Category: Research

Jun
26

Workers comp – the hospital profit engine

Posted by Joe Paduda on Thursday, June 26th, 2008 | Comments

Workers comp medical expenses account for less one-fiftieth of total US health care costs – $30 billion(see WC report pdf) out of $2 trillion.
Yet workers comp generates almost one-sixth of hospital profits.
Here’s how the numbers work. About one-third of comp medical payments are issued to healthcare facilities. The average US hospital cost-to-charge ratio (what it costs the hospital to provide a service compared to what they bill for that service) is approximately 31.2%; in comparison workers’ compensation payers reimburse about 55% of hospitals’ billed charges.
Thus workers comp payers pay hospitals 176% of their costs.
(There is another, very big argument over the methodology hospitals use to calculate their ‘costs’, my opinion is there is conclusive evidence that costs are exaggerated and overstated)
In dollar terms, in 2007 workers comp insurers and self-insured employers paid facilities roughly $9.1 billion. $3.9 billion of that $9.1 billion was profit for hospitals.
The entire US hospital industry generated profits of roughly $25 billion, workers’ compensation – which you will remember represents only about 1.5% of total hospital revenues – accounts for approximately 16 percent of all the profits for US hospitals.
Few dispute that workers comp insurers and SI employers should adequately reimburse hospitals. It is equally indisputable that under the current systems, comp payers are paying much more than their fair share.
How much should workers’ compensation payers pay? According to Vincent Drucker of FairPay Solutions, “something between what Medicare pays and the costs + twenty percent that group payers are reported to be paying.” (FPS is an HSA client)
Why are comp payers overpaying hospitals? That’s a subject for a later post.

Jun
9

Drugs in Workers Comp – inflation is down, PBMs are up

Posted by Joe Paduda on Monday, June 9th, 2008 | Comments

The Fifth Annual Survey of Prescription Drug Management in Workers Comp has been completed, and copies of the Public version of the report are available at no charge. (email infoAThealthstrategyassocDOTcom)
A few late respondents contributed significantly to the report, and their data also moved the figures around a bit. Here are a few key statistics.
Drug inflation for 2007 was 4.9% (looking at the increase in total dollars for 2007 over 2006).
Generic utilization was in the high seventies, with generic efficiency in the ninety-percent range.
Essentially all larger payers are now using PBMs, although are many are not using them as effectively as they could be. PBMs’ clinical, reporting, outreach, paper bill processing, and related capabilities are not being utilized to their fullest by all but a very few payers.
The use of home delivery has jumped and is close to 5% across all respondents. This is a major improvement over a couple years ago, when it was in the 2% range for most payers.
And finally, the first fill capture rate is in the low twenties – although half of the respondents did not have the figure readily available.
Copies of past surveys are available here.

May
30

Back pain treatment – myths and reality

Posted by Joe Paduda on Friday, May 30th, 2008 | Comments

Most back pain cases resolve themselves within a month. At least, that’s what many believe.
And, like much of what we accept without investigation, it is wrong.
Turns out most back pain patients stop going to their doctor within a month – but their symptoms persist. Fully three-quarters of them still have symptoms a year after the initial onset of pain. This isn’t ‘new news’, in fact it was reported in the British Medical Journal a decade ago.
This wasn’t one of those “publish and forget” articles. The British have been focused on the diagnosis and treatment of back pain for years, and in subsequent years several studies analyzed different types of treatment, complicating factors, and the prevalence of back pain.
A 2003 study reported that although the condition may have been resolved within a few weeks, it looks like once you’ve had low back pain, there is a pretty good chance the symptoms will reappear. Seventy-three percent of patients will experience a recurrence, a figure essentially identical to that noted above.
One of the more interesting analyses indicated that rapid diagnosis and referral to a physiotherapist (PT) produced good results, as “More than 70% of patients required only a single [PT] clinic visit and <5% were referred on to specialist orthopaedic or back pain rehabilitation services." Another examined the tendency of some patients to ‘catastrophize’ their condition – exaggerate it and make it seem worse than it appeared from objective findings. Unsurprisingly, the results showed that a high level of pain catastrophizing or kinesiophobia (fear of movement) increased the individual’s risk of future chronic low back pain – and disability. This held true regardless of whether the study subjects had low back pain at baseline and still existed after correction for severity of back pain at baseline. The patients with those characteristics, who did not have pain at the time of the study were significantly more likely to experience pain.
So…what does work?
There is little evidence that invasive surgery produces better results (for most patients) than other forms of treatment.
From the BMJ:
“A number of interventions, including facet joint, epidural, trigger point, and sclerosant injections, have not clearly been shown to be effective. No sound evidence is available for the efficacy of spinal stenosis surgery. Surgical discectomy may be considered for selected patients with sciatica due to lumbar disc prolapse that do not respond to initial conservative management. The role of fusion surgery for chronic low back pain is under debate. Recent randomised clinical trials comparing fusion surgery with conservative treatment showed conflicting results. Recommendations that fusion surgery should be applied in carefully selected patients are difficult to follow because no clear and validated criteria exist to identify these patients in advance.”
But there is evidence that more conservative treatments do produce results – the BMJ (again) :
“That exercise and intensive multidisciplinary pain treatment programmes are effective for chronic low back pain is supported by strong evidence. Some evidence supports the effectiveness of (cognitive) behaviour therapy, analgesics, antidepressants, nonsteroidal anti-inflammatory drugs, and back schools and spinal manipulation.”
Extensive citations are available here.
What does this mean for you?
I reported yesterday on the explosive growth of spinal surgery using implanted devices. Undoubtedly this type of care is highly beneficial – for some patients. What we don’t really know is which patients should be getting implants and who would be better off with conservative treatment.
Clearly, there is strong evidence that more patients would benefit from conservative treatment, leading one to suspect that the growth of invasive surgery is not driven by best practice.

May
29

Why are there so many spinal implants?

Posted by Joe Paduda on Thursday, May 29th, 2008 | Comments

Disclaimer – This is the kind of post that makes one want to take a shower after reading. My apologies to readers without convenient access to bathing facilities.
One of the fastest growing segments of the surgical industry is the spinal implant business. In what may be the most comprehensive review of the problem, the Orange County Register reported:
“About 70 percent of U.S. adults — or 153 million people — have lower back pain, according to Millennium Research Group. Of those, about 15 million require medical treatment, and most eventually get spinal implants.” My take is that is a wildly overstated estimate; one survey reported that the total world market for devices was $4.2 billion; note this study used 2006 data. Another indicated the market was $5 billion in 2005, and predicted growth to $20 billion by 2015. Stryker, one of the major manufacturers, expects growth of 16% per year in the spinal implant market. Yet another report(note opens .pdf) indicated the 2007 worldwide market was $7 billion, with the US accounting for $5.4 billion of that total.
And boy is it profitable. One manufacturer (Allez Spine) sold screws to an implant device company for $79.31 each – screws that were then sold to hospitals for $1000 each (who then marked them up even more when billing insurers).
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Yep, there are $480 worth of screws in this xray (wholesale), $6000 retail, and probably $9-12,000 to the insurer/patient. And that doesn’t include the other parts…
Medtronic, one of the larger device companies with about 45% market share in the US and the same worldwide, reported sales of $869 million for spinal implants last quarter, driven in part by a big jump in sales of its Kyphon technology. The $869 million represents growth of 35% from the same quarter last year.
The Kyphon story is an ugly one, and points to one potentially significant problem in the spine surgery industry – the focus on devices as a tool to maximize reimbursement.
Kyphon (the company) was acquired by Medtronic in 2005. The company settled a lawsuit filed by the Feds, agreeing to pay $75 million in fines. Kyphon agreed to stop providing inappropriate advice on reimbursement to providers, advice that resulted in hospitals filing inflated claims with Medicare for a spine procedure with the otherworldly name of kyphoplasty.
The details of the case, as reported by the New York Times, are revealing.
Kyphon “persuaded hospitals to keep people overnight for a simple outpatient procedure [bold added] to repair small fissures of the spine. Medicare then reimbursed the hospitals much more generously than it otherwise would have for the procedure, which was developed as a noninvasive approach that could usually be done in about an hour.
By marketing its products this way, Kyphon was able to artificially drive up demand among hospitals, bolstering its revenue and driving up its stock price. Medtronic subsequently bought the company, its competitor, for $3.9 billion, greatly enriching Kyphon’s senior executives. ”
Margins for Kyphon’s devices approached 90%, due in large part to the high price the company charged, a price that hospitals offset by extending hospital stays (as advised by Kyphon’s sales reps and reimbursement experts), thus generating higher bills and much higher revenue.
Another major contributor to the rapid increase in spinal implant surgeries may be the growth of device companies that have spine surgeons as stockholders. The OCR article reported that physician-owned companies are now under investigation by HHS’ Office of the Inspector General (OIG). In testimony before the Senate Special Committee on Aging, Gregory E. Demske, Assistant Inspector General for Legal Affairs at the OIG said:
“These financial relationships [between device manufacturers and physicians] can benefit patients and Federal health care programs by promoting innovation and improving patient care. However, these relationships also can create conflicts of interest that must be effectively managed to safeguard patients and ensure the integrity of the health care system…during the years 2002 through 2006, four manufacturers (which controlled almost 75 percent of the hip and knee replacement market) paid physician consultants over $800 million [bold added] under the terms of roughly 6,500 consulting agreements. Although many of these payments were for legitimate services, others were not. The Government has found that sometimes industry payments to physicians are not related to the actual contributions of the physicians, but instead are kickbacks designed to influence the physicians’ medical decisionmaking [bold added]. These abusive practices are sometimes disguised as consulting contracts, royalty agreements, or gifts.”
All this growth may well be based on a focus on surgical treatment that is just not supported by research. Some studies indicate surgery is not the best treatment for a substantial number of patients. According to the OCR article (source above);
a “2005 study of patients with back pain published in the journal of the British Medical Association concluded: “No clear evidence emerged that primary spinal fusion surgery was any more beneficial than intensive rehabilitation.”
“You look at the number of procedures and the rate of growth and it seems to far outstrip the number of patients who need this,” said Dr. Steven J. Atlas, a back specialist and Assistant Professor of Medicine at Harvard Medical School.”
And that old nemesis, provider practice pattern variation, is nowhere as obvious as with back surgeries. Looking at Medicare data, the back surgery rate in Fort Myers, Florida was 5 times higher than in Miami. Same population demographics, same state, but different providers.
Perhaps the best explanation for the considerable growth in the use of implants and spine surgery is the lack of evidence either for or against these procedures. There are some reports that indicate positive or negative outcomes, but nothing definitive has been published that could be used by payers and providers to judge the appropriateness of surgery for most patients with back injuries or degenerative conditions.

May
14

Drug costs in workers comp – and the answer is

Posted by Joe Paduda on Wednesday, May 14th, 2008 | Comments

I’ve just about completed compiling results of the Fifth Annual Survey of Prescription Drug Management in Workers Comp. While the report won’t be completed for a couple weeks, here are a few factoids that are rather compelling.
Drug trend continues to moderate, with inflation in 2007 coming in at 4.3%. That’s a big improvement over last year’s 6.5%, which was a big improvement over the previous year’s 9.5%…
Generic fills (the percentage of scripts that are filled with generics) looks to be in the high seventy percent range, with generic efficiency around 90% (that’s the percentage of scripts that could be filled with generics that are).
New this year is a question about first fill capture rate, defined as the percentage of initial scripts that are routed through the PBM’s network. This is starting to get attention, with the average respondent rating it just under ‘very important’. That doesn’t mean they have the data – about half of the twenty payers surveyed couldn’t identify their first fill rate. Of those who could, the numbers indicate about one-fifth of initial scripts are in-network.
Many of the survey respondents (primarily large and mid-size carriers, state funds, and TPAs) have a lot more insight into their drug spend, know what the cost drivers are, and the ones with the lowest inflation have all put programs in place to clinically manage drugs.
Thanks to all the folks who set aside time to help with the survey – you know who you are.

May
12

A few facts about Pharmacy Management in Workers Comp

Posted by Joe Paduda on Monday, May 12th, 2008 | Comments

I’m knee deep in my annual survey of pharmacy management in workers’ comp, and if I look at one more column of data I’m going to need a few class 2’s myself.
So in the interest of my sanity, here are a few early findings from the survey.
Inflation looks to be down from last year’s 6.5%, marking the fifth consecutive year of ‘decreases in the rate of increase’. More detail to follow on what’s causing the decline, but preliminary review indicates the focus on utilization is continuing to reduce the volume and type of drugs dispensed. As NCCI has noted, utilization is significantly more important cost driver than price.
Clinical programs are getting better, more targeted, more sophisticated, and more effective. A focus on addressing high cost claimants is almost universal among the best performing payers – this may seem blindingly obvious, but requires one to have data, know what to look for, and be able to develop and implement programs to attack the issue.
I try to use the same questions each year so we can track trends and changes in the industry. But new things, points of interest, and queries come in each year which requires that some old and not-as-interesting-any-more questions have to get dropped to make room for the new stuff.
This year we added questions on generic efficiency and fill rates. While the analysis is not yet complete, and a couple more respondents are going to send their data in, the preliminary figures indicate the average generic fill rate is right around 70%, with generic efficiency (the percentage of scripts that could be filled with generics that are) around 90%.
This is an average – types of business written and managed, jurisdictional nuances, data availability, accuracy, and consistency all make this stat somewhat questionable.
That said, better to start asking then to wait for perfection.
Thanks to Cypress Care for sponsoring the survey for the third consecutive year.

Apr
10

What’s going on in Pennsylvania?

Posted by Joe Paduda on Thursday, April 10th, 2008 | Comments

It’s 2008. There are thousands of really smart people working to change the delivery of health care, reduce inappropriate use, and improve outcomes.
But in one state, things aren’t getting better – they are getting worse. (I’m not picking on Pennsylvania; they just have the misfortune of being in the news more than other states lately)
A study of admission rates in Pennsylvania found that patients with chronic conditions are being admitted to the hospital more often. The analysis focused on HMO members with diabetes, asthma, and/or hypertension and the result is particularly troubling as these conditions are responsible for a large percentage of US health care costs.
Notably, these HMOs have also been lauded for their effectiveness in delivering preventive care, care that should help reduce the number of admissions for these conditions.
Previous studies indicate that effective primary care can dramatically reduce the number of admissions for these conditions. And further reductions can be achieved by implementing quality improvement programs, programs that have well-documented results.
So we’re left with the conclusion that despite the fact that we know how to keep patients with chronic conditions out of the hospital, admission rates are going up. And Pennsylvania is not particularly bad – there are a dozen other states that spend a lot more money on inpatient chronic care than the national average.
Can you sense the frustration?

Mar
3

Wasted dollars

Posted by Joe Paduda on Monday, March 3rd, 2008 | Comments

Alex Swedlow and the good folks at CWCI have published a study that clearly demonstrates the amount of waste in the US health care system, waste generated by nothing other than greed and lousy medicine. While the analysis focused on workers comp, the lessons cross all coverage.
The great thing about workers comp is that unlike health insurance, payers are actually concerned about and financially motivated to ensure claimants get the amount and type of care needed to help them recover and get back to work. And there is a wealth of data to evaluate the effects of medical treatment on RTW.
California changed its workers comp rules a few years ago to limit the number of physical or occupational therapy or chiropractic visits a claimant would get covered by workers comp. The limit was 24 (for each, not together), which all the data suggest is more than adequate to take care of 90%+ of WC medical conditions – surgical or non.
So, what happened?
The average number of PT, OT, or chiro visits per patient dropped by almost half, and the number of patients with more than 24 visits dropped from 30.4% to 9.7% (a decline of 68%). Costs declined dramatically as well.
But did this lead to poorer outcomes?
The results, while encouraging, are not as clear.
While there are data from California that appear to show reductions in the length of disability, the results are muddled by a cap on benefit payments that was also part of the WC reforms. The duration of disability (the length of time claimants were out of work) did decline post-reform. Comparing disability duration two years post-injury, the median length of disability declined by 21.4% (average was down 17.4%).
My sense is the reduction in physical medicine visits contributed to the drop in disability duration – without endless visits to PTs and Chiros to receive ‘care’ that was not helping them recover but merely extending the process, claimants were more likely to be released to return to work.
There’s a lesson here for the non-workers comp world, and policy wonks in particular. It is this – providers overtreat, to the detriment of the patient and the payer. Draconian measures such as flat limits on the amount of treatment do work.
With health reform on the horizon, here’s a great example of the waste in our health care ‘system’, waste that benefits the provider.

Oct
24

How does Oregon do it?

Posted by Joe Paduda on Wednesday, October 24th, 2007 | Comments

Oregon’s workers comp system is a success.
It is 42nd lowest in insurance rates and among the highest benefits for injured workers in the nation.
Premium rates have not gone up for eighteen (18) years.
Costs have declined 50% during that time.
Here are some of the factors behind that success.

Continue reading How does Oregon do it?