The Vertical
What is workers’ compensation?
Workers’ compensation is an insurance policy purchased by the employer to protect and take care of the employee in case of a work-related injury. In return, there is an implicit agreement by the employee that s/he forfeits his/her right to sue the employer if s/he is injured on the job. Ultimately, the goal of the workers' compensation system is to get the injured worker back to pre-injury health, and to provide for the worker during the time of recuperation. If pre-injury health is not possible, then the goal is to compensate the worker for not being able to work in his/her previous capacity.

Workers’ compensation benefits usually covers most, if not all, expenses resulting from a work-related injury. These expenses may include, but are not limited to:

• primary care and specialists medical fees
• lab, x-ray, MRI, CT scan, and other diagnostic fees
• rehabilitation, physical therapy, and/or work hardening fees
• salary loss compensation (usually a percentage of prior salary)
• lump-sum payout at end of claim

Workers’ compensation is federally mandated, but regulated and administered at the state level, so workers’ compensation systems can differ drastically from state to state. This explains why insurance companies pick and choose the states in which they offer coverage. Not surprisingly, a state whose regulations are either minimal or too “pro-worker” and result in larger payouts by insurance companies are less attractive, business-wise, than others. 

The cost of doing business in some states has resulted in an abandonment of those state by insurance companies and has forced states to start their own workers' compensation insurance fund to replace the deserting insurers. Notable states are California and Texas. Prior to 1989, Texas was one of the four most expensive states in which to do business—no one wanted to insure in Texas. Reforms in 1989 have since made Texas one of the most profitable and attractive states in which to do business. California, on the other hand, has implemented few reform measures and standards. Few insurers are willing to provide coverage in that state, so the California workers' compensation fund covers most California employers. Today, the California workers' compensation fund is one of the largest workers' compensation insurers in the United States. Workers' compensation is a real concern, and states pay close attention to what other states are doing, and what works and what doesn't work.

Players
The players in the market include the insurers, the physicians and healthcare providers, attorneys, the workers’ compensation commissions, and other “independent” associations. Ironically, the one player about whom this whole system is designed—the injured worker—actually plays a rather insignificant role, other than getting hurt, choosing his/her primary care physician, and showing up for doctors’ visits and rehab.

The most powerful players are the insurers—they drive the industry, since they’re the ones with the deep pockets. There is a long history of distrust and contention between the insurers and the healthcare providers; this is rooted in insurers historically trying to lower costs by limiting patient care or cutting doctors fees, and doctors acting like strong patient advocates with what insurers complain is a lack of appreciation for costs (e.g., ordering unnecessary diagnostic exams or rehab). Workers’ compensation commissions act as industry regulators and a neutral party whose first priority is getting the injured worker back to work as quickly and safely as possible. To note, insurers have strong lobbying arms, and individual practitioners are no match for the political and lobbying power they have, nor are their professional associations. Nevertheless, these parties are required to work together for the benefit of the injured worker.

Most of the interaction between insurers and practitioners is direct, however intermediaries do exist to assist insurers with finding appropriate, qualified physicians for independent medical evaluations and other types of exams. However, few intermediaries, if any, work exclusively in the workers’ compensation arena, but instead also solicit business on personal injury claims, social security and disability claims, and other situations that might require an independent expert medical opinion.

Statistics
The insurance industry is a multi-billion, if not trillion, dollar industry, of which workers’ compensation is but a small vertical niche. It is a very close-held sector, so industry figures are not readily available in public sources of information. However, given the statistics that are available by state workers’ compensation funds and through industry experts, it is estimated that $60 billion dollars a year are paid out on claims (for medicals, administrative costs, etc.) on approximately $130 billion dollars of collected premiums. Additionally, it is estimated that 1.5 to 2 million new workers’ compensation claims are filed each year. Most of these costs are not related to medical expenses, but to administrative costs; California paid out over $3.9 billion dollars in 1992 to the workers’ compensation lawyers alone. For the benefits received, workers’ compensation is probably one of the most proportionally costly and overlooked aspects of the healthcare system. 

The Horizontal
What is an IME? And why is it relevant here?
An IME is an independent medical evaluation performed by an appropriately qualified physician who has not treated the injured worker for the work-related injury or, if possible, ever for any injury. This objective medical professional is expected to review all of the patient’s medical records as well as perform an in-office medical exam to determine the status of the patient’s injury and progression to recuperation to pre-injury health. An IME physician may be asked to determine if treatment is appropriate for the injury(ies) sustained, prognosis, impairment rating, and whether or when the patient will be able to return to work, as well as in what capacity (full, light duty, or not at all).

IMEs are often ordered by the insurance carrier to determine the status of the patient, as well as the appropriateness of treatment, and when s/he may be able to return to work. This report is often compared to any reports submitted by the patient’s treating physician, and decisions to approve additional or alternative modalities, including rehabilitation or work hardening, are usually based on this type of report. Attorneys also order IMEs for their patient for similar reasons, although it is often to support their contention that their client is impaired or needs further treatment. In both cases, an IME is often used to gauge the progression of a workers’ compensation case, as well as to facilitate closure of the case.

IME’s are not exclusive to the workers’ compensation industry. In fact, they are widely used in a variety of settings, including:

• personal injury
• social security
• other disability
• product liability

Hundreds of thousands of these exams are ordered annually—if not more. The cost for these exams range from $250 to $2500 per exam, depending on regional location, exam complexity, state regulations (if applicable), and other factors. Using a very conservative estimate of 200,000 exams per year at $350 per exam, this market niche (IMEs) within a niche (workers’ compensation) is probably worth about $70 million. This is not particularly significant, however if other vertical markets are included, as those mentioned above, as well as similar but slightly different services that require little specialized knowledge from that needed for IMEs, such as file reviews, impairment evaluations, disability evaluations, or medical-legal consulting, this number easily exceeds $350 million per annum. 

This is a sector that has had consistence growth (good or bad) and will continue to grow, and combined with other vertical markets and other horizontal services, suggests a strong opportunity for an electronic (e-commerce) intermediary who can coordinate a plethora of services between two long-standing contentious communities: Insurers and healthcare providers. 

If it's such a great idea, why didn't someone do it already?
In true irony, the medical industry—one that stands to profit the most from new technologies and real-time availability of information—has been the most apprehensive of using such technology. The biggest fear is the issue of security, whether that fear is warranted or not, which is exacerbated by recent Federal rulings that place the responsibility and burden of patient privacy squarely on the shoulders of the healthcare provider. Physicians and other practitioners can and will be held liable for any breach of confidentiality, and so there is a real fear about the security on the Internet. 

On the other hand, insurers have readily—albeit only recently—bought into the idea of using technology to streamline processes: Many insurers require that healthcare providers submit bills electronically, and even use e-commerce to acquire new business, including auto, home, health, and life insurance. Insurers understand and appreciate how e-commerce can streamline business processes, and it is likely that they would readily buy into an e-solution that could save even more time and money. 

A few existing intermediaries also seem to recognize the benefit of an e-solution, but don't appear to have a strategy to implement it. Of course, there are those who don't believe an e-solution is viable. However, it is worthy to note that this industry involves lots of paper pushing, and making it more efficient would lessen the paper-pushing and require new work paradigms and ways of thinking. Less paper-pushing could make some intermediaries obsolete.

Ancillary healthcare providers, such as physical therapists, have more readily adopted new technologies, but they tend to be younger and thus more familiar with technology in general, and they've been using high-tech equipment in their practices for a while. Additionally, since they often work under a physician, they do not carry the primary responsibility of protecting patient data since the physician would ultimately be held responsible. Nevertheless, there has also been a recent trend by physicians in accepting and incorporating technology into their businesses. This can be measured in part by the proliferation of individual practice web sites, virtually non-existent just two years ago. Levels of encryption and security have increased dramatically, also in the last couple of years, allaying fears of easy confidentiality breach. And physicians are recognizing that they can no longer practice medicine in a vacuum and make money: new and additional sources of revenue must found and more patients must be seen to make money and counter fee-cutting tendencies by the insurers, and processes must be streamlined to save time. Engaging in e-commerce is one way of doing all of these things.

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