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A quick take on the state of California work comp

One of the best places to visit on business is the SF Bay Area – great people, great wine, great food, a fun vibe, and, of course, the site of one of my favorite meetings – CWCI’s annual meeting.

The most-of-the day meeting started with State Fund Chair Vern Steiner’s quick business review, followed by CWCI Alex Swedlow’s review of the rollout and trends following the rollout of California’s most recent reform – namely SB 863.

Alex highlighted changes in Ambulatory Surgery Center fees after SB 863 implementation, perhaps the most significant change being the 29 percent decrease in amount paid.  Closely tied to the ASC cost was the notorious double-charge for surgical implants.  Once that double-charge was removed, something surprising happened.

The volume of hospital inpatient discharges has been declining overall, driven by – in large part – a rather dramatic drop in the number of discharges associated with spinal implants. CWCI estimates savings of around $60 million for 2014 alone.

Overall, spinal surgery discharges dropped by over ten percent from 2008 – 2013.

Alex also reviewed MPNs and physician networks; here are my key takeaways:

  • 81% of “first year” visits have been to network providers – and this figure has been steady since 2010.
  • That’s a big jump from about 55% back in pre-MPN days
  • However – and it’s a big “however”, is the savings attributed to care within networks in MPNs have decreased from 16% below non-network to just 3 percent.

On to a discussion of drug costs – pharma costs were 13.2% of all medical benefits in 2012, a rather dramatic increase from 6.7 percent just seven year previously.

This 13.2 percent equates to $1.2 billion in direct spend – of which 30 percent is Schedule II and III drugs – the most potent opioids.

With drug costs escalating rapidly, one has to look for answers, and one answer may be a formulary.  There’s a lot of detail here related to drugs that are within and outside formulary, how formularies are set up, and motivations thereof. That said, the potential savings are rather amazing.  To wit:

  • 96 percent of CA approved brand drugs would have been blocked by WA formulary along with 27 percent of generics
  • The total savings is somewhere north of $400 million…

Next up, a discussion of the “medical cost containment” cost change, which have climbed to $2,330 in 2012, up from $1004 in 2005.

One of the primary drivers may well be the IMR program.  Fortunately CWCI just published a research paper describing payor efficiency in complying with Division of Workers Comp UR audit standards.  This is critical, as the data show if payors are complying with requirements for content, timeliness, and correct communication regarding UR requests.

97 percent of the time payers are compliant – far above the 85 percent standard set by DWC. And this has been consistent since 2009.

2 thoughts on “A quick take on the state of California work comp”

  1. Joe – am I correct to understand that currently reported savings are averaging 3% below the SFS vs. a previous average of 16% below the SFS? Or are the figures representing savings below the physician’s usual and customary charges?

    1. Marcus
      Thanks for the question. The difference is mpn cost compared to non-network cost, case mix adjusted.

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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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