Wednesday, April 9, 2014

Why does surgery cost double in workers' compensation

'On Monday, this blog was about the disparity in the way medical procedures are reimbursed, and the delay in implementation of the sustainable growth rate (SGR). Interesting questions need to be answered about what the appropriate reimbursement is for medical procedures. We also need to be able to answer the questions as to why the same procedure is not always reimbursed the same. 

We must concede that there may be reasons that a particular procedure may cost more or less. Certainly, timing might influence price. The skill or reputation of a provider may drive people to her/him, increasing demand for those particular services and thus driving up price. These are supply/demand factors that could rationally change the price for services. 

Unfortunately, in the third-party payer system we have, that is not the case. Health insurance plans may "encourage" use of certain providers, those with whom the insurance carrier has contracted for particular rates, called "preferred providers." The encouragement comes in the form of higher out-of-pocket expenses when a patient/policyholder uses a "non-network" provider. Some plans only provide treatment by "network" providers. Often the amount of choice for the patient depends on the price paid for the policy. In workers' compensation, the patient plays little role in selecting the person that will cut their body open. That decision, in Florida, is largely the insurance company's.

How are prices set? Florida has a workers' compensation physician fee schedule. It references the Medicare system parameters, and is therefore somewhat affected by the SGR debate. According to some, workers' compensation fee schedules provide better reimbursement than other insurance, "1.5 to 2.5 times more than HMOs, Medicare and other commercial health plans." It is noted  in the same article that this is justified because workers' compensation treatment requires "more time and resources" than treating other patients, justifying this difference in payment. 

Florida Senate Bill 1580 set course this legislative session to restrict reimbursements to hospitals for workers' compensation medical care. Hospital fees and reimbursement for Florida workers' compensation are not tied to Medicare charges. They are less controlled or restricted. The bill would have capped hospital reimbursement at 120% or 140% of what Medicare pays. 

According to the bill's sponsor, Alan Hayes, employers and insurers pay an average of $11,115 for an outpatient shoulder surgery in workers' compensation in Florida, compared to an average of $5,600 for the same surgery paid by group health insurers. The difference is $5,515. Workers' compensation pays roughly double the cost under group health for the same procedure.

Senator Hayes says that an average outpatient knee surgery in workers' compensation costs $8,441, compared to an average of $4,200 for the same procedure paid by a group carrier. The difference is $4,241; the cost in workers' compensation is again roughly double the cost under group health. These two examples are noted in an April 9, 2014 story on Workcompcentral. I strive not to link to sources that require subscription, but in this instance it is not avoidable. 

According to the Florida Senate, capping hospital reimbursement at 140% of Medicare, as initially proposed in the bill, could cut workers' compensation insurance rates by 7%. They say this would reduce system costs by roughly $200 million. 

SB 1580 is no longer on the course it set out upon. The bill has been amended, and now would form a task force of 17 people to author a report on how best to address reimbursement issues regarding hospital care for injured workers. The issues are unlikely to be simple. Hospitals seek viable reimbursement rates, employers seek lower workers' compensation costs. 

Perhaps the task force will answer the question why the same surgery, in the same operating room costs double in workers' compensation what it costs under group health? Understanding the "why" might make a world of difference to everyone involved. 

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