Beware of Medical Hyper-Inflation!
Historically, medical inflation rates nationwide have been fairly consistent. However, data is now showing that medical inflation is not a “one size fits all” phenomenon, with hyperinflation spikes occurring in some locations…but not others.
This geographical conundrum means hyperinflation can occur as narrowly as two hospitals having dramatically different charges on the same street in Anytown, USA. So, uncovering these anomalies is akin to finding the proverbial needle in a haystack.
“In recent years, workers’ compensation saw claim frequency decline, while severity rates went up. This basically means that increased job safety has offset increased medical costs,” explained Jason Beans, CEO of Rising Medical Solutions, a national medical cost management firm. “So, whenever a client’s average cost-per-claim went up, it was almost always caused by catastrophic, outlier-type claims.”
But beginning in 2013 and extending into 2014, Beans said, things changed. “I’ve never seen anything like it in my 20-plus years in this industry.”
“Our analytics made it very clear that small pockets around the country are experiencing what could only be described as medical cost hyperinflation. The big spikes in some clients’ claim costs were driven by a broader rise in medical costs, rather than catastrophic claims or severity issues.”
– Jason Beans, CEO, Rising Medical Solutions
Data dive uncovers surprising findings
On a national level, most experts describe medical costs increasing at a moderate annual rate. But, as often is the case, sometimes a macro perspective glosses over a very different situation at a more micro level.
“Our analytics made it very clear that small pockets around the country are experiencing what could only be described as medical cost hyperinflation,” explained Beans. “The big spikes in some clients’ claim costs were driven by a broader rise in medical costs, rather than catastrophic claims or severity issues.”
This conclusion is supported by several key data patterns:
- Geographic dependency: While many payers operate at the national level, only relatively small, geographically clustered claims showed steep cost increases.
- Median cost per claim: The median cost per claim, not just the average, increased greatly within these geographic clusters.
- Hospital associated care: Some clusters saw a large increase in the rates and/or the number of services provided by hospital systems, including their broad array of affiliate locations.
- Provider rates: Other clusters saw the same hospital/non-hospital based treatment ratios as prior years, but there was a material rate increase for all provider types across the board.
- Utilization increases: Some clusters also experienced a larger number of services being performed per claim.
One of the most severe examples of hyperinflation came from a large Florida metropolitan area which experienced a combined 47 percent workers’ compensation healthcare inflation rate. Not only was there a dramatic increase in the charge per hospital bill, but utilization was also way up and there was a shift to more services being performed in a costlier hospital system setting.
“The growth of costs in this Florida market stood in stark contrast to neighboring areas where most of our clients’ claim costs were coming down or at least had flat-lined,” Beans said.
An Arizona metropolitan area, on the other hand, experienced a different root cause for their hyperinflation. Regardless of provider type, rates have significantly increased over the past year. For example, one hospital system showed dramatic increases in both charge master rates and utilization. “Even with aggressive discounting, the projected customer impact in 2014 will be an increase of $773,850 from this provider alone,” said Beans.
ACA: Unintended consequences?
So what is going on? According to Beans, a potential driver of these cost spikes could be unintended consequences of the Affordable Care Act (ACA).
First, the ACA may be a contributing factor in recent provider consolidation. While healthcare industry consolidation is not new, the ACA can prompt increased merger and acquisition efforts as hospitals seek to improve financials and healthcare delivery by forming Accountable Care Organizations (ACO). ACOs, the theory goes, can take better advantage of value-based fee arrangements in existing and new markets.
“As hospital systems grow by acquisition, more patients are being brought under hospital pricing structures – which are significantly more expensive than similar services at smaller facilities such as independent ambulatory surgery centers and doctors’ offices,” Beans said.
Unfortunately, there is little evidence that post-consolidation healthcare systems have become more efficient, only more expensive. For example, a recent PwC study reported that hospital IT infrastructure consolidation alone is projected to add 2 percent to hospital costs in 2015.
Another potential ACA consequence is group health insurers may have less incentive to keep medical costs down. An ACA provision requires that 85% of premium in the large group market must be spent on medical care and provider incentive programs, leaving 15% of premium to be allocated towards administration, sales and subsequent profits. “Fifteen percent of $5000 in medical charges is a lot less than 15% of $10,000,” said Beans. “This really limits a group health carrier’s incentive to lower medical costs.”
How do increased group health rates relate to workers’ comp? In some markets, a group health carrier may use its group health rates for their work comp network so any rate increase impacts both business types.
In the end, medical inflation is inconsistent at best, with varying levels driven by differing factors in different locations – a true “needle in the haystack” challenge.
What to do?
Managing these emerging cost threats, whether you have the capabilities internally or utilize a partner, means having the tools to pinpoint hyperinflation and make adjustments. Beans said potential solutions for payers include:
- Using data analytics: Data availability is at an all-time high. Utilizing analytical tools to spot problem areas is critical for executing cost saving strategies quickly.
- Moving services out of hospital systems: Programs that direct care away from the hospital setting can substantially reduce costs. For example, Rising’s surgical care program utilizes ambulatory service centers to provide predictable, bundled case rates to payers.
- Negotiating with providers: Working directly with providers to negotiate bill reductions and prompt payment arrangements is effective in some markets.
- Underwriting with a micro-focus: For carriers, it is vital that underwriters identify where these pockets of hyperinflation are so they can adjust rates to keep pace with inflation.
“This trend needs to be closely watched,” Beans said. “In the meantime, we will continue to use data to help payers of medical services be smarter shoppers.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Rising Medical Solutions. The editorial staff of Risk & Insurance had no role in its preparation.
A Place for Concierge Medicine in Workers’ Comp?
Everyone seems to be talking about big data, analytics and how to leverage them toward better claims performance, including medical outcomes. But does better information alone drive optimal outcomes?
Most likely, the answer is no.
Experienced claims professionals understand that the complexity and cost of managing a portfolio of medical cases preclude a simple solution. There are just too many challenges — case volume, workers’ comp regulations, the health care system, medical expenses, patient personalities, disjointed service providers, and managed care fees to name just a few.
At the individual case level, ensuring that the right doctor, treatment and care are provided at the ideal time can greatly improve the outcome. In group health, various providers and medical management firms utilize this approach under the name “concierge medicine.” For a significant fee, patients gain access to top doctors, highly attentive service, customized medical research, etc.
“Many of the industry’s technology advances to date have created ways to make us better at old, ineffective approaches. But we must start with a better approach and then pair it with technology and talent to really move the needle.”
— Anne Kirby, Chief Compliance Officer, VP Medical Review Services, Rising Medical Solutions
The effectiveness of concierge medicine is gaining widespread acceptance, but the feasibility and affordability of this model in workers’ comp has been doubtful.
That’s where data and analytics come in. “Technology is helping the industry elevate the level of care management it can provide to injured employees,” explained Anne Kirby, Chief Compliance Officer and VP of Medical Review Services at Rising Medical Solutions. “We are now able to continually monitor all cases, identify when a case is high-risk and then employ a wide variety of medical concierge style services to ensure the best possible outcome.”
What does “concierge medicine” look like in workers’ comp?
In addition to technology, patient advocacy is key to the medical concierge approach. By aligning with the injured employee and providing proactive and preventive clinical care, costs are incurred upfront and unnecessary medical, indemnity and legal costs are avoided throughout the claim lifecycle.
“Historically, there’s been a lot of friction in the work comp system that often results in employees seeking legal counsel. Doing a better job of incorporating patient advocacy into managed care makes sense. Employees know that their employer cares about them, so they don’t need to get an attorney and they get healthier and back to work in less time,” said Robert Evans, who leads Rising’s “high-touch” surgical care program.
Using concierge attributes in case management stands in stark contrast to the industry’s standard approach of retrospective, task-based efforts that try to keep service fees low but lose focus on the big picture as a result. Kirby put the contrast in perspective this way, “Concierge medicine in workers’ comp starts with a new slant on case management. In the ’90s, payers became focused on service costs and began delegating only very specific cases and micro-tasks to case managers. This can control service costs, but often the referral is happening too late in the game when cases have already become problematic.”
How technology makes concierge case management more cost effective than traditional approaches
Experts and specialists working closely to manage the most challenging medical cases ensure that the right doctor, treatment and care are utilized to help an injured worker get healthier faster and thereby save payers money. What’s not to love?
Some would say the cost. But, with appropriate data and analytic tools, a medical concierge approach can be applied only to the higher-risk cases.
“Many of the industry’s technology advances to date have created ways to make us better at old, ineffective approaches,” said Kirby. “But we must start with a better approach and then pair it with technology and talent to really move the needle.”
“Using the selective application of medical concierge services is how to drive better outcomes without incurring higher costs. By targeting the higher-risk cases, concierge service fees can be spread across an entire claim portfolio.”
— Robert Evans, National Director of Network Solutions, Rising Medical Solutions
First, employing risk “scoring” analytics at the onset of an injury can identify cases that require immediate early intervention. Scoring algorithms use risk predictors such as BMI, previous traumatic event and geographic location to tag high-risk cases that then become the focus of a medical concierge approach.
Second, continuous analytical monitoring of the low or medium-risk cases ensures alerts are in place when a case shows signs of evolving into the high-risk group. At this point, case managers can intervene with the appropriate response and resources.
“Using the selective application of medical concierge services is how to drive better outcomes without incurring higher costs. By targeting the higher-risk cases, concierge service fees can be spread across an entire claim portfolio,” said Evans.
The proof is in the outcomes
In 2013, a national workers’ compensation insurer who writes $255 million in premiums partnered with Rising to implement a range of services that leverage a medical concierge approach. The impact of the change was significant after just one year of implementation.
- 33 percent reduction in average claim duration, producing a decrease in short-term disability timeframes, an acceleration in return-to-work timeframes, and a decrease in indemnity costs
- 40 percent reduction in average medical spend per claim
- 32 percent reduction in addictive prescription fills (e.g. opioids, hypnotics, muscle relaxants)
- 56 percent reduction in total pharmacy costs
- A low service cost of less than 0.5 percent of total claim costs
Finally, there is a clear way to utilize big data and analytics to drive better outcomes in workers’ comp. Through the selective application of medical concierge type services, injured workers are getting better faster, benefiting their companies and their insurers.
This article was produced by Rising Medical Solutions and not the Risk & Insurance® editorial team.
Surgical Shopping: A New Approach Adds Predictability, Creates Better Outcomes
Historically, when someone needed surgery, they went to the hospital. There was no other option, it’s just the way it was. Fortunately, free market choice is now creeping into healthcare, and it’s becoming part of the buying decision just like with every other purchase we make in life.
“We buy a car, it’s a huge purchase. We don’t just blindly go to the first car dealership we run across and buy whatever the sales guy tells us to. We assess the choices on the market, weigh price, quality, convenience, reliability, efficiency…and compare our research with other dealerships in our vicinity,” said Robert Evans, National Director of Network Solutions at Rising Medical Solutions, a medical cost containment and care management company. “Why should purchasing a surgery be any different?”
Unfortunately, yesterday’s model for surgical care “shopping” not only limits choice for the patient, it also limits choice for the payer and provider.
From the patient point-of-view, the main questions are: Do I really need the surgery and, if so, will the procedure be a success? Payers not only want a necessary surgery to succeed but also want to know how much it will cost and if the right provider is delivering care. Providers want to know that they’ll be paid promptly and precisely how much they’ll receive.
“There are dynamic forces within healthcare delivery, but we can do things differently by moving from a retrospective piecemeal model to a prospective fully-integrated approach. The idea is to work with certain quality providers so you globally pre-negotiate an arrangement before a claim happens. That way, you boost predictability across the board: for the patient, the payer and the provider.”
– Robert Evans, National Director of Network Solutions, Rising Medical Solutions
The clear need for a better surgical care model prompted Rising Medical Solutions (Rising) to develop its Surgical Care Program (SCP). Rising’s SCP directs care to quality surgeons and ASCs in select states. By pre-negotiating the most common ambulatory surgical procedures at bundled case rates, Rising and its partners are able to achieve a predictable, fair rate for payers.
“Payers are looking for ways to control costs, reserve appropriately, expedite processes and most importantly, benefit our injured employee by connecting them with a quality provider,” said Karin Holland, Director of Workers’ Compensation, FirstGroup America.
Evans points to key data that shows how using ambulatory surgery centers (ASCs) is a more effective healthcare delivery strategy for claims requiring certain surgical procedures. For example:
- Surgeries performed in ASCs are 41 percent less expensive than hospital outpatient rates, according to an ASC Association analysis of 2009 Medicare ASC payment rates.
- One out of every 20 hospital patients will contract an infection while receiving treatment for another condition, according to the Centers for Disease Control and Prevention. Whereas, just over one out of every 1000 ASC patients contracts a post-surgical infection reports the ASC Association Outcomes Monitoring Project.
- ASC’s offer shorter wait times, easier scheduling and more convenient locations, according to a 2010 MedPAC Report to Congress, Medicare Payment Policy.
“There are dynamic forces within healthcare delivery, but we can do things differently by moving from a retrospective piecemeal model to a prospective fully-integrated approach,” Evans said. “The idea is to work with certain quality providers so you globally pre-negotiate an arrangement before a claim happens. That way, you boost predictability across the board: for the patient, the payer and the provider.”
Jeanetta Lawrence, COO of Jewett Orthopaedic Clinic, stated that specialists often experience a collection period ranging from 60 to 90 days. Lawrence spoke to the importance of adding predictability to the equation, “Predictable reimbursement for services rendered gives our practice an opportunity to budget accordingly and ultimately offer even better service to those seeking care.” Lawrence added, “Timely reimbursement lowers our overhead because we are not spending energy on seeking payments.”
“We buy a car, it’s a huge purchase. We don’t just blindly go to the first car dealership we run across and buy whatever the sales guy tells us to. We assess the choices on the market, weigh price, quality, convenience, reliability, efficiency…and compare our research with other dealerships in our vicinity,” said Robert Evans.
Apart from lower rates, better reserving accuracy and improved outcomes, the need for clinical care coordination is also addressed with Rising’s SCP. “Patients and payers need much more than a scheduling service to facilitate efficient provider selection,” Evans said. “They need clinical resources to make sure the procedure is medically necessary and an understanding that engaging an experienced, quality surgeon may result in avoiding a surgery altogether.”
Options are finally on the table in the surgical world. Just like shopping for a car, we’re looking for a hassle-free experience, without complications, at a good value. “Why would we want anything less for your most precious possession, your health,” asked Evans. It’s a rhetorical question that really begs only one answer: we, as patients and as payers, deserve the same shopping experience in healthcare as we do in every other area of our lives. It’s that simple notion of free market competition that will create optimal outcomes and satisfaction.