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Questions for your work comp managed care vendors

Here, in no particular order, are a few questions you may want to pose to the folks who manage your work comp medical dollars. Whether the answers are ‘right’, ‘wrong’, or neither depends on your situation, but regardless of the answer, these are things you should be thinking about.
1. Are your incentives aligned? To know, you’ll obviously need to have a tight grasp on the strategic objectives for your comp program. Minimize cost? Maintain strong employee relations? Avoid antagonizing union workers? Maximize employee productivity? And the follow on question – do your vendors know and understand those objectives, and finally how have they demonstrated that understanding?
This is the foundation for a successful program; if you aren’t starting with the same strategic goal you’ll be constantly battling over direction, focus, resources, cost. The relationship will be time-consuming, frustrating, and ultimately fail. To be successful you, and your vendors, must ‘succeed’ together, or fail together. Here’s an example. If your objective is to manage total program cost, make sure the vendors are aware of their role in that effort, and specifically how their fees add to the program’s cost. Pharmacy Benefit Managers make money on each and every script that flows thru their network, yet several have very effective clinical management programs that reduce overuse of expensive drugs. How does your program recognize and address this apparent conflict?
2. Are their reports meaningful? I’ve seen hundreds of reports from managed care vendors, and only a few have been useful. Most recently, I have been reviewing reports on bill review and network results from a couple of the big TPAs; they include ‘savings’ below billed charges; network ‘savings’ below billed charges, and network penetration as a percent of billed charges.
The continued focus on billed charges as the basis for calculating savings makes little sense. Paying what you are legally required to pay and no more does not create ‘savings’. It’s analogous to your credit card company telling you it ‘saved’ you a thousand dollars by not charging you for fraudulent use of your card.
Savings should be based on cost per claim. How much did you pay for medical expenses – in total and by separate category – and how does that compare to prior years and benchmarks? That’s a big difference from the industry’s traditional view of ‘savings’, which look only at reductions in cost on each line item on each medical bill. That metric is helpful, but it can also be very misleading.
If a claimant gets lumbar surgery at a high cost hospital, which bills you $100,000, and your PPO gets a 20% discount, you ‘save’ about $15,000 – the amount of the discount less the PPO fee.
But lets say the claimant goes to a less expensive, but nonetheless equal quality facility, which only charges $75,000. This hospital happens to be out of network, so there are no PPO ‘savings’, yet your costs are still $10,000 less than the PPO facility.
So your savings reports show the PPO hospital visit creating $15,000 in savings, the non-PPO stay creating no savings, and your medical costs are $10,000 higher. Oh, and your bonus plan and performance appraisal take a hit too…
That’s not to say ‘savings’ reports aren’t useful, but they can divert attention from the key metric – cost per claim. Make sure the PPO reports show savings below fee schedule or UCR, and agree on the basis for UCR as well.
3. Is your utilization review/case management function electronically linked to bill review? My firm conducted a survey of bill review in workers comp earlier this summer, and found that most programs are still not connected. While there are manual workarounds and checks and audit schemes in place at many payers, we all know that they are poor substitutes for automated connections.
After you’ve asked the initial question, audit several cases to determine if UR determinations actually show up in bill review. A couple places to check – PT visits, MRIs, and drugs. Check the claimant’s paid medical records for several months after the initial determination, and look for payment to any provider for that service.
If you’ve decided to buy bill review and UR from different vendors, it is going to be incumbent on you to ensure they are connected; and this is going to cost you. That’s fine, if the benefit is worth the added expense.
These are just a few of the questions that should be on your list, but these should be at the top.

2 thoughts on “Questions for your work comp managed care vendors”

  1. Joe–
    I would add this to your item #1. Make certain that everyone in your own internal chain of command knows and agrees on the goals of the program. Otherwise we see CFOs second guessing RMs based on a simple lowest visible dollar assumption. Incentives need to be aligned throughout the employer organization. This may be even more basic because no TPA or managed care vendor can please all parties in an internal range war.

  2. On the provider side, the The key to low cost per case is a focus on high quality care. The US healthcare system, including the WC system, is a poor value because it pays only for volume of care, with no money to reward the quality of outcomes. Follow the money: substantial incentives to healthcare vendors for quality outcomes will drive down the cost per case dramatically. The attending indemnity savings will be a very nice thick icing on the cake.

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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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