Think about what bill review and generalist network and specialty bill review and negotiation firms do. All have the same value proposition – discounted medical bills. (most networks don’t deliver value in the form of better docs or outcomes, their business model is reduce cost by slashing bills retrospectively.)
All are in the cost reduction business although each take a different approach. A useful analogy is transportation; trains, trucks and ships all transport goods; each has its strengths and weaknesses, and at different times one model is more successful than the others. Right now, trucks transport most goods, even though they cost more because they can deliver convenience by moving goods to the precise location on time. This model has gained in large part due to low fuel costs, heavy investment in roads, and customers’ adoption of just-in-time inventory management. As the economics of transportation evolve, we may see a resurgence of rail and/or shipping; the cost per ton/mile for rail and shipping is significantly lower than trucking.
For several years bill review has been a commodity. Despite vendors’ best efforts to differentiate, most buyers place great emphasis on price. As a result, bill review vendors have worked hard to squeeze out cost through automation, auto-adjudication, streamlining and offshoring. None of these technologies are ‘bad’, rather the rationale behind employing them may well be misguided.
In an effort to compete bill review vendors have lost sight of their reason for existence – to ensure their customers pay only what they legally are required to. Instead they compete on the basis of how cheaply they can write checks out of their customers’ checkbooks.
This is not entirely the bill review vendors’ fault. Their customers bear much of the responsibility for the situation, playing vendors off against each other in an effort to reduce the payer’s admin expense. And the payers have succeeded. That success has come at a cost which some payers are only recently beginning to grasp. Here are a few examples.
For some procedures, the amount reimbursed is dependent on modifier codes. At least one large payer has instructed its bill review staff to ignore the modifiers as their entry slows down the bill review process.
A vendor known for its very competitive pricing often charges extra for ‘nurse review’ of items that are commonly audited and repriced within the bill review process. This allows the vendor to recoup the margin it gives away with its low per-bill pricing.
Another large payer’s bill review process actually requires claims personnel to authorize payment of each and every bill, no matter how routine, no matter how many times that provider has been paid for the same procedure in the past. This step has been put in place because the bill review process can’t be trusted; instead of fixing the process the company uses its expensive staff to do something the system should.
Payers want national solutions yet don’t want to take the time to understand some of the state-specific intricacies that can dramatically influence costs. For example, hospital reimbursement in PA is based on each hospital’s chargemaster, requiring repricers to have access to current data. In CT, payers are required to reimburse hospitals at cost, yet very few payer or bill review vendors have invested the energy required to determine each hospital’s costs.
Sure, payers have been able to cut their bill review costs, but the price they are paying is, in many instances, much higher than the reduction in administrative expense.
More and more, payers have come to rely on their networks for cost reduction; bill review is a necessary part of the bill flow and a way to get bills repriced to network rates, and a source of data for state reporting. In large part this reflects the change in pricing methodologies for bill review from a percentage of ‘savings’ below billed charges to a flat fee per bill or per line. In the transition, the purpose of bill review has been lost.
As payers look for better solutions to address rising medical costs, they should go back to the basics. There’s nothing more basic than making darn sure you are only paying what you are legally and contractually obligated to. Simple, yet this will require significant investment on the part of vendors, investment that will have to be recouped from their payer customers.
What does this mean for you?
Bill review vendors should not be competing on the basis of price per line or bill. Payers should buy smarter, but won’t until and unless they realize what they’re buying; technology, people, and processes all focused on writing checks out of the payer’s checkbook. Only then will bill review vendors be able to do their job effectively.
Note: my firm, Health Strategy Associates LLC will be surveying payers on bill review this spring. If you would like a copy of the public report send an email to infoAthealthstrategyassocDOTcom. Substitute symbols for AT and DOT.

Much against my better judgment, here are my predictions – in no particular order – for the work comp managed care world in 2009.
1. Coventry will be acquired.
Currently trading just under $15 per share, Coventry Health looks to be an attractive target for another second-tier health plan company. They have solid operations in many secondary and tertiary markets, some decent business in Medicare and other governmental programs, and their work comp sub is wondrously profitable. Expect it to get bought some time this year – likely after the credit markets loosen enough for potential acquirers to feel a little more comfortable. As to what happens with Coventry’s comp business, more on that when the time comes.
2. Aetna’s work comp network business will slowly dissipate.
Now that the provider relations, sales, compliance, and other support services are not all reporting up to one leader, it is inevitable that the focus on work comp will diminish. For customers hoping for improvements in the quality of provider data, this isn’t good news; nor is it for payers looking for solid networks in key states.
3. Corvel’s transition to a TPA with managed care services will accelerate.
As the company’s TPA customers continue to depart, pressure will mount on Corvel to demonstrate the viability of the TPA strategy. For a company that has seen sales increase slightly more than 3% over the last three years and profits decline over the last four quarters, 2009 will be a key year. Either the company is able to make a go of it as a TPA, or investors will weary of the “its coming soon” meme and cash out. The timing is a little better, as the hardening market may make the TPA business more viable in 2009 than it has been the last two years. Then again, there’s lots of other TPAs that are going to be fighting for that business too.
4. Several of the larger payers will announce their own, small physician-centric network products.
Beyond frustrated, large payers have given up hope that the Coventrys will ever do anything meaningful in the small, EPO-type physician-based network product line. Several large payers have been working diligently to do things on their own or in partnership with vendors; expect these to hit the market in Florida and several other states by Q3 2009.
5. – Correction- Oregon will do a do-over.
The state’s misguided, ill-informed, and illogical stance on workers comp network reimbursement is going to blow up, big time. Many carriers are carefully considering their options, as Oregon’s new regs require comp payers to reimburse at fee schedule for those services subject to the FS. Non FS services are to be reimbursed at billed charges. When I asked when a top carrier’s managed care exec what they would do if a bill for a non-FS service came in at a billion dollars, he said, after a pregnant pause, “according to the State, we’d have to pay it.”
6. Innovation
Uh, wrong industry…there will be precious little in the way of innovation, unless you count a few “aggregators” trying to become the “pipe” for payers to connect with various managed care vendors.
7. Specialty managed care
There will be new entrants into the various specialty managed care areas, as private-equity funded companies seek to take advantage of the ground-breaking work done by the innovators. These follow-on firms will do fine for a couple years, after which their customers will figure things out.
8. Medical costs
Will continue to increase far faster than they should, driven by lousy managed care models poorly implemented by payers more concerned with “savings” than claims costs.
If that isn’t a safe prediction, I don’t know what is.

The workers comp world has certainly had its problems over 2008, and often these problems have overshadowed the successes, and victories both big and small that were achieved this year. Here without further preamble are a few of the more significant ‘wins’ for work comp in 2008.
1. Frequency declines continued this year, building on a fifteen-year downward trend that has cut the US comp injury rate in half. By any measure, that’s great news. I’d also note that somehow the rate keeps declining, despite various experts (myself included) opining that it has to stop somehow.
2. Pharmacy costs have leveled off, due in no small part to efforts on the part of payers to mine their data, identify trends, and put in place programs to attack over-utilization. Good work to all; your efforts led to the fifth straight year of a decrease in the rate of pharmacy inflation in comp.
3. Predictive modeling continues to progress, albeit in fits and starts. Mistakes are being made, false leads chased, and assumptions proven wrong, but that’s actually good news. This is a new, complex, and weird business tool that will require a lot of trial and error. Mistakes are necessary and vital as the industry learns.
4. More and more payers are actually building new networks and adopting new strategies, either on their own or with new market entrants. These strategies are based on smaller, highly select networks of work comp expert docs, the kind of physician who can drive better outcomes at lower costs. After too many years of relying on the promises of the big networks, these payers are taking matters into their own hands, driving innovation and progress. it may not be as fast or as extensive as some would like to see (me being one of the some), but progress it is.
5. Disclosure of financial relationships among and between managed care firms and TPAs has significantly expanded, with companies including Gallagher Bassett, SRS, and Broadspire leading the charge (in fairness these firms were doing this long before 2008).
6. Specialty managed care has exploded, with carve-out vendors doing an exemplary job managing costs and delivering results in physical medicine, DME/home health, facility bill review, and cat claims. The more they do, the better they get.
7. Regulators in several states are working hard to do the right thing. New York’s willingness to change the pharma fee schedule and increase in benefits, California’s pursuit of lower costs, better medical care, and better benefits, and Texas’ (somewhat clumsy) attempts to fix their system all have been welcome signs of progress. We aren’t there yet, and all have their warts, but the needle is pointing in the right direction.
8. Solvency – unlike other insurance lines, the core solvency of the work comp insurance industry has not been in doubt this year. While parent companies, other insurers, and blue-chip, white-shoe Wall Street firms were imploding on a weekly basis, we in the work comp world have chugged along, hitting a few bumps on the way, but nothing like the rest of the financial world.
We have a long way to go, but in many areas, we’re heading in the right direction.
Good work.

Back in September the good folks at the Texas Department of Insurance published a most interesting report (shows what a geek I am) – the 2008 Workers’ Compensation Network Report Card. Let’s start with the overall numbers.
Medical costs were about $130 lower for the Texas Star network (a Coventry product) than for the other networks (with non-network claims second least expensive, and all other networks more expensive(!)).
There’s a lot more here, but I’m going to focus on one page in particular – 15 (23 in the pdf file).
More specifically, the top half of that page. It shows (adjusted) average hospital cost per claim, six months post injury, for non-network and several networks. The Texas Star Network’s hospital costs are 5% higher than non-network costs. Corvel’s network costs are significantly higher than Texas Star, and only slightly lower than all the rest of the networks included in the analysis (except Liberty, which has the lowest costs in the study group). Digging deeper into the report, one finds that Texas Star’s higher hospital expense are due to inpatient hospital stays, which are about $3000 more than non-network costs.
By comparison, Corvel’s inpatient costs are a rather stunning twice as high as Texas Star, and over five times higher than Liberty’s HCN.
Like any report, the results generate as many questions as answers. Here are a few of the more intriguing.
Why are Texas Star’s hospital costs higher than non-network?
Texas’ comp regulations require networks include hospitals. Hospitals know this, and according to sources, most refuse to offer any discount, with many forcing networks to pay above the fee schedule. The Texas Star network is priced at around $12 per bill (not including bill review services) or $110 per claim. Thus, the additional cost of using the network is both the access fee, and the ‘premium’ paid to the hospital for the privilege of having them in the network.
Why are Corvel’s inpatient hospital costs so high?
The Corvel numbers look awful, but they have far fewer claimants treated in facilities (a third less than Texas Star, and even fewer than non-network claims). Corvel’s inpatient utilization is very low; most hospital-based care (it appears) is delivered in ambulatory surgical centers and other types of facilities (p. 32). But, the volume of outpatient facility care is off-the-charts higher than non-network claims or any other network’s results.
Which setting delivers the lowest cost per claim?
Too early to tell. Remember, these data are from six months worth of bills. All the expensive claims take years to develop, so we won’t know what the results are for some time. That said, a good chunk of hospital bills hit in the first year of a claim as the acute phase of the injury is treated. While we don’t know what the ultimate result is, it could well be that the inpatient hospital picture doesn’t change much over time.
And what does this mean for you?
Follow this closely, and watch claim development for non-network v network claims. The numbers should start to diverge in favor of networks.

This has been a work-comp intensive week, for mostly the wrong reasons (little good news to report, little innovation, you know, typical WC…)
I’ll close this overly long trip down WC way with good news – about which vendors will flourish in the coming tough times for WC managed care.
With the number of claims likely to drop precipitously in 2009, the folks least at risk are those least dependent on a continuous flow of new claims. As claims age, the need for hospitalizations, surgeries, MRIs, and frequent and extensive physician visits and procedures drops off. Physical therapy also declines, or at least should if it is managed appropriately (PT should be focused on return to functionality and not palliative services). What’s left is the type of services needed to keep long term claimants, with what have become chronic conditions, as comfortable as possible. Realistically, these folks are not returning to work, so the need for functionality-improving treatment has been replaced with symptom mitigation.
That would be the purview of home health and pharmacy companies, as well as the non-commodity DME (durable medical equipment).
NCCI has published a study documenting the change in medical services over time. Notably, the study, Relative Cost of Medical Services By Age of Claim and Accident Year, shows that pharmacy, supplies, home health, and DME costs go from a relatively small part of the medical dollar in the initial year after the claim is incurred to almost 50% of medical expense for claims more than four years old.
There’s another positive indicator for the purveyors of chronic condition services – there’s some evidence that during recessions, severity increases as claimants stay out on disability longer. Some may not have jobs to return to, others may not be able to find new jobs, but regardless of the cause, claims appear to persist.
These two factors, coupled with the rule-of-thumb that a third of medical dollars are spent more than three years after the date of accident, means there will be lots of dollars spent for ‘chronic care purveyors’ services for years to come.