As I noted yesterday, Florida is considering a change to the fee schedule that would increase work comp medical expenses by a full 20%. The change, basing reimbursement for work comp outpatient procedures on what hospitals bill Medicare, would double workers comp payers’ outpatient hospital costs. (Workers comp is already the best payer (by far) for Florida’s hospitals, with margins exceeding 55%.)
To understand why, here’s a brief background on the facility reimbursement situation in the Sunshine State. Florida’s fee schedule calls for most outpatient services to be reimbursed at 75% of ‘usual and customary’ charges; outpatient surgical services are paid at 60%. The obvious question is: what is ‘usual and customary’. Turns out that there is no agreed-upon standard in Florida, a situation that has led to numerous disputes between payers and providers. In an effort to fix this, the regulators are seeking to establish a uniform standard – albeit one that would double already-high outpatient prices.
According to an analysis done by FairPay Solutions (an HSA client), 55% of workers comp costs in FL are billed on UBs (hospital billing forms). 44% of those costs are for hospital outpatient services – or about 13% of total costs. Increasing ‘usual and customary’ costs by almost 200% (FairPay’s estimate based on FL Medicare charge and payment data) will dramatically increase medical costs.
That’s bad. But it would get worse, quickly.
Florida hospitals raise prices around 15% annually. There’s nothing to stop them from continuing this practice, and as the proposed FS change would base reimbursement on charges, not payments, they are actually incented to push prices even higher.
Expect physicians to start seeing patients in hospital exam rooms as well. Why? Reimbursement – an additional $290 for each visit.
Next we’ll consider why Medicare should never be used as the basis for WC reimbursement, and we’ll conclude by looking at two markets – Miami and Orlando, (already the poster children for excessive hospital utilization) and consider the impact of this potential change on costs in the two large markets.

There’s big trouble brewing in Florida – trouble in the form of a seemingly-innocuous workers comp fee schedule change that would increase medical expense by almost 20%.
Yes, twenty percent.
We’ll delve into the details in future posts. First, I’m going to scare the pants off you.
Florida law mandates that hospital outpatient services be paid at 60% of usual and customary charges for scheduled outpatient surgery and 75% of usual and customary charges for most other hospital outpatient services. How to establish “usual and customary” charges has bedeviled regulators.
Florida has a ‘three member panel’ that determines changes to the state’s workers comp fee schedule (as allowed and required under the state’s statutes). At the last hearing of the three member panel, the discussion focused on a proposed change to the workers’ compensation hospital outpatient fee schedule, a change that would establish a benchmark on which ‘usual and customary’ would be based.
The benchmark would be the amount hospitals charge Medicare. Not get paid by Medicare, but charge Medicare. According to testimony at that hearing, hospitals mark up their Medicare costs by 715% – they charge Medicare seven times more than it costs the hospital to provide the service.
If the proposed regulation is adopted, workers comp’s ‘usual and customary’ would be based on that 715% mark up. Running the numbers, this would result in workers comp payers paying Florida hospitals (and perhaps ASCs) 472% of what Medicare pays for outpatient services – one of the highest rates in the nation.
There are about a dozen other problems inherent in basing reimbursement on Medicare, problems that we will cover in detail this week. I’m going to be devoting significant time to this issue as it has all the aspects of a typical workers comp screw-up; regulators unsure about the nuance of reimbursement; providers seeking funds to offset increasing bad debt; workers comp payers ignorant of the impact of the potential change, and in one case actually supporting it because it will make costs more ‘predictable’.
What does this mean for you?
Well, it could be the end of the good times in Florida – a state where 60% of loss costs are due to medical.
This is a highly complex issue, but that doesn’t make it any less important. In fact, the very complexity makes it critical that workers comp payers spend the time to fully and completely understand what’s happening here – because this is not just a Florida issue, it is undoubtedly happening in other jurisdictions.

A couple weeks ago I used this space to make a few pointed recommendations to entrepreneurs thinking of selling their companies. This week’s news that FairIsaac is selling off its bill review unit reminds us that mistakes can be made on both sides of the deal.
FI merged with/bought out HNC (which included the bill review business and other assets) almost six years ago in a deal that valued HNC at about $240 million.
Reports indicate Mitchell is paying between $10 – $15 million for FI’s bill review unit. While it is impossible (from here) to know how FI valued the bill review part of the deal, there is no doubt a substantial portion of that quarter-billion dollars will have to be written off.
What happened? Why wasn’t FI able to make a go of it in bill review? A couple factors likely contributed to the failure.
First, did FI know what it was buying? Workers comp is a unique and different business with a language and culture all its own. More of a craft industry than a modern business, bill review (as practiced by the vast majority of firms) is as dependent on the expertise and knowledge of processors as it is on the rules and algorithms embedded in applications. (Note it doesn’t have to be, and to my mind should not be, this way – but it is) FI’s business is based on the use of computing power to sort through terabytes of data to find the bits of importance; they may well have discounted the role of the human, which in turn may have led to insufficient emphasis on end-user training.
Second, by several accounts the IT development process at FI was somewhat less than rigorous. Documentation was scarce, schedules were vague, and responsibilities undefined. This led to missed delivery dates and angry customers, a situation that has dramatically improved in the last year or two.
Third, the installation at Texas Mutual was, for a time, a disaster. TM accused FI of overselling and not delivering, and FI countered that TM did not adequately support the installation. TM sued FI for allegedly misrepresenting the application; the suit was settled a few months ago with FI paying Texas Mutual somewhere in the neighborhood of $10 million.
Finally, the BR business was part of the HNC deal, along with decision support technology and other assets; it wasn’t exactly central to the deal, yet FI kept it around. They neither invested in it nor sold it/closed it, with the result that the business was slowly starved. Without attention and investment, it is not surprising that FI’s bill review business had the problems it did.
Lessons? Nothing new here – FI didn’t understand the business it bought, and rather than make a decision to invest in it or blow it up, did nothing. As this became painfully obvious to the unit’s staff, morale plummeted, commitments were missed, and customers angered. Despite all this one of their larger customers, SCIF, is relatively pleased with FI’s work.

There are two leads to this story – FairIsaac confirming what we reported yesterday (their bill review unit was sold to Mitchell International), and an amazingly over-the-top example of corporatespeak.
We’ll do the serious stuff first.
The bill review unit sale will be completed sometime during FI’s Fiscal Q3. The price was not disclosed, but sources indicate it was “not close to eight figures” (FI sold several units for a total price of $65 million).
Approximately 200 FI employees will be affected, and the announcement did not give any clues as to their eventual disposition. We’ll keep you posted.
Now on to the corporatespeak. Here’s a passage that is so bad on so many levels that it is worthy of special consideration…(parens are mine)
“details of a reengineering plan designed to grow revenues (I think they just said that they’ll increase revenues by, wait for it, cutting staff and closing operations…) through strategic resource reallocation (uh, I think they mean tactical, except that doesn’t sound as smart) and improve profitability through significant cost reduction (we’re going to slash our way to profits!). Key components of the plan include rationalizing the business portfolio (dumping businesses we should not have bought in the first place), simplifying management hierarchy (laying off people), eliminating low-priority positions (laying off more people), consolidating facilities and aggressively managing fixed and variable costs.
It is bad enough when your company is sold, but this SAT-word-stuffed run-on justification for dumping a business and firing folks will fool no one, not even the author’s high school English teacher.
FI got out of bill review because they didn’t give the business enough resources and attention, and probably should not have bought it in the first place.

Fair Isaac will announce today that they have sold their workers comp and auto bill review unit to competitor Mitchell Medical.
And no, this isn’t an April Fool’s prank.
FI has been on the market, with several financial and strategic buyers looking over the property but no firm offers until one was proffered by IME and peer review firm MCN. Sources indicate MCN was the likely buyer, till Mitchell stepped back in (they had previously engaged and withdrawn) and in a matter of days consummated the deal.
The acquisition makes sense strategically; Mitchell dominates the auto claims business, and FI has solid share in WC as well as some auto business. What FI really needs is consistent, reliable investment in its technology, something the parent company was unlikely to continue.
Mitchell will now have a reasonable entre into the WC business, and eliminate one of its competitors for auto bill review.
For FI’s current clients, this is likely good news, as their uncertain future made for difficult decisions. We’ll have to wait and see what changes Mitchell makes; word is the execs (unnamed, to be sure) at FI will be fine. I’m just a bit curious about this; surely they must accept some share of the responsibility for some of the problems that has led to the sale.
Here’s hoping that the non-exec working folks don’t get tossed – not only would that be unfortunate, but there’s a lot of corporate and industry knowledge in those heads that Mitchell will need if it wants to grow the business.

My post a few days ago complimenting Aetna on their progress in a number of areas struck a few nerves and elicited more than a few emails from ballistic providers (a couple of the printable ones are in the comment section of that post).
There’s a bit of conflation going on here – my comments were focused on the company’s overall strategy while several critics took the big healthplan to task for it’s poor contracting in workers comp (where the product is Aetna Work Comp Access, or AWCA).
Yet they have valid concerns, concerns that are consistent with problems experienced by Aetna’s WC customers, lousy provider directory data, providers refusing to accept WC patients, heavy handed contracting efforts.
I’ve posted on these issues months ago, yet these issues persist. One provider group in Pennsylvania is so frustrated that they contacted state regulators, only to find out that many other providers had the same problem. Now, they are banding together (albeit informally) and asking regulators to outlaw PPOs in the state.
Other complaints relate to Aetna’s practice of ‘negative affirmation’ (my term, but you can use it). Aetna sends their currently-contracted group health providers a letter stating that unless the provider responds within X days, they will be automatically enrolled in AWCA at their group health rates. In defense of Aetna, their contracts with the providers allow this, as does state law. And providers can opt out at any time, so the damage done is rather limited.
Aetna recently decided to use certified mail instead of regular post when sending these letters to providers – the last batch of letters, some 50,000 in all, went out certified about a month ago. When I discussed this with an Aetna exec, he agreed that the mailing of the negative affirmation letters likely contributed to the provider data issues; AWCA is hopeful that the new certified letter will help.
Still, it is a wonder that it took the big insurer this long. Two big payers view AWCA’s PA data as the worst they have ever encountered. Providers routinely get buckets of mail from networks, and it is certain that many of these ‘negative affirmation’ letters end up in the trash as junk. The WC payers get a contract load from AWCA, construct panels of providers, direct injured workers to these providers, who then either a) don’t accept WC, b) can’t spell WC, c) treat the injured worker and then scream when their bill is slashed and protest to the insurance commissioner et al.
Now that AWCA is the de facto network of choice (due to the Coventry deal), some payers’ concern is there may be little motivation for the company to clean up its act. Even less than it had before the deal was struck and AWCA was working hard to compete with Coventry – now it enjoys near-monopoly status in many states, a condition that some payers think makes it less likely it will invest in provider relations.
That’s not the case, according to AWCA. They are investing in the business – hiring more account managers and provider relations staff and continuing to work on their data issues. They have a ways to go, but appear to be committed to working at it.
If you are sensing a little ambivalence here, you’re right. Payers are notorious for blaming everything on vendors while accepting little responsibility themselves. Vendors suggest improvements in processes and systems that would improve results, only to be told its not a priority for the payer. And part of the negativity about AWCA is undoubtedly from payers that are not holding up their end of the deal.
Yet I expect more from Aetna. They should be better than CorVel and Coventry’s WC division. Here’s hoping they get there, and soon.

In my consulting practice, I work with large, really large, and small payers – insurers and self-insured employers, as well as managed care firms – on managed care, claims, and related issues.
One of the best claims-managed care programs I’ve come across is at a relatively tiny insurance company. They have (generally) excellent relations with providers, tightly integrated medical management, claims and bill review, a keen grasp of cost drivers, and highly effective specialty programs. Their network penetration (albeit in a network direction state) is just under 90%.
Their results are impressive.
Medical costs (on a per-claim basis) for lost time claims have dropped dramatically over the last two years. While the industry’s costs were going up by 7.5% (NCCI stats), their clients enjoyed a double-digit decrease in medical expense.
How is this possible? They don’t have access to the actuaries, statisticians, or clinical experts resident at larger payers. They can’t afford expensive IT initiatives, integration projects, and sophisticated rules engine-driven document management processes.
What they do have is focus, an open mind and willingness to try new things, a commitment to do the right thing, and very little patience for bureaucracy. They also have medical folks doing medical management – the adjuster has the final say, but it is rare that the clinician’s recommendation is overturned.
I’m convinced the reason this payer is as successful as they are starts with and is driven by their culture and commitment to doing the right thing. Too often big payers’ plans get bogged down in the cloying mud of committees, process, debate and discussion. Internal rivalries and turf battles suck the life out of promising ideas. Individuals are far more concerned with looking good and checking boxes off their annual goals than actually making sure the programs reduce costs and improve outcomes.
Meanwhile costs continue to go up and care is less than optimal.
What does this mean for you?
It doesn’t have to be that way.

One of the frequent questions from potential investors, regulators, and interested parties is why the group health payers are not doing more in workers comp. With the notable exception of Aetna and Wellpoint, the big group health players’ work comp activity is minimal (and in the case of Wellpoint, just a bit over that threshold).
Many group health execs consider entering into the comp business, figuring that if their company can do so well in group, they should be able to clean up in comp – which is in many ways still in the Dark Ages when it comes to medical management.
Superficially, they are right – but only superficially.
The primary difference is that in comp, the payer cares about the claimant’s functionality – if the injured worker can’t work, the payer is ‘on the hook’ for lost wages as well as medical care. This is not the case in group, where the payer couldn’t care less if the claimant returned to work or is sitting home.

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