Consolidation in the real world – implications for workers’ comp

There’s been a lot of mergers and acquisitions in the work comp arena, and certainly more to come.

But the activity in our little corner is minor indeed compared to what’s happening in the “real world” – group health, Medicaid, and Medicare. Make no mistake, these transactions will affect work comp.

You’ve probably heard of some of the activity among payers;

When these deals are completed, there will be three giant health insurers; United, Anthem, and Aetna.  All will have major operations in the Health Exchanges, Medicaid, Medicare, and employer-sponsored health insurance. Anthem, which owns many Blues plans, will have more local dominance in specific markets while Aetna and UHG are bigger players in the employer marketplace.

What you may not be tracking is the provider consolidation – which is equally frantic.  Just a few examples from the last few months:

The ongoing seesaw of market power is playing out nationally and locally – but the local scene is much more relevant for workers comp payers.  Local health systems negotiate with these big payers, with both sides coming to the table from positions of strength.  If Aetna wants coverage in southeastern PA, UPenn-Lancaster must be in their network.  For UHC to compete for employer and/or exchange business in New Jersey, they’ve got to have access to facilities and docs controlled by the two entities listed above.

The bruising battle over access, rates, and exclusivity is what’s driving the move to narrow networks. Health plans have to deliver more patients to specific health systems or those systems will not negotiate on price.

The best way to ensure increased patient volume is to make a deal exclusive – and we will see more and more narrowing of networks as competition heats up among the big three health insurers.

What does this mean for workers comp?

Work comp is incidental to Medicaid/Medicare/group/Exchange business. Health systems are going to get squeezed in these deals. Health plan execs will look to several reimbursement sources to make up margins; out-of-network care being most important but workers comp will be considered quite attractive as well. Comp is quite profitable, particularly as it drives orthopedic and ancillary revenue, services which have traditionally high margins for hospitals.

The other consideration is the care that is delivered via a health system or facility is billed under a hospital fee schedule. And, there can be a facility charge in addition to the physician fee. 

The net is work comp will be seen as a great source of very profitable patients.

Hospital prices are up. Way up.

And this means higher costs for those getting treatment outside of their core networks, and especially for work comp payers.

While Medicare reimbursement has remained pretty level, hospitals have been busy raising their list prices by more than 10 percent over the last couple of years. This doesn’t really affect most patients as their rates are negotiated by private insurers or set by CMS for Medicare recipients (or Medicaid on a state-specific basis).

Examples of procedures with the highest increases are:

  • Back and neck procedures except fusions – 22.5%
  • Medical backs – 17.5%
  • Most fractures – 17.3%

The impact is felt most directly by privately-insured patients seeking care outside of their network, as deductibles will almost certainly be much higher, as will copays and out-of-pocket limits.

For workers’ comp payers in states without DRG-or similarly-based fee schedules, the price increases are having even more of an impact. For example, employers in states such as Florida that base reimbursement on a percentage of charges are seeing significant jumps in the prices paid for facility-based care.

But that’s only part of the issue.  There’s a “multiplicative” effect as well.  With more and more physician practices bought out by health systems, and more and more docs working for those health systems, their services are increasingly billed as facility codes which tend to be higher and include costs that don’t show up on physician bills.

Medicare is doing an admirable job holding down costs while increasing its focus on quality.

That said, there are some pretty ugly side effects.

As facilities scramble to increase their quality ratings; staff is evaluated on “patient satisfaction” which is a pretty iffy metric. The understaffing of inner-city emergency rooms is gaining more attention, as well it should. These are just two of the unintended consequences of what are dramatic and often wrenching changes in the American health care system.

What does this mean for you?

Higher facility costs for comp payers means they will need to focus even more tightly on the amount paid, and not the network discount for facility care.

Which better controls spending – Private insurance or Medicare/Medicaid?

Before you read further, cast your vote…

Okay, a couple initial thoughts.

First, when comparing health care systems’ ability to control cost over multiple years, the best metric is the cost trend per member; this accounts for differences in demographics and membership growth.

Second, this only accounts for cost growth; not outcomes, patient or provider satisfaction, or efficiency.

That said, cost growth is the best metric to use when thinking about long term cost control, governmental budgets debt and deficits, and tax implications.

Drew Altman at the Kaiser Family Foundation has a simple graphic here that tracks cost growth over time.  The net – from 2007 to 2013, private insurance costs increased 29%, more than twice Medicare’s growth and five times higher than Medicaid.

(side note – the most recent data indicates Medicare has higher member satisfaction than private insurers…)

What does this mean for you?

If your goal is cost control, the answer is obvious.  However, personal and policy decisions are never simple.

Where are the other insurers?

Noticeably absent from the Rx Drug Abuse Summit are non-work comp or Medicaid payers.  The third-party payer track is dominated by workers’ comp PBMs, payers, and researchers.  Sessions are well-attended, well-done, and worth while.

One wonders if private insurers selling group health or individual coverage don’t have problems with abuse of prescription drugs, or perhaps more precisely, don’t think it’s a problem for their business.

Well, it is.

Kudos to work comp for taking the lead on this critical issue.  Here’s hoping the rest of the world follows your lead; the chances for success are going to be much greater, and that success will come much faster, if private and public health insurers get involved.

Health care cost trends – a new tool

With 18% of the economy driven by health care, cost inflation rates are vitally important. A just-released white paper reviews a new approach to measuring health cost inflation rates that will help employers, health plans, and workers comp payers assess overall trends, compare their experience to a benchmark, and forecast where things are headed.

The research, conducted by S&P/Dow Jones uses a series of indices to break out various cost areas.  The white paper is available for free here; while the statisticians amongst us (that does not include your faithful author) will find much to geek out over, this amateur’s take is:

  • the methodology is sound and carefully constructed;
  • it uses payment data from commercial health plans representing about 40% of all enrollees;
  • the data is from fee-for-service plans;
  • it is state- and in many cases area-specific; and
  • it provides details on medical, inpatient, outpatient, pharmacy (brand and generic).

Any input from real analysts on the indices would be more than welcome.

Here are a few of the key highlights from the initial edition, which includes data from Feb 2010 to April 2013.

  • Overall trend has been at or below 5 percent since August of 2010
  • Trend as of April 2013 was about 4.3 percent
  • Drug trend has been bouncing between 0 percent (!) and 2 percent since October 2010, with brand cost showing much less fluctuation while generic inflation was at 15 percent when last measured.
  • Hospital trend is consistently 3 to 4 points higher than professional services trend
  • There’s a LOT of interstate variation; for example as of February 2013, IL trend was around 1 percent while Texas’ was about 4.75 percent.

What does this mean for you?

All in all, a very valuable addition to the toolset available for regulators, businesses, and health plans.

Are Narrow Networks Bad or Are There Bad Narrow Networks?

This is a guest post from Tom Barrett of BBG, a highly-regarded employee benefits consulting firm with deep expertise in flexible spending programs and medical management.

The title above plays off of an old adage wisely employed by a very sharp and highly respected colleague.

Here’s one take on narrow provider networks as seen from the trenches.  While it’s mostly informal and unscientific it is cast with an experienced eye when it comes to networks:

Many of the narrow networks offered prior to 2014 placed a more discerning emphasis on contracting with higher performing providers.  We think these networks at least leaned more toward striking the combination of higher quality and lower cost.

Some (“some” emphasized) of the new narrow networks, especially those created primarily for the exchanges, appear almost exclusively aimed at low cost.  In fact, during the run-up to 2014 some carriers indicated that on the exchanges especially, low cost would win. Period. They indicated that network contracts comprised of low fee schedules was the way to get there.  New networks were developed with the key goal of being on the “first page” (lowest cost, think airfare searches, rental cars, hotels, etc.,) when plans were shopped.

Describing how carriers built these new networks, one highly respected industry insider indicated that contracts containing these low fee-schedules were mailed out to the provider community.  Carriers then waited to see which of the providers would accept the low fee schedules and sign-up.  The new networks were then built accordingly.

Probably not surprisingly, some of these new narrow nets bear a striking resemblance to Medicaid networks and are comprised mainly of providers willing to accept Medicaid-like fee-schedules.  We think that it’s safe to say that the quality and outcome side of the equation did not rule the day in the development of these networks.

So what’s the “net” for all of us?

Caveat emptor.  We’re not suggesting it’s necessary or even wise to shy away from all the narrow nets.

Rather, make darn sure you do your homework before building or selecting a plan that’s associated with one.

We don’t expect this to go away and expect provider and network evaluation to continue to grow in importance for everyone going forward, most especially for individuals and small and mid-size businesses ……….

The health insurance world in 2014 – lots of uncertainty but no death spiral


That’s the best way to describe health insurance execs’ views on their business these days.  The massively-screwed-up-but-steadily-improving rollout of the federal exchange is the biggest reason for that uncertainty, but there’d be huge uncertainty even if things had gone flawlessly.

Health care providers are consolidating rapidly, increasing their negotiating leverage.  More and more physicians are working for health systems.  Some employers are dropping coverage, while others are moving to narrow-network based plans. All this against a backdrop of an aging population, increasing income inequality, major growth in Medicaid enrollment, reduced Medicare reimbursement for facilities and a possible “fix” to the fatally-flawed physician reimbursement system/mechanism.

And, the metrics they use to measure performance are in flux as well; the old measurements were fine when insurers could underwrite, adjust benefit designs, change deductibles and copays, and negotiate with providers from a position of strength.

Add to that the uncertainty over who is going to enroll via the exchanges – will there be enough “young immortals” to balance the older, sicker folks who sign up?  More importantly, how will that play out for individual health plans; Plan A isn’t concerned about the overall picture, but is very, very concerned about the demographics of their member group.

It’s no wonder senior management – and other stakeholders – are “uncertain” about the short-term, much less the longer-term.

Amongst all this confusion, there’s one thing that is clear – there isn’t going to be an “Obamacare death spiral”, at least not for three years.  The scaremongering about death spirals and adverse selection that might result from too many old folks and not enough young folks signing up is mis-informed.

There is a financial back-stop in the form of reinsurance that protects insurers from high cost claims for the next three years.  Bob Laszewski has an excellent description of the program and implications thereof here.  Funded by a tax on each insured, the program provides coverage for insurers “selling coverage on the state and federal health insurance exchanges as well as in the small group (less than 50 workers) market…”

By then, things will have settled down, insurers will have figured out what works, what doesn’t, and what they need to do to operate profitably.  Some will drop out of the exchange(s), while others will expand their service offerings and coverage areas.

What does this mean for you?

Lots of uncertainty means lots of opportunity for those aware, nimble, and stalwart enough to take advantage.  Not that there are many in this business that fit that description!

Is group health paying for medical care for work comp injuries?

According to a study published in the December Journal of Occupational and Environmental Medicine, the answer is yes – to the tune of at least $200 million dollars annually.

The researchers concluded that “zero-cost” claims – those that were filed but did not result in any payments from the workers’ comp insurer or TPA – showed higher than expected medical expenses in their group health plans following the date of injury.  Some may, and undoubtedly will, argue that just filing a claim does not mean it is “real”, that many if not most of these “claims” were not occupational in nature and therefore there should NOT have been work comp dollars spent.  Therefore the dollars spent after the date of injury SHOULD have been higher, as there was an injury, it just wasn’t a work comp injury.

Well, not so fast.  These were actual, accepted workers’ comp claims and not attempts to file claims for non-occ injuries.

That being the case, I’d suggest the author’s finding, that about 0.7% of workers’ comp medical expenses have been paid by group health insurers, may be correct.

What does this mean for you?

With group health medical loss ratios fixed at no less than 85%, health plans have dramatically increased their efforts to identify and avoid any and all medical expenses that are not really truly absolutely theirs. Expect much more diligence on the part of those insurers, and a lot more subrogation efforts in the future than we’ve seen to date.  

Thanks to Insurance Journal for the tip!

Request – before you argue, please read the ENTIRE study, available here.  It is pretty well done.

What’s happening with health care premiums and costs?

Employer health insurance premiums increased 4 percent for families, 5 percent for singles this year. While that’s a modest increase, over the last decade, family premiums are up 80 percent.

And, premiums have been held down of late in large part due to rapidly increasing cost-sharing; the average deductible for employers with 3-199 employees hit $1715 this year as the percentage of employers with deductibles over $1000 jumped from 49% in 2012 to 58% this year.

Large insurers’ actual trend rates continue to come in lower than projections, with the latest stats indicate Aetna, CIGNA, and Wellpoint all reporting mid-single digit rises.

Combining Medicare and commercial health care costs as reported by health care providers shows an increase of 3 percent in June over the preceding 12 months.  Medicare’s trend was a lowly 1.27 percent…Medicare is increasing hospital reimbursement by less than 1 percent, a move that will certainly help keep the program’s costs increasing very slowly.

But those price controls are far from the only reason Medicare’s cost trends are at historical lows.

What’s behind the relatively good news on cost increases?  While commercial insurers see the recession as a contributor to past success in keeping trend rates down, the recession doesn’t appear to have had much to do with Medicare’s relatively low cost increases from 2000 to 2010. According to the Congressional Budget Office, the modest trend rate:

“appears to have been caused in substantial part by factors that were not related to the recession’s effect on beneficiaries’ demand for services…other factors–namely, a combination of changes in providers’ behavior and changes in beneficiaries’ demand for care that we did not measure–were responsible for a substantial portion of the slowdown in Medicare spending growth.”

In fact, CBO is projecting Medicare’s total costs by 2020 will be some $169 billion lower than earlier projections.

So, what does this all mean.

Well, mostly good news for folks not in the health care sector.  The decline in projected costs will have a substantial – and very positive – effect on the Federal deficit and long-term debt.

Employers and individuals won’t see costs hit the troposphere just yet – I guess that’s good news, although they certainly aren’t going to drop out of the stratosphere…

For the health care provider sector (broadly defined), what have been wrenching changes to date are about to get even more dramatic.  I’d expect some payers will see increased efforts to cost-shift as providers seek to increase revenues where they can while they struggle to strip cost and inefficiencies out of their operations.




Outsourcing customer service – I don’t get it.

Yesterday my bride was attempting to book a hotel room at a specific Hilton Garden Inn near the Sacramento airport.  She got bounced to Hilton’s intergalactic call center, and then spent 15 minutes trying to get a person – likely in another country – to reserve a room at that specific property at a rate they’d advertised.

My wife is a very patient person (she’s still married to me after 26 years…) but even she had to finally end the call after it became abundantly clear that the customer service agent had no idea where the airport was, what the rate should be, or why we didn’t want to consider another less expensive property located somewhere within a fifty mile radius.

Hilton lost a guest, and all because they decided it is more “cost-effective” to outsource customer service.  At the same time, the chain is working diligently to monitor and improve guests’ experiences on-site; I get a survey request for pretty much every hotel stay these days.

This makes NO SENSE.

Customers are the core of any business.  Without them, you’ve got a big bag of nothing.  Yet many companies – including some in this space – outsource the absolutely-critical business of talking with customers to some outfit on the basis of how cheaply they can get calls answered, how many calls can get answered how fast and other “metrics’.

Where’s the metric for “pissed off customers”?

There are processes and workflows that are not core, or central to a managed care business – maybe telecommunications, real estate management, accounting/auditing (perhaps).  But talking to your customers? How is that not the most important thing your company does? And why would you not want to have absolute, complete, 100% control over that at all times?

My sense is the reason we see outsourcing of call centers in managed care services is the ops folks are focused on keeping costs down.  That’s fine, but it ignores the overall importance of customer interactions.  It is very, very hard to acquire new customers, and very expensive to boot.  Cost of sales is escalating in this business, making customer retention critically important.

I’m aware of a couple firms that went to outsourced call centers only to reverse that decision and internalize the function.  My guess is the cost per call went up, and customer satisfaction went waaaay up.  Kudos to those companies for recognizing a problem and fixing it quickly.

What does this mean for you?

Figure out what’s important, and do it yourself.