I’ve fielded several calls over the last few days from clients and colleagues asking about the potential implications of the Obama Administration’s vow to more rigorously enforce antitrust regulations.
During the eight years of the Bush Administration, not one case was brought against a large company charged with attacking a smaller rival. If anything, Bush et al bent over backwards to help big business, doing little to stop mergers and acquisitions that significantly consolidated market share. The change in policy by the Obama Administration came about Monday, when antitrust boss Christine Varney explicitly rejected Bush’s September 2008 rule-making that directed the government to avoid interfering in “the rough and tumble of beneficial competition.” In order to initiate action, the Bush rule required that the government determine that a merger or action’s negative impact on competition was “substantially disproportionate to any associated pro-competitive” benefit.
Speaking at an event sponsored by the Center for American Progress, Varney said the Obama administration’s approach to antitrust will be based on the understanding that the marketplace alone should not dictate what is fair competition. That implies the Feds will be taking a more active role.
Antitrust regulation is based on the Sherman Antitrust Act, wherein “a monopoly power is defined as the ability of a business to control a price within its relevant product market or its geographic market or to exclude a competitor from doing business [emphasis added] within its relevant product market or geographic market. It is only necessary to prove the business had the “power” to raise prices or exclude competitors. The plaintiff does not need to prove that prices were actually raised or that competitors were actually excluded from the market.” (FreeAdvice.com)
Implications for comp
The work comp network business is dominated by Coventry Healthcare. They have the largest network used by almost all of the larger payers and most of the mid- and smaller ones. The network was based on the First Health PPO, augmented by the acquisition of Concentra’s managed care business, and enhanced when Coventry removed Aetna Work Comp Access from the market by signing an exclusive deal.
Coventry then implemented their “all or nothing” strategy, wherein customers who wanted to use other rival networks in certain jurisdictions were told they could not do so; if they wanted Coventry anywhere, they had to use Coventry everywhere. Other customers were given more flexibility, but at a much higher price – using a ‘foreign’ network meant the customer had to pay more, and in some cases much more, to Coventry.
I’m no attorney and certainly not more than superficially knowledgeable about antitrust issues, regulation, and history. With that disclaimer, here’s a mostly uneducated opinion. It seems to me that Coventry’s ability to consolidate the comp network business and, via pricing and contracting practices, shut out competition gives them a huge advantage in the marketplace. An advantage that has driven very nice financial results. Whether those actions qualify as anti-competitive under the law is something I’m not qualified to judge. But from a layman’s perspective, the comp network business fits the definition of a monopoly.
Will the Administration look into the comp network business? I very much doubt it. Not only is this a relatively tiny market, the market consolidation, and approval thereof (to the extent Bush’s people even looked at them) occurred well before President Obama took office. Obama has demonstrated a reluctance to revisit decisions made by his predecessor; I just don’t see Varney and her attorneys re-examining the consolidation of the comp network business.
Disclaimer – After several years of attempts to engage with Coventry to hear their perspective, attempts that were ignored (except for one conversation with Jim McGarry two years ago) I don’t even try any more. If anyone from Coventry wants to discuss this, feel free to contact me.

Coventry released its financial results for Q1 2009, and the work comp financials are, to say the least, strong.
Revenues were up almost 10% quarter over quarter to $188 million, while gross margin actually declined by a couple points to $130 million. The 10-K states that the growth in revenue was driven primarily by an increase in the company’s work comp PBM revenues.
I’m more than a little surprised by the gross margin number. Coventry’s PBM, FirstScript, has been aggressively expanding, slashing prices to do so. Margins in the WC PBM business have been declining of late, under pressure by the dynamics and market forces of a rapidly maturing market. Yet Coventry’s gross margins are holding up quite well.
It is likely that the company’s well-documented efforts to raise prices on network rental services have helped keep the gross margin number where it is. Kudos to Coventry for this success; it’s taken a lot of work and come despite strong resistance from many clients.
The slight drop in gross margin dollars (understanding it is a larger decline in percentage terms) will likely turn around in Q2, as Coventry has recently laid off a number of managers and directors in the work comp business.
Work comp is – by far – the most profitable business for Coventry. Although comp only accounted for 5.3% of Coventry’s revenues for the quarter, it delivered about 19% of gross margin.
Those are pretty strong numbers, and shows exactly why the new management team is enamored with the business. Any business that produces $520 million in gross margin on $850 in annual revenue is going to have lots of Board support.

If you thought the first few posts from NCCI were esoteric, here comes one that makes them look amazingly general. You’ll either yawn or be right on the edge of your chair…
Chris Brigham, MD, senior editor of the AMA Guides to the Evaluation of Permanent Impairment (the Guides), had the coveted post-lunch speaking slot at last week’s NCCI meeting on Thursday. For those not conversant with this issue, the Guides are used in workers comp to determine when, and how much, a person’s medical condition is a disabling condition.
Note that Brigham, and the new edition of the Guides, are controversial and the object of assault by many who claim to be on the side of the claimant (I’m not saying they’re not, I’m saying that’s what they purport to be. I have no opinion re the utility or appropriateness of the Guides).
Brigham started off by noting that most of the initial impairment ratings he reviewed were subsequently corrected. And in the vast majority of cases, the original rating was an over-rating of disability. That is, the subsequent review showed the person was not as disabled as the original impairment rating asserted. Brigham used a database comprised of 866 California cases, out of which 83% were incorrectly rated, at a cost of over $15,000 per case (cost is the award amount for the initial impairment rating v the subsequent rating).
Notably, impairment ratings in Hawaii tended to be more consistent than in California – a lot more consistent.
Errors in CA were overly concentrated in LA, less so in others. There is also a variation in ratings done by different types of physicians and for different diagnoses.
A couple key concepts – impairment is not the same as disability. Impairment is the result of the medical condition – what physicial impact occurred. Disability is somewhat more subjective, as it addresses what that person can do. For example, Steven Hawking (the brilliant physicist) is completely impaired due to ALS. He is also a prolific author and practices his craft every day. Thus he is ‘impaired’ but not ‘disabled’.
To paraphrase friend and colleague Jennifer Christian, MD, “there is no medical condition that is so disabling that there is not a person in this country with that condition working full time and being paid well.”
The new Guide was developed in an effort to add consistency across the ratings, a response to criticism of past editions. The new Guide is more diagnosis based, using evidence to substantiate the diagnosis, and provides rating percentages that factor in clinical and functional history as well as an exam of the patient. It also factors in new, more current medical research and clinical studies.
According to Brigham, the new Guide eliminates such historical factors to rating including the occurrence of surgery and range of motion for spine patients, as the clinical research indicated no linkage between those ‘factors’ and actual impairment.
Notably, physicians polled for their reactions to the new edition were generally favorable, while plaintiff attorneys and chiropractors were not.

What does this mean for you?
Expect the use of the new Guides will be controversial, and will likely be subject to legal action in many jurisdictions due to the changes, and stakeholders’ reactions to those changes.

IAIABC President Peter Federko had twenty minutes to discuss the impact of health reform on workers compensation. I’ve posted on this several times, for those interested here’s where a summary post.

Before we delve into Mr Federko’s comments, I’d be remiss if I didn’t note that there already has been, and almost certainly will be, ‘health reform’ initiatives that will impact workers comp – to greater or lesser degrees. These include S-CHIP and the Medicare Set-Aside language inserted into that bill at the very last minute (for those who thought that health reform would have little impact on comp, the insertion of MSA language into a bill for poor kids’ health care is a big bucket of icy water smack in the face).
On to Mr Federko, President of IAIABC. Mr Federko is Canadian, CEO of the Saskatchewan Workers Comp Board, so knows a lot about the relationship of universal health care and workers comp. (I’d note that there are a variety of health reform proposals before Congress today, some of which call for universal coverage, others do not).
Speaking from his perspective as the boss of a comp regulator/seller/administrator. he noted that the fundamental principal of universal care is the access to medical necessary care regardless of the ability to pay. Canada, Norway, Denmark and Sweden use single payer systems, where money comes from the government and is paid to private providers. In the UK and Spain, the government owns the payer and providers. In Germany and Switzerland, there are many insurers which employers and individuals contribute to, who pay independent private providers to deliver care.
Note that in those systems that include ‘private providers’ the providers are not government employees. Most of the hospitals in Canada are privately owned by regional authorities or not for profit organizations. Physicians are independent, for-profit providers who bill and receive payment from the government.
In Canada, the same amount is paid for any procedure regardless of the payer type. Thus payment for a hernia is the same whether it is through workers comp or ‘regular’ health. However, the work comp board negotiates with providers to ensure quicker access to care to facilitate quick scheduling, completion of reports, and compliance with communications standards. There are additional payments for reporting and communication, and in some instances the Board sends claimants south of the border to get treatment more quickly.
Federko noted that the US spends considerably more than the US for health care, while life expectancies in Canada are a couple/three years longer than in the US, infant mortality rates are lower in Canada, and the WHO reports that Canada ranks slightly higher than the US (30 v 36) on a ranking of industrialized nations’ medical quality (paraphrasing here).
He also noted that the cost per claim in Canada for comp can sometimes be higher than in the US. Federko said this is due to their intense focus on return to work, which leads to the Board doing whatever they can, paying for whatever services may be suggested, in an effort to get their injured workers back on the job. However, this intense focus has led to significant savings in indemnity expense, and therefore, according to Federko, it is well worth it.
A couple other observations worth mentioning. First, Federko said that it is indeed possible that universal health care in the US may well reduce cost shifting to workers comp resulting from underpayments to providers by medicare/medicaid/the uninsured.
Finally, Federko reiterated a key point – universal coverage is not socialized medicine, in Canada 95% of care is delivered by private providers.