MILLIMAN & ROBERTSON, INC MANAGED CARE – A COMPARATIVE ANALYSIS 1999 Special Interest Seminar Health and Managed Care HILTON HEAD, SOUTH CAROLINA PANELISTS:BRIAN

MILLIMAN & ROBERTSON, INC

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

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OUTLINE

Objective of Workers’ Compensation Managed Care Initiatives

What are the Savings?

Types of Cost Savings Methods

Concluding Remarks

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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

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Annual Trend in Medical Costs

Calendar/Accident Year

Workers’ Compensation Medical Severity

Medical CPI

1989 10.2% 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

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SAVINGS MEASURED FROM THREE MANAGED CARE

STUDIES

Managed Care Florida Study

HMO PPO

NH Assigned Risk Plan Intracorp Average Claim

Cost Change -60% -28% -7% to –12% -23%

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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

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TYPES OF COST SAVINGS METHODS

Behavior modification methods

Financial arrangements

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BEHAVIOR MODIFICATION METHODS

Utilization Review

Case Management

Second Opinion Programs

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Utilization Review

Determine appropriateness of medical procedures

Types

Concurrent Review

Retrospective Review

Pre-admission Certification

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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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Second Opinion Programs

Goal: Reduce incidence of surgical procedures

Relies on sentinel effect

Is net effect a reduction?

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MANAGED CAREFINANCIAL ARRANGEMENTS

Discounted Fee For Service

Case Rates

Capitation Contracts

Dividend Programs

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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

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Case Rates

Flat fee per claim

Varies by type of injury

Providers may substitute “bed rest”

Thus, indemnity costs must be monitored

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Capitated rates

Flat fee for all workers’ compensation costs for certain or all medical expenses

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Full Capitation

Carrier pays a fee to MCO

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

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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

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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

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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 hospitalizations / plan discharges

Direct level of care

Primary care physician directed care

Clinical guidelines / formularies

Benefit design

Patient cost sharing

Limits: annual or lifetime

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CONTROL UNIT COST

Fee schedules

Discounts

Global fees

Per diems

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CONTROL UTILIZATIONAND UNIT COSTS

Case rates

Capitation

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CONTROL HEALTH RISK

Preventive care

Disease management

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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

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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)

Documents

MILLIMAN & ROBERTSON, INC MANAGED CARE – A COMPARATIVE ANALYSIS 1999 Special Interest Seminar Health and Managed Care HILTON HEAD, SOUTH CAROLINA PANELISTS:BRIAN