Last Friday the news couldn’t have been much worse for ex North Dakota state work comp fund CEO Sandy Blunt: the state’s Supreme Court affirmed his felony conviction on charges of theft. I spoke with Sandy that day, and can only report that he was all but devastated by the ruling.
What a difference a week makes. This morning, Sandy must have a whole different outlook – the prosecutor who convicted him is herself under investigation for allegedly suborning perjury and prosecutorial misconduct.
Late this week sources informed me that the state’s bar association was about to begin a formal ‘trial’ of Cynthia Feland based on evidence she withheld information from Blunt and his defense attorney. While this isn’t an actual criminal proceeding, it is quite serious, as the allegations, if upheld, are grave enough to result in Feland’s disbarment for life.
As I reported months ago, “I contacted Feland several times over the last few weeks, asked her directly about this situation, and she refused to address the key question – had she provided Blunt with a copy of the State Auditor’s memo which cleared Blunt of any malfeasance related to Spencer?…” You can read her response to my query, but here’s the net – The prosecutor has no record of providing the defense with a document that would have allowed the defense to prove that the prosecution’s main charge was not a crime.
While I couldn’t force the issue, the state Bar Association, and the county sheriff, have.
The details are beginning to come out. This morning’s Bismarck Tribune had a front-page, above-the-fold article detailing the allegations against Feland. Although Feland pooh-poohed the proceedings, according to the Tribune, “Sending a case to the Disciplinary Board for formal proceedings means “basically, they’re making a finding that there’s probable cause that misconduct occurred,” [ND Supreme Court Clerk Penny] Miller said.”
As assistant prosecutor, Feland personally led the state’s prosecution of Blunt.
The evidence was brought to the attention of the ND Bar Association by Steve Cates, author of the North Dakota Beacon and one of Sandy’s long time supporters. Case has diligently and persistently pursued the facts in this case for more than a year and a half, poring over thousands of pages of transcripts, reviewing each and every exhibit and scrap of evidence.
In the course of Cates’ research it became apparent that Feland had failed to turn over exculpatory evidence, evidence that would have proven Blunt’s contention that a state auditor had reported that most of the charges against him should never have been brought.
Not only did Feland withhold evidence, but she knew, before she brought the charges, that several of the charges weren’t crimes. And even more seriously, Feland suborned perjury by getting a key prosecution witness, Jason Wahl, to lie on the stand.
Feland isn’t the only prosecutor in hot water over their mishandling of the case. According to the Tribune, “The documents obtained by the Tribune said the Inquiry Committee West also found that Riha [Feland’s boss] was issued an admonition for violating rules 5.1(a) and (b) of the Rules of Professional Conduct by not making sure that the attorneys in his office were conforming to the rules of professional conduct. The admonition also was issued against Riha for violating rule 3.8(d) of the Rules of Professional Conduct for his office not turning over a Nov. 8, 2007, memorandum from Jason M. Wahl in the state auditor’s office to Feland.“[emphasis added]
The Wahl memo indicated Blunt’s actions regarding a discharged fund employee, actions that Feland had said were illegal, were perfectly legal.
Sources also indicate, and I have confirmed, that the county sheriff has launched a criminal inquiry into Feland based on alleged perjury charges. The charges stem from Feland’s statement to the judge at Blunt’s trial that all charges against Sandy had been sent to Blunt’s defense counsel before trial. It now appears that Feland knew this wasn’t true.
At long last, the truth is beginning to come out. Blunt was convicted, and his conviction upheld, due to prosecutorial misconduct. Simply put, he was railroaded by a prosecutor who accused him of crimes he didn’t commit and lied to the judge during the trial.
Sandy can’t get his life, or his reputation back. Here’s hoping he makes the Burleigh County prosecutors pay for what they did to him, and make it abundantly clear that these criminal actions carry a very heavy penalty.

The good folks at NCCI just released a report [opens pdf] detailing workers comp medical cost drivers; there are two ‘headline’ findings; severity is increasing at a slower rate, and the price of medical services is becoming a larger contributor to overall cost increases.
(The studies are based on lost time claims closed within 24 months of accident, so an increase in the length of time claims are open or the number of claims open longer than 24 months won’t show up.)
A quick side note than we’ll discuss these and other findings. The study covers experience through 2006, thus changes over the last three plus years are not considered. As I’ve reported here and NCCI has covered in many papers, several components of medical have seen rather significant changes since 2006: pharmacy costs are up; facility costs are spiking; surgical expenses, driven in large part by implants have increased dramatically in several ares; physical medicine costs in several jurisdictions are down and imaging expenses appear under control, due in large part to the impact of networks.
The big news is the increase in utilization has tapered off; we haven’t seen fewer medical services, but we also haven’t seen continued growth in the number of services provided to claimants. I’d hasten to add that while this is good news, we’re still dealing with too many services delivered to to many claimants.
The bleeding isn’t getting worse, but it’s still pretty bad.
The price issue is troubling. Most of the 21% increase in severity was due to higher prices for medical services, this at a time when the utilization of provider networks, offering discounted pricing for medical services, has grown significantly. PPO penetration, on a national average basis, is in the 60% range with wide variation among states – NJ and FL commonly see rates above 85%, while Texas and California are closer to 50%.

PPO penetration has increased significantly over time, yet prices have also grown. There are several potential explanations for this:
a) a change in utilization patterns over time, wherein more expensive procedures are used more often. This doesn’t appear to be the case, as the NCCI study accounted for changes in service type.
b) an increase in fee schedules. again, this doesn’t appear likely as most fee schedules have seen modest increases, with a couple notable exceptions.
c) increased provider pricing in UCR states. I’m thinking this has undoubtedly contributed to price increases. UCR pricing (usual, customary, and reasonable) are based on charges (not payments) for that procedure in that area in the preceding time period. Historically, UCR increases by double digits each year.
d) increased provider leverage in contracting. There’s no doubt this has contributed to cost increases, as we’ve seen in California, Illinois, and many other states.
What does this mean for you?
You will want to assess how the prices you’ve been paying for specific procedures (and the number of procedures themselves) have changed over the past few years to see if NCCI’s findings re price and utilization have continued since 2006.

In the work comp world there’s an oft-used term used to describe medical costs – ‘severity’.
I’m beginning to think that word itself is a problem, and perhaps is part of the reason the work comp payer community has proven itself, with few exceptions, unable to effectively manage medical expense.
There are any number of meanings for the term itself, but as it is used in the claim world ‘severity’ refers to the medical cost of a claim, or when used more broadly, medical costs overall (e.g. Severity of lost time claims increased in 2008 by xx%).
Severity is something that sort of just happens – a claim is either really severe or it isn’t. Severity is driven by uncontrollable factors and thus we can only deal with the fallout, or results, or impact of severity.
Severity happens.
It does, but only if we let severity ‘happen’. In reality, medical costs are much more controllable than many think; severity doesn’t have to happen to you, unless you passively allow it to. But because we’ve grown accustomed to hearing things like “claims costs increased driven by a 9% increase in medical severity”, we think ‘oh well, there’s that severity again, yawn…”
What we should be doing is asking a lot more ‘why’ and ‘how’ questions, and using the answers, or lack thereof, as the basis for actions to control severity:
– why is severity increasing?
– what specific areas and types of medical expenses are up?
– is there a region or state that appears to be up more than others?
– what are we not doing and why are our present programs not controlling cost?
– how do our results compare to our competitors? why? what are they doing differently?
Because the fact is, ‘severity’ is controllable – if you’re willing to ask the hard questions and address some perhaps uncomfortable answers; able to concede that your programs aren’t really ‘best in class’, and willing to adjust, retool, and revamp processes to drive better results.
In my experience most comp payers aren’t willing to do what it takes to control severity. And that’s why ‘severity’ controls them.

Today’s WorkCompCentral edition [sub req] reported on an emergency revision to Illinois’ state workers comp fee schedule that will change the methodology for repricing surgical implant devices.
The move is a response to what the Illinois Workers Comp Commission described as ‘price gouging’. In the announcement, [opens pdf] the state noted “some providers have inflated their reported charges for implants so high that the final reimbursement is as much as 33% over the average cost from other providers.
The previous rate was set at 65% of billed charges; the new reg sets reimbursement at 25% over manufacturer’s net invoice price. The rationale for this? The “reimbursement rate is reasonable. It provides a significant profit margin while providing cost-containment and certainty for payers. In addition, in order to arrive at an accurate provider’s cost, the Commission decided that the invoice price would be net of any rebates but also that actual and customary shipping costs for the implants additionally would be reimbursed.”
What does this mean?
Well, using an invoice plus is better than a discount off billed charges, which has to be the most easily-gamed pricing methodology every conceived. Factoring in rebates is a good step as well; to my knowledge IL is the only state that considers the impact of rebates. And stating reimbursement is for the NET manufacturer’s invoice price will help forestall gaming the invoice as well.
The challenge lies in determining what ‘rebate’ means, how it will be determined, reported, and factored into pricing, and how ‘net’ will be defined.
As I noted in a post a while back, The problem lies in the documentation of the paid amount. Most payers ask for a copy of the invoice, which, on the surface, makes sense – this is what was paid.
Not exactly. What the invoice doesn’t show can include:
– volume purchase discounts
– rebates
– “3 for the price of 2” deals
– waste (some surgeons use the cage from one kit and screws from another, so the payer is paying for more hardward than is actually being used)
– internally developed invoices (documents prepared not by the supplier but by the provider)
This last point is the crux of the issue. Hospital systems often buy in bulk, with several implant kits shipped and billed; this obviously makes it impossible for the provider to produce the invoice for the device used in a specific surgery, as they never got one. Thus, many providers develop the invoice for a specific implant kit themselves.
There’s another problem with implants – when they are defective, the patient has to go back in for more surgery. And the WC insurer has to pay. The only way to mitigate risk is to track the model and manufacturer for each implant – yes, it’s work, and yes, it’s work worth doing.
Finally, even the original invoice is for a device with a markup that is, well, huge. One analyst estimates gross margins are in the 80% range…driving profit margins that are the envy of any payer or health system.
The net? Kudos to IL for recognizing and addressing this issue. Now it will be up to payers to enforce the regulation, by demanding the actual invoice, not one developed in the basement. They may also want the provider’s notarized statement that the invoice is the real, actual, honest-to-goodness true price net of rebates, discounts, etc.

Coventry Health will be taking a $278 million charge against earnings to cover the company’s fine plus interest and legal costs resulting from last week’s Louisiana appellate courte ruling in a workers comp PPO network case.
On a per-share basis, the bill is $1.18 pre-tax.
the charge will be partially offset by improved earnings from other sectors, including Medicare Advantage Private-Fee-for-Service. According to Zacks, the “2010 EPS outlook was also revised to $1.57−$1.72 in view of the impact of the charge, down from the prior range of $2.35−$2.50 per share. Excluding the charge, Coventry anticipates the EPS outlook to increase by 40 cents per share to range between $2.75 and $2.90.”
Since moving back into the executive suite over a year ago, CEO and Chairman Allen Wise has done an excellent job turning the company around – refocusing the company on its core businesses, shedding underperforming and inefficient operations and profit centers, even revamping the way the company negotiates provider contracts to focus on Medicaid, Medicare, group, and individual health businesses.
The quarter-billion dollar charge is undoubtedly the subject of much discussion at the company’s, executive committee meetings as it will suck cash out of the coffers that would have been used to acquire more regional health plans and help Coventry prepare for the post-reform health insurance world. It is also notable as it comes from a division, workers comp, which heretofore had been a cash machine, generating significantly more profits than its rather modest top line would predict.
For now, Coventry appears to be weathering the storm, recently announcing the acquisition of a couple of regional health plans and predicting continued improvements in operating earnings.
Whether this continues may depend in some part on the outcome of the company’s appeal of the LA case.

Yesterday’s Louisiana appellate court ruling against Coventry’s First Health work comp network is a major blow to comp insurers, employers, and networks in Louisiana, with potential impact in other states as well.
The ruling is here.
The court’s finding supported a lower court’s ruling affirming a state statute requiring PPOs to provide injured workers with PPO identity cards or give notice to providers 30 days before taking discounts. While Coventry will appeal to the state Supreme Court, the appellate court ruled against almost all of Coventry’s arguments, making this an uphill battle for the nation’s biggest work comp managed care firm. I’d also note that the decision itself takes Coventry’s legal team to task for failings to accurately cite evidence in its written appeal, stating the “failure to provide record citations suggests that many of these assignments were interposed only for purposes of delay and confusion.”
Ouch. (no pun intended)
While the finding may be bad enough, the size of the penalty is stunning – Coventry will have to pay $262 million – $2000 for each of the “131,024 instances in the past 10 years when it discounted providers’ charges below the state workers’ compensation fee schedule.” (WorkCompCentral)
Some workers comp networks decided early on to avoid doing business at all in LA; MedRisk (HSA client) left the state after the initial ruling against Coventry along with several other PPO and specialty networks.
Implications
For Coventry, it doesn’t look good. While I’ve taken the company to task in the past for what I perceive to be missteps, and some would argue that they should have pulled out long ago, it’s hard to fault Coventry for believing they could conduct business in LA as they do in most other states, by contracting with providers to deliver discounted care to workers comp claimants. The additional notice requirements in Louisiana are unique to that state; in retrospect all networks should have picked up on this nuance, but in retrospect we all would have sold our stocks two months ago…
It doesn’t look good for employers in Louisiana either. As MedRisk’s General Counsel, Darrell Demoss noted in the WorkCompCentral piece, WCRI data suggests comp medical costs are significantly higher in Louisiana than in other states. Now that the ruling has been upheld, expect insurers and managed care organizations to avoid the state completely in fear that they too could be nailed by class-action suit.
On a national basis, this ruling will likely cause many network vendors and insurers to stop and very carefully review each state’s laws and regulations pertaining to networks, with compliance staffs tasked with doubly ensuring their contracts comply with the letter and spirit of each jurisdiction’s rules and regs. That’s not a bad thing, as it’s a heck of a lot cheaper to pay attorneys and compliance staff than a $262 million penalty.
What does this mean for you?
Sorry, but bad news on a Friday – and a holiday Friday at that.
Except if you’re a comp provider in LA.
Thanks to WorkCompCentral for the heads up.