In another sign that meaningful reform initiatives do work, the National Council on Compensation Insurance (NCCI) filed rates for Florida that represent a 4.5% decrease; making the total filed decrease since 2003 22.1%.

These decreases were due to lower medical and indemnity expenses. Think about that - physicians' fees went up, and medical expenses and total claims costs went down.

That alone drives a major hole in the sales pitch of the large PPO networks, who base their "value" on the discounts they get from providers. Discounts do not drive savings on claims, they drive savings on individual bills. And do nothing to address utilization or frequency.

Back to the results - Florida's reforms were comprehensive, intelligent, and quite effective. Enacted in SB50A, they included drastic limitations on IMEs, changes to attorney compensation, revised indemnity determination and compensation for injured workers, and most significantly, higher fees for doctors.

While all the moving parts make it quite difficult to assign "effectiveness" to one part of the reforms, it is quite clear that the significant increase in the fee schedule for physicians, coupled with a sharp decrease in the (very rich) hospital fee schedule had two primary effects.

1. More physicians, and evidently more good physicians, are now participating in the WC system. This is a remarkable turnaround, and results from an increase in fees from 83% of Medicare (!) to 114% for primary care docs and 140% for certain specialists.

2. Hospitals have renegotiated their managed care contracts, in many cases decreasing discounts or eliminating them altogether. In turn, this has caused "deep discount" PPOs who make a large part of their income from hospital deals to de-emphasize the state. This de-emphasis means they are spending less time and energy in FL seeking discounts from other providers. My bet is this has, and will, positively impact utilization, as providers' need to drive utilization to replace lost fees is diminished. A bit of a stretch…but logical nonetheless.

To be sure, there are a number of providers that still will not accept the WC fee schedule, among them Jacksonville Orthopedics, the dominant ortho group in that area. However, across the state the comp system is undoubtedly healthier now due in large part to the changes in the fee schedule.

What does this mean for you?

Florida's experience is yet another indicator that low prices for medical care are counter-productive. Fixing prices does NOT control medical expense, and in fact often increases total expenses. And if this is the case for state-wide fee schedules, it is obvious that the deep discount PPO business model has a serious flaw.

States with very low fees, such as Massachusetts and Pennsylvania, should take note.

Posted by Joe Paduda at 6:38 AM | Link to this post

While we were paying attention to the mess uncovered by the Broward County School Board's workers comp audit , Ohio's workers comp scandal moved into new territory. A report from a panel appointed by Gov. Bob Taft (R) to review the mess in Ohio noted serious problems with oversight, financial controls, policies and procedures, and outside influences.

The Ohio Bureau of Workers' Compensation writes all the WC insurance in the state, and its investments, which are reserves for payment of future claims, are overseen by a five member panel, none of whom have any investment expertise. Yikes.

Wait, it gets better.

The governor's former chief of staff was convicted of failing to report several vacations at a home owned by a top campaign contributor, Tom Noe. Small potatoes? Not really - Noe was the guy who invested $50 million of BWC's funds in rare coins, some of which were "lost in the mail".

Taft has not escaped unscathed. According to the Akron Beacon-Journal, "Questions about Noe's investment of state money led to a scandal that culminated in Gov. Bob Taft's conviction last week on charges he was treated to numerous golf outings he failed to report, including two with Noe."

And, this won't end here. Noe, Taft's former political ally, is contending that Taft knew about the coin investments way before the scandal hit the news. Taft denies this, claiming he first found out about them in news reports after the fact. Here's the take from an Ohio TV station:

"In other developments Saturday, the Toledo-area coin dealer who managed the workers' comp bureau investments in rare coins continued to push for Ohio Governor Bob Taft to retract statements in which he accused Tom Noe of concealing his involvement in the investments. Noe's lawyer sent a news release that contended at least 16 members of Taft's senior staff, as well as numerous other officials, knew about the arrangement. He also contends Noe and Taft spoke of the fund in a locker room at Inverness Club in Toledo during a May 13, 2001, golf outing."

In addition, Federal officials informed the Ohio Attorney General that commissions charged by the BWC's so-called investment advisers were much too high. However, Attorney General Petro evidently sat on the news, which came after the SEC tried for 16 months to get the BWC to take action. While it is unclear if there are or were any political links between Petro and the investors, given the smell emanating from the entire mess, it is certainly interesting that Petro did not take prompt action.

It looks like the governor's office was treating the state's workers comp insurer and its assets as their private playground, investing in wine, coins, and other highly questionable "assets". So far, their efforts have cost the state over $300 million in losses.

Remember, these funds are set aside for workers who are injured, to cover their medical expenses and lost wages.

As much as I want to move on from this, it's the proverbial train wreck; you just have to keep looking.

Posted by Joe Paduda at 8:58 AM | Link to this post

Katrina will have a significant impact on the world insurance markets, and the impact will be felt quickly in the form of higher prices for many property and casualty insurance lines. Here's how this works.

Insurers price their coverage based on statistical models that take into account the probability of claims occurring and the potential expense of those claims. In those years where few natural disasters occur, insurers do quite well. In bad years, they get hammered, either by one big event or a number of smaller events or, in the worst case, several big events.

Most primary insurers buy "excess" insurance from another firm, such as Lloyd's of London. This excess, or re-insurance, allows the primary insurer to spread the risk, so catastrophic events such as Katrina don't bankrupt them. However, Lloyd's, General Re, Swiss Re, and the other reinsurers end up with significant exposure to this type of event.

Early reports indicate that Katrina's devastation is not nearly as bad as it could have been. This is due to two factors - the storm did not directly hit New Orleans and its intensity was reduced appreciably before it made landfall. Damage to the refineries and platforms appears to be minimal, or at least less than expected. However, estimates are that Katrina will cost insurance companies between $9 and $16 billion. While the upper end of this range is higher than the most expensive hurricane in history, it is well under early predictions of $30 billion.

According to Forbes "The 2004 US hurricane season was the most destructive on record, causing insurance losses of 22.835 bln usd, according to the III.(Insurance Information Institute) The single most destructive hurricane to date is hurricane Andrew, one of only two Category Five hurricanes to hit the US mainland, which left insurers facing claims of 15.5 bln usd in 1992.

The changes in Katrina's direction and intensity were good news for the insurance world, as most properties carry insurance that covers not only the cost of repairing them, but also the income lost when the facilities are out of operation, and any environmental damage resulting from their destruction.

Personal insurance lines losses will likely be quite high, especially in the property and auto lines. Business interruption and property are likely to take a substantial hit as well.

What does this mean for you?

Expect to see insurance prices spike. Reinsurers will have to cover their losses by charging more for excess coverage, driving up primary insurance costs. Primary insurers will have to not only increase prices to pay the higher reinsurance premiums, but to cover their losses as well.

This will be felt across all insurance lines, from workers compensation to homeowners to small business to directors and officers.

Posted by Joe Paduda at 7:21 AM | Link to this post

I've been hard pressed to keep up with the blog; seven days in Florida starting at the Florida Workers Comp Institute annual conference followed by a three day audit of a managed care firm is to blame. One of the biggest events at the conference was the third annual CHOICE Awards for excellence in workers compensation.

These awards are presented to physicians who exemplify the highest standard of care and demonstrate thorough understanding of workers comp and return to work while communicating clearly and effectively with all parties in the process.

Physicians are the key to effective workers comp and other medical programs.

They diagnose the condition, assess the patient, develop the treatment plan, write the scripts, schedule the imaging, refer for surgery, deal with managed care's questions and requests for information, monitor progress, and remove obstacles.

In workers comp, docs also identify limits and restrictions, develop return to work programs, recommend job accomodations, coordinate with employers, assess relatedness, and cajole, badger, encourage, and push injured workers back to work.

Many docs do this despite the request from insurers that they perform these services for a "discount" below their list price or fee schedule.

The unfortunate thing is the CHOICE awards are one of the few efforts by payers to publicly recognize those physicians that outperform their peers. And it is not a few docs getting a black plastic award and handshake from an insurance company exec. Over 200 nominations were received, a rigorous judging process was conducted, and all finalists were invited to the banquet. (disclosure - CHOICE is a client).

The keynote speech was given by University of Miami president and former Secretary of HHS Donna Shalala. The sit down dinner was attended by 400+. The band played for each recipient and for all the guests before and after the awards.

And the award recipients deserved all of it.

What does this mean for you?

If you have yet to figure out that physicians are the most important contributors to the success of managed care programs, get with the program.

Posted by Joe Paduda at 6:36 AM | Link to this post | Comments (1)

Aetna announced they will be offering a new health plan network option in northern California and the Central Valley that ranks specialists by several cost and quality indicators. The program, which goes by the unfortunate name of Aexcel, will only include those specialists that meet the Aexcel standards, and will be offered to larger self insured employers.

According to California HealthLine,

"Aetna evaluates them on factors including:

Number of hospital readmissions within 30 days;

Adverse events;

Adherence to clinical guidelines; and

Cost of care -- adjusted for the severity of a patient's illness -- relative to the geographic area.

The health plan considers Aexcel specialists to be the top-performing in an area with regard to cost and quality. Employers can include Aexcel in Aetna's non-HMO health plans, either as an option or a requirement."

Kudos to Aetna for their courage - physicians who do not meet their criteria will undoubtedly protest, and some may have valid points. But the key is to start somewhere, and this is a great start. The best physicians deserve more business, and docs who underperform deserve less.

What does this mean for you?

More incentive to differentiate your health plan, or select a health plan, based not on a spreadsheet but on the value they deliver, defined as the plan's ability to help you improve outcomes and costs.

Posted by Joe Paduda at 6:31 PM | Link to this post | Comments (1)

I spent most of Sunday and yesterday speaking at several sessions at the Florida Workers' Comp Educational Conference in Orlando. Nothing like Orlando in August. Also on the panels were several physicians from Florida, Gerry Sander, a PharmD from Express Scripts, George Furlong of Choice Medical Management (a client), and Nancy Brennan of SRS.

Here are a few takeaways.

1. There are a relatively few physicians - my guess is less than 15% - who are problem prescribers. These are the ones who write scripts for Actiq (a narcotic that is only approved for break through cancer pain), Oxycontin in the first month of an injury, and massive doses of other opioids and narcotics. Most of the physicians in the audience were appalled at this prescribing behavior. One physician, Dr. Richard Dolsey of Miami, noted that of the many physicians in his group, and the thousands of patients seen each year, he could not recall a single script for either of these drugs.

2. Although their numbers are small, these "bad prescribing" physicians have an impact on cost that is disproportionally high - Oxycontin and similar pharmaceuticals are the most costly drugs in WC (they account for more dollars spent than any others.)

3. One of the biggest problems with these drugs is their potential for addiction. Once addicted, the addiction treatment becomes the financial and legal responsibility of the WC payer. Detox can be extremely expensive, is quite difficult, to say nothing of the human toll on the individual and their family. One of the physicians on the Sunday panel is a pain management doc - a Dr. Silverman - he recommended a relatively new detox therapy, suboxone, administered in a physician's office that appears to work quite well with minimal side effects.

4. Physician education is seen as a long term solution or means of addressing drug costs in WC. However, I have my doubts - the entire drug spend in WC is about $3 billion this year, which is less than what drug companies spend on direct-to-consumer advertising. Significance? Hard to penetrate the consumer or physician mind when our resources are so limited.

5. That said, the industry can adopt data mining techniques to identify potentially problematic physicians, patients, or pharmacies and adopt educational approaches targeting specific problems. These should be educational and not confrontational in approach.

The gratifying thing about the two days was the dialogue, recognition of the extent of the problem, and willingness on the part of physicians and payers to address the issues.

What does this mean for you?

Drug costs are the fastest growing part of the WC medical dollar - and perhaps the hardest to address. Start by educating yourself on the problem, and realize that many physicians are doing the right thing, and only a few are problematic.

For articles specific to drugs in WC click here.

Posted by Joe Paduda at 7:38 AM | Link to this post

The recent news concerning the Spitzer investigations, Broward County's Work Comp troubles, the Arthur Gallagher payment inquiries and the adverse publicity surrounding same has caused some industry players to delay decisions regarding new initiatives. TPAs particularly have pulled back from some previous "done deals" while they re-examine their business practices, commission arrangements, and relationships with managed care firms.

I am attending the Florida Workers' Comp Institute, and after one evening's discussions with several vendors and TPAs the impact is obvious and considerable. Both are lamenting the delays imposed by TPA senior management.

This is a good thing. For far too long, the relationships between some TPAs and insurance companies and their servicing entities has been somewhat cloudy, with rumors of commissions, kickbacks, and other behind-the-scenes payment arrangements periodically surfacing. Now that the Broward audit and Spitzer inquiries (which include subpoenas of managed care firm Concentra and several insurers and TPAs) have shed some light on these practices, risk managers, brokers, and CFOs are paying much closer attention to these relationships.

Part of this increased attention may well be due to the potential for OFAC and Sarbanes - Oxley complications. I am certainly no expert, but the provisions of the "Sarbox" law that require CEOs to sign off on financial statements coupled with the OFAC reporting requirements (who receives funds from the corporation) appear to be playing a significant role.

What does this mean for you?

If you have always competed fairly and ethically, good things. If you have played fast and loose, troubles ahead.

Hallelujah.

Posted by Joe Paduda at 7:06 AM | Link to this post | Comments (2)

While the number of people with employer-sponsored health insurance has declined in California, the overall rate of uninsurance has not dropped, due to a rise in enrollment in the government's Medi-Cal program. Moreover, in 2003 almost 800,000 Californians had access to insurance at their employer but could not afford the premiums. Average contributions increased from $114 to over $200 from 2001 to 2003.

These contributions went to health insurance costs that ranged from $3700 for an individual to over $10,000 per family in 2004.

In total, 54.5% of employed individuals had employer sponsored health insurance, a drop of two points from 2001 to 2003.

Lots of statistics, but what do they mean. Here's my take.

1. Employees are paying roughly 25% of the cost of their insurance, when it is available.
2. The burden of providing health insurance is shifting towards state-sponsored programs from employer-sponsored programs.
3. This shift is likely to continue, and in fact to accelerate due to rising premiums.

I find it fascinating that we continue to debate the merits of a state-based system of health insurance v. employer based v. individual portable programs. Meanwhile, market forces are driving the nation in the direction of a state-sponsored system. So, while we engage in intellectual debates, outside factors drive reality.

Alain Enthoven of Stanford contends that we need to eliminate the employers' role in health insurance. I disagree. Dr, Enthoven may well win the debate, assisted by these underlying external forces.

What does this mean for you?

If you are a health plan, you know quite well the challenges of adding lives and revenues in what is a mature market. That's why health plans are moving so aggressively into government-sponsored programs. Continue that work, but don't forget the employers - they still pay most of your premiums.

Posted by Joe Paduda at 10:42 AM | Link to this post | Comments (1)

2004 was another banner year for property and casualty insurers as industry profits (investment income, underwriting, and all others) surged to $42 billion, a 28% increase over 2003 results. Industry capital and surplus increased by $55 billion, or over 11% from the previous year. And, underwriting profits were up $9 billion from 2003's $2.9 billion loss as a result of the industry's combined ratio (losses/claims plus administrative expenses) dropping to 98.9.

Certainly excellent results of which the industry can be justifiably proud. It is indeed a rare event for the industry as a whole to enjoy such stellar returns. That's the good news. The bad news is these results have been a result of increased pricing over the last few years, and there are growing signs that prices are either level or declining for most lines of coverage.

As capital enters this market, and pressure grows on both stock and mutual companies to produce even better results, returns will decline as insurers compete for market share.

What does this mean for you?

If you are a risk, good days are back. If you are an insurer, maintain pricing discipline and keep your "cost of goods sold" under control by managing risk through loss prevention and medical management. Now is NOT the time to scrimp on the basics of insurance - risk selection, loss prevention, and claims management.

Posted by Joe Paduda at 4:28 AM | Link to this post

Surgeons who are top performers in Washington's Department of Labor and Industries (L&I, i.e. workers comp) program will no longer be subjected to utilization review hassles. 111 physicians have been identified as providing all necessary documentation to the state's UR program, and all of the surgeries they recommended were approved. The result - they won't have to ask permission anymore.

The UR program is run by Qualis Health, and focused on carpal tunnel, shoulder, and knee surgeries performed over a two year period. According to the report in Insurance Journal, the 111 surgeons' results will be monitored over the next year.

"If it is determined that the number of unnecessary surgeries doesn't rise as a result of less oversight, L&I likely will expand the program to train and include additional physicians.

L&I-funded studies, conducted by the University of Washington, show that injured workers who get prompt and appropriate medical treatment tend to recover and get back to work more quickly. That results in lower workers' compensation claim costs and less missed work. One obstacle to receiving timely treatment is unnecessary delays in authorizing procedures."

No kidding.

While it is gratifying to see that physicians who perform well get treated differently by managed care overseers, it is indeed frustrating to recognize that this is one of the few programs of its type, and managed care in the form of precert has been around for more than two decades.

Here's hoping this is just the first of many intelligent decisions to identify the good docs and leave them alone.

What does this mean for you?

If you are a physician, perhaps a little hope. For managed care firms and folk who contract with them, get with the program. Stop monitoring everyone and start using that huge amount of data resident on your systems to identify the good docs.

Posted by Joe Paduda at 11:14 AM | Link to this post

Pres. Bush noted in a speech earlier this week that health care is a drag on the economy and family budgets. Ben Bernanke, Chair of the Council of Economic Advisers, said " These are issues that we are going to have to address because they are significant."

According to California HealthLine, Bush's proposals "include tax-free health savings accounts, tax credits to help low-income individuals purchase health insurance, association health plans, support for new technology to reduce medical errors and limits on medical malpractice lawsuits."

These are at best tweaks around the margins. Take limits on med mal lawsuits. Total costs for all expenses associated with medical malpractice, including defense, insurance, etc., amount to 0.46% of total medical costs. Medical malpractice is NOT driving health care cost inflation.

New technology will do little, if anything to address the underlying drivers of health care costs which are technology and price per service.

It is troubling that the President has done so little to address an issue which is at the heart of the nation's economy as well as the wellbeing of its citizens.

Posted by Joe Paduda at 7:38 AM | Link to this post

NY Attorney General Eliot Spitzer's ongoing investigation has produced another guilty plea, this time from an underwriter at Liberty International, a subsidiary of Liberty Mutual. The charge stems from bid-rigging; the underwriter, Kevin Bott, would submit unattractive bids at the direction of broker Marsh McLennan so Marsh would be able to show their client that another insurer's proposal was more attractive.

By steering their customers to specific insurers, Marsh gained additional commissions.

Bott pled guilty to a misdemeanor charge, agreed to testify, and is subject to a maximum of one year in jail.

This is the investigation that won't go away - the death by a thousand cuts, the Chinese water torture. And it shouldn't go away, as these are clearly unethical and immoral activities that are also illegal. What is most troubling is the lack of attention from some in the industry who appear to be waiting for this to end so they can go on about their business.

Those folks are sorely mistaken. The world has changed, and business as usual will not be tolerated in the future.

Posted by Joe Paduda at 8:41 AM | Link to this post

Sources indicate the "rebates" that broker Arthur Gallagher & Co. has recently paid to several employers in Florida may be related to contingent commissions and/or fees paid by managed care firms to the broker. At least three municipalities have received checks, including $1.3 million to the City of Gainesville, over $1 million to Lakeland, and over $100,000 for Alachua County.

The State Attorney General's office is heading up the investigation, and there are apparently internal inquiries under way at several other public entities. Preliminary indications are that at least one city risk manager has been "asked to resign", and other moves are likely in the next two weeks.

According to the Attorney General's release,

"There are indications that insurance brokers have improperly steered business to insurers who pay the brokers the highest fees rather than seeking the best deals for their customers. There are also indications that the companies may have engaged in bid-rigging. The alleged practices could be in violation of Florida's antitrust laws, Chapter 542, Florida Statutes. Penalties allow fines of $1 million for corporate violations, $100,000 for individuals and for three times the amount lost due to illegal activities."

Gallagher has responded to the inquiry, claiming that this is due to the actions of a single producer who no longer is associated with the firm. The statement follows:

"During an internal process review, Arthur J. Gallagher discovered an over billing discrepancy that did not follow the terms of the contracts for the City of Gainesville, the City of Lakeland and Alachua County...These discrepancies were isolated incidents handled by one AJG producer who has since been terminated...As soon as these discrepancies came to our attention, the situation was immediately rectified with the over billed amount returned and the appropriate Florida authorities notified.

While it is entirely possible that Gallagher had nothing to do with this matter other than receiving the inappropriate payments, it is indeed troubling that

a. it took Gallagher ten years to uncover this problem
b. no explanation other than a brief "we billed you in error" was provided
c. risk managers appear to be at risk over this

What does this mean for you?

Hopefully, nothing...

Posted by Joe Paduda at 2:32 PM | Link to this post

NY Attorney General Eliot Spitzer's ongoing investigation into the insurance industry has produced guilty pleas from 14 insurance execs so far. And more prosecutions and pleas are likely in the near future. Leading the list of the guilty are Marsh with six, followed by AIG with four and Zurich with three.

Most recently, four executives pled guilty to fraud and restraint of trade charges.

Insurance Journal notes that: "according to complaints filed by Spitzer this week, all four executives (three from Marsh and one from Zurich) were part of a scheme to control the excess casualty insurance market. More guilty pleas could be forthcoming, a spokesman for Spitzer said, but he declined to comment further, citing the ongoing investigation."

What does this mean for you?

Probably more paperwork, as compliance staffs seek to prevent any future collusion or appearance of same from tainting their business transactions.

Posted by Joe Paduda at 12:02 PM | Link to this post

The Ohio Bureau of Workers' Compensation announced that it will be significantly reducing reimbursement to hospitals . Cuts will be 21% for inpatient and 17% for outpatient services, and are slated to go into effect October 1, 2005.

Estimates of savings to BWC are about $3.3 million per month, or $40 million a year.

The cuts were the direct result of an analysis performed by a major union in the state which indicated hospitals' most profitable line of business was workers comp. Previously, reimbursement was 70% of a hospital's stated charges for inpatient admissions; the new rate will be 55% of charges. Outpatient rates would drop from 60% of charges to 55%.

While one has to applaud the quick action by BWC, an entity that has never been known for fast action, cutting reimbursement that is based on a percentage of charges is a highly suspect way to reduce expenses - what, if anything, prevents hospitals from increasing their charges?

Moreover, this is an across the board cut, and does not reflect any measure of outcomes, efficiency, or results. Thus the hospitals that have excellent results and performance suffer the same cuts as poorly performing hospitals.

Once again, a blunt instrument employed in the name of cost control.

Posted by Joe Paduda at 7:02 AM | Link to this post

Concentra will acquire Beech Street for $165 million. The announcement indicates that the deal will be finalized this year, and a definitive agreement has been signed by both parties.

Beech's senior management, led by Bill Hale, will be continuing in their roles, according to the companies' joint press release. Concentra CEO Dan Thomas noted that Beech's strong group health PPO will add strength to Concentra's group business. While Concentra has been active in smaller niches in the group business, it has long been a relatively minor market for the company.

There will be the usual Federal approval processes, which should not be much of an issue. Concentra and Beech have been contractually linked for some time with Beech providing network access to its provider network under Concentra's Focus PPO.

My take - a smart move by Concentra to gain share and presence in the group market, diversifying its revenue sources and adding depth in provider networks, at a very reasonable price.

What does this mean for you?

More consolidation means more bargaining power for the networks with providers and payers alike.

Posted by Joe Paduda at 10:45 AM | Link to this post

Managed care firm CorVel recently announced its results for the most recent quarter; revenues are down 7% and EPS dropped 12.5%. The company attributed its poor returns to soft claims volume in the workers comp sector (the source of most of CorVel's revenues), higher costs for regulatory compliance, and soft case management volume.

Perhaps even more telling is the trend: profits for the quarter were .28 per share last quarter, .32 in the same quarter in 2004, .40 in 2003, and .36 in 2002. The profit margin is also slim at $2.8 million on revenues of $70 million. While the cost of revenues declined, SG&A expenses actually increased by 1%. One wonders how this is possible, despite the "increased costs of regulatory compliance." Moreover, the stock carries a hefty P/E of 29, a valuation more in keeping with a growth stock than one with a three-year trend of flat or declining revenues and profits.

What is really hurting CorVel, which is most accurately characterized as a work comp managed care firm, is their business model and reliance on revenues and profits from nurse case management.

CorVel is highly decentralized, with operations management varying greatly from one office to the next. Some of their offices, notably northern Virginia, appear to be well run, while others, including south Florida, have significant problems as evidenced by the Broward County School Board audit. In addition, sources indicate CorVel's IT infrastructure hampers their ability to serve national customers, as it has very limited ability to integrate across offices. I'm no IT expert, but the company's dearth of national accounts seems to support that claim.

Nurse case management is a low-margin, high fixed-cost business that is mature, highly price competitive, and fraught with opportunities for "creative" billing. CorVel has hundreds of highly-compensated nurses that must be working billable hours at all times if it is to generate any reasonable returns. This is a tough, tough business that is likely dragging down results.

The company has made several acquisitons over the last couple of years which may have helped generate positive results; mention of these were notably absent in the earnings release.

In their earnings release, CorVel noted that it's Network Solutions (PPO) revenues increased as a percentage of total revenues. This seems to imply that it was flat or negative quarter-over-quarter. Industry sources indicate that CorVel did not make it past the first round in a recent PPO network RFP process at a large national carrier due to an inability to share critical pricing data.

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (4)

Back to my review of the audit of Broward County School Board's workers comp program. My last post focused on some of the specific problems identified in the Broward School Board work comp audit. This post will concentrate on more global problems, and highlight some "indicators" that you may be able to use to identify potentially problematic issues with your own program.

From 2001 to 2004, the percentage of the total program costs that were paid to "outside" entities (e.g. CorVel and Gallagher Bassett) went from 14% to 22%. However, according to the audit report,

"our tangible results, lost time, litigation expenses, permanent impairment ratings have not improved."

Note - if your program management costs have increased but results have not improved, you have a problem.

CorVel (the managed care firm contracted with Broward's TPA, Gallagher-Bassett), was paid over $2.7 million for the 2004-2005 school year, an amount which is greater than 10% of the actual claims paid. By any measure, that is wildly excessive. And the program is getting even more expensive - from FY 02/03 to FY 03/04, CorVel's total expenses increased by 27.4%.

Note - if your costs go up 27% and results do not improve, you have a problem.

The average case load for CorVel's field case managers went from 36 in 2003 to 31 in 2004. However, the number of case managers working Broward claims went from 8.6 to 12.5, an increase of almost 50%. During this period, the number of telephonic case managers did not vary, while their case load increased by 10%. Tellingly, the number of claims increased one percent during this time frame.

So, we have more case managers billing more hours for the same number of claims.

Note - if your FCM costs and staffing increases while the number of claims is static you have a problem

The audit report also noted "the District has a relatively large number of open claims which are quite old"; 146 cases are more than 10 years old, have incurred costs of almost $50 million, and comprise almost 19% of ALL claims.

Note - if one-fifth of your claims are over 10 years old, you have a problem.

The risk management department under-reported WC claims expense by about $1.7 million for the most recent school year. Leaving aside the question of "how is that possible", this suggests a need for an annual audit to verify expenditures.

Note - if your books don't balance, you have a problem

What does this mean for you?
This situation is gaining national attention, which should serve as a warning to vendors, risk managers, and regulators alike. Clearly there have been signs for some time of problems at Broward County - if you haven't audited your program or services recently, best do it now.

Posted by Joe Paduda at 9:45 AM | Link to this post

The recent report on hospital expenses in Ohio's workers compensation system which indicated WC generates less than 1% of cases but 12.5% of profits for hospitals has become the proverbial kick that overturned the ant hill. The governor has ordered the Bureau of Workers Comp to determine if hospital costs can be reduced; a major union has called for deep reductions in hospital reimbursement; the Ohio Hospital Association has vowed to participate in discussions "with an open mind and a flak jacket"; and the Bureau itself has vowed to take an active role in the process.

The latest news on the issue comes from the Columbus Dispatch;

"This month, The Dispatch used the union's analysis to show that during the past seven years, the bureau paid hospitals about $544 million above their actual costs to treat injured workers.

The hospitals made an average of about 50 percent on workers' compensation cases, far more than they made for treating patients with private or government insurance, such as Medicare.

Bureau records show payments to hospitals rose 80 percent between 1997 and 2003, though the number of injured workers dropped by nearly a third."

The study of the BWC's hospital expenses was initiated by the Service Employees International Union and shared with the newspaper, who reviewed the data and participated in the analysis. According to the Dispatch, the "Service Employees International Union District 1199, which represents 27,000 health-care workers in Ohio, Kentucky and West Virginia, will pitch a proposal it says would save $90 million a year.

The union plan would reimburse hospitals for the cost of care - as defined by the federal government - plus 10 percent. Under the current system, hospitals are paid based on the bills they submit, which sometimes are multiple times the actual cost of care.

As an aside, one wonders how many union employees are working at hospitals that would be affected by their proposal…

Once again, a focus on cost and not value is going to result in providers defending their charges from an indefensible position. The only way the Hospital Association and individual hospitals have a chance is if they can demonstrate their outcomes are worth the price. With the exception of Christ Hospital, I doubt any have collected any meaningful data. The result will therefore be ugly for the hospitals.

What does this mean for you?

As a payer, demand to know what you are getting for your dollars. Providers, you'd best be able to justify your costs in terms of outcomes.

Posted by Joe Paduda at 7:28 AM | Link to this post