The Need to Think

The Need to Think | Risk & Insurance Beware the 8-4-3 agony index! The index is a thermometer for workers' comp medical costs. Inflation extends into past and future as far as the eye can see.

By Peter Rousmaniere

Medical costs inexorably rise in the 5 percent to 11 percent range annually, above general healthcare inflation and above the Consumer Price Index.

For this decade medical costs have risen annually on average in workers' comp by 8 percent; general medical inflation has been about 4 percent and consumer price inflation less than 3 percent.

CWCI: Medical provider networks effective, but reforms raise questions (04/08/13)
Interdisciplinary pain management and prevention offer positive results (04/18/13)
CWCI: 'Nebulous category' of claims eats up large share of costs (05/06/13)
Early identification works best (04/18/13)
More 9/11 cancer survivors eligible for benefits (05/28/13)

Not that insurers are sitting on their hands. They extract discounts from medical care providers even without reciprocating by steering patients. (How so? Here's a hint. Most doctors are poor fee negotiators. But they sure know how to increase utilization.) Insurers go eyeball to eyeball with aggressive hospital billers and much effort is taken to control overuse of physical therapy and the dispensing of brand name and generic drugs.

Never before have insurers and TPAs been so well resourced to explain why they spend $25 billion a year for medical care.

They are better resourced today because treatment guidelines and provider network reforms have been around long enough to assess their performance. Also, claims databases are much better in quality than in the past.

Employer choice networks and treatment guidelines may have helped to improve quality of care and contain costs. But we don't really know, so before asking for more state regulation, insurers and employers need to show they are using tools already available to them.

It's vexing to admit that vendor and insurer press releases, and not objective analysis, often dominate industry views on the supposed success of these measures. All the while, costs storm higher, thanks in part to the perverse incentives that persist to overtreat patients.

Two industry-funded think tanks publish thoughtful studies on medical care. They are the Workers' Compensation Research Institute in Cambridge, Mass., and the California Workers' Compensation Institute in Oakland. But their funding today is not enough to completely illuminate, much less bend the drivers behind the 8-4-3 agony index.

Insurers and TPAs must also fund quality research. And I mean a big step--millions more going to the WCRI and CWCI. State governments will contribute nothing. Employers will give little.

So, why the inflation? And the bigger framing question: for the added dollars spent, are workers recovering better? If not better, what's the point of managed care? Does compliance with treatment guidelines result in better medical and vocational outcomes?

When nonmedical issues of disability are handled correctly, such as return to work, do medical costs sharply decline, as some have suggested?

What about the design of medical fee schedules? Joe Paduda, a health care consultant and blogger has been attacking the use of Medicare fee schedules as an unsuitable basis for workers' comp schedules.

Somewhere in this mix is the National Council on Compensation Insurance. The NCCI has the ear of insurers and it's about to receive more detailed medical claims data. Its in-house capacity to study medical care is limited and would take years to develop to the scale of the WCRI and CWCI. Shouldn't the NCCI be funding these research teams?

PETER ROUSMANIERE is an expert on the workers' compensation industry.

January 1, 2009

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