What Medicare’s reimbursement changes mean for work comp

It isn’t possible to exaggerate the implications of the changes to Medicare’s provider fee schedule.

When Medicare shifts its weight, the foundations of workers comp move – a lot.  Here’s why.

First, around a third of provider reimbursement is governmental – and for some providers well over half of their payments come via Medicare, Medicaid, and other governmental programs which base reimbursement on CMS.

Second, the vast majority of work comp fee schedules are based on CMS therefore the changes  affect not only Medicare and Medicaid, but also many state workers compensation fee schedules. The decreases in reimbursement for imaging have been felt in Worker’s Comp. particularly in California and Florida. Also the increased reimbursement for physical therapy has also worked its way into the Worker’s Comp system.

The new fee schedule is known as MACRA.  Replacing the previous SGR system, MACRA will increase reimbursement 0.5% per year until 2019. At that point reimbursement will be flat until 2026.

While there are many other issues affected by this change, including increased reimbursement for quality and the use of electronic health records, the fee schedule changes themselves will have the most impact on Worker’s Compensation.

Expect continued increases in reimbursement for cognitive services; office visits, physical therapy and the like. I would also expect to see decreases in reimbursement for surgery and possibly ambulatory surgical centers which fare outside of MACRA.

What does this mean for you?

The schedule changes have already been felt in some states’ worker’s compensation systems. If Congress decides to take additional action which is possible but not probable this will also affect Worker’s Comp.

“Obamacare”, Medicaid, and workers’ comp settlements

In a piece in Insurance Thought Leadership, misleading labeledObamacare Expands Into Workers’ Comp”, MaryRose Reaston asserts that

The Affordable Care Act (ACA) was created to expand healthcare coverage. Unfortunately, the act has overstepped its bounds and will dip into the workers’ compensation coffers by requiring mandatory reporting for Medicaid beneficiaries. [emphasis added]

No, ACA has not “overstepped its bounds”.  The efforts by states are just that – state-based – and they are allowed/enabled by Federal legislation that is separate and distinct from the ACA.  Michael Stack has written an excellent summary of the situation, noting that the federal legislation allowing Medicaid to pursue settlements was part of the Medicaid Secondary Payer Act, which in turn was part of the 2013 Budget Bill..

In fact, I find the attempt to link ACA with state Medicaid recovery activity curious and convoluted. ACA expanded Medicaid – in states agreeing to do so. States remain the primary regulatory bodies for Medicaid. There is nothing in Ms Reaston’s argument that indicates how or by what means ACA encourages Medicaid to pursue workers comp settlements. States that expand or don’t expand Medicaid can decide to pursue settlements – independent of ACA.
Make no mistake, there are clear “winners” here – taxpayers. Any taxpayer should demand Medicaid recover any monies necessary to provide treatment paid for by Medicaid that should have been covered by workers comp.

Provider reimbursement changes – painful and necessary

Full or partial capitation, with or without risk withholds.  Per-episode payments or cost caps.  Fee-for-service with or without pay-for-performance.  Ambulatory care episodic payments.  Discount below billed charges.  Packaged prices. Value-based reimbursement.

The list of reimbursement types and variations is long and growing.  As providers and payers struggle to find the right mix of risk and reward, they are tinkering with long-established reimbursement methodologies (think capitation) and coming up with entirely new concepts (value-based pricing).

If there’s a universal, it is fee-for-service is falling out of favor, at least for the big payers – governmental and private.  It encourages overuse and over-treatment.  But it does have benefits.  FFS motivates providers to maximize their productivity, a goal that every health care provider organization is striving for.

Each variation has its plusses and minuses, but there are several common threads.

First, the providers affected need to buy in.  If they think they are being gamed, or worse, screwed, they will instantly figure out how to return the favor.  There’s a lot of skepticism among providers about these new arrangements, much of it well-founded.  Problems with capitation and risk withholds almost killed the entire managed care movement back in the nineties and providers remember those days all too well.

Which leads directly to the next have-to.

Transparency is key.  Price setting, risk-reward formulae, the bases on which capitation is calculated all have to be clear and readily understood.  That way when questions arise, all involved have “equal access” to the methodology and discussions can focus on material issues.

Third, it’s about outcomes and results, not volumes and procedures.  We are seeing a wrenching shift away from paying providers to do stuff to patients, and towards paying providers to maintain and improve health status.  This is going to be ugly, difficult, and painful for all involved.  There will be winners and losers, and some folks are going to be hurt.

What health care is going thru is not far from that experienced by manufacturing and heavy industry over the last forty years.

And, like manufacturing and heavy industry, the US health care “system” has to change if it is to survive.  We cannot continue with fee for service, rewarding providers for doing more and more expensive stuff to fewer and fewer insureds.  And allowing insurers and health plans to make money by covering only those people unlikely to have a claim.

If health care could be offshored, it would be.  As it (mostly) can’t be, we have to fix it right here.

That doesn’t mean it’s going to be any less wrenching.

What does this mean for you?

Huge changes are required.  Avoiding them is not an option.

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.

Medicaid and Workers’ Comp

21 states have not (yet) chosen to expand Medicaid; one can (and I have) argued that this is nonsensical at best, as

  • the Feds are paying for ALL of the additional cost for another two plus years, and
  • the vast majority of the cost (90% +) thereafter; and
  • the savings to the states for uncompensated care would be anywhere from $4 to $9 billion;
  • health care providers in non-expansion states are in dire straits due in large part to the “non-expansion.”

My sense is the non-expansion states will eventually decide to accept the Medicaid deal as the financial cost to hospitals and health systems will force them to. And, the Feds will work with the states to create different models that will be ideologically palatable, providing cover to those politicians obsessed with such things.

But until – and unless – Texas, Florida, Virginia, Wisconsin and the rest expand Medicaid, there’s a raft of problems created by their principled if (in my view) wrong-headed position.

Mostly, these problems are due to two things.  Over the short term, the cost pressure placed on facilities and health systems and the fallout therefrom will lead to increased pressure to cost shift – and yep, work comp is a pretty soft target.

And long term, the 6.4 million adults who remain uninsured will be less healthy, have more incentive to get care under workers’ comp, and heal more slowly with more complications if they do get injured on the job.

What does this mean for you?

For work comp payers, nothing good.

Florida’s conundrum

Florida’s legislature can’t decide if it does or doesn’t want federal money.  That’s the policy question; it’s discussed in some detail below.

A quicker explanation by way of metaphor was conveniently provided by a native Floridian; Austin Hatfield adopted a pet water moccasin, one of the most aggressive and poisonous snakes in this Hemisphere.  He liked it.  Then it bit him in the face when he kissed it.  Now he’s in critical condition.


Kinda like what’s about to happen to Florida’s health care system.

While Florida’s Senate wants to expand Medicaid, the state house has said NO to Medicaid expansion under PPACA, but wants the billion dollars of federal money that has been supporting struggling hospitals; these dollars will disappear at the end of June.

Governor Rick Scott (former CEO of HCA, which paid a $1.7 billion fine for Medicare and Medicaid fraud, and involved in at least one more company alleged to have committed Medicare fraud) is outraged that Florida can’t get the money that no longer exists, even if the Sunshine State doesn’t want to expand Medicare.

The reason the hospital dollars were cut is simple; by expanding ALL coverage, hospitals would have far fewer uninsured patients and thus wouldn’t need federal taxpayer dollars to cover their costs.

What Florida’s House and Governor are saying is they don’t want Medicaid, but do want the “lost” dollars replaced.

I don’t get it.

Remember the Feds are paying ALL of the Medicaid expansion costs thru 2017, then their support ratchets down gradually until they are paying 90% of the costs.

Ninety percent…

For some reason that doesn’t make sense to the House; but they DO want the billion plus dollars for hospitals, dollars that no other state gets. Of course, the legislators didn’t THINK about this when they adopted their principled stand against federal largesse, but quickly changed their tune – somewhat – when hospitals screamed about the financial disaster the House’ position would bring upon them.

To their credit, the Florida House and Senate seem to have figured out they have adopted a water moccasin, and it is about to bite them in the face.  Now, they want the Feds to defang their beloved friend before it kills them.

I was at a Florida Chamber meeting a couple years back when Scott and an Orlando hospital system CEO talked about the need to expand Medicaid; At that point the unindicted former CEO of the company convicted of the biggest Medicare/aid fraud in history was kinda sorta in favor of Medicaid expansion.  The business people in the room got it; the ideologues didn’t.

Hidden in this mess is the damage caused to the 800,000 or so lower-income Floridians who won’t get coverage. [sub req].  Orlando Sentinel columnist Scott Maxwell said it very well:

…the feds are basically saying: We’re giving you the money to provide citizens cheaper, preventive health care. If you won’t give them that, we’re not going to clean up your mess by spending tax dollars on costlier ER care.

This is what fiscal conservatives should want.

It’s like offering to pay for your daughter’s insurance plan and having her say: No thanks, Dad. I’d rather you just pay for my ER bills instead.

You’d tell her: No way. Well, Rick Scott is that defiant daughter, suing federal taxpayers to keep welfare-for-hospital-ER’s going.

What does this mean for you?

Either you want federal taxpayers to subsidize your health care system, or you don’t.

And if you don’t, you can’t complain when your head blows up to the size of a prize watermelon.

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.

Medicare doc fix – here we (don’t) go again…

The annual caterwauling about Medicare physician reimbursement has begun.

For those who just want the takeaway – there very likely won’t be any substantive, long-term “fix”, but rather another temporary – and very slight – increase in reimbursement.

The latest version of Congress is arguing back and forth about what to do to address the Sustainable Growth Rate or SGR, with the GOP sharply divided and more liberal Dems objecting to any fix that will require seniors to pay more for their Medicare.

What’s going to prevent a longer-term fix is simple; by not doing a long-term fix and thereby kicking the can down the road, Congress doesn’t have to recognize – and deal with – a big addition to the federal deficit.

Well, that and the normal inability of Congress to do anything at all.

Lest you think this is new, it has been going on for over a decade; here’s more detail – just in case you want to be the center of attention at your next cocktail party…

The Medicare SGR formula/process was first implemented in 2000, intended to establish an annual budget for Medicare’s physician expenses and thereby better control what had been steadily increasing costs. Each year, if the total amount spent on physician care by Medicare exceeded a cap, the reimbursement rate per procedure for the following year would be adjusted downward.

And for thirteen of the last fourteen years, reimbursement – according to SGR – should have been cut, but each year (except 2002) it was actually increased, albeit marginally. Because Congress didn’t fix the problem, each year the difference between what Medicare was supposed to spend on docs and what Medicare actually spent was added to an off-the-books deficit.

The result is a deficit that is now about 210 billion dollars, a deficit that we’re carrying on our books.  Don’t blame CMS, blame Congress.

The reason the deficit is still there, and still growing, is simple – fixing SGR permanently will require acknowledging the deficit and thereby adding it to the total debt.

As we discussed a while back, not fixing SGR may well be worse, as it is a fatally flawed cost containment “approach”. The SGR attempts to use price to control cost. The complete failure of the SGR approach to control cost is patently obvious as utilization continues to grow at rapid rates. This was a problem seven years ago, and its done nothing but get worse. Not only does the SGR approach contribute to cost growth, it also ‘values’ procedures – doing stuff to patients – more than primary care.

It’s not quite that straight forward, but pretty close. For those who want way more detail, read this

What does this mean for you? 

For readers in the work comp world, any change to Medicare’s fee schedule will eventually affect many state work comp fee schedules – but this is by no means straightforward.

What happened while we were at WCRI wrap-up

Just digging out after WCRI; between built-up work and a desire to give you, dear reader, a break after filling your inbox late last week, MCM has been on a brief holiday.

We’re back!

While we were buried in all things work comp-related, the real world kept a-spinning. First up, what’s been going on with health reform, the costs thereof, and the impact on budgets.

A lot.  The most recent federal budget projections show a decline of around $300 billion in future costs for health insurance.

That’s huge.  Gigantic. Monumental.  Unprecedented.

In comparison, cutting NASA completely – $77 billion.  Ending Amtrak subsidies – $14 billion. Eliminating the deduction for all charitable giving? $214 billion.

There are two ways the federal government “pays” for health insurance – subsidies for folks insured via their employer; the portion of their “pay” isn’t taxed.  Second, the feds subsidize premiums for individuals buying insurance via the Exchanges on a sliding scale based to income. A more detailed discussion of the changes and impact thereof is here.

Note this does NOT include Medicare – although those projections are decreasing as well.

The latest budget estimate has Medicare costs over ten years coming in about $700 billion below 2010 projections.  

One of the reasons Medicare cost projections are declining – Between January 2012 and December 2013 there have been 150,000 fewer readmissions among Medicare patients—an 8% decline.” – hat tip to the Economist, and don’t forget to credit PPACA!

As if that’s gonna happen…

From a couple weeks back  is this news that California’s docs aren’t likely to be overwhelmed with patients due to ACA.  This from California Healthline:

  • 13.04 additional emergency department visits per week by newly insured individuals; and
  • 1.16 additional primary care visits per week by newly insured individuals.

 Back to work comp…

Good piece by PRIUM CEO Michael Gavin in WorkCompWire on work comp drug formularies; my only suggested add would be to make sure formularies aren’t rigid.  Need to allow payers, and their PBMs, to okay and reject meds based on the claimant’s diagnosis, medical treatment, other drug regimen, and other clinical factors.

Medata has promoted long-time COO Tom Herndon to president.  Tom’s not only a black belt in all things bill review and IT, he’s also a good guy, knows ops inside and out, and casts a mean dry fly.  Congratulations to Tom and his colleagues at Medata.

Enjoy hump day!