Show Me the Savings

Do provider networks actually reduce costs, or is it all an illusion?

By Mark Walls

Last year, Illinois passed workers' compensation legislation with the intention of reducing costs through the use of medical provider networks. Depending on where you operate, these are called PPOs, MCOs, MCNs, MPNs or approved panels. These networks usually run under one basic premise -- providers are encouraged to sign up for the networks by promises of increased volume in exchange for decreased pricing on a per-service basis.

Provider networks promote two main factors as evidence of the benefits of their model: market penetration and discounts below billed charges. However, a more detailed review may demonstrate that the use of a provider network may not translate into lower medical payments on workers' compensation claim files.

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Because provider networks rely upon volume to support discounted pricing, it is not surprising that an increased frequency of visits may eliminate the cost-per-visit savings provided by the use of a provider network. For example, assume that a provider network provides a documented savings by paying $75 per physical therapy visit instead of the $100 that you were billed. While the price per visit may decrease, there is usually nothing in place to moderate the utilization of physical therapy. Thus, if the provider schedules 14 physical therapy visits at $75 per visit, instead of the 10 physical therapy visits that would have been scheduled at $100 per visit, savings from the use of a provider network has been eliminated.

Unfortunately, fee-for-service is not the cost driver in workers' comp. If it were, fee schedules alone would control costs. Utilization must also be addressed, or you end up with increasing costs in spite of lower fees for service, which is the exact scenario that many states face right now.

There are also significant problems with the fee structure for many provider networks. Revenues are frequently based on a percentage of savings over billed. Thus, the higher the provider bills, the greater the fee for savings becomes when the bill is re-priced. Since there are no controls over what a provider bills, at times the fee for savings ends up higher than the actual payment made to the provider. Employers should insist that any percentage of savings be based only on savings below the fee schedule. In addition, they should require that the fee to the network be limited to a percentage of the fee to the provider. It makes no sense to pay more to review a bill than the amount you pay to the surgeon.

Finally, there are occasionally some unintended consequences of provider networks that can result in significant costs. In Louisiana, carriers, third-party administrators and networks have spent millions of dollars in litigation and settlement of class-action litigation that was brought by providers who alleged the discounts were improperly taken. California's MPN regulations are so complex that litigating the validity of the networks has become a favorite sport of trial attorneys. Once they invalidate the network, the potential cost savings from control of the medical is lost.

Given the challenges of the current provider network structure, some large employers in Illinois are currently working together to construct a better provider network. These employers are reviewing their claims, talking to case managers, talking to injured workers and actually meeting with the medical providers. The efforts being made by these select employers are directed at trying to build a network where outcomes are the focus, and they are willing to pay more on a fee-for-service basis to get the best medical providers involved. From experience, these larger employers understand that getting better outcomes for injured workers is the key, and cost savings will result if this is achieved.

Provider networks can work, but it takes significant effort to build one the right way. It is important to fully understand the state regulations that apply to the networks so you can avoid litigation costs that are greater than any potential savings. The focus must be on medical providers who can produce all-inclusive superior outcomes, instead of solely providing lower costs per visit.

March 22, 2012

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