Jan

So, what does the UHC Ingenix settlement mean?

Posted by Joe Paduda on Wednesday, January 14th, 2009 | Comments

Likely quite a bit. But not for a while.
Here’s the quick and dirty. NY Attorney General Andrew Cuomo has been after UHC sub Ingenix for over a year, accusing them and other insurers of defrauding consumers by manipulating reimbursement rates. Yesterday the first round came to a conclusion with the announcement of a settlement. According to the NY Times, Cuomo “ordered an overhaul of the databases the industry uses to determine how much of a medical bill is paid when a patient uses an out-of-network doctor”.
Ingenix will pay $50 million to help fund development of an independent charge database by a not for profit; until the new vendor is selected Ingenix will continue to provide the UCR data through its MDR and PHCS products. Cuomo is still pursuing negotiations with other payers including Aetna.
Cuomo voiced concern that UHC, a very large payer, owned the company that determined how much it should pay in some circumstances to some providers (out of network physicians primarily) and therefore an inherent conflict of interest existed.
Some background is in order. Years ago, the health insurance industry’s lobbying and service arm (HIAA) aggregated and compiled physician charge data as a service to its members. HIAA collected the data and fed it back to members, who then used the data to determine how much they should pay providers in specific areas for specific services (services defined by CPT codes). HIAA was taken over/disappeared about a decade ago, and Ingenix took over the aggregation and distribution of the data, which has become known as “UCR” for “Usual, Customary, and Reasonable”.
For about ten years, all was fine, at least as far as most insurers were concerned. Sure, physicians complained at times and consumers railed about the low reimbursement paid by companies citing their UCR, but the complaints didn’t really make any difference until Cuomo got involved. The problem arose when a few folks in New York complained about the amount they still owed providers after their insurers had paid their portion – according to Ingenix’ UCR. After a lengthy investigation, Cuomo found reason to charge UHC and other insurers, and that action resulted in yesterday’s announcement.
It is too early to tell how this will affect insurers, but there’s no doubt it will. Here are a couple things to consider.
= providers that are paid by UCR will find it much easier to challenge the reimbursement, and payers will likely be plenty nervous if all they have to stand behind is a largely-discredited Ingenix database. Expect higher payments to providers and claimants.
– attorneys in other states may see this as a big opportunity for class action on behalf of physicians and claimants.
– payers will redouble their efforts to negotiate reimbursement prospectively with out of network providers.
– policy language is going to change, and change fast. Look for significant changes in the SPD (summary plan description) and other plan documents more clearly describing the payer’s liability for non-network provider charges. There may even be some movement back to scheduled payments.
– in the work comp world, there’s going to be turmoil and drama in states that do not have physician fee schedules (e.g. NJ, MO). Expect employers and insurers to work much harder to get claimants to network providers, where the UCR issue is much less significant.
There’s some precedence here for the property casualty industry. Last year in a suit in Massachusetts, a court found that Ingenix could not prove that the underlying data was accurate, that it was a fair representation of provider charges in an area, or that the results were anything more than “dollar amounts resulting from the statistical extrapolations from whatever bills were actually included in its database.”

What does this mean for you?
More power to the providers, higher cost for payers, and more business for attorneys.

Jan

Health reform – Debunking the argument against the government plan option

Posted by Joe Paduda on Tuesday, January 13th, 2009 | Comments

There’s been much talk about the pros and cons of Medicare for All as one option in a national health reform plan. Think Progress addressed the major complaints opponents of a governmental option have; Merrill Goozner’s piece last week focused on one of the major issues – the claim by some that governmental plans could set lower prices, thereby lowering reimbursement.
Merrill notes that this might not be such a bad thing. He’s right.
Alas, it’s also not likely a Federal health plan option would have much control over provider pricing.
Recall that the major reason health care costs in the US are so much higher than in every other developed country is price per service. Not rationing, or lines, or less technology, or any of the other hoary red herrings cited by those who mindlessly claim the US has the best health care system in the world. It’s price.
According to the Commonwealth Fund, “Americans do not have access to a greater supply of health care resources than people in most other OECD countries. In fact, the U.S. has fewer per capita hospital beds, physicians, nurses, and CT scanners than the OECD median.” It’s not rationing, we just pay more per service than other countries do. Again quoting the Fund “higher prices for health services such as prescription drugs, hospital stays, and doctor visits, are the main reason for higher U.S. spending.”
The logical misstep made by opponents of a government option is in thinking the Feds would have more market power than a private plan, market power that would enable them to force down prices and thus unfairly compete against private plans. Opponents claim that the Feds would have an unfair advantage due in part to their sheer size; they’re just so big that private plans could not compete.
Unlike the folks at Cato and Heritage, those of us who work in the real world of health insurance know better. Let’s start with a basic question. Exactly how would a governmental option change the market?
There’s been so much consolidation in the health plan industry that many markets are monopsonies (few buyers and many sellers).
Back in 2005, in 96 percent of MSAs one insurer had a combined market share of at least 30 percent. In two-thirds of MSAs, one insurer had market share equal to or greater than 50 percent, and in a quarter of MSAs, one insurer had market share of at least 70 percent.
Now, would a new governmental plan have an advantage over, say, Blue Cross of Alabama, which has market share ranging from 67 percent in Tuscaloosa to 95 percent in Gadsden? Or Blue Cross of Arkansas, with share from 63 percent in Hot Springs to 97 percent in Texarkana? Or the two dominant health plans in Ohio, with combined share ranging from 46 percent to 80 percent?
It wouldn’t; in fact it would be an uphill climb on a very icy slope for a governmental plan to reach market parity, much less market dominance in most of the country’s MSAs. Health plans execs spend every waking hour, and some while asleep, thinking about how they can steal share from their competition. They beat each others’ brains out on a daily basis, fighting over each employer, each member, each new contract. And most are very, very good at it.
Yes, a governmental plan could try to force docs to accept lower fees, and physicians could and would tell the Feds to pound sand. There is precedence for this – try and find a doc who will accept Medicaid in New York. Recall the revolt of physicians last summer when they were facing a dramatic cut in Medicare reimbursement. Physicians do not have to work with any health plan – governmental or private. If the Feds tried to cut reimbursement, private insurers’ provider relations pros would eviscerate them in the provider community.
There just isn’t any logical basis for the argument that a governmental option would somehow be unfair for competition, or drive out private plans, or lead to a government monopoly. Those who argue otherwise ignore the facts, relying instead on anecdotes about rationing, the horrors of lines, and instances of poor treatment in countries with national health care.
Multiple anecdotes do not equal data. If opponents of a governmental option want to stop it, they’d do well to get serious and use their JDs, Ph.Ds and extensive policy world experience to come up with real objections.
I’ll be waiting.

Jan

The future of health plans – predictions for 2009

Posted by Joe Paduda on Monday, January 12th, 2009 | Comments

This is one tough year to be putting on the swami hat and dusting off the crystal ball. There are so many moving pieces affecting the group health/individual/Medicare/ Medicaid world that it will be hard enough to analyze what happened after the fact, much less before.

Enough with the dissembling. Here goes.
1. Consolidation will accelerate. After a hiatus due to the still-slushy credit markets, big health plans will start acquiring second tier ones. Expect this to happen after mid-year, for reasons due not only to the credit markets but also to goings-on on Capitol Hill. Among the health plans likely to get attention are Humana, MVP Health Plan, AmeriHealth, and Priority Health.
1.a. Coventry will also be on the list; it has solid penetration in a number of second-tier and tertiary markets along with a strong workers comp managed care business. The company has been hamstrung by operating issues; if these appear to be under control it will likely be in play in 2009. Check their talk at the JP Morgan conference later this week for an early indication of progress. (Note I own shares in Coventry)
2. Health plans will split in their reaction to legislation pending in DC. Some will wail and whine, while others will look for the opportunities. Among those already reasonably well positioned are Aetna and UHG (particularly their AmeriChoice unit). Count on AHIP to bemoan the unfairness of it all, and ask for subsidies in the form of risk pools and governmental coverage of high cost claims.
3. Expect more scrutiny of healthplans serving Medicaid and Medicare populations, as the Feds are ramping up their efforts to crack down on abusive and fraudulent practices. The new Administration will want to send a message to health plans that an expansion of S-CHIP and other governmental programs is not a license to steal. There will likely be more Wellcares hitting the headlines in 2009.
4. Health plans will begin to focus more effort on being easy to work with – especially for providers. Increasing frustration with the administrative burden placed on them by health plans is causing providers to become more selective about participation; the health plans that are ‘low-maintenance’ will have better relations with more providers, and the ones on the other end of the spectrum will not. See the Verden Group’s reports for a heads-up on how health plans stack up in the eyes of providers.
5. The Medicaid population will grow substantially, as well the percentage enrolled in some variation of a managed care plan (currently above 60%). Health plans active in this market will do well – if they are priced right.
6. The economic stimulus plan is critical for health plans. Enrollment depends on jobs; with unemployment at a sixteen-year high at 7.2% and smaller employers dropping coverage as they attempt to stay afloat, expect enrollment to continue to drop thru mid-year. This will hit the big commercial plans hardest, although a few are somewhat insulated as the drop in commercial will be offset by growth in Medicaid.
7. Don’t expect much growth in the individual plans; they are unaffordable for many and restrictions on pre-ex make them unattractive for others. Until and unless the pre-ex and medical underwriting issues are resolved, growth will be slow – at best.
Check back in twelve months.

Jan

The THCB Health Wonk Review Issue

Posted by Joe Paduda on Friday, January 9th, 2009 | Comments

Brian Klepper is hosting the New Year’s edition of Health Wonk Review, and has a lot of new contributors to start out 2009. There’s a wealth of information and insight on reform, costs, regulation and care management – all timely and pertinent. Head on over.

Jan

The Sanjay Gupta pick – another Brownie?

Posted by Joe Paduda on Friday, January 9th, 2009 | Comments

Today’s Politico.Com reports Rep. John Conyers has come out publicly against the nomination of Sanjay Gupta for US Surgeon General. Conyers’ objections come on the heels of revelations that Gupta has been less than forthcoming about his relationships with pharmaceutical and medical firms.
There’s no question Gupta would bring a fresh face and dynamic persona to the US Public Health Service. He’d also help the new Administration’s efforts to drive changes in the health system. But he has little managerial experience and less in the public health sector. Gupta’s resume contains no evidence of any managerial or leadership experience, much less a track record leading a large organization. He has also been forced to retract several statements he made in a much-publicized televised brawl with Michael Moore. This last, coupled with the links to big medicine, has led to some expressing concerns about his objectivity.
Gary Schwitzer writing in 2007 in HealthNewsReview.com noted Gupta promoted the use of medical screening tools, tools that could lead to increased use of drugs. Schwitzer, a journalism professor, has criticized Gupta’s reporting as misleading and incomplete at other times as well. This isn’t an issue in and of itself, but what is troubling is the failure on the part of Gupta or CNN to disclose his relationships with potential beneficiaries of his reporting.
I’m not as concerned about Gupta’s relationships with the same industry the administration will be working to reform (although I’m plenty worried about that) than I am about a possible repeat of the Brownie situation. As the leader of the US Public Health Service, Gupta would play an important role in the nation’s response to a SARS outbreak, biological weapon attack, radioactive event, epidemic or major natural disaster. From my reading of the doctor’s resume, his qualifications to address such an event appear slim.

Jan

The Obama Presidency started today

Posted by Joe Paduda on Thursday, January 8th, 2009 | Comments

President elect Obama’s speech this morning highlighted the critical state of the US economy. It also marked the beginning of the Obama Presidency.
Obama has made every effort to avoid interfering with Pres. Bush’s authority as the sitting President. But events have overtaken Obama, forcing him to inject himself into the legislative process before things get even worse.
One line dramaticaly makes this point. “For every day we wait or point fingers or drag our feet, more Americans will lose their jobs. More families will lose their savings.”
The speech was designed to increase pressure on legislators of both parties, to focuse them on passing the stimulus package without bogging it down with grandstanding and loading it with pork. Of course, one representative’s pork is another’s essential investment in infrastructure.
Simultaneously, Tom Daschle was in the midst if confirmation hearings just a few miles away. Daschle was introduced by none other than Bob Dole, former GOP Presidential candidate.
A couple thousand miles away, hospitals in California were reporting elective admissions were down almost a third while indigent cases have risen dramatically. This over the last few months, and if It continues we can expect hospitals to join the ever-lengthening line of supplicants coming to Washington with their hands out. .
The wheels have fallen off the economy faster than anyone anticipated, much faster than our leaders’ ability to react much less anticipate the next yawning pothole. There’s no question the imploding economy is directly related to hospitals’ travails, just as there is no question these travails will add their own weight to the burden on the economy.
I predicted a few weeks ago that the number of uninsured would hit 50 million in 2009. At this rate, that may come sooner than anyone expects. The only thing standing in the way is a huge stimulus; President Elect Obama’s speech this morning shows exactly how important fast action is.

Jan

Who benefits from universal coverage?

Posted by Joe Paduda on Thursday, January 8th, 2009 | Comments

As Bob Laszewski trenchantly notes, covering everyone will not reduce costs in and of itself – at least not on a system-wide basis. Absent major changes in reimbursement and demand management, covering more people will just increase total costs.
That said, universal coverage should significantly decrease costs for private payers and their members, as well as the employers who fund most group coverage. Most significantly, a substantial portion (about eight percent, or over $1000 per family) of health insurance premiums go to cover the cost of uncompensated care. Note that this includes costs for both the uninsured and underfunded care; Medicaid is the most often cited example of inadequate compensation.
Covering everyone would not eliminate the inadequate compensation and resulting cost-shifting, but it certainly would reduce providers’ need to recoup lost revenue from treating the uninsured.
Among the beneficiaries of universal coverage, workers comp payers might see the most benefit. Not only is comp a very soft target for cost-shifting, it is also likely claimants without other health insurance receive treatment for their non-occupational conditions in the course of treatment. This is not due to laziness or incompetence or fraud, but rather because the insurer understands that the injured worker cannot return to work unless the injury and any complicating medical conditions are resolved.
What does this mean for you?
The pluses of universal coverage are not often obvious.

Jan

Bill review companies – will they be the solution?

Posted by Joe Paduda on Wednesday, January 7th, 2009 | Comments

Think about what bill review and generalist network and specialty bill review and negotiation firms do. All have the same value proposition – discounted medical bills. (most networks don’t deliver value in the form of better docs or outcomes, their business model is reduce cost by slashing bills retrospectively.)
All are in the cost reduction business although each take a different approach. A useful analogy is transportation; trains, trucks and ships all transport goods; each has its strengths and weaknesses, and at different times one model is more successful than the others. Right now, trucks transport most goods, even though they cost more because they can deliver convenience by moving goods to the precise location on time. This model has gained in large part due to low fuel costs, heavy investment in roads, and customers’ adoption of just-in-time inventory management. As the economics of transportation evolve, we may see a resurgence of rail and/or shipping; the cost per ton/mile for rail and shipping is significantly lower than trucking.
For several years bill review has been a commodity. Despite vendors’ best efforts to differentiate, most buyers place great emphasis on price. As a result, bill review vendors have worked hard to squeeze out cost through automation, auto-adjudication, streamlining and offshoring. None of these technologies are ‘bad’, rather the rationale behind employing them may well be misguided.
In an effort to compete bill review vendors have lost sight of their reason for existence – to ensure their customers pay only what they legally are required to. Instead they compete on the basis of how cheaply they can write checks out of their customers’ checkbooks.
This is not entirely the bill review vendors’ fault. Their customers bear much of the responsibility for the situation, playing vendors off against each other in an effort to reduce the payer’s admin expense. And the payers have succeeded. That success has come at a cost which some payers are only recently beginning to grasp. Here are a few examples.
For some procedures, the amount reimbursed is dependent on modifier codes. At least one large payer has instructed its bill review staff to ignore the modifiers as their entry slows down the bill review process.
A vendor known for its very competitive pricing often charges extra for ‘nurse review’ of items that are commonly audited and repriced within the bill review process. This allows the vendor to recoup the margin it gives away with its low per-bill pricing.
Another large payer’s bill review process actually requires claims personnel to authorize payment of each and every bill, no matter how routine, no matter how many times that provider has been paid for the same procedure in the past. This step has been put in place because the bill review process can’t be trusted; instead of fixing the process the company uses its expensive staff to do something the system should.
Payers want national solutions yet don’t want to take the time to understand some of the state-specific intricacies that can dramatically influence costs. For example, hospital reimbursement in PA is based on each hospital’s chargemaster, requiring repricers to have access to current data. In CT, payers are required to reimburse hospitals at cost, yet very few payer or bill review vendors have invested the energy required to determine each hospital’s costs.
Sure, payers have been able to cut their bill review costs, but the price they are paying is, in many instances, much higher than the reduction in administrative expense.
More and more, payers have come to rely on their networks for cost reduction; bill review is a necessary part of the bill flow and a way to get bills repriced to network rates, and a source of data for state reporting. In large part this reflects the change in pricing methodologies for bill review from a percentage of ‘savings’ below billed charges to a flat fee per bill or per line. In the transition, the purpose of bill review has been lost.
As payers look for better solutions to address rising medical costs, they should go back to the basics. There’s nothing more basic than making darn sure you are only paying what you are legally and contractually obligated to. Simple, yet this will require significant investment on the part of vendors, investment that will have to be recouped from their payer customers.
What does this mean for you?
Bill review vendors should not be competing on the basis of price per line or bill. Payers should buy smarter, but won’t until and unless they realize what they’re buying; technology, people, and processes all focused on writing checks out of the payer’s checkbook. Only then will bill review vendors be able to do their job effectively.
Note: my firm, Health Strategy Associates LLC will be surveying payers on bill review this spring. If you would like a copy of the public report send an email to infoAthealthstrategyassocDOTcom. Substitute symbols for AT and DOT.

Jan

Misleading managed care headlines

Posted by Joe Paduda on Tuesday, January 6th, 2009 | Comments

Last week a study hit the wires indicating that managed care plans did not have better outcomes for carotid endarterectomies (CEs), a surgical procedure ostensibly intended to reduce the risk of stroke.
Here’s the headline from UPI – “No managed care link for stroke-prevention”.
A quick read of the headline and abstract leads the reader to the conclusion that managed care is ineffective. But there’s much more to it than the headline and brief synopsis. For starters, the data was ten years old. It was from one state (NY), that is not exactly known as a hotbed of managed care. And it lumps all kinds of ‘managed care’ – from group model HMOs to PPOs under the same category.
And the study’s conclusions are muddy. In fact, there had been a good bit of research into the procedure itself (it involves cleaning out the carotid artery (the big one in the neck that bad guys are forever threatening to cut in movies), and the data used indicated “the rate of inappropriate surgery dropped substantially from 32 percent in 1981 prior to the RCTs [randomized controlled trials] to 8.6 percent in 1998/1999 after publication of the clinical trials [by AHRQ].” Clearly, medical practice had changed dramatically over that period, due primarily to publication of data indicating the procedure “reduced the risk of stroke and death compared to medication alone among carefully selected patients and surgeons.”; the research also showed many patients did not benefit from the surgery.
It wasn’t that simple. In fact, the surgery rate had dropped in the mid-eighties after publication of research indicating the procedure had high complication risks. A decade later, additional research seemed to show that CEs did benefit some patients, and the rate shot up again, only to start a gradual decline.
What happened? Generally accepted medical practice changed. Was the rate different within “managed care’ plans? No. But why would it have been?
I worked for large managed care/health plan companies during the late eighties and early nineties, with responsibilities in customer reporting and managed care product development. We all knew there were probably too many carotid endarterectomies performed, but we didn’t really know which ones were inappropriate. The indications were rather uncertain, and it did appear the procedure helped some patients. What was not clear was which patients would benefit and which would likely not. The ‘choice’ we made was to encourage/mandate/require second surgical opinions (at that time the state of the art in managed care) to ensure the patient got at least one other physician’s views on the potential risks and benefits. There wasn’t much in the way of clinical guidelines that we could use to deny the procedure outright, and the legal risks of a denial were so high that this option was never seriously considered.
Truth be told, the managed care firms I worked for had little ‘control’ over medical practice. Sure, we had contracts with physicians, but our influence was minimal – we were ‘two inches deep and a hundred miles wide’. With little ‘market share’ in any one physician’s office, it was unlikely most of ‘our’ docs would pay much attention to directives from one of our Medical Directors. We did notice that our rate of surgeries was dropping, but did not have the data to know if this was occurring across the board and thereby due to our efforts (I’m pretty sure we took credit for the decrease…) or was driven by external factors.
Contrast our very loose ‘managed care’ with the much different model exemplified by group and staff HMOs – Kaiser Permanente, Group Health of Puget Sound, HIP, etc. I don’t know what the group/staff model HMO rates were, but I’d bet they were lower than my employers’.
In retrospect, it is obvious that external factors were the reason for the decline in my employer’s number and rate of carotid endarterectomies. In retrospect.
What does this mean for you?
There’s far too much superficiality in the press, superficiality that can distort public views of managed care and the effectiveness thereof. In this case, the headline, although nominally accurate, is highly misleading.

Jan

Why big comp networks won’t do the smart thing

Posted by Joe Paduda on Monday, January 5th, 2009 | Comments

Because they are more interested in their profits than their customer’s needs.
The big comp network companies (with “big” referring to the size of the network, not the company, as there’s only one BIG NETWORK COMPANY – Coventry) have a problem.
They’ve been selling their network based on the “thump” the directory makes when it hits the managed care execs desk (“wow, now THAT’s a big network”) followed closely by the price (“And if you act now, I’ll get my boss to commit to a rate below 20% of savings!!”). While this has made them lots of money, it hasn’t saved their payer clients much, if anything, in the way of medical costs. Now, some payers are wiping the sleep from their eyes and noticing that those whopping network-access fees have gone up just about as fast as their medical costs.
And that ain’t no small thing.
Payers have been hearing for years about the small network solutions the big boys are just about ready to launch. They’ve been a few months away for about four years now; four years and counting. So, why so late? Why aren’t the big networks innovating? Coventry et al have been selling essentially the same network model the same way to the same markets for fifteen years. The market has moved on, with the early risers amongst the payer community looking for very small networks of physicians who can not only spell w-o-r-k-e-r-s c-o-m-p-e-n-s-a-t-i-o-n but pronounce it as well.
That’s no small challenge, as the payers’ network “partners” haven’t exactly made their business thrive by identifying the docs who treat less, write fewer PT scripts, don’t admit claimants for lengthy hospital stays or order multiple epidural steroid injections. In fact, those are the docs the big networks want to stay far, far away from. Because the more bills there are, the more “savings’ are generated, and the more network access fees are collected.
Ka-Ching!
Therein lies the core reason the big networks haven’t done the right thing – it won’t make them near as much money as their current high-cost, low-benefit big-directory network.
The technical term for the problem faced by these companies is the “Innovator’s Dilemma”. This more-than-a-theory holds that companies that are very successful in their fields keep improving their products, believing that what their customers want is more and better versions of the same. What these companies don’t do is think up new ways of meeting their customers’ needs; ways that are cheaper/faster/easier. Instead, they work diligently on making their existing product a tiny bit better every year. And in the process, they don’t pay attention to what their customers actually need – the problem they are trying to solve.
The leading proponent of the theory, as well as the one who coined the term, is Clayton Christensen. Christensen’s research shows it is often entirely rational for existing companies to ignore new and disruptive innovations, because those new innovations don’t compare well with existing technologies or products. Even if a disruptive innovation is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach. (in this instance, several large Coventry clients have asked them repeatedly when they are going to develop a physician-centric model. As of late last year, Coventry had nothing to show, or talk about, or demo…)
Here’s an example from Christensen’s book, the Innovator’s Dilemma. Back in the early- and mid-nineteen hundreds, the only way to dig big holes efficiently was to use a cable-actuated shovel driven by coal (initially) and later diesel. The cable shovel manufacturers got really good at making larger and larger shovels that could move yards and yards of dirt. Meanwhile, other companies began developing hydraulically-driven shovels. At the start, these were small, puny affairs, barely able to move a third of a yard of dirt. Not surprisingly, the big cable shovel companies (e.g. Bucyrus Erie) laughed at the upstarts, knowing their customers were not interested in the toy version of their behemoth shovels. But lots of residential contractors and utilities could use the smaller shovels; their only alternative was hand-powered shovels. The new market entrants gradually improved their hydraulic shovels, until they could effectively move as much dirt as the biggest of the big boys. And do it more efficiently, with far fewer breakdowns, and much more safely.

Of all the big steam shovel companies in the business mid-century, only a small handful survived the onslaught of hydraulics, and the survivors did so by adopting the new technology. They found that the smaller end of their market was gradually taken over by the “toy” manufacturers, which then moved relentlessly up-market, until the only market left for Bucyrus et al was the hundred-yard plus strip mining shovel. Most of Bycyrus’ competitors went out of business, including the Marion Power Shovel Company. Marion employed over 2500 workers at its peak, when it made the largest steam shovels in the world to build the Panama Canal. When it was finally sold off in 2003, Marion had fewer than 300 employees.
Back to our little world. The small, physician-only network doesn’t deliver big “savings” (in the form of discounts) and “penetration” (in the form of a really thick provider directory with most live and some dead docs listed therein) and therefore is not, in the view of the big network companies, something worth developing. Moreover, these big network companies believe the market for the small networks is quite small compared to the market for their established network offering. And they are right – today.
What the big network companies are missing is what their customers want to buy – not “savings” defined as discounts below fee schedule, but lower medical expenses. After a decade-and-a-half of more and more networks delivering higher and higher medical expenses, big payers need, and want, a different answer.
But the big network companies have an even bigger problem, one that did not affect the cable shovel manufacturers. At the height of their business, there were no fewer than twenty companies making shovels, all working as hard as humanly possible to develop better and better cable shovels. They were innovating, all right, but their innovations were designed to make their core product better at moving more and more dirt.
What’s different in the comp network business is the almost complete lack of competition. Coventry controls upwards of 60% of the generalist network business, with the rest spread thinly between CorVel, Wellpoint, Horizon, Prime, and a few others. By all accounts, Coventry is not even bothering to improve their current product offering. Instead, they are raising prices and ignoring customer complaints about data quality.
What does this mean for you?
It took the hydraulic shovel companies a good three decades to all but destroy the cable shovel business. I don’t expect Coventry’s work comp offering, nor those of its competitors, will have that long a horizon. Not by a long shot.

Year: 2009