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California Work Comp – Part Two – the hospitals…and what to do about them

Yesterday I discussed the ongoing debate about potential changes to California’s work comp fee schedule.
In case my position was too subtle, I’ve got grave reservations about using RBRVS (Medicare) as the basis for a work comp physician fee schedule. That said, it looks like RBRVS will replace the current methodology, but there’s still a lot of tweaking to do before the move is finalized.
Today we’ll dive into facility costs, which look to be rising rapidly in the Golden State, driven in part by a loophole in the regs that allow double billing for spinal implants, along with consolidation in the hospital market and the attendent market power. This power is allowing hospitals to get ever-higher pricing in their negotiations with work comp network providers, which, in turn, is reducing ‘savings’ delivered by those networks to payers.
Here’s a quick review of the CA facility fee schedule and some of the nuances and effects thereof.
The Official Medical Fee Schedule (OMFS) for inpatient care is facility-specific, based on Medicare’s MS-DRG methodology plus a 20% multiplier. Thus, WC pays about 20% more than Medicare for inpatient services. The idea behind MS-DRGs was sound – pay hospitals more accurately based on better coding of comorbidities and complications.
In reality, costs have escalated under MS-DRGs as hospitals have gotten better at coding, leading to payments almost 5% higher than projected under the previous DRG methodology.
According to a study published in July of last year by RAND, the spinal implant pass-through results in additional costs of at least $60 million to the system, and that estimate was based on Medicare’s average payment for the devices. Anecdotally, it appears that many work comp payers are likely paying well above that level. Efforts are underway to address this issue, but in the meantime payers are paying much more than they should for these devices.
Additionally, it isn’t too much of a leap to think that this over-payment may drive additional unnecessary utilization, as unscrupulous providers seek to maximize their revenues by performing as many procedures as possible.
Ambulatory surgery
This has been a bone of contention (sorry) for some time for WC payers in California. The regs actually peg reimbursement to hospital fees, at the same 120% of Medicare, resulting in reimbursement that many view as excessive. Quite excessive. Regulators are looking to revise the regs, and many expect reimbursement to decline as a result.
The revision process is happening as you read this; the latest proposal calls for adjusting the ambulatory surgical center fee schedule by reducing the multiplier for ambulatory surgical center facility fees to 100% of the Medicare outpatient fee schedule, plus a 2% reimbursement for high cost outlier cases. (here’s the latest update.)
So, what’s the net?
I’d argue, as many have, that the work comp facility fee schedule is too high. In some other states this wouldn’t be too much of an issue, as most bills would be repriced to a network discount, negating the fee schedule problem (albeit not entirely).
Unfortunately for payers in California, hospitals’ negotiating power has grown to the point where they can often dictate terms to large group health payers, who have much more bargaining power than work comp networks. In many instances, networks are negotiating deals with hospitals that are not much better than fee schedule
The result? Of late we’re seeing payers’ facility costs climb by double digits, with little relief in sight.
So what to do?
Rather than look for discounts, look at underlying costs.
There are wide variations between and among facilities for the same services, and by comparing costs and outcomes, payers can identify facilities that, while they may not offer a ‘discount’ per se, offer a much lower price than a hospital that does promises a discount.
A good place to start is the Dartmouth Atlas where you can find cost and outcome data for specific hospitals.

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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