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Work comp hospital costs – what WCRI’s report says, and what it means

The good folk at WCRI have produced a very useful – and very timely – analysis of outpatient facility costs, cost drivers, regulatory mechanisms, and trends in 20 key states.  Timely because the upcoming changes to Medicare and Medicaid’s hospital reimbursement bode ill for workers’ comp, and doubly timely because payers are seeing significant increases in facility costs in many states.

There’s a lot to consider in the study, here’s what struck me.

  • States without fee schedules are way more costly than those states that have outpatient facility fee schedules based on a fixed amount (not percentage-of-charges) reimbursement methodology.
  • States with percentage-of-charges “fee schedules” are about as costly as states with no fee schedules at all.
  • Even states with fee schedules based on a fixed reimbursement can be problematic; Illinois is a great example as it has the highest costs of all 20 study states.
  • Changing or modifying fee schedules appears to drive changes in billing patterns, which are supposed to be based on actual services delivered.

What stands out most is the overall trend.  Costs went up over the study period, sometimes a lot, other times there was an initial decrease after a fee schedule change went into effect after which an upward trend resumed.  And while some methodologies seem to do a better job controlling cost inflation than others, all can be gamed.

Cap reimbursement on a per-procedure basis, and watch utilization go up.

Base reimbursement on a lower percentage-of-charges, and miraculously charges escalate dramatically.

But start with low costs, and those low costs will likely persist; the ten lowest cost states in 2006 were still in the bottom half in 2010.  Yes, some had moved a notch and others down, but no state moved more than two slots.

What does this mean for you?

Watch FS changes in your key states very carefully, but don’t hold out much hope that any big changes will dramatically impact costs over the long term.


One thought on “Work comp hospital costs – what WCRI’s report says, and what it means”

  1. Joe,

    It is not surprising that states without fee schedule are more costly!

    To your point, those states utilizing a fee schedule or a percentage thereof do little to combat high bill charges; providers are incentivized to charge beyond normal rates to ensure a level close to 100% of the providers’ non-workers’ compensation reimbursement.

    States that do not address rising bill charges and corresponding rising reimbursements will continue to see rising hospital compensation until rules define how reimbursements are applied to hospital billings.

    States without robust rules regarding billing, reconsideration and dispute resolution rules compound the ever growing issues of increased reimbursements. Too often rising healthcare costs are significantly tied to the administration of processes, which can include the high costs of litigation that often outweigh the disputed bill charges.

    States that incentivize attorneys to buy written-off hospital debt or incur penalties and fees for filing on disputes as low as $1 create unworkable results to billing and coding processes best resolved between the direct parties.

    Finally, as a majority of states have no statute of limitations on provider filings, court systems can be clogged for years (e.g., California, Texas and Louisiana) without either party ever receiving their day in court.

    Billing guidelines and an efficient and economical dispute resolution process are as equally important as fixed-rate fees for controlling escalating medical bill changes and reimbursements.

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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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