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October 14, 2014

Post-SB 863: Now How Do We Contain Costs?

Summary:

With the bill's failure to cut workers' comp costs, California should take three steps to encourage the right behavior by healthcare providers.

Photo Courtesy of Department of Foreign Affairs

Several recent articles and publications have highlighted the challenges we continue to face in California workers’ compensation. Following the “state of the state” report in August by the Workers Compensation Insurance Rating Bureau (WCIRB), Mark Walls noted in an article that the challenges in California continue to mount as California now accounts for 25% of U.S. workers’ comp premiums, with some of the highest medical costs in the nation.

The recent Oregon report noted that California now has the most expensive comp system in the nation, having risen from the third most expense in 2012 to the #1 spot — a dubious distinction that should serve as a continued call to action.

As Walls so aptly noted, we in California need to move beyond the notion that we are always going to be different. We cannot continue to mark our “progress” against our own past performance, overlooking the sobering comparison to other states. If we do, we’ll see the return of television commercials touting nearby states as welcoming alternatives for employers.

With no shortage of reforms over the past 15 years, Mark’s comment about our focus on reducing frictional costs in the system without really addressing medical provider behavior rings true.

The recent reform attempted to tackle the frictional costs, particularly the costs of liens and utilization review (UR) disputes. It was assumed that the lien filing fee and statute of limitations on liens would reduce the extraordinary burdens and costs that were expended to both litigate and settle these expensive and often unjustified charges. It was also thought that independent medical reviews (IMRs) would speed the delivery of necessary medical care and would keep UR disputes out of the courts.

Although there certainly appear to be fewer liens, the problem has not been solved. In addition to some inevitable liens for disputed medical treatment, we continue to see liens filed after bills are reduced to conform to the approved fee schedule. In a state with a fee schedule, why should an employer be forced to litigate or settle a lien for charges that exceed the fee schedule? We know we can resist the lien, have a bill reviewer testify at a lien trial and have a good chance of prevailing. Unfortunately, though, the cost of winning is very high, including the cost of the hearing and the larger cost of keeping a claim open, delaying a settlement and maintaining a reserve. This is the very real dilemma that often causes payers to settle a lien that is not owed, rather than defending against it.

What if the prevailing party was reimbursed for the full cost of a lien hearing? Perhaps that would persuade claimants to carefully evaluate their liens before proceeding, while also forcing the defense to evaluate the validity of the lien before allowing the lien to go to trial.

The other significant attempt at reducing the frictional costs was the introduction of independent medical review. What have we seen, as a claims administrator that limits the use of utilization review by empowering examiners to approve significant numbers of diagnostics and treatments? We’ve seen in excess of 97% of the URs submitted to IMR upheld by the IMR process. Yet, for those 97%, our clients have incurred the added expense (IMR is not inexpensive), and the claims process was delayed while the IMR process was completed.

Some oversight is definitely healthy and necessary. The challenge is in finding a less costly, less time-consuming method of ensuring that injured workers are treated fairly — a method that actually changes provider behaviors so that the injured workers who are treated by high-performing providers are not swept up in a system of reviews and re-reviews.

Although no solution is likely to satisfy all constituents, there must be something we can do to provide incentives for the right provider behaviors. What about using all the medical bill reviews and other data to analyze provider behavior and “certifying” providers? The consequences could be:

1- A fee schedule “add on” or bonus for the top quartile of providers
2- A six month “bye” from utilization review for the top 50% of providers
3- Some sort of added oversight for providers performing below the 50th percentile

This is certainly not as easy as it sounds. Perhaps some representative providers would have some suggestions. Perhaps we should engage them in a discussion.

But it doesn’t seem that there can be any harm in considering a “pay for performance” model.

The answers may lie in the data, and they may not. The answers may also lie in the programs of one or more of the 49 states that offer less costly workers’ compensation coverage to employers. It certainly behooves us to look everywhere until we find those answers.

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About the Author

Judy Adlam is president and CEO of LWP Claims Solutions, an organization that leverages a culture of teamwork and excellence to consistently deliver results that are far superior to industry standards. She is a chartered property casualty underwriter (CPCU) and a senior claims law associate (AEI).

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