Wednesday, July 23, 2014

Fee Schedules Constrain Some WC Medical Costs

The Workers' Compensation Research Institute (WCRI) released a recent study on medical costs in workers' compensation. It is titled the WCRI Medical Price Index for Workers' Compensation, Sixth EditionThe study analyzes "actual prices paid for medical professional services delivered to injured workers in 25 states from  2002 to 2013."

Thus, the focus of this reports is not on hospital or facility charges. It is not a study in the overall costs of medical care in workers' compensation. There are various market elements that combine for total medical costs. There have been suggestions that a significant portion of workers' compensation medical costs are associated with the market segments other than professional services.

For example, hospitals and ambulatory surgery centers are not the focus of this study. Similarly, medication and medical devices are not professional services and so are not part of this study. These elements of the overall medical costs in a given state may be addressed in the state's fee schedule, or a separate fee schedule, or in some instances perhaps are not the subject of any state workers' compensation fee schedule.

Twenty-five "large" states' professional service expenditures were studied. The report says these states account for "nearly 80 percent of the workers' compensation benefits paid in the U.S." Most of the nations largest workers' compensation systems are included, California, Illinois, Florida, New York, New Jersey, Pennsylvania, and Texas. Of the biggest ten workers compensation markets, only the combined Federal programs, Ohio and Washington state were not included in this study. For a discussion of the largest national programs, see
How Huge is it Anyway,  Lex and Verum, page 7, June 2014.

WCRI is not a policy-focused institution but knowledge-focused. That is, it is focused on the "what is so" and leaves the "so what" analysis for others. The report notes that it "does not seek to address the causal relationship between price variations and policy changes." The numbers are what they are in other words, and the reader is left to draw conclusions about why the numbers are what they are. 

That said however, the report notes that the prices paid are "associated with several underlying factors, including state regulations, and changes in fee schedules, network penetration rates, market conditions, . . . and provider billing practices." So, each of these may have some relationship to the expenditures in any particular jurisdiction. The actual effect of each in any particular jurisdiction would be difficult to determine with certainty, and the interrelationship between competing factors in any jurisdiction would likely be unique to the particular state.

There are significant variations across the country regarding the way workers' compensation medical services are delivered and reimbursed. I have mentioned in this blog before that we each tend to view workers' compensation through the prism of our own experience, and thus our own state's program. This is not an invalid view, but it is self-limiting and we need to be conscious of that when we are considering comparisons of various states in contexts such as medical cost. As an aside, the report also notes that there have been some changes in billing codes used by states which make side-by-side comparisons of some studied services, charges and payments impractical in this analysis.

Different states have or do not have fee schedules. Those that do are not identical. Therefore, the conclusions of a report like this are generalities about results of the fee-schedule model constraints in a variety of jurisdictions, and the impact that those constraints have on other market segment costs like facility, hardware or medication costs are not known.

A noteworthy conclusion of the report is that the medical consumer price index, or CPI-M has risen markedly over the 11 years studied (2002-2013, though only the first half of 2013 was included as that was the data available when this analysis was performed), from 100 to 140.

The Medical Price Index for Workers' Compensation (MPI-WC) for studied states (6) that do not have a workers' compensation medical fee schedule has for the most part been consistent with that trend. The MPI-WC for states (19 studied) that have medical fee schedules is much lower, having progressed from 100 to about 112-13 over the same period. For professional services, fee schedule states have had slower inflation in the cost of those services.

Whether fee schedules are positive or negative overall in workers' compensation is a larger issue. Some argue that fee schedules discourage providers from participating in workers' compensation. This, they argue diminishes access to quality care. Some critics argue that fee schedules in any market segment merely drive higher charges in other segments (durables, medication, facility charges). They argue that care costs trend overall to a medical living wage equilibrium, that is providers will find a way to earn a living and if constrained in service charges will seek ancillary opportunities like physician dispensing to compensate.

Wherever that larger debate over fee schedules takes us, it seems that the WCRI report supports that fee schedules do constrain medical care costs in the fee for professional services segment. The effect over a significant time period, measuring costs in a large segment of the U.S. workers' compensation market, seems supported by this latest WCRI report.

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