Is Durable Medical Equipment the Next Focus of Cost Containment?
A highly fragmented and, perhaps, vastly misunderstood area of workers' comp, DME and home health care comprise anywhere from 8 percent to 11 percent of a company's medical spend. That can amount to millions of dollars, depending on the size and risk type of the company.
The problem. The focus in workers' comp cost containment has just begun to turn to DME, a fact that is not surprising given the other expenditures in the mix.
"If you look at total spend, say $31 billion of medical spend, people have logically attacked the largest buckets and easiest to get their arms around," said Joseph P. Delaney, MSC's president and CEO. "They'd say, 'Why spend time on DME when I still don't have a pharmacy program?'"
As Delaney explains, companies that focused on PPO models, hospital bills, and pharmacy expenses in the 1990s and early 2000s, now have those programs under control. "Some of those other categories are more mature. These companies have realized the importance of strong ancillary management programs and are beginning to shift their view on the best way to manage spend by optimizing program penetration, thus maximizing savings and having more tightly controlled utilization management programs in place with a preferred partner."
With upwards of 40,000 products and services in DME, keeping tabs on the expenses has been nearly impossible and finding and credentialing highly qualified home health providers in today's market can be challenging. "Many payers are unclear what their total overall spend on an annual basis really is," said Linda D. Lane, MSC's senior vice president of marketing and strategic accounts. "Most subscribe to the philosophy that allowing their adjusters and nurse case managers to negotiate each deal individually will deliver an appropriate level of cost savings when in fact the result is DME and home health care have gone largely unmanaged."
"You'll have nurses who negotiate single transactions," Lane said. "They've negotiated a great price for that one product or service, as opposed to leveraging the buying power that a payer's total spend represents."
Leveraging the buying power is a critical first step to reduce DME and home health care costs, MSC officials say.
"The fragmentation of the business and the fragmentation of decision-making, plus not knowing the data completely eliminates the power of leveraging," added Martin R. Ovens, MSC vice president. "That's the essence of what we do; we're leveraging this very fragmented business model into one seamless solution to a payer, whether they operate in one state or 50 states, to achieve savings that no one single insurance company could negotiate."
The solution: the power of leveraging.
By strategically managing the overall utilization of DME and home health care, MSC officials say some companies have seen significant reductions in this area of their medical spend. Delaney says the focus is threefold:
- The first is "the classic discounts people think about," Delaney said. "You've got to have a national, deep network that can facilitate cost savings. That's the simple, 'How much am I getting in my network?'"Delaney said they've seen companies go from 25 percent to 75 percent of network penetration, resulting in a point-and-a-half savings off medical spend.
- Clearly defined utilization management rules can then be applied -- key to curbing what Delaney calls the abuse and waste in the system. "Who's watching to see how long that equipment has been rented, if there is a more cost-effective alternative that can be purchased, or a generic substitution that provides a better long-term price point?" he said.
- Optimizing administrative efficiency. The administrative costs of a poorly managed ancillary program can be prohibitive. "It might be 11 percent of overall medical spend, but what are you truly spending on DME and home health care," Delaney said. "Our estimation is a lot more than the percent would indicate."
The administrative burdens of managing DME and home health care can substantially increase overall costs. "Investing in technology to bring desk-level efficiencies to our customer has also been a significant component in their long-term solution," Delaney said. "Streamlining the overall referral process and introducing real-time messaging and communication tools, such as MSC CareConnect, has allowed our customers to work smarter, not harder."
Timing is also of the essence in reducing costs and getting appropriate DME and home health care needs for injured workers. Discussions of these needs typically happen just as a patient is being discharged from a hospital or rehab facility.
"What that often does is put us in rush scenarios," Lane said. "At a time when qualified home health nursing is at a premium, that window of time to prepare is very small -- often a week."
Lane said discussions of DME and home health care needs should begin at the start. "We want to be involved immediately, postinjury, while they are in the hospital," she said. "You don't need to have a clear discharge date or plan of care fully defined, but you need to have your team on point and begin to dialogue."
MSC officials say that by leveraging the costs and issues associated with DME and home health, companies can ensure that injured workers get the best treatment and costs are kept in check. "We see tremendous opportunity to create value," Delaney said. "Now it's a matter of getting people to see the value."
Read more at the WorkersComp Forum homepage.
June 27, 2011
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