Is an HCO Right for Your Organization?

Saturday, March 1, 2003 | 0

The California legislature, with AB 749, changed the laws regarding Health Care Organizations (HCOs), among numerous other things, for the stated purpose to make this alternative more accessible to more employers, in an attempt to reel in medical care costs as an offset to the benefit increases that came with the package. Not only did the law make it easier for an employer to subscribe to an HCO plan, but it also made it easier to establish an HCO, and as a consequence there are now more choices than ever for this option.

However, HCOs aren't for every business. As with most other elements affecting your business, a cost/benefit analysis should first be performed to determine whether an HCO plan would be appropriate.

Two major changes to the HCO law are: (1) the 365 day medical control extension option was eliminated, leaving potential medical control options of 90 and 180 days; (2) an employer may offer only one HCO to employees. As before, the employee has the right to pre-designate a personal physician rather than participate in an HCO, provided that physician has treated the employee and has current medical information on file.

A successful HCO plan is premised on the reduction of costs by controlling medical treatment. This theoretically is accomplished because treatment is through a managed care system where incentives are in place to reduce the amount of time an injured worker is on disability, thereby facilitating an early return to work and reduced absenteeism.

As with everything, there is a tradeoff, and there are costs associated with an HCO that may not be readily apparent. First be aware that each business' rates are determined on a case by case basis, as with any other insurance. Typically there is an annual enrollment fee for each employee. Nurse case managers are used on lost-time claims and their time is usually billed by the hour. Utilization (the amount various services are used) review charges will apply as well.

Some HCOs may bill on a "percent-of-savings" basis, whereby a base line is established taking an average of prior year medical claim costs, and then establishing a savings rate plan. Careful analysis of such plans are necessary because, in fact, such plans may end up costing more if compensation on savings plus various fees (such as enrollment fees) exceeds prior year expenditures. Also be wary of such plans as short changing medical care in the name of costs may, in the long run, cost more for lost time, permanent disability and long term medical.

There are several factors that need to be looked at to determine if an HCO is right for your organization:

What is the employee turnover rate? The higher the turnover, the more enrollment costs there will be.
How many of your claims end up in litigation? The longer a claim stays open, the more likely it is to end up litigated. In addition, if many of your claims end up litigated in the first 30 days the extension of medical control afforded by an HCO may be worthwhile.
How many of your employees subscribe to a PPO? This will be indicative of employee subscription to an HCO.
Is your return-to-work program effective? Are employees getting back to the job reasonably quick after an injury?
How will the union support (or not support) an HCO option?
How long do claims stay open and how many continue with employer provided medical control after the end of 30 days?
Ask the plan representative to assist in estimating all of the costs to be associated with an HCO and have them go over the paperwork to see how difficult the HCO makes it to (a) enroll, (b) file a claim, (c) obtain treatment.
What is the experience level of the HCO and the associated physicians, nurse case managers and claims management? Work comp is an odd breed in the medical community, and recent studies have shown that medical costs increase inversely to the experience level of the physician and staff.

Remember that the whole idea behind an HCO is to reduce an organization's workers' comp costs by providing greater medical control for the whole organization. This takes buy in from the employees, the physicians, and management. Without this confluence an HCO may not improve your work comp experience, and may end up costing your organization more.