Tuesday, June 11, 2019
By William Rabb
Workers’ compensation carriers could be doing much more to scrutinize medical bills, something their health insurance brethren have done for more than a decade, health care industry analyst and consultant Joe Paduda told the National Council of Self-Insurers on Monday.
Speaking at the NCSI’s annual meeting in Orlando, Florida, Paduda said few comp insurers are taking a deep dive on medical bills, which is costing payers millions of dollars per year.
Health insurers typically put medical bills through several layers of auditing and editing before agreeing to reimbursement, he said.
“That level of sophistication is just not there in workers’ comp,” said Paduda, principal at Health Strategy Associates.
He used a communications technology analogy to illustrate the gap: While group health carriers are using smartphones, tablets and instant communications, comp carriers are still relying on typewriters.
“If all you’ve ever known is a typewriter, you might think it’s pretty cool,” he said.
Many hospitals and physician practices are aware of the lack of scrutiny, and make a habit of upcoding, unbundling and overcharging workers’ comp insurance companies, Paduda said. The practice is costing comp payers dearly: Studies show that workers’ comp is less than 2% of most hospitals’ patient base, but comp produces an outsized share of the profits for many hospitals, he said.
Paduda disclosed that he does consulting work for two auditing companies that show carriers how to up their game on billing audits.
One of the firms Paduda works with, Equian LLC, has found that at least 8% of comp carriers are overpaying on medical bills, despite workers’ comp medical fee schedules, utilization review options and generic drugs that are required in many states, said Claude Lagalante, vice president of workers’ compensation medical cost solutions for Equian.
“The fee schedules apply, but we’re seeing a lot of upcoding for office visits, modifiers applied incorrectly and levels of severity that shouldn’t be there,” Lagalante said. “They do it all day long until they get caught. It’s shocking, really.”
One reason, Lagalante and Paduda said, is that workers’ compensation insurance is extremely profitable, and carriers may not have bothered to audit medical costs as carefully as other lines of insurance.
The National Council on Compensation Insurance’s recent annual report illustrated the profitability of comp insurance: Net written premium for 2018 stood at an all-time high, almost $49 billion, for the 38 states that use NCCI as a rating bureau. Pre-tax operating gains rose to 26%, almost four times the average seen over the last 20 years. Much of the revenue has come from insurer investment returns.
Some insurance representatives took exception to the notion that they’ve dropped the ball, and said carriers are often diligent about cost-control measures.
“It varies from state to state, but medical costs are a very real concern,” said Christy Thiems, senior vice president of workers’ compensation at the American Property Casualty Insurance Association. “There are many tools that are used, including utilization reviews, fee schedules and formularies, to control costs.”
But Paduda said many comp carriers aren’t going deep enough to keep up with medical providers, who have become more savvy and revenue-conscious as hospital systems have merged and more of them now own physician practices.
He said health insurers generally examine three areas: Are procedure codes consistent with the stated diagnosis? Are all billed procedures merited under the diagnosis? And are all services reported correctly?
For example, a provider may bill for anesthesia for two cataract surgeries, when anesthesia was supplied in only one, Paduda said. Or, a hospital may bill for an assistant surgeon present for the mending of a broken collarbone, but that may not have been necessary.
What’s known as the National Correct Coding Initiative by the Centers for Medicare and Medicaid Services is helpful for checking the appropriateness of medical billing, he said.
Medicare has changed its approach to coding and billing through the years, but extensive changes in 2012 and 2013 threatened to reduce hospital reimbursement significantly, Paduda said. That sparked many hospitals and physicians to become more sophisticated about coding and billing as part of a “revenue maximization” program.
In his presentation, Paduda said data from Merrit Hawkins, a physician consulting firm, shows that orthopedic surgery, a common treatment in comp, is now one of the top four sources of revenue generated by physicians associated with hospitals.
Slick coding practices by hospitals, in turn, forced many health insurance firms to become more sophisticated in scouring bills for inappropriate charges.
But comp carriers have not made similar strides, Paduda and Lagalante said.
“Workers’ comp thinks it’s keeping pace, but they’re really not,” Paduda said. “Workers’ comp is a soft target.”
And it’s not just hospital and doctor prices that are costing the comp system millions, he said. Drug prices often are not as low as they could be, because pharmacy benefit managers don’t pass along rebates and discounts like they should, Paduda said.
That issue came into focus last year after an audit of the Ohio Bureau of Workers’ Compensation, which oversees the state-run comp system, found that the agency’s PBM had overcharged it by almost $16 million on medications.
In October, Medicare announced a plan to require drugmakers to post the wholesale acquisition price, or list price, of drugs in television ads. That rule was finalized last month.
But Paduda said that may not help much in workers’ compensation.
“The retail price is not the problem,” he said.
Another proposal by President Trump’s administration would put an end to rebates altogether. But some reports have suggested that could cause prices to rise in the long run. Instead, Paduda said, stakeholders in workers’ comp “need to really understand what they’re paying for and make sure they’re getting the rebates and discounts.”
A chart he produced, based on data from the Drug Channels Institute, shows that the total value of brand-name drugs, along with the invoiced price, has grown faster than net prices paid, nationwide. The reason is that rebates and discounts to PBMs have doubled since 2013, and now account for more than $160 billion.
As much as 53% of the list price of a drug is often trimmed off in the form of rebates and discounts, he said. But many of those reductions aren’t making their way to comp insurers.
While most states’ regulations require that generic drugs be prescribed for injured workers whenever possible, some medications are available only in brand name form, and those can amount to 50% of the overall drug cost, Paduda said.