Investors focused on the workers’ comp network and specialty managed care businesses are a bit obsessed with “white space” – the “potential” business, the “opportunity” to capture unmanaged services, to get patients to network providers and thus deliver lower costs to payers and fees for networks/specialty vendors.
During management presentations, potential investors are smitten by the unmanaged care, seeing that as the growth they need to increase the value of the company they’re bidding on.
White space is the term used to describe the volume of services delivered to workers comp patients that are outside the networks used by the employer/insurer. As these “non-network” services aren’t priced at a contracted rate, there is no reduction below the fee schedule or state-set reimbursement rate. No reduction, no savings; no savings, no fee paid to the network vendor.
About 65% of medical services provided to patients are “in-network” – leaving about a third of spend – or around $11 billion in medical costs – unmanaged.
When potential investors look at “unmanaged” services, they see upside, return on investment. What they may well not see is the reality – there’s a reason that space is “white”. Employers, TPAs and insurers have been working since about 1991 to increase network penetration. They’ve tried lots of approaches and generally had pretty good success, especially in states where employers can require patients to go to specific providers or choose from a network.
All the easy stuff has been done – now the real heavy lifting is needed. Increased penetration will come from:
- educating small employers (a huge challenge),
- working with primary care providers to refer in-network (when work comp accounts for a very small piece of their business)
- faster claim reporting, triage, and acceptance
- reducing litigation
- broader networks (but this means some providers will be not-so-good)
- more effective, precise, and fool-proof medical bill processing systems and workflows
- better provider data – much better
A good way to think about this is that each incremental percent of network penetration takes twice as much work as the previous percent.
That doesn’t mean it isn’t possible. In fact there are some specialty vendors, employers, and insurers making significant progress. These are the careful, thoughtful, analytical companies with very well-developed workflows and a very deep understanding of state regulations, provider behavior, employer limitations, and a lot of people working this every day.
There are others that are stumbling badly – not so much because they don’t know what they are doing, but because actually doing it is really hard, complicated, and requires investment.
And that highlights one of the challenges investors have with work comp. The private equity world is used to automation, stripping people out of processes to improve performance and cut cost. That doesn’t work so well in workers compensation.
What does this mean for you?
If it was easy, it would already have been done.