MANAGED CARE – A
COMPARATIVE ANALYSIS
1999 Special Interest Seminar
Health and Managed Care
HILTON HEAD, SOUTH CAROLINA
PANELISTS:
BRIAN Z. BROWN, F.C.A.S., M.A.A.A.
STACEY MULLER, F.S.A., M.A.A.A.
OCTOBER 18-19, 1999
OUTLINE
Objective of Workers’ Compensation
Managed Care Initiatives
What are the Savings?
Types of Cost Savings Methods
Concluding Remarks
1
OBJECTIVE OF WORKERS’
COMPENSATION
MANAGED CARE INITIATIVES
To combine medical cost containment
with optimal medical treatment in order
to:
 Provide
medical service at a lower total cost
 Increase
the quality of care
 Expedite
worker re-entry into the workforce
2
Annual Trend in Medical Costs
Calendar/Accident
Year
1989
Workers’ Compensation
Medical Severity
10.2%
Medical CPI
7.7%
1990
7.7%
9.0%
1991
7.1%
8.7%
1992
1.3%
7.4%
1993
2.6%
5.9%
1994
0.0%
4.8%
1995
1.3%
4.5%
1996
6.3%
3.5%
1997
1.2%
2.8%
Data based on a presentation at the 1999 CLRS By Robert Blanco of The National Council On
Compensation Insurance
3
SAVINGS MEASURED FROM
THREE MANAGED CARE
STUDIES
Managed Care
Florida Study
NH
Assigned
Intracorp
Average Claim HMO PPO
Risk Plan
Cost Change -60% -28% -7% to –12%
-23%
4
REASONS FOR SAVINGS
VARIATION
Depends on procedures in place prior to
managed care
What is managed care?
Degree to which workers and managers
buy-into the program
Ability to direct injured workers to
certain providers
5
TYPES OF COST SAVINGS
METHODS
Behavior modification methods
Financial arrangements
6
BEHAVIOR MODIFICATION
METHODS
Utilization Review
Case Management
Second Opinion Programs
7
BEHAVIOR MODIFICATION
METHODS
Utilization Review
 Determine
appropriateness of medical
procedures
 Types

Concurrent Review

Retrospective Review

Pre-admission Certification
8
BEHAVIOR MODIFICATION
METHODS
 Case Management



Care oversight by a qualified professional

Appropriate Treatment

Timely Treatment
Work closely with all parties

Employee

Employer

Physician
Emphasis on return to work

Prevent worker from becoming conditioned to benefits

More difficult with longer periods away from work
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BEHAVIOR MODIFICATION
METHODS
Second Opinion Programs
 Goal:
Reduce incidence of surgical procedures
 Relies
on sentinel effect
 Is
net effect a reduction?
10
MANAGED CARE
FINANCIAL ARRANGEMENTS
Discounted Fee For Service
Case Rates
Capitation Contracts
Dividend Programs
11
MANAGED CARE
FINANCIAL ARRANGEMENTS
Discounted fee for service
 Reduction
in fees for certain groups
 Often
10% to 15% below fee schedule or
“usual and customary” charges
 Generally
believed to have a small impact in
isolation
 Discounted
services may lead to increased
utilization
12
MANAGED CARE
FINANCIAL ARRANGEMENTS
Case Rates
 Flat
fee per claim
 Varies
by type of injury
 Providers
 Thus,
may substitute “bed rest”
indemnity costs must be monitored
13
MANAGED CARE
FINANCIAL ARRANGEMENTS
Capitated rates
 Flat
fee for all workers’ compensation costs
for certain or all medical expenses
14
MANAGED CARE
FINANCIAL ARRANGEMENTS
Full Capitation
 Carrier
 MCO
pays a fee to MCO
agrees to provide:

All medical services

For the life of the claim

For all claims occurring in certain time period
 Carrier
transfers its medical exposure to MCO
15
MANAGED CARE
FINANCIAL ARRANGEMENTS
 Common Capitation Limitations
 Usually
not responsible for the life of the claim
 Certain
claims may be excluded (especially those
occurring outside the state)
 MCO
may not be responsible for the full medical
expense on catastrophic claims
 Therefore,
workers’ compensation carrier may be
transferring much of the predictable exposures
and retaining the more risky exposure
16
DIVIDEND FORMULAS BETWEEN
CARRIERS AND MCO’S
Creates an incentive for MCO to return
workers back to work
Rewards the MCO for efficient
management of care
Has MCO guarantee payments to
carriers if loss experience is adverse
Example: Loss ratio dividend plan
17
MANAGED CARE PRINCIPLES IN
HEALTH CARE
Can be Categorized Based on Influence
 Utilization
 Unit
Price
 Both
utilization and price
 Health
risk
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CONTROL UTILIZATION
 Utilization review activities
 Certify
 Direct
hospitalizations / plan discharges
level of care
 Primary care physician directed care
 Clinical guidelines / formularies
 Benefit design
 Patient
cost sharing
 Limits:
annual or lifetime
19
CONTROL UNIT COST
Fee schedules
Discounts
Global fees
Per diems
20
CONTROL UTILIZATION
AND UNIT COSTS
Case rates
Capitation
21
CONTROL HEALTH RISK
Preventive care
Disease management
22
APPLICATION TO WORKERS’
COMPENSATION
Limited ability to direct care
 Level
of care
 Provider
No cost sharing with beneficiary
Unit cost controls typically not available
Emphasis on safety programs may improve
health risk
23
POTENTIAL COST IMPACTS
Largest impact through cost sharing
Significant cost control through fixed
reimbursement strategies
 Fee
schedules, per diems
 Capitation,
case rates
Long term potential in health risk
management
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CONCLUSION
 Changes in Healthcare Market Significantly Impact
Workers’ Compensation
 Many Managed Care Arrangements can Change the
Nature of Workers’ Compensation Risk
 Workers’ Compensation Actuaries Must Understand
Healthcare Marketplace and Begin to Collect
Additional Data
 Must Assess Effect of Treatment Plans on

Quality of Care

Cost of Care

Worker Re-Entry to Workforce (Indemnity & Other Soft
Costs)
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