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The Workers Compensation Industrial Complex

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Above: An opportunity to profit

Michael Grabell, last noted here for his great piece on temp workers in modern America, has a vomit-inducing piece on the excesses of workers compensation conferences, where new layers of middlemen who have seen ways to profit of providing compensation, party to grotesque excess.

A scantily clad acrobat dangles from the ceiling, performing flips and splits as machines puff smoke and neon lights bathe the dance floor in turquoise and magenta. Dancers in lingerie gyrate on poles to the booming techno. Actors dressed as aliens pose for selfies with partygoers. There’s an open bar and waiters weave through the crowd passing out chocolate truffles.

It’s the closing night of the National Workers’ Compensation and Disability Conference & Expo.

The party at Light, a Cirque du Soleil-themed club at the Mandalay Bay Resort and Casino, capped off the workers’ comp industry’s biggest annual networking event. For three days in November, hundreds of vendors wooed insurers and employers with lavish after-hours parties, giveaways of designer handbags, photos with Olympic gymnast Kerri Strug, and free rides in orange Hummer limousines.

A top manager for a major insurance company recalled standing amid the hoopla a few years back when a company CEO turned to her and marveled: “All of this because somebody got hurt at work.”

Workers’ comp is supposed to be simple. If you’re injured on the job, your employer pays your medical bills and part of your wages while you recover.

But over the past two decades, a cottage industry of middlemen has emerged, which some have dubbed the “workers’ comp industrial complex.” Even private equity firms have bought in, seeing profit opportunities in employers’ and insurers’ quest to contain spending.

This must be happening because compensation for actual injured workers is really great, right? Ha ha, no.

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.

The problem, shockingly, is private equity firms:

Last year, workers’ comp insurers in California spent 36 percent of premiums on overhead — more than they spent on medical care. That’s over twice what group health plans can spend on administrative costs under the Affordable Care Act.

A glimpse of the Vegas expo shows why. There were companies that provide networks of doctors and companies that review medical bills, firms that provide expert medical opinions and firms that specialize in complex claims. There were defense lawyers, data processing firms, rehab facilities, surveillance companies, outside claims shops, occupational medicine clinics, pain management services, translators, schedulers, headhunters and associations promoting other conferences.

There were labs that test injured workers’ urine for illegal drugs. There were even labs that test urine to ensure workers are taking the prescribed drugs instead of selling them.

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.

This is utterly revolting, yet not surprising at all. Part of the reason these conferences are so lavish is that these companies now have great power in state legislatures and can influence legislation. And in the New Gilded Age, with companies writing legislation and shaping regulation, whatever they want is what they get. Like an alligator named Spike and orange Hummer limos.

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