Is the drop in work comp claims frequency a myth?

An article in Human Resource Executive highlights the results of a report by the Government Accountability Office on workplace injuries, specifically noting many employers fail to report injuries and illnesses for fear of increasing their workers’ compensation premiums.
It’s not just employers, as many workers don’t report occupational injuries out of fear that they’ll be fired or disciplined, or their injury will taint their department’s unblemished safety record. The implications of this are significant and far-reaching.
According to the article,

Employers that deliberately under-report injuries in order to protect their workers’ comp insurance rates are committing fraud — fraud that will impact the entire business community, says Paduda [I was a source for the piece].
“Because of this fraud, workers’ comp insurers have been assuming much greater risk than they’ve been pricing for,” he says. “This will eventually lead to a lot more audits by insurance companies of their clients and much higher rates for everyone, especially when the current ‘soft market’ for workers’ comp insurance ends, which it soon will.”
It may also lead to higher rates and more audits from group health insurers due to injured or ill workers seeking treatment from their primary-care providers instead of their company’s workers’ comp provider, says Paduda.
“Group health insurers are growing more suspicious that many of the claims they’re seeing are the result of workplace injuries and will try to subrogate those claims to the parties they believe should be paying for them.”

Another report by the National Employment Law Project highlighted the problems faced by low-wage workers when they are injured on the job. The study looked at a population that accounts for fifteen percent of all workers in just three cities; Chicago, New York, and Los Angeles. Extrapolating the numbers out in just those three cities indicates that 75,446 workers comp injuries were not reported.
What does this mean for you?
For the comp industry, the declining frequency years may be coming to a screeching halt.
If you’re a work comp payer, you’ve been ‘lucky’ if you insure these businesses. That ‘luck’ will soon change as the Department of Labor is dramatically ramping up enforcement efforts. (I don’t mean to imply that comp carriers have somehow been complicit in this, in fact the opposite is much more likely as insurers work very hard to ensure rapid and accurate claim reporting.)
If you’re a TPA or other servicing entity, your revenues have been suppressed by the failure to report injuries.
And if you’re one of these low-wage workers, perhaps there’s hope that the situation will improve.

Where were the payers in Florida?

The ongoing battle over the work comp hospital fee schedule in Florida continues, as challenges have been filed by two hospitals, the Florida Hospital Association, and FairPay Solutions that prevent implementation of a dramatic revision to existing fees pending further action by an administrative law court.
According to Mike Whitely’s piece in WCC, the suits, reported this morning in WorkCompCentral (sub req) allege that the FL Department of Workers Compensation

“DWC exceeded its rule-making authority and strayed into the legislative realm by abandoning the usual-and-customary charge system.
Florida Statute Section 440.13 gives the final authority for setting workers’ compensation medical fees to the state’s Three-Member Panel. But it specifies that all outpatient fees are to be paid at 75% of usual and customary charges, except as otherwise provided by state law. The statute separately sets the payment for outpatient surgeries at 60% of charges.
FHA and FairPay argue in the filings the proposed fee plan “enlarges, modifies and contravenes” the law by shifting to a Medicare multiple fee schedule.”

Fortunately for employers and insurers in the Sunshine State, the actions of FairPay and the hospitals will save them from much higher hospital costs, costs that the payers have done nothing to address.

I’m bewildered as to why payers – insurers, employers, TPAs, self-insured groups – have not vociferously protested the proposed changes. As I’ve noted repeatedly, the proposed changes will dramatically increase medical costs in Florida’s work comp system with no concomitant increase in value, return to work effectiveness, quality of care, or reduction in total claim cost or duration of disability.
No, this is nothing more than a giveaway to hospitals, a big increase in their income from treating workers comp patients. Here’s how work comp payers are going to be harmed by the proposed changes.
First, this methodology means work comp will pay 174% of Medicare for surgeries and 395% for other hospital outpatient services. Does anyone, at any payer, think that it is reasonable for them to pay hospitals four times more than Medicare does?
Second, the location of services will likely change dramatically to the higher cost hospital location. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
Yet not a single payer filed a protest that would have delayed the implementation of this onerous and costly regulatory change.
Not one.
What does this mean for you?
Who’s looking out for your interests?

The long and the short of health reform’s impact on stock prices

Healthplan stock prices climbed yesterday as a Goldman Sachs analyst upgraded his view on the entire sector, concluding “Key to our view is that an end to health reform uncertainty (in a better-than-worst-case outcome) will be a positive catalyst, bringing investors back into the sector…”
Meanwhile, another analyst downgraded the sector, albeit from “overweight” to “market weight”.
I didn’t get it last month, and I still don’t get it. Unless these gentlemen are just looking at the next few quarters or couple of years at most, their recommendations, even the modest downgrade, don’t jibe with the future for health plans under reform.
Which is pretty damn bleak.
Health plans will be forced to take all comers in the individual market. The penalties for individuals not enrolled in healthplans are essentially insignificant in the Senate bill (starting at $95 individual, $285 family in 2014, increasing over two years to $750 individual/$2250 family), and somewhat tougher in the House bill (2.5% of income).
Pray tell me, with individual premiums above $5,000 and family above $15,000 today, how exactly is a penalty that is going to be less than 15% of the cost of a health insurance policy going to force anyone to buy coverage? Especially when the underwriting restrictions will allow those non-members to sign up whenever they get the flu, fall down skiing, discover they’re pregnant, or contract ebola.
No, what we’ll have is what’s happened – already – and is continuing to happen in Massachusetts – people enroll when they need care, stop paying premiums when they’re better, and health plans are getting murdered.
Perhaps the analysts are not concerned about what happens in 2014, or they are thinking the employer plans will provide enough margin to make up for sure losses in the individual sector. Perhaps they don’t think Congress will pass legislation establishing taxes on excessive health plan profits, or require plans to pay a minimum percentage of premiums towards medical care. Perhaps they’ve bought in to the greater fool theory.
Or perhaps their view is the bad news has been exaggerated, and the problems health plans have had of late are over and better times are coming. Those bad times include big losses in membership, with especially high disenrollment among commercial members.
I don’t see commercial membership increasing any time soon, not with the recent announcement by Aetna that it expects to lose up to 650,000 members in 2010. Those people will need coverage, and the current ‘reform’ bills will allow those people to purchase coverage on an ‘as needed’ basis.
What does this mean for you?
Something to ponder as you view your portfolio.

How to know if you’re being ripped off

In the work comp managed care/claims world, some vendors’ revenue maximization efforts are getting ever more clever. I know, I know, I’ve posted on this several/numerous/multiple times before, but to my never-ending amazement, these practices continue. So here are the top ten warning signs to watch out for (sorry for ending with a preposition…)
Before you start, realize that all TPAs are not out to rip you off, all managed care vendors are certainly not either, and the soft market and unreasonable demands by employers have forced many claims administrators to look for revenue wherever they can get it.
That’s fine, as long as you know where your dollars are going…
10. your TPA won’t let you use your own managed care vendors.
9. your TPA won’t offer a bundled price, including all managed care services. Even worse if you never asked for one.
8. savings reports focus on reductions below charges and don’t show reductions below fee schedule/UCR.
7. the TPA determines which cases ‘need’ case management – and your case management fees continue to grow. sometimes this appears to be OK, as the cost per hour is a deal, but it’s highly likely the hours worked are ever-increasing.
6. the TPA won’t sign any statement like this one. Unfortunately, that doesn’t mean the TPA isn’t lying, as some may sign the statement anyway knowing it isn’t true.
5. the TPA won’t provide copies of any contracts with managed care vendors.
4. the TPA agrees to provide a great deal on claims admin services, with the fine print noting that they have complete control over managed care, investigative, legal, and other claims support services.
3. the TPA’s claims admin price is way, way better than the competition’s. There is no free lunch, and if the deal is too good to be true, rest assured you’re getting ripped off.
2. the claims staff you meet during the pre-implementation meetings disappears when claims come in, replaced by inexperienced/non-experienced/completely ignorant ‘staff’
1. you are paying for bill review on a percentage-of-savings-below-charges basis, which motivates the vendor to find the highest-billing, highest-utilizing providers and let them run roughshod over your bank account, all the while trumpeting the ‘savings’
I’m sure there are more; feel free to contribute your own.
What does this mean for you?
Kinda obvious, don’t you think?

Are you ready for the hard work comp market?

The soft market that seemingly will never end will – probably by q3 2010. Are you ready? Many employers have lost focus on risk and cost management, lulled into passivity by the longest soft market in memory. Woe unto those that have forgotten the basics, for they will be in even more trouble than the employers who’ve merely been snoozing.
Here are a few suggestions for those risk managers looking to prepare for what’s coming.
1. The fastest growing segment of comp medical expense is facility cost. As health and hospital systems gain negotiating leverage and skill, PPOs with little leverage fund themselves at a distinct disadvantage. The big group and Medicare managed care plans have lots of patients to use as leverage in negotiating deals; not so for work comp networks. Check your facility cost inflation rate over the last few years; expect it will be near double digits, and don’t expect your PPO to be able to do much about it.
Instead look to specialty bill review vendors. I’ve extensive experience with one, FairPay Solutions, that has come to dominate the market on the basis of their results coupled with an impressive track record of wins in court when their recommendations have been challenged by hospitals. They’ve also got an interesting solution to the surgical implant problem. (And no, FPS doesn’t pay me to say nice things about them).
2. Drug cost inflation is increasing again. After five consecutive years of declining trend rates, inflation, driven by a big jump in brand pricing and higher utilization of high cost pain medications, is back. If your PBM doesn’t have answers that address these questions either you haven’t asked the right questions (pretty likely as most PBMs have solid clinical management offerings) or you’ve got the wrong PBM.
3. Getting the most out of UR and bill review – most UR determinations are not automatically fed into bill review applications, thus procedures that are not approved may well be performed – and billed – and paid – anyway. If your audit process hasn’t specifically addressed this you’d be well advised to make sure it does. This is especially important for payers with business in California, where UR costs have exploded since reform.
We’ll be looking at other areas next week. And apologies for typos as this entry comes via my iPhone.

If private health insurance worked, we wouldn’t need health reform

Lost in the fight over health reform is a single, huge truth – if the private insurance market worked, there would be no need for reform.
We wouldn’t be in this mess if private insurers were able to control cost inflation. And at the end of the day, that’s what they are supposed to do. Sure they have lots of experience in underwriting and risk selection, and some have made some progress in some areas of disease management/mitigation, but UHC and Coventry and Wellpoint and HealthNet et al’s ‘experience’ have not been able to consistently deliver lower health care costs.
I know there are lots of reasons/problems/complicating factors, but the stark reality is when it comes to controlling inflation, none of them have been able to.
Why not?
Several reasons, some good, some not so good, but all worth considering as we contemplate a new world built on one of the bills before Congress.
Health plans’ best interest
As Maggie Mahar so eloquently and persistently reminds us, we live in a culture of ‘Money-driven Medicine’. Health plans, providers, brokers, and suppliers are in this business to make money. For health plans, controlling costs means lower revenues, and this is one of those wonderful industries where top lines grow every year by ten percent plus – regardless of any increase in the number of customers (members). Wall Street loves top line growth and rewards companies that consistently grow their revenues.
Quite simply, it is not in a health plan’s best interest to control cost, as most of their policyholders are going to stick with them regardless of the increase in premiums, and the business they lose they’ll make up by stealing customers from other health plans.
Churn
Employers change plans every three or four years, so any ‘investment’ in reducing long term costs is an expense incurred by the current healthplan for the benefit of a competitor. This is particularly true for smaller groups, and is further exacerbated by the increased mobility of the workforce, which tends to change jobs more now than a couple decades ago.
Mindset
After the great explosion triggered by providers’ negative reactions to capitation and employees’ negative reaction to small provider networks, healthplans, led by UHC, adopted an ‘open access’ model, wherein members could go ‘out of network’ to receive care, albeit at a higher copay rate. Employers are certainly to blame for a failure to explain the logic behind and lack of will to stick with the tighter managed care models, but they’ve certainly paid a high price for their lack of foresight and will. The result of the ‘dimming down’ of managed care is the current employer-based health cost inflation.
Regardless, since the adoption of the open access model in the mid-nineties, consumers have gotten used to, and highly attached to, that model. Undoing that mindset is going to be painful, and health plans don’t succeed by causing pain amongst their members.
Cost control by price control
Listen to health plan execs on their quarterly earnings calls, read their transcripts, review their press releases, look at their product offerings – see much in the way of real cost control? Strong disease management, medical homes, useful data on provider outcomes and costs presented in a way that Joe Sixpack or Maria Martinez can readily use?
Didn’t think so. Sure, a few health plans (Aetna probably being the best among the for-profits) are making an honest effort, but most are not. Instead, health plans rely on price control – squeezing providers down as hard as they can on reimbursement rates for specific procedures – a practice that solves one part of the cost equation but does nothing to control utilization, and may well exacerbate it.

For-profit health plans operate in the best interests of their stockholders – not those of their members, providers, or society. That’s how capitalism works.
And not-for-profit health plans have to compete with the for-profits, a reality that has forced the Kaiser Permanentes and Group Healths to adopt many of the business practices of their competitors.

The net

The reason we need reform is the current ‘free market’ is not fixing society’s problem. The reform we need is real, meaningful reform, with true cost control, not a few pilots here and a bit of disease management there and a couple of billion of comparative effectiveness research sprinkled on top of a layer of slightly-modified fee-for-service reimbursement.

The implications of AIG’s price cutting

Eight months ago I reported AIG was buying business – slashing prices for property and casualty insurance coverage in an effort to hold on to current customers and hopefully land a bit of new business. Now comes a report from Bloomberg that analysts have confirmed what some brokers and most of their competitors have known for months – Chartis (the name of AIG’s core insurance business unit that’s been separated from the rest of the ‘old’ AIG) has been accused of ‘aggressive’ pricing by analyst Todd Bault of Sanford C Bernstein, a charge that’s been leveled for months by Chartis’ competitors.
Simply put, it appears that about a year ago AIG execs decided to cut prices on liability, workers comp, and some other lines of insurance to retain business and generate cash flow to prevent the company from going under. It worked then, but at a cost that’s becoming apparent now.
There’s a lot to consider here – the possible impact of AIG’s alleged pricing actions on extending the soft market; effect of underpricing on reserve adequacy; and consequences for the likely spinoff/sale of Chartis. I’ve discussed most of these topics here on MCM, but to save you the trouble of clicking thru, here’s the summary.
First, I’d be remiss if I didn’t acknowledge that AIG execs are denying the charges, with AIG Chief Financial Officer Robert Schimek claiming their rivals’ charges “reflect a big degree of frustration by the marketplace that they’ve been unable to unseat the Chartis organization in the vast majority of business.” That’s not exactly true, as AIG reported insurance sales dropped 13% in the most recent quarter while the combined ratio increased to 105.2, results significantly worse than those of competitors Liberty, ACE, and Chubb.

Reserve adequacy

Last winter, I heard from sources ranging from headquarters staff at large competitors to several brokers around the country that AIG was quoting rates for P&C coverage that had only a ephemeral relationship to the actual cost of risk. The sense then was AIG was doing anything it could to add premium, and thereby build up the companies’ financials. AIG’s desperate effort to add premium dollars, staved off deeper financial trouble, but as I noted back in March, “the shortsightedness of this approach will become obvious. Even more obvious than it is today. Claims will come in, reserves will be needed to fund those claims, and it is possible, if not likely, that there won’t be enough capital to fund future claims.”
Soft market
AIG’s pricing actions, to the extent that they were ‘real’, were but one of several factors contributing to the depth and duration of the current soft market
. But those actions can’t be discounted; as one of, if not the, largest writers of property and casualty insurance in 2009, any discounting by AIG would send tremors thru the entire industry. The company had long been known, and highly respected, for its underwriting expertise. When brokers and risk managers received quotes from AIG at very attractive rates, many likely turned to the other carriers bidding on their business and said something along the lines of “if AIG can charge me this, why can’t you?” Sure, some, or most, knew that AIG’s pricing may not have been realistic, but all’s fair in love, war, and insurance, and using one company’s bid to beat down another’s is common practice.
Chartis sale
According to Bloomberg, “AIG shareholders and the federal government face considerably more uncertainty than they may have anticipated,” Bault said. “AIG would likely have to take some kind of reserve charge” before selling its Chartis property-casualty business or holding a public offering for the division.” That sale will be a key piece in the ‘taxpayer repayment program’; we’ve kept AIG from going under, and if we are going to get our money back, a sizable chunk will have to come from the sale of Chartis. I noted last month that the disposition of AIG’s assets was proceeding rather well, and should have added a reminder about the pricing issue.
What does this mean for you?
If you work for Chartis, know that I wrote this with reluctance. As I said in November, AIG’s destruction was the result of poor management oversight and a wildly out-of-control finance unit. The women and men who work at Chartis and most of the other AIG companies do a very good job, work very hard, and take justifiable pride in their work. Here’s hoping their talent and abilities are enough to overcome poor decisions by their erstwhile superiors.

Clarification – Last chance to avoid higher comp costs in Florida

Florida is scheduled to dramatically change the way hospitals get paid to care for workers comp patients, and if payers don’t get their act together, they’re going to be paying more – a lot more – for medical care.
WorkCompCentral reports today that a hearing, tentatively scheduled for this Wednesday to review the change, will not be held if no public comments have been submitted. That was the case as of the day before Thanksgiving.
Here’s why payers should shuck off their post-prandial lethargy and get their comments/objections/concerns in to DWC.
The revised fee schedule would have payers owing hospitals 174% of Medicare for surgeries and 395% of Medicare for other compensable charges. Workers comp is already the most profitable line of business for Florida hospitals, and this methodology makes it even more lucrative.
Clarification – in the original post, I noted that “according to an analysis performed by FairPay Solutions, this methodology will increase payers’ costs – today – by 181% for surgeries and 330% for other hospital outpatient services.” This was actually from FPS’ review of the Florida Dept of Financial Services’ 2006 analysis.
Not only are the hospitals going to prosper under this new scheme, work comp networks contracted with hospitals at a percent off charges are going to be rolling in dough, as the charges are going to be much higher, and their ‘savings’ are going to be as well.
It’s not just a price issue – Expect to see many surgeries and other services currently performed on an outpatient basis shifted to inpatient to take advantage of the much higher reimbursement. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
This isn’t just speculation. South Carolina put in a Medicare+ hospital fee schedule on 10/01/06. NCCI recently filed a 23.7% WC rate increase. Even though SC’s adoption of a Medicare+ hospital fee that pays hospitals less than the fee schedule proposed by Florida (140% of Medicare in SC vs 174% to 395% of what Medicare pays being proposed for Florida by DFS), paying SC hospitals more has significantly increased medical costs and utilization in SC.
For more detail on this (and be careful what you ask for), see here and here and here.
What does this mean for you?
If you’re a network or hospital, happy days.
If you’re a payer, higher costs – much higher costs.

Pharmacy costs in California work comp – time to reform the reform

In 2004, California implemented a set of far-reaching reforms to its workers comp system, including several specifically aimed at cutting medical costs. One of the more drastic changes changed the pharmacy fee schedule from one based on a significant multiple of AWP to one tied directly to the Medi-Cal fee schedule (California’s name for the state Medicaid program). Medi-Cal’s fee schedule is actually lower than most comp PBMs’ contracted rates with retail pharmacy chains; as a result most PBMs are ‘under water’ on their business in California or are at best at break-even.
While medical costs have come down dramatically after reform, especially in physical medicine, that has not been the case for pharmaceutical expenses.
In fact, costs increased significantly, driven by significant increases in both the average number of prescriptions per claim and the average payments per claim for prescriptions. In addition, payments for Schedule II narcotics, categorized as having a high potential for abuse and addiction, increased nine-fold after reform. Schedule II drugs are also strongly associated with extended disability duration, driving up both medical and indemnity costs.
According to the California Workers Compensation Institute, the average number of first-year prescriptions per claim increased 25 percent after the implementation of the Medi-Cal link, while the average drug cost per claim went up 37 percent. (Changes in Pharmaceutical Utilization and Reimbursement in the California Workers’ Compensation System, September 2009)
The problem with physician repackaging/dispensing has largely been addressed, yet costs continue to escalate. From conversations with PBMs that dominate the state, it is clear that California’s reimbursement levels don’t allow them to invest in utilization management and clinical programs, both of which are keys to controlling total drug cost. Studies conducted by NCCI clearly indicate the primary importance of utilization as the driver of comp drug costs; surveys conducted by my firm have confirmed this as well, as those payers focused on managing utilization have seen their drug costs drop while payers without strong utilization controls consistently see drug cost inflation rates well above average.
Clearly, the linkage to Medi-Cal has not reduced drug costs for California’s employers.
What does this mean for you?
If California doesn’t rethink its approach to drug fee schedules, expect your costs to continue to increase.

Some customers aren’t worth it

The work comp managed care world can be brutally competitive, with big dollars (well, big for this relatively small market) riding on buying decisions, and the success or failure of business plans also determined by those decisions. I’ll leave aside the all-too-common lack of objective, dispassionate analysis upon which many decisions are based – that’s a subject for another post.
Today I want to talk about why it can be more productive – and more profitable – to walk away from business than to tie your company in knots, bastardized your operations, cut prices to the bone, and make a host of other concessions in an effort to land or keep a big account.
Because the fact is some accounts just aren’t worth keeping. I’d bet if you look at your customer list there are at least two that take up way more time than any other, that constantly complain and whine and can never be satisfied and don’t pay their bills on time or in full and chew thru account execs like a puppy thru newspaper. Management spends hours each week trying to please the various people at the account, a difficult task because their contacts’ demands are either contradictory or pointless or poorly defined if not all three.
I’ve talked with several vendors over the past few months about this issue, more than once on behalf of the customer’s senior management. The top execs keep hearing about the vendor’s incompetence or unresponsiveness or poor service, which upon investigation is nothing of the sort.
Instead what I’ve found, albeit not in every instance but certainly in more than one, is a relationship that has no or poorly-defined objectives, and/or is overseen by an individual that is not competent or capable, and/or where there are ulterior motives on the part of that individual, perhaps to make the incumbent vendor look bad, or justify his or her existence by appearing tough, or to help out a friend who happens to work for a competitor.
Shocking, I know. Hard to believe this happens in today’s business world, but true nonetheless.
What’s a vendor to do? As tough as it may be, in some cases the best option is to walk away. Professionally and politely inform the most senior customer contact that you aren’t able to meet their needs and requirements (describe those needs in writing in detail), offer to facilitate a transition to another vendor, work diligently to make that transition smooth, and when it’s all over, conduct a post-mortem internally and with the now-ex-client.
And discover that you now have hours more time in the work week, much less stress, higher margins happier employees and a new appreciation for and time to focus on the customers that you actually like.
What does this mean for you?
An opportunity, not a problem.