NCCI’s recently-released report that indemnity claim frequency dropped another two points last year is just the latest indication that the market for traditional managed care services is shrinking.
Fewer claims = fewer services needed = fewer bills; less need for UR, case management, and related services.
Sure, severity is increasing, so there may be more utilization for a subset of claims, but this is not likely to offset the structural decline in frequency that looks to be baked in to workers’ comp – frequency is down over 50% over the last two-and-a-half decades. And yes, cost-shifting from providers scrambling to deal with tighter controls from private payers and reduced reimbursement from governmental payers will increase providers’ efforts to get more revenue from work comp payers.
Meanwhile the supplier market is consolidating, and managed care vendors are scrambling to capture enough of the shrinking market to survive the coming shakeout. If APAX/Genex/OCCM buys Coventry – which looks increasingly likely - they will control the largest network, case management company, PT vendor, DME/HHC vendor, and imaging network; one of the largest (albeit fading) bill review entities, a big PBM, and a ton of other services - MSA, UR, peer review, IME.
Some may think the FTC may find this dominant position a bit too much and not allow the transaction. I disagree; no one in DC cares about workers’ comp, there are many other networks out there, many other bill review entities and specialty managed care providers, and this is an election year and the focus certainly isn’t on a relatively small industry.
The implications are rather significant. Leverage is all-important – and I don’t mean the financial leverage but the customer leverage. With all these services, it would be surprising indeed if AGOC (APAX Genex OCCM Coventry) didn’t encourage payers to buy everything from them in return for discounts on some/most/all services, enhanced reporting, integration services and technology and/or some other incentives. Some buyers, already hard-pressed by reductions in staff, low IT budgets, and increasing demands for more “savings” and higher network penetration might find it hard to resist such a pitch.
The pitch would be compelling – more cost reductions and less hassle at discounted fees.
The trade-off would be ceding effective control over medical costs to a third party, one with arguably different incentives and motivations.
That alone will give many pause, as well it should.
For those who say I have a dog in this fight, you are correct. I work with several entities that directly or indirectly compete with these entities, and that is by choice.
More to the point, I also work with several very large payers on various aspects of medical management, and my opinion is control over medical management MUST reside with the payer.
What does this mean for you?
Workers’ comp is a medical business. Three-fifths of claims costs are medical, and that’s going to be two-thirds very soon. It makes no sense to outsource two-thirds of your costs to a third party.