What’s all this about “white space” in workers’ comp?


Investors focused on the workers’ comp network and specialty managed care businesses are a bit obsessed with “white space” – the “potential” business, the “opportunity” to capture unmanaged services, to get patients to network providers and thus deliver lower costs to payers and fees for networks/specialty vendors.

During management presentations, potential investors are smitten by the unmanaged care, seeing that as the growth they need to increase the value of the company they’re bidding on.

White space is the term used to describe the volume of services delivered to workers comp patients that are outside the networks used by the employer/insurer.  As these “non-network” services aren’t priced at a contracted rate, there is no reduction below the fee schedule or state-set reimbursement rate.  No reduction, no savings; no savings, no fee paid to the network vendor.

About 65% of medical services provided to patients are “in-network” – leaving about a third of spend – or around $11 billion in medical costs – unmanaged.

When potential investors look at “unmanaged” services, they see upside, return on investment.  What they may well not see is the reality – there’s a reason that space is “white”.  Employers, TPAs and insurers have been working since about 1991 to increase network penetration.  They’ve tried lots of approaches and generally had pretty good success, especially in states where employers can require patients to go to specific providers or choose from a network.

All the easy stuff has been done – now the real heavy lifting is needed.  Increased penetration will come from:

  • educating small employers (a huge challenge),
  • working with primary care providers to refer in-network (when work comp accounts for a very small piece of their business)
  • faster claim reporting, triage, and acceptance
  • reducing litigation
  • broader networks (but this means some providers will be not-so-good)
  • more effective, precise, and fool-proof medical bill processing systems and workflows
  • better provider data – much better

A good way to think about this is that each incremental percent of network penetration takes twice as much work as the previous percent.

That doesn’t mean it isn’t possible. In fact there are some specialty vendors, employers, and insurers making significant progress.  These are the careful, thoughtful, analytical companies with very well-developed workflows and a very deep understanding of state regulations, provider behavior, employer limitations, and a lot of people working this every day.

There are others that are stumbling badly – not so much because they don’t know what they are doing, but because actually doing it is really hard, complicated, and requires investment.

And that highlights one of the challenges investors have with work comp.  The private equity world is used to automation, stripping people out of processes to improve performance and cut cost.  That doesn’t work so well in workers compensation.

What does this mean for you?

If it was easy, it would already have been done.

 

7 thoughts on “What’s all this about “white space” in workers’ comp?

  1. Great post Joe. Your last point about stripping people out of the process and the thought of doing more with less is exactly why they’ll never reduce this “white space.” At some point, something has to give.

  2. Our practice has struggled for years with this issue. Initially we were convinced to join networks and we did. We got caught up in the infamous tangled web : see the AMA paper on the tangled web : the rental network ppo industry AMA August 2005. It’s virtually impossible for the billers to determine how much each EOB is allowed to be reduced b/c there is no consistent network in the tangled web that was used to reduce our payments. We resigned from all networks and our payments are still being reduced. We have to continuously re file to get our money. This has amounted to requiring extra staff and resources for payments that are already reduced compared to commercial payers. This workers comp patient base can be very challenging, time consuming and litigious. How does undercutting providers payments lead to employer saving? I have been told the reductions make up the margins for the networks.
    My risk as a treating provider is not reduced but my payment is. Yes we have been retaliated against and removed from panel because we will not participate in the networks. We are in an authorized treating Physician state with a few MCO that are allowed to direct care but this doe not seem to matter.

  3. Joe:
    Thanks for this post. Another important point is that the legislative and regulatory environments have to allow for managed care to happen. Too many states make it difficult to encourage managed care.

  4. There are better solutions. Much of it, though, requires a partnership and collaboration between the insurers/self-insured plan sponsors, the provider community, the Workers’ Compensation Boards, and the injured employee. The goal has to be agreed upon (i.e., Workers’ Compensation is not a leave until fully recovered, but, a leave that compensates the injured employee until they are able to come back in a meaningful, albeit not necessarily the same, capacity.) The unions have to agree that Transitional assignments are just that – transitional assignments for injured employees – not newly created positions for which all employees would be eligible. There has to be a connection with prevention and employee safety. The communication channels need to be open. There needs to be better ways to address those that abuse the system. For employees injured multiple times, there needs to be an ability to test fitness for duty – is the employee actually physically capable of doing the job for which they were hired, or, does the employee need re-training, or physical fitness, or specific equipment. All of these pieces must work together.

  5. Joe – Great post. However, there’s an assumption that putting everyone into networks, works. As one of the other commenters stated – it has to be a partnership. We’ve seen in a small state, with a shortage of Doctors, anyway, networks created a disincentive for them as they would have been seeing the same patients anyway, and were being forced to take them at a lower reimbursement level. The result was less access than usual to care, and less interest by Doctors to get us the information we needed, when we needed it to best manage the claim. We ended our MCO relationship and started working directly with the Doctors in our state. The proof is in the pudding: access issues disappeared almost overnight, our dedication to working with the Doctors resulted in communication improving to the point where the Doctors complimented the work we did to our regulator, overall claim durations dropped like a stone, and we’ve seen a decrease in bills per claim, meaning fewer visits and lower claim costs. Was it only due to the network ? – of course not. But, it does seem there’s more than one way to reduce costs in a system – knocking down individual transactional prices is one way, but, depending on the system, might actually be counter-productive.

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