So what’s up with health care costs?

Actuaries are projecting health care costs will increase 5.8% annually over the next 9 years. Others think that increases will be significantly smaller.

While the 5.8% is a bit higher than we’ve seen of late, it is a heckuva lot lower than the average for the last three decades.

Currently health care is responsible for 17.4% of US GDP; if the inflation rate prediction holds true and other economic sectors also grow as projected, health care will account for one out of every five dollars in ten years (19.6% to be precise).

We do know that the prediction will prove to be somewhat wrong, and economic growth for the next quarter is hard enough to predict, making a ten-year projection the proverbial dartboard in a dark room.  So, what’s with the discrepancy between predictions?

The actuaries responsible for the 5.8% figure believe the soft economy over the last few years has been the primary driver of low health care cost inflation.  Their thinking is that now the the economy is back to steady and significant growth, demand and prices will both heat up.

The counter-argument attributes the recent happy days of low medical cost inflation to structural changes in the health care delivery system. Their view is these changes, while overwhelmed somewhat by the big increase in the insured population due to PPACA, will help keep cost growth low as they become increasingly commonplace.

At this point, we just don’t know; there is anecdotal evidence that medical homes work and don’t; that ACOs are a success and a failure; that behavioral changes are working and are non-existent. That is far from surprising; we are still pretty early into this process, a process which is massively changing almost one-fifth of our nation’s economy.

What does this mean for you?

The key message is costs will continue to increase, with health insurance cost increases somewhat mitigated by higher deductibles and copays.

What’s also very clear is the health plans that are able to deliver lower costs and sufficient outcomes will do very well.



Maryland’s innovative approach to hospital care – and implications for work comp

Maryland has long been a leader in intelligent approaches to managing the cost of health care.  The state has had one of the few effective Certificate of Need programs limiting the medical arms race and employs an all-payer fee schedule for facility care.

In partnership with CMS, Maryland will be shifting payment to hospitals from fee-for-service to an outcomes-based reimbursement scheme.

According to Health Affairs;

a Maryland hospital is no longer paid on a per-admission basis but instead receives a global payment based on the number of Maryland beneficiaries cared for by the hospital. Patients and payers are still charged on the basis of services provided, but overall growth of per capita hospital payments by all payers is limited to 3.58 percent by diagnosis related groups, and the Medicare-specific growth rate will be held to 0.5 percent less than the annual national average. [emphasis added]

Couple quick observations;

a) this doesn’t address physician reimbursement, and as docs are the ones who are ordering the care, that should be addressed.  However, as more and more docs are employed by facilities, that may not be as much of an issue as it was historically.  Also, the authors of th HA piece have other recommendations re addressing this issue that make sense.

b) reimbursement for care delivered to patients not covered by the new scheme will likely remain fee-for-service.  This creates a potential conflict that may hamper development of more effective treatment protocols and pathways. More troubling, different financial terms may incent providers to think differently about care based on who’s paying.  While it may be unlikely docs will change their treatment patterns based on what they get paid, the folks that do the billing will almost certainly take payor status into consideration.

What does this mean for workers’ comp?

  • It’s not just about Maryland; while this is more systemic and organized, we can learn a lot by observing what happens in the Old Line State.
  • a fundamental shift in medical care is occurring, one that will have a dramatic impact on how patients are evaluated and monitored and incentivized to pursue health, what care is delivered via what method (telemedicine, care extenders, wearable technology).  This will dramatically affect workers’ comp – patients will be healthier but the bifurcated payment system will cause headaches.
  • Some providers will seek to gain as much revenue as possible from non-core payers such as worker’s comp.  Revenue maximization efforts will become more sophisticated, targeted, and effective.

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.

It’s another done deal in work comp services…

Another deal is official; One Call Care Management has announced its acquisition of MedFocus.  This had been rumored for some weeks, OCCM has been notifying their clients it is now official.  This knocks out another potential imagining vendor, further consolidating One Call’s stranglehold on the market.

MedFocus has about $50 million in revenue, reportedly divided equally between work comp and non-occ payers.

Let’s talk for just a minute about this.

OneCall historically has had a dominant position in this sector, built on great customer service and a relentless focus on “leakage”. The last involved many processes including getting their payer customers to provide OneCall with data about ALL imaging billing, data OneCall used to recruit new centers, identify gaps in coverage, and work with payers to get their field folks to direct claimants to use OneCall’s scheduling process (and thereby capture the bill).

The number of competitors has dropped over the years; truth be told OneCall’s imaging business really hasn’t had a competitor worthy of the name for over a decade.    There’s also Spreemo, but it is pretty small as well, and a couple others that are owned by payers or are relatively small product lines for bigger managed care businesses.  MedRisk, a consulting client, owns a very small imaging company too.

OneCall is unique in the work comp services business in that it is by far the dominant player; in no other sector does one vendor have even half of the market, a position OneCall surpassed a loooong time ago.  They’ve gotten there by doing, by most accounts, a very good job historically.

Continuing to deliver will be key to continued dominance.

What does this mean for you?

Depends…do you like choice?

Work comp services: the wholesale sale and the retail sale

There’s a lot of confusion on the part of some execs new to the work comp space about what it takes to generate revenue from work comp payers. I’ll leave aside the obvious answers such as: build a great product or service; deliver great customer service; find an unmet need and meet it; build relationships and value them and the like.

No, this is about the wholesale sale vs the retail sale.

RFPs come out from TPAs and insurers requesting all manner of services, requiring all kinds of assurances and guarantees and specific service agreements, along with a price that would render many a vendor bankrupt (alert – slight exaggeration).  After all the proposal wordsmithing and presenting and negotiating and schmoozing and conceding and guaranteeing is done, the successful vendor thinks they are going to get all the ancillary/IME/network/case management/etc. business from MultiHuge InsCo (MHIC); accountants start projecting revenues and profits, sales reps commissions, and owners earnings multiples.

A year later, only a fraction of the dearly-won revenue has appeared, and the accountants, owners, sales reps are all bewildered.

They forgot about the retail sale.

Long-term work comp services people know that the big national contract is just a “license to hunt”, that the signature is just the start of the real heavy lifting.  This involves finding out how the REAL decision makers – the front-line folks – work, what they want and don’t want, like and don’t like, how they are evaluated, assessed, and bounced, what’s important to their bosses, how their IT systems and applications and security works and interfaces/doesn’t interface with the vendor’s systems/apps/security. Sure, every vendor thinks about this and works at it, but relatively few really work it.

There can also be conflict, obvious or not, between the execs at MHIC and what is important to them, and the field folks who deal with the actual work day in and day out.  The managed care folks likely get evaluated based on network penetration, some usually not-terribly-meaningful savings metric(s), perhaps a few outcomes, and the reduction in administrative fees or costs or ALAE.

The field folks have quite a few other priorities – claim opening, reserving, case closure rates, litigation, state compliance, communications standards, documentation, diary compliance; the list is big and gets bigger every day.

For services vendors to translate that national contract to actual revenue, account management, implementation, and IT staff have to thoroughly understand the IT, claims handling, and operating environment then, usually with little support from the payer, come up with a plan to make the adjuster/case manager’s job easier by using the vendor’s services.

That’s a very heavy lift.

What does this mean for you?

Success comes from taking work off the adjuster/case manager’s desk.  


Friday’s here!

And you get to start the weekend early (we hope).

While you were focused on other stuff – like work – here’s what else was going on in our little world.

Fraud – two very different views.

This morning’s WorkCompWire arrived with the news that some small businesses are concerned that their employees may be contemplating workers comp fraud.  In a survey sponsored by EMPLOYERS Insurance, 13% of respondents were concerned “employees would commit workers’ compensation fraud by faking an injury or illness in order to collect benefits.”

(according to EMPLOYERS, 6% were very concerned, 7% somewhat concerned)

The other fraud-related topic comes from WorkCompCentral’s Sherri Okamoto. Ms Okamoto filed a story on the Labor Dept.’s just-published finding on employee misclassification.  In the announcement by DOL, the following statement appeared:

A worker who is economically dependent on an employer is suffered or permitted to work by the employer. Thus, applying the economic realities test in view of the expansive definition of “employ” under the Act, most workers are employees under the FLSA.

WCC’s piece noted several recent court cases, rulings, and other findings that have forced employers to pay back wages, re-classify workers as employees, and otherwise restricted businesses’ efforts to avoid identifying workers as contractors.

The implications for health and workers’ comp insurers are clear: more premiums and a larger market.

Note – DoL’s document is well worth the read as it is highly relevant to the evolving “sharing economy”.

Implementing health reform

Following up on my piece re “there is no Obamacare”, found this from Avalere Health;

the average provider networks for plans offered on the health insurance exchanges created by the Affordable Care Act (ACA) include 34 percent fewer providers than the average commercial plan offered outside the exchange.

No one should be surprised by this.  Health plans competing on exchanges MUST be price competitive; now that healthplans can’t just deny coverage, they have to compete on the basis of delivering care at the lowest possible cost (yeah, outcomes will be a factor at some point, but they really aren’t so far).  The cost of care is determined in large part by provider reimbursement and utilization of health care services, both of which are driven by the payer-provider contract.  Providers want more volume, lower administrative burdens, less uncertainty about and much speedier reimbursement – and do NOT want to share patients with every other Dr Tom, Dr Dick, and Dr Mary in their service area.

And that’s why we have narrow networks on exchanges – providers give lower prices in return for more patients and less hassle.

BTW, this is right where we were back in the heyday of group- and staff-model HMOs; they fell out of favor as members wanted more choice.  Now, those people who want choice are going to have to pay a lot more for it.

Expect to see much more “network narrowing” in the future.

Another state is going to expand Medicaid – Alaska.

Providers are getting stronger

This week’s announcement that Connecticut-based Yale-New Haven health system is acquiring another big hospital in the eastern part of the state is just one more indication that the provider world is consolidating and gaining negotiating leverage.  Both health care providers and the payer industry are consolidating, but to date it appears the providers are the ones gaining the upper hand in the battle for leverage.

See you next week

Drug testing explained – part 2

Yesterday’s post about testing work comp patients for opioids struck several nerves; perhaps the most sensitive involves frustration on the part of payers unhappy about paying for tests prescribed by docs who don’t read the results.

That and the outrageous prices charged – and paid – in some states by some labs/physicians.

In addition to several public commenters, I heard from two medical directors yesterday about docs who order tests and never take action when the results are “inconsistent” with expectations.  Over the last few weeks I’ve have had similar conversations with pharmacy directors at two large state funds.  Simply put, these folks are happy to promote best practices, but do NOT want to pay for tests that are never read.

What’s a payer to do?

First, watch the coding and reimbursement very carefully; your medical bill review function may be able to help identify inappropriate coding and/or coding that looks to be primarily reimbursement-driven.

Second, direct away from those providers engaged in unacceptable billing practices.  Yes, I understand you cannot force claimants to use or not use specific providers in some states.  I also know payers can encourage/recommend/channel/suggest/educate claimants about specific providers; Express Scripts had some solid results by educating patients about physician dispensing, and their lessons learned can inform your approach.

Third, make the high billers’ lives difficult by doing everything possible to reduce reimbursement; require medical necessity statements, require evidence that the test was actually done, reduce reimbursement by whatever legal means necessary.  I’ve talked to a couple payers who have successfully battled physician dispensers using this tactic; one roundtabled the issue with adjusters who came up with several very creative and effective ways to make life extremely difficult for companies billing for physician-dispensed drugs.

And the adjusters really enjoyed it…

For docs who don’t read the tests they have ordered, an outreach program wherein a test with aberrant findings triggers a case manager contact with the treating physician is in place at several payers.  While this – like everything else in workers’ comp – is no panacea, it does alert the treating doc that there’s a problem.

There is also technology available and currently in use that can determine if a document emailed to a recipient is opened.

Worst case, the payer can use this information if the claim goes to litigation, and/or to seek a change in physician, and/or to demonstrate culpability on the part of the physician if the patient has an adverse event.

What does this mean for you?

Drug tests are a tool; used correctly they can be very helpful.  But tests that are bought and never used are a waste of money. And using the wrong test is like trying to tighten a bolt with a hammer.

Drug testing (partially) explained

Once more we will delve into the minutiae of an issue…this time into testing patients who are prescribed opioids to ascertain if they are taking the prescribed medications, and if there is evidence they are consuming other licit and/or illicit drugs.

(full disclosure – Millennium Health, the largest toxicology testing company, is a consulting client)

All guidelines suggest/encourage/require testing of patients prescribed opioids.  

There are two types of urine drug tests – qualitative, where a cup test simply indicates if a drug is or is not present, and quantitative, which is much more accurate and must be done in a lab.

I’m surprised at the continued use of qualitative tests as they are notoriously unreliable; research indicates the cup test failed to show benzodiazepines were present for 28% of specimens, and cocaine for fully half of specimens evaluated – and false negatives and positives for other drugs are much higher than one would expect.  These “false negatives” are obviously misleading; the usefulness of cup tests is further compromised by how easy they are to fool. (there are about a gazillion web pages that provide info on passing a cup test…)

Say you are prescribed Oxycontin, but haven’t been taking the pills.  You’re scheduled for an office visit, have sold your pills, and don’t want to get caught.  You can rent pills to pass a pill count, and if you’re asked to pee in a cup, you can shave one of the pills into the cup, thereby adding the chemicals that will show you are compliant.
Voila!  you’re clean!

Except, if your sample gets sent to a lab for quantitative testing.  It is much harder to fool good lab testing because the testing equipment:

  • uses much lower cutoff levels for drugs, thereby finding more positives than cups do;
  • tests for metabolites – the chemicals created by your body after it processes the drugs: metabolites show you’ve actually taken the drug
  • checks for certain chemical markers that can indicate if the urine is fake or from another person (or, in some cases, another animal)

There’s much more to this; warning, if you start looking around on the web, you’ll find some incredible stories and myths and tales about folks allegedly passing tests; great for entertainment but very easy to become mesmerized for hours.

I recently reviewed data from a very large sample, specifically looking for data about cup results vs lab (quantitative) results.  The analysis was rather disturbing…Cup tests missed:

  • 45% of opiates (cup reported no opiates, lab reported opiates)
  • 44% of benzodiazepines
  • 28% of marijuana

Cup tests also indicate drugs are present when the lab tests show they are not, false positives occurred in:

  • 27% of reported opiates
  • 69% of antidepressants
  • 100% of PCP

What does this mean for you?

Be very careful about basing decisions on cup tests – even if they show there aren’t any anomalies or “unexpected” results.

There’s no such thing as an “Obamacare” health plan

Some blame “Obamacare” for pretty much everything; high insurance costs, increasing deductibles, access issues (real and imagined), narrow networks with fewer physicians, hospital closures, global warming (oh, wait, no such thing).

And worst of all, this is all due to the “Obamacare health plan”.

Which is kinda weird as there’s no such thing.

Outside of Medicaid and Medicare, there is no governmental health plan option available anywhere. None.  Yet I’ve heard from doctors’ office staff (who really should know better), folks in the health care industry, and lots of the “people on the street” who attribute everything bad about health insurance, coverage, cost, bureaucracy to Obamacare.


  1. All health plans are offered by commercial insurers and health plans.  Anthem, Blues plans, United Healthcare, Aetna, Humana, you name it – all are independent, private insurers.
  2. These health plans design their own insurance offerings, market them to the public and employers, balancing access and cost, coverage and deductibles, benefits against market demand.  Yes, there are tight definitions about core benefits that must be covered: this is so consumers’ health needs are addressed, not excluded by some fine print buried deep in a Summary Plan Description.
  3. Health plans alone determine what doctors are in-network, deductibles and copays, premiums and physician reimbursement. Not the feds or the Exchanges, but each insurer/health plan.
  4. Health care costs are going up (in some places by a lot, in others not so much) because of factors like:
    1. too much crappy medicine,
    2. a reimbursement system that pays docs too much for doing stuff to patients and not enough for talking with those same patients,
    3. over-utilization of some health care services,
    4. an aging population,
    5. obesity and other lifestyle factors,
    6. outrageous prices for some drugs (driven by for-profit pharma)
    7. a large uninsured population that forces health care providers to charge insured patients more to cover their costs of treating those without coverage (we’re talking about you, Texas, and you, Florida, and Kansas and Mississippi and Alabama and Wisconsin and…)
    8. stupid benefit design that relies way too much on deductibles and nowhere near enough on coinsurance (where members pay a percentage of the cost for each service, thereby exposing them to the real cost of services)
    9. a completely disjointed and dysfunctional health care non-system with prices much higher than any other industrialized country and outcomes mostly worse.

As Donald Rumsfeld said, “you’ve got to go to war with the Army you’ve got.”  Much as I despise Rumsfeld, he was unfairly pilloried for that very perceptive comment.  The reality is simple – “Obamacare” was, and is, an attempt to broaden coverage and allow the private market to figure out how to improve care and reduce costs.

Yes, there are a lot of regulations about how insurers have to do that; given the insurance industry’s financial motivation to avoid insuring sick people and actually pay claims it is no surprise that the regulators are trying to protect consumers from big insurers and their legions of lawyers.

Is this ugly and are there stupid regulations and are costs going up way too much in some areas and is it all way too complex and confusing?

Oh yeah.

What did we expect when reforming an industry that is responsible for one out of every six dollars of our economy? And was failing miserably at delivering good care at a sustainable cost?

Hell, we can’t even prevent trains from crashing, or fund a bill to fix our crumbling infrastructure, or reform our amazingly nutty income tax system, or stop doctors from making millions dispensing drugs to work comp patients.

We are well on the way to fixing one of the biggest problems in our country, And we’re “disappointed” in health care reform?


What does this mean for you?

It is, indeed, a clustermess.  

Some people will get hurt.  Some companies will fail,  Some will get fabulously rich.  Some will go to jail.  But in the end, more will have insurance, insurers will compete on a relatively level playing field, and incentives will be more aligned with what we consumers want – better health at low cost.