Defining Work Comp Medical 'Cost' Savings

Monday, August 30, 2010 | 0

By Joe Paduda
Health Strategy Associates

In the course of my consulting practice, I see a lot of work comp medical bill review 'savings' reports. Over the last 14 years (since founding Health Strategy Associates in 1996) I've collected, reviewed, and analyzed scores of savings reports from pretty much every vendor in the busines as well as many of the larger third-party administrators and insurers.

There's some consistency in the business, but not near enough. That alone makes it hard to compare one vendor to another, much less benchmark one company's performance against the industry.

Leaving that aside, there are a number of issues with most reports, issues that clients/insureds/policyholders would do well to consider when evaluating performance or comparing potential vendors.

1. Does the savings report include reductions below state fee schedule (SFS) and/or usual customary and reasonable (UCR)? Many vendors don't split out savings below SFS/UCR, instead lumping all reductions into one 'overall' category. This is either a) an oversight as any vendor should be willing and able to demonstrate their ability to reprice bills to comply with regulations, or b) a way to inflate savings so the naive buyer sees a bit percentage reduction and thinks the vendor's doing a crackerjack job.

2. Does the savings report clearly identify the source of UCR data? There are several vendors out there that provide these data, and knowing which is important in evaluating performance.

3. How are savings percentages calculated? Do they include savings for duplicate bills or duplicate line items (they shouldn't). Do they include all types of care, such as pharmacy and imaging? In many instances these services are outsourced to specialists, requiring the customer to combine results to get an overall figure.

4. For pharmacy, savings should be reported using average wholesale price as the benchmark if the vendor wants to include SFS, that's fine, but AWP (and make sure they define the source) is the universal standard.

5. How is network penetration calculated? Is the basis the number of bills or dollars? Dollars are preferred, but may skew the numbers higher than number of bills, as network penetration tends to be higher for facilities (which have higher average bill charges).

6. Over time, have you seen a decrease in fee schedule reductions and an increase in so-called 'nurse review' or 'bill audit' or 'professional review' savings? Hint if these are billed separately, there's often an inherent motivation on the part of the vendor to lowball SFS reductions in favor of these 'other' reductions.

7. Semantics and definitions. Make sure there's a clear and complete understanding of each and every term, including such seemingly-obvious ones as 'bill' - can be a 'staple', a single page, a date of service, or 'up to x lines'.

What does this mean to you?

There's lots more to this, but the message should be clear don't assume you understand the report, ask lots of questions, consider how the vendor gets paid, and don't hesitate to ask the vendor to revise the report to give you the information you need the way you want to see it.

After all, you're the customer.

Joe Paduda is owner of Health Strategy Associates, a Connecticut-based employer consulting firm. This column was reprinted with his permission form his blog, http://www.managedcarematters.com