I just got back earlier this week from the National Work Comp Conference in Chicago. It was a productive conference, although I liked the setting of Las Vegas better last year.

The big difference at the conference was the buzz over Coventry. With all of the mergers and deals this year, it was clear Coventry was going to be the main topic for everyone, which held to be true. An irony of the conference was that Coventry seemed to be very quiet themselves. There was not a big splash from Coventry promoting their new “super network”. Instead, there was just a lot of talk from Resellers as to if they were going to be termed by Coventry or see their rates go up (or both).

I also heard a lot of buzz regarding Fair Pay and other “fair and reasonable” business model companies. It seems the time has come for this major form of cost containment.

Otherwise, it was a quiet conference.

As stated in other posts, it continues to amaze me the changes in 2007 for the workers’ compensation PPO market. This week brought more changes.

From my discussions with many different people, it seems that Coventry has now entered a new strategy. What I am hearing is that they are now going to offer a “Super Network” (not a very creative name) consisting of Focus, Aetna, and Coventry. For this “Super Network” the payor will get all 3 networks but at a much increased price. We shall see if this ends up holding true, but it seems to be the understanding of a lot of industry people. I imagine we will all know much more after the National Work Comp Conference held next week in Chicago. Also, it sounds like the plan from my sources is for Coventry to cancel all of the reseller agreements they have in place to drive everyone to them as a total solution (thus cutting out all of the resellers including software companies and bill review companies). If this is the strategy, it will only work if they term all of the resellers.

PPO percentage of savings have just gone to low, so the market is about to adjust itself with Coventry’s plan if it holds true. In a sense, I think this is a good thing as PPOs can’t continue to offer full coverage at increadibly low prices. Payors always underestimate what it really cost to run a PPO.

Whatever the strategy ends up being, the payors just needs to understand that options exist like Prime Health Services. No one has to be cornered by Coventry or any other company. The free market always wins in the end. New companies will emerge and existing ones will rise to the top to take on the “super network”

I continue to be amazed that many in the work comp industry do not understand the PPO industry, although it is a mature business model. Many payors and consultants believe payors are limited to only Aetna or Coventry work comp PPO networks. See the below statement from joepaduda.com:

“Unstated but obvious is the most important rationale - as the Coventry combo is the last big WC network standing, national WC payers have no other options. Yes, CorVel does have a national network, but none of the payers surveyed consider it a serious option.”

The above is simply not true. There are several quality national workers’ compensation PPO networks in the marketplace. Prime Health Services, Beechstreet, IHP, and others. The market simply does not have to be stuck with Coventry and Aetna. Payors and consultants need to pay attention to the market options. Otherwise, they are going to be paying more than necessary for their PPO.

Why is the medical cost containment industry experiencing all the PPO consolidation in 2007? The answer is fairly simple. The payor community won’t make fast decisions. It is not unusual to see payors take two (2) to three (3) years to make a decision to choose a new workers’ compensation PPO. With such a slow response, it doesn’t allow PPOs to easily gain new business, even if they are much better than the current PPO vendor of the Payor.

It takes approximately 10 years to create a really quality PPO that is able to compete on the national stage. However, if a workers’ compensation PPO doesn’t obtain new business early in its genesis, then it may never have the 10 years needed in development. It takes a lot of capital and patience to last the years of needed.

The market in late 2007 had a major shift. Two larger named PPOs, including the market “800 pound Gorilla”, for all practical purposes merged in the market place. In my opinion, this occurred because the payors were not making choices at a fast enough pace to satisfy the business model needs of those two PPOs.

Most PPOs are paid on a percentage of savings that they achieve for their clients. However, these rates have been pushed down greatly over the past seven (7) years. This decline in % of savings rates has reduced revenues to PPOs along with ever increasing and deepening fee schedules in the various U.S states.The payor community consisting of TPAs, Insurance Carriers, and Self Insured employers are unfortunately hurting themselves by not choosing new PPO options more quickly. The consolidation of the market continues to take away PPO choices. However, all is not lost. There are quality PPO choices in the mature space of workers’ compensation PPOs. Hopefully, the payor community, which is now faced with a consolidation process that is ongoing, will understand and react by choosing competitive quality PPOs. If they don’t act soon, they will be paying much more for PPO savings all across the country. As in economics in general, monopolies only drive up costs. The new “800 pound Gorilla” is going to be pushing pricing up much sooner than later.