It just won’t stop.
Over the last few years, long-suffering TPAs, hammered by the soft insurance market, went from making a few bucks on managed care services to earning most if not all of their profits from commissions on same. Some TPAs provide managed care services themselves, others have preferred partners, and a few are willing to work with any vendor their employer customers bring to the table.
There are good reasons for each model, and I can argue in favor – or against – each of them. But from a broader perspective, there is a bigger issue, one that has been missed in most of the discussion about managed care fee-sharing.
That issue is simple – does the managed care program offered, or enabled, by the TPA actually work? Does it reduce total claims cost? Does it result in fewer extended disabilities?
That’s where the discussion needs to begin. If a TPA doesn’t have managed care expertise, if their executives can’t talk in detail about how their approach addresses total cost, their managed care business model is irrelevant. Unfortunately, there aren’t too many TPAs that have intelligent, effective managed care programs – the original objective has been sublimated to the demand for revenues and profits. Not all TPAs have lost their way (or were never on the right path to begin with); a few are innovating, breaking away from the same old same old discredited model as they search for a true long term solution.
There’s no question many TPAs have expertise in managed care. There’s also no question many risk managers think they know it all, and love to pontificate about their ‘ideal’ model – and force the TPA to implement their brain child, ignoring the TPA’s advice (and then blaming the TPA when the ‘can’t fail’ program fails). But that discussion should start, and end, with the overall goal of the program – lower total claims costs.
Yes it is critically important to know where your workers comp dollars are going. One way to do that is to require the TPA CEO to sign a document (after your attorneys polish the language) stating words to the effect that “We will fully disclose any and all financial transactions involving (TPA) and any and all managed care entities providing services to (employer) and employer’s claimants. This disclosure includes but is not limited to service fees, commissions, implementation fees, RFP and proposal assistance charges, transaction fees, connection fees, membership fees, and any and all other transfer of monies from managed care entities to (TPA).”
That’s a start, the initial requirement that must be met before any substantive discussions can begin. And once that attestation has been signed, step back and ask what the TPA is doing to attack total claims costs.
Because that’s where the big bucks are.

The work comp TPA business is at last beginning to emerge from a very long, and very cold, winter. The soft market drove many of their customers back into the arms of insurers, as premiums were very competitive with the projected costs of self-insurance, with few of the risks.
It’s about time, as more than a couple TPAs were driven out of business by the precipitous decline in self-insurance, particularly in Florida and California.
As the market begins to harden (a transition somewhat delayed by AIG’s continuing effort to buy business), those TPAs that were able to survive the last few years will find their endurance rewarded, as more prospects come to them looking for bids.
TPAs will also find prospects have evolved, matured, become more intelligent and more demanding. Large employers are (with some notable exceptions) going to ask a lot more of their TPA in 2009 than they did in 2003. And chief among their demands will be smarter, faster claims adjusting and data-driven medical management.
Employers have had just about enough of the same old same old. Their experience with generic, one-size-fits-all approaches to cost containment is not good – many have come to realize that what works in one area, for one type of claim/care/condition may be counter-productive elsewhere. Increasingly buyers are looking for solutions customized to their specific situation, and flexible enough to adapt when those needs change.
It all starts with accurate, consistent data – data about injuries, treatments, disability and functionality. These data provide the foundation for broad decisions about what networks to use where – factoring in where injuries occur, what types of injuries are most common, and which become the most problematic. And here’s where most TPAs are falling well short.
TPAs tend to do what’s easy for them – keeping it simple, uniform, consistent across customers makes it easier for their IT departments, adjusters, managers, compliance folks, vendor management departments and nurses. But that’s not why they’re in business. TPAs are in business to serve the needs of their customers, to provide customer-specific solutions. To do that, they have to invest in people and IT that will enable them to understand their customers’ cost drivers, and build customized medical management solutions unique and specific to each client.
These solutions must allow the TPA to provide claimants with ‘best-in-area’ networks, networks that carefully select physicians based not on how deep a discount they’ll give but how well they manage comp injuries and return to work. There is no single national network that has the best answer in all areas; Horizon is very strong in Jersey, Rockport in Texas, Kaiser on-the-job in much of California.
That’s nice, you say, but in many areas the generic networks – Coventry, CorVel, etc look like the only game in town. That’s not the case – specialty hospital bill repricing services can deliver savings far greater than that available from the generic networks; specialty vendors in PT, imaging, Rx, and DME/HHC provide much better savings and much better outcomes than the generics.
This requires IT flexibility – the ability to plug in and pull out networks, individual providers, and provider groups as customer needs evolve. And to have different answers for different customers in the same jurisdiction – because at the end of the day, TPAs are there to deliver results, not do what’s easy for them.
What does this mean for you?
Before you roll your eyes and complain about how hard this is, know this – a few TPAs are already well down the path on precisely this strategy. And if you can’t do it, they’ll eat your lunch.

In my last post I reported my findings that former North Dakota state fund boss Sandy Blunt’s conviction on charges of authorizing sick leave, failing to get moving expenses repaid, and authorization of payment for small gifts and meeting coffee and danish is nothing short of outrageous.
But perhaps these were sought because the guy is a raving incompetent, and under an employment agreement the state couldn’t fire him unless he was a convicted felon, so they got what they could to kick him out.
Further investigation proves that this couldn’t be the case. Documents from an audit conducted by Marsh in Q1 2008 and other sources indicated the WSI made significant progress under Blunt’s leadership. A few of the findings are below.
– the percentage of claims reported in one day (one day!) increased from 6% before he got there to 45% due to a reporting incentive program he initiated.
– revisions to WSI’s safety programs led to a reduction in severe claims from .81/100 workers to .67.
– claim frequency dropped after Blunt created a financial incentive program for employers – before the program, frequency had averaged a 3% annual increase; after claims dropped 3.7%.
– Under Blunt, the fund’s operating ratio, or administrative expense ratio, was 16.2%, dramatically lower than the average state fund operating ratio of 24.5%. (Conolloy and Associates Report, 3/5/08)
– Paid loss trend was less than half of one percent per year, a remarkable result given medical trend in workers comp.
– WSI’s performance enabled North Dakota’s employers to enjoy the lowest work comp premium rates in the nation – a full 52% below the average state (Oregon Dept of Consumer and Business Services study)
There are lots of workers comp insurers, TPAs, and large self-insured employers that would love to have these kind of results.
Clearly the people who brought down Sandy Blunt did so for reasons other than incompetence. Outside the inevitable complaints from claimants complaining about mistreatment at the hands of their insurance company, the evidence seems to be squarely in Blunt’s favor.
Performance at WSI got better when Blunt was there.
Here’s hoping the new guy – you know, the one who was at least tangentially involved in the ‘investigation’ that resulted in Blunt’s dismissal, the one with zero experience in workers comp, can continue to build on Blunt’s successes.
Because he sure has a tough act to follow.
I don’t know why Blunt was targeted with trumped up charges, and fired despite his obvious strong performance. And I’m not going to try and find out.
The more I learn about this, the more I think I’d have to don a hazmat suit before digging any further, because this just stinks of something rotten in North Dakota.
And that smell is coming from whomever decided for whatever twisted and sick reason that a competent manager needed to be fired and have his life ruined.

I’m still befuddled by the North Dakota state fund situation. Recall that former CEO Sandy Blunt was tossed out amidst accusations of malfeasance, corruption, theft – pretty much everything bad a CEO could be accused of. I’ve been digging into this, and it turns out the charges against Blunt were discussed in detail in a local ND publication, the Dakota Beacon.
The charges that led to conviction of Blunt on felony charges were in three areas –
– unauthorized use of sick leave by a senior employee. Sources indicate Blunt allowed a departing senior exec to take sick leave when that employee was not actually ill, but was on his way out of the organization. An investigation by the ND State Auditing Organization of the sick leave indicated the exec likely would have qualified for FMLA – and the sick leave authorization was not illegal. As a state agency required to report any potentially illegal activity, this is instructive, as the SAO’s determination came over two years before Blunt was charged and the agency never reported the authorization as problematic.
– failure to get moving expenses repaid – The same employee noted above left before hehad been with WSI for two years, and thus should have been required to repay about $7000 in moving expenses. Blunt had asked the WSI’s internal counsel for her opinion on requiring reimbursement, and in a written memo she advised that she “did not feel comfortable” seeking reimbursement becuase the employee had been asked to leave, and therefore the legal requirement to repay moving expenses did not apply.
– unauthorized use of state funds to pay for meals, gifts, trinkets, and entertainment purposes. Turns out Blunt merely continued to use the same processes that had been in place at WSI before he got there. And, as soon as he determined these might be against WSI’s policies, he stopped them. We aren’t talking trips to Pebble Beach here; we’re talking coffee and pastries for employee meetings, a welcome cake for his own welcoming party (that had been ordered before Blunt even arrived), a flower and small gift certificate for workers on their employment anniversary. These expenditures had been in place for years, had never been questioned before Blunt arrived, and had actually been authorized by WSI’s purchasing department.
This guy is now a felon because he continued purchasing practices that had been in place before he got there, stopped them when he found out they were questionable, perhaps authorized sick leave for an employee on the way out who would have qualified for FMLA, and somehow was responsible for getting that employee to repay moving expenses that the state’s own attorney didn’t want to go after?
My conclusion?
Blunt was railroaded on the basis of charges that at best look to be incredibly nit-picky, and at worst political manipulation of law enforcement by a prosecutor gone nuts.
I’ve changed my mind.
I’m not befuddled. I’m outraged.

Frank Pennachio is one of the smartest people in workers comp. His piece on the complicity of employers in screwing up their own claims published in Risk and Insurance is just terrific.
TPAs are making a lot of money on managed care. At least in part, that’s because employers are hammering them on claims handling costs. There is just no way that a TPA can effectively adjudicate a lost time claim for $1200 for the life of the claim/contract.

So, they have to make up the margin somewhere, and managed care is that ‘somewhere’.
Here’s Frank’s summary:
“Claims administration contracts between employers and their insurance companies or third-party administrators have created a cycle of misaligned incentives and unintended consequences.
Many employers have lost sight of what a workers’ compensation program is supposed to do, and vendors have created products and services that often drive costs up instead of down.”

One of the more successful reforms in work comp over the last decade was in Florida. But there are two major issues getting lots of attention that may well overturn much of the good achieved in the Sunshine State.
Dennis Ross, one of the primary authors of the reform plan that became law in 2003, has written an excellent article summarizing these two problems. In brief –
Litigation expense was slashed dramatically under reform. That happy result looks to be in serious trouble, and legal costs may once gain skyrocket.
Before reform, attorneys would litigate anything, no matter how minor, because they would get paid their hourly rate for all work on the claimant’s case. As a result there was litigation around ‘underpayments’ of a few dollars, where the legal fees would be ten times the actual ‘underpayment’. Now, due to a recent court decision, some parts of the reform look to be in jeopardy – the very parts that eliminated the incentive to litigate everything all the time.
The specific case I’m referring to is Murray v Mariners Health/ACE USA. As things stand now, we can expect litigation costs to increase dramatically, and we’ll likely see a big upsurge in medical utilization as attorneys will once again be incentivized to push claimants to get as much care as possible.
Ok, that’s bad. What’s going to happen with hospital costs may even be worse.
Medical costs came down dramatically as well, thanks to changes in the fee schedule that actually increased reimbursement for physicians and should have cut facility costs (but apparently didn’t). As a result, more docs participated in comp, and the ones that did were doing good work (amazing how that happens when you pay docs a fair rate…) But the decision by the three member panel to fundamentally change facility reimbursement will likely add several hundred million dollars to employer’s work comp claim costs.
I’ve posted on this before – here’s the net. The proposed change to the Fee Schedule would link the “usual and customary” payment standard for outpatient hospital claims contained in Fl. St. § 440.13(12) to the ratio between what Florida hospitals charge Medicare and what Medicare actually pays. The net result would be a dramatic increase in the reimbursement for outpatient services billed by hospitals. There are four issues here.
First, methodology will increase costs – today – by 181% for surgeries and 330% for other hospital outpatient services.
Second, the annual inflation rate for charges in FL is 14%. So today’s high costs will be tomorrow’s even higher costs and the day after will bring really really high costs…
Third, the location of services will likely change dramatically to the higher cost hospital location. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
Fourth, as a result, surgeries which were done on an outpatient basis will likely shift to inpatient to take advantage of the much higher reimbursement.
What does this mean for you?
Work comp costs in Florida are going to go up – a lot.

Yesterday I posted on the hiring of a former state trooper as head of North Dakota’s Workforce Safety and Insurance (WSI) entity – the state’s sole work comp agency. For those unfamiliar with ND, they are one of the few states where the state is the exclusive provider of workers comp insurance – they, and Ohio and Washington, are ‘monopolistic’ states.
A bit of googling brought up a bit more information about the new boss – Bryan Klipfel. His background is law enforcement, he does not appear to have any comp experience, and was actively involved in the investigation of the former head of the agency, Charles Blunt. Blunt was terminated after an investigation into an alleged theft of state funds. Blunt was subsequently convicted by a jury of one felony charge of misappropriating state funds.
A quick google of the Blunt case raises more questions than answers. After watching the fiasco at the Ohio fund brought on by a few criminals in the executive suite, I was prepared for another orgy of self-dealing at the public trough.
Apparently not. In fact there aren’t any charges that Blunt took money himself, but rather authorized sick leave for an executive that may not have been ill, and, according to a news report, used somewhere around $26,000 of “WSI funds to pay for employee meals and drinks and buying illegal gifts and trinkets for staff…”.
Ok, so Blunt made a few bad decisions and/or didn’t follow all the rules by the book. But a felony conviction for a sick leave authorization and some apparently inexpensive ‘gifts’?
Boy those Dakotans are brutal. But even if they are, I can’t imagine Blunt was the only exec in the entire history of WSI to run afoul of the employee handbook. So, why the big expensive investigation?
I’m really curious. The investigator who has no experience in work comp and no P and L experience (never ran a business) is the head of a big comp insurer after helping convict the former occupant of his new office of using state funds to pay for meals, sick leave, and gifts?

In my post earlier this week I reported on the change at the top of Coventry’s workers comp division, saying “Young came into the organization in the Concentra deal. Generally well regarded by customers, his promotion has been characterized by several as a good thing; he is viewed as more customer-oriented than execs from First Health.”
Well, it looks like there are two very different perspectives regarding Mr Young. I received several emails questioning my positive statements about Young and a couple of calls as well. All disagreed specifically with my ‘customer-oriented’ claim.
I’ve met Mr Young a couple times, do not really know him except by reputation, and defer to those who know him better than I. I’ll retract my earlier characterization and replace it with this “it is safe to say that Mr Young has supporters and detractors among coventry customers.” I’d also note that people generally complain more than they compliment, so perhaps my correspondents were not representative.
And thanks to all who shared their opinions, even those who blistered my inbox in the process.

The folks at WorkCompCentral find the most interesting stuff. Today’s edition featured an item about the new head of North Dakota’s work comp agency – here’s how they put it:
“Highway Patrol Director Bryan Klipfel [was named] as director of Workforce Safety and Insurance (WSI) and U.S. Department of Agriculture executive Clare Carlson as deputy director and public affairs officer for the agency.”
The announcement, which came from the Governor’s office, quoted the governor: “in his 30 years with the Highway Patrol, Klipfel had a strong record of accomplishments and was highly regarded for his knowledge and integrity in both the Highway Patrol agency and law enforcement statewide.”
WorkCompCentral noted “Klipfel currently is the human resources manager for Job Service North Dakota. He has a degree in public administration from the University of North Dakota.”
Is it just me, or does this look like political patronage?
What does a former patrolman know about workers comp? Turns out he admittedly doesn’t know anything.
According to a local paper in ND, “Bryan Klipfel says he knows little about workers compensation, but the former state Highway Patrol commander believes his management and listening skills will help him do well as director of North Dakota’s Workforce Safety and Insurance agency…”I’m going to work with Bruce (Furness) for a couple of weeks, and I’ll just have to learn some of that information as time goes on,” Klipfel said. “My strong points are that I have leadership ability, and I understand human resources, how to deal with people. And I think that’s the big part (of the job) right now.”
Huh?
He’s going to learn on the job? While getting mentoring for a ‘couple of weeks”? In a business that is incredibly complex? At a time when investments and reserving practices are critically important?
And his qualifications are his understanding of human resources and leadership ability?
Yikes. This bears further investigation.

Jim McGarry has moved on, and David Young has moved in. That’s the quick report on changes at the top of Coventry’s work comp unit – but more is coming.
McGarry, who reportedly has a solid relationship with Allen Wise, will be working on other tasks within the company. And no, this isn’t one of those executive sinecures hiding an internal exile. By all accounts McGarry is well respected and liked by his colleagues on the senior management team, and bigger things are in the offing.
Young came into the organization in the Concentra deal. Generally well regarded by customers, his promotion has been characterized by several as a good thing; he is viewed as more customer-oriented than execs from First Health.
The change was relayed to several Coventry work comp customers Friday and today, along with news about a restructuring of the IT support and maintenance functions. These were consolidated along with other product line support in the Coventry IT department; going forward work comp will have dedicated resources. No surprise here; there have been indications for several weeks that new CEO Allen Wise has been seeking to better allocate costs by product. More specifically there has been ongoing concern about SG&A expense for work comp.
The restructuring of provider contracting and relations is not yet final. That said, there are signs that work comp contracting will be handled by separate staff. While this will likely help reduce facility costs for other lines (that deliver over 80% of Coventry’s total revenues) without the market share of group and Medicare, comp contracting staff will find it very hard indeed to negotiate with facilities. Remember, comp only amounts to 2% of the typical hospital’s revenues.
With the hiring several weeks ago of Pat Scullion as work comp CFO at Coventry, the new management team is almost complete. And the timing of the Scullion hire was nothing if not fortuitous, as several sources indicate Aetna is seeking to renegotiate its PPO contract with Coventry. As Aetna is the de facto network for Coventry in multiple jurisdictions (Coventry has exclusive marketing rights for four more years), it is negotiating from a rather strong position – Coventry would be in a very tough spot without Aetna.
What makes this particularly interesting is the Aetna exec seeking to renegotiate the deal is Dan Fishbein, the same Dan Fishbein who ousted Scullion from his prior role as president of Aetna’s work comp unit. And yes, that was the same Pat Scullion who negotiated the original deal on behalf of Aetna.
Now that must make for a very fun negotiation session; Aetna is negotiating for a higher price (that’s just a guess) or better terms while sitting across the table is the guy who knows more about their financial position than anyone left at Aetna.