By Joe Paduda, Principal, Health Strategy Associates
The workers’ comp industry is highly mature with way more capacity than needed. Premiums are declining, shrinking administrative budgets. Front-line staff are getting older, more expensive, and much more mobile. Every insurer and TPA has lots of open adjusting slots – and little chance of filling them. Meanwhile fraudsters are getting ever-more creative, worming their way into payment flows and receivables.
These drivers are compelling work comp payers to look into every nook and cranny, seek out every operational and administrative efficiency, and lift every couch cushion to uncover every nickel.
The twin drivers of staffing and expense control are encouraging payers to adopt electronic payments. More precisely, payers that adopted e-payments a while back are re-examining their solutions to find more efficiencies while newbies are well into RFP processes as they hurry to catch up.
Both early adopters and newbies are focusing on a couple of key considerations: how many dollars of payments can be shifted to an electronic format, and what are the financials? There’s also one self-imposed obstacle that’s becoming a hurdle for some…which we’ll get to in a bit.
Both payer types are focusing on three key metrics:
- Percentage of medical dollars that can be shifted to electronic delivery;
- Medical dollars split by types of e-payments (e.g., virtual check, ACH/EFT, virtual card, e-check);
- Financial impact, defined as reduced administrative expenses plus revenue from virtual credit card fee sharing.
The less-easy-to-measure-but-just-as-important consideration is how much a switch to an e-payment solution will improve adjusters’ lives. Today those poor souls have to answer calls from doctors’ offices asking where their checks are, when they’ll get their 1099s, why their mailing addresses haven’t been updated, and other assorted tales of woe.
That’s very valuable – and increasingly expensive – time that could be far better spent handling return-to-work issues, discussing settlement strategies, coordinating with clinical staff and helping a newly-injured worker get through the first few days of recovery.
On the metrics, a couple of benchmarks should drive your thinking.
First, expect over three-quarters of your medical spend can be shifted to an electronic method. The key driver here is the e-payment vendor’s existing relationships with providers. In general, the more total dollars the vendor handles, the higher your percentage will be. That’s because individual and group health and governmental programs (Medicare and Medicaid) are far larger payers than workers’ comp (think trillions vs. billions) so the more individual, group and governmental clients a vendor has, the more dollars it has to send to providers.
As an aside, a couple of huge health insurers are telling/have told their medical providers that they will ONLY pay them electronically. This is a pretty darn effective way to drive adoption.
Second, some payers are pretty interested in the revenue share that comes from virtual cards. Essentially some healthcare providers want to get paid by a virtual credit card. They process it through their terminal (the same one they use for deductibles and copays) which costs them a couple of cents or so per dollar. If revenue is a focus, you’ll want to find out what percentage of your payments will generate how many dollars.
One issue that seems to have garnered the attention of a few payers is the desire to switch all payments over to a third party, with some seeking to digitize payments to agents, injured workers, attorneys and other third parties. While certainly understandable, this can fall into the “perfect is the enemy of the good” trap, in which every stakeholder in every department wants her/his suppliers paid electronically. This tends to lengthen (and complicate) the implementation process while generating marginal benefit. Focus first on medical dollars, which typically account for three-quarters of spend and are mission-critical.
Lastly, as long as you’re headed down the “get someone else to handle this so I can focus on my real job” road, make sure you strongly consider flipping ALL medical provider payments to your e-payments partner. The partner should be able to cut paper checks where no other payment option exists – and is obviously motivated to switch paper-taking providers to some form of electronic payment.
Expect admin expense reductions to be meaningful but not huge, and revenues to follow the same path. Adjusters’ satisfaction, retention, and general happiness may well tick up too.
Think of it this way – every day you are paying a provider yourself you’re opting for higher admin expense and grumpier adjusters. It will take some work, but you – and your financials – will thank you.
About Joe Paduda
A nationally recognized expert in medical management and pharmacy, Joe Paduda is the principal of Health Strategy Associates, a consulting firm that works with workers’ compensation insurers, employers, medical and pharmacy management companies, healthcare providers, government entities, and investors. He also conducts industry research and writes the thought-provoking www.ManagedCareMatters.com.
In addition, Paduda is president of CompPharma, LLC, a consulting firm dedicated to analyzing and improving pharmacy programs in workers’ compensation. He has conducted an annual survey of pharmacy benefit management for 16 years.
Before starting his consulting business in 1997, Paduda held executive positions with major insurers, including Traveler’s, United Healthcare and Liberty Mutual. He has a Master of Science degree in Health Management from the American University and earned his bachelor’s from Syracuse University.
Paduda is the recipient of the IAIABC’s President’s Award for his work in identifying solutions to opioid misuse in workers’ comp. He is an advisor on a research project comparing the effectiveness of two state payer strategies to prevent unsafe opioid prescribing, which is funded by the U.S. Department of Health and Human Services’ Patient Centered Outcomes Research Institute. Paduda also serves on the Board of Directors of the Commonwealth Care Alliance, a Massachusetts-based not-for-profit healthcare organization serving individuals who are dually eligible for Medicaid and Medicare.
About Health Strategy Associates
Based in Plainfield, New Hampshire, Health Strategy Associates consults with insurers, employers, medical management companies, health care providers, and investors. Its highly customized services encompass research and competitive analysis along with operational, marketing and sales improvements. For more information, please see www.healthstrategyassoc.com.