Cost Containment Services and Medical Fees Need Alignment

The fastest growing segment of medical expense, at least as it is categorized currently in California, is cost containment services.

This segment includes medical bill review, utilization review and case management services.

The Rand Corp., through the Commission on Health and Safety and Workers' Compensation (CHSWC), released a report Thursday analyzing medical care in California's workers' compensation system and making various recommendations.

One of those recommendations is to report medical cost-containment expenses by category of cost. Rand also suggests that medical cost-containment expenses for services such as case coordination and management be separated from administrative fees including utilization review and network leasing.

I agree that the industry has, for too long, included cost containment in the medical expense ledger of the balance sheet. Not only does this practice overstate and mis-categorize how much medical expenses are in the system, but doing so hides just where the money actually is going.

Steve Cattolica, a lobbyist for the California Society of Industrial Medicine and Surgery and the California Society of Physical Medicine and Rehabilitation, told our WorkCompCentral reporter that it would also be useful to identify who is collecting the money that is paid for cost-containment programs. He said he would like to know whether money is being paid to claims administrators for services such as utilization review and bill review, and whether the administrator is paying another company for these services or passing that money along to the vendor responsible for administering the provider network.

"I think it would be important to find out who is being paid, not just what is being paid," he said. "Those business models drive an awful lot of activity."

I would like to know that too. Just what are the incentives in the system, and who is being incentivized?

Here is an anecdote of why I believe this is not only important information, but may need to be a source of regulation.

When I was still practicing law our firm was retained by a local, large non-profit organization to negotiate a contract with their third party administrator. All aspects of their service were negotiable … except medical bill review.

We were stymied at the negotiation of bill review at every turn. In fact we even offered to pay all medical bills at full face value but the TPA would not budge - bill review services were non-negotiable.

Turned out that none of the TPAs we contacted were interested in negotiating this element of services.

If cost containment services actually were an element of savings for the employer, then why is it non-negotiable? Just how much profit is derived from medical cost containment services? And how much does this element of "cost containment" actually lead to increased costs rather than an actual decrease in costs? And how much does the interference of cost containment services actually exacerbate the "lien problem" at the CA WCAB?

I suspect that the answers to these questions are, in order: because it is a major profit center; a lot; a lot; a lot.

While the lawmakers and regulators toy with revising the medical fee schedule they should also look at the payor end of the equation and bring both of those elements into alignment.