Workers' Comp

Managing Specialty Health Care Spending

Experts discuss ways to monitor and manage specialty health care spending.
By: | October 1, 2013 • 9 min read

Now is the time for workers’ compensation claims executives to be taking a hard look at how they can monitor and manage specialty health care spending.

While pharmacy garners a lot of attention due to its rising share of the workers’ compensation medical cost dollar, the host of services classified as specialty health care services are a relatively under-managed area that can yield substantial cost savings if properly addressed, according to experts.

Comprising durable medical equipment (DME) and supplies, orthotics, prosthetics, home health visits, diagnostic imaging, physical medicine, and a number of other ancillary services, specialty health care services as a category is much more fragmented than pharmacy benefit management, which has been studied and managed more extensively in recent years.

Seeking to learn more about this area of practice, Risk & Insurance® partnered with Atlanta-based Healthcare Solutions to convene an executive roundtable in Philadelphia on July 25. The focus of the breakfast meeting was to take a deeper dive into the cost drivers in specialty health care services and to discuss the solutions that will create meaningful impacts for payers and self-insureds.

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“Within the specialty health care category of spending, unit costs are fairly small but I equate this area to a death by a thousand cuts,” said Joe Boures, president and chief operating officer of Healthcare Solutions, and an attendee at the breakfast roundtable.

Analysis of the elements of specialty health care spend is challenging due to the sheer number of service units involved. But Boures said that savings are available and achieving them is not as challenging as some may think.

“There are a lot of savings that can be realized if you implement processes to manage it in the most appropriate way and choose the correct partners.”
— Joe Boures, president and chief operating officer, Healthcare Solutions

“There are a lot of savings that can be realized if you implement processes to manage it in the most appropriate way and choose the correct partners,” Boures said.

Now is the right time to take a look at DME, according to other members of the roundtable. Better analytics are being developed, and some other areas of medical spending management, such as pharmacy, are in a more mature phase and not demanding as much concentration from some payers.

“I think the industry focused first on areas of spend where we could have the biggest impact, and now we’re working our way down from there,” said Laura Pierman, a roundtable participant who is assistant vice president, claims operational and system management at Amerisure, the Farmington Hills, Mich.-based insurer with a commercial lines focus in health care, manufacturing and construction.

Analytics were created in pharmacy. Now they’re being created in DME.

“For a long time, there really wasn’t true visibility into specialty spending due to the fragmented delivery system,” said Ron Skrocki, vice president of product management development at GENEX, who also attended the roundtable, in explaining why specialty spend management is now coming to the fore.

Besides developing the analytics, gaining visibility is going to mean assigning greater responsibility for it to claims adjusters and giving them the tools to properly do the job, other panel members said.

“Historically, there hasn’t been someone in the payer organization that was held accountable for this entire spend category. Today, all that’s changing. It’s finally found its rightful place and stride and the analytics for people to say, ‘Hey, we’ve got something here. Let’s try to harvest savings out of the spend,” Skrocki said.

The timing is right, but addressing this area is probably going to take a specialized approach, according to Ron McGee, senior vice president of the property and casualty division for Insperity and a roundtable participant. McGee said his company uses a phalanx of service providers and gives them different responsibilities and goals.

“For a long time, there really wasn’t true visibility into specialty spending due to the fragmented delivery system.”
— Ron Skrocki, vice president of product management development, GENEX

“The success, at least in our program, is that although we have a TPA that is adjudicating claims, we have demanded and set up companies — such as Healthcare Solutions and GENEX — to do what they’re good at doing,” he said.

“One TPA or one adjuster might not be good at doing everything. So we have really diversified our program, and that’s really strengthened it,” McGee said.

“So you play to the players out in the field that have the expertise, and work with the adjuster to make that happen,” he said.

In addition, according to McGee, claims managers are going to need not only technical support, but a different mind-set, to make progress in this area.

“Claims managers tend to focus on cost drivers with higher unit costs, which is a good place to start. But I think more attention needs to be paid to getting other areas of spending under management control as well, such as DME,” McGee said.

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This approach can also be looked at regionally, according to Pierman.

“In some cases there are some very good local programs that can be put into place that may work better for one office or one geographical region than another,” she said.

Creating the Engine

Boures said his company has developed technology and processes to better manage this area of spend. When referrals are received, a catalog-based system is used to identify the appropriate lowest-cost, yet clinically appropriate product. When appropriate, and based on client business rules, the product is automatically sent to utilization review prior to being fulfilled.

Another critical component of the program is a retrospective processing engine that increases program savings by retrospectively applying discounts to bills that would historically be paid at either fee schedule or usual and customary rates.

Not only does the program produce substantial savings, but the data is used to target providers that aren’t in network to get them under contract. It also enables Healthcare Solutions to provide customers visibility into which of their adjusters are not coordinating services through approved network partners.

“We’re not going to capture 100 percent of the spend. There’s just certain things that happen that are outside of anyone’s control, but we can help to close the gap,” he said.

Amerisure’s Pierman said that her adjusters are ready to engage with resources that can assist with cost containment. There comes a point where they have to utilize the expertise of others to enhance service delivery.

“We’ve noticed as we’ve put other processes and programs in place, such as pharmacy, we’ve had exceptionally high penetration.”

Pierman, who uses Healthcare Solutions’ services, said she has started in the same direction with DME as she went with pharmacy.

“As we put programs in place, we expect to see the same thing, because it helps the adjuster to have a process to utilize. Some claim needs are very difficult to manage and there are a number of reasons for that. It can be statutory, inability to direct care or simply time constraints. Many of these items or services require urgent response and an adjuster may not have the luxury of time to do the research,” she said.

“When I look at our overall medical spending in [physical therapy], it’s probably about 7.5 percent of overall medical spend, where imaging is closer to 2.5 percent, so it is substantially higher.”
— Laura Pierman, assistant vice president, claims operational and system management, Amerisure

DME is fragmented; just think of the multiplicity of different devices, from wheelchairs to electro-therapy units, C-PAP machines and glucose monitors, just to name a few, and the literally thousands of different equipment manufacturers involved.

The Issue of Coding

Managing DME is also problematic due to the lack of uniform coding for many health care products and services. Unlike pharmacy, where there is a unique code associated with every drug, a one-to-one coding system doesn’t exist for equipment and supplies.

Adding to the difficulty is that quality and speed of care must be paramount. Payers need to get the proper equipment to an injured, recovering worker as soon as possible. Many times, a payer or claims adjuster doesn’t have time to rectify a coding problem, making spend that much more difficult to track.

“This can be challenging,” Amerisure’s Pierman said.

“You don’t have the luxury of being able to do all of the analysis to say, ‘OK, is this product the same as this one? And is this the best price?’ You’ve got to get the product to the injured worker, so that is a big struggle.”

Healthcare Solutions’ Boures said his company’s program can not only map DME services and code them, but can also identify equipment that does the job but isn’t quite so expensive.

Additional Challenges

Other challenges impacting specialty health care services include an aging workforce. Add to that the expansion of technology, which is adding additional products and complexity to the health care system, and the pressure that the Affordable Care Act is expected to place on the system, with tens of millions of uninsureds coming into it.

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“Work comp executives talk about navigating an increasingly complicated health care system within these specialties, with an aging population, with increasing co-morbidities, and with whatever changes we will see in the delivery system as a result of Obamacare,” GENEX’s Skrocki said. “I think the case management component — whether it is in-sourced or out-sourced — is a really important piece that can be effectively used by employers, TPAs, carriers and managed care companies.”

Payers may implement a national network, but case managers are knowledgeable about specific geographic areas, Skrocki said. They are in tune with how local providers deliver service, and more importantly, the outcomes they produce.

Another key area of focus within the category of specialty health care services is physical therapy, according to Amerisure’s Pierman.

“Physical therapy is probably the biggest concern for us,” she said.

“When I look at our overall medical spending in that area, it’s probably about 7.5 percent of overall medical spend, where imaging is closer to 2.5 percent, so it is substantially higher.”

Just think of it. Physical therapists number by the dozens in most towns and cities, and getting them all onto one code would be next to impossible. In addition, older workers require much more physical therapy to get back in working condition.

It’s also an area where utilization is hard to manage. Who is to say how much physical therapy is too much?

“I think the number of physical therapy treatments for individuals ages 45 to 64 is about 40 percent higher than for the younger age group,” said GENEX’s Skrocki.

That aging workforce trend is impacting all areas of workers’ compensation risk management, not just specialty health care services. But that doesn’t make its impact any less significant, according to Insperity’s McGee.

“The trend we’re seeing now is that claims frequency is going down, but severity is going up, and that’s concerning,” he said.

Not only is severity increasing, but specialty health care services as an overall percentage of medical spend is increasing, according to panel members.

Parting Thoughts

Prior to closing the session, all of the roundtable participants acknowledged that specialty health care services are not the most glamorous component of the managed care equation, but said that significant progress is being made to bring more attention to this area of spending.

While individually, these categories of spending are much smaller than other areas of the health care dollar, such as hospital and physician costs, specialty health care services represent the next frontier in reducing overall medical costs.

The bottom line? If you haven’t looked into developing programs to manage specialty health care services, it’s time to take a second look.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

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 and 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]