Last Thursday’s post showed that workers comp is a huge money maker for hospitals, generating about 16% of their profits on less than 2% of revenue.
The attempts to date to control hospital costs have been to set WC reimbursement using primarily DRGs (Medicare Diagnosis Related Groups) (NY), a percentage discount below charges (as in Florida), or on the basis of the facility’s cost to deliver that service (Connecticut).
But it is never as simple as setting rates at DRGs or a discount below charges.
For the latter, a hospital could charge a billion dollars for an epidural, and the payer would (conceivably) have to pay 60% or 75% of that rate. So states add language around that provision requiring payment to be based on ‘usual and customary’ charges – which sounds fine until you try to define usual and customary. Florida is in the midst of just such an effort, and the process has become pretty contentious.
Using Medicare as a basis is also problematic. DRGs were developed for Medicare patients – older with different conditions and often not working. The resources – procedures, services, therapies, setting, providers – employed in providing care to an 88 year old with herniated disk are likely quite different from those provided to a 33 year old with the same condition.
Yet these differences have never been evaluated. To my knowledge, there has never been any thorough study of how the inpatient or outpatient hospital resources used by workers compensation patients compare with resources used by Medicare patents per Medicare’s inpatient MS-DRG groups or Medicare’s outpatient APC groups.
Another option, and one I would argue is highly problematic, is to pay based on some multiple of Medicare. Several states use this methodology, including South Carolina (which has seen rapidly rising WC medical expenses). Texas recently announced that it is moving in this direction. The problem for payers, is that Texas is paying hospitals an extremely high multiple of Medicare. According to FairPay Solutions CEO VIncent Drucker (and HSA client); “This provides huge financial incentives for over-utilization of high cost hospital and hospital-based-specialist services [emphasis added]. Over utilization that Wennberg, for example, reports account for 25 percent of wasted dollars for Medicare chronically ill patients.” (Drucker is referring to Dr John Wennberg’s recently-published Dartmouth Atlas of Health Care.)
As a commenter noted last week, “TX and CA have a Medicare based system with a mark-up ranging from 25% – 100%. However most hospital contracts with group health insurers and PPO networks are below Medicare rates.”
Why?
Why do workers comp payers consistently overpay for hospital services? Why can’t comp networks deliver the kind of reductions that are commonplace among group health insurers?
And why do employers allow their payers and managed care firms to spend their dollars so carelessly?
Jun
30
My take on your question: “Why do workers comp payers consistently overpay for hospital services? Why can’t comp networks deliver the kind of reductions that are commonplace among group health insurers?” Two reasons: (1) Adjusters and Case managers in comp worry more about the doctor, less about the hospital, so not a lot of ‘directing’ (2) A lot of ‘catastrophic’ in the inpatient mix for hospitals. The ambulance takes the guy who falls off the scaffolding to the NEAREST hospital, not the one in-network. (3) Hospitals have better negotiators than the work comp managed care networks do. Hospitals don’t need to give deep discounts to comp networks.
Payers (employers) need to start negotiating their own contracts with providers. That way, there are no games played with bills. Yes, this would be a tedious task, but until it is done, the shell and peanut game with continue.
I agree with you Tom, and we have had to do just that. Direct contract with some of our employers as the hassle of dealing with the bill review people who are trying to make a name for themselves, but in reality are just another hand in the Providers pocket of reimbursement. If the Providers did not have to deal with all of these other so called managed care groups, that are supposed to be helping the employer save money, such as PT networks, WC fee networks, Bill review companies and TPA’s, the client would be able to save a great deal of money as the DR’s would give them a great discount. Currently, we have one employer, who did not know that four groups were charging them for getting their bills reviewed and negotiated because the employer does not know about the borrowing of networks that go on, and each of the players who get a piece of the dollars. It is quite ridiculous sometimes, just to figure out who paid what!
Could it be companies allow overpayment because they don’t want anyone snooping too close at the organizational policies that contribute to work related problems? Training has all but vanished, leadership is absent and workers are told to do whatever it takes to get the job done. Onehealthpro
As an advocate of employing the Medicare DRG system because of its cost accouting methodology and Medicare’s aggressive oversight (both lacking in the Work comp world), I will support you, Joe, in encouraging a study to review and modify (as appropriate) DRGs based on the patient differentials relative to age. However, I still argue that many work comp claimants have chronic problems that complicate care (obesity, smoking, hypertension, etc) and because we are addressing hospital care, in this day and age, when a patient requires hospitalization that person is truly ill – the uncomplicated population receives its treatment on an outpatient basis.
Three cheers for you in bringing this discussion to your forum!
Adding additional context to this discussion, the 7/1/08 edition of The Wall Street Journal in its page one article on P&C insurers notes “In the three years through 2006, P&C insurers registered record profits, topping out at $65.8 billion in 2006.”
“So what,” you ask?
Record profits drive complacency to continue doing what one does … looking into new areas such as hospital spend in Work Comp is not high on the list of priorities. The real customers, the employers, need to push for improved and comprehensive medical cost management.
Joe – Very timely conversation. I could do with feedback from you and your readers…I’d like to direct a part of this conversation toward State politics and the development and adherence to fee schedules. Why do states back and mandate the utilization of extraordinary reimbursement schedules? Why do some states carve out trauma care, when the largest bills carry the most potential for errors and overbilling? Is it “fair and reasonable” to reimburse a facility 100% of its billed charges when their own published cost data shows costs averaging $.12 per every dollar charged? Is it “fair and reasonable” to expect employers to either subsidize the payor mix at any given hospital through their workers comp programs or come up with the resources to sit through a commission led “fee review”? Where was that fee review when the fee schedule was put in place? And, since CT was mentioned, why do none of the hospitals in the state recognize the language put forth by their commission under section 31-294 governing reimbursement at cost?
there is more need for such compaigns. It would be ravolutionary in the feild of health care.I think by the such compaign the devotion of the workers also increase for their employer and they work hard