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Obamacare and workers’ comp – part 4 of 9; cost shifting

After a brief diversion yesterday to focus on breaking news and research, it’s back to the impact of health reform on comp, with today’s post delving in to cost-shifting.

Cost-shifting is a general term for provider behavior involving seeking more revenue from some patients/payers to make up for lower/insufficient revenue from others.  The term itself is not without controversy, but we’ll set aside semantics and focus on a simple question – will Obamacare lead to higher costs for comp payers as providers seek to make up for lower/lost revenue from other sources.

The short answer is – probably not.

The longer answer is this – more reimbursed patient car leads to less motivation to cost shift, and although many of the newly insured will be low-reimbursing Medicaid patients getting 85% of cost is a lot better than 11%.  Therefore, if anything Obamacare’s broader coverage will reduce the motivation to cost-shift.

The detailed answer follows…

Providers, particularly hospitals (which account for about a third of all WC medical costs) have to provide emergent care to patients without insurance.  Currently there are about 50 million folks without insurance in the US; post reform there will be about 20 million (estimates will vary, but regardless there will be a LOT fewer uninsureds).

Logic implies that more paying patients is better than fewer, and more providers will get paid for more patient care next year than this, leading to less motivation for those providers to shift costs to their workers’ comp patients.  The key word here is “motivation”; just because there’s less rationale for cost-shifting does NOT mean providers will suddenly decide to stop charging higher fees and doing more for their comp patients.  I’d also note that it is unlikely that most providers consciously decide to alter their treatment based on their patient’s reimbursement.

However, this being workers’ comp and health care, logic doesn’t necessarily apply.  Here are a couple things to consider.

First, a just-published analysis of the impact of lower Medicare reimbursement rates on private payer costs found:

“a 10 percent reduction in Medicare payment rates led to an estimated reduction in private payment rates of 3 percent or 8 percent, depending on the statistical model used. These payment rate spillovers may reflect an effort by hospitals to rein in their operating costs in the face of lower Medicare payment rates. Alternatively, hospitals facing cuts in Medicare payment rates may also cut the payment rates they seek from private payers to attract more privately insured patients.”

The analysis was based on hospital data from 1995 to 2009, a period during which Medicare hospital reimbursement was increasing quite modestly.  Of course, workers’ comp was not considered nor WC reimbursement analyzed by the study’s author, so we are left with more questions than answers.

It is also important to note that almost the entire study period was before anyone had even contemplated health reform and the dramatic impact on hospital reimbursement that will follow.  The world has changed dramatically, and this historical perspective may no longer provide much in the way of insight into future behaviors. 

Second, private payers have a LOT more bargaining power than work comp payers and network developers; WC insurers are already seeing significantly higher facility costs (anecdotal information from HSA consulting clients). And these higher costs are coming on top of research clearly indicating comp pays a lot more for hospital services than private insurers (see results of WCRI research on outpatient hospital costs).  So, comp already pays more, and until and unless networks and insurers figure out ways to better control utilization and price, they are going to continue to pay more.

Here’s what this means for you.

Third, some comp payers are beginning to figure out which hospitals are screwing them, and which are not, and doing whatever they can to direct away from the high cost facilities and to the low cost/high outcome providers.  Cost shifting will continue, but these smart payers will mitigate its impact while their less-smart competitors will wonder why their medical expenses are rapidly escalating.


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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