By David A. Donn, President, David Donn Consulting, Inc.
Wouldn’t it be wonderful to be in the business of manufacturing a commodity that everyone needs, few understand and most leave up to third parties to supply? Oh, and charge fees that would make Wall Street envious. Welcome to the world of workers’ compensation medical bill review circa 2013.
Now let me point out there’s nothing wrong with manufacturing a commodity and pricing it as something else. I’d say it’s downright brilliant as long as you’re being transparent to your client and they understand what’s being provided and specifically how you’re billing for it (with examples of all the relevant billing scenarios). The problem is it’s not transparent. While it’s fair to say some bill review companies are more transparent than others, for the most part the industry is opaque and not desirous of being less so. Why would they want to reveal all their inner workings when a) they don’t have to and b) it would cost them money to do so.
Let me explain. Bill review companies (not all of them but enough of them) create an assembly line process whereby a coder or bill reviewer inputs anywhere from 75 to 150 bills a day. The bill review software automatically applies state fee schedules, and in a handful of states, usual and customary. If a bill is part of any one of a number of PPOs that the bill review company uses their software (or the PPO itself) will apply the discount. I’d say anywhere from 0 to 15% of the bills get “pended” or redirected for more in-depth review because the bill has a higher level procedural or CPT code. Where does the process get commoditized? Well, the greater the number of bills input by the coder, the greater the commoditization. The lower the number of bills processed by the software and the greater usage of specialists, the more specialized the product. The same can be said of the time spent to review the bill. The greater the time the bill reviewer spends in reading the medical reports and supporting documentation to assess whether the code is billed properly, the higher the level of customization. We always look for a number of about 30-40% of the bills being reviewed for what we call “level of service” analysis or the determination of whether or not a lower code should have been used and therefore a lower reimbursement recommended. A significant source of your bill review savings should come from “right coding” the bill as opposed to simply “applying” fee schedule and PPO. The reason bill review companies shy away from this process is because it takes time and time is money and money is profit. More time spent, less money made and the calculus is that simple. It’s very analogous to the claim administration tug of war where your outcomes improve with reduced examiner case loads and more time spent on each file.
You the employer are looking for the optimal bill review savings levels, meaning highest number with the greatest accuracy. Optimal savings creates a lower paid medical and suboptimal savings a greater paid medical. For a medium size employer, one savings point could generally be worth $100,000 a year. Usually though the spread between an optimal program and merely a good program is 4-5 points, or $400,000 to $500,000 for a medium size employer.
Now if you’re the one getting one of those suboptimal programs you’re not feeling too good. The problem is most folks don’t know where their optimal number should be and most critically, bill review companies don’t make it easy for you to figure it out because they all report savings differently.
That’s bad enough right, losing as much as 5 points or more or as much as $500,000 or more a year on your bill review program. That’s not a club you want to belong to. But here’s where it really gets interesting. How about paying luxury brand prices for that commoditized product. What do I mean? The fees in your contract are most likely not what you expect them to be. There’s a lot of wiggle room in how your fees can be applied and usually the language is sort of vague and designed to be. So where you think you might have negotiated a great per bill rate and a great PPO access fee rate, the real game is played behind the scenes. Unbeknownst to you, fee schedule savings might be dumped in the higher-priced PPO category, or in another higher-priced category called “nurse review” or some other name that’s given to their product that does a higher level review of codes. In such cases you should be charged at your per bill rates but instead get charged at some much higher rate. Your per bill rate and your PPO rate therefore are “teaser rates” designed to draw you in while your true cost is inflated. How do you know whether this is happening on your program? Simply divide your total fees for the year by the number of bills reviewed. If that number is much more than $11-$14 dollars per bill, you’re likely overpaying and something is amiss.
For the same reason you review the pricing of your claims program to make sure fees for medical-only claims are not being charged indemnity prices and therefore being miscategorized, you need to review your bill review program for the same.
Now as far as the margins generated for this commodity product sold at specialized prices – try margins from 50% to 500% plus. Compared to claims margins of say 8% to 15%, that’s a great business to be in.
About David Donn
Mr. Donn is the founder and President of David Donn Consulting, Inc. (DDC), a specialized workers’ compensation managed care advisory and research firm exclusively serving the employer and carrier community.
Mr. Donn is the former Vice President of Employer and Occupational Services Group (EOS), the former workers’ compensation managed care subsidiary of Health Net, now part of Aetna/Coventry Health Care, one of the largest health care companies in the country. At EOS, he implemented practical solutions to clients’ loss control needs and structured innovative cost containment programs that increased clients’ savings while reducing their costs. In addition, he designed, directed and executed all business development initiatives for the company’s western region. In Mr. Donn’s 7-year career at EOS, he generated $35 million in new revenue with his unique consultative approach for such clients as Georgia Pacific Corporation, Kaiser, Chevron, Pacific Gas and Electric (PG&E), Atlantic Mutual Companies, Fremont Health and El Dorado County.
Mr. Donn is a frequent speaker at various industry conferences and their chapter affiliations for RIMS, PARMA and the Industrial Claims Association. Notable keynote speeches by Mr. Donn include the 2004 “Best and Brightest/Hot Topic Educational Forum” for the California Coalition on Workers’ Compensation (CCWC) and “Transforming Knowledge into Action & Action into Profitability” at the 2009 Michigan Self-Insurers’ Association (MSIA) Spring Conference. He has also spoken at the Missouri Self-Insurers Association’s Annual Conference and the National Council of Self-Insurers Annual Conference and most recently for Busines Insurance Magazines virtual conference on claims/managed care bundling or unbundling.
Mr. Donn holds a degree in finance from New York University’s Stern School of Business and has taught practical economics, finance and investments at the prestigious Lowell High School in San Francisco as part of the Junior Achievement program for the Bay Area. He currently resides in San Francisco, CA, with his wife Sarah, son Oliver and French Bulldog Owen.
David Donn Consulting, Inc. (DDC)
DDC is the first independent workers’ compensation managed care consulting and research firm to exclusively serve the employer community. Our scope of services are concentrated in workers’ compensation managed care program evaluations and vendor selection services. Clients are full and partially self-insured private and public entities, insurance carriers and JPAs.
From its inception in 2002, DDC was created to provide its clients with practical consulting services aimed to increase savings, reduce costs and introduce leading edge design ideas into workers’ compensation managed care programs. Many of our practical “firsts” have become standards for the industry. DDC’s sole aim is to help our clients maximize their managed care goals by providing unbiased, relevant information and advice. To ensure this objective, we limit our business exclusively to managed care consulting. DDC is not affiliated with any managed care service provider nor does it receive financial remuneration from managed care service providers.