Magellan Health is buying a small chunk of Coventry – the unit that provides prescription drug programs and other services for Medicaid members. Although the unit was identified as ‘First Health’, it is NOT Coventry’s workers comp managed care business.
The business currently generates about $55 million in annual revenue.
Coventry will take a loss on the sale (evidently the business was carried on the healthplan company’s books at a value considerably higher than the sale price) of fifty-five to sixty cents a share.
The move ties into a larger relationship between the two firms, as Magellan will also be managing Coventry’s radiology and oncology claims for the next three years. The radiology contract is on at at-risk basis, meaning Magellan will guarantee to hold costs to a specific range or dollar figure.
The sale continues CEO Allen Wise’s strategy of divesting under-performing and non-core businesses; expect more news like this over the next year.

The two overarching issues in work comp bill review are state reporting and the non-connect between utilization review/medical management and bill review.

Bill Review
Workers comp payers spend hundreds of millions of dollars each year on medical management – pre-cert, utilization review, peer review, case management, clinical guidelines, and the variations and permutations thereof. Dozens of companies from mom-and-pops to regional players to industry giants like Coventry and Genex employ highly trained professional medical personnel to watch over the care delivered to injured workers, carefully reviewing and approving or not approving thousands of medical procedures.
Then, the medical bills come in to the payer. The frightening/amazing/unconscionable truth is that many non-approved medical treatments actually are performed, and billed for, and likely paid – because those determinations are not automatically fed into the bill review system’s database, and/or the bill review system can’t link the determination to the bill/provider/claimant.
How much of this actually occurs on a national basis is impossible to say, and there’s no doubt some payers have the links in place to ensure most if not all medical management determinations are linked to the right claimant/provider/event.
But many payers do not have this link in place and/or it doesn’t work very well and/or it requires a human to make the link, dramatically increasing the opportunity for error.
I’ve seen anecdotal evidence of this non-connect in audits performed for payer clients, but this is the first evidence I’ve seen of an industry-wide issue.
Implications
There are a number of potential implications, starting with the obvious – how much are payers spending on treatments that have not been authorized or were actually non-authorized? How much are payers spending on medical management programs/services that are not delivering results due to the bill review linkage issue? Which systems/vendors have these links in place, and how well are they working?
State reporting
State reporting is another issue; friend and colleague Peter Rousmaniere has long proved his ability to cut right to the heart of the issue and he did it again in an email to me this morning wherein he asked the question that is likely on many bill review/IT managers’ minds – what exactly are states doing with all the data they are forcing payers to send to them? Are they doing anything? If so, what, and how will that benefit the industry, employers, society? When?
These are both vitally important issues, albeit for different reasons. But at their core, the question we should be asking about both is the same; what are we getting for our expenditure of time, effort, intellectual capital, and money?

Note – The public version of the First Annual Survey of Workers Compensation Bill Review will be released Friday. If you would like a copy, do NOT comment here, but send an email to infoATHealthStrategyAssocDOTcom.
I’m finishing up the survey report, need a break from analysis and writing – and some of the results are just too interesting to keep to myself till Friday. (I know, I need to get a life)
One of the less-obvious but more-interesting findings is the way the market’s perceptions about bill review firms have shifted of late. The industry has seen a lot of change at a rapid pace, with Mitchell’s acquisition of SmartAdviser, Coventry’s acquisition and ownership of the code for their bill review system, new management at Medata, CS Stars’ announced departure from the business, the purchase of Stratacare, and Ingenix’ troubles with UCR.
All of these events/transactions have influenced respondents’ views of the industry, and certainly of individual vendors within the industry. Some have risen in stature, while others have declined, and the changes aren’t necessarily what one would think.
One of the last questions in the survey asks respondents to rate each firm on a scale of 1-5, with 5 being best/highest. While respondents’ views of the various BR firms tend to lump them in a fairly narrow band, their statements paint a more complex and more nuanced view.
Couple the individual BR firm ratings with the responses to another question “is the bill review industry meeting payers’ needs?” and the picture that emerges is of an industry that is viewed in general as mediocre, focused more on processing speed and throughput than effective medical management (yes, bill review does have a lot to do with med management), and more reactive than innovative.
Among the vendors reviewed there are a couple notable exceptions, and it is important to note these views are general: depending on the payer’s market, technical abilities, business model, and strategic orientation, one or more vendors may be a great fit. The ‘fit determination’ process is key to successful vendor selection, and according to several respondents that had recently gone through the RFP process, requires much more interaction, discussion, and sharing of information on the part of the payer than they had anticipated. Instead of the typical RFI-RFP-finalists selection-onsite presentations-reference checking/offsite visits-battle over pricing and terms-contracting process, to a person these respondents talked about the need to engage much more deeply with potential bill review vendors than they had anticipated. In some cases this was acceptable to management, but in others a more rigid process prevailed, resulting in (in a couple cases) a less than optimal outcome.

We’ve completed the First Annual Workers Comp Bill Review Survey and there are several highlights worthy of mention. (If you’ve requested a copy of the results you will receive it by the end of next week)
Bill review is considered significantly ‘more important’ than other managed care services by survey respondents (TPAs, carriers, managed care firms, and self-insured employers). While this isn’t consistent across all respondents, most are of the opinion that bill review is where the proverbial rubber/road meeting occurs, and if UR or PPO determinations don’t show up in bill review, they are irrelevant.
Which leads to the next finding – most of the more sophisticated respondents are very, very cognizant of – and frustrated by – the difficulties inherent in integrating BR and other medical management systems, platforms, and vendors. There is a sense that not all UR determinations (numbers of visits for PT, hospital stay duration, epidural steroid injections) appear in the final payments, with many unauthorized services actually performed, billed, and paid.
(note – this is consistent with the result of some, but not all, audits of client data performed by HSA)
Respondents decried the lack of understanding of the complexities of bill review, and the commoditization of the service, on the part of senior management and policyholders alike. Their sense is there is little to no appreciation of the difficulties inherent in staying on top of fee schedule and rule changes, increasingly sophisticated provider billing techniques, and impact of bill review on claims costs. Pressed to reduce costs and staff during this soft market, respondents are frustrated by their inability to convince C-level personnel of the relationship between effective (i.e. well-done and not cheap) bill review and ultimate claims costs and combined ratios.
The ratings of bill review vendors and application providers show respondents are quite current and aware of changes at the various suppliers. Vendors that would have been rated poorly as recently as a year ago are viewed more favorably today, with respondents very much open to considering bill review application vendors that would not have made their first cut twelve months ago.
There were notable differences among and between the various bill review vendors and application providers, differences that ‘didn’t appear until well into the implementation phase’. The perception among respondents was that these differences were due in part to a failure on the front end to be very clear and precise about semantics (what, exactly, is a ‘bill’, what is a ‘rule’, what is a ‘duplicate bill’, when does the clock start and end for turn around time, whose responsibility is it to ensure the DRG grouper complies with and is consistent with specific state regs, and on and on). As a result, costs, throughput, efficiency measures, ‘savings’ and other metrics had to be re-adjusted, causing more than a little agita for program managers.
Finally, some bill review applications and vendors were perceived to be better positioned to address likely changes in the overall health care system. Respondents viewed these vendors as more flexible, more adaptable, and more cognizant of the broader systemic issues and their potential impact on workers comp. One knowledgeable respondent noted “some of these vendors are so focused on comp that they aren’t paying attention to current and likely future changes in Medicare physician and hospital reimbursement…and their systems just won’t support some of the likely changes in Medicare-based fee schedules..”

I’ve fielded several calls over the last few days from clients and colleagues asking about the potential implications of the Obama Administration’s vow to more rigorously enforce antitrust regulations.
During the eight years of the Bush Administration, not one case was brought against a large company charged with attacking a smaller rival. If anything, Bush et al bent over backwards to help big business, doing little to stop mergers and acquisitions that significantly consolidated market share. The change in policy by the Obama Administration came about Monday, when antitrust boss Christine Varney explicitly rejected Bush’s September 2008 rule-making that directed the government to avoid interfering in “the rough and tumble of beneficial competition.” In order to initiate action, the Bush rule required that the government determine that a merger or action’s negative impact on competition was “substantially disproportionate to any associated pro-competitive” benefit.
Speaking at an event sponsored by the Center for American Progress, Varney said the Obama administration’s approach to antitrust will be based on the understanding that the marketplace alone should not dictate what is fair competition. That implies the Feds will be taking a more active role.
Antitrust regulation is based on the Sherman Antitrust Act, wherein “a monopoly power is defined as the ability of a business to control a price within its relevant product market or its geographic market or to exclude a competitor from doing business [emphasis added] within its relevant product market or geographic market. It is only necessary to prove the business had the “power” to raise prices or exclude competitors. The plaintiff does not need to prove that prices were actually raised or that competitors were actually excluded from the market.” (FreeAdvice.com)
Implications for comp
The work comp network business is dominated by Coventry Healthcare. They have the largest network used by almost all of the larger payers and most of the mid- and smaller ones. The network was based on the First Health PPO, augmented by the acquisition of Concentra’s managed care business, and enhanced when Coventry removed Aetna Work Comp Access from the market by signing an exclusive deal.
Coventry then implemented their “all or nothing” strategy, wherein customers who wanted to use other rival networks in certain jurisdictions were told they could not do so; if they wanted Coventry anywhere, they had to use Coventry everywhere. Other customers were given more flexibility, but at a much higher price – using a ‘foreign’ network meant the customer had to pay more, and in some cases much more, to Coventry.
I’m no attorney and certainly not more than superficially knowledgeable about antitrust issues, regulation, and history. With that disclaimer, here’s a mostly uneducated opinion. It seems to me that Coventry’s ability to consolidate the comp network business and, via pricing and contracting practices, shut out competition gives them a huge advantage in the marketplace. An advantage that has driven very nice financial results. Whether those actions qualify as anti-competitive under the law is something I’m not qualified to judge. But from a layman’s perspective, the comp network business fits the definition of a monopoly.
Will the Administration look into the comp network business? I very much doubt it. Not only is this a relatively tiny market, the market consolidation, and approval thereof (to the extent Bush’s people even looked at them) occurred well before President Obama took office. Obama has demonstrated a reluctance to revisit decisions made by his predecessor; I just don’t see Varney and her attorneys re-examining the consolidation of the comp network business.
Disclaimer – After several years of attempts to engage with Coventry to hear their perspective, attempts that were ignored (except for one conversation with Jim McGarry two years ago) I don’t even try any more. If anyone from Coventry wants to discuss this, feel free to contact me.

Coventry released its financial results for Q1 2009, and the work comp financials are, to say the least, strong.
Revenues were up almost 10% quarter over quarter to $188 million, while gross margin actually declined by a couple points to $130 million. The 10-K states that the growth in revenue was driven primarily by an increase in the company’s work comp PBM revenues.
I’m more than a little surprised by the gross margin number. Coventry’s PBM, FirstScript, has been aggressively expanding, slashing prices to do so. Margins in the WC PBM business have been declining of late, under pressure by the dynamics and market forces of a rapidly maturing market. Yet Coventry’s gross margins are holding up quite well.
It is likely that the company’s well-documented efforts to raise prices on network rental services have helped keep the gross margin number where it is. Kudos to Coventry for this success; it’s taken a lot of work and come despite strong resistance from many clients.
The slight drop in gross margin dollars (understanding it is a larger decline in percentage terms) will likely turn around in Q2, as Coventry has recently laid off a number of managers and directors in the work comp business.
Work comp is – by far – the most profitable business for Coventry. Although comp only accounted for 5.3% of Coventry’s revenues for the quarter, it delivered about 19% of gross margin.
Those are pretty strong numbers, and shows exactly why the new management team is enamored with the business. Any business that produces $520 million in gross margin on $850 in annual revenue is going to have lots of Board support.

If you thought the first few posts from NCCI were esoteric, here comes one that makes them look amazingly general. You’ll either yawn or be right on the edge of your chair…
Chris Brigham, MD, senior editor of the AMA Guides to the Evaluation of Permanent Impairment (the Guides), had the coveted post-lunch speaking slot at last week’s NCCI meeting on Thursday. For those not conversant with this issue, the Guides are used in workers comp to determine when, and how much, a person’s medical condition is a disabling condition.
Note that Brigham, and the new edition of the Guides, are controversial and the object of assault by many who claim to be on the side of the claimant (I’m not saying they’re not, I’m saying that’s what they purport to be. I have no opinion re the utility or appropriateness of the Guides).
Brigham started off by noting that most of the initial impairment ratings he reviewed were subsequently corrected. And in the vast majority of cases, the original rating was an over-rating of disability. That is, the subsequent review showed the person was not as disabled as the original impairment rating asserted. Brigham used a database comprised of 866 California cases, out of which 83% were incorrectly rated, at a cost of over $15,000 per case (cost is the award amount for the initial impairment rating v the subsequent rating).
Notably, impairment ratings in Hawaii tended to be more consistent than in California – a lot more consistent.
Errors in CA were overly concentrated in LA, less so in others. There is also a variation in ratings done by different types of physicians and for different diagnoses.
A couple key concepts – impairment is not the same as disability. Impairment is the result of the medical condition – what physicial impact occurred. Disability is somewhat more subjective, as it addresses what that person can do. For example, Steven Hawking (the brilliant physicist) is completely impaired due to ALS. He is also a prolific author and practices his craft every day. Thus he is ‘impaired’ but not ‘disabled’.
To paraphrase friend and colleague Jennifer Christian, MD, “there is no medical condition that is so disabling that there is not a person in this country with that condition working full time and being paid well.”
The new Guide was developed in an effort to add consistency across the ratings, a response to criticism of past editions. The new Guide is more diagnosis based, using evidence to substantiate the diagnosis, and provides rating percentages that factor in clinical and functional history as well as an exam of the patient. It also factors in new, more current medical research and clinical studies.
According to Brigham, the new Guide eliminates such historical factors to rating including the occurrence of surgery and range of motion for spine patients, as the clinical research indicated no linkage between those ‘factors’ and actual impairment.
Notably, physicians polled for their reactions to the new edition were generally favorable, while plaintiff attorneys and chiropractors were not.

What does this mean for you?
Expect the use of the new Guides will be controversial, and will likely be subject to legal action in many jurisdictions due to the changes, and stakeholders’ reactions to those changes.