democrats in the Senate. The two Senators from Maine are possible supporters, but there may be defections among the Dems.
What’s going to be the most important single factor? Likely the political calculation on the part of the Democrats, many who clearly remember the disastrous fallout after the failure of the Clinton plan, when the GOP won control of both Houses for the first time in forty years. The Democrats are almost all-in on health reform; at the end it will come down to some Dems deciding if they’re better off holding their nose and voting in favor or handing the victory to the GOP.

Sep
25

The role of price in health care cost inflation

Posted by Joe Paduda on Friday, September 25th, 2009 | Comments

I’ve been accused of being one of the few that actually reads the bimonthly journal Health Affairs. Well, guilty as charged, although the pub has a lot more than a ‘few’ devotees. What it does particularly well is challenge core beliefs.
The latest edition focuses on bending the cost curve – a phrase likely to inspire William Safire to dissect it in detail in one of his discourses on language. The idea is to find ways to reduce the rate of growth in health care costs, and this edition has plenty of ideas.
One of the most thought provoking articles contends that price controls are “central to curbing cost growth”. I’m going to comment on the article next week in detail, but here are a couple of points made by the authors.

  • “out of pocket spending in the United States is roughly twice the OECD median. If some Americans have “Cadillac coverage,” than most workers in Germany or France must have “Mercedes coverage” – and they would likely view many American insurance policies as “Yugo coverage.”
  • patients in OECD countries average more hospitaldays, more physician visits, and greater consumption of prescription drugs than American patients do. Higher US spending is not primarily explained by greater volume of services.
  • analyzing data from Massachusetts, David Cutler and colleagues found<, for example, that virtually all of the savings that managed care plans achieved for heart disease treatment, relative to indemnity insurance, came from price reductions./li>

I’ve long believed, and still do, that utilization is a more significant cost driver than price. I’ve seen this time and time again – in data on physician in-office utilization from CMS (up 11% in 2006), in NCCI’s analysis of workers comp prescription drug costs, in analyzing client physical medicine experience, in the correlation between workers comp medical expenses and state fee schedules – or rather lack thereof, and a host of other examples.
What doe this mean for you?
The authors make a compelling case – not just for price as a cost driver, but to always question your assumptions.

Sep
24

Health reform and workers comp – the view from IAIABC

Posted by Joe Paduda on Thursday, September 24th, 2009 | Comments

Reform – whether it happens this year, in ten years, in one big change or a series of smaller steps – is going to have a big impact on workers comp.
That’s the takeaway from one of the sessions yesterday morning at IAIABC’s annual conference.
Greg Krohm, Director of IAIABC, Dr. Dan Juniga, Medical Director of the Minnesota State Fund, Todd Brown, head of compliance for Coventry workers comp, and I were on a panel discussing health reform, universal coverage, and the impact of same on comp.
First, kudos to the other panelists. Dr Juniga gave an excellent overview of the history and impact of Medicare’s Sustainable Growth Rate – the mechanism that in theory determines Medicare physician reimbursement. Dan pointed out that the failure of SGR to be implemented over the last six years means CMS will now have to cut physician reimbursement by 21.5% on January 1, 2010. Of course, this isn’t going to happen – but the failure of SGR to work will result in Congress eliminating the SGR or otherwise significantly changing physician reimbursement.
I noted that essentially every state that has physician fee schedules bases those fee schedules off Medicare – but while some are directly connected, most don’t simply adopt CMS’ changes but go through a process to modify them. Some states haven’t revised their schedules in several years.
That said, when Medicare changes reimbursement, it will affect comp over time.
The most likely scenario is an increase in reimbursement for cognitive services including office visits, a cut in pay for procedures including surgery and a big drop in imaging.
Greg Krohm provided a synopsis of the current Baucus bill, with the trenchant observation that it assumes the 21.5 pct cut will be implemented. In fact that’s part of the ‘cost savings’ the bill is supposed to deliver.
Todd Brown, one of the most knowledgable people I’ve met when it comes to state regulation of comp, gave a lot more detail on state implementation of fee schedule changes; it’s lengthy, complex, and varies significantly from state to state.
I’d be remiss if I didn’t note the audience – for all the presentations – was engaged, curious, involved and very knowledgeable. Regulators are sometimes dismissed as unaware or unconcerned or worse. That certainly doesn’t apply to the folks at this meeting. The level if engagement was significantly higher than I’ve witnesses at most other conferences, a credit to both the organizers and attendees.

Sep
23

IAIABC report – The economic downturn’s impact on workers comp

Posted by Joe Paduda on Wednesday, September 23rd, 2009 | Comments

The morning panel led off with a talk by WCRI President Rick Victor on the factors impacting workers comp. His view is the economic downturn will have lasting, and deep, effects on the economy. There will be less consumer demand; changes in housing markets as people seek cheaper places to live; and older Americans with drastically reduced retirement portfolios will work for more years in jobs that are likely more physically demanding.
Can’t disagree with any of those points, and his take on the implications for comp.
Older folks take longer to heal, although they (we) tend to have fewer injuries as well. A dropoff in consumer demand may well mean less investment in retail, shopping malls, and logistics – fewer jobs in higher-injury classes. And reductions in the value of housing stock (more sellers in wealthier/northern/older areas than buyers) will in turn reduce the tax base, likely leading to cutbacks in municipal and governmental services.
Some factors will push comp costs down, others are more likely to push costs up. But Rick’s right, the economic downturn’s impact will be felt for at least a decade, and perhaps even longer.
He also mentioned health reform, and specifically the potential issues if work comp medical is included. Fortunately, there is a less-than-zero chance that work comp medical will be included in a final bill, and (as I’ve been lamenting for weeks) I don’t see reform happening this time around.
I know, one of the 564 amendments pending in the Senate is a move to expand medical coverage to cover all care for occupational injuries and illness, and care for auto accidents.
The

Sep
23

Today at the IAIABC annual meeting

Posted by Joe Paduda on Wednesday, September 23rd, 2009 | Comments

I’m attending the annual meeting of the International Association of Industrial Accident Boards and Commissions this week, and will be doing a bit of reporting from the meeting.
Today’s topics include a discussion of the impact of health reform on work comp; a session on the implications of the court settlement ending the use of AWP as a pricing benchmark for prescription drugs; much discussion of technology including EDI, e-billing, and claim reporting; review the latest in impairment ratings; and a discussion on potential negative effects of medical management programs.
Back with more later this morning…

Sep
22

The cost of surgical implants in workers comp

Posted by Joe Paduda on Tuesday, September 22nd, 2009 | Comments

A new RAND study reports California’s employers are paying $60 million more than they should for surgical implants. Not the surgery, or the follow up care, or the facility costs – just the devices themselves.
According to Jim Sams’ piece in today’s WorkCompCentral,

“the state’s fee schedules allow hospitals to bill separately for the hardware that is used in spinal fusion surgeries plus an administrative fee. [lead researcher for the cost-savings project Barbara] Wynn said the resource-based relative value scale that Medicare uses to calculate the appropriate fee for spinal surgery hardware procedures already includes the cost of the hardware, and California’s fee schedule pays 120% of the Medicare rate.
“Passing through WC device costs on top of 120% of the Medicare payment results in paying for the spinal hardware twice, creates incentives for unnecessary device usage, and imposes unnecessary administrative burden,” she said in her report.
Wynn said repealing the rules that allow pass-through charges would save $60 million annually.”

There’s a lot more to the RAND study, but this highlights a big problem area – one much larger than $60 million.

First, why is work comp paying 20% more than Medicare?
Second, surgical implants are not “one and done”. It is fairly common for patients to have to undergo surgery to replace defective or incorrectly used devices.
Third, the cost of the implant can often push total expense for inpatient care past the outlier limit, making the stay substantially more expensive.
Fourth, the cost of implants is growing much faster than overall medical inflation – one projection has the spinal implant market increasing 16% per year.
What does this mean for you?
California hasn’t fixed this problem yet, despite knowing about it for eight years. And don’t think this is unique to the Golden State (a term likely coined by implant manufacturer Stryker); the use of implants is up all over the country.