A consensus forged in the 1990s about how to manage medical costs in workers' compensation is crumbling, with notable and lasting impact on managed care, according to senior executives of managed-care firms and vendor financial reports. The competitive landscape is changing.
Case management, the premier service line in workers' compensation a decade ago, is way off its peak. Volume referrals of up to $3,000 per claim are no longer assured. The major vendors have been reporting flat or declining revenues from this line for several years. No one predicts a significant reversal of this trend.
The business of discounting medical provider fees, an old workhorse of managed-care vendors, has also been altered by lower state fee schedules. It is harder to negotiate discounts below these schedules, resulting in lower profit margins for vendors.
Partly in response, managed-care firms have pitched into pharmacy cost management, formerly the exclusive province of specialty firms. Drugs have grown from a negligible item to over one-tenth of medical costs. Vendor margins from drug discounting are particularly high. Just this summer, one of the leading provider network firms, a division of Aetna, introduced a drug management service.
Services that are growing in demand include better access to clinical quality, more extensive use of analytics and the execution of medical transactions online.
An easy-to-apply indicator of changes in the managed-care marketplace is the attitude of a buyer about occupational medicine providers. Consider Frito-Lay's directive to its operating units.
Each facility is required, in the words of the company, "to cultivate a relationship with at least one occupational medicine provider to whom all injured employees shall be referred to treatment. The provider must be willing to visit the Frito-Lay facility annually to familiarize themselves with our work environment, safety practices, the physical requirement of our jobs, the availability of transitional duty assignments, and our communication expectation between the medical provider, Frito-Lay and Sedgwick CMS (its third-party administrator)."
Frito-Lay has embraced an access-to-quality strategy. The strategy, in concept, has been around for years, but provider network managers, TPAs and insurers have largely downplayed it. This is true no longer. Those interviewed for this article frequently attributed the uptick in interest in access to quality to the failure of price discount networks to contain soaring medical costs.
AIM Mutual, a Mass.-based workers' compensation insurer, has been building a medical provider network based primarily on access to high-quality doctors. In concert with a relatively young managed-care vendor, Best Doctors, AIM has arrangements with 55 occupational medicine clinics covering the state, and access to dozens of specialist physicians chosen mainly on their reputation with the medical community.
Then there's the example of Dionne LeBeau, who coordinates the workers' comp program for Wild Oats, a Boulder, Colo.,-based grocery chain with stores throughout the country. Despite three major insurers servicing the company's claims over the past few years, no carrier has ever sent her a performance report on the medical provider networks to which Wild Oats sends injured workers. As a result, LeBeau has had to keep tabs on more than 100 occupational medicine clinics and largely manages the search and evaluation of these clinics herself.
Even Aetna, the group health insurer with a large discount workers' comp provider network, is making aggressive and advanced use of analytics in profiling medical providers to get a sense which ones provide the highest quality care. The carrier is making use of its medical claims database to construct profiles of doctors, allowing it to compare surgeons by their rates of readmission and how many ancillary services they order, according to Pat Scullion, president, and Shawn Fisher, chief strategist, of Aetna.
LAWMAKERS STEP IN
Lawmakers have also played a part in forcing the managed-care industry to offer better access to quality. In Texas, a law effective this year authorizes employer choice of medical providers if the insurer implemented a Health Care Network, or HCN, which must include an adequate number of doctors and hospitals who comply with "evidence-based medicine," and show a commitment to return-to-work.
In California, state-approved Medical Provider Networks need to have an adequate mix of doctors who follow medical treatment guidelines set by the state and specialize in work-related injuries and in specialized areas of medicine. MPNs are required to meet access-to-care standards for common occupational injuries and work-related illnesses. Further, the regulations require MPNs to allow employees a choice of network providers after a first visit.
Peter Madeja, CEO of Genex, a vendor to health insurers, said the new provider-network laws of Texas and California were a big step to making quality more accessible by improving doctor selection. West Virgina has also passed a law requiring networks to demonstrate better access to quality.
"Indifference (to quality) or intent on the part of the carrier to prop up the existing discounted fee-for-service network model would represent a stumbling block to the move to selected 'quality' medical providers," said Lief Goodson, CEO of Lakeland, Fla.-based Bunch Associates, which profiles network performance. He believes that insurers are more fearful of regulator intervention than hungry to achieve claims-cost reductions.
The California Worker Compensation Institute, with its massive database of in-state claims statistics, and the Workers Compensation Research Institute have been studying medical provider networks more intensively than in the past. The CWCI found that some networks, and even some individual doctors, perform better than others.
Vendors also appear to be investing heavily in analytics.
The decline in case management is real, said Fred Scardalette, vice president with Cigna subsidiary Intracorp, which authored some of the earliest studies of managed-care effectiveness. He said the drop was caused, in part, by the claims adjusters being more selective in their demand for services. The best health utilization figures are from medical provider networks selected on the basis of quality, he said.
Concentra, the largest management care firm at $1.3 billion in annual revenues, has been shifting its business model away from case management. Its care-management division grossed $202 million in 2005 versus $263 million in 2002. The decline is due to the steady reduction in work injuries nationwide, said Concentra CEO Dan Thomas.
Workers' comp-related revenues for First Health, the largest discount provider network in workers' comp, have remained fairly flat in the past few years, at about $200 million a year. First Health was purchased in 2005 by Coventry Health for $1.7 billion.
Corvel CEO Gordon Clemons also said he's seen a reduction in case management revenues. But he said the decline was due to underlying injury rates and a reluctance of workers in soft employment markets to file claims. Corvel, which has invested heavily in computer tools, has developed technology that visually maps every encounter of an injured worker with the medical system. That allows for instant analysis of pattern of care.
Genex, which is owned by UnumProvident, is playing a more important role in managing the parent's disability products, and CEO Madeja "clearly sees" more demand for analytics.
Medrisk, relatively new to the national managed-care scene, may be better aligned to a business model of provider quality than others due to a heavy investment in analytics and connectivity. The firm invested early in online connectivity among providers, according to Shelly Boyce, founder and CEO, who feels the firm built a strong base in analyzing performance of providers.
The company now uses a managed care "integration model," a connectivity portal for a claims adjuster to order any kind of service, from medical-provider documentation to a subrogation assignment, said Boyce.
PETER ROUSMANIERE is a Vermont-based writer and columnist for
Risk & Insurance®.
October 15, 2006
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