Tag Archives: claim costs

Alternative Strategies for Provider Networks

In this second article regarding sustainability of provider networks and managing health plan costs, we will focus on carve-out programs, integration of provider delivery models and direct contracting.

As referenced in the first article, the Affordable Care Act (ACA) has hurt re-pricing through preferred provider networks (PPNs). Claim amounts being billed by specialty and institutional providers has escalated to such a level that preferred provider organizations (PPOs) have lost much of their appeal. As a result, the introduction of commercial accountable care organizations (ACOs), direct employer/provider contracting, narrow network arrangements and cost-to-charge methodologies have gained significant market share.

While the self-funded industry has begun applying many of these alternatives, a high percentage of employers are unwilling to fully embrace some of these changes. Instead, we are seeing intermediate steps through the application of network carve-outs, integration of existing PPOs with specialty care vendors and limited direct contracting.

What outcomes do these intermediate steps offer an employer? To start with, a better control of healthcare consumption and lower overall claim costs.

Let’s explore the basics of network carve-out programs. The simplest carve-out is an organ transplant product that removes claims from the underlying medical excess coverage and places them with a separate policy. In most cases, the transplant policy includes a centers of excellence network where the procedure must be completed for 100% of the claim to be eligible for reimbursement. When a non-participating facility provides the service, reimbursement may be limited to a lower percentage of the bill and will in many cases have caps. These products may include individual deductibles, waiting periods and lifetime maximums.

Less common carve-out solutions are non-risk bearing and target specific treatment types, such as renal dialysis or surgical events. A renal or surgical carve-out is accomplished through a change in plan document provisions that move the service to a non-network benefit. This can be a challenge when dealing with national PPOs, which typically include these service providers in their networks.

When considering any form of carve-out program, the client should take care to avoid any reference to a specific disease state and mind the gaps that could potentially exist between the plan document, underlying medical stop loss policy and carve-out policy or provision.

The industry is buzzing with the term “transparency,” yet most people are unable to determine the actual cost of service provided to patients. Solutions include the integration of existing PPO networks and specialty care providers through direct contracting and domestic tourism. Additionally, a number of surgical centers are now publishing fee schedules and treatment outcomes online. This disclosure is enticing patients to acquire services in these facilities. The result is a creation of carve-out referral agreements for self-funded employers with fees significantly lower than the most aggressive PPO contract.

If the initial reports are accurate, then, in addition to significant savings, patients are experiencing shorter recovery times and fewer complications than through traditional networks. We are also seeing an integration of specialty care providers with traditional networks as a cost-effective tool. In our experience, clients have integrated direct contracts with oncologists, orthopedists, surgical centers, dialysis centers and pain management clinics to more effectively manage care and cost. This approach may be challenged by traditional PPO networks, but the outcome is worth the effort.

In a number of cases, we have found it effective to integrate PPOs for institutional services only and contract directly with medical groups based on a capitated model. In other situations, we have contracted with a PPO network for professional services tied to the Medicare Regionally Based Relative Value Schedule (RBRVS) and re-priced the institutional claims on a cost-to-charge or referenced-based pricing scenario. We will discuss reference-based pricing more in a coming article. For PPOs to remain relevant, they must adapt to these emerging innovative solutions.

For some, innovation will start with direct contracting on behalf of our client health plans. The process of direct contracting can be relatively painless when working with an independent practice association (IPA) or multispecialty medical group. The purpose of these groups is to establish and oversee patient protocols, referrals and outcomes management on behalf of their member providers with health plans and health maintenance organizations (HMOs). Medical groups typically contract with payers through discounted fee for service, Medicare RBRVS or capitation (pre-payment).

While direct contracting can take many forms, our discussion will focus on provider engagement through capitation arrangements. Since ACA’s implementation, providers have become more receptive to assumption of risk through direct capitation agreements with employer groups. In its purest form, capitation is essentially a monthly retainer paid to the provider for services to be rendered to the covered member. The provider is then responsible to deliver care with a goal to making a profit from the monthly pre-payment. For this to be effective, the provider must have a patient population whose utilization and medical histories support this methodology.

Some may ask how capitation is possible without an HMO license. In some states, such as California, laws allowing the creation of HMOs do not require licensing for pre-payment arrangements when risk-sharing between various medical groups and institutions does not exist. Therefore, if a medical group contracts without sharing in a profit or risk pool with other not-related practices, capitation may be allowed. This approach has been implemented and successfully tested through the Department of Managed Healthcare in California.

With this in mind, I would caution employers from running out to look for a willing medical group. The challenge is to find the right medical group that can meet all of the client’s healthcare needs. Will the capitated approach work with institutional providers? The simple answer is yes, though in our experience the process is difficult because many facilities struggle to clearly identify cost of care, and hospitals do not control direction of care.  In settings where capitated institutional models are not practical, we have utilized hospital-only PPO carve-out and referenced-based reimbursement solutions with varying degrees of success.

Providers are rushing to establish community risk assumption models, resulting in the elimination of traditional insurance contracts. We will address the provider direct model more in the following article.

While we have focused on direct contracting through capitation, I want to briefly introduce another successful approach that integrates current PPO contracting methods with HMO-type protocol management and measurements. The measurements may include average length of stay, bed days per thousand, re-admission and encounter frequency, delivery setting, prescription dispensing and adherence to published standards of care. Practice management providers may participate in profit sharing even in a self-funded plan.

This model is not commonly available through third-party administrators (TPAs) because most systems are not equipped to support the protocol and outcomes management required for risk-sharing models. The TPAs with the greatest potential for administering these programs are those that are owned by hospital or provider organizations and that manage risk on behalf of HMO contracts. That being said, we have identified several TPAs that offer these services to self-funded employer plans.

The topic of provider contracting will be debated for years to come, and the number of opinions are as great as the options they represent. The challenge for us today is to move the needle of cost management and improved outcomes forward.

A Better Way to Measure Claim Risk

The medical portion of workers’ compensation claims is now almost 60% of claim costs. That fact alone should easily convince payers to focus on the rich medical information in their data. Yet, very powerful information residing in claims data is virtually ignored — diagnostic codes in the form of ICD-9s. The problem is few in the industry really understand ICD-9s or how they could supercharge medical management.

ICD-9s, which are not unique to workers’ compensation, are the World Health Organization’s International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM). They are a standardized method of describing injuries, illnesses and related issues worldwide. ICDs are the codes that classify mortality data worldwide. The ICD-CM is used to code and classify morbidity data from inpatient and outpatient records and doctor’s offices. The purpose of the ICD is to promote international comparability in the collection, classification, processing and presentation of mortality statistics. Revisions of the ICD are implemented periodically so that the classification also reflects advances in medical science.

Those who bill for medical services in the U.S. are required to use one of two standard forms from CMS (Centers for Medicare and Medicaid Services), the HCFA-1500 (Health Insurance Claim Form) for outpatient services and UB-04 (Unified Billing) for hospitals and other facilities. Both standardized forms require the medical provider to list ICD-9s appropriate to the medical procedures for which they are billing. The data derived from these forms should be analyzed and incorporated into medical management processes.

Bill review organizations and payers capture data from the standardized billing forms in their systems. Nevertheless, while the ICD information is documented in systems, its use ends there. ICD-9s are difficult to interpret in the form seen on bills.ICD-9s are displayed in the form of codes, not descriptions of injuries and illnesses, and they number in the thousands. Individuals cannot remember the codes, nor do they have the time to look up codes for interpretation. Instead, they simply ignore them.

Yet knowledge resides in ICD-9 codes that can be translated to powerful medical management tools. When the ICD-9s in a claim are monitored electronically and concurrently, they reveal and inform.

ICD-9s reveal migrating claims, which are those where the injured worker is moving away from recovery, rather than toward it. Such claims always accrue ICD-9s. However, few notice what is happening. Standard processes and systems in workers’ compensation only record the ICD-9s. They do not monitor, interpret or even count them.

Migrating claims are those becoming more complex and costly, often an insidious process that is missed by claims adjusters and medical case managers until considerable damage is done. What happens in migrating claims is the injured worker is not recovering and is referred to multiple specialists. Each specialist adds new ICD-9s to the claim, thereby increasing claim risk.

Using a computerized system designed to monitor ICD-9s is a powerful knowledge solution. Alerts can be sent to appropriate persons when the number and severity of ICD-9s in a claim increases beyond a certain point. Migrating claims cannot be missed, and intervention is implemented early, thereby significantly improving effectiveness.

A way to optimize the power of ICD-9s is to score them individually for medical severity. Each claim then contains a total ICD-9 score in the system, which translates to the claim risk score. A system designed to monitor ICD-9 scores in claims keeps a running total, the claim risk score. As ICD-9s are added, the claim risk score increases. As a claim migrates and accumulates ICD-9s, an alert is transmitted to an appropriate person. Migrating claims cannot go unnoticed.

Claim ICD-9 scores are predictors of risk and cost. Claim ICD-9 scores can be monitored from the outset and throughout the course of the claim. The claim ICD-9 score reveals the seriousness and complexity of a claim. Medical doctors managing difficult claims can be differentiated from those handling less arduous claims, thereby creating fairness in measuring provider performance.

The ICD-9 contains thousands of codes, and the ICD-10 revision will triple the number of codes, making its information value exponentially greater. ICD-10 is to be activated in October 2014. However, it now may be postponed to 2015.

Regardless of the government’s decision about when the ICD-10 is required, wise medical managers are using the ICD factor as an important and revealing evidence of claim progress — or regression.

The Truth on Workers’ Comp Premiums

As employers try to limit their workers’ compensation premiums, my suspicion is that many do not realize that insurers have traditionally relied on investment income to, in effect, subsidize underwriting costs, and that the subsidy is going away. Insurers are relying on “safer” Treasury bonds and are not realizing the returns they received before the Great Recession.

Sure, employers feel workers’ comp insurers are too profitable. In fact, the combined ratio — insurers’ total costs for covering work-related incidents, divided by total premiums — was 106 in 2013, according to the National Council on Compensation Insurance. That means that, for every $100 that insurers received in premiums, they paid $106.

Insurers need to shrink the combined ratio to be profitable and need to make up for the diminishing investment income, so premiums have been going up for the past three years. Experts expect this to continue.

So, to control premiums, employers must improve the experience modifier that is used to calculate their rates. Employers need to address the direct and indirect costs of work-related injuries, illnesses and diseases, investing in workplace safety and return-to-work and other initiatives. Insurers must use predictive modeling to produce more sensitive risk measurements. (Here is a blog post that goes into detail.)

The good news is that workers’ compensation claim costs are not out of control as they were in the past. Those of us who are old enough to remember the late 1980s and early 1990s remember just how bad it was. Liberty Mutual, often considered the largest workers’ compensation carrier in the nation, quit offering coverage in its home state of Massachusetts in the early 1990s because costs were spiraling out of control. Today, overall costs are going up but more slowly because the frequency of claims has been declining for 20 years.

There are many possible reasons for why frequency has declined.

Some point to reforms reducing claims eligibility for workers’ compensation. But, if this were a large factor, I think we would be seeing more work-related claims in the tort system.

Others cite changes in workplace exposure. Some point to the shift in the kind of work Americans are doing. For example, high-risk jobs in manufacturing have been exported in recent years. And while some manufacturing jobs are returning to the U.S. because of lower energy costs here, more work is being automated, making it less risky. Meanwhile, still-high unemployment rates mean there is less risk exposure.

I believe the No. 1 reason why frequency has declined is workplace safety. While I cannot prove this on a quantitative basis, I make my observations based on 25 years of observing workers’ compensation. Back in the early 1990s, employers were discovering how much they could lower their premiums through safety. When I was the lead reporter for BNA’s Reporters’ Compensation Report in the mid-1990s to the year 2000, I spent a lot of time writing about employers that were discovering strategies to contain workers’ compensation. Many of these approaches are now used widely.

There still remain, however, many employers who need to get religion.

While medical-cost inflation for workers’ compensation remains a concern, it is not in the double-digits as it was 20 years ago; it has been about 3% annually in recent years. Workers’ compensation insurers still pay more for procedures than health care insurers. Medicare will not pay for opiates dispensed by doctors, but workers’ compensation will in many states. The $1 billion question is how Obamacare will affect workers’ compensation claim costs. Some worry that claims that previously would have been handled under healthcare insurance will be shifted to workers’ comp, but I doubt it because workers’ comp is just too complicated. (It could turn out that Obamacare will be more complicated than workers’ compensation, but a worker still needs to prove work-relatedness for a claim.)

As a whole, indemnity claim costs have been relatively flat in recent years. In states where the maximum weekly benefit that workers can receive is relatively low, such as Virginia, indemnity costs are naturally lower than in other jurisdictions, such as the District of Columbia, where the maximum weekly benefit is much higher.

Reducing the amount of time workers are on workers’ compensation through quality medical care and return-to-work programs has also helped curtail the financial burden of claims. But, again, more employers still need to get religion, and for reasons that go beyond reducing the time that employees are on workers’ compensation. It is also true that return to work is challenging in the current economy, as there are fewer jobs available.

Besides national economic factors, employer premiums are affected by the workers’ compensation conditions in individual states. California’s combined ratio has been in the triple-digits, so employers are seeing bigger premium increases than in other states.

Meanwhile, there is always the political wildcard in workers’ compensation that can favor the interests of insurers, employers, organized labor, plaintiffs’ attorneys and others, depending on who is in power.

Employers often feel too busy to be politically involved in the workers’ compensation system but can be a critical voice for change. Employers that want to make a difference should look into joining UWC in Washington, D.C., and the Workers’ Compensation Research Institute. I have worked with both of these groups in various capacities and believe they are worth the investment. (By the way, neither organization knows I am recommending them.)

Making the case for investing in workers’ compensation is a challenge. But because insurers can no longer use investment income to soften the blow of rising workers’ compensation costs, employer investment in curtailing claim costs is more important than ever.

Why Workers’ Comp Claims Stay So High

In meetings with employers who have a history of high workers’ compensation claims costs and related expenses, we hear a common story: “The insurance adviser does not to take an active role on the problem. The adviser provides little or no supervision of the claims process. Nor are the true costs of each claim incident evident to the employer.”

These employers tell us that they rely solely on the insurance company claims adjuster’s process and the recommended insurance carrier medical clinic treatment protocol. There seems to be no one enhancing communications with the injured employee.

This communication void can lead to misunderstandings and a lack of trust and cause injured employees to seek legal representation. The result can be higher claims costs and delays in closing claims.

In most of these situations, the insurance adviser goes through an annual exercise to obtain rate quotations in an attempt to “control employer costs.”  But the quoting process fails to help the employer understand the costs of each claim. Nor does the process inform employers how to lower costs.

Some time ago, Dave Smith, a safety consultant in Lafayette, Calif., shared a comprehensive list of items and costs that affect employers when a work-related injury or illness occurs. I've attached a copy of Dave’s creation that I share with employers.   

In our experience, this guide helps employers rethink the claims management process and their experience with their insurance adviser. The guide helps employers come to the conclusion that they must make some changes to achieve better financial outcomes.

Cost transparency helps an employer to understand where the costs are coming from. Employers will also be better able to see if they truly have a valuable insurance adviser or if the adviser's process is just too costly.

Many employers seem to forget that it is their money at work in workers' comp claims and that they must be involved in all aspects of their workers’ comp insurance and risk management program.

Remember that the expenses listed in this chart are all in addition to the increase in future workers' comp premiums that come because of the change in the employer’s experience modification factor.

An Old Trick That Reduces Workers' Comp Claim Costs

Let me assure you from the outset that this article has nothing to do with losing belly fat, curing diabetes with cinnamon or buying real estate with no money down. And, unlike other enticing articles that make you wade through 30 minutes before they tell you about that “one trick,” I’ll get right to it. The trick is: communicate with injured workers.

This is something that most workers' comp professionals have known for a long time: Generally speaking, injured workers don't call the TV plaintiff attorneys because they want more money — they call plaintiff attorneys to file a claim because the employer/carrier has not communicated about benefits claimants can expect to receive or how the workers' compensation process works.

I know this to be true because of what plaintiff attorneys tell me. When I have my first conversation with opposing counsel on a new claim, she will often say something along the following lines: “Brad, if your employer/carrier had just explained to my client what was going on, the claimant wouldn't have hired me to file a claim.”

Once the plaintiff attorney tells the claimant about his workers' compensation rights, the claimant then believes that he has “secret” information, and that creates a lack of trust toward the employer.

Listen, you can buy a kidney and find the schematics for a nuclear reactor online these days — and employers think that claimants can't find out about their workers' comp rights? I have one word for you: Google.

So, why do many employers and carriers insist on giving claimants the “mushroom treatment” (kept in the dark and covered with….fertilizer)?  I can think of three reasons.

First, many employers wrongly believe that communicating with the claimant about the workers' comp process will encourage more claimants to hire attorneys and file claims. While this may seem intuitively correct, it is empirically false. Claimants hire attorneys because of too little information, not too much.

Employers think: “If I have a safety meeting on what benefits injured workers receive when they file a comp claim, aren’t I just teaching them how to get more money out of the process?” Legitimate concern. But once an employer understands that the motive to hire an attorney and file a claim is more often driven by uncertainty rather than greed, this concern tends to diminish.

Second, workers' comp professionals (HR directors, safety directors, adjusters, defense attorneys, nurse case managers, etc.) know the process inside and out. We know all of the acronyms, the sequence of events and even a lot of great big medical terms that sound really cool at parties. (“Epicondylectomy” and “acromioclavicular” are two of my favorites.)

It is easy to forget that a claimant experiencing his first work-related injury has NO IDEA about how doctors are chosen, how TTD benefits are calculated or what MMI even means. Because we often fail to discuss comp rights and benefits with claimants without using the legalese and comp terminology that we throw around on a daily basis, the claimant becomes more confused than a dad reading a bicycle assembly guide translated from Chinese. 

Third, I’ve been told by plaintiff attorneys that many claimants are treated from the outset as if their claim is fraudulent. Don’t misunderstand me: I’ve seen my fair share of fraudulent claims – – most workers' comp professionals have. But not every claim is fraudulent. The challenge is spotting the fraudulent claims that are hidden within the legitimate claims. If employers or carriers treat every claimant as a fraud even before there is evidence of fraud, we’re giving free advertising to plaintiff attorneys. 

I say: Bypass the cloak-and-dagger approach, tell the employees up-front about what to expect and watch the volume of litigated claims go down. 

Now, if I could only find that “one trick” to regrow hair!