NCCI’s newly released report on fee schedules provides interesting reading. If you don’t have the time right now, here’s the key quote:
“For comparable injuries, when WC pays higher prices than GH for specific services, those services tend to be used more often in WC than in GH. [emphasis added]”
No kidding.
Before you dismiss this as common knowledge, remember that (in most states) work comp hospital reimbursement is much higher than for group health. That’s why hospital costs are the fastest growing sector of comp medical expense.
Here’s another quote: “Reimbursement for care that physicians provide at hospitals and other facilities is more likely to exceed the fee schedule than care provided in their offices.”
So, physician reimbursement is usually higher in facilities, and the facility’s costs are typically higher as well.
Yet regulators in Florida are adopting fee schedules that continue, if not worsen, this situation by dramatically increasing reimbursement for outpatient services. The reimbursement scheme will pay hospitals 74% more than Medicare for surgeries and four times Medicare for other outpatient services. And the comp system in South Carolina is deteriorating daily, due in large part to overpayment of hospitals. The state adopted a Medicare+40% hospital fee schedule on 10/01/06. Now, per NCCI, there is a 23.7% WC rate increase filed and pending.
Minnesota is considering similarly suicidal behavior, specifically a hospital inpatient payment standard that would pay smaller Minnesota hospitals about 90% of their billed charges; larger hospitals would get about 85% of their billed charges on higher-dollar inpatient bills.
What does this mean for you?
Clients are reporting hospital expenses are rising faster that at any time in recent memory. Don’t look for any help from the regulators.
Tip of the hat to workcompcentral.com for the NCCI report info.

With the passage of the stimulus bill, it’s timeti consider the implications fir workers comp. I’ll get to the details next week, but there are a few broad statements we can make today.
First, the unemployment rate will not drop much more. Comp insurers, Occ Med clinics, managed care firms and TPAs started feeling the effect of a rapid drop in frequency last summer, a drop that would have accelerated throughout this year. For carriers, the decline was good news/bad news, as fewer claims meant lower claims expense, while fewer employees produced lower premiums.
The funding for COBRA and Medicaid will help keep folks insured, thereby decreasing cost shifting (below what it would have been without the bill). This is very good news indeed; although it is impossible to calculate what cost shifting would have done to comp, it would undoubtedly have driven medical costs up significantly.
Over the long term the effectiveness research funding will be a big help to payers and providers. Solid guidelines for back injuries will be most welcome.
There’s much more to come.

Both. At least that’s how company execs want to ‘brand’ Corvel – but it isn’t what their TPA customers want to hear.
Me? I’m not so sure.
Here’s how Corvel described itself in a recent SEC filing:
“CorVel Corporation is an independent nationwide provider of medical cost containment and managed care services designed to address the escalating medical costs of workers’ compensation and auto policies.”
Interestingly, the company’s website does not describe itself as a TPA, and combines its TPA business with case management in case management. While this hasn’t changed since this time last year, it does muddy the waters – is Corvel a TPA with managed care services, or a managed care company that does a bit of claims adjusting?
In last week’s earnings call, CEO Dan Starck said “We also continued with our Enterprise Comp expansion; our strategic initiative of bringing a new approach to claims management and our overall transition to becoming a full service provider to the workers’ compensation market…The addition of our claims administration product expands our service offering in this area and continues to open new opportunities.”
Starck went on to say a lot about Enterprise Comp:
“Moving forward in 2009, we will continue to focus on our four key initiatives and their role in transitioning the organization to a full service provider. The first initiative is the continued expansion of Enterprise Comp. Despite the continued decline in the overall volume of claims; we believe that this initiative is on point. In fact in this market environment, we believe that this initiative continues to grow their importance.
Traditionally, through our managed care services, CorVel has only had access to a small number of employer customer opportunities. The employers that purchased their TPA services and managed care services separately. This group of employers is the minority in the workers comp market.
Enterprise Comp provides the ability for CorVel to meet the needs of the larger segment of the employer market, the employers that buy their services in a bundled format. By owning all of the major components of the workers’ compensation continue, claims administration, managed care and the software applications needed to integrate and execute the different business lines. We feel we are in a strong position to bring the truly differentiated product to the market.
Over the course of the past few quarters, our field operations have been busy with the all of the integration activities that must take place after acquisitions have been completed. At the same time, our IT team has been busy developing our claims management software application into one that begins to realize the vision of Enterprise Comp in the future.
Much of the December quarter involved laying the foundation of the software into our production systems and the beginnings of field implementation. Although I discussed the Enterprise Comp imitative [sic] at times it’s just getting started, our claims administrations today as a company are strong.
We currently administer workers’ compensation claims in 45 states, and have the ability to deliver service in all 50 today. We expect to see improving growth in this product line as our software and system’s integration process continues and our sales force gain the momentum.”
Whew. That’s a lot to digest – but the net is the two guys who run the place obviously believe Enterprise Comp is a big part of their future.
After reading all that, I contacted Corvel. Here’s what they had to say about the TPA business, their strategy related to that business, and where they’re headed.
“…selling services to employers is where we’ve moved some emphasis. We didn’t really choose this path so much as the managed care market matured. Beginning in the mid-’90’s the TPA’s began to see that they could control the managed care business if they first won the claims administration business. So, they priced the claims work down to control accounts and then began to participate economically in the managed care subcontracting that had previously just been purchased from independents such as CorVel or Intracorp or the many others…CorVel continues to expand in our Enterprise Comp initiative and to gradually reduce our older more commoditized services. I believe we have a unique new technology for claims management and that we’ll see a breakthrough in that area over the next two years similar to the big changes we enjoyed in what we call Network Solutions.”
From a financial perspective, Corvel looks like a managed care company with a small presence in the work comp/P&C TPA business. Corvel paid about $15 million apiece for two TPAs (Schaffer, Baltimore MD and Hazelrigg, SoCal). Corvel’s TPAs account for 8.6% of annual revenues. The company reported both TPAs produced $24 million in revenues; annualizing that number to account for the partial year for Schaffer gives an annual TPA revenue of just under $26 million. It is highly doubtful their revenues have been increasing; TPAs have been under tremendous price pressure over the last two years. It could be the TPAs are driving more network, bill review, and case management revenues to the parent company, but the revenue picture doesn’t support that view. Corvel paid about 1.2x revenues for the two TPAs, a reasonable number – although the deals were done during a soft market when valuations are typically lower than normal.
As a side note, the TPA acquisitions aren’t mentioned in the company’s history.
Financially, Corvel has been hampered by the decline in claims frequency; revenues were essentially flat last quarter from the previous year’s quarter at around $77 million. This was noticeably better than the profit picture as EPS dropped from $0.43 to $0.34. The news was better for the last three quarters, with revenues increasing a few points from the same period in 2007 ($225 million to $233 million). However, gross margins declined over that time from 25.5% to 24.2% primarily due to a 9.5% increase in G&A costs.
The company’s stock is also pretty low these days – not that stock value is related to actual value today, as pretty much anything that doesn’t have ‘beer’ in its name has been hammered recently.
Which leads back to the original question – what is Corvel? From here it looks like the TPA strategy hasn’t generated growth or profits to date – overall revenues are flat over the last few years and profits down, while the patient management segment (where TPA revenues are reported) declined from 44.4% of revenues in 2005 to 42.4% in 2008. The company is investing heavily in Enterprise Comp, and perhaps this investment will pay off in a couple years. With that noted, as I’ve said before, Corvel’s entry into the TPA business infuriated some customers – including a couple very big ones. It remains to be seen if their managed care business will stabilize, or at least shrink slowly enough to allow Corvel enough time to build their TPA capability and business.
What does this mean for you?
Be very careful not to antagonize current customers when you change strategies.
But be equally careful your customers don’t move your services inhouse.
thanks to SeekingAlpha for the transcript.