These are wild times for the workers comp managed care industry. With Aetna’s recent announcement that they are expanding their workers comp network into additional states, it appears the big health plan is becoming a serious competitor for network business. Sources indicate that the Hartford will be announcing expansion of their relationship with Aetna in the near future, with the business moving from First Health.
Liberty Mutual, the comp industry’s 800 pound gorilla, has yet to announce the results of their network selection process, an event that has many in the industry on the proverbial edge of their chair.
CorVel, which has been laying low, keeping under the radar after the adverse publicity from the Broward County School Board debacle is set to announce a major new business relationship; sources indicate it will pertain to provider networks. This announcement may come too late for one of their larger business relationships; the State of Florida is likely to go to bid for their managed care program in the near future.
Gallagher-Bassett has been revisiting their managed care vendor contracts, apparently (at least in part) to eliminate the referral, administrative, commission, and other fees that they have been receiving from the managed care vendors they work with.
First Health is still seeking a head for their workers comp unit; Aetna is as well. Meanwhile, Concentra’s takeover of Beech Street and Occupational Health and Rehab has made the company a more formidable competitor in the network and occ health clinic markets.
Changes to the Texas workers comp laws go into effect (realistically) on the first of the year, and national and regional players are scrambling to prepare. If California and Florida are any indicators, the first entities into the new programs will resemble pioneers – the settlers with the arrows in their backs. Kudos to them for their initiative, and credit to the “fast followers” for waiting a bit to watch how things shake out.
Meanwhile the private equity/venture capital world continues to buzz around managed care companies like bees around honey. There is a lot of attention being paid to these service providers; workers comp managed care is hot now among the investment community.
This is all playing out amidst the ongoing Spitzer/Blumenthal investigations into the insurance industry, sham bids, anti-competitive behavior, and outright fraud.
It all makes for a highly entertaining season.
What does this mean for you?
Significant change brings significant opportunity, along with big risks. Stay tuned; more changes are likely soon.

Sources indicate Coventry is still seeking a leader for the workers compensation business at First Health, although they have assigned the task to an outside search firm after their internal recruiters came up empty.
Spencer Stuart’s Chicago office is handling the search. Spencer is an interesting choice as the firm is not known as a major player in staffing for the managed care, health insurance, or HMO sectors. They are using their own internal resources, bolstered by a list from Coventry of individuals that have been vetted and found wanting. While this may help reduce the number of false negatives Spencer encounters, the firm may also encounter difficulty filling the slot if Coventry allows First Health’s present customers to weigh in on the decision.
Several sources have indicated that Coventry has asked present customers their opinions of previous candidates, and these opinions have had an impact on the company’s selection process.
In any event, given the significant profit contribution of the work comp business (11% of Coventry’s net comes from work comp) this is a key hire. And the fact that they have been looking since February with no apparent success demonstrates the difficulty inherent in finding a candidate who understands the HMO industry, knows workers comp, has a solid reputation among First Health customers, and can lead a customer-service-challenged company forward.
What does this mean for you?
Either very little or quite a lot.

The cost of workplace injuries in the US topped $50 billion in 2003, despite a 6.3% drop in the injury rate. These results continue a long-running trend of declining frequency that is more than offset by medical inflation.
The often-asked question is how can this be? If the number of injuries is dropping, how can total costs be increasing? While it appears that the severity of injuries may be increasing, that is actually a proxy for medical costs (the workers’ comp research firms equate severity with higher medical expense). The culprit is medical inflation, and more specifically increased utilization of medical services.
There are fee schedules in about half the states (most of the larger ones) that do a pretty good job of constraining price increases. With rates pegged to Medicare’s fee schedule, prices for most physician and outpatient services are under control. Unfortunately, that’s only part of the problem – the other two drivers are the percentage of claims that have a particular type of medical expense, and the volume of services per claim.
As an example, physical therapy occurs in about 26% of cases with lost time. However, given there are few treatment guidelines that are helpful in managing PT, and the propensity for therapists to overutilize, PT costs appear to be growing significantly. Without objective clinical guidelines to ensure the volume and specific treatment modalities are appropriate, work comp payers are essentially unable to constrain the delivery of PT.
The result – a recent analysis conducted by my firm, Health Strategy Associates, showed that over 55% of lost time cases treated at a national occupational medicine company had PT services. Sure, the price per service was low, and the average number of visits was quite low, but there is no doubt many of the patients receiving PT did not need it.
The work comp market is recognizing the extent and cost of the problem; MedRisk, a firm that specializes in managing physical medicine in workers comp has seen explosive growth, and now manages PT on a national basis for carriers and TPAs including Liberty Mutual, Zurich, ACE, Sedgwick, Gallagher-Bassett, and Amerisafe. (MedRisk is a consulting client.)
And physical therapy is but one example of a medical service that is a key driver of medical inflation. With work comp medical expenses trending up at double-digit rates, payers are finally beginning to adopt intelligent strategies that are specific to the key drivers of inflation.
What does this mean for you?
If you are a work comp payer and have yet to adopt a “specialty managed care strategy”, your medical inflation rates are likely higher than your competitors’. If you don’t get costs under control, you will not be a payer much longer.

Aetna’s workers comp managed care entity (Aetna Workers’ Compensation Advantage, or AWCA) is looking internally for a new leader to replace recently departed Robyn Walsh. Walsh retired from Aetna recently, joining several other senior execs in taking advantage of the vesting and retirement plan.
Sources indicate that Aetna’s search is concentrating on internal staff. While this is admirable, it is also somewhat curious. Aetna got out of the workers compensation business several years ago when it sold its P&C business to the Travelers. With one or two exceptions, most of the AWCA staff have very limited WC experience. Industry knowledge is critical in workers comp, both to build a credible product and to speak credibly to potential customers.
With the very limited success enjoyed by AWCA to date, I wonder if their internal push is more out of necessity than desire. It is indeed difficult to see how this venture has been able to survive as long as it has with one customer in a single state. Perhaps Aetna does not believe it will be able to attract outside talent, and therefore is concentrating its search internally.
On the other hand, given Coventry’s lack of success in finding a leader for its First Health WC subsidiary, perhaps Aetna is just being smart. Perhaps.
Other sources indicate Aetna made several runs at a workers comp pharmacy benefit management firm earlier this year.
This is another head scratcher. Most WC PBMs are independent; buyers do not see much synergy between regular medical networks and PBMs; and given the dollars on the table, there would have been better, more strategic places for Aetna to invest.
What does this mean for you?
Keep an eye on Aetna, and if you are interested in contracting with them, make sure you are contractually protected if they exit the business.

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

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.