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.
Joe,
As a small vendor providing case management services and as someone who sits on a network committee and makes determinations about purchasing services from vendors for the second largest employer in the State of Florida I would agree it is very convenient to purchase grouped discount services from one vendor. If you are a very large employer or insurance entity the discount aspect is very appealing. Particularly went your work comp budget is getting cut or squeezed annually. However, it has been my experience when a company buys some many arms of service they stop being the expert in one area and become a Jack of all trades. Further the tendency is for the quality of the service to suffer because they have lost the expertise of the individual arms they now own or they have failed to see the importance of maintaining the proper staff in order to maintain the expertise because that would cut into the profit margin and thus they could not offer that BIG discount on the service. Please know I am not pointing fingers at the entity mentioned in this article but buyer beware because in some cases spending a little more on the quality of service you buy will save you far more on the overall case in the end.
The massive aquisitions have actually caused substantial growth with many providers and the ethics (or lack of) that are being observed are less than impressive.
There is the school of thought that less choice waters down competition which in-turn, effects quality/outcomes.