Insight, analysis & opinion from Joe Paduda


Kaiser’s electronic health records

Kaiser Permanente has introduced a web-based tool to enable members to schedule appointments, view lab results, select physicians and hospitals, and order prescription refills. The service, initially rolled out to members in northern California, is expected to save the HMO half a billion dollars when fully implemented.
Kaiser has been a leader in the electronic medical records arena, having invested over $3 billion so far. An early initiative failed, but the big HMO jumped right back in with this latest venture. And progress seems to be coming, as two of Kaiser’s sites in California are converting to EMR now, with more scheduled for 2006.
The lesson here is that just because one initiative fails that does not mean the entire idea is flawed. Kaiser learned a lot from its initial efforts, and is using that knowledge to build a system that will eventually be employed throughout the HMO’s operations.
Kaiser has been quite intelligent about this effort, studying the impact of EMR on patient utilization and health status. A study reported early this year indicates that ambulatory visits decreased 9% after implementation, with health status measures remaining flat or increasing slightly.
Kaiser is one of the leading health maintenance organizations in the world, and is likely to remain so due to intelligent approaches to its business such as this one. I continue to be impressed with Kaiser’s persistence in pursuing electronic medical records; many for-profit HMOs would have given up, fired the head of IT, and remained mired in paper and disparate systems. If they even started an EMR effort. To be sure, Kaiser is somewhat unique as its members tend to stick with the plan for longer periods than its competitors; that does not diminish the value the HMO is demonstrating for the rest of the industry.
What does this mean for you?
Watch the not-for-profits closely, as they can teach lessons in efficiency, persistence, and focus that those in the for-profit arena would greatly benefit from.


Liberty Mutual, Crawford, data analysis, and workers comp

Two items in today’s news indicate the growing significance of data analytics in managing workers comp claims and costs. While there are differences in focus, with Liberty focusing on provider identification and Crawford on claims and case management, Liberty Mutual and Crawford are both using data analysis to build the capability to improve results.
Crawford has worked with e-Triage to develop and implement a predictive modeling capability to enable the company’s claims adjusters to identify those claims that are more likely to be problematic.
“”Crawford Claims Advantage provides an objective means to identify from the beginning the 20 percent of claims that account for 80 percent of all workers’ compensation costs,” said Bob Kulbick, senior vice president of Crawford’s Risk Management Services. “This new proprietary system will ensure consistency in the handling of workers’ compensation claims and will give us an unparalleled advantage in the marketplace. We expect to see significant reductions in both costs and claims duration for our corporate clients.”
“The opportunity to apply objective criteria to identify those cases that can benefit from case management is significant,” said Larry Mattingly, senior vice president of Crawford’s Healthcare Management Services. “Rather than subjective assignments, our case managers will intervene on the right cases at the right time. Phase two of our association with e-Triage will incorporate the evidence based research into our case management process, providing an objective means of measuring improvement as a result of the services provided.”
Liberty Mutual also announced the preliminary results of their partnership with Thomson Medstat, the well-known health data analysis firm. Liberty has been working with Medstat to develop a data warehouse and analytic capability to enable the company to better understand the delivery of medical care to their insureds.
According to Insurance Journal,
“…Liberty Mutual uncovered what it believes are the two keys to managing workers’ comp medical costs.
First, the statistical averages for treating specific injuries in any city or state – for example, how many office visits are needed to heal a torn rotator cuff in Denver, or what does it cost to set a compound arm fracture in Pennsylvania. Second, how individual caregivers and facilities in the area compare to that baseline.”
Interesting that the keys do not include the level of discount, network penetration, usage of case management or utilization review. These tools have been viewed as critical; Liberty’s statement seems to imply that finding the right docs is more important than the traditional approach.
I wholeheartedly agree.
The people at Liberty are some of the most knowledgeable in the WC industry, and their application of analytics to this business is consistent with what others (Hartford, Aetna) are also attempting. While there are inherent challenges in dealing with WC data due to relatively small sample sizes (total WC medical expense nationally is about 2% of all medical expenses), historically poor data quality (little emphasis on capturing data at the bill processor level), and significant external complicating factors (co-morbidities, psycho-social factors, job satisfaction) this is a step in the right direction.
What does this mean for you?
Depends on how much data you have…


Workers Comp pharmacy management and third party billers

I had a very interesting conversation yesterday with an executive at a large workers compensation third party biller. For those unaware, third party billers (TPBs) are entities that buy WC scripts from retail pharmacies and then try to collect from the insurance companies. Think of them as factoring agents; the retail pharmacy gets their cash fast, and the TPB gets to make a margin on the difference between what they pay the retail pharmacy and what the insurer pays the TPB.
By the end of the conversation, it was abundantly clear that the TPBs are out to take over the WC PBM (pharmacy benefit management) business. This TPB claims to have spent several years trying to collect what they believe they are owed from numerous payers, wtih very limited success. As a result, they are now pursuing aggressive legal action to try to force the payers to pay them the full amount for each script.
Many payers have been reducing their reimbursement to the TPB based on the rate that the retail pharmacy has agreed to. The TPB claims that since they bought the script, they now own it, and therefore the payer has to reimburse them at fee schedule.
The payers believe that since the script was filled by a retail pharmacy that is in their pharmacy network, they only have to pay the contracted amount.
Woven throughout the conversation was the statement that the TPBs exist to improve the injured workers’ life; by getting access to the drugs, they are helping to speed healing and reduce lost work time. A noble goal to be sure.
What does this mean for you?
The PBM-payer-TPB mix is going to have a huge impact on WC medical expenses, systems, and workflows.


Workers Comp and Disability conference

I am attending the national workers compensation and disability conference in Chicago this week, and will be blogging from here.
Impressions so far – even more exhibitors in the pharmacy benefits management space than last year, which was a drastic increase from the year before. My sense is the higher margins in WC Rx are attracting entrants, many of whom have little understanding of the difficulties inherent in identifying and managing eligibility, dealing with paper bills and third party billers, and interfacing with payers’ claims and bill review systems.
More to come…


Property Casualty insurance rates

The latest information from MarketScout indicates the property casualty insurance market remains soft, with prices continuing to fall in October. This comes as somewhat of a surprise as industry analysts predicted a hardening (price increases) of the market after the disastrous hurricane season.
According to Insurance Journal;
“In October 2005, the composite rate for all lines of property and casualty coverage was down 4%, a slight market correction from the preceding month but still a noticeable composite premium reduction from the 2% increase in October 2004. The total market differential for the last 12 months has been 8%, with a gradual market softening from rate increases of 2% in October 2004 to a rate decrease of 6% in August 2005.
After Hurricanes Rita, Katrina and Wilma hit the U.S. mainland, the market began a measured correcting pace as premium reductions have subsided, particularly in property business. The market appears to be headed towards an overall rate increase sometime in the summer of 2006.”
There are likely two main factors delaying the impact of the hurricanes on premiums and coverage. First, many renewals had already been negotiated and agreed upon, therefore the rates were set before the storms hit. Second, primary insurance rates are driven in part by reinsurance rates, coverage limitations, and treaty arrangements. Most of the primary insurer – reinsurer contracts have yet to be renegotiated; when they are you can rest assured reinsurance rates will increase substantially, driving up the cost of insurance to the consumer.
Of interest to many readers, workers comp rates were down 6% year over year in October. However, these rate decreases were driven in large part by significant reforms in California and Florida; rates in most other states did not drop nearly as much as those two bellwether jurisdictions. Of note, workers compensation rates in California have dropped 26.7% since imposition of the reforms at the beginning of this year.
What does this mean for you?
Renew now while you can, before the impact is felt by renewed reinsurance arrangements. As it is, if you have yet to sign a deal, it is very likely too late.


Terrorism Act (TRIA) extension in the works

It looks like Congress may actually do something about terrorism insurance. The government insurance program, set to expire at the end of this year, provides reinsurance for property and casualty lines (property, workers comp, auto) when claims are incurred as a result of foreign terrorists. After a high deductible, the government kicks in to pay most of the remainder.
The coverage, known as TRIA for Terrorism Risk Insurance Act, came into being shortly after 9/11 on a temporary basis. The reasoning behind TRIA is simple – no single insurer, nor the industry as a whole, has the financial resources to pay claims for a catastrophic terror event – think nuclear bomb in New York City, or exploding natural gas tanker in Boston.
This is a big deal. Insurance companies specifically exclude terror coverage whenever they can; property insurance is one that is particularly vulnerable to concerns about attacks. A group of 28 governors has joined together to pressure their Congressional delegations as well as the Bush administration for extension of TRIA.
For over a year, insurers had hard to get coverage extended, to no avail. The Bush administration wanted the industry to pay very high deductibles, so high that many industry experts viewed the “insurance” as little more than picking up the pieces after the industry was bankrupt. Now, news has come out that a compromise is under serious discussion in the House Financial Services Committee.
According to Insurance Journal;
“The extension proposal creates so-called “silos” for major coverage areas of workers compensation, property, casualty and NBCR (coverage for nuclear, biological, chemical and radiological attacks), with each silo being assigned its own deductible. The measure excludes commercial auto, which is now covered under TRIA, while proposing to add group life. Insurers would be required to offer NBCR coverage.
Federal intervention would be triggered only if losses exceed $50 million in 2006 and $100 million in 2007.
In the new plan, the distinction between foreign and purely domestic acts of terrorism would be removed so that domestic terrorism would be covered.
The co-share paid by insurers, which is now at 10% for all triggered events, would increase for smaller events and decrease for so-called mega events, with a 20% co-share for the first $10 billion down to 5% for events more than $40 billion.
Insurers would pay back any federal monies through policyholder premium surcharges that would be capped at 3%.”
Sounds workable, but there is one major problem; the term of the new TRIA is two years, so we could very well find ourselves back at this in a year, worried about the potential implications of a soon-to-expire law.
The good news is Congress may actually get something done; the bad news is they seem to have forgotten the old saw “if you don’t have time to do something right the first time, what makes you think you’ll have time to fix it”


Administrative expenses in health care

Administrative expenses account for 34% of private health care spending in California according to a report authored by University of California-Santa Barbara researchers and noted in California HealthLine. The 34% is comprised of insurance paperwork (21%) and medical records (13%).
Billing expenses amounted to 8% of private health insurance premiums; 11-14% of hospital spending and 14% of physician office expense went to billing as well.
Total private insurer administrative expenses totaled 9.9%; Medicare came in at 4.5%.
The full study, published in Health Affairs, noted :
“Including health plan profits, we estimated that 19.7-21.8 percent of spending on physician and hospital services in California that are paid for through privately insured arrangements is used for billing and insurance-related functions.
This is not “new news”; administrative expenses in the US consume a significant portion of health care expense. However, the study notes that these dollars, which are often labeled as “waste”, are not. Here is a quote from the full study:
“some administrative effort is required and desirable in a well-functioning system. Hospitals are complex organizations, and administrative effort is needed to use inputs efficiently and produce good outcomes. As physician practice moves toward larger medical groups, administrative effort is required to assure that the groups function efficiently. Administrative activities here include the work of the office manager, the receptionist, the billing staff, the information technology experts, and other personnel not directly contributing to the hands-on care of patients.”
Thus, the definition of “administrative expense” is quite broad, encompassing both payer and provider functions. This may be lost in some of the other publicity surrounding reporting of this study.
What does this mean for you?
Lots of opportunity to reduce administrative expense.


What Ryan did say about Aon and other topics

More on Pat Ryan, CEO of Aon Corp., and his comments at the IRMI conference earlier this week.
Ryan spent a fair amount of time commenting on the Spitzer investigations and impact thereof. He noted that the sheer time and resources required to respond to the Attorney General’s inquiries, along with the potential for ongoing negative press, played a large part in Aon’s decision to settle the case.
Ryan also noted that Aon has embraced the concept and reality of transparency, wherein all clients would know exactly what Aon was being paid and by whom for what work. Aon has abandoned the contingent commission revenue model, which has led the company to increase fees to some customers.
His comments on transparency and Aon’s commitment to same were direct, comprehensive, and revealing. Ryan clearly understands that the landscape has changed, that the old ways of doing business are no longer acceptable, and that Aon must operate within the new reality created by Spitzer and other outside forces.
Ryan noted that while the risk managers who are his firm’s main contacts were not concerned about the contingent commissions, their bosses were. Evidently Ryan heard directly from the CEOs and CFOs that they did not like the practice.
He predicted that there will be more, not less, regulation in the future, noting that “we are in the fourth inning”. Here’s hoping we aren’t tied at the end of nine…
What does this mean for you?
While I am frustrated at Ryan’s failure to mention health care costs and medical trend, his comments indicate a keen awareness of the importance of transparency and direct dealing. That is to his and his company’s credit.


State health care reform initiatives

USAToday reported that 19 states are considering some form of state-wide health insurance programs. While there is wide variation in the programs being considered by the legislatures, all seem to be in response to frustration with the lack of movement on the federal level.
Proposals range from Massachusetts’ initiative requiring all citizens to purchase health insurance to Florida’s child health insurance program to a universal health system in Maine. It will come as no surprise that many of these are simply studies by committees, are already dead, or have been referred to committee (and may never see the light of day).
That said, it is notable that many state legislatures and governors, ranging from conservative to moderate to liberal, are pushing for reform.
Many of the proposals deal with coverage for children, a politically popular move that has some basis in existing programs in a number of states.
Another sign that the momentum for reform is growing? I think so.
What does this mean for you?
Watch the bellwether states carefully, as successful initiatives often start there and move into the Federal arena (remember how Tommy Thompson got his publicity) .


What Aon’s Pat Ryan didn’t say

I have just returned from IRMI’s excellent Construction Risk Conference in Las Vegas. Interesting location for a bunch of risk averse people…
One of the keynoters was Pat Ryan, founder and chair of Aon Corp, the big broker. He gave a talk covering a wide range of topics, including Spitzer, contingent commissions, and transparency. What was notable to me was what he did not discuss, or even mention – health care costs.
I find this intriguing for a couple of reasons. First, what is more important today than health care costs? Health care costs are contributing to his clients’ risks in employee benefits, workers comp, auto, general liability etc. And, medical expenses in the property and casualty lines are increasing at a rate substantially faster than in group health (10-12% v. 8.2%). What could be more important, more significant, than health expense inflation?
Second, Aon is making a big push to become the expert in data mining, analytics, and assessment to better predict and manage “risk”; broadly defined. In this context, risk could include flood, wind, politics, etc. Since our focus here is on health care, we’ll stick to that. Unfortunately, Aon’s attempts to date to assess and evaluate medical expense in the workers comp world, at least the public reporting of same, reflect a dangerously superficial understanding of medical expense, providers, practice pattern variation, etc. (note – sources indicate Aon’s understanding is not any better when presented in private meetings..).
If this initiative is so important to Aon, why would it not be part of a speech to 1500 eager listeners, and why would it not incorporate even a mention of what Aon is doing to help customers deal with this to-date-unmanageable problem – health care cost inflation.
If Aon is all about managing risk, it better learn something about medical expenses soon. And the company sure can do a better job in presenting itself as an expert in same.
What does this mean for you?
Watch out for consultants that don’t understand what is really driving your claims costs.

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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