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To Better Control Total Workers Comp Costs, Manage Physical Medicine

The time is ripe to consider physical medicine to better manage the total cost of risk.
By: | April 4, 2016 • 6 min read

Soaring drug prices get all the attention in the workers comp space. Meanwhile, another threat has flown under the radar.

More than 50 percent of lost time workers compensation claims involve physical medicine — an umbrella term encompassing physical therapy, occupational therapy, work conditioning, work hardening and functional capacity evaluation.

Spending on physical medicine accounts for 20 to 30 percent of total workers compensation medical costs, a percentage set only to increase in the coming years. Despite the rapid growth of this expense, very few employers are engaged in discussions around how best to manage it.

“Now is the time to take a look at physical medicine and think about how it impacts total cost of risk,” said Frank Radack, Vice President & Manager, Liberty Mutual Insurance, Commercial Insurance – Claims Managed Care. “Employers should investigate comprehensive solutions to keep costs manageable and to deliver quality, evidence-based care to injured employees.”

Liberty Mutual’s Frank Radack defines physical medicine and why it is so important in managing total workers compensation costs.

Cost Drivers

Upswings in both pure cost and utilization of physical medicine are driving the spending surge. State fee schedule changes are largely responsible for increases in cost. California, for example, has increased the cost of physical medicine services by 38 percent over the past two years, and will increase it a total of 64 percent by the end of 2017. North Carolina changed its approach to its fee schedule effective June 1, 2015, resulting in an almost 45 percent increase in the cost of the average physical therapy visit.

Increased utilization compounds rising prices. Low severity claims like soft tissue injuries typically involve physical therapy, especially when co-morbid conditions threaten to slow down recovery.

“When co-morbids are present, like obesity, more conditioning is necessary for recovery from injury,” Radack said. “With people staying in the workforce longer, we see these claims more often because these types of injuries and co-morbid conditions become more common as people age.”

De-emphasis on surgery also bolsters physical therapy prescribing as patients seek less invasive treatments that might enable a faster return to work, even in a light or transitional duty role. Sometimes, patients with a minor injury might seek out physical therapy on their own as a precaution after an injury or under the mistaken belief it will hasten recovery, even if evidence-based guidelines don’t call for it in every treatment plan.

LM_SponsoredContent“Now is the time to take a look at physical medicine and think about how it impacts total cost of risk. Employers should investigate comprehensive solutions to keep costs manageable and to deliver quality, evidence-based care to injured employees.”
–Frank Radack, Vice President & Manager, Liberty Mutual Insurance, Commercial Insurance – Claims Managed Care

“Without proper claims management procedures, some physicians might be inclined to prescribe physical therapy as a palliative measure, even when it doesn’t provide much benefit to the patient,” Radack said.

Building Solutions

Brokers and buyers may not be able to do much about fee schedule changes, but they can partner with an insurer that better manages utilization through a multi-faceted claims system, qualified network vendors, data analytics, and peer interventions.

The keys to better managing the soaring cost of physical medicine.

“There is an opportunity to move physical medicine spending into network solutions and partnerships,” Radack said. A strong, collaborative network is key to maintaining direction over treatment decisions.

Liberty Mutual uses a proprietary data analytics program to study its providers’ prescribing and referral patterns and their outcomes. It then builds a network of point-of-entry general practitioners with a proven track record of optimal outcomes.

“The treating physician is a gatekeeper to other services, so it’s important to start there in terms of establishing a plan and making sure evidence based guidelines are followed,” Radack said.

Radack and his team use similar data analysis and partnerships to deploy networks pertaining only to physical medicine, so it can identify physical therapists who understand the occupational space and are focused on effective Return-to-Work (RTW). A provider who doesn’t understand RTW, or even know that the employer of an injured worker has a modified RTW program, may over-utilize PT. Getting employees with soft tissue injuries back into the work place is critical for delivering the best possible medical outcome and a timely recovery.

These therapists know the value of adjusting a treatment plan based on a patient’s progress, which often cuts unnecessary appointments and therapies.

“Our data analytics program is built internally by people who are aligned with the claims organization,” Radack said. “These insights drive our ability to shape networks and direct injured workers to providers with proven outcomes.”

Peer-to-peer interventions also play a big role in adjusting provider behavior and ensuring adherence to evidence-based guidelines. Liberty Mutual’s in house regional medical directors can bring their expertise to bear on challenging claims and discuss how to redirect treatment to meet these guidelines. Liberty Mutual also partners with experts to build networks of physical medicine and physical therapy providers who deliver quality outcomes cost-effectively and to asses a patient’s progress, working with providers to identify and resolve treatment issues.

Sharing information and measuring performance in these settings helps to change the environment around physical medical care. For example, interventions that steer physical therapists back to  established, evidence-based medical treatment guidelines often reduce the use of passive therapy treatments, like hot and cold packs, which are not as effective and can slow down recovery.

“Active therapies that get people moving often help them get them back to work faster and at a lower cost,” Radack said. Utilization review also helps to identify unnecessary treatments and signals the insurer to communicate evidenced-based expectations with the therapist or prescribing physician.

Solutions in Action

Physical therapy offers great value in spite of rising prices — but only if it’s managed carefully.

An example of the benefits of managing physical medicine.

Take for example the case of a worker with a shoulder injury. In an unmanaged situation, a physical therapist may prescribe 12 appointments, and the injured worker will go through all 12 sessions with no pre-approval of the treatment plan and no interim checkup.

In a managed situation, the physical therapist may only prescribe eight sessions, because she understands the benefits of a faster return to work and sees that guidelines don’t dictate a full 12 sessions for this injury. Halfway through the eight sessions, she checks in on the patient’s progress and determines that only two more sessions are necessary given the recovery and the medical guidelines; and so adjusts the treatment plan to a total of six sessions.

In this scenario, managed care saves the cost of six sessions over the unmanaged situation, and the employee gets back to work faster with a healthy shoulder.

Ultimately, workers comp buyers can achieve cost savings by making treatment decisions that optimize patient outcomes, rather than cut pure cost. To achieve that, every player — point-of-entry physicians, physical therapists, medical directors, claims managers and patients — need to shoot for the common goal of shortening recovery time by following evidence-based medical guidelines.

“When medical experts and network vendors work in concert with each other, along with data analytics and research to back them up, we can drive down utilization while improving outcomes,” Radack said. “All of these working parts together are the solution to managing physical medicine costs.”

To learn more about Liberty Mutual’s Workers Compensation solutions, visit https://www.libertymutualgroup.com/business-insurance/business-insurance-coverages/workers-compensation

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty and workers compensation.

More from Risk & Insurance

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Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]