Sources indicate Coventry has made an offer to a person to lead the workers comp division of sub First Health. As noted here previously, several candidates were on the bubble in December. Evidently one has dropped out and an offer has been made to another; expect an announcement this month.
Spencer Stuart is the search firm. Indications are that the new leader will have control over staffing, which might result in changes among the present leadership at First Health.
The new leader will have a few challenges, with the highly profitable workers comp network business under pressure from Aetna and others; several large WC insurers moving business away, increasing pricing pressure from customers, changes to WC fee schedules in several key states, and increasing negotiating strength on the part of hospitals.
What does this mean for you?
A little more turmoil before FH settles down.

There have been several tentative efforts to bring provider profiling to workers comp, with decidedly mixed results. The problems are the usual – bad data, not enough data, poor coding, and insufficient claims counts coupled with widely varying severity making it very difficult to compare physicians.
One of the leading managed care firms in the southeast, CHOICE Medical Management, just announced their new effort in provider practice analysis, and it looks promising. According to CHOICE’s news release;
“”This is the first provider analysis in the industry using data from the whole claim, medical, indemnity and total claim costs, as well as administrative processes,” Tom Barrett, CHOICE president said.”
Providing access to all data, including the critical indemnity and return to work (RTW) data, is vital to assessing the performance of comp docs. With so many dollars riding on return to work, failing to consider this may lead to highly misleading conclusions.
Aetna has also been working on provider profiling, using their extensive database of group health information in an attempt to identify docs that can treat work comp cases effectively. While I admire their effort, there are several key problems with this.
1. RTW is not contemplated in managing a group health patient episode, so there is no way to assess the impact of the physician on disability.
2. Many group health-oriented docs don’t and/or won’t take workers comp patients.
3. Two of the key WC specialties, occupational medicine and physiatry, are either non-existent or barely represented in group health networks. And occ med docs provide a lot of the primary care and case management in comp. How you can assemble a network or assess outcomes without looking at occ med and physiatry is a mystery to me.
4. Group health decisions are often complicated by reimbursement, copay, and deductible issues. There is ample evidence that patients make decisions based in part on their financial impact on the patient. Such is not the case in comp, which is “first dollar, every dollar”.
5. Several studies indicate that medical care for certain conditions is just different for work comp patients than for those covered by group health. Back pain/strain is one example. While all of us agree that a back is a back, the reality is the financial, motivational, and regulatory differences inherent in group and comp drive different medical practice.
What does this mean for you?
A comp-based provider analysis will likely lead to better understanding of comp cost drivers.

Just when I was afraid this was going away, it rears its grinning head again. The scandal at the Ohio Bureau of Workers Comp (you remember, the group that had invested claimant reserves in rare coins, questionable securities, wine (!) and other “non traditional financial vehicles” remains under investigation, and the investigators need $85,000 more to finish up.
For those in need of a refresher on this most entertaining of scandals, here’s the background.
Dare we hope that even more revelations are forthcoming? Perhaps junkets to foriegn lands to investigate real estate opportunities? Jewelry bought as an investment to increase reserves, temporarily stored around the neck and wrist of an illicit girlfriend? Art work safely ensconced in the homes of BWC execs? Rare cigars, safely guarded in a BWC-funded humidor?
A blogger’s delight!

Corvel Corporation announced that earnings were up substantially although revenues dropped by 10% in the last quarter of 2005. EPS were up 45% from a year earlier, despite a decrease in revenues from $70 million to $63 million. The announcement followed other recent news indicating continued struggles by CorVel.
The company’s press release blamed the drop in revenue on various contributors including the decrease in workers comp claims, offshoring of jobs, regulatory compliance issues, and the hurricane.
Well…all these may have had some impact, but claims did not drop 10% from the prior year, and the jobs that were outsourced were not in retail, transportation, food service, health care, and construction, major contributors to the nation’s occupational injury count.
What’s really happening? Likely several issues. First, CorVel has been looking for a COO for some time, likely recognizing that there are internal challenges (i.e. problems) that need more and better attention. Second, CorVel’s IT infrastructure is highly decentralized, making it tough for the company to compete for national business. Third, their provider network is faring poorly in competition with Aetna, First Health, and Focus.
Rumors have been floating about the possibility of a leveraged buyout of CorVel. Anything’s possible.

Prescription drug costs in workers comp are driven by utilization and price – how many pills and how much they cost. Oh, and by the physicians who prescribe the pills, based on what the patient needs. We hope.
Into this has been injected a new profit motive for physicians – the ability for them to become their own drug stores. Several companies are offering this service, enabling docs to dispense drugs out of their own offices.
The positive spin is this enhances compliance and reduces errors due to interpreting illegible scripts. However, no studies have been found to substantiate those claims.
What has been substantiated is the ability of these on-site dispensaries to get around state fee schedules, thereby driving prices up several times over the fee schedule. Here’s an excerpt from an article in Workers’ Comp Executive;
“According to preliminary research done by CWCI and the Commission on Health and Safety and Workers’ Compensation, some doctors charge between 400 and 700 percent more than what’s charged at a pharmacy for the same medication.
CWCI research indicates that the repackaged drug Zantac goes for $255.56 for 150 mg. pills. At a pharmacy, the retail cost is $25.90. At Drugstore.com, the cost is $19.71. Repackaged pricing for naproxen (Aleve) and ibuprofen (Advil) were less than $255 but still more than the alternatives.”
The result – docs can make between $20,000 and $90,000 per year in additinal profit with no risk.
There are several firms involved in this, including Allscripts (IL) and Physicians Total Care (OK).
Several of HSA’s clients, including very large WC insurers, have seen more than half of their drug costs in California come from doctor office-based dispensaries.
What does this mean for you?
If you are a comp payer, higher costs, less control over utilization, and more frustration.

In an attempt to turn over a new leaf, the administrator of Ohio’s troubled Bureau of Workers’ Compensation (BWC) has announced plans to improve financial results by up to $424 million. These improvements appear to be based on plans to cut health care expenses, improve investment income, and other administrative changes.
Ohio’s workers comp fund, the only source for comp insurance in the state, has been hammered by reports of excessive payments to hospitals, fraudulent investments, including reserves invested in rare coins, cronyism and back-room dealings resulting from ineffective oversight.
While I sincerely hope they get their act together, if they do, I’ll sure miss the entertainment value. After all, its not every day you see work comp hit the daily news… and certainly rare indeed when comp is mentioned in the same sentence with Abramoff, Delay, and the rest of the current crop of miscreants.

I have been on the west coast at a series of meetings with employers and insurers as well as managed care firms. A meeting earlier this week with a very large self-insured employer group highlghted some of the significant problems that still exist in work comp managed care. And these problems are not limited to California.
This group is self insured with a high deductible; the insurance, claims service, and managed care services are all provided by a top ten WC insurer. A common name, a fairly well-respected insurer.
This insurer is charging for medical bill review on a percentage of savings basis – that is, they get to keep 20% of the difference between what the provider bills and what is actually paid. Most of the providers in California bill way over the state fee schedule, which is all insurers legally have to pay in Ca. But this insurer wants to get paid an outrageous sum just for doing its job – for applying the law.
The right way to pay for bill review is on a flat rate basis – between $6 and $9 per bill.
Why? Simple – the percentage of savings method of pricing for bill review is costing this group five to ten times more than it should.
Note – I met with two gentlemen in FL last week who had a client with the identical problem – ridiculously, outrageously high charges for managed care – costs that were well in excess of the claims admin expense! This is not a rare occurence…
For more on this read my article on unintended consequences.
I bring this to your attention to encourage all to review how they are being charged for managed care, to scrutinize bills, referral rates, nurse case manager charges, and the like. Managed care has become a huge money maker for insurers and TPAs, and employers who fail to pay attention to this are being hammered.
What does this mean for you?
Hopefully not much – but if you aren’t paying attention you better start now.

More from the Coventry investor call last week…
Coventry views its businesses as in two main sectors – health plans or specialty businesses. Workers Comp and Medicaid are the specialty businesses.
CEO Dale Wolf sees substantial growth in 2006 in WC. According to Wolf, Workers Comp will grow from $215mm (Estimated) in 2005 to $240mm in 2006. While I guess anything is possible, I’m somewhat surprised about the level of optimism given First Health’s recent difficulties in the WC arena. On top of their losses at the Hartford and elsewhere, another large carrier has just moved a major state away from First Health. While I don’t pretend to know all that goes on with their new business and renewals, sources also indicate that renewal contracts are being negotiated on terms somewhat less favorable to FH.
FH’s bill review and network customers are large insurers and TPAs. Wolf views Coventry’s WC sector as a nicely profitable business with a dominant market position, based on what he views as the leading network in the country. The slides accompanying the presentation indicated Coventry is expecting a 12% growth rate in 2006. Again, I’m sure he knows a lot that I don’t. Or perhaps the market knows a few things that have not yet hit the executive suite at Coventry…
Notably, Wolf stated that Coventry will invest additional capital in this business.
My view is FH, which is yet to name a leader for the WC business unit, will be significantly challenged by Aetna which is gaining traction amongst payers for its very strong discounts and more approachable style. If Kaiser can promote its excellent On-the-Job program, United gets its act together, and the Blues make any additional inroads into WC, FH will have a real battle on its hands.
What does this mean for you?
The drive for top line from Coventry may help WC payers negotiate deals on more favorable terms as FH seeks to replace lost revenue from major insurers.