Putting the brakes on Workers' Comp

Nation's Business, Nov, 1991 by Roger Thompson

Runaway health-care costs have hit workers' compensation even harder than group health insurance and now pose the greatest threat to the system's future.

Employers surveyed by the Boston-based Liberty Mutual Insurance Group, the nation's largest workers' compensation insurer, recently warned that unchecked medical costs eventually will destroy the workers' comp system.

The 1991 Issues Report from the National Council on Compensation Insurance (NCCI), a trade group based in New York, made this equally gloomy prediction: "Without substantial reform in the next few years, the entire [workers' comp] system faces collapse."

Medical cost containment, virtually nonexistent in workers' comp, ranks at the top of every reformer's list of priorities. And the favored way to control spiraling costs is "managed care," already in wide use with group health plans.

Managed care involves careful review and oversight of health services in an attempt to deliver high-quality, cost-effective medicine. For those enrolled in standard group health plans, managed care typically involves preadmission certification for hospital and outpatient surgery, and utilization revgiew to weed out unnecessary or inappropriate treatment. For roughly 60 million Americans, managed care is as routine as a visit to a local preferred-provider or health-maintenance organization, where quality and cost controls are built into the medical delivery system.

Managed care blossomed in the 1980s as employers and insurers desperately sought ways to curb rising group health-insurance costs. But those who have pioneered its transfer to workers' comp often have met with resistance.

Stryker Warren Jr., president of FOCUS Healthcare Management Inc., a workers' comp management company based in Brentwood, Tenn., recalls the puzzled reaction he typically got when he first started marketing managed-care services, such as preferred-provider organizations, to workers' compensation insurers 3-1/2 years ago.

"When we started calling on carriers, they said, 'You can't do this. You can't deny care.' We simply said that we aren't denying care. We are just asking whether it is appropriate care." In fact, no state law bars employers or insurers from attempting to manage the cost and quality of care under workers' compensation, says Warren.

State laws do pose some problems for managed care, however. A number of states require preferred-provider organizations to accept any qualifed doctor, undermining the PPO's ability to control its size and selectivity. Only 16 states permit employers to direct an injured worker to a particular doctor or provider organization, such as a PPO. Most states allow employees to seek medical care from the doctors of their choice. Others limit the duse of utilization review by imposing broad definitions of treatment that can be considered medically necessary or reasonable. Some states require insurers to pay for services even when they question their appropriateness.

Despite the limitations imposed by these laws, they do not preclude the introduction of managed care. Insurers and consulting firms have found they can work around them. "For the most part, workers' comp laws at the state level don't impede our progress at all," says Vicki Merrill, president of Pacific Review Services, a managed-care company in Cypress, Calif.

For example, even in states where employees have free choice of doctors, employers still may recommend physicians. Typically, 75 to 90 percent of injured workers voluntarily pick a doctor recommended by the employer, says Peter Rousmaniere, chief financial officer of Lynch Ryan & Associates Inc., a workes' compensation consulting firm in Westborough, Mass. "It's a myth that employees don't want to be given adive on medical care," he adds.

To date, managed care has just begun to make inroads into workers' compensation. Only a small number of insurers and consulting firms now offer PPOs or other services that attempt to manage costs before medical care is given.

"I would say at best only about 10 percent of injured workers now enter into a managed-care program offering a preferred-provider organization," says Rousmaniere. But the idea is catching on rapidly. "In 1994, it will be 25 percent," and by the end of the decade, managed care will be commonplace, he says.

Just how much managed care will cut workers' comp medical costs remains unclear. Merrill, of Pacific Review Services, estimates savings of 25 to 40 percent, based on her own company's experience. Robert Dennis, a physician who is chief executive officer of ProHEALTH, a workers' comp PPO based in Neptune, N.J., offers employers a money-back guarantee that his organization can cut their workers' comp costs. The amount of savings depends on the size and nature of the business.

But potential savings from managed care don't stop with medical bills. When applied to workers' compensation, managed care takes on a new mission, one not required of it under employer health plans. It must aim to return an injured or sick employee to work as quickly as possible. Disability payments to out-of-work employees represent roughly 60 percent of total workers' comp outlays.