As I noted yesterday, Florida is considering a change to the fee schedule that would increase work comp medical expenses by a full 20%. The change, basing reimbursement for work comp outpatient procedures on what hospitals bill Medicare, would double workers comp payers’ outpatient hospital costs. (Workers comp is already the best payer (by far) for Florida’s hospitals, with margins exceeding 55%.)
To understand why, here’s a brief background on the facility reimbursement situation in the Sunshine State. Florida’s fee schedule calls for most outpatient services to be reimbursed at 75% of ‘usual and customary’ charges; outpatient surgical services are paid at 60%. The obvious question is: what is ‘usual and customary’. Turns out that there is no agreed-upon standard in Florida, a situation that has led to numerous disputes between payers and providers. In an effort to fix this, the regulators are seeking to establish a uniform standard – albeit one that would double already-high outpatient prices.
According to an analysis done by FairPay Solutions (an HSA client), 55% of workers comp costs in FL are billed on UBs (hospital billing forms). 44% of those costs are for hospital outpatient services – or about 13% of total costs. Increasing ‘usual and customary’ costs by almost 200% (FairPay’s estimate based on FL Medicare charge and payment data) will dramatically increase medical costs.
That’s bad. But it would get worse, quickly.
Florida hospitals raise prices around 15% annually. There’s nothing to stop them from continuing this practice, and as the proposed FS change would base reimbursement on charges, not payments, they are actually incented to push prices even higher.
Expect physicians to start seeing patients in hospital exam rooms as well. Why? Reimbursement – an additional $290 for each visit.
Next we’ll consider why Medicare should never be used as the basis for WC reimbursement, and we’ll conclude by looking at two markets – Miami and Orlando, (already the poster children for excessive hospital utilization) and consider the impact of this potential change on costs in the two large markets.

There’s big trouble brewing in Florida – trouble in the form of a seemingly-innocuous workers comp fee schedule change that would increase medical expense by almost 20%.
Yes, twenty percent.
We’ll delve into the details in future posts. First, I’m going to scare the pants off you.
Florida law mandates that hospital outpatient services be paid at 60% of usual and customary charges for scheduled outpatient surgery and 75% of usual and customary charges for most other hospital outpatient services. How to establish “usual and customary” charges has bedeviled regulators.
Florida has a ‘three member panel’ that determines changes to the state’s workers comp fee schedule (as allowed and required under the state’s statutes). At the last hearing of the three member panel, the discussion focused on a proposed change to the workers’ compensation hospital outpatient fee schedule, a change that would establish a benchmark on which ‘usual and customary’ would be based.
The benchmark would be the amount hospitals charge Medicare. Not get paid by Medicare, but charge Medicare. According to testimony at that hearing, hospitals mark up their Medicare costs by 715% – they charge Medicare seven times more than it costs the hospital to provide the service.
If the proposed regulation is adopted, workers comp’s ‘usual and customary’ would be based on that 715% mark up. Running the numbers, this would result in workers comp payers paying Florida hospitals (and perhaps ASCs) 472% of what Medicare pays for outpatient services – one of the highest rates in the nation.
There are about a dozen other problems inherent in basing reimbursement on Medicare, problems that we will cover in detail this week. I’m going to be devoting significant time to this issue as it has all the aspects of a typical workers comp screw-up; regulators unsure about the nuance of reimbursement; providers seeking funds to offset increasing bad debt; workers comp payers ignorant of the impact of the potential change, and in one case actually supporting it because it will make costs more ‘predictable’.
What does this mean for you?
Well, it could be the end of the good times in Florida – a state where 60% of loss costs are due to medical.
This is a highly complex issue, but that doesn’t make it any less important. In fact, the very complexity makes it critical that workers comp payers spend the time to fully and completely understand what’s happening here – because this is not just a Florida issue, it is undoubtedly happening in other jurisdictions.

A couple weeks ago I used this space to make a few pointed recommendations to entrepreneurs thinking of selling their companies. This week’s news that FairIsaac is selling off its bill review unit reminds us that mistakes can be made on both sides of the deal.
FI merged with/bought out HNC (which included the bill review business and other assets) almost six years ago in a deal that valued HNC at about $240 million.
Reports indicate Mitchell is paying between $10 – $15 million for FI’s bill review unit. While it is impossible (from here) to know how FI valued the bill review part of the deal, there is no doubt a substantial portion of that quarter-billion dollars will have to be written off.
What happened? Why wasn’t FI able to make a go of it in bill review? A couple factors likely contributed to the failure.
First, did FI know what it was buying? Workers comp is a unique and different business with a language and culture all its own. More of a craft industry than a modern business, bill review (as practiced by the vast majority of firms) is as dependent on the expertise and knowledge of processors as it is on the rules and algorithms embedded in applications. (Note it doesn’t have to be, and to my mind should not be, this way – but it is) FI’s business is based on the use of computing power to sort through terabytes of data to find the bits of importance; they may well have discounted the role of the human, which in turn may have led to insufficient emphasis on end-user training.
Second, by several accounts the IT development process at FI was somewhat less than rigorous. Documentation was scarce, schedules were vague, and responsibilities undefined. This led to missed delivery dates and angry customers, a situation that has dramatically improved in the last year or two.
Third, the installation at Texas Mutual was, for a time, a disaster. TM accused FI of overselling and not delivering, and FI countered that TM did not adequately support the installation. TM sued FI for allegedly misrepresenting the application; the suit was settled a few months ago with FI paying Texas Mutual somewhere in the neighborhood of $10 million.
Finally, the BR business was part of the HNC deal, along with decision support technology and other assets; it wasn’t exactly central to the deal, yet FI kept it around. They neither invested in it nor sold it/closed it, with the result that the business was slowly starved. Without attention and investment, it is not surprising that FI’s bill review business had the problems it did.
Lessons? Nothing new here – FI didn’t understand the business it bought, and rather than make a decision to invest in it or blow it up, did nothing. As this became painfully obvious to the unit’s staff, morale plummeted, commitments were missed, and customers angered. Despite all this one of their larger customers, SCIF, is relatively pleased with FI’s work.