I’m mystified, perplexed, confused, confounded, and appalled.
There’s just no other logical reaction to the goings-on in the Sunshine State, where several workers comp payers are actually supporting a major increase in reimbursement for outpatient facilities – an increase that is wildly inflationary and completely unnecessary.
I’ve reported on this impending disaster a couple times over the past month, a disaster that the payers are bringing on them selves. Comp reimbursement in Florida is under the control of the ‘three member panel‘, a triumvirate that is attempting to come up with a clear definition of ‘usual and customary’ – the criteria by which facilities are reimbursed under workers comp.
Here’s a brief video metaphor of the last hearing…
The panel is looking to specifically and clearly define U&C in an effort to eliminate the ongoing legal battles between payers and hospitals over what exactly is ‘usual’ and ‘customary’. The benchmark that the panel seems committed to is the amount hospitals charge Medicare. Not get paid by Medicare, but charge Medicare. According to testimony at one of the panel’s recent hearings, hospitals mark up their Medicare costs by 715% – they charge Medicare seven times more than it costs the hospital to provide the service.
If the proposed regulation is adopted, workers comp’s ‘usual and customary’ would be based on that 715% mark up. Running the numbers, this would result in workers comp payers paying Florida hospitals (and perhaps ASCs) 472% of what Medicare pays for outpatient services – one of the highest rates in the nation.
And this will increase Florida WC costs by about 20%. (the calculations and basis thereof are too lengthy to go into here, email me at infoAThealthstrategyassocDOTcom if you want the gory details)
Yet payers are supporting this change. Why? Do they want to increase policyholders’ costs? Jack up their loss ratios? Are they feeling particularly charitable (always easy when spending policyholders’ money)?
Or is it because they are sitting in the back of the train, relaxing while it hurtles down the tracks, blindly confident in their ability to determine its destination?
In private conversations, they say because it will make it easier to deal with the issue, establish a firm basis for reimbursement, eliminate the hassle, end the litigation.
If that’s the case, why not just set the amount at “whatever the billed amount is, you have to pay it”? That would be even simpler, eliminate the complex calculation needed under the proposed system – and have the same result.
Payers are being incredibly short sighted. Lazy even. And here’s where that train is heading.

What does this mean for you?
(Many) employers in Florida are being ill-served by their insurers and TPAs. Send this post to your broker and ask them to find out what your work comp carrier’s position on this is and why, and what they are doing to protect your interests.
Or you can just hang out in the club car, trusting that someone will get control of this impending disaster before too late.

With a case load of 160 lost time claims, how does any workers comp claims adjuster have any time to ‘manage’ any case?
That’s the point Bob Kulbick, CMO at Cypress Care (HSA consulting client) made in a talk last week, a point I’ve been thinking about since that meeting.
The obvious answer is ‘they don’t’. There is no possible way an adjuster can dedicate the time and brain power necessary to effectively manage claims with a case load that high. And that is not an unusual case load – in fact most TPAs keep case loads well above 120. Even that load is excessive – it breaks down to about an hour a month per case.
Yes, an hour a month per case.
I’ll grant that some of those cases are old and there’s little going on – little except continued use of medications, in many cases physical therapy, and the odd surgery to repair an older fix or replace a surgical implant worn out by use or otherwise defective.
That is certainly not the situation with newer claims. Adjusters have to initiate the three point contact (actually four in most cases) within a predetermined time, set up the case, conduct an investigation into causality, establish liability, ensure reports are filed in a timely manner, determine the initial reserve, and coordinate with medical management.
Established cases require ongoing contact with case management, voc rehab, the injured worker, attorney(s) if represented, employer, and likely the injured worker’s family. Medical bills have to be approved, drugs authorized, surgeries and hospital cases ok’ed, voc rehab plans reviewed, and then discussed with management.
This just hits the highlights – there are dozens of other discrete tasks involved in the process of adjusting comp claims, tasks that take time, careful thought, and professional judgment.
All of which are going to be in short supply with a case load of 160 LT cases.
Here’s the message. Employers who buy claims adjusting services on the cheap will get exactly what they bargain for – poor quality from overburdened, frustrated, ineffective adjusters.

For some, red ink.
Most workers comp TPAs are struggling. The softening market has pushed many larger employers back to insured programs – for good reason. If a policyholder can buy fully-insured coverage for less than their projected losses plus admin expenses plus reinsurance premiums, most will.
This is particularly true in New York, Florida, and California, states where premiums have/are dropping precipitously. In Florida, the number of self-insured employers has dropped by over half since reforms went into effect.
The decline in California has likely paralleled the other sunshine state. Reports are that TPAs are slashing admin expenses in an effort to hold onto business – actually adding new business is a pipe dream for any TPA not willing to give admin services away.
So how are TPAs surviving? Slashing costs, cutting staff, merging, and creatively raising prices on managed care services. Or, working to educate their customers on the long term benefits of a continuous focus on cost drivers – loss prevention, return to work, network direction, medical management. That’s where a long-term focus on the part of the employer will pay off – at some point the market will harden, and when it does the employer will be on the other side of the negotiating table, pleading with TPAs and insurers to provide comprehensive services at a price they can afford.
Take a long term view. Paying a bit more for services now will earn loyalty when the market hardens. And that investment will more than pay for itself.

I recently gave a keynote speech to a group of insurance brokers affiliated with the Institute for Work Comp Professionals; the talk focused on cost drivers in WC, with special emphasis on medical costs.
The part of the talk that generated the most discussion was the section on networks, and specifically how most WC networks have completely failed to reduce medical expenses.
My net is insurers are shooting themselves in the head, with a pistol provided by their managed care departments.
PPOs contract with providers to deliver services at a discount. Most PPOs get paid a percentage of the savings that is delivered by that discount, typically 15 to 22 percent of the savings. So, the more the PPO ‘saves’ the more it makes. On the surface, this sounds good: the system rewards the PPO for saving money and does not pay it when it delivers no savings.
However, a closer look reveals that when the PPO vendors win, the payer loses. The ugly head of the Law of Unintended Consequences emerges again.
At the most basic level, health care costs are driven by a relatively simple equation:
Price per Unit x Number of Units = Total Costs
Under a percentage-of-savings arrangement, reducing total cost is ignored in favor of saving money on unit costs. The PPO gets paid for savings on individual bills. Therefore, the more services that are delivered and the more bills generated, the greater the ‘savings’ and the more money the PPO makes.
The system encourages over utilization because it is in the PPO’s best interest financially to have numerous providers generate lots of bills for lots of services. Also, the providers, squeezed by a per-unit fee schedule that is lower than fee schedule/Usual and Customary Rates (UCR), have a perverse incentive to make up for that discount by performing more services.
The industry has been hit, and hit hard, by the Law of Unintended Consequences. Two of the top managed care “fixes” – fee schedules and PPOs with pricing based on percentage of savings, encourage over-utilization, a major cost driver for workers’ compensation.
It’s no wonder that most PPOs like this model, but why would any of their customers?
The simple answer is that managed care departments at many carriers and third party administrators (TPAs) are evaluated on the basis of their network penetration (the percentage of dollars that flow through a network provider) and network savings (on a per-bill basis).Their internal and external customers have bought into the per-unit discount model, and measure the success of their managed care programs on the dollars and/or bills that flow thru the network, and the savings below fee schedule or UCR delivered by the network.
The fact is few carriers, TPAs, or employers have realized that per-bill ‘savings’ is the wrong way to assess a managed care program. And unless senior management changes their evaluation methodology, their managed care departments will have no incentive to change their program to one that actually does reduce total costs.
After my conversation with a hall full of brokers, my bet is more carriers are going to be getting more questions about this.

Many payers look at ‘medical’ as a line item and nothing more. This myopia, this failure to look deeper, to try to understand what drives medical, is perhaps the most significant shortcoming in the industry.
Many readers will dismiss this criticism, claiming that they are different and smarter, that they know better.
And most will be wrong.
One current example provides compelling evidence of the industry’s ignorance of many things medical. I’ve posted on the pending changes to the Florida fee schedule, namely the move by the Three Member Panel to establish Medicare billed charges as the standard for Usual and Customary for facilities. That’s right, billed charges, not reimbursement. Yet many payers – self insured employers, insurers, and TPAs – are blissfully unaware of the damage this will do.
Here’s why hospital costs are important. According to the WCRI, hospital costs are rapidly accelerating for claims with more than 7 days lost time (which account for 83.5% of all workers’ compensation medical payout).

• Medical payment for NonHospital providers: up 3.8%
• All hospital medical payments: up 7.1%
• Inpatient hospital medical payments: up 12.1%

(Source, Stacy M. Eccelston et. al., The Anatomy of Workers’ Compensation Medical Costs, 6th Edition, 2007, WCRI).
In Florida, where hospital costs are about half of all medical expenses, this is particularly significant. In fact, two studies indicate the Panel’s proposed changes will dramatically increase hospital costs – by over $50 million annually. More troubling, the change will likely have the unintended consequence of shifting the location of care for many patients. With facility reimbursement becoming much more profitable, payers can expect to see many more bills for care delivered in hospitals, outpatient facilities, and ASCs. And they will be paying much more for that care.
Yet payers, in testimony before the Panel, seem to be completely ignorant of the impact of the proposed changes.
Here’s hoping payers wake up from their slumber – and soon. If not, many will have to explain to their clients why they didn’t act to prevent this disaster. Because it is preventable.
(for detailed information on this in the form of an extensive analysis, email infoAThealthstrategyassocDOTcom with Florida Hospital Reimbursement in the subject line)