Insight, analysis & opinion from Joe Paduda


More on drugs in workers’ comp

The Hartford has just released an internal study of the costs of prescription drugs in Workers’ Compensation, and while it only covers the company’s own experience, the report does add a little more depth to the research released by Health Strategy Associates last month.
Key findings include the Hartford’s Rx trend (inflation) rate of 6%. This is about half of the average increase reported by the 24 respondents to HSA’s Survey, and demonstrates what can be accomplished through the vigorous application of intelligent programs.
The report also noted one of the key drivers was the growth in “off-label” use of prescription drugs such as Actiq and Neurontin. The release stated:
“Actiq is a powerful painkiller approved by the FDA for cancer patients with breakthrough pain, but it jumped to number nine from 15 in 2003,” said Dr. Bonner (Medical Director of the Hartford). “The drug is a narcotic that comes in a lollipop or lozenge form and takes just a few minutes to enter the bloodstream. The FDA is concerned about its potential for diversion and abuse. Actiq’s climb up the chart suggests it is being used for a much wider group of patients than those the FDA originally intended.”
Similarly, the drug Neurontin held steady at number two on the list, despite its owner paying more than $430 million to settle state and federal charges relating to the drug’s promotion and marketing to physicians. The FDA approved the drug in 1999 to treat seizures in epilepsy, then approved it in 2002 to treat pain following shingles outbreaks (post-herpetic neuralgia). Even so, the percentage of patients for workers’ compensation injuries being treated for either condition is dramatically smaller than the usage of the drug suggests.”
Not noted in the press release is the name of the entity that is providing pharmacy benefit management services for the Hartford; Tmesys/PMSI. (Sponsor of HSA’s survey).
What does this mean for you?
If you are a WC payer, there is hope. Data-driven programs, applied intelligently and appropriately, can and do reduce prescription drug expenses.


Hartford and Aetna

The Hartford announced this week that they will be using Aetna’s Workers Comp PPO network in Pennsylvania, effective 6/1/05. This is a big step for Aetna, which has been struggling to achieve traction in the WC network business since starting this initiative some two years ago.
On the plus side for Aetna, this is the first large WC payer that has adopted their network, and indications are that Aetna’s analytical capabilities and provider profiling were strong plusses for the Hartford. Also, the press release indicated that Hartford will/may be using the AWCA network in additional states in the future.
On the negative side, after two plus years, and hundreds of thousands of dollars invested, Aetna has one top five carrier accessing their network in one state.
My take is the powers-that-be at Aetna seriously underestimated the amount of effort needed to build a WC network, and overestimated the interest among large payers. As part of their “due diligence” Aetna hired an outside consulting firm (not HSA) to analyze the market, determine key success factors and required capabilities, and estimate the opportunity. The report, which likely cost tens of thousands, was perhaps the weakest, least-informed, and most superficial market assessment I have had the misfortune to read.
Thus, no surprise that success to date is…rather limited.
In addition to the comments on analytics, the press release also notes that AWCA has over 100,000 providers in their currently active states (most of which are actually employer direction states). This reflects a complete lack of understanding of where the WC network business is heading, which is towards smaller networks of expert providers.
While I have a lot of respect for Aetna on the group health side, I wonder what they are thinking re WC.
What does this mean for you?
If you are a group health network contemplating WC, think carefully, study thoroughly, and understand the market before you build a business plan. Yes, there is an opportunity. It simply requires a thorough understanding before making an investment decision.
If you are a WC payer, AWCA’s entry into this space is a good thing; it adds competition from a strong managed care firm, and may actually provide an alternative to First Health et al.


RIMS results

The RIMS conference in Philly has been quite interesting, especially for those following managed care trends. Conversations with three large insurers have been remarkably similar; all are focusing their efforts these days on so-called “specialty networks”; smaller networks of physicians who have demonstrated their ability to manage WC cases cost-effectively.
We have covered this topic before, both in this blog and in prior articles, but this is the first time I have seen what could loosely be described as a trend in workers comp medical management .
One large payer indicated that although they (the carrier staff) believes in the effectiveness of smaller networks built around docs that are WC experts, many of their customers are “still not there yet”. That is, these policyholders are still wedded to the “percentage of savings” model for buying health care.
Kudos to the carriers for their efforts, and best of luck educating their customers.
What does this mean for you?
If you have yet to understand that the party with the most impact on a WC claim is the treating physician, now’s the time to educate yourself.


Massachusetts’ workers comp problems

The state with one of the lowest fee schedules has been experiencing rapidly rising medical costs. The result of this trend has been that Massachusetts, long known for its draconian fee schedule, has seen total claims costs increase 10% from 2000-2002, after a period when costs were only going up 5.5% per year on average. The data come from the Workers’ Comp Research Institute, one of the preeminent analytical bodies in the WC world.
According to “Insurance Journal”,
“The major cost drivers of growth in the most recent year were continuing double-digit growth in medical costs per claim and very rapid growth in benefit delivery expenses per claim


Disabling disability

Jon Coppelman has written a great posting about the disability-enhancing powers of disability payments in “Workers Comp Insider”.
To quote Mr. Coppleman:
“In an article by E. J. Mundel at, a “meta-analysis” of 211 research studies from across the globe reveals that indemnity (lost wage) payments have a strong influence on medical outcomes. In all but one of the studies, workers receiving financial compensation for work-related injuries were almost four times more likely to have poorer long-term medical outcomes than uncompensated workers.”
If you are in the workers’ comp or disability businesses, read the posting. It provides a scientific foundation for the gut feeling that many of us industry long-timers have sensed for years. If people get paid to be out of work, it is harder to get (some of) them back on the job.
It’s just common sense.
What does this mean for you?
Probably makes you feel better that what you thought was going on really is.


Another COX-2 disaster

The latest casualty among drugs falling victim to over-promotion and under-testing is Bextra, Pfizer’s COX-2 inhibitor. This time around it is not just cardiovascular issues that are the problem.
Bextra appears to be linked to a significantly higher incidence of a serious skin reaction, a problem not found in the other COX-2s. This skin condition is what led the FDA to “request” that Pfizer pull the drug last week. Earlier, Pfizer was asked to add additional safety warnings to Bextra’s labeling, a move that fell short of a withdrawal request.
Reactions ran the gamut from shock and disbelief to “I told you so”; perhaps the most telling appeared in the New York Times:
Thalia Segal, a pain specialist at New York University, said, “We used to just put people on these drugs for life and not think about it, but we can no longer commit them to lifelong therapy with impunity. We have to use these medications judiciously and follow people more closely. We have to rely on a much more individualized approach” (O’Connor, New York Times, 4/8).
It is becoming painfully (no pun intended) obvious that the “side effects” of various medications can not only be quite serious, to the point where people die or suffer debilitating conditions, but also have been under-considered by administrators and big pharma alike. And, the treatment expense and other liability associated with these side effects will contribute to our rising health care costs. Over the short term, financial results of the pharmas will suffer (“Pfizer, which on Wednesday announced plans to reduce costs by $4 billion annually and restated 2005 earnings estimates, might have to make additional cost reductions to return to double-digit earnings growth by 2006


Medical technology facts and impact

Dr. Paul Ginsburg of the Center for the Study of Health System Change has stated that technology and the increasing income of the US population are the top drivers of health care costs. The two are interrelated, as health care is a “luxury good” as defined by economists, so the more income one has, the more “luxury” one can afford. While everyone “knows” this, they might not be aware of the “share” of the medical dollar that goes to technology.
Here are a few factoids that may put this in a little clearer perspective.
Total medtech market is about $200 billion annually, and is growing 10% per year.
Medical equipment costs account for 3-6% of total US health care costs.
For radiology, equipment costs account for 10% of procedure costs.
43% of the medtech industry is located in the US, 24% in the EU, and 15% in Japan. So, while we spend a lot for technology, we also benefit from salaries paid to US medtech company workers, taxes paid by the workers and their employers, as well as profits and downstream expenditures from these firms.
The history of the Magnetic Resonance Imaging machine (MRI) in the United States provides an excellent perspective on technology in health care. Originally approved by HHS for very limited use in a handful of settings, MRIs were quickly found to have much broader application than assumed in the original license (American creativity at its best). Physicians, manufacturers, and MRI owners were able to fill the available time slots with patients so quickly that a new, and quite large, market for advanced diagnostic imaging was created within a very short time. This is but one example of the ability of technology and technologists to find lots of new billing opportunities for their new creations.
Interesting sidebar
Qatar, a particularly wealthy Gulf oil exporter with a tiny population, will be spending $150 million per year on research and development. In fact, the Emir (leader) has set aside all income from a substantial portion of their liquid natural gas exports for investments in medical research. Qataris know their petroleum revenues will run out over time, and they’ll need to replace a substantial portion of those revenues. Medtech looks like a potentially promising source.
What does this mean for you?
If you’re a medtech company, prospects are rosy, although watch out for India. For the rest of us, technology is a curse if someone else is using it and you are paying for or attempting to “manage” its use; a blessing if your doctor is using it to diagnose or treat you or someone you love. Technology’s impact on costs is likely to increase over time, as new devices are created to perform new tasks and better perform tasks that used to be done by older (and usually cheaper) technology.


Cigna’s strategy

Cigna’s recent history has been marked by a (very) difficult, painful, and not entirely successful IT conversion/improvement initiative, known within the company as “transformation” – sometimes with several expletives preceding that term. A less well-known initiative, perhaps because bad news travels on wings, good on foot, is the company’s efforts to implement so-called “high performance networks“.
Rolled out last year in nine markets, and expanding over the next 12-18 months to a couple dozen more, the high-performance network is a revised and updated expression of the Exclusive Provider Organization, or EPO. The concept is simple; utilize health care claims data, corrected and augmented by various case-mix adjusters, episode of care groupers, and other black arts to figure out which physicians within what key specialties deliver the “best” care. Then, set up employee benefit plans with financial incentives for members to use those providers. Ideally, you would want to pay the high performers more, hassle them less, and thus build loyalty and perhaps even the foundation of a relationship based on something other than “if you don’t agree to my deal I won’t work with you”.
Cigna’s program concentrates their efforts on the nineteen specialties that consume 95% of the dollars spent on specialists. The company is using a number of markers of quality of care, including the efficiency of the hospitals where the provider has admitting privileges. Cigna is also starting to work with the National Council on Quality Assurance (NCQA) to incorporate quality of care indicators into their assessment.
Cigna is in a tough spot – hampered by systems conversions issues; and struggling to compete with larger foes with more resources, broader geographic coverage, more buying power, and lower costs of capital. It’s efforts to develop new and innovative provider relationships are laudable, but it all comes down to execution.
What does this mean for you?
Beware systems conversions, as they ALWAYS take much more time, deliver only part of their promises, cost bundles more, and can result in high levels of career mortality and morbidity for those managers unfortunate enough to be identified as responsible for the idea or implementation. As a rule of thumb, reserve 50% more than the cost of the initial project to cover unanticipated costs flowing from the project’s unknowable negative impacts.
Watch Cigna’s progress with high-performance networks. If this does not work, the company’s future will be in serious jeopardy. Regardless, there will be a wealth of lessons learned as a result of their efforts.

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.



© Joe Paduda 2020. We encourage links to any material on this page. Fair use excerpts of material written by Joe Paduda may be used with attribution to Joe Paduda, Managed Care Matters.

Note: Some material on this page may be excerpted from other sources. In such cases, copyright is retained by the respective authors of those sources.