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.

 

That is the question I’m left with after reading WCRI’s latest reports.

One compares group health’s payments for outpatient hospital services to work comp’s; the other discusses the use of group health payments as the basis for a work comp provider fee schedule.  There is a wealth of insight in both studies; generally, states with fee schedules had lower work comp medical costs than those without

The latter is the subject of today’s post; it “focuses on the median nonhospital price paid for five common surgeries and four common established patient office visits in 22 large states for services delivered in 2009.”; it compares group payments to comp.  By focusing on actual prices paid, the analysis factors in network and other discounts taken, increasing the “validity” of the data.

I’ve long thought providers should get paid more for care delivered to workers comp patients than for group, medicare, or medicaid.  Comp involves disability management and all the communications, reporting, and complications inherent in considering disability in delivering care, and as we expect physicians and other care givers to take an active role in that process, by rights we should expect to pay them for that additional work.

That said, the dichotomy between pricing differentials for office visits vs. surgeries reported by WCRI strikes me as precisely the opposite of what should be.  Specifically, the prices paid for office visits under group and comp were typically within 30 percent, with a range of 15 percent in about half of the states studied; in several states comp paid significantly less than group for office visits. Office visits are where and when the “disability management’ stuff occurs as the physician discusses the return to work plan, engages with the field case manager (if one is involved), talks with the claimant about the claimant’s job functions, physical capabilities and limitations, and other factors affecting disability.  This takes time, thought, documentation, expertise.

Conversely, reimbursement for surgeries was generally much higher when the payer was workers’ comp than when a health plan was on the hook. Remember, the payment is specific to the surgical procedure; it does not include visits pre- and post-surgery. A knee arthroscopy is a knee arthroscopy; yes, there may be a little different documentation for WC surgeries, but the surgical notes should consider functionality, rehab plans, and prognosis regardless of who the payer is. Yet in only one state – Michigan – was the reimbursement essentially identical, while in the other 21 states, the reimbursement was higher for comp – in seven states comp reimbursed at least twice as much as group health. 

Surgeons may argue that the higher reimbursement is necessary to ensure access; that argument, should it be made, is easily addressed by noting physicians are willing to accept much lower reimbursement for the identical procedure for most of their patients; there’s no access problem for group health patients despite the lower reimbursement.

In contrast, reimbursement for office visits should be higher for workers’ comp, for the reasons noted above.  If not for the office visit code itself, than perhaps states should institute a different code for disability management (some payers already do this).

What does this mean for you?

From here, this looks like another example of under-valuing primary care and patient – physician interaction, while over-valuing procedures; doing stuff TO patients.  

WCRI released the fifth edition of the Medical Price Index for Workers’ Comp yesterday (download available at no cost); analyzing 25 states that account for 80 percent of WC spend, the study focuses on prices paid for non-facility services and provides trends over time…here are a few highlights.  

• Six states didn’t have fee schedules as of 2012; prices paid in those states were all significantly higher than the median of FS (fee schedule) states.
• There was less variation in primary care than surgical services, with prices for surgeries in the highest price state almost five times higher than those in the lowest price state.  Primary care pricing varied by a factor of 2.5.
• Prices increased significantly faster in non-FS states than in those with fee schedules, with Wisconsin’s prices up more than 50 percent more than the average of FS states.
• Illinois, which underwent significant reform in 2011, saw a decrease of 24 percent in prices paid as a result; this drop was consistent across primary care and major surgery.  Notably, surgery prices are still more than twice the 25-state median, but that’s a lot less than rates pre-reform, which averaged 443 percent of Medicare.
• Prices in states with fee schedules were – almost without exception – significantly lower than prices in non-FS states.  Often there were dramatic differences.
• Prices paid in Massachusetts were above the median of prices paid in states without fee schedules.  This is somewhat counterintuitive, as Mass’ FS is generally considered to be quite low.

WCRI’s methodology has been consistent over time, relying on a marketbasket of services to assess changes in price (NOT utilization) over the years.  The data is especially helpful as it includes prices from services delivered less than a year ago; kudos to WCRI’s researchers – and the payers that supply the data – for dramatically improving the timeliness of their data.

Takeaways…

Generally speaking, fee schedules do keep prices paid down.  However, given the high prices paid in Massachusetts, FS that are “too low” may result in providers refusing to accept FS, successfully demanding higher fees in order to provide services. Anecdotally I’ve heard this many times from my neighboring state.  Those with more specific knowledge (Anthony C perhaps?) may wish to weigh in.

Fee schedules tend to keep price increases down as well, thereby having a “dual” effect by checking current and future costs.

Note this study only addresses prices paid, and NOT utilization.  There’s been much research on this area; refer to WCRI’s other studies more insights.

What does this mean for you?

Fee schedules – reasonable ones – do tend to keep prices down, and likely costs as well. But fee schedules that are too low may well be ignored.  

Day One is concluding with a discussion of legislative and regulatory trends, a panel of legislators and then your devoted author discussing “Thieves, Profiteers, and Enablers”; the bad actors infesting workers comp.

Peter Burton led off with his discussion of what’s happening nationally on workers comp reform/evolution/changes.  He led with medical cost containment initiatives; Peter sees this as the dominant theme in the regulatory world.  The Sandy Hook shootings are leading to legislative initiatives around expanding compensability of medical injuries (SB 823); there’s some concern that Connecticut’s workers’ comp costs, already ranked second highest in the nation in the Oregon premium rate ranking study, will increase if SB 823 becomes law.

Maryland’s privatization of IWIF (to be called Chesapeake Employers) which will likely happen in a few years did not make much progress this year; an effort to control pricing for physician dispensing of repackaged drugs was not successful.  Alas.

Much discussion of Florida; the resolution of the four-year-long repackaged drug problem; rate increases (6.9% this year, third straight year of increases), and the final resolution of a key court battle will have an impact on work comp in the Sunshine State.

Tennessee is looking or comprehensive reform, moving to an administrative from a court-based system (SB 200) which will be effective 7/1/2014; there will be benefit adjustments as well.

Some parties in Illinois are looking to potentially create a competitive state fund, while employes want to strengthen the industry causation standard.  No word on when – or more likely if – these or other possible changes will come co fruition.

Oklahoma’s the biggest mover, with opt-out passed and the state fund moving to a mutual model as the most visible changes; however other moves will result in a 14 percent reduction in work comp costs.

More discussion over macro factors driving workers comp – the always energetic Bob Hartwig Ph.D. followed Dennis Mealy.  Hartwig was his typically rapid-fire self, dispensing insights, quick takes on economic data, the impact of catastrophes and myriad other topics faster than I could record them.

You can get his presentation slides here shortly.

Overall, Hartwig was pretty optimistic, especially about the recovering economy; private sector employment was up 6.74 million jobs since 2009, while governmental employment declined more than 600,000 jobs.  Hartwig forecast unemployment to dip below 7 percent in the last quarter of 2014 – or perhaps earlier.  As payroll is a main driver of workers’ comp premiums, this is good news indeed.

Overall, the larger employment picture has returned to a level we haven’t seen since just before the recession; mass layoffs are way down, hours worked has moved back up, and hourly wages, while not all the way back, are up significantly.   The overall economy has been – and continues to be – dragged down by the sequestration to the tune of about a half-point of GDP growth.  Fortunately private housing starts are accelerating, driving up construction employment which has partially offset the impact of the political impasse. Manufacturing employment is also up by more than a half million jobs. 

Amongst all that good news is the number of discouraged workers – those who have stopped looking for work – has declined by some 14 percent, but is still quite high relative to historical levels.  More troubling yet is the growth in Social Security disability rolls, which has gone up dramatically over the last two decades.  SSDI claim frequency is up nearly 30% since 1996 – while WC lost time frequency has dropped by almost 50 percent.  (more on this here)

Hartwig made a major point of the P&C industry’s continued ability to pay claims, contrasting that ability with other financial institutions’ less-than-robust stability – evidenced by the 500 banks that failed post-recession.  However, the continued lower-than-low interest rates available in the bond market will require better underwriting results – a lot better – if workers comp payers are going to stay even, much less generate a bit more margin.