Industry Watch

No Reprieve from Medical Costs Amid Rising Price of Care

Payers must remain focused on preventing claims and mitigating severity.
By: | January 17, 2018 • 4 min read

Medical expenses rattled workers’ compensation payers when they reached 60 percent of claim costs, exceeding indemnity as the most expensive portion of addressing worker injuries.

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Now, rising medical costs are pushing that 60 percent squarely into the rearview mirror. They have reached 69.3 percent of a claim’s expense in Florida and are running 64 percent – 65 percent in other states.

Claim-severity drivers such as obesity and an aging-worker population will extend the trend.

“That is going to continue to gradually inch even higher in terms of the percent of payment going to medical expenses versus indemnity,” said David Dwortz, president of Helmsman Management Services. “With the increase in severity, medical is definitely going to continue to be a major concern, a huge focus for keeping control of payers’ overall costs.”

Meanwhile, nationwide medical inflation is expected to grow at 2.3 percent for 2018, faster than at any time since 2010. That rate of medical inflation, however, is not significant enough to sound alarm bells.

It is also not surprising because medical inflation had been at historically low levels going back to 2010, Dwortz said.

“I don’t think anyone expected that to continue into perpetuity,” Dwortz commented.

Although a percentage point higher than the average over the last few years, the 2.3 percent growth in expected 2018 medical pricing is not historically unusual, said Patrick Cote, an economist at NCCI Holdings Inc., the workers’ comp research and rating organization.

While the current rate of medical inflation is worth keeping an eye on, it is a “middle of the road” level of increase, he added.

David Dwortz, president, Helmsman Management Services

But the continued overall creeping up of medical expenses, including medical price increases, is a potent reminder that employers and other claims payers must remain constantly engaged in the battle to prevent claims and mitigate their severity when they do occur.

It also calls for understanding price increases — in contrast to addressing the utilization of different components of medical care — to judge whether various drivers of medical price movement realistically can be mitigated, said George Furlong, senior VP, managed care program outcomes and analytics at Sedgwick Claims Management Services Inc.

For example, many state fee schedules do not control hospital pricing. If that pricing spikes, there are limited measures for addressing it when employers already have proven cost-containment practices in place, such as medical provider networks.

Similarly, Average Wholesale Price, influenced by pharmaceutical manufacturers, drives drug pricing and can’t be controlled like the utilization of prescriptions.

“With the increase in severity, medical is definitely going to continue to be a major concern, a huge focus for keeping control of payers’ overall costs.” — David Dwortz, president, Helmsman Management Services

Understanding the influence of price changes will help payers better determine whether focusing on controlling utilization will or won’t be productive, Furlong explained.

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“I’ll give you a quick example,” Furlong said. “In California they had a significant increase in physical therapy services (pricing) over the last couple of years. It had a lot of people looking for utilization issues when they didn’t exist.”

NCCI’s expectation of medical inflation growth for 2018 is based on its monitoring of the Personal Health Care deflator from the Centers for Medicare & Medicaid Services.

Medical inflation expected to increase during 2018 will follow from the nation’s expanding economy and the accompanying overall inflation driving up wages in the labor-intensive healthcare industry, states a Medical Cost Trend report from PwC.

Advances in technology and pharmaceuticals will also contribute to nudging up the price of medical care.

Jeff Kuss, chief claims officer, AF Group

Increasing prices, however, are not all bad news, explained Jeff Kuss, chief claims officer at insurer AF Group.

“They come up with new processes or procedures that may be more expensive on the front end, but ultimately they are going to get the better outcome at the back end for the injured worker,” Kuss said. “Some of that is progress and how we improve the care and delivery system.”

The ultimate impact of 2018 medical inflation on employers’ total worker’s comp expenses will depend on factors driving utilization, such as their worker-population demographics and safety efforts.

Most claims cost increases, for instance, are falling on those involving older workers with little cost changes attributed to claims involving younger employees, Furlong said.

Insurance rates are down in most states due to continually declining frequency, added Frank Pennachio, a partner at Oceanus Partners. Despite medical inflation, some employers who have managed to reduce their claims frequency may actually pay less in total worker’s comp expense, Pennachio elaborated. &

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]