Misunderstanding the business of workers comp

November 18th, 2015 by Julie Ferguson

Anyone who is familiar with Joe Paduda’s blog know that he is pretty forthright and frank in putting forth his opinion, apologies to no one. His strong point of view combined with his deep expertise on the medical side of comp makes Managed Care Matters a compelling read and one of our most frequent blog stops.

So when we find an article by Joe that starts off with an alert that what he is about to say runs the risk of alienating most people in the workers comp world, well, we take notice. Nothing we like better than a good workers comp controversy.

The article: What Is the Business of Workers’ Comp? posted at Insurance Thought Leadership.

The controversy:

“Most workers’ comp executives – C-suite residents included – do not understand the business they are in. They think they are in the insurance business – and they are not. They are in the medical and disability management business, with medical listed first in order of priority.”

We agree with Joe and we fail to see the controversy! We’re a little disappointed because we envisioned a work comp mud wrestle but he lays out a clear case that’s pretty hard to dispute.

Joe points to a graveyard littered with household-name healthcare insurers of yesteryear who mistook their core deliverable and he makes the parallel with property casualty work comp insurers of today.

For us “olds,” we started in an industry where indemnity or wage replacement was about 60 percent of the claims dollar. In recent decades, that has upended and the medical costs dominate most claims. But even in that seemingly simpler time, you could make the case that the industry focus was misdirected. And if the insurance CEOs have a misunderstanding about their core deliverable, perhaps it is partly because they have been aided and abetted by employers, who have all too often misunderstood what they are buying.

Lynch Ryan came into being because what was essentially an unmanaged human issue was largely being handled as a financial transaction: people were getting hurt at work and there was no consistent, effective process to get them well and get them back to work. Those were the bad old days before “return to work” had entered the industry lexicon in any meaningful way. Employers were essentially outsourcing their core responsibilities to insurers and washing their hands of the process. Today, thankfully, most employers are much more enlightened about workers comp and the hand-on role they must play.

But all too often, buyers are still shopping for the cheapest work comp “solution” and the biggest network discount, sacrificing the immediate micro gain for the big picture.

Joe raises some good challenges and we think they are good ones for the buyer every bit as much as for the seller:

“Then why is the industry focused almost entirely on buying medical care through huge discount-based networks populated by every doc capable of fogging a mirror (and some who can’t)? Even with those huge networks, why is network penetration barely above 60% nationally? Why has adoption of outcome-based networks been a dismal failure? Why do so few workers’ comp payers employ expert medical directors, and, among those who do, why don’t those payers give those medical directors real authority? Why do non-medical people approve drugs, hospitalizations, surgeries, often overriding medical experts who know more and better?”