California employers now have the opportunity to control medical costs through Medical Provider Networks (MPNs), the cornerstone of California's workers' compensation reforms—SB 899. Enabling employers to maintain medical control over the life of a workers' compensation claim, MPNs offer employers a unique opportunity to contain medical costs while improving the treatment process for injured workers. The goal of an MPN is high-quality, prompt medical treatment for injuries under strict timelines, with some physician choice, and a safe and early return to work.



"An MPN is an entity or group of providers set up by an insurer or self-insured employer and approved by DWC’s administrative director to treat workers injured on the job. Each MPN must include a mix of doctors specializing in work-related injuries and doctors with expertise in general areas of medicine, and MPNs are required to meet access standards to care for common occupational injuries and work-related illnesses."
California Department of Industrial Relations press release, 11/01/04

Effective January 1, 2005, an insurer or California-qualified self-insured employer can establish an approved MPN to treat workers who are injured on the job. Without an employer-sponsored MPN, employees may begin using personal physicians 30 days after the injury is reported, and employers lose a significant cost-control mechanism.

Those employers who go the self-insured route will have the option of developing their own MPNs from the ground up. While this choice may offer maximum flexibility, the process of choosing and administrating a network can be complex and time-consuming. Furthermore, under the new rules, traditionally insured employers will have varying degrees of flexibility in the selection and design of their MPN based upon, among other things, the insurer or third-party claims administrator's contractual arrangements with an MPN.

As employers review these options, they should closely examine how preferred provider organizations (PPOs) are reacting to the new legislation. Several are already seeking to enhance their networks by screening current and future medical providers and consulting with employers. Others are waiting until after the legislation takes effect to make any substantial changes.



"The provider network is seen as a way to keep medical costs under control. While the number of claims has decreased this year over last, the average cost per claim continues to rise. In the first six months of this year, the average workers' compensation claim rose to about $52,000, a 4 percent increase from two years ago and about 150 percent higher than the average cost per claim in 1994, according to the [California's Workers' Compensation Insurance Rating Bureau’s November 12, 2004] report."
San Jose Business Journal, 11/21/04

MPN Regulations
California's recently released guidelines covering MPNs include the following:

• MPNs must include providers who specialize in treating work-related injuries; additionally, at least 25 percent of the providers in each MPN must primarily treat non-occupational injuries/conditions.
• Networks must be sufficient such that primary care is accessible to employees within 30 minutes or 15 miles from their residence or workplace and occupational health service professionals and specialists within 60 minutes or 30 miles from their residence or workplace.
• MPNs must follow all medical treatment guidelines established by the Department of Workers' Compensation.
• Employees must be notified in writing about the use of the MPN.
• Guidelines must be provided for injured workers to obtain second and third opinions from within the network when they disagree with the diagnosis or treatment offered by the treating physician. If a dispute continues after the third opinion, an independent medical review may be available to the employee.

The application for an MPN further requires description of ancillary services and identification of geographic service areas to be covered, as well as inclusion of a written continuity-of-care policy and a written transfer-of-care plan. The administrative director is required to approve or disapprove a complete application within 60 days of receipt.

Physician Pre-designation
Employees have the option to pre-designate a physician outside of the employer-sponsored MPN. If an employee has notified the employer in writing prior to the date of injury, he or she can be treated by the pre-designated physician in the case of an on-the-job injury.

Proactive employers should view the requirement to advise employees of their right to pre-designate a treating physician as an opportunity to formalize and streamline the pre-designation process and to provide employees with information about the MPN offered.

Employers should develop clear processes to educate both new hires and current employees about the benefits of the company's MPN and give employees the opportunity to pre-designate treating physicians. Upon receipt of written pre-designation notice from an employee, the employer should confirm immediately if the pre-designation meets the new requirements of the reform—not wait until an incident occurs. In addition, employers should re-verify existing pre-designations to ensure that the pre-designation meets the new requirements. Once an incident occurs, the claims administrator should re-verify the validity of the pre-designation.

Employee Notification
MPN regulations require stringent employee notification procedures at different periods of time. Failure to properly notify employees of the MPN process may result in loss of medical control. Thus, it is critical for employers to have employee notification processes in place that fit with the organization's structure. Employers should be aware that their insurers may include employee notification plans unbeknownst to them. Because employers will be responsible for part of the notification process, they must be aware of the written plan in the application and of their responsibilities in this process.



"While capitation can produce cost benefits for purchasers, many observers say a bigger benefit of the new law is the ability of employers and insurers to direct employees to the best-quality providers. That will help injured employees recover and return to work sooner."
Business Insurance, 5/10/04

Transfer-of-Care Plan
Employers are afforded the option of transferring some of their existing claims into the MPN. While the opportunity to gain or regain medical control of some of the more expensive older cases is a huge bonus, employers can expect this area to be the target for litigation by applicant attorneys. Thus, knowing the regulations surrounding transfer-of-care and developing a fair transfer-of-care plan is critical. The employer and the TPA/MPN/insurer should determine the appropriate transfer-of-care plan for existing claims.

The employer with the TPA, MPN vendor, and/or insurer should work together to determine the appropriate transfer-of-care plan for existing claims, keeping the following guidelines in mind:

• Transfer-of-care plans for open claims are optional and are at the employer's/insurer's discretion.
• Exclusions to transfer-of-care include claims that involve acute conditions, serious chronic conditions, cases involving surgery, or procedures authorized and recommended by the provider and scheduled within 180 days of the effective date of the MPN.
• The employer should develop a method for reviewing claims and identifying those that can be transferred into the MPN and document the processes and procedures for migrating those claims into the MPN.
• Employees must be notified if medical care must now be provided under the employer's MPN.

Medical Provider Network Criteria
While not all employers will have the option of selecting an MPN, all employers can measure the outcomes achieved by the MPN and set expectations for services, communication, and results. Outcomes will distinguish one provider network from another. Rules for benchmarking medical provider outcomes data as well as refining provider networks will be key factors in the reform's success.

When evaluating a prospective or existing MPN, employers should ensure that the network administrator has the infrastructure and the ability to measure cost outcomes and benchmark providers based on costs by diagnostic groupings as well as duration of lost-time days and modified-duty days. Ideally, MPN administrators should be able to track diagnostic codes as applied to each physician in order to continually monitor both injury severity and the potential to return injured employees back to work.

It is also critical that employers pay close attention to MPN services beyond individual medical providers to maximize potential cost savings. If a service is not included within the MPN, employees will have to go outside the network to receive appropriate care. For example, if hospitals, pharmacies, outpatient services, and dentists are all included in the network, employees should not need to seek treatment outside the MPN, thereby giving the employer more control over medical costs.

MPN administrators should engage network physicians in ongoing training and performance management. Employers should expect performance criteria from their MPNs, including provider benchmarking, as well as compliance with new evidence-based guidelines. Employers with operations in California considering establishing an MPN should ask themselves the following questions:

• Should we keep our current health care organization that only provides medical control for a maximum of 365 days, or should we implement an MPN?
• Will we have any input into the selection of an MPN by our insurer/TPA? Will we have any further input into the makeup of the MPN?
• Does the MPN offered screen providers selected into the network? Will they measure and benchmark providers on an ongoing basis?
• Do we want our MPN application filed as soon as possible to have a network in place on or near January 1, 2005, or do we want to carefully select an MPN regardless of timing so that we don’t have to re-file within in a matter of months?
• Does the network include hospitals, pharmacies, outpatient services, and dentists, ensuring that our employees will not be forced to go out of the network for medical treatment?
• Do we plan to transfer existing claims into the MPN and do we have a procedure in place to do so?
• Do we have MPN employee notification and pre-designation procedures for all employees and new hires?

Employers must take action if they are going to realize the full cost-savings potential of California's landmark reforms. They must not only select an MPN, but also establish an effective employee notification process, develop metrics that can help them monitor MPN outcomes and claims cost reductions, identify cases that could be transferred into the MPN, and continually track MPN results. Marsh's Workforce Strategies consultants have the expertise and knowledge to help employers build their own networks, rate and select the right network partners to maximize this significant cost-savings potential, and measure MPN and claims outcomes.

If you have any questions or would like additional information, please contact us.