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Work comp medical costs – heading up…

To no one’s surprise. work comp medical costs appear to be on their way up, and at a rate significantly higher than the medical CPI.
First the what, then the why.
The latest data from NCCI indicate comp medical inflation (based on lost time claims) was 6% in 2008, just a bit more than the previous year. While I’ve no doubt the figure is accurate, it is important to understand that NCCI’s figure is derived from data that doesn’t include some fairly significant states – CA and NY being two of the more important.
Another data point comes from an admittedly highly selective source: from conversations with large payer clients, I get the distinct impression that their 2009 medical expenses are trending much closer to ten percent higher than 2008.
Add these data to the latest data from WCRI [subscription required] that indicates California’s trend is hitting 9% – a number that may well undervalue the latest figures as WCRI’s data is somewhat dated, and the picture gets a bit clearer. In fact, more recent data suggests the inflation rate is well into double digits, with the WCIRB reporting comp medical trend at 16%.
To be sure, California is a unique environment, with unique fee schedule quirks (including allowing hospitals to charge twice (!!) for surgical implants), a recent history of ever-lower work comp premiums, and a mix of managed care programs and providers that is quite diverse. Add those factors to the significant increase in ultimate medical costs due to the Ogilvie and Almarez/Guzman decision and California looks particularly problematic. Yet it also has a reputation as a ‘leading indicator’, a reputation that work comp observers would do well to respect.
What’s driving the increase?
There is a very long answer to this, which involves cost-shifting, increases in the number of individuals without health insurance, reduced Medicaid and Medicare reimbursement, ineffective fee schedules, physician dispensing of repackaged drugs, the growth of narcotic opioid usage, Part D, the nursing shortage and a host of other macro and micro influences, most of which are addressed elsewhere in other seventeen hundred posts on MCM (this blog, to the newcomer).
There’s also a shorter answer – misaligned incentives for work comp managed care programs, and payers’ increased reliance on managed care program revenue and profits. This leads to a focus on processing bills (which generate fees) and doing utilization review (which generate fees) and using huge provider networks (which generate fees) and sending lots of claims to case management (which generates fees), instead of actually managing the medical components of the claim.
Here’s one blatant example of this situation:
Workers comp payers spend hundreds of millions of dollars each year on medical management – pre-cert, utilization review, peer review, case management, clinical guidelines, and the variations and permutations thereof. Dozens of companies from mom-and-pops to regional players to industry giants like Coventry and Genex employ highly trained professional medical personnel to watch over the care delivered to injured workers, carefully reviewing and approving or not approving thousands of medical procedures.
Then, the medical bills come in to the payer. The frightening/amazing/unconscionable truth is that many non-approved medical treatments actually are performed, and billed for, and likely paid – because those determinations are not automatically fed into the bill review system’s database, and/or the bill review system can’t link the determination to the bill/provider/claimant.
How much of this actually occurs on a national basis is impossible to say, and there’s no doubt some payers have the links in place to ensure most if not all medical management determinations are linked to the right claimant/provider/event.
And because many (not all, but many) payers rely on managed care to generate departmental and corporate margins, they aren’t focused on the results of UR and bill review, but rather the dollars generated by those functions.
What does this mean for you?
Time to ask what’s important and what isn’t, and why you are in business, and how you produce results, and whether or not your incentives are aligned with employers’.

3 thoughts on “Work comp medical costs – heading up…”

  1. You’re quite right on the misaligned incentives – the employer is in the business of trying to shrink their WC program/costs (increasing their margin/bottom line)whereas the managed care company is in the business of maximizing their revenue and profits. The two goals are counter to one another so you have this inherent tension in the system which doesn’t necessarily translate into maximum value for the employer.

  2. It has been said that the definition of stupidity is doing the same thing over and over again and expecting a different result. Those of us who have been “under the hood” of medicine and WC learned a long time ago that the typical managed care approaches are great for the managed care companies…for insurers employers, and injured workers….maybe not so much…..

  3. One question worth considering is who is benefiting from all the downstream services that are associated with a WC claim? If the company that is managing claims also gains revenue from case management, adjusting, sharing in network discounts, or billing or medical services, etc., then perhaps their incentives are not aligned with the employer who is paying the bills. Many TPAs and MCOs appear to have conflicts of interest and lack of transparency in this regard. This is especially true when they purport to offer services, such as triage, which are designed to reduce unnecessary claims. There are a lot of foxes watching the workers comp hen house!

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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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