In fact, managed care costs and medical expenses represented more than 50 percent of workers' compensation losses in 2002, according to the National Council on Compensation Insurance (NCCI).

While the number of on-the-job accidents is declining, medical utilization—which directly influences disability duration—is on the rise. Managed care fees, associated with controlling utilization and price, can potentially represent more than 10 percent of incurred claims costs. The most effective way an organization can control workers' compensation costs is to choose the right vendor, regularly review results, monitor performance, and make modifications as needed.



"Medical costs once constituted 30 percent of the total workers' comp claims expenses; today, however, they represent 50 to 60 percent of claims costs."
Insurance Journal, 3/22/04

Employers should take a holistic approach to managed care, examining both applied techniques and the managed care provider. Applied techniques include services such as bill reviews, utilization reviews, and case management. Resources available to employers through their managed care provider include provider networks, pharmacy networks, and durable medical goods networks.

Employers cannot overlay a vendor program to manage their specific losses and expect to immediately save money. Programs should be designed so that they can be serviced by the vendor for the greatest cost savings with measurable results. When evaluating a managed care program, employers should ask the following questions:

• Have we performed an outcome-based analysis of our current medical management program to evaluate our results? If not, do we have the right expertise and information to conduct such an analysis?
• Do our vendors have the right resources, processes, and procedures in place for our particular loss history?
• Are nurse case managers actively involved when appropriate? Is the adjuster actively managing the claim?
• Is every aspect of the program focused on early return to work?
• Have our expectations been communicated to the treating physicians in our network?

"The Workers' Compensation Research Institute estimates that [managed care] networks reduce costs 16 percent to 46 percent if all treatment is provided by network members."
San Antonio Express, 12/04/04

Choosing a Network
Managed care networks are a popular choice among employers and often play a significant role in controlling costs. Laws governing who may select the medical provider vary from state to state. Some states allow employees unlimited choice, but most allow employers some control over the selection of a managed care network or panel of physicians, or allow an initial choice of doctor for a specific time period.

Selecting a managed care network that best fits an organization's needs is not a simple task. Price needs to be considered in light of the outcomes. Employers should determine whether the network's processes and procedures are appropriate for the company's needs as determined by loss histories. The network's doctors and clinics must be easily accessible to employees. Network resources should also include pharmacies and durable goods providers; both play a role in ensuring quality care and mitigating costs.

The most reliable measurements for quality of care within a network are employee outcomes. A "best-in-class" managed care network provides injured employees with timely, appropriate medical care with the goal of transitioning employees back to work as soon as possible.

Nurse Case Managers and Claims Adjuster Synergies
A productive discussion with the managed care vendor and the TPA can help clearly outline specific roles and responsibilities for the TPA, employee, employer, and medical provider. Understanding expectations and assigning accountability for the different participants can ensure that claims are handled in the most appropriate manner. Additionally, clearly outlined roles produce a more effective managed care audit and help employers determine if they are getting the most out of the managed care arrangement.

Nurse case managers and claims adjusters must maintain two distinct functions when managing claims. The nurse case manager must ensure that the injured employee receives timely, appropriate care and follows the prescribed treatment course. Acting as the injured employee's advocate, with the goal of an early return to work, nurse case managers should communicate with the injured employee, employer, claims adjuster, and medical provider. For example, working directly with the employer, the nurse case manager can assist with the identification of the appropriate return-to-work assignment, including transitional duty.

"According to a 2004 report from the NCCI, the medical care portion of lost-time claims—claims serious enough to require time off work—increased by an estimated 9.0 percent in 2003."
Insurance Information Institute, 12/04

Managing the Network
By decreasing durations and driving down excessive utilization, managed care vendors can help employers lower costs. However, to realize optimal outcomes, employers must manage and incentivize vendors appropriately.

For example, some employers may “manage” their network vendor by performing periodic bill reviews. However, this may not lead to the most efficient result. It may be a better practice for employers to first ensure that vendors are willing to abide by both state-published and negotiated network pricing. If it is contractually required that managed care vendors charge at such fee schedules, only periodic reviews are necessary to ensure that the vendor is compliant.

Commonly, employers are charged a "percent of savings;" however there is a disincentive to this method. The higher the medical costs billed, the higher the “cut” taken by the bill review company. Employers should consider other pricing structures based on objective measures of the work involved in the bill review.

Quantifying Results
Periodic comprehensive file reviews are critical to building a business case for maintaining a managed care network or completing a cost-benefit analysis. A thorough review can also identify practical means of improving the program. For example, a review of the claims triage process may point to the need for referral criteria when assigning claims to a nurse case manager, or to, perhaps, more effective communication among claims-handling staff.

Ideally, employers should benchmark their costs and outcomes against industry peers to determine how medical management efforts stack up against organizations with similar challenges. Quantifying and defining success when it comes to controlling workers' compensation managed care and medical utilization is fraught with challenges.

Currently there is no standard for managed care services. Thus, a trusted advisor with the expertise and knowledge to help employers compare costs with ultimate outcomes is invaluable. Marsh's consultants can help employers reduce medical utilization costs and understand managed care services, with the goal of lowering overall workers' compensation costs.

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