Insight, analysis & opinion from Joe Paduda

Nov
24

The (short term) future of workers comp managed care

The comp conference ended (for me) last Thursday; the passage of time allows for the individual impressions to meld into an overall picture of the current, and near-term future, of the comp managed care industry.
Here’s what it looks like.
The decade-and-a-half decline in frequency that has slashed the injury rate in half is causing real pain among occ health clinics. Sources indicate industry leader Concentra is seeing a decline in work comp patients, a trend that will likely be exacerbated by the steep drop in employment (when the number of people with jobs drops, so does the number of workers comp claims – for more on the impact of recession on workers comp click here). It is likely that other occ health companies such as US Healthworks are also experiencing declines in patient counts.
Together, Concentra and USHW together have almost 450 occ health clinics, and both have been adding clinics in 2008. It is too early to tell if the additions have been worth the added cost in cash or debt, but the current economic situation makes it unlikely they will be looking to expand aggressively over the near term. Unless they find clinics that are finding it difficult to make it on their own, in which case this may well be a good time to expand on the cheap.
The big game-changer will be health care reform. If, as I’ve predicted, Medicare increases reimbursement for E&M codes (cognitive services), then the clinic business could well get a major boost. Almost all WC fee schedules are based on Medicare, so any change in Medicare directly and immediately impacts comp reimbursement. Watch Capitol Hill carefully; if Congress passes legislation signed by future President Obama affecting Medicare reimbursement, clinic companies may be big winners.
Meanwhile, work comp managed care industry leader Coventry is continuing to hurt (due to non-workers comp issues), with rating agencies downgrading their outlook on the company. If anything, the workers comp business at Coventry is a plus, as the fee revenue helps to offset some of their problems in the health insurance, Part D, and Medicare Advantage sectors. Several people I spoke with at the conference confirmed Coventry is continuing to get price increases on their network and bill review products, although pricing for PBM First Script and other services (e.g. MSAs and case management) is soft.
The network business is under increasing pressure from regulators. In addition to the legal issues in Oregon and Louisiana, is is highly likely the ‘networks of networks’ will find their business model under attack as states adopt legislation/regulations forcing greater disclosure of rental network agreements, requiring positive agreement from providers (providers have to sign off on a document before they can be added to a network).
The future of networks that are mostly amalgamations of other network contracts is not promising. They will have to convince payers that their liability is under control and their value (to the payer) is greater than networks with direct provider contracts.
Good luck.
The PBM sector continues to grow, with the biggest player – Express Scripts – looking to add to the distance between itself and its rivals. Despite claims to the contrary, ESI is not winning business by using its group health contracts; a well-informed source adamantly refuted that assertion, stating that all workers comp scripts are processed under their workers comp agreements. Expect this sector to get even more competitive as ESI fights for business with newly-purchased PMSI (second largest PBM by volume), Progressive (excellent reputation for customer service), Cypress Care (aggressive, innovative marketing and strong clinical offering), ScripNet (expanding into the eastern US), and Aetna (cross-marketing to their large group health employer customers). MyMatrixx (focus on pain management) and Modern Medical (highly disciplined and responsive) are also in the mix.
Expect pharmacy to remain highly competitive, with vendors adding value through clinical services, first fill capture, and upgraded reporting and communications capabilities as companies seek to survive and prosper in what has become one of, if not the most, competitive segments of the work comp managed care industry.
I’d also say we need to pay attention to DC. If Congress calls for the Feds to negotiate drug prices, this will affect comp in one of two ways. Either comp payers will be able to piggyback on the Feds’ negotiated rates, in which case per-pill prices will come down, or (more likely) comp payers find their per-pill prices increase due to cost shifting.
Case management firms are facing the same issues confronting occ health clinics, with several folks at the major CM firms bemoaning the decline in volume. With volumes declining, and more big insurers and TPAs taking CM inhouse, expect continued pressure on pricing as Genex, Intracorp, Corvel, and Coventry struggle to ‘feed the monster in the basement‘.
What does this all mean?
External factors are the primary driver of workers comp. Medicare, the economy, and politics are all way more important than internal happenings in comp.
Look up and out if you want to know and understand.


Joe Paduda is the principal of Health Strategy Associates

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