Frank Pennachio is one of the smartest people in workers comp. His piece on the complicity of employers in screwing up their own claims published in Risk and Insurance is just terrific.
TPAs are making a lot of money on managed care. At least in part, that’s because employers are hammering them on claims handling costs. There is just no way that a TPA can effectively adjudicate a lost time claim for $1200 for the life of the claim/contract.

So, they have to make up the margin somewhere, and managed care is that ‘somewhere’.
Here’s Frank’s summary:
“Claims administration contracts between employers and their insurance companies or third-party administrators have created a cycle of misaligned incentives and unintended consequences.
Many employers have lost sight of what a workers’ compensation program is supposed to do, and vendors have created products and services that often drive costs up instead of down.”

One of the more successful reforms in work comp over the last decade was in Florida. But there are two major issues getting lots of attention that may well overturn much of the good achieved in the Sunshine State.
Dennis Ross, one of the primary authors of the reform plan that became law in 2003, has written an excellent article summarizing these two problems. In brief –
Litigation expense was slashed dramatically under reform. That happy result looks to be in serious trouble, and legal costs may once gain skyrocket.
Before reform, attorneys would litigate anything, no matter how minor, because they would get paid their hourly rate for all work on the claimant’s case. As a result there was litigation around ‘underpayments’ of a few dollars, where the legal fees would be ten times the actual ‘underpayment’. Now, due to a recent court decision, some parts of the reform look to be in jeopardy – the very parts that eliminated the incentive to litigate everything all the time.
The specific case I’m referring to is Murray v Mariners Health/ACE USA. As things stand now, we can expect litigation costs to increase dramatically, and we’ll likely see a big upsurge in medical utilization as attorneys will once again be incentivized to push claimants to get as much care as possible.
Ok, that’s bad. What’s going to happen with hospital costs may even be worse.
Medical costs came down dramatically as well, thanks to changes in the fee schedule that actually increased reimbursement for physicians and should have cut facility costs (but apparently didn’t). As a result, more docs participated in comp, and the ones that did were doing good work (amazing how that happens when you pay docs a fair rate…) But the decision by the three member panel to fundamentally change facility reimbursement will likely add several hundred million dollars to employer’s work comp claim costs.
I’ve posted on this before – here’s the net. The proposed change to the Fee Schedule would link the “usual and customary” payment standard for outpatient hospital claims contained in Fl. St. § 440.13(12) to the ratio between what Florida hospitals charge Medicare and what Medicare actually pays. The net result would be a dramatic increase in the reimbursement for outpatient services billed by hospitals. There are four issues here.
First, methodology will increase costs – today – by 181% for surgeries and 330% for other hospital outpatient services.
Second, the annual inflation rate for charges in FL is 14%. So today’s high costs will be tomorrow’s even higher costs and the day after will bring really really high costs…
Third, the location of services will likely change dramatically to the higher cost hospital location. Thus procedures which were being done in offices will now be billed – at the much higher rates – by hospitals.
Fourth, as a result, surgeries which were done on an outpatient basis will likely shift to inpatient to take advantage of the much higher reimbursement.
What does this mean for you?
Work comp costs in Florida are going to go up – a lot.

Yesterday I posted on the hiring of a former state trooper as head of North Dakota’s Workforce Safety and Insurance (WSI) entity – the state’s sole work comp agency. For those unfamiliar with ND, they are one of the few states where the state is the exclusive provider of workers comp insurance – they, and Ohio and Washington, are ‘monopolistic’ states.
A bit of googling brought up a bit more information about the new boss – Bryan Klipfel. His background is law enforcement, he does not appear to have any comp experience, and was actively involved in the investigation of the former head of the agency, Charles Blunt. Blunt was terminated after an investigation into an alleged theft of state funds. Blunt was subsequently convicted by a jury of one felony charge of misappropriating state funds.
A quick google of the Blunt case raises more questions than answers. After watching the fiasco at the Ohio fund brought on by a few criminals in the executive suite, I was prepared for another orgy of self-dealing at the public trough.
Apparently not. In fact there aren’t any charges that Blunt took money himself, but rather authorized sick leave for an executive that may not have been ill, and, according to a news report, used somewhere around $26,000 of “WSI funds to pay for employee meals and drinks and buying illegal gifts and trinkets for staff…”.
Ok, so Blunt made a few bad decisions and/or didn’t follow all the rules by the book. But a felony conviction for a sick leave authorization and some apparently inexpensive ‘gifts’?
Boy those Dakotans are brutal. But even if they are, I can’t imagine Blunt was the only exec in the entire history of WSI to run afoul of the employee handbook. So, why the big expensive investigation?
I’m really curious. The investigator who has no experience in work comp and no P and L experience (never ran a business) is the head of a big comp insurer after helping convict the former occupant of his new office of using state funds to pay for meals, sick leave, and gifts?

In my post earlier this week I reported on the change at the top of Coventry’s workers comp division, saying “Young came into the organization in the Concentra deal. Generally well regarded by customers, his promotion has been characterized by several as a good thing; he is viewed as more customer-oriented than execs from First Health.”
Well, it looks like there are two very different perspectives regarding Mr Young. I received several emails questioning my positive statements about Young and a couple of calls as well. All disagreed specifically with my ‘customer-oriented’ claim.
I’ve met Mr Young a couple times, do not really know him except by reputation, and defer to those who know him better than I. I’ll retract my earlier characterization and replace it with this “it is safe to say that Mr Young has supporters and detractors among coventry customers.” I’d also note that people generally complain more than they compliment, so perhaps my correspondents were not representative.
And thanks to all who shared their opinions, even those who blistered my inbox in the process.

The folks at WorkCompCentral find the most interesting stuff. Today’s edition featured an item about the new head of North Dakota’s work comp agency – here’s how they put it:
“Highway Patrol Director Bryan Klipfel [was named] as director of Workforce Safety and Insurance (WSI) and U.S. Department of Agriculture executive Clare Carlson as deputy director and public affairs officer for the agency.”
The announcement, which came from the Governor’s office, quoted the governor: “in his 30 years with the Highway Patrol, Klipfel had a strong record of accomplishments and was highly regarded for his knowledge and integrity in both the Highway Patrol agency and law enforcement statewide.”
WorkCompCentral noted “Klipfel currently is the human resources manager for Job Service North Dakota. He has a degree in public administration from the University of North Dakota.”
Is it just me, or does this look like political patronage?
What does a former patrolman know about workers comp? Turns out he admittedly doesn’t know anything.
According to a local paper in ND, “Bryan Klipfel says he knows little about workers compensation, but the former state Highway Patrol commander believes his management and listening skills will help him do well as director of North Dakota’s Workforce Safety and Insurance agency…”I’m going to work with Bruce (Furness) for a couple of weeks, and I’ll just have to learn some of that information as time goes on,” Klipfel said. “My strong points are that I have leadership ability, and I understand human resources, how to deal with people. And I think that’s the big part (of the job) right now.”
Huh?
He’s going to learn on the job? While getting mentoring for a ‘couple of weeks”? In a business that is incredibly complex? At a time when investments and reserving practices are critically important?
And his qualifications are his understanding of human resources and leadership ability?
Yikes. This bears further investigation.

Jim McGarry has moved on, and David Young has moved in. That’s the quick report on changes at the top of Coventry’s work comp unit – but more is coming.
McGarry, who reportedly has a solid relationship with Allen Wise, will be working on other tasks within the company. And no, this isn’t one of those executive sinecures hiding an internal exile. By all accounts McGarry is well respected and liked by his colleagues on the senior management team, and bigger things are in the offing.
Young came into the organization in the Concentra deal. Generally well regarded by customers, his promotion has been characterized by several as a good thing; he is viewed as more customer-oriented than execs from First Health.
The change was relayed to several Coventry work comp customers Friday and today, along with news about a restructuring of the IT support and maintenance functions. These were consolidated along with other product line support in the Coventry IT department; going forward work comp will have dedicated resources. No surprise here; there have been indications for several weeks that new CEO Allen Wise has been seeking to better allocate costs by product. More specifically there has been ongoing concern about SG&A expense for work comp.
The restructuring of provider contracting and relations is not yet final. That said, there are signs that work comp contracting will be handled by separate staff. While this will likely help reduce facility costs for other lines (that deliver over 80% of Coventry’s total revenues) without the market share of group and Medicare, comp contracting staff will find it very hard indeed to negotiate with facilities. Remember, comp only amounts to 2% of the typical hospital’s revenues.
With the hiring several weeks ago of Pat Scullion as work comp CFO at Coventry, the new management team is almost complete. And the timing of the Scullion hire was nothing if not fortuitous, as several sources indicate Aetna is seeking to renegotiate its PPO contract with Coventry. As Aetna is the de facto network for Coventry in multiple jurisdictions (Coventry has exclusive marketing rights for four more years), it is negotiating from a rather strong position – Coventry would be in a very tough spot without Aetna.
What makes this particularly interesting is the Aetna exec seeking to renegotiate the deal is Dan Fishbein, the same Dan Fishbein who ousted Scullion from his prior role as president of Aetna’s work comp unit. And yes, that was the same Pat Scullion who negotiated the original deal on behalf of Aetna.
Now that must make for a very fun negotiation session; Aetna is negotiating for a higher price (that’s just a guess) or better terms while sitting across the table is the guy who knows more about their financial position than anyone left at Aetna.