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It's a classic case of catch-22. For the past decade, questionable preferred provider organization discounts have been standard operating practice in the workers' compensation marketplace. Most PPO contracts are written for multiple lines of business such as business, health, workers' compensation and auto, subjecting workers' compensation payors to costly requirements regarding identification cards, logos and contractual discount rates. If payors do not comply with the identification card requirements that identify a PPO network in which they are receiving discounts, the payor might be at risk of providers backing out on discounts. To keep costs in check, many payors have ignored these requirements, putting them at risk for fines and litigation.

Today, the workers' compensation industry faces numerous lawsuits, which allege noncompliance with steerage and/or other PPO requirements. In January, a national integrated healthcare services provider company agreed to pay $12 million and the third-party administrator paid an additional $10 million) to settle a complaint in Louisiana that accused the company of taking illegal PPO discounts from providers. (For more details on the case, see the Concentra press release here.) Similar lawsuits are being levied against payors across the country.

Also at stake are high administrative costs, due to billing errors, provider and patient complaints, and dispute resolution. Currently, about 15 cents out of every dollar billed goes to pay for administrative costs and inefficiencies. These costs increase premium costs for the workers' compensation market as a whole.

THE MEDICAL PROFESSION'S COMPLAINT

For years, providers have felt the squeeze of illegal PPO discounts. Doctors, specialists and treatment facilities have been forced to accept payments at negotiated rates without the associated contractual benefits. They've also faced soaring administrative costs, due to patient complaints, clerical errors, fraud, eligibility verification and a significant increase in collecting outstanding accounts receivables.

In response, providers have begun fighting back with class-action lawsuits. Caught in the middle are the insurers, employers and the patients. Providers will likely refuse to accept such patients and withdraw from PPO networks and related insurance programs.

To date, most payors have settled lawsuits over past misconduct. Moving forward, however, the industry (carriers, TPAs, employers, etc.) faces some difficult options, among them:

-- Issuing ID cards to all insureds.

-- Foregoing medical discounts all together.

-- Joining a national or semi-regional network and foregoing deep discounts and/or geographic coverage.

-- Risking noncompliance and the legal costs associated with this risk.

-- Exiting the market.

The problems with the first three options are costs and administrative nightmares. Few (if any) payors issue ID cards. They are expensive and cumbersome to create and administer. They can cost between $2 and $12 for each covered employee and are often updated and/or reissued several times annually. Forgone discounts are also very expensive for insurers. Many payors are currently losing 10 to 20 cents on every dollar in foregone discounts--i.e., they are either repricing to fee schedule or working with a national network that provides lower discounts than small/regional players or foregoing discounts entirely for fear of legal action.

The problem with the last two options is even more profound. Discounts taken illegally through PPO contracts can be reversed for as long as the statute of limitations allows, extending the shadow of legal action for many years to come.

NEW TECHNOLOGICAL SOLUTIONS

Fortunately, there is another option. Technology is now available that could reduce the administrative burden on payor, patients and providers alike--and put workers' compensation payor carriers in compliance with discount contractual requirements. It works like those e-tickets given out by airlines. But in the workers' comp setting, this "ticket" would be generated when an employee reported an injury. The ticket would list the participating providers and their affiliated PPO Network logo, reimbursement rates and legal discounts, preferred ancillary vendors and PBM information, and policy information.

Other advantages could include:

-- Improved communication among workers' compensation providers, payor and employees.

-- Notification to providers regarding where to submit information.

-- Reduced administrative costs associated with the current model of tracking down payor/provider coverage.

-- Notification to employees and providers regarding where to go for referrals such as preferred vendors, lab work, MRI/CT, DME and other special services.

-- Real-time identification of plan limitations and exclusions.

-- PPO compliance.

-- Updated patient/provider/payor information.

-- The elimination of the need for costly static ID cards.

No changes in behavior or process would be needed. All parties could save on administrative costs. And payors could identify and apply the deepest legal discount available. While the new technology cannot reverse past practices, it could curb future mistakes and insure future compliance, all while helping to keep administrative costs in check. It could give insurers and TPAs a new, more effective way to compete, and doctors and employers a better--and more affordable--way forward, leveling the playing field for everyone involved.

JOHN ZUBAK and HARVEY MITGANG are founders of VIIAD Systems (Virtual Interactive Identification and Direction), a healthcare information management platform, including patented Health Ticket business methodology and vNetwork, that helps payors channel plan members along the most cost-effective reimbursement path while assuring regulatory compliance.

November 1, 2007

Copyright 2007© LRP Publications