Rehab Costs Insurers Look for New Treatments

For the last two decades following the establishment of universal healthcare in Canada, property and casualty insurers have played a limited financial role. The statutory primacy of the public health system, coupled with greater reliance on hospital-based care during this period (for acute and rehabilitation care), largely confined the function of insurers to supplementary services and to the “payer of last resort”.

The last 10 to 15 years have, however, seen this situation change dramatically across the country. The Insurance Bureau of Canada (IBC) estimates that in 2000, private auto insurers paid out more than $1 billion in accident benefit claims for medical rehabilitation services. This figure, which excludes the medical rehab component of tort awards or claims under personal liability policies, has grown by more than 350% since 1990. What has happened to push up insurers’ rehabilitation costs so dramatically?

A number of factors have been at work. For one thing, budget pressures have prompted hospitals to push for ever-larger portions of the recuperation and rehabilitation services that injured people need back into the community – where they are often delivered by private healthcare providers and nearly always paid for by insurers. Another significant factor has been changes to provincial legislation pertaining to auto insurance. In this respect, the provincial governments have shifted a significant portion of the healthcare costs associated with injured crash victims onto the insurance industry.

The non-tangible factors

Also important in the rising tide of rehabilitation costs are a number of less tangible factors. One example is the growing propensity on the part of people involved in fault-based “accidents” to view insurer-paid rehabilitation services as an “entitlement” they have a right to regardless of their actual condition. This phenomenon is not unique to Canada, but has been reported by researchers across North America.

Another contributor to rising costs is fraud, both the type that involves pre-meditation and planning, and fraud that seeks to take advantage of an insurer by inflating the severity of an injury and related rehabilitation needs. The Canadian Coalition Against Insurance Fraud (CCAIF) recently undertook an independent research study to determine a credible costing of fraud-related medical rehabilitation claims. The study examined more than 4,000 closed claims files, making it the largest research project conducted in Canada. The results of this study are very revealing and will be released shortly.

Not just the money

Each year in Canada, more than 225,000 people are injured in motor vehicles. As large as that number might seem, it has been estimated that close to six times more people suffer unintentional injuries from other sources, such as falls and sports mishaps. A significant proportion of these people seek the services of professional rehabilitation health providers. When they do, their goals are generally to restore functional capacity and regain quality of life at work and in the community.

It is the insurer’s role to provide injured people with the resources to achieve these objectives. Yet, with the dramatic increase in insurers’ rehab costs have come growing doubts about the effectiveness of some of the treatment plans being paid for. As Rick Evans, CEO of Liberty Insurance and Chair of the IBC’s “health issues steering committee” says, “our overriding concern is to help people get well. But, with the fragmented structure of the rehabilitation sector and lack of uniform quality assurance standards, it is very hard to know if and when we are getting value for our health spending.”

A major part of the problem results from the historic lack of attention from health policy decision-makers. Although IBC estimates that nationally more than $3.4 billion is being spent each year on rehabilitation services by provincial health plans, workers’ compensation boards and private and public insurers, the sector has not succeeded in being treated as part of the mainstream of planning and resource allocation for healthcare. Moreover, there are suggestions that, in recent years, public policy’s neglect of rehabilitation has grown more pronounced with the transfer of many rehab services out of the public health system.

Evans notes that, “once responsibility for a stream of treatment leaves the publicly funded segment of healthcare, there often is no organized data gathering, no way of determining who may be falling between the cracks, no systematic problem identification, and no sector-wide planning. And government’s concern for the cost of services seems to recede once it is assumed that the costs will be paid by insurance or private individuals.”

Issues for insurers

The following key developments have become critical cost concerns for insurers:

Extreme fragmentation within the rehabilitation healthcare sector – different funders, a wide variety of providers housed under different roofs, the absence of overall monitoring, planning and quality control mechanisms – has become a major impediment to continuous, quality care of patients as well as cost containment.

Relative to other parts of healthcare, there has been limited research on the health outcomes from different approaches to treating common conditions requiring rehabilitation. Given the wide variety of treatment modalities offered as rehabilitation therapies, consumers and insurers are in a weak position to identify the therapies with the best prospects for improving a patient’s conditions.

There are no consistent evaluation processes being applied across the rehabilitation sector. Providers who are members of a regulated profession are usually required to participate in continuing competence activities. However, this is often not the case for unregulated providers or for agencies. As a result, “word of mouth” may, in some circumstances, be the only means for individuals to find out where the quality of care is highest and where quality may be problematic.

Finally, the fact that insurers still pay for health services almost entirely on a fee-for-service basis means that the insurer’s ability to control the growth of healthcare expenditures is limited. Study after study has shown that fee-for-service is an unnecessarily expensive method of funding health services and is prone to service over-utilization. Not surprisingly, provincial ministries of health and workers compensation regimes across the country are heeding this advice with efforts to move to alternative funding methods for the health services they fund as a way of improving the quality of care and patient outcomes and containing the escalation of costs. At this point in time, however, private insurers have been given little flexibility to move away from the fee-for-service model.

Getting a firm handle

Direct expenditures on medical rehabilitation services by insurers continue to show strong growth. Furthermore, the ongoing rise in loss ratios for automobile insurance – where by far the largest number of rehab claims are made – suggests that the trend to higher expenditures is outpacing premium revenues.

In response to these developments, many individual insurers are taking a more proactive approach to managing and monitoring their medical rehab files. At the national level, the IBC established a project on healthcare issues late in 2000. The vision statement for the project, as approved by the bureau’s directors is to “ensure confidence that insurers’ medical and rehabilitation resources are used efficiently to help victims of automobile accidents achieve their best health status as soon as possible”.

In its first year, the IBC project has undertaken a variety of activities relating to management of rehabilitation costs. These include development of a standard invoice for service providers and tools on controversial conditions to assist front-line claims staff with effective management procedures. The project is also proposing joint planning with the provincial governments and workers’ compensation boards to improve performanc e and accountability in the provision of rehabilitation services.

In this regard, Evans observes, “we can’t afford not to be successful with this project. In these times, the insurance industry has to be very skilled at managing our health expenditures, and I am confident that the groundwork has been laid for making great strides in this direction.”