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Workers comp hospital costs – perspective from Indiana and Virginia

After Dr Barth’s high level background we dove head first into the details of hospital costs and trends and management thereof.
Indiana’s Linda Hamilton shared insights into hospital cost regulation in IN, a state with a rather inadequate cost control history. Hamilton noted the substantial increase in providers appealing work comp payments for their services. A usual and customary state, IN has seen rather significant hospital cost growth, perhaps in part due to the lack of comparable hospital charge data on which to base “usual and customary”. Many of these were addressed by paying bills at the 80th percentile, However as there wasn’t adequate comparable data, the state didn’t really know on what to base payment.
As a result, the cost of inpatient care went up 93% from 2003-2007, and there is no real solution in sight.
Hamilton showed slides indicating wide variation in the cost for similar services within the state: neighboring states are seeing much lower costs. That’s one reason medical costs account for 75% of losses in the state.
If you are expecting a happy ending you’ll have to keep that patience cap on…However Hamilton did note that the state is working on a certified database to help address the difficulty in ascertaining an “appropriate” reimbursement.
Mike Paladino, a WC claim and management exec from a health care system in Richmond, then entertained the audience with a revealing view of the financials of his system.
75% of their revenue is government paid. Paladino asserted that Medicare and Medicaid both reimburse below the actual cost of providing those services; medicare at 80% of costs and Medicaid at 94%. Clearly the health system has to cover those shortfalls by getting private insurers – and workers comp – to pay way more than cost.

A thoughtful and knowledgeable speaker, Paladino noted the services provided by the system benefit society as a whole. He did not claim that the cost shifting that occurs at the system is good bad or indifferent, but it is absolutely clear that it occurs.
My takeaway?
This is a hidden tax on employers and burden on taxpayers and insurers.

3 thoughts on “Workers comp hospital costs – perspective from Indiana and Virginia”

  1. Joe,
    I agree that short falls from federal program reimbursement can cause pressure on private insurance and the work comp system to close the revenue gap. Won’t “Obamacare” aleviate some of this pressure because workers currently without employer-paid health coverage won’t be prone to file a comp claim? Or is it the opposite? What is your perspective on the inter-relationship between the new federal health care program, the comp system and the cost shifting that you reference in today’s article?

  2. I am having difficulty in understanding Mr. Paladino’s data. According to the recently available Medicare Cost report of 6/30/10 for the VCU hospital in Richmond Virginia, the report shows total assets of $1.175 billion, net income of 97M up from 57M a year earlier. For uncompensated care, total government revenue of 304M at an estimated cost of 253M. Joe, can you help me understand this discrepancy?

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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