As if the declining frequency rate wasn’t bad enough, managed care companies are now looking at significantly lower claims volume in 2009, a decline that will spell trouble for work comp managed care.
When the number of injuries goes down (which it does during economic recessions), managed care vendors are directly affected. There are fewer bills (bad news for bill review), fewer treatments and visits to providers (bad news for PPO networks and UR vendors), fewer prescriptions (not as bad news for PBMs as you might think), and fewer cases to manage (bad news for case management firms).
This recession, currently in its twelfth month, may well be tougher on managed care vendors than prior ones. The jobs that are disappearing tend to be those in higher injury rate classes – retail, manufacturing, construction (24 consecutive months of declining employment), transportation/logistics. The auto industry is in freefall with sales down 37% last month, bringing suppliers along for the ride. The unemployment rate has rocketed to 6.8%, the worst result in over sixteen years, and may be headed to 8.5%.
Fewer workers, fewer injuries. Those fortunate enough to keep their jobs tend to be more experienced, better trained, and less likely to report an injury for fear they’ll lose their job. And, the pace of work is slower with much less overtime- all contributing to lower injury rates.
As if that wasn’t bad enough, payers are looking to move more managed care services in-house.
For some time, big (and medium) TPAs and insurers have been internalizing their managed care. Gallagher-Bassett, Liberty Mutual, AIG, Broadspire, and Sedgwick are but a few of the big boys that have long handled much of their own managed care (with the exception of networks – more on networks in a minute). Services such as bill review and telephonic case management are easily handled by the payer, and system vendors usually have modules ready for payers moving in this direction. Payers are able to capture more revenue and profit, while contending (with, in some cases, justification) that their results are better than vendors can deliver. Of late this trend has accelerated, primarily due to the soft market. First Cardinal is one TPA that recently brought case management in-house, others are internalizing bill review and UR as well. Expect this trend to accelerate.
As I noted a couple weeks ago, 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). This will mean more work for provider relations, legal, and customer service departments at network vendors, driving up costs.
There is also increasing chatter in the industry about big payers moving towards much smaller, more specialized networks focused around key workers comp physicians. We are seeing significant movement in this direction in California, Florida, and Texas, three states that combined account for a big chunk of workers comp medical spend.
There is a bright spot. Specialty vendors in the DME, Home health, and pharmacy sectors will be least affected. As reported by NCCI, the big dollars in these sectors are spent by long-term claimants. The recession will not affect these companies much, if at all, as most of their business is coming from claimants that were injured years ago.
What does this mean for you?
If you are a vendor, batten down those hatches. Demonstrate your value, service your customers, and get your employees on board.