SWIF, MedRisk, and the PA Auditor General's report


This article was originally published in the Managed Care Matters Blog by Joe Paduda. It is republished here, with permission, in it's entirety.


UPDATE - In response to a query, MedRisk informed me that my savings figure was misstated.

MedRisk reduced SWIF's medical payout by $28.9 million below fee schedule from January 2009 to December 2012; the earlier post (below) indicated the reduction was $21.5 million below fee schedule. My original figure was obtained from Wagner's report, which may not have included all months used by MedRisk.

Also, MedRisk informed me their total reduction below fee schedule was $21.1 million NET after MedRisk's fees.

Original Post is below

Earlier this week, Pennsylvania's Auditor General released a report entitled "Auditor General Jack Wagner Finds Poor Management Of State Workers' Insurance Fund Contracts, Costing Taxpayers."

Kind of a bold title, especially because that's NOT what Auditor General Jack Wagner's audit found.

I applaud the Auditor for initiating the audit, and it certainly seems like they dedicated a substantial amount of resources to the project. I've had a chance to read the Auditor General's SWIF Audit report, and have gotten emails and calls from several people with different views. In point of fact, there appears to be some confusion about what the report says, and doesn't say, along with a recommendation/finding that reflects a somewhat alarming lack of understanding about the workers compensation services business. In addition, the press release bears little resemblance to the report itself.

Briefly, there is quite a bit of discussion regarding SWIF processes and contractual issues, much of which is thoroughly and competently addressed in SWIF's response to the Audit report. There is no allegation that MedRisk engaged in inappropriate behavior or operated unethically, in fact MedRisk saved SWIF $21.5 million below fee schedule, thereby dramatically reducing employers' and taxpayers' costs.

Before I jump in, I'd note that MedRisk, the contractor providing bill review and network management services under contract to SWIF, is a consulting client. I called MedRisk to ask for their comments; they declined, except to note they had not been involved in the audit. This is surprising; the audit report has 7 findings related to MedRisk-SWIF involving contractual changes, systems programming, processing flows, file imports, bill review practices and the like, and at no time was MedRisk asked for their input.

Couple key issues. The Auditor General's press release buried the lead, focusing on contractor MedRisk and SWIF's management of the contractor, while giving short shrift to a much more costly issue, SWIF's alleged mismanagement of a costly IT project. I'm puzzled by this; why did the press release focus first - and primarily - on the bill processing issue and not lead with the $70 million problem - the allegation that SWIF failed to adequately oversee a technology project?

I'd note that the audit report does the same; the IT project is the last issue on their list, with the first 7 points devoted to alleged issues with the SWIF-MedRisk contract.

Second key issue before we get into specifics. The Auditor opines that MedRisk should not process PPO bills; the report's author seems to feel this is somehow unethical or inappropriate. The Auditor states that MedRisk should not have been allowed to do this and excoriates SWIF for allowing the practice, as if somehow this practice enables fraudulent behavior.

Here's what the press release says:

"SWIF created a conflict of interest and the potential for fraud by allowing MedRisk to process its own in-network bills and by failing to ensure that MedRisk does not intentionally delay the processing of those bills."

This is nonsensical. There is NO incentive for MR to delay processing.

Why would MedRisk delay processing of its own network bills? To intentionally anger MedRisk's contracted providers? Cause them to submit more bills, thereby increasing administrative costs (which could not be passed on to SWIF)? Get those frustrated providers to call SWIF and complain? Get the benefit of float at today's generous interest rates?

Again, I'm puzzled. Network managers - in work comp and many other lines of coverage - routinely process, reprice, review, and pay bills from their network providers. This is de facto common practice in the Pharmacy Benefit Management sector of Medicare, group, and workers comp and is quite common in the imaging, durable medical equipment, physical medicine, home health care, and transportation/translation areas within workers comp. There are literally dozens of companies operating this way throughout the workers comp industry, at private insurers, TPAs, state funds, and self-administered employers and governmental entities alike. I've never heard of this practice characterized as dangerous, potentially risky, or even unusual.

Now that we've covered those issues, we can delve into a couple specifics. Point One - SWIF paid about $2,500,000 in penalties for late payments to medical providers. Some cite this as a MedRisk issue, however MedRisk was not responsible for paying the vast majority of bills; SWIF was.

Which leads to Point Two. The contract obligated MedRisk to turn around complete clean bills in an average of ten days. The audit indicated some 90,000 bills, or about 24% of the total, took more than ten days to process. However, the auditor's press release didn't distinguish between the contractual commitment (average) vs the bills that took more than ten days (outliers). This is unfortunate, as it lead some to think MedRisk failed to comply with that contractual commitment. If 76% of bills were processed in ten days or fewer, it appears extremely likely MedRisk hit the target most of the time (we'd need to know the specific contract language and see data specific to those targets to be entirely sure).

Most of the bills processed in more than ten days hit at the very beginning of the contract implementation.

I find it curious that the Auditor makes up his own standard for timeliness, uses that made-up standard to impugn both SWIF and MedRisk, then in a later section blames SWIF for not holding MedRisk to actual, real, written contractual standards.

Next, MedRisk was obligated to deliver savings - below the state's Fee Schedule - with specific targets for trauma bills and all other bills. The audit report noted MedRisk missed their target in one category - hospital trauma bills - by $800,000. A fair but at best a minor point; the fact is MedRisk saved SWIF $21.5 million dollars, after accounting for the shortfall in trauma savings. Here's how Pennsylvania Secretary of Labor and Industry Julia Hearthway put it in her response to the Auditor:

"the contract with MedRisk has produced net savings of $21.5 million over the life of the contract...Based on the savings realized through the contract, SWIF would have been irresponsible to terminate the agreement based only on the trauma savings."

What was NOT addressed in the Auditor's press release was the fact that MedRisk hit or bettered its savings targets in the "all other" category, saving SWIF $21.5 million below fee schedule. And, the savings from the trauma, PT, pharmacy, imaging, and every other sector were rolled up and transferred to SWIF before any payments were made to MedRisk - if MedRisk didn't hit the total target, they got paid nothing for savings.

The auditor also found fault with SWIF, asserting SWIF changed what it required MedRisk to do after the contract was awarded. A couple of changes may have led to reduced costs for MedRisk while others undoubtedly increased MedRisk's cost and exposure to penalties. It is common for vendors and customers to find better, cheaper, and faster way to do things after they sit down and start working through the details. Moreover, any relationship should evolve as both partners see ways to improve processes, strip out unnecessary steps, and increase performance. Don't know if this is the case in the SWIF - MedRisk example, but it is in most business relationships; as most readers know quite well, it's just not possible to write a contract that covers every detail, especially when you're structuring a relationship and business processes between two organizations new to each other where one is implementing a new computer system.


- We have a vendor that delivers savings of $21,500,000 to SWIF's employers and taxpayers.

- This same vendor uses an operational model that is standard throughout the industry, processes most bills in fewer days than required, and achieves its turn around time target the vast majority of the time.

- Yet the auditor's report suggests that the contract should not have been renewed, and an entire new vendor selection process initiated.

I'd also note that SWIF's response to the Audit addresses each of the issues, and bears reading (see pages 68 - 77), especially if one is looking for a balanced view. In sum, yes, there have been issues; anyone ever involved in a project like this would expect that. But no, there's no illicit or inappropriate behavior, actions, intentions, or results.

And I just can't understand why the Auditors never asked MedRisk for their input or feedback.


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