Who Can Blame California Doctors for Giving Up on Workers’ Comp When They’re Caught in a PPO and MPN Labyrinth?

By: | May 31, 2022

Catherine Montgomery is a founder of DaisyBill, a dedicated workers’ comp billing software and services provider. Her crusade to improve medical billing through technology began in 2005 with the founding of Clarity Medical Billing Resources, a trusted free resource for workers’ comp stakeholders. In 2011, Catherine cofounded DaisyBill to bring greater efficiency, transparency, and fairness to workers’ compensation.

Topics: Workers' Comp

The basic premise of workers’ comp is that employers, through insurers or by self-insuring, ensure adequate funds for the treatment of their employees’ work-related injuries.

These employer funds are meant to guarantee the proper reimbursement of providers for treating injured workers, which in turn ensures that employees will get prompt, adequate care.

Sadly, this fairly straightforward arrangement is complicated — and completely undermined — by PPOs (Preferred Provider Organizations).

In California, PPOs have instituted what amounts to a “pay-to-play” system, using threats of exclusion from MPNs (Medical Provider Networks) to keep providers locked into often unfavorable PPO discount arrangements.

In this way, PPOs severely depress reimbursement rates for providers, creating “savings” for payers by making it financially untenable to treat injured workers.

In essence, PPOs divert the stream of funds meant to flow from employers to providers (often through insurers), ensuring that only a trickle of those funds actually reaches those providers.

How MPNs Enforce PPO “Pay-to-Play”

PPOs guarantee provider participation in their organizations largely by hijacking the MPN system.

The labyrinthian MPN landscape in California comprises 2,470 known MPNs. Some are the straightforward, benign sort established by employers to maintain a trusted circle of providers for their employees’ care. But most are maintained by insurers and what California Labor Code calls “entities providing physician network services,” like PPOs.

In California, it is providers’ understanding that exclusion from MPNs means exclusion from treating injured workers. Because of this, the payer strategy is to make MPN inclusion conditional on PPO participation.

We’ve seen numerous examples of providers challenging unsubstantiated PPO discounts, or attempting to escape PPO discount arrangements, only to be threatened with MPN exclusion.

That threat is anything but hollow; as we’ve seen, when a provider refuses to accept PPO discounts, they are summarily booted from the insurer or employer’s MPN. In this way, PPOs use MPNs as a cudgel with which to bully providers into largely dubious agreements.

The ROI on PPOs

For providers, there is rarely a return on investment for the often drastic revenue reductions forked over to PPOs. Data from DaisyBill’s physician clients demonstrate that in many cases, PPOs reduce reimbursement to well below Medicare rates, for the same services.

In theory, doctors accept these discounts in exchange for patient referrals. California law even mandates PPOs demonstrate that patients are actively encouraged to visit participating doctors.

But in reality, complex networks of PPOs, MPNs, payers, bill review services, and other entities mutually sell, lease, and otherwise share PPO contract discounts so prolifically that it is impossible to correlate a given PPO reduction to any increase in patients.

Worse, all this PPO discount leasing and sharing means that California’s OMFS (Official Medical Fee Schedule) is all but meaningless.

Ultimately, payers can simply find the lowest price to pay for any given service somewhere in the vast web of interconnected PPO discount arrangements.

The result: By signing even a single PPO discount contract, a provider opens a PPO Pandora’s box, unleashing often unanticipated financial consequences.

For the 1,988 physician clients in DaisyBill’s system alone, PPO reductions have accounted for (as of this writing) a cumulative $37,820,646 loss in practice revenue. Collectively, the providers in our system who are bound to PPOs are paid at an average 82% of OMFS rates (with wide variations from provider to provider and bill to bill).

For context, consider that in California, the OMFS is pegged at roughly 130% of Medicare rates, to account for the extra practice expense inherent to workers’ comp.

Despite this clear financial unsustainability, doctors stay in these discount arrangements for fear of being blacklisted by PPOs, whose influence can extend to innumerable corners of the system.

Employers and Workers: the Ultimate Victims of PPOs

The fact is that in states like California, treating injured workers is becoming financially untenable for many providers, many of whom simply give up on workers’ comp.

Despite reasonable reimbursement rates established by state fee schedules, providers cannot accurately depend on fee schedule rates for reimbursement.

For that reason, finding necessary care is becoming harder and harder for injured workers, many of whom cannot locate an appropriate provider within a reasonable distance of their home or workplace — particularly when the worker needs a specialist. This leads to delays in treatment, and ultimately worse health outcomes.

Surely, this is not what employers want for their employees.

Employers pay good money to ensure that when their employees are hurt at work, the necessary medical care will restore the employee’s health and productivity. It’s more than a legal requirement; it’s an investment in a healthy workforce.

But as long as PPOs continue driving good doctors away from workers’ comp, that investment is arguably misspent. &

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