Paradigm Specialty Networks functions as a twisted sort of toll collector, inserting itself into the reimbursement flow between workers' comp payers and the healthcare providers who actually treat injured workers.

Insurers, Third-Party Administrators (TPAs), and self-insured employers send Paradigm the funds intended to reimburse providers; Paradigm pools those funds, imposes its reductions, and disburses the remainder to doctors. A California orthopedic surgeon recently found out just how high the Paradigm “toll” can be.

The surgeon performed an authorized knee arthroplasty, then waited months for reimbursement as the insurer, Zurich North America, twice refused to pay, erroneously claiming it had never authorized the surgery (despite the provider including the authorization document with the bill).

In a classic case of “IBR Chicken,” Zurich/Paradigm only agreed to pay after the surgeon paid the $195 filing fee to request Independent Bill Review. On Zurich’s behalf, Paradigm reimbursed the surgeon just 66% of the amount allowed for the procedure under the state fee schedule, deducting $786.02.

With the California fee schedule set at 146% of the Medicare rates for this date of service, the reimbursement for this surgery is $2,021.74. Paradigm’s toll brought that total down to $1,332.30, equivalent to just 96% of the Medicare rate. Moreover, the surgeon had to cough up an additional $195 to force Zurich/Paradigm to pay, money the practice may never see again.

This is the state of California workers' comp: a surgeon performs an authorized procedure, and has to pay for the privilege of receiving sub-Medicare rates through an intermediary that feeds on employers’ comp dollars without providing any care to the patient.

As specialists flee a system that financially punishes the choice to treat injured workers, claims become more expensive, ultimately driving up the employer premiums that fund this profitably inefficient system.

Zurich Refuses to Honor Its Own Authorization

Before performing the arthroplasty, the surgeon obtained authorization from Zurich. That authorization is the insurer's legally binding commitment to pay for the procedure.

California Code of Regulations (CCR) § 9792.6.1 defines “Authorization” as “assurance that appropriate reimbursement will be made” for the treatment the payer approved. Under California Labor Code Section 4610.3, authorization is a final, non-rescindable guarantee of reimbursement:

“...an employer that authorizes medical treatment shall not rescind or modify that authorization after the medical treatment has been provided based on that authorization for any reason…”

Despite the surgeon including proof of authorization with the bill, Zurich denied it, forcing the provider to submit a Second Review appeal. Given a chance to correct its error, Zurich again refused to pay. With no other option, the surgeon compiled an extensive IBR request packet and submitted it, along with the $195 filing fee.

In a disturbingly common reversal, Zurich/Paradigm agreed to pay before the state could even conduct IBR.

This leaves the provider with two options: withdraw the IBR request and receive a portion of the filing fee back from the state, or allow IBR to proceed. If IBR finds in the provider’s favor, Zurich would theoretically have to reimburse the provider for the filing fee. But as regular daisyNews readers know, the state does not enforce this requirement, leaving countless providers short.

Paradigm Takes Its Toll

When payment finally arrived, it came not from Zurich but from Paradigm, the private equity-backed intermediary that positions itself between claims administrators and providers as a “network payer,” intercepting reimbursements and passing along what’s left after Paradigm imposes its cuts.

Paradigm paid the surgeon just 66% of the amount allowed under the state fee schedule, deducting $786.02 from the reimbursement based on a "Paradigm Specialty Networks (Advan-Net)/PrimeHealth Services/PHS" Preferred Provider Organization (PPO) contract, as Paradigm’s Explanation of Payment (below) shows.

We can’t say exactly how Paradigm benefited from the missing $786.02, or what the precise arrangement is with Prime and/or Zurich. Once employers’ workers’ comp dollars disappear down Paradigm’s black hole, there’s no accounting for the money that never reaches providers.

Paradigm did not examine, diagnose, or treat this patient. As far as we know, it simply processed a payment and shrank it by a third, leaving a surgeon with a sub-Medicare reimbursement.

Of course, Paradigm also does not pay the surgeon the 15% penalties and 10% interest that Zurich owes for failure to timely pay the bill, nor the $195 filing fee the surgeon had to cough up to get any reimbursement at all.

Tomorrow: It Gets Worse

Paradigm’s toll and the IBR filing fee weren’t the only hits this surgeon took. On its way from Paradigm to the practice, yet another intermediary stepped in for a slice of the action: payment processing vendor ECHO Health.

Tomorrow, we’ll share how ECHO imposed a 1.99% “Service Fee” on top of Paradigm’s reduction, and what it means for the California employers who ultimately fund the tangle of vendors and assorted middlepeople who extract profits from injured workers’ claims while arguably contributing no value.

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