With the release of WCRI’s latest report – this on on outpatient facility surgery costs – I’ll have to leave the next and last wave of crystal ball gazing to tomorrow. That’ll ensure it has a full charge before I polish it up one more time for some serious prognosticating.
The report is typical WCRI – carefully researched, stuffed full of appendices, state-specific information, methodological discussions and data dissection. Fortunately authors Rui Yang and Olesya Fomenko have provided a quick summary of major findings for those who don’t want to read all 123 pages. We’ll get to them after a (very) quick synopsis of the methodology.
For trending purposes, Yang, Fomenko, and assistant Juxiang Liu analyzed payments for the 2003 – 2009 service years for knee and shoulder arthroscopy, surgical episodes common in workers comp, thereby taking into account fee schedule, coding, negotiated, and network discounts. The cost differentials were based on 2009 data.
– It will come as no surprise that states with no fee schedule, or one based on percentage of charges – had higher costs in 2009. And, those costs increased more over time than states with fees based on standards such as APCs (Ambulatory Payment Classification groupers)
– Illinois had the highest costs, 45% above the median (recall that work comp is already a v very profitable payer, so paying 45% more than median means WC is really profitable business for facilities)
– Massachusetts had the lowest cost, at 40% of the median. However, Mass had the highest rate of increase over the six year period at 85%.
– Notably, Maryland, the only state that sets costs level across all (well, mostly all) payers was the second lowest cost state at around 55% of the median.
– looking at arthroscopic knee surgery, Maryland’s FS rates were $928, about an eighth of Illinois’ at $7.713. For shoulder surgery, IL’s outpatient FS rates were more than twelve times higher than Maryland’s…
So, a couple of observations.
1. the information is a couple years old, and therefore doesn’t factor in changes since then. There’s no way WCRI could as many changes don’t make their impact felt for some time. That said, I’d note that Illinois’ new FS is ‘more of the same’, using a percentage reduction below charges that, as the study shows, won’t control costs.
2. the average cumulative trend rate from 2003 – 2009 was 38%, not terribly different from the overall CPI for similar services (6% per year). That’s encouraging, if you’re average. Texas’ increase was 73%…
3. With the expansion of Medicaid, pressure on hospital reimbursement from Medicare and the rapid increase in the number of uninsured, workers comp’s unenviable position as the best payer in the business is ever more firmly established.
And a conclusion.
Fee schedules and network discounts based on a reduction off charges DO NOT WORK, if “work” is defined as controlling costs.
If “work” is defined as making money for network companies, they work really, really well.

My crystal ball blanked out yesterday after revealing the top three predictions for 2012; it recharged overnight and looks ready to continue this morning. I’ll see what it shows and hopefully, before the light dims, we’ll have a clear picture of what the new year will reveal.
4. Attacking opioid addiction and dependency will hit the top of many payers’, regulators’, and employers’ agendas.
Led by reports and publicity from notables including Gary Franklin, Medical Director of Washington State’s work comp fund, Alex Swedlow of CWCI, WCRI and NCCI, there’s been a tremendous awakening among stakeholders to the human and financial cost of opioid abuse in workers comp. The quicker payers are already moving from “oh my it’s a big problem” to “here’s the plan to fix it.”
It’s about time. The damage caused by rampant over-prescribing of opioids is immeasurable. Devastated families, dead claimants, rising insurance premiums, increased crime, completely unnecessary disability and higher costs for employers and taxpayers are the result.
Identification of claimants at high risk for addiction and treatment of those individuals must – must be a priority. Intelligent payers will stop ignoring the problem or hoping it will go away, and work to a) prevent more overuse and b) help those already addicted/dependent to get healthy.
5. Now that Illinois is starting to approve Preferred Provider Programs, there will be lots of interest followed by disappointment that they really don’t do much to control over-utilization.
I know, this is a gimme. The good folk at the Illinois Department of Insurance have been forced to come up with regulations to implement legislation that is about as convoluted as it could possibly be. Unfortunately, claimants who are interested in gaming the system will use the loopholes in the PPP system to get what they want when they want it from the providers they want to get it from. The PPP will only really work for claimants who weren’t interested in gaming the system.
Unfortunately the PPP isn’t much of a solution.
6. As work comp premiums begin to rise, we’re going to see a renewed interest in loss control, risk management, and medical management.
With rate increases coming in California, Florida, and Massachusetts (among other states), employers are going to have to dust off those yellowed risk management plans, recall the basics of loss prevention, and perhaps re-hire the loss control pros they laid off over the last few years when their services weren’t ‘needed’.
Look for the big consulting houses, and smaller boutique firms, to emphasize their loss control expertise and capabilities; mono-line (and heavily-work-comp-focused) carriers will also tout their knowledge and ability to help employers control comp program costs.
The ball is dimming, and client work calling…time to put the sphere back in the charger.
We’ll conclude tomorrow.

There’s a lot happening in the work comp industry: a hardening market; frequency ticking up; consolidation/mergers/acquisitions and buyouts; legislative and regulatory changes; and management moves. And all this against the backdrop of a very big election year.
So here’s what I’m going to be watching for.
1. Health reform will impact workers comp.

I have no idea what the Supremes will do when they rule on the constitutionality of the PPACA, aka health reform bill. Their ruling could kill the law, leave it alone, or eliminate the individual mandate. But no matter what the official decision is, the health financing and delivery industries have changed dramatically over the last two years, and that change will only accelerate over the next two.
The rapid consolidation of health care providers, growth (via acquisition) of delivery systems, and acquisition of providers and provider-based managed care plans by payers is changing the landscape, as is the expansion of Medicaid. Health plans KNOW they have to change their models, get bigger, invest billions in technology and solidify and strengthen relationships with providers, regardless of whether reform survives or not.
All health plans are very tightly focused on those strategic imperatives. As a result workers comp, long a sideline, has been relegated to a position of insignificance, with one exception – Anthem. I’d expect to see the Big Blue continue to expand their work comp presence, but they’ll be the only one to keep pushing. The rest are too busy worrying about the 98% of the business that is group, Medicare and Medicaid.
For comp, network discounts will diminish, That doesn’t mean medical costs will increase, as discounts don’t always, or even most of the time, equal savings. Network options will change, and we’ll see more piecemealing of networks as other payers follow the lead of Broadspire and now ESIS and diversify their network relationships.
2. M&A in comp is going to accelerate.
There was a lot last year, but 2012 is going to be the year of the deal. With the pending changes in capital gains slated to kick in a year from now, several private equity-owned companies getting well past the three year horizon (and a couple past five), some long-time entrepreneurs looking to ride off into the sunset, and what appears to be an uptick in valuations, it’s a no-brainer.
3. Comp rates will go up.
Well, this already started, but it bears repeating. After a way-too-long soft market, it’s about time pricing sanity returned. Higher work comp premium rates will drive business to TPAs, encourage risk managers to, well, actually manage work comp risks, increase vendor business (think UR/case management, PT, bill review, and networks) and generally help all of us in the industry.
Three more tomorrow…

It’s increasingly evident that the way-too-long soft market in workers comp is coming to an end – if it isn’t already over.
The latest news comes from MarketScout (reported by Mark Ruquet in PropertyCasualty360.com), which indicated WC rates were up three percent in December, the highest increase among all P&C lines.
Earlier, Moody’s noted that reserve releases (insurance companies deciding they have too much money set aside to cover future claim costs) for work comp claims had pretty much ended, and ISO reported P&C insurers’ net income for the first three quarters of 2011 had declined by two-thirds from the same period in 2010.
This comes as welcome news to insurers, brokers, TPAs, and has implications for work comp services companies as well. And while employers may not look forward to paying higher premiums, they have to realize they’ve been enjoying a long period of low rates and great availability, factors which have reduced their expense significantly over more years than anyone could have expected.
For TPAs, many of whom have been hanging on by a thread while waiting for employers to once again look hard at self-insurance, this couldn’t come any sooner. Word is there’s been an uptick in proposal requests from employers.
For companies such as York (which just completed another acquisition of JI Companies late in December), Broadspire, Gallagher Bassett, and Sedgwick, this could well be the start of some nice, profitable growth. That is, if they don’t decide to cross the stupid line when it comes to pricing.
What does this mean for you?
Congratulations, you’ve made it through the longest soft market in recent history.

I’m all about accountability – and that means each year I have to report how I did on my predictions for the preceding twelve months. Not always a happy time, especially when it’s one of those “learning experiences.”.
Yep, it’s time for the annual review of my predictions for the year gone by – an annual event more likely to humble than honor your faithful author, while providing a bit of entertainment for you, dear reader.
So, somewhat reluctantly, here goes.
1. Business will pick up – a lot.
This referred to the work comp sector; it looks like my outlook was overly optimistic. While there’s been an uptick in initial claims, and severity continues to increase, and premiums are going up a bit, it’s only “a bit.” Have to score this a wrong…
2. We’ll see several new comp writers enter the market as capital comes in, providing increased underwriting capacity in selected markets.
I’d have to score this as a partial; there is plenty of capital in the comp market but not much in the way of “new writers”.
3. Sedgwick will continue to snap up TPA operations, supply-chain pieces, and managed care vendors
A definite “correct”, as the nation’s largest TPA, Sedgwick continues to grow in part by “vertical integration”, buying workers comp service companies and other TPAs. The latest deals include XChanging and SRS.
4. The exploding growth of opioid usage in narcotics in comp will become even more prominent.
Another “correct”. The research published by CWCI, NCCI, WCRI and individual PBMs has documented all too well the sad state of affairs. And if this wasn’t enough, there’s been reports of opioid-related claimant deaths in the mass media as well.
5. Obesity’s impact on work comp costs will gain more attention, as additional research will show significantly higher costs
Another yes, as well-documented by our colleagues at Workers’ Comp Insider and excellent research from NCCI
6. Congress will not solve the Medicare physician reimbursement conundrum,

This has to rate as a “gimme”; there’s no evidence Congress will ever solve ANY problem, much less one as knotty as Medicare physician reimbursement.
7. Hospital and facility costs, both inpatient and out, are going to get a lot more attention in payers’ C suites.
I can only comment on this anecdotally, but several payers I work with are quite alarmed about the cost of facility fees, especially in Illinois, California and Florida. That said, there hasn’t been the public discussion I thought would happen when this issue really gets traction. So, I’ll give this a “not really”.
8. We’ll see more litigation around ‘silent PPOs’ in more states.
Fortunately, this looks to be a “not really.” Madison County Illinois is one of the hotbeds of class action suits alleging silent ppo violations; most recently a federal judge refused to certify a class in a silent ppo case.
9. Social media is going to make its presence felt broadly and deeply in comp, in ways obvious and not, good and bad
Again, no question – yes. Whether it’s the usage of Facebook, Twitter, and other vehicles by payers looking for information on claimants, or service companies using social media for marketing purposes, or industry wide discussion groups (Mark Walls of Safety National’s LinkedIn Group, Bob Wilson of WorkersCompensation.com), or blogs (led by the originator, Workers Comp Insider) breaking news about developments in the market, there’s no doubt social media is a large and growing presence in comp.
10. The impact of health reform on workers comp will happen in ways mostly subtle.
Absolutely. While reform is a long way from full implementation, the added coverage of 2.5 million young people due to the expansion of parental coverage to children under 26, greatly expanded use of electronic medical records and e-prescribing, and increase in funding for medical research of comparative effectiveness are all making a difference.
What’s the result?
Well, six corrects and four “not corrects” – better than a great baseball hitter, but not what I’d hoped. (That said, a couple of the “not corrects” may get partial credit)
Next up – predictions for 2012. I’m off to get the crystal ball polished up at the local gemologist…