Insight, analysis & opinion from Joe Paduda

< Back to Home


Work comp medical: cost vs “savings”

I still have a sports jacket I bought years ago because it was a great deal. It’s ugly and doesn’t fit right, but oh, what a deal. I keep it to remind myself that it’s not about the deal.

(I know, I can’t believe I spent money on this)

Most work comp buyers focus on the deal they get on medical expenses, paying little attention to the quality of care delivered, or what that care actually costs.

Reality is, most buyers measure their performance by how much they’ve “saved”, not how much they’ve spent – or what they got for their dollars.

Some, like Albertson’s, are focusing on what matters – quality. But most don’t, relying instead on “savings” reports that purport to show how many gazillions their vendors “saved” by not paying duplicate bills, slashing charges to fee schedule (!), applying state rules to bills, assessing relatedness and using clinical edits.

These buyers are saving themselves to death.

Instead of bill reductions, payers should be looking at medical cost per claim. Replace network penetration with physician performance evaluation, based on total outcomes. Stop looking at denied procedures and start identifying the providers who do a great job, send claimants to them, and leave them alone.

What is scary is that many in the industry think they are making progress. They are plodding deliberately along, reading bill review savings reports, studying, evaluating, debating, discussing, re-organizing, considering, meeting, presenting, recommending other ways to “save”.

They are mistaking activity for progress, when they should be focusing on what matters – measure and reward quality. 

So, you may want to ask yourself, would you buy medical care for your family the way you buy it for your employees or insureds?

What does this mean for you?

If you do want to dig into medical, here are a few ideas.


8 thoughts on “Work comp medical: cost vs “savings””

  1. Great post Joe. I recall constantly telling Senior Claim Management that I can save you enough money to put the company out of business. Outcomes, data driven decisions, and evidenced based Medicine…Quality results.

    Glad you continue to beat the drum.

    Oh, by the way, Ditch that horrible sports coat.

  2. Thanks for roughing on this again…and again… Perhaps the reason why this keeps coming up is because, as an industry, we have perfected the discounted savings model to the exclusion of all others.

    One thing that I would suggest is that TPAs could create new programs where better overall claims outcomes result in healthy bonus payments to the TPA. The focus being to maximize bonuses through fantastic engagement with the injured worker and through meeting important KPIs than through fees generated from discounted savings on services delivered (necessary and/or unnecessary) and from medical management activities.

    With good predictive analytics, we have the ability to risk-adjust and establish performance benchmarks on a claim by claim basis. TPAs could still compete on low admin fees and then duke-it-out for the big money on performance.

    This is an excellent topic to brainstorm on.

  3. Amen Joe! I love Les’ ideas about incentivizing the right things. Safeway and Albertson’s are great examples of doing it the quality way.

  4. Joe, I agree with you that ultimately it is the trend of medical and indemnity costs that is most important, along with clinical outcomes and patient satisfaction.

    However I also think that some of the process metrics are useful too. if you are not being well- served by your provider networks and your bill review and PBM resources, you may not be achieving the results you wish for. So digging into these details can help you identify performance issues that, if remedied, can yield better overall outcomes.

    So i think one needs to attack this at both a macro- and micro-level.

    Hey, I like that jacket! Very hipster!


  5. It’s all about outcomes. Evidence-based medicine guidelines can serve as a path for aggregated cost savings in terms of TTD, Medical costs, and permanency. Cutting fees paid…well, you get what you pay for.

  6. Joe,

    Great comments. Can’t believe we’re still talking about it after 20+ years.

    What’s your suggestion for how to get all parties to be transparent with their employer clients and to disclose all financial vendor side-deals? How about a way for employers to know on what basis providers are being selected for their injured workers? And how much of their medical fees are actually reaching the provider who performs the medical service?

    Lastly, how about selling me your sports jacket at a discount rate? Aren’t all jackets essentially the same?

  7. Joe, don’t think saving money and improving quality are mutual exclusive – you can do both. Lower paid medical lower indemnity person happy and healthy. Outcomes for sure are important. Don’t see a lot of science out there on this issue – MPN’s like to talk about it but I’ve vetted a lot and haven’t seen anything great beyond the value the state brings in the regs. Harbor Health though seems to be onto something. Most credible I’ve seen so far with room to get better.

    1. David – I don’t. There are quite a few employers who have cracked this code and are able to measure and reward quality.

      Fact is, selecting a vendor based on some measure of savings below fee schedule or some other cost-centric figure is wildly simplistic, rewards over-utilization, and is a disservice to the provider, patient, and employer.

Comments are closed.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



© Joe Paduda 2024. We encourage links to any material on this page. Fair use excerpts of material written by Joe Paduda may be used with attribution to Joe Paduda, Managed Care Matters.

Note: Some material on this page may be excerpted from other sources. In such cases, copyright is retained by the respective authors of those sources.