HMOs struggle in workers’ compensation market
Workers’ comp/disability management
HMOs struggle in workers’ compensation market
Study: Only large HMOs willing to keep trying
Health maintenance organizations have been credited with offering lower health plan costs than competing forms of insurance. But a newly released national study finds HMOs don’t score as well when it comes to workers’ compensation as they do in group health.
There are solid reasons HMOs continue to enter the workers’ comp market, according to the "Report on the Fourth Annual Milliman & Robertson Survey: HMO Managed Care Workers’ Compensation Strategies and Products." Those include:
• 71% report offering workers’ comp to increase revenues.
• 79% report offering workers’ comp to retain employer clients.
• 29% report offering workers’ comp to attract more group health clients.
• 43% report offering workers’ comp to increase penetration in their managed care market.
But due to the unique challenges of managing workers’ comp claims, the reality of managed care experience hasn’t lived up to the promise of higher revenues for many HMOs. "One thing that stood out in this year’s survey was that only the larger HMOs, those with more than 150,000 members, are remaining in the workers’ comp arena," says Patrick A. Gallagher, PhD, a senior consultant in Milliman & Robertson’s Philade lphia office and a co-author of the report. "In addition, we found that risk bearing has all but gone by the wayside. HMOs are service pro viders for workers’ comp, not risk bearers."
"HMOs are certainly positioned to provide medical management of occupational injuries, but HMOs have found that the workers’ comp system itself is not easy to understand," notes William A. Granahan, CIC, LIA, CMC, manager of risk management practice for Milliman & Robertson’s Boston office and a co-author of the report. "Early on HMOs said, We can do this.’ As they moved forward into workers’ comp, they found out that treating workplace injury required more than getting employees healed. More than 60% of a workers’ comp claim doesn’t involve medical cost, but rather duration of claims and cost of disability. HMOs have struggled to understand that side of the workers’ comp business."
Survey says . . .
This is the fourth year Milliman & Robertson has reported on HMO activity in workers’ comp. "HMOs originally talked a great deal about capitating workers’ comp. But they soon realized you may have 50 times greater exposure for Company A than Company B," Gallagher explains. "You don’t have that problem with group health. Occupation doesn’t impact medical costs in group health like it does in workers’ comp." Similarly, HMOs seem to be struggling to track their costs and outcomes. "That doesn’t surprise us," he says. "Return-to-work outcomes and tracking of patients are reported as key objectives by HMOs with active workers’ comp plans, yet only 9% of HMOs provided data on the average duration of lost time cases. In fact, a key measure is the return-to-work effectiveness of the workers’ compensation/occupational injury services and this appears to be an overlooked area of data tracking."
Milliman & Robertson distributed the survey to HMOs nationwide last March. The survey was sent to HMOs with group health enrollments of 20,000 or more members. Responding HMOs, including those active and inactive in workers’ compensation, represented more than 17 million commercial members, or roughly 26% of all active HMO enrollment for group health benefits in the United States.
Improvements cited
Here are the key findings of the study:
• 63% of responding HMOs are "active in offering or planning workers’ comp networks or services. This figure compares to 70% in last year’s survey and 74% the year before, making it the second straight year participation has declined.
• HMOs report an incident rate of 9% for annual occupational injuries and illnesses. This is comparable but slightly higher than the 8% national average reported by the U.S. Department of Labor.
• 50% of HMOs report a desire to create a stronger integration of the core group health business with workers’ comp.
• Average reimbursement by the HMOs was $33.50 per employee per year of 3% of the premium.
• HMOs continue to steer clear of capitation as the preferred form of reimbursement for workers’ comp plans; 8% report using case rates, but the dominant reimbursement mechanism remains fee-for-service of state fee schedules. Only 4% report being paid based on employer savings.
• Roughly 65% of HMOs offering workers’ comp have created alliances with external vendors to support their programs; 18% report partnering with case management companies; 40% report partnering with workers’ comp insurers; and 33% use the services of external third-party administrators.
"HMOs have tried to medically manage workers’ comp claims via 800-numbers, and that hasn’t worked, so they’re joining forces with local service providers such as case management companies," notes Granahan. "Most HMOs in workers’ comp now are simply providing a provider network for injured workers to go see and, perhaps, some nurse case management."
In California, legislation allows employers to partner with licensed Health Care Organizations (HCOs) to reduce workers’ comp costs. "HCOs provide a limited network of physicians with demonstrated expertise in treating occupational injuries and illnesses and extensive concurrent medical review of all workers’ comp cases," says Donald Balzano, president of Priority CompNet, an HCO in Torrance, CA.
HCOs also incorporate aggressive return-to-work programs and maintain quality assurance programs that all network physicians must follow, he says. By using appropriate providers and requiring them to follow strict guidelines, Priority CompNet recently reported a 45% reduction in workers’ comp claims for a health system client with 4,300 employees, he says, adding that figure was calculated by comparing total cost per average closed claim in the 12-month period between 1995 and 1996 to the average total cost per closed claim in the 12-month period from 1996 to 1997.
Build a better system
Most HMOs in the Milliman & Robertson survey have a preferred provider organization (PPO) model of operation. The number of PPO-model organizations peaked at 81% in the 1995 survey and now holds at 32%, running second only to occupational medicine networks with 36% as the preferred managed care operational model in the fourth annual survey.
"We contract with a limited number of providers around our client’s employment site that know how to treat work-related injuries and illnesses. They also have to know how to write the necessary reports to determine things like future medical needs and temporary or permanent disability," Balzano says. "If patients aren’t directed to the appropriate physician at the time of injury, costs go up."
"Most HMOs bring their entire group health provider network along when they first offer a workers’ comp product," Gallagher says. "They have pediatricians listed on their workers’ comp network. It takes time and trouble to ferret out which providers really have an interest and expertise in workers’ comp."
Before HMOs consider entering the workers’ comp market, they must have better tools for tracking savings. "The market is getting tougher, and HMOs considering offering a workers’ comp product must have a better handle on complete costs, including indirect costs such as lost productivity, not just the medical piece," explains Christine L. Morgan, a consultant with Milliman & Robertson’s Philadelphia office and a co-author of the report.
"We’ve seen a certain maturation of the managed workers’ comp market over the past four years of the survey," Gallagher explains. "Those HMOs who have stuck with it have paid a heavy price just learning how to do workers’ comp. I think they will continue to be players, but they will remain service providers rather than risk bearers. And they will have to provide excellent service to survive."
Subscribe Now for Access
You have reached your article limit for the month. We hope you found our articles both enjoyable and insightful. For information on new subscriptions, product trials, alternative billing arrangements or group and site discounts please call 800-688-2421. We look forward to having you as a long-term member of the Relias Media community.