Friday, December 6, 2013

Copy Fee Paralysis

I'm a free market believer.

In general I have faith that any given market will deliver goods or services at fair prices based upon the relationship between supply and demand.

This relationship is subject to various factors that can affect either supply, or demand, or both, but in general given any particular good or service a market, assuming sufficient competition, will find a point where value is determined by the market participants (buyer and seller).

This is because in the vast majority of markets the demand part of the equation is voluntary.

For instance, you may not really need a new car right now, but because a lot of people may be thinking the same way you are, prices for new vehicles go soft so you have more negotiating power.

Or the supply of fuel may be constricted because of refinery limitations and you need that fuel to power your new car to work or to take the kids to school so you pay a little bit more for that fuel than you would have considered last week.

When I was young I used to think that the theories of market based economics was equally applicable to workers' compensation.

What I didn't appreciate at the time was that workers' compensation itself is not a voluntary market. Workers' compensation is, in general, mandated by law (except in Texas).

Workers' compensation is what we call a regulated market. The reason it is regulated is because the requirement to maintain workers' compensation is mandatory so the consumer doesn't have a whole lot of choice.

Yes, there is some difference in pricing, but when it really comes down to the bottom line, the consumer (read employer) has no option and must purchase some sort of coverage.

As a consequence, many things in workers' compensation are the subject of micro-regulation or management.

Elements of supply in the workers' compensation industry must be artificially regulated because there is always demand - forced demand due to the mandatory nature of work comp.

Because this demand is artificial it is easy for the suppliers of goods and services to inflate pricing without market repercussion.

Within a regulated market, though, market economics still come into play, but in a different sense. Competition is defined in different ways, typically through goods or service quality, as opposed to quantity, though at certain price points quantity (read supply) may be affected too.

This is easily seen in the latest regulatory fight in California over photo-copy service fees.

SB 863 mandated the Division of Workers' Compensation come up with a fee schedule for copy shops because the perception by the drafters of the bill was that this was an area of abuse.

Never mind that copy service fees constitute less than 1% of claim costs - because it is unregulated in a regulated market the perception was (and perhaps still is) that the copy service industry was taking payers to the cleaners without delivering any value to the system.

There are essentially two kinds of copy service firms - those that cater to payers and defense attorney firms, and those that cater to applicant attorney firms. They have different cost structures because of various market dynamics and consequently their fees vary greatly.

When DWC announced that it was going to study copy service fees to develop a fee schedule the defense copy firms fully supported the idea, arguing that applicant copy firms were grossly over billing and that their fees needed to be tightly constricted.

This tune changed with the first proposal came out of the Berkeley Research Group, hired by the Commission on Health, Safety and Workers' Compensation, to study copy fees and come up with a proposal.

Turns out that BRG's proposal was also going to ding defense copy shops.

Now the two sides, defense and applicant shops, have banded together to argue that neither side can stay in business with the fee proposal.

Funny how combatants sometimes end up as bed buddies...

Anyhow, there have been meetings with the top people all involved to come up with a compromised solution that will keep copy shops in business, supply the records needed by system participants, and reduce that 1% of claims costs even further.

But it's been well over a year since SB 863 was unleashed and nearly a year since most of the law became effective.

We still don't have a copy fee schedule.

There have been conference calls, meetings, debate, proposals, solutions - and no one is telling the outside world what the deal is.

Reports indicate that there is no way any fee schedule will be in place by the end of the year, which is a shame. The resolve to get the fee schedule done is compromised by the interests of the copy service industry.

Here's where market economics can come into play: the DWC should stop listening to all of the "stakeholders" (as they describe themselves even though EVERYONE involved other than employers and injured workers are "vendors").

That's right - DWC should just act. Forget all of the arguments, the whining, the "we'll go out of business" talk. There will be survivors, and some will be buried with their copy machines.

The government issued a mandate - regulate this little tiny market.

So get the job done. DWC should stop pandering to copy shop special interests. There are plenty of proposals on the table. Pick one.

Everybody else will figure it out once they know what the rules are. There will be losers, and there will be winners.

In the meantime the system is held captive due to inaction. Payers stop paying, vendors stop vending. Paralysis is good for no one.

1 comment:

  1. They may very well out of business anyway since electronic records will soon dominate the marketplace soon. Look at Social Security and the other Federal administrative/judicial systems as examples. Workers' Compensation has to run now to catchup. I agree that bickering about what was isn't a solution for what will be in the changing marketplace.