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Some work comp payers are committing suicide

The work comp meme is our industry is always 20 years behind the rest of the world.

Of late, that’s been overly optimistic, as insurers actually turn the clock back even further as they adopt tried-and-failed methods of buying medical services. Methods that healthplans, Medicare, and Medicaid have found counter-productive at best and disastrous at worst.

I’m referring to the recent expansion of the role of purchasing and procurement. Several large workers’ comp payers appear to be giving up on medical management by experts, and have ceded responsibility for medical management to procurement/purchasing.

This isn’t just involving procurement/purchasing in the buying decision, but rather giving the P/P department authority over contracting with vendors that provide medical management services, networks, bill review et al.

This makes zero sense, for multiple reasons.

  1.  Work comp medical costs are flat to declining.  That isn’t due to anything P/P has done, but a combination of
    1. Impact of ACA
    2. A dramatic reduction in drug spending over the last six years driven by a lot of work on the part of payers’ medical management staffs and their PBMs
    3. More and tighter focus on directing to effective providers
  2. Premiums are lower, while profits are solid, primarily because of 1. above, and despite pretty low investment returns.
  3. As I noted a year ago; “I’ll add that given the rapid evolution in health care delivery; provider consolidation; major changes in reimbursement; the growing impact of ACOs, medical homes, and alternate delivery systems; a deep understanding of health care delivery is critical to long-term success in workers’ comp.”

So, since things are going so well, some carriers have decided that the best way to keep the gravy train rolling is to squeeze prices for medical services. Because that’s really what P/P departments do best.

And, as every other purchaser of healthcare has learned, it categorically DOES NOT WORK IN HEALTH CARE.

The value equation in health care is Value = Cost (price per service x volume of services x type of services) divided by Outcomes.

Price-driven decisions address one tiny part of that equation and do nothing to address volume or type of service or outcomes.

If controlling price was the answer, we wouldn’t have cost inflation in Medicare, or Medicaid, or work comp PT in many jurisdictions. Because providers are really smart folks, and when they see the price go down, they adapt – instantly.  Here’s how this works.

John comes into the office with a sore ankle.  Doctor wants to do an X-ray.  Payer reimburses $22 for an X-ray.  Doctor does several X-rays when one or two would be sufficient.

Worse, Doctor orders an MRI.  Or two.

Price controls = higher utilization = higher cost and longer time out of work.

In the real world, healthcare buyers have moved to Value-based purchasing. Make no mistake, this is fundamentally different from what we’re seeing in workers’ comp. Work comp purchasing is almost always price-per-service based, while VBP is:

Value-based purchasing is a demand side strategy to measure, report, and reward excellence in health care delivery… making decisions that take into consideration access, price, quality, efficiency, and alignment of incentives.  Effective health care services and high performing health care providers are rewarded with improved reputations through public reporting, enhanced payments through differential reimbursements, and increased market share through purchaser, payer, and/or consumer selection.

This is NOT what we’re seeing in work comp, instead P/P is forcing vendors to cut prices. Of course, these vendors then have to get their medical providers to cut their prices.  And those vendors no longer have the resources to do things like, say, focus on opioid over-utilization or over-use of PT services.

What does this mean for you?

P/P-driven medical management decisions will increase costs for payers and employers; smarter payers will eat their lunch.

4 thoughts on “Some work comp payers are committing suicide”

  1. Totally agree, Joe! This myopic view on controlling healthcare costs in comp usually ends up with more barriers for the injured worker to obtain their care. Use this network, use that network, call this number, call that number. Ultimately, when we hand everything over to others to manage for the cheapest price, we lose contact with our injured worker, we lose trust and engagement with them, and create additional and undue friction and frustration for them! So, before you are willing to hand off a responsibility to someone else to manage a claim element at a cheaper price and give you more promised “savings”, you best do your homework and determine what it will really cost you in the end on that claim! Don’t misunderstand me, I’m all for strategic partners to help administer a claim in an efficient and cost effective manner, but again, do your homework to find a true strategic partner versus just another vendor to help you save costs without undue hardship and sacrifices to those we are suppose to be serving; the injured worker!

  2. Joe I appreciate your column today. When are carriers going to learn that there are two ways to approach medical costs and medical billing. You can process and pay medical bills or you can manage medical services and bills. Just processing medical bills is cheap but managing medical bills is a little more costly per bill than just processing them but the returns substantially when you manage the process. We all saw what happen when Medicare part D was implements with literally no controls lets hope that this is one cycle that the industry moves through quickly.

  3. Not just in workers comp but on health policy generally – most of the GOP ideas to replace ACA include old ideas that did not work – such as state high risk pools. The missing element in all of the political discussions???? Providers will find ways to maintain income through upcoding, over prescribing, overpricing, etc. But no one is challenging hospitals and outpatient surgery centers and individual doctors who constantly find ways to bill to maintain income and that is easy if there is no value based purchasing to constrain it.

  4. Total agreement from this TPA. Motivating and providing incentives for excellent outcomes is far less expensive overall than negotiating individual encounter rates. The interesting parallel in the country is the same P/P department handling of acquisition of workers’ compensation TPA services. Flat rates have become the standard, without the flat rates the P/P departments cannot do spreadsheet comparisons. And they typically have no responsibility for the total cost of the program, they are only measured for their effectiveness by the TPA cost comparison. This is driving claims services away from the adjuster / recovering worker relationship and towards ‘best practices’ which tend to serve as a lowest ‘measureable’ common denominator.

    Cost per service does not work effectively with medical care, and works even less effectively than alternative methods of charging for professional claims services.

    Thank you for your important article.

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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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