February 19, 2008

PPOs: Size Matters but Quality Rules

Our colleague Peter Rousmaniere has a fascinating article on PPOs in the current issue of Risk & Insurance magazine, entitled "Has Competition Vanished?" Coventry has become the 900 pound gorilla of workers comp medical services, with 4,700 hospitals and 580,000 doctors. Through the aggressive use of acquisitions and partnerships, Coventry is approaching monopolistic status. The question, of course, is what this means for the carriers and employers using the network for workers comp. Is the Big Kahuna delivering quality services?

Coventry begins with a promise to their payers: they will secure medical services at a discount. According to one source, Coventry slashes more than 30 percent off state fee schedules. While this might be appropriate in states with inflated fee schedules (Connecticut comes to mind), it is definitely counter-productive where fee schedules are already putting the squeeze on providers. When you are dealing with as many providers as Coventry, it is tempting to grow fat off the small margin of a small margin. Unfortunately, slashing fees is no quarantee of quality. In addition, it's often an invitation for providers to rely on quantity to make for skimpy reimbursements: repeated (and unnecessary) visits become "just what the doctor ordered."

With its sophisticated understanding of the market it now dominates, Coventry is hedging its bets. They struck a deal with Aetna to sell and market the latter's innovative program, Aetna Workers Comp Access. Aetna is building a network of providers selected for good clinical outcomes and economy in treatment. They have built 27 networks so far, with more on the way. Aetna is onto something important: instead of relying on discounts, they are looking for providers who understand return-to-work philosophy. Their primary concern is the quality and effectiveness of treatment.

Aetna is moving in the right direction. I hope they offer medical providers financial incentives for speeding the return-to-work process. Rather than demanding discounts, they should offer a reimbursement scheme that rewards results: fee schedule plus, not minus.

It will be intriguing to watch the partnering ritual between humongous Coventry and willowy Aetna. In many respects they are unlikely partners, with diametrically opposed philosophies. In the struggle between cost cutting and treatment quality, something has to give (and it's usually quality). I'd like to think that Coventry will see the value of paying more for something that produces better results. If they do, we may see something truly unique: a big gorilla that really knows how to dance.

| 1 Comment

1 Comment

Jon,

Not long ago and, to an extent, still, Aetna was the 900 pound gorilla in the managed care market for healthcare insurance (HMO, PPO) products in general. They were rolling up networks and HMOs across the country.

In the process, they, like UnitedHealthcare does now, were imposing steep discounts and were very tightly restricting payments. They "worked to the book" as some would say. They used a heavy hand with everyone: providers, sponsors, covered participants.

Somewhere along the line there was a major backlash.

Aetna seemed to listen. They began to realize that there were other ways to manage their book of business and be profitable. They started to focus on preventative medicine and encouraged participants to get healthy, stay healthy and have a relationship with a primary care physician.

They are moving to the next step with outcomes based approaches to their work. That makes significant sense. They get the Leapfrog (quality health care organization) approach to their market.

What you write about Coventry could also be written about UnitedHealthcare in the general health insurance market.

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This page contains a single entry by Jon Coppelman published on February 19, 2008 11:44 AM.

Pro Football and Workers Comp: A Violent Collision? was the previous entry in this blog.

TPAs, PEOs and Sham Insurance is the next entry in this blog.

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