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Report Reveals Brutal Reality of Workers’ Comp “Middlemen” Inflating Costs and Pocketing Profits

image via PHX News

image via PHX News

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A recent report from ProPublica explores the world of the “Workers’ Comp Industrial Complex,” wherein a group of middlemen have succeeded in “cutting costs” for companies at the expense of the injured and sick, all while making themselves rich in the process. 

In 2013 alone, employers spent an estimated $89 billion on workers’ compensation.  It’s such a big, bad business that private equity firms have bought into the middlemen, further complicating an already complicated system.   The report contains vivid descriptions of workers’ compensation conventions in Las Vegas ballrooms, complete with entertainment, libations, and a wealth of gifts for those who attend.

For many, the first question is, “How did we get to this point?”  The systematic chipping away of protections nationwide, leaving workers vulnerable to exploitation by those who see nothing but dollars and decimals:

Over the past year, ProPublica and NPR have detailed how state after state has reduced the benefits historically granted to injured workers. As a result, some workers have been evicted from their homes, denied medical care and put in humiliating situations.

While lawmakers have clamped down on payments to workers, doctors and lawyers, little scrutiny has been given to these “cost containment” firms — even though today they arguably have more influence on how injury benefits are handled than insurers and employers.

Highlighting the bounty, there are now more than 150 workers’ comp conferences a year. There’s one for the American Society of Workers Comp Professionals, one for the Association of Workers’ Compensation Professionals and one for the Association of Workers’ Compensation Claims Professionals. At least 26 have golf tournaments.

At the national workers’ comp and disability expo, vendors gave away Apple watches, bottles of bourbon, and a Vespa scooter. There were free massages and shoeshines, a superhero caricature artist, more than one mentalist, and a live alligator named Spike.

With the equity firms wholly ensnared in the muck, the negative impact trickles into the entire healthcare system:

In California, the amount of money that insurers spend on medical cost containment programs has more than doubled from $197 million in 2005 to $471 million in 2014, according to the state workers’ comp ratings bureau.

Seeing huge profit potential, private equity firms have gone on a buying spree.

Sedgwick, a company that processes claims for large employers, was acquired by two private equity firms for $1.1 billion in 2010 and then sold to another for $2.4 billion in 2014. One Call Care Management, known in the industry as a medical “cost containment” firm, was bought for more than $2 billion in 2013, and reportedly bid to buy another vendor, pharmacy benefit manager Helios, for $2 billion this fall.

Some of the biggest firms — Sedgwick, Genex, Helios, CorVel, MedRisk and One Call — are little known outside the workers’ comp industry. But they have become powerful players in determining the future of how injured workers are treated.

The companies say they play a critical role in reducing excessive medical costs and preventing inappropriate treatment. Southern California, for example, has recently witnessed a series of scandals involving doctors and hospital executives who’ve been accused of bribery, kickbacks and unnecessary surgeries involving workers’ comp patients.

Even die-hard capitalists understand there is an ethical threshold for profit maximization, a line that must be drawn. The evil actors in question are blind to these boundaries:

Many cost-containment firms negotiate prices with doctors and other medical providers and then take a cut of the discount they provide to insurers. Often, the insurers and claims administrators receive fees and commissions from cost-containment firms for selling their services to employers, said Frank Pennachio of Oceanus Partners, an insurance consulting firm.

Some cost-containment companies have found another way to profit, according to several doctors, insurance consultants and other service providers who asked not to be named because they must do business with these companies. They said firms misrepresent the cost of services to insurers, pocketing not only the percent of savings but also the difference between the inflated price and the true charges.

“The presence of these companies is becoming so overwhelming that providers are getting squeezed out,” said Steve Cattolica, government relations director for a doctor’s’ organization, the California Society of Industrial Medicine and Surgery. Some firms are “raising the costs of work comp health care without delivering any value.”

Read this important and fascinating piece in its entirety via Truthout.


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