London Market Monitor – 31 May 2022
Our May review of the markets and Solvency II discount rates.
Workers’ comp (WC) payers have been chasing medical cost reduction in workers’ compensation for decades. And while traditional mitigation tactics have provided some relief, medical costs continue to rise. Workers’ compensation medical benefits account for more than 50% of workers’ comp benefits, growing significantly since the early 1980s when they represented approximately 40% of total benefits, according to the National Council on Compensation Insurance (NCCI).1 Increases in medical costs have clearly outpaced most other workers’ comp costs. Data is the key to understanding why medical costs are so high in workers’ compensation. For similar conditions, workers’ comp payers spend 60% to 100% more on average than group health payers.2
Payers often over-rely on medical bill review and fee schedules to control the cost of medical care. While many, but not all, states have fee schedules, fee schedules represent a maximum and not the market rate for a particular service. Further, not all services are covered by the fee schedule and are charged at “reasonable and customary” rates. Payers can negotiate rates on individual services, but often only for very high-cost services or obvious outliers. And in states where care can be directed, payers must often wrestle with opaque workers’ comp data when building their provider networks.
For utilization, the responsibility is on the adjuster and/or nurse case manager to manage the quantity and mix of services. Some states have treatment guidelines to provide guidance.
Even though controlling medical is the most critical task in containing the overall cost of a workers’ comp claim, payers have lacked access to broader healthcare data to help them understand and manage their medical costs. For the most part, they fail to adequately mitigate wasteful medical spend. Lacking the tools to identify instances of overspend on everyday bills, claims adjusters are often relegated to merely approving treatment and authorizing payments. For years, payers have been locked into procedures and processes that provide little visibility into their medical spend.
Over the past five years, claims triage models have become more readily available in workers’ comp. Advanced analytics and machine learning can now effectively predict future claims outcomes—identifying potentially high-risk claims for intervention and low-cost claims for automation.
The most advanced models, which use artificial intelligence (AI) to analyze structured and unstructured claims data, have gone a long way toward improving the claims triage process and reducing claims costs.3 The next advancement is to extend this technology to provide medical benchmarking for those high-cost claims identified by the claims triage model.
Group health has long been better managed than workers’ compensation, allowing for better episode resolution at a significantly lower cost (even then, group health has room to improve). But a newly developed medical benchmarking platform allows carriers to identify medical overspend or overutilization. The platform compares workers’ comp medical costs to group health data representing approximately one-third of working age adults in the United States. (See the sidebar below, “Medical benchmarking: Turning data into a solution.”)
Using group health benchmarks, workers’ comp payers can:
From first report of injury through claim closure, an individual adjuster can use group health episode data to determine typical treatment patterns and costs given a diagnosis before and after surgery. For example, given a rotator cuff tear, how many injections typically occur? If surgery were to occur, what is the cost of surgery?
On a tactical level, claims adjusters can benchmark medical costs throughout the life of a claim with a point of reference for:
The increase in transparency brings greater insight to the claims process, where claims departments are now able to take proactive, data-driven measures to control costs, bring awareness to the course of treatment, and improve outcomes.
On a strategic level, group health medical benchmarks provide increased visibility into provider performance in workers’ comp. Rather than using workers’ comp data to evaluate provider performance, we can use group health data. A benchmark based solely on workers’ comp data lacks credibility, as most payers don’t have adequate claims volumes to appropriately benchmark across geographies. Further, workers’ comp is already providing treatment at wasteful levels, therefore using it as a benchmark is flawed, whereas group health is better managed than workers’ comp, thus making it a better target for provider performance. The increase in transparency to group health gives workers’ comp payers much greater leverage to build more effective provider networks, create tiers within networks, and negotiate provider contracts. In states where care can be directed, workers’ comp payers can align their networks with the most effective providers and avoid less effective providers thanks to data and a consistent framework. And even in states where directed care is prohibited, a greater awareness of less effective providers can alert claims adjusters to the need for greater management of claims that rely on these less effective providers.
Medical benchmarks also have strategic value in allowing workers’ comp payers to better understand their costs over time. Is the gap between group health and workers’ comp medical spend wider or narrower on certain injuries or in some regions? What are the implications for managing claims? How are providers performing over time? Is utilization or unit cost driving costs? Is the overall gap between workers’ comp and group health costs narrowing over time?
Medical benchmarks developed using group health experience can help workers’ comp payers develop workable value-based arrangements with providers. With access to a consistent set of benchmarks developed across a large insured population, workers’ comp payers can better understand efficiencies and set predetermined prices.
When combined with a workers’ comp claims triage platform, medical benchmarks can have a powerful impact on claims, especially in the most challenging situations when less effective providers might be used on claims whose costs have the potential to explode.
In the not-too-distant future, reducing medical costs is likely to gain a greater urgency. Inflation is now surging and remains at the highest level in several decades. This upswing compounds the already challenging situation of managing the prolonged high levels of medical inflation. For workers’ comp payers to compete and indeed prosper in the coming years, they will need to have access to innovative mitigation tools like medical benchmarks that promote informed discussions and decision-making. The time to prepare for the future is now.
1 NCCI (May 14, 2019). 2019 State of the Line Guide. Retrieved June 9, 2022, from https://www.ncci.com/SecureDocuments/SOLGuide2019.html.
2 Statistics were pulled from Milliman Nodal Medical Benchmarking. For more information about Milliman Nodal, see https://nodal.milliman.com/en/.
3 It should be noted that it is expected that workers’ comp costs would be higher than group health to some degree, as group health has controls such as coverage considerations, copays, deductibles, and limits.