Last week’s post on Connecticut hospitals’ temper tantrum elicited no public comments but quite a few private ones. Several payers were rather upset that their bill repricing/network vendors have not been applying the laws correctly, resulting in higher payments than the law requires.
The issue of ‘fiduciary responsibility’ and liability therefore came up a time or two…
One person familiar with the State employee workers comp program confirmed that the State is paying Yale-New Haven and its affiliated hospitals billed charges (or something close to), while paying other facilities about 30-35% less than billed charges. That corrects my misstatement in last week’s post that implied the state was paying facilities their billed charges. That said, the state is still paying (somewhat) more than it legally must. Like most states CT is in a bit of a budget crunch, with the Governor and legislature looking for cuts to make up a $300 million deficit.
Workers comp costs for State employees are around $80 million a year; that doesn’t include municipalities and school boards which are covered through the towns (there are over 110 towns in CT).

Peter Rousmaniere’s column this month in Risk and Insurance addresses the dirty not-really-secret practice of TPAs getting kickbacks from their managed care ‘partners.
This unseemly practice has been going on for years; perhaps the most notable example is the Broward County Public Schools scandal, where TPA Gallagher Bassett was allegedly paid by CorVel for referrals to case management and other services. This isn’t small potatoes; the scope of this debacle earned it a prominent place in an article in CFO magazine.
Peter notes that SRS (the Hartford’s TPA) is one that specifically rejects doing business this way; pledging “Specialty Risk Services, as a fiduciary of our clients’ money, does not participate in any so-called wholesale-retail relationships with our vendors nor do we request or accept administrative fee arrangements from them.”
Broadspire also doesn’t take kickbacks/commissions/admin fees. But the Florida-based TPA also sells an integrated medical and claims management service so customers don’t require much in the way of outside medical management support. According to a highly-placed source; “we do not do a lot of unbundled arrangements for managed care services…most of the services for managed care [are] provided by our own staff, priced and charged separately from the claim service. On the rare occasion that we are requested to go outside by a customer, we will consider it on a case by case basis but, do not make any requirements from the managed care vendor that they provide us any “commission” or anything else of that nature for the pleasure of working with us.”
I’d note that the TPA business has gotten hammered lately – the soft market has driven down loss costs, and with it admin fees. The reductions in frequency have resulted in fewer claims to adjust, and therefore fewer fees to charge. Employers have been able to get TPAs to bid against each other, thereby lowering admin costs by forcing TPAs to cut pricing.
It’s not entirely fair to blame TPAs for this; their customers share the guilt. While employers are saving admin costs over the near term, this is a short-sighted tactic at best. TPAs, like any other business, have to make a margin, and if they can’t make it thru admin expense they’ll have to make it up in other ways.
What does this mean for you?
Demand full disclosure of pricing and cash flows from your TPA and managed care vendors. And expect to pay a fair price.

There’s yet another reason for work comp payers to pay a lot more attention to surgical implant pricing – CMS has reserved the right to use its own methodology if it finds the payer’s methodology lacking.
WorkCompCentral reported piece [sub req] on “>today “if the workers’ compensation medical set-aside proposal includes the cost of an implantable device but does not include enough of the CMS required cost information about the device – and it is determined an implantable device such as a spinal cord stimulator is needed – CMS will use its own methodology to determine the cost of the device.”
CMS’ methodology is discussed here. (scroll to bottom of page and click on “august” download)
The folks at WorkersCompInsider have an excellent piece on implants and motivations of (some of) the physicians that use them.
I doubt the ‘look at what these cost us in the past’ methodology is going to fly with the good folks at CMS. They will certainly want something more substantial, something based on actual cost and not conjecture and what was paid in the past.
btw, WorkCompCentral is one of the go-to sources for comp-related information and news.

After spending the last part of last week and the better part of this one preparing for two major presentations on ‘US health care 2009’ (both requiring predictions about health reform efforts and results thereof) I’ve been anxious to get back to the comparatively sedate world of workers comp.
Here, in no particular order, are a few of the ‘not enough for a full post’ items. There’s more going on which I’ll focus on next week.
The good news is rates continue to decline in most states, with the notable exception of California (where if rates had gotten much lower insurers would be paying employers). The so-far not terribly bad hurricane season has certainly helped; here’s hoping Ike and colleagues stay out at sea, away from the shipping lanes and fishing grounds.
As long as cat(astrophic) costs stay modest we can expect the market softening to gradually taper off and then start to harden – say this time next year.
The good news has been the result of a continued decline in frequency, payer success in managing ancillary medical costs (particularly drugs and physical medicine), and relatively low wage inflation. Oh, and that’s all been minor compared to the impact of the dramatic cost reductions in CA (which are due in part to tight limits on the number of physical medicine visits).
Florida has also been enjoying several consecutive years of rate reductions, brought on (at least in part) by the 2003 reforms. Word from the Sunshine State is that one of the key components of the reform law, limitations on plaintiff attorney fees, may be overturned. If that happens, it’s ‘Katie bar the door’, as the plaintiff bar in FL has long been champing at the bit to return to the halcyon days pre-reform, when they could bill hourly fees at will. Yikes.
While rate reductions and soft markets have been great for employers, TPAs, managed care firms, and carriers are having challenges. Several TPAs have closed shop, been acquired, or suffered dramatic losses in business, and most (particularly in Florida and other states with big premium drops over several years) are doing their best to hang on and hope things turn around soon. CorVel has added a couple TPA customers – one an existing managed care client and another new business. These deals have also required CorVel to do quite a bit of programming and IT development, work that was responsible for higher costs for the company in the most recent quarter.
I remain skeptical about CorVel’s business model and attempt to sell to, while competing with, TPAs.
On the managed care side, several network companies are vying to be industry leader Coventry’s chief competitor, with little success to show for all their effort – so far. This may change soon, as Coventry’s continued heavy-handed, my-way-or-highway approach to customer relations is wearing a bit thin. One of their larger self-insured employer customers was handed an eight point rate increase. Not percentage but points. Word is the folks delivering these new rates, contracts and addenda are not exactly comfortable doing so. Coventry has also been expanding its staff, adding long-time industry vet Pat Sullivan in an effort to improve its image in the market.
A new firm (NovaNet) announced it’s presence just this week; when I get more info will pass it on. I would note that their press release talks about some direct provider contracts and rental of other networks; there are several other PPOs with similar models already in the space. One observation – the company touts its huge network of docs – while this may be an asset in group health, the huge network model is losing followers in the comp space of late.
MedRisk has been awarded the contract to handle the Pennsylvania state fund’s entire managed care program, a major win for the company. (MedRisk is an HSA consulting client).
Internal sources at the ‘old’ Fair Isaac, now Mitchell Medical bill review firm report the new owners are investing, listening, and supporting their efforts to revamp the WC bill review products. That’s a good thing and bodes well for MM’s future in work comp.

There’s an obvious connection between hurricanes and work comp – people get hurt while working, injuries that are covered by workers compensation. But there’s a less visible, but nonetheless significant link between big weather events and comp.
Capital is mobile; it moves quickly, shifting to find the best opportunity with the least risk. Right now, it’s a safe bet that investors are looking for better returns to offset their fears about increased risks from what looks to be a pretty active hurricane season. And that desire for better returns may well mean an increase in reinsurance, as well as primary insurance, rates.
The work comp market has been flat recently, with claims costs edging up slightly, premium rates declining in many states, and frequency dropping yet again. Employers have seen work comp costs decline in Alabama, Kentucky, Tennessee, Florida, California, Pennsylvania and New York, not to mention many other states. The National Academy of Social Insurance reports that nationally, claim costs actually dropped in 2006, due primarily to the dramatic reductions in California.
That was 2006. As I’ve reported previously, there are clear indications that medical costs are on the way up again, led by increasing hospital expenses. WorkComp Central reported (sub req) today that NCCI is warning about medical cost inflation in Alabama, where medical now accounts for almost three-quarters of total claim costs.
The combination of higher medical expenses and a (potentially) tighter market for reinsurance may well make for higher costs in 2009. And even if the hurricanes blow themselves all out to sea, the soft market can’t go on much longer. Really.
Gustav’s weakening and change in direction resulted in damage that at least at this point looks to be significantly less than expected. By way of comparison, predictions are that the bill for Gustav will be about an eighth of that for Katrina’s.
What does this mean for you?
The work comp industry dodged a bullet – but more are on the way.

If you’re looking to build a workers comp network, you’ll want to focus on WC specialists – occ med docs, orthos, neuros, physiatrists, primary care docs, and a smattering of other specialties – along with ancillary care providers.
And you most definitely don’t want every Dr. Tom Dick and Mary – the ones that can’t spell ‘workers comp’ and think ‘return to work’ is what happens after lunch.
While including these docs in the network will make the directory nice and fat, they won’t know what to do if a claimant actually presents.
In fact, the fatter the directory, the further away you should stay. Growing evidence indicates there’s a lot of good reasons to limit the docs who treat workers comp claimants:

• claimants feel more comfortable with docs who can actually explain how the comp system works; physicians tend to be trusted by their patients, and this trust can translate to lower litigation rates
• docs who know disability management know that getting injured workers back to the job asap facilitates recovery
• comp docs know they are only supposed to treat the comp injury, and although they have to factor in comorbidities, understand that the comp payer isn’t liable for all treatment

Another consistent problem in the comp network world is lousy data – directories are full of docs who no longer take patients, don’t take work comp patients, have moved, are dead, or can’t recall ever signing a network participation contract. (in this last instance, it is likely someone in their office did, at one time, but can’t remember doing so).
Expect to pay the docs you want a reasonable rate. “Reasonable” may be above or below the state fee schedule (in the 30+ states with fee schedules) or an RBRVS-based fee, or some discount based on published U&C data. Make sure, really sure, that the basis for reimbursement is clear, precise, and accurate. There have been an increasing number of lawsuits from providers alleging underpayment by work comp payers. This is a trend that by all indications is going to continue. Without a clear contractual definition of payment terms, networks open themselves, and their payer customers, to a much higher risk of litigation.
Which leads to the final recommendation – payers are getting a discount, or at least an agreed-upon reimbursement rate, and therefore must promise to do something to get that rate. In most cases, that ‘something’ is the promise by the network that it will work diligently to direct patients to the contracted provider. Again, make sure the contractual terms are clear – what will payers do to direct patients to providers, how will they push this ‘downstream’ to their policyholders, and how will this be verified.
Keep the data up to date, carefully select the docs who are in it, have fair and clearly defined reimbursement terms, and hold up your end of the bargain – send the providers more patients.

I’ve been watching a disturbing trend in workers comp medical costs – they appear to be headed up. New information from California adds fuel to that fire.
The insurance rating board in California has recommended a premium increase of 17.8%, driven mostly by medical inflation – inflation that has caught regulators somewhat by surprise. According to an article in WorkCompCentral (sub req):
“new medical data from 2006 and 2007 convinced the board that an even bigger increase is necessary. The rating bureau says the rate must jump by 10.8% just to cover rising medical costs.
[California Work Comp Insurance Rating Board Communications Director Jack] Hannan said the governing board, in its last two filing recommendations, adjusted pure premium rate recommendations based on an assumption of 1% medical inflation. He said the board believes the inflation trend in medical costs is actually closer to an increase of 5% per year. [emphasis added]
Hannan could not say specifically what area of medicine is spurring the rise in costs, but he said the bureau hopes to have a breakdown by the time the Insurance Department holds hearings on the rate recommendation in September.”
I’ll take an educated guess. Facility costs, with a big push from surgical implants, and a smaller contribution from drug pricing.
After a year of essentially little to no increase in drug pricing, manufacturers raised prices for a relatively small number of brand drugs – few of which are commonly (or ever) used in work comp. But that was a year ago, and manufacturers, stung by flat utilization, are going to have to get top-line growth from somewhere. If they can’t sell more drugs, they’ll have to increase pricing on the pills they do sell.
What does this mean for you?
Nothing good.