Workers Comp PPOs are dead

The workers comp PPO is dead. Well, dying. The era of large, national PPOs delivering a single generic discount-based model is coming to a close. Payers are finding that their medical costs are still going up; their managed care fees are climbing; and their customers are increasingly questioning their business models, fees, and outcomes.
Liberty Mutual, ESIS, the Hartford , Zenith and California’s State Insurance Fund are among the major workers compensation insurers and TPAs that are making significant changes to their provider networks, strategies, and partners. By the end of 2006, the comp PPO vendor landscape will have significantly shifted, with the dominant players (First Health, Focus, CorVel) losing share to regionals, specialty firms, and a couple of relatively new entrants including Aetna.
While that evolution will be good for the industry, it is neither far enough or fast enough for my liking. Here’s what the payers should be doing.
BTW, this subject is too big for a single post, so I’m breaking it down into a series…

First, carve out specialty care (pharma, PT/rehab, imaging, DME) and where appropriate delegate that to specialty companies. These specialists know a lot more about ancillary services than any generalist; understand the cost drivers; and have narrow but very deep experience in managing costs and care. To assess the vendor, dig into their clinical expertise – you want a model that is not merely financial or reimbursement-based, but rather derives its success from a clear and comprehensive understanding of the specific sector.
Yes,there are operational and implementation challenges, but the rapid growth of the specialists indicates others are figuring out how to work with them, and profiting from those efforts.
Next, re-read the seminal piece by the California Workers Comp Research Institute’s Alex Swedlow and Jennifer Gardner on the correlation of physician experience in workers comp with outcomes. This excellent work clearly, concisely, comprehensively, and convincingly (no, Clyde Frazier is not guest-hosting this week) makes the case for directing injured workers to physicians with a lot of experience in workers comp.
In every outcome category, from litigation rate, to the mix of med-only to lost time claims, to the average medical cost per claim, to claim duration, to case-mix adjusted cost per claim, to total cost per claim, the more experience the doc had, the better the outcome.
Still not there? OK, dig out the January 2005 issue of the Journal of Occupational Medicine (available for purchase and well worth it), and read Ed Bernacki MD’s article on the great success enjoyed by the Louisiana Workers Comp Corp. after implementing a very small, highly selective network of expert occupational medicine physicians, their OMNET Gold Network (OM).
Bernacki’s study has results that parallel those reported by Swedlow and Gardner – average claims costs for non-OM cases were almost twice as high as OM and lost time days per claim were about 40% higher for non-OM cases. Not only were the results better, but unlike the other physicians, the OM docs were not subjected to utilization review.
So, here we have two solid peer-reviewed studies that indicate the key to reducing medical expense in workers comp is to find the right docs, send patients to them, and leave them alone.
Work done in Florida fully supports this concept; Choice Medical Management’s provider management organization (PMO) has demonstrated results that support these findings – their cost per claim is significantly lower than state averages, claim closure rates are much better, and their mix of business is significantly less attractive (they handle several large PEOs and other high-risk classes.)
(Choice is a long-term consulting client.)
I’m not done yet; a future post will dissect the common PPO model and recommend excision of hospital contracts and replacement with another strategy.