I did a talk last week at the National Association of Mutual Insurance Companies on the impact of reform and other factors on workers comp. It got me thinking about something a bit more specific – what’s on the horizon that’s going to affect work comp next year.
Here’s my take on three leading drivers.
Rise in the number of uninsured
We’ll see a rapid decrease in the uninsured population in 2014, but don’t expect the problem to improve until then. Employers have been reluctant to staff up, concerned that their business’ improvement may be temporary. If and when they do hire, they’re going to be reluctant to add the cost of health insurance, which is about fifteen grand per family and seven grand for individual coverage. With health plans increasing rates for groups large and small all around the country, health insurance is becoming even more unaffordable (and no, it’s not due to the health reform bill).
Couple that with the expiration of COBRA benefits that’s hitting more people every day, and the increase in the number of people with high deductible plans, many of whom have very few dollars in their HSA accounts and therefore are essentially uninsured for anything but catastrophic events, and you’ve got big problems for providers. Many of these uninsureds will still need care, which will lead to more cost shifting to soft targets – like workers comp.
Employees who have health insurance thru their employer tend to file claims more often than those who do not, but this appears to be a statistical relationship and not a causal one. However, if and when they do file, those without insurance are going to be more expensive to treat because their work comp payer has to cover all the care necessary to get them back to work, even if that care is not – strictly speaking – for the occupational injury or illness. Sure, the payer can refuse to pay for drugs to lower the claimants blood pressure enough to make it safe to do the shoulder surgery, but that would be pretty dumb.
Net is the more workers that have health insurance, the better for workers comp payers.
Running out of time this morning, so we’ll handle the other two tomorrow. They are:
The economy, and more specifically employment
As economic activity continues to trend upwards and hiring picks up, so will claims frequency.
The impact of MSAs
Pharmacy costs – and CMS’ treatment of same – are causing many payers to delay or reconsider settling claims.

The good folks at NCCI just released a study that, among other things, compares medical cost drivers from the nineties to those earlier in the ‘oughts. [opens pdf]
The study, authored by Tonya Restrepo and Harry Shuford, indicates that the increase in utilization of medical services dropped from the nineties to the oughts, and discusses the impact of that ‘decrease in the rate of increase’. I’ll be reviewing the study in detail later today, and will flesh out the post later.
The study actually focuses on the impact of medical on indemnity severity, a comparison well worth consideration and one many managed care providers, business units, and vendors have long struggled with.
For now, here are the highlights.
The increase in severity was partially due to changes in the mix of diagnoses, which shifted somewhat over the periods studied. In fact, the diagnosis-influenced change in severity was significant, but far outweighed by the change in underlying medical and indemnity inflation.
My interpretation – albeit one based on a quick read of the report, is this.
Underlying factors – those not work-comp-specific – are very much the driving force in work comp claim cost inflation.

Last year we completed the first annual Survey of Workers Comp Claims Systems; the report was published last fall, and Sandy Blunt’s interview with PropertyCasualty360 on the survey is now up and available.
Here are three of the highlights from Sandy’s talk with PC360 with Editor Eric Gilkey:
“One of the most significant findings was a large disconnect between the front-line staff and the executives on whether or not their current system was fully integrated with their bill review and utilization review system,” he said. “While 80 percent of front-line users were clear that there was no full integration between claims and bill/utilization review, 60 percent of executives said they were integrated.”
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“Both front-line staff and executives were very clear: They want a better full integration — not pieces and parts– but a full integration and no more smoke and mirrors.”
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“When we asked respondents, in their view, who was the leading claims system vendor, the number one answer was, ‘I do not know.'”

That’s a question I’m hearing more often these days, often one of the first voiced by payers wondering why their medical cost trends are escalating. I’m not sure that’s the right question to ask in most instances, but the answer can provide insights and direction into what’s happening with your costs, and why. For now we’ll leave aside the issues inherent in using BR savings as a ‘standard’ and focus on how- and why – vendors ‘game’ the numbers.
There are bill review benchmarks from national vendors, estimates provided by companies competing for your business, and ranges long viewed as industry standards. These ‘benchmarks’ can be gamed, inflated, distorted – and often are – but in the absence of any national public database, they’re all many have access to.
Bill review savings are reported as a percentage below the applicable fee schedule or usual and customary in non-fee schedule states. One would think this is an objective result, and therefore there should be little variation, and in an ideal world, one would be right. However, there is almost always a bit of judgment involved in determining what the ‘right’ fee schedule amount is and what state rules apply. The complexities are many, and the justifications, while often thin, are given to payers unequipped to refute the vendor’s statements.
The fact is, different vendors often deliver very different results processing identical bills from the same jurisdiction, with some showing deep reductions from applying FS and others not. Without getting bogged down in the niceties of methodologies – the ‘how’ , let’s look at the ‘why’ vendor BR savings vary.
Simply put, follow the money.
Most BR these days is priced on a flat charge per line or per bill; the days of BR fees based on a percentage of savings below billed charges are pretty much over – and good riddance. The results from my firm’s 2009 survey indicated fees run about $7-9 per bill (we’ll do another survey and publish results this summer). Most BR vendors also charge for additional ‘value-added’ services on a percentage of savings basis – typically 25% of savings delivered on top of fee schedule/UCR cuts. That’s where the…variation usually lies.
The financial motivation is obvious; the vendor gets the same fee for processing a bill whether they deliver $1 or $1000 in BR savings, but their compensation for the ‘value-added’ services is based on the savings that are delivered – the higher the ‘savings’, the greater the fees for the vendor.
Therein lies one explanation – perhaps the most significant one – for the wide variation in BR savings percentages. In my consulting practice I’ve had access to reports from several of the larger BR vendors, and the variation can be as much as 300 percent from vendor to vendor. Yes, you read that right – one vendor’s ‘bill review’ savings in a state can be three times higher than another’s.
Almost always the vendor with the lower FS savings delivers great results from ‘nurse review’, ‘complex bill review’, ‘coding edits’, ‘unbundling and upcoding review’, or whatever they call it – suffice it to say that the savings delivered from these ‘extra, value-added’ services – when added to the ‘standard’ bill review reductions – are usually only a bit higher than other vendors who don’t have all those extra, value-added add-ons.
That’s not to say that some savings can – and should – be derived from careful and professional review of bills – coding and clinical reviews are often helpful. One of my clients, FairPay Solutions, does a terrific job doing just that for facility bills in many states, delivering savings far above those provided by standard bill review. But these additional savings shouldn’t come from most – or even many – bills, and their contribution to total savings percentage should be in the single digits.
If they’re not, start asking questions and making comparisons.
What does this mean for you?
In bill review, you don’t always get what you pay for. Sometimes, you pay far too much for what you get.

Good friend and colleague Bob Laszewski once used an analogy that has stuck with me -“It’s like the dog chasing the school bus; what’s it going to do if it catches it?
I’m often reminded of Bob’s aphorism when state reporting of workers comp medical information is the subject.
Several states (Texas, California, Florida, Oregon among them) require workers comp payers to send electronic files with extensive detail on all medical bills received, processed, and paid. This has created an entire industry – or more accurately, a sub-industry – of vendors specializing in providing this service for bill review companies, PBMs, and other payers who don’t want to – or can’t – do the filing themselves.
I’ll make a wild guess and estimate workers comp state reporting adds $5 – 10 million in ongoing additional admin cost to the system; much more if one adds start up costs.
What does the system – employers, injured workers, providers, payers – get for their millions? To answer that, one has to know what the various states do with the information. Texas has used the data for various studies, some of which have been useful and others less so.
I’ll have to admit I’m not entirely clear on what each and every state does, but I do wonder if all the effort is worthwhile – if the benefit to society and the stakeholders is commensurate with the cost.
I’m interested in hearing what value readers see from the work – how is state reporting benefiting the industry, premium payers, and injured workers?
Responses are welcome at infoAThealthstrategyassocDOTcom.