Traditional managed care tools such as utilization reviews and doctor networks continue to wring costs out of employers' workers compensation programs, several observers say.

But a recent California Department of Insurance report questions the effectiveness of utilization reviews and certain doctor network practices.

The July 7 report that resulted from a rate hearing said off-the-shelf medical provider networks that focus solely on lowering payments to doctors could actually be encouraging more treatments and procedures.

In contrast, the report said self-insured companies that develop close relationships with specific doctors, while reviewing bills and utilization to reward effective medical treatment, have lowered costs and produced favorable return-to-work outcomes.

Employers nationwide could benefit from working closer with specific medical providers whom billing and claims outcome data have identified for their ability to reduce disability durations and costs, said Maddy Bowling, a principal in Chicago at Maddy Bowling Consulting Inc.

That could provide better claims outcomes than result from preferred provider networks that mainly offer a discount for treatment visits coupled with access to a large number of doctors, regardless of the doctors' experience or quality, Ms. Bowling said.

Given the continuing cost increases in medical care, “I really don't think those (PPO networks) are working in comp,” Ms. Bowling said. “The most important thing you can do on a comp claim is refer the newly injured employee to the best doctor. That is going to have the most impact on whether your claim goes well or goes poorly.”

Focusing on contracting only with doctors that have proven their ability to obtain favorable claims results, rather than a network touting access to a large number of doctors across a broad geographical area, also could eliminate a significant amount of utilization review, Ms. Bowling said.

Utilization reviews can irritate doctors, so they may be less likely to release an injured worker rather than risk releasing a patient too early, Ms. Bowling said. This can drive overhead costs higher.

Some insurers now realize that savings and efficiencies flow from a well-managed provider network that gives “proper treatment” rather than relying extensively on utilization review, the California Department of Insurance report said.

“Utilization review needs some utilization review itself,” because a majority of medical requests are going through the process only to get approved, the report said. That means unnecessary reviews could add to costs.

Cost-containment expenses, including payments for bill reviews, utilization reviews and medical provider network services, are increasing.

In California, for example, insurers paid $284 million for cost containment in 2008, up from $187 million in 2007, according to a June Workers' Compensation Insurance Rating Bureau of California report.

While NCCI Holdings Inc. could not provide data on cost-containment expenses for the 38 states where it provides rating services, observers say cost-containment expenses have been rising across several states in the past two or three years.

Overall, medical costs for lost-time claims have increased 6% over each of the past three years, according to Boca Raton, Fla.-based NCCI, a unit of the National Council on Compensation Insurance Inc.

Utilization reviews can be used too often when applied repeatedly to treatments that are necessary, said Betsy Robinson, director of strategic program development for Intracorp, a Philadelphia-based workers comp and disability medical management company and unit of CIGNA Corp.

So Intracorp analyzes patterns of its network providers and does not conduct utilization reviews when the doctors are experienced in workers comp treatments and demonstrate a record of using best-practice guidelines.

“We send them a letter and let them know, "Your practice patterns have been positive, you operate within guidelines and we are not going to interrupt your medical treatment with UR,' “ Ms. Robinson said.

But Intracorp continues to monitor bill utilization data to assure doctors don't stray from best-practices guidelines. It also conducts a utilization review when data shows doctors too often fail to operate within the guidelines.

To help address its work comp costs, Pleasanton, Calif.-based Safeway Inc. established its own “very focused network” of “high-quality doctors” rather than relying on a “generic” provider network, said Bill Zachry, vp of risk management for the grocery chain.

But Safeway's nurse practitioners still conduct utilization reviews to avoid unnecessary treatments and get the kind of health care that returns employees to work.

“I know there has been some questioning of utilization review, but I think UR is the primary methodology, particularly on evidence-based medicine, for ensuring quality of care for your employees,” Mr. Zachry said.

State laws vary widely in governing the application of doctor networks and utilization reviews.

But because medicine is as much art as science, some utilization review always is necessary, said Paula Woolworth, senior vp of account management at GAB Robins Group of Cos. and a vp in the company's MedInsights workers comp managed care unit in Parsippany, N.J.

Even the best doctors rely on innovative treatments or may overuse certain medical services, Ms. Woolworth said. Utilization reviews also are necessary because health care industry pressures to make a profit can encourage overuse of services.

Increasingly, companies that provide third-party administrators and workers comp insurers with provider networks are basing fees on the ability to deliver favorable claims outcomes, said Anita Schoenfeld, a Dallas-based senior consultant and workers comp specialist at Tillinghast, a business unit of Towers Perrin. So they are using billing reviews, utilization reviews, and analyzing claim outcomes and disability durations to contract with doctors that produce the best claims outcomes.

“The networks are coming to the TPAs and saying, "This is the data that we have to show our outcomes are better,' “ Ms. Schoenfeld said. “That is the way they sell their services and choose their docs. They have been doing that for years on the employee benefit side. Now, (some of) those same networks are doing it on the comp side.”

Yet employers still need to push their TPAs and insurers to assure they are contracting with doctors that are focused on favorable outcomes, several sources agree.

But claims outcomes are not the only consideration in determining whether a network is appropriate for a specific employer, said Heidi K. Mader, vp and national leader for the absence, disability, work comp and life management practice at Aon Consulting in New York.

Networks also must be evaluated for their quality of care, discounts and access, meaning the number of providers they have in geographical areas where an employers workers are located, Ms. Mader said

“Let's say you identify the best providers in the world, and the quality of those providers is superb,” Ms. Mader said. “They get folks back to work (and) their costs are the lowest. (But) if those providers are a hundred miles away, guess what? No one is going to go to them.”