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As Dave Huth concluded last month in Part 1 of our look at workers' comp preferred provider organizations, "in order to avoid "extinction" and to return to a point where PPOs deliver true value to both providers and payers, they must evolve to smaller, more focused, quality-based networks that are built on a provider's ability to deliver claims outcomes rather than just their willingness to shave $15 off an office visit."

Hopefully, the process of "natural selection," whereby helpful traits (those that increase the chance of survival) become more common in a population and harmful traits become rarer, is underway in the workers' compensation industry.

So what shape will the evolution of the workers' compensation medical provider community take?

-- Select Medical Provider Organizations (SMPO), initially layered on top of the broad based "net-like" PPO network, will be the predominant provider configuration. The SMPOs will be small, focused networks of medical providers generally chosen for their occupational health experience and outstanding medical and return-to-work outcomes.

In this evolution, widespread use of integrated medical and claims data will allow us to measure our SMPO outcomes. Our goals will include overall loss-cost reduction (due to shorter treatment and disability durations) and, yes, network penetration--but only focused on the providers with whom we have a partnership relationship.

Once we prove that these select medical providers will deliver cost-effective, evidence-based medical care while keeping injured employees at work, transactional "discounts" will seem unnecessary and counterproductive (just like a human appendix).

In fact, one might argue that these "best" physicians should be paid above fee schedule if their performance warrants it.

Utilization review will become unnecessary when an injured worker is treated within our SMPO, and the case managers' roles will evolve to return-to-work support.

We know several payers who have already embarked on this evolutionary journey, and it will be interesting to watch and measure.

-- Cost-based repricing of facility bills will become the norm. Because our SMPO physicians will have privileges in specific hospitals, direction of care into a specific discounted facility will become less frequent and unnecessary.

We will, however, still want to be assured of cost-effective care in every facility. The specialty bill review and repricing services that we have traditionally used for out-of-network bills will be utilized in the future for all hospital bills because they are designed to reprice and negotiate with facilities based on cost rather than percentage of charges and their savings are generally two to three times better than the traditional PPO discount.

A few companies come immediately to mind because they have been in the bill-review market for some time: Fairpay Solutions, Viant, and Qmedtrix. But there is a new and interesting market entrant worth our notice: NCN.

NCN has been repricing out-of-network bills in the group-health space for many years but has recently entered the workers' comp market with a facility-repricing product that is completely transparent. It gives payers, providers and patients access to the exact same methodology and reimbursement information. NCN builds a benchmark using a provider's cost-based data as a starting point, while controlling for regional variances, specialty care and severity, and it allows a margin above the benchmark cost to ensure fairness for providers.

As we evolve away from PPOs and toward outcome-oriented partnerships with providers, we will adapt to fair and transparent cost-based reimbursements for facilities as well.

-- We will trust that our medical-provider partners will utilize the "right" specialty services at the "right" time, for the "right" duration and the "right" price. Our data analytics will have provided us with knowledge regarding the prescribing habits of our partners, and we will only have to watch the non-SMPO pharmacy costs and utilization.

Like our PPO, our specialty networks (physical therapy, chiropractics, radiology, pharmacy benefit managers) will evolve into the broad nets that catch those injured workers who do not end up in our select provider organizations.

-- The administrative costs layered over the industry's stakeholders as we play watchdog over the medical providers will gradually decrease through the combination of these successive evolutionary changes.

We will not pay to get a discount as discounts will be unnecessary; we will not pay to manage the physician's treatment plan or his specialty referrals because we will be dealing with experienced, outcome-oriented providers.

You may laugh, as this new world seems far-fetched and unreachable. But those of you from my generation will remember the TV show "The Jetsons," which we thought was funny but extremely unbelievable. Watch this video from MIT and see how close we have come to the Jetsons, and maybe you will believe that our industry can also evolve!

MADDY BOWLING is a principal of Maddy Bowling Consulting Inc.

Read more at the WORKERSCOMP Forum^TM homepage.

July 9, 2009

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