1. MILLIMAN & ROBERTSON, INC MANAGED CARE – A COMPARATIVE ANALYSIS 1999 Special Interest Seminar Health and Managed Care HILTON HEAD, SOUTH CAROLINA PANELISTS:BRIAN Z. BROWN, F.C.A.S., M.A.A.A. STACEY MULLER, F.S.A., M.A.A.A. OCTOBER 18-19, 1999

2. MILLIMAN & ROBERTSON, INC 1 OUTLINE vObjective of Workers’ Compensation Managed Care Initiatives vWhat are the Savings? vTypes of Cost Savings Methods vConcluding Remarks

3. MILLIMAN & ROBERTSON, INC 2 OBJECTIVE OF WORKERS’ COMPENSATION MANAGED CARE INITIATIVES vTo combine medical cost containment with optimal medical treatment in order to: u Provide medical service at a lower total cost u Increase the quality of care u Expedite worker re-entry into the workforce

4. MILLIMAN & ROBERTSON, INC 3 Data based on a presentation at the 1999 CLRS By Robert Blanco of The National Council On Compensation Insurance

5. MILLIMAN & ROBERTSON, INC 4 SAVINGS MEASURED FROM THREE MANAGED CARE STUDIES

6. MILLIMAN & ROBERTSON, INC 5 REASONS FOR SAVINGS VARIATION vDepends on procedures in place prior to managed care vWhat is managed care? vDegree to which workers and managers buy-into the program vAbility to direct injured workers to certain providers

7. MILLIMAN & ROBERTSON, INC 6 TYPES OF COST SAVINGS METHODS vBehavior modification methods vFinancial arrangements

8. MILLIMAN & ROBERTSON, INC 7 BEHAVIOR MODIFICATION METHODS vUtilization Review vCase Management vSecond Opinion Programs

9. MILLIMAN & ROBERTSON, INC 8 BEHAVIOR MODIFICATION METHODS vUtilization Review u Determine appropriateness of medical procedures u Types r Concurrent Review r Retrospective Review r Pre-admission Certification

10. MILLIMAN & ROBERTSON, INC 9 BEHAVIOR MODIFICATION METHODS vCase Management u Care oversight by a qualified professional r Appropriate Treatment r Timely Treatment u Work closely with all parties r Employee r Employer r Physician u Emphasis on return to work r Prevent worker from becoming conditioned to benefits r More difficult with longer periods away from work

11. MILLIMAN & ROBERTSON, INC 10 BEHAVIOR MODIFICATION METHODS vSecond Opinion Programs u Goal: Reduce incidence of surgical procedures u Relies on sentinel effect u Is net effect a reduction?

12. MILLIMAN & ROBERTSON, INC 11 MANAGED CARE FINANCIAL ARRANGEMENTS vDiscounted Fee For Service vCase Rates vCapitation Contracts vDividend Programs

13. MILLIMAN & ROBERTSON, INC 12 MANAGED CARE FINANCIAL ARRANGEMENTS vDiscounted fee for service u Reduction in fees for certain groups u Often 10% to 15% below fee schedule or “usual and customary” charges u Generally believed to have a small impact in isolation u Discounted services may lead to increased utilization

14. MILLIMAN & ROBERTSON, INC 13 MANAGED CARE FINANCIAL ARRANGEMENTS vCase Rates u Flat fee per claim u Varies by type of injury u Providers may substitute “bed rest” u Thus, indemnity costs must be monitored

15. MILLIMAN & ROBERTSON, INC 14 MANAGED CARE FINANCIAL ARRANGEMENTS vCapitated rates u Flat fee for all workers’ compensation costs for certain or all medical expenses

16. MILLIMAN & ROBERTSON, INC 15 MANAGED CARE FINANCIAL ARRANGEMENTS vFull Capitation u Carrier pays a fee to MCO u MCO agrees to provide: r All medical services r For the life of the claim r For all claims occurring in certain time period u Carrier transfers its medical exposure to MCO

17. MILLIMAN & ROBERTSON, INC 16 MANAGED CARE FINANCIAL ARRANGEMENTS vCommon Capitation Limitations u Usually not responsible for the life of the claim u Certain claims may be excluded (especially those occurring outside the state) u MCO may not be responsible for the full medical expense on catastrophic claims u Therefore, workers’ compensation carrier may be transferring much of the predictable exposures and retaining the more risky exposure

18. MILLIMAN & ROBERTSON, INC 17 DIVIDEND FORMULAS BETWEEN CARRIERS AND MCO’S vCreates an incentive for MCO to return workers back to work vRewards the MCO for efficient management of care vHas MCO guarantee payments to carriers if loss experience is adverse vExample: Loss ratio dividend plan

19. MILLIMAN & ROBERTSON, INC 18 MANAGED CARE PRINCIPLES IN HEALTH CARE vCan be Categorized Based on Influence u Utilization u Unit Price u Both utilization and price u Health risk

20. MILLIMAN & ROBERTSON, INC 19 CONTROL UTILIZATION vUtilization review activities u Certify hospitalizations / plan discharges u Direct level of care vPrimary care physician directed care vClinical guidelines / formularies vBenefit design u Patient cost sharing u Limits: annual or lifetime

21. MILLIMAN & ROBERTSON, INC 20 CONTROL UNIT COST vFee schedules vDiscounts vGlobal fees vPer diems

22. MILLIMAN & ROBERTSON, INC 21 CONTROL UTILIZATION AND UNIT COSTS vCase rates vCapitation

23. MILLIMAN & ROBERTSON, INC 22 CONTROL HEALTH RISK vPreventive care vDisease management

24. MILLIMAN & ROBERTSON, INC 23 APPLICATION TO WORKERS’ COMPENSATION vLimited ability to direct care u Level of care u Provider vNo cost sharing with beneficiary vUnit cost controls typically not available vEmphasis on safety programs may improve health risk

25. MILLIMAN & ROBERTSON, INC 24 POTENTIAL COST IMPACTS vLargest impact through cost sharing vSignificant cost control through fixed reimbursement strategies u Fee schedules, per diems u Capitation, case rates vLong term potential in health risk management

26. MILLIMAN & ROBERTSON, INC 25 CONCLUSION vChanges in Healthcare Market Significantly Impact Workers’ Compensation vMany Managed Care Arrangements can Change the Nature of Workers’ Compensation Risk vWorkers’ Compensation Actuaries Must Understand Healthcare Marketplace and Begin to Collect Additional Data vMust Assess Effect of Treatment Plans on u Quality of Care u Cost of Care u Worker Re-Entry to Workforce (Indemnity & Other Soft Costs)