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Tough times ahead for work comp managed care

As if the declining frequency rate wasn’t bad enough, managed care companies are now looking at significantly lower claims volume in 2009, a decline that will spell trouble for work comp managed care.
When the number of injuries goes down (which it does during economic recessions), managed care vendors are directly affected. There are fewer bills (bad news for bill review), fewer treatments and visits to providers (bad news for PPO networks and UR vendors), fewer prescriptions (not as bad news for PBMs as you might think), and fewer cases to manage (bad news for case management firms).
This recession, currently in its twelfth month, may well be tougher on managed care vendors than prior ones. The jobs that are disappearing tend to be those in higher injury rate classes – retail, manufacturing, construction (24 consecutive months of declining employment), transportation/logistics. The auto industry is in freefall with sales down 37% last month, bringing suppliers along for the ride. The unemployment rate has rocketed to 6.8%, the worst result in over sixteen years, and may be headed to 8.5%.
Fewer workers, fewer injuries. Those fortunate enough to keep their jobs tend to be more experienced, better trained, and less likely to report an injury for fear they’ll lose their job. And, the pace of work is slower with much less overtime- all contributing to lower injury rates.
As if that wasn’t bad enough, payers are looking to move more managed care services in-house.
For some time, big (and medium) TPAs and insurers have been internalizing their managed care. Gallagher-Bassett, Liberty Mutual, AIG, Broadspire, and Sedgwick are but a few of the big boys that have long handled much of their own managed care (with the exception of networks – more on networks in a minute). Services such as bill review and telephonic case management are easily handled by the payer, and system vendors usually have modules ready for payers moving in this direction. Payers are able to capture more revenue and profit, while contending (with, in some cases, justification) that their results are better than vendors can deliver. Of late this trend has accelerated, primarily due to the soft market. First Cardinal is one TPA that recently brought case management in-house, others are internalizing bill review and UR as well. Expect this trend to accelerate.
As I noted a couple weeks ago, the network business is under increasing pressure from regulators. In addition to the legal issues in Oregon and Louisiana, is is highly likely the ‘networks of networks’ will find their business model under attack as states adopt legislation/regulations forcing greater disclosure of rental network agreements, requiring positive agreement from providers (providers have to sign off on a document before they can be added to a network). This will mean more work for provider relations, legal, and customer service departments at network vendors, driving up costs.
There is also increasing chatter in the industry about big payers moving towards much smaller, more specialized networks focused around key workers comp physicians. We are seeing significant movement in this direction in California, Florida, and Texas, three states that combined account for a big chunk of workers comp medical spend.
There is a bright spot. Specialty vendors in the DME, Home health, and pharmacy sectors will be least affected. As reported by NCCI, the big dollars in these sectors are spent by long-term claimants. The recession will not affect these companies much, if at all, as most of their business is coming from claimants that were injured years ago.
What does this mean for you?
If you are a vendor, batten down those hatches. Demonstrate your value, service your customers, and get your employees on board.

2 thoughts on “Tough times ahead for work comp managed care”

  1. Thanks for the interesting article. The data will in the end speak for itself. There are many forces in play during changing economic cycles from a behavioral standpoint. During times of high employment and a robust economy, some individuals are brought into the workforce who can’t meet the demands for a number of reasons and end up with more challenging time-loss and disability claims.
    In times like now, when jobs are threatened, those who fear for job loss or who have had injuries and no job to return to, there are moral hazard incentives to prolong claims.
    Finally, after many months or years, when the above have run their course and the workforce has shrunk, we are likely to see diminished claim activity.
    Another factor that likely is taking place more long-term is that many years of efforts to understand and implement best-practices by companies in terms of safety, return-to-work, evidenced based care and general awareness of the cost of injury and disability is I believe having a positive impact on accident and injury rates for many companies, translating to lower claim experiences. This is just an impression and bears further study.

  2. I too think that the numbers in the end will tell us if this theory, based upon historical experiences, holds true for this recession. There are three factors that I know to be different and believe will affect this theory in today’s recession. First, aging workforce. The theory behind lower occurrences during a recession is that companies keep the most experienced workers and lay-off the newer, less-experienced workers and more experienced workers tend to not get hurt as often. However, with the aging workforce we may see fewer, but the injuries will be significantly more expensive to treat in the older workforce. Secondly, health insurance has changed. Companies, in an effort to reduce costs, have taken on health insurance policies with high deductibles, whereby reducing utilization of services on the group health side. Where is the past an employee did not worry too much about a co-pay to keep from having to hassle with filing a work-comp claim on a minor injury, now they must decide to pay the co-pay and deductible or go ahead and file that claim. The third is that the providers are quicker to react to changes. NCCI, among others, have shown that when a PPO discount is taken but no utilzation controls are put into place – costs go up through increases in utilization. The same theory would hold true when reductions in quantities of patients occur. Without managed care controls utilization and per case costs will continue to escalate. Here in our State, where less than 20% of employers utilize managed care programs, on average total w/c medical costs have increased 7.5% each year for nearly the past 15 years, while we have seen a 44% decrease in the quantity of injuries, and the State Fee Schedule had remained essentially flat. Utilization of services is the culprit. This shows me that providers are already prepared to address more reductions in the quantity of injuries. And as the author states, this too is just an impression and bears further study.

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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