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Work comp hospital costs on the rise

Workers comp payers around the country are seeing their bills – and payments – for inpatient and outpatient services increase significantly faster than other costs.

And all indications are those increases are going to…increase.

The latest WCRI reports (kudos to Rick Victor et al for getting ever-more current data into their studies) show facility costs are up substantially in several states.  Indiana’s facility costs were substantially higher than WCRI’s median states, driven by prices.  As Indiana doesn’t have a fee schedule for facilities, hospitals can jack up prices whenever they want – and they are.

WCRI reported overall hospital inpatient payments per stay increased 12% per year from 04/05 to 09/10; anecdotal information from HSA consulting clients indicate Indiana hospital prices are up significantly this year.

At that rate, your costs will double every six years.

And that’s the best case scenario.

What’s behind my pessimistic forecast is the news that hospitals will likely take a big hit in the fiscal cliff deal.  Medicare is going to get cut, and policymakers are focusing on facilities rather than physicians as the primary target for reductions in reimbursement.

What does this mean for you?

When – not if – those cuts are announced, we can expect facility costs to increase. In states like Indiana where there is no fee schedule, those increases will be driven by a combinaton of higher prices and more services per episode.

In fee schedule states, watch for significant increases in utilization – more and higher-intensity services per stay.

For a detailed view into workers’ comp outpatient costs and cost drivers, watch WCRI’s webinar on the subject.

4 thoughts on “Work comp hospital costs on the rise”

  1. Other fiscal constraints that are slamming hospitals are Medicare’s RAC and CERT programs, which reduce payments based on a medical necessity review of documentation (no surprise, hospitals do not do a good job of documenting medical necessity). Hospitals are also facing reimbursement cuts based on higher-than-average readmission rates. This is costing hospitals millions of dollars. In addition, federal and other payers are increasingly pushing hospitals to consider patients to be in observation status (rather than inpatient) even when they might be in the hospital for several days receiving the same services they would get under a better paying inpatient reimbursment model. What does this all mean? Cost shifting to WC is ever more attractive to finacially strapped hospitals.

  2. Hospitals are retaining providers to regain and maintain market share – driving the overall cost of services typically rendered by private providers. This will only get worse with the consolidation of private physician practices and hospitals.

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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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