March 21, 2018

Art Lynch: The Benefits and Challenges of Using Value-Based Contracting in Workers’ Comp

By Art Lynch, President and Chief Executive Officer, Coventry

Art LynchValue-based contracting continues to attract attention through a wide-ranging dialogue focused on the need for health care reimbursements to reward outcomes over activity. Last week, we reviewed the types of value-based models that are deployed in commercial health care. While there are similarities between group health and workers’ comp there are significant differences, too. Here will we examine those disparities and consider the benefits of introducing VBC models in workers’ comp.

The Devil’s in the Data
While it might seem simple, the differences between a network-contracting entity and a paying entity can be confusing when it comes to VBC. In group health it is standard for an insurer or payor to be the network contracting entity. However, in workers’ comp it is rare that the insurance company or payor is handling the contracting. This can make conducting the necessary data analysis more difficult. When you are not the payor it is hard to know if the services (during bill review or repricing activities) were reimbursed as recommended. This knowledge gap can make it difficult to determine the appropriate payment for a procedure such as a knee repair or a shoulder repair. That, in turn, could reduce the effectiveness of contract negotiations if the gap is not properly closed.

Likewise, on the group health side, it is common that the health plan controls everything: the medical services, utilization review and case management. In workers’ comp that isn’t always true. Often, the network company isn’t the same as the care-management company. Without information from utilization review and case management, the network’s ability to evaluate clinical outcomes can be diluted. In addition, readmission rates are harder to identify in workers’ comp. And that information is critical to a solid value-based contract analysis.

The last challenge to VBC analytics relates to the types of care usually considered for these prospective pricing models. In group health, the common VBC services are knee and hip repairs or replacements, transplants and other types of surgical procedures. With the large populations found in group health, high-volume procedures become a priority for VBC. In workers’ comp, by comparison, surgeries are not as common as sprains, strains, contusions, lacerations and even sutures. While surgeries are still costly, finding a significant sample size in the specified geographic area is a challenge.

State Rules, Regs and Fee Schedules
State rules and regulations add another layer of complexity. These include mandated reporting requirements, fee schedules, medical guidelines and formularies. They also restrict whether and how you can encourage or direct care toward certain providers.

There are a handful of states without fee schedules, though most states rely on them. This means that each procedure code (e.g., for a surgical procedure, office visit, physical therapy or diagnostic service) has an established reimbursement price. Historically, provider fees have been calculated at a discount off the state-mandated rate. The introduction of VBC into this model raises a number of questions to be asked prior to developing a model. These include:

  • How does one review and price bills for prospective bundled services?
  • How could bills submitted for payment prior to determination of a surgery be priced and reimbursed individually?
  • Isn’t it likely that complexity of these reimbursement models would require the network company to handle the bill review?
  • Wouldn’t re-billing/AR issues be a potential byproduct of this model?

Workers’ Comp Claims Mentality
Today’s claims environment is one in which everything is allocated to the claim file. Similarly the definition of network value has been attributed to “savings.” Under a value-based model this mentality will have to change. For a value-based model to work, a progressive payor must be willing to throw out the old savings model and understand the goal extends beyond a particular claim. Part of the give and take of value-based contracting stipulates that providers will make more than they charge on some cases in exchange for delivering the right services and guiding patients to better outcomes sooner. In other cases, providers will perform more services than expected to deliver that same level of care. Doing so might result in a financial hit to the provider.

Understandably, this is also going to be a difficult concept for workers compensation payors to accept. It will take those payors progressive enough to reason that the risk is worth the reward. Part of the value is derived when injured workers get back to work sooner than expected, in better health than expected and more often than expected.

The Road Ahead Could Bend Toward Great Value
Given the differences outlined above, one might question whether to bother pursing a VBC setup. Regardless of the hurdles we might need to overcome as an industry, there is much to be gained if we can begin to evaluate and implement value-based models. This might only be possible in select states and for select procedures. Baby steps might be necessary. But the benefits that could flow from value-based models are too promising to ignore:

  • 1. Providers incentivized by better health outcomes —and not the number of visits, tests and procedures — can better treat injured workers without worrying about being fairly compensated.
  • 2. Encouraging quality outcomes through VBC will result in predictable pricing, while also returning people to work more quickly and in better health. For payors, this translates to lowered indemnity costs, which can represent 50 percent of the expense of an injury.
  • 3. Providers will become partners more closely aligned with workers’ comp payors. They will benefit from the opportunity to deliver effective care for a cost below the value-based rate.
  • 4. Network managers who arrange and negotiate strong value-based contracts will be seen as well-intentioned agents of change rather than simply recipients of savings gained through traditional fee-for-service arrangements.
  • 5. An industry-wide culture could emerge in which employers, payors, managed care organizations and providers all benefit from individuals returning to work and to their healthful pre-injury lifestyles.

Given the challenges and the benefits, it seems clear that value-based contracting merits further exploration in the workers’ compensation market. Nevertheless, when you discuss this with your partners, be sure to clarify expectations and make certain goals are understood. That is the surest way to safeguard a common desire for improving injury outcomes while containing costs.

About Art Lynch

Art Lynch joined Coventry Workers’ Comp Services in 2006 when Coventry Health Care acquired First Health, as Senior Vice President of Account Management and Strategy, overseeing account management and working with his team to develop and maintain strong lasting client relationships. He was named Chief Executive Officer in November of 2013 and is now accountable for the company’s overall revenue, operations, networks, pharmacy and care management products.

Prior to holding various leadership positions at First Health during his 16 year tenure, he led sales and operations for Ebtek, Inc., a firm based in Oak Brook, Illinois, specializing in providing human resources and insurance expertise to small businesses. Lynch received his undergraduate degree in Political Science and Psychology from Columbia University.

About Coventry
Coventry NewCoventry offers workers’ compensation cost and care management solutions for employers, insurance carriers and third-party administrators. With roots in both clinical and network services, Coventry leverages more than 30 years of industry experience, knowledge and data analytics. The company offers an integrated suite of solutions, powered by technology to enhance network development, clinical integration and operational efficiencies at the client desktop, with a focus on total claims cost.

Coventry is a WorkCompWire ad partner.
This is not a paid placement.

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