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.
Inpatient
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.

There’s a lot going on in California’s workers comp system – medical costs zooming up and driving premium increases along the way, narcotic usage skyrocketing, a dramatic increase in scripts for medical foods and compounds, judges upholding controversial decisions, and momentous decisions re changes to the fee schedule. Add the continued news about rising hospital costs, and you’ve got more than enough activity to keep anyone busy.
We can’t cover all the issues here, so a summary will have to suffice – promise to dig deeper into a few later this week and into next.
First, the controversy over changing the workers comp fee schedule.
California does not currently use Medicare’s RBRVS methodology as the basis for its non-facility fee schedule, making CA the only fee schedule state to not use RBRVS.(the other states that don’t use UCR, and I’d argue they really don’t have ‘fee schedules’ in the true sense of the term). The state has been considering moving from its current methodology the Official Medical Fee Schedule, or OMFS) to RBRVS for several years, with considerable progress over the last couple of months.
Most recently, public hearings were held in Sacramento with various stakeholders asked to respond to the latest revisions to the suggested fee schedule, revisions that added an additional $52 million in projected physician payments. I’ll spare the details on the methodological discussions, which have to do with changing teh conversion factor, one of the components of the RBRVS pricing methodology. (workcompcentral.com posted on this August 18). The basic argument advanced by providers is, well, pretty basic – if you reduce reimbursement, there may well be an access problem as providers opt out of workers comp.
According to workcompcentral.com;
“Destie Overpeck, the DWC’s chief counsel, said she was encouraged that most of the providers in the audience seemed to support the division’s multiple conversion factor plan, or at least understood it was needed to smooth the transition to a new system.
Primary care physicians, occupational therapists and providers who bill under the “all other” category would generally see an increase in payments, Overpeck said. “They seem to be saying, ‘Hey, we understand it’s not as high as we want or would get with a single conversion factor, but if you lower the rate on surgeons too much they won’t be there anymore,” she said.”
There is some evidence that lower work comp reimbursement does impact provider participation. When Florida increased reimbursement over a decade ago, anecdotal reports indicated more surgeons started accepting work comp patients. A pretty solid research effort (albeit one specific to neurologists) presented at the meeting showed a strong correlation between reimbursement rates (as a percentage of RBRVS) and provider participation rates; according to the study, “G{eneral] M[edical] fee levels provide the highest correlation (90.7%) with neurologist willingness to accept workers’’ compensation patients.”
The study also noted “a modified RBRVS medical fee schedule set at 156% of Medicare for EM fees and 121% for all other fees (an often-discussed plan) would result in a neurologist WC participation rate of 12.0%, third lowest in the U.S.”
(A METHODOLOGY FOR PREDICTING PROVIDER PARTICIPATION IN WORKERS’’ COMPENSATION MEDICAL FEE SCHEDULES
STEVEN E. LEVINE, M.D., PH.D. AND RONALD N. KENT, M.D.)
Perhaps the key point was best made by Kent Spafford, CEO of OneCall Medical, the leading work comp imaging company. Spafford noted: “The California Workers’ Compensation Fee Schedule is designed to provide adequate compensation to providers, so they are willing to provide care to injured workers. It is not the vehicle to control costs. Any action relative to the fee schedule should be designed to induce current and future providers into the system and not disenfranchise the existing providers.”
Recognizing OneCall’s is keenly interested in the fee schedule as it bears directly on the company’s ability to profitably operate in the state, Spafford’s comments are nonetheless well worth consideration. Without reasonable access to care, disability durations may well increase, the quality of care decline, and system costs continue their current upward trend. Notably, access under the current OMFS is pretty good, with 90% of patients reporting ‘good access to quality care’; the access problems that did occur weren’t related to cost but to administrative hassles, language issues and UR delays. As access is good under the current system, one has to consider the possible benefits of reduced prices – for some providers and some services in light of possible decreased access.
Moreover, as I’ve discussed here on numerous occasions, price per service is but one of, and certainly not the most important, contributor to total cost. As we’ve seen with California’s revised drug fee schedule, cutting price often doesn’t reduce cost – in fact, total drug costs in CA went up – way up – after the fee schedule was slashed.
I’ll draw a distinction between physicians and hospitals; as I’ll discuss tomorrow, California’s hospital costs are high and trending higher, with no likely end in sight.
California’s Division of Workers Comp is working diligently to balance the cost:access equation. I’d suggest that a careful and thorough assessment of hospital costs may well indicate there are lots of dollars to be saved, dollars that won’t compromise access.

In the course of my consulting practice, I see a lot of work comp medical bill review ‘savings’ reports. Over the last fourteen years (since founding Health Strategy Associates in 1996) I’ve collected, reviewed, and analyzed scores of savings reports from pretty much every vendor in the business – as well as many of the larger TPAs and insurers.
There’s some consistency in the business, but not near enough. That alone makes it hard to compare one vendor to another, much less benchmark one company’s performance against the industry.
Leaving that aside, there are a number of issues with most reports, issues that clients/insureds/policyholders would do well to consider when evaluating performance or comparing potential vendors.
1. Does the savings report include reductions below state fee schedule (SFS) and/or Usual Customary and Reasonable (UCR)? Many vendors don’t split out savings below SFS/UCR, instead lumping all reductions into one ‘overall’ category. This is either a) an oversight as any vendor should be willing and able to demonstrate their ability to reprice bills to comply with regulations, or b) a way to inflate savings so the naive buyer sees a bit percentage reduction and thinks the vendor’s doing a crackerjack job.
2. Does the savings report clearly identify the source of UCR data? There are several vendors out there that provide these data, and knowing which is important in evaluating performance.
3. How are savings percentages calculated? Do they include savings for duplicate bills or duplicate line items (they shouldn’t). Do they include all types of care, such as pharmacy and imaging? In many instances these services are outsourced to specialists, requiring the customer to combine results to get an overall figure.
4. For pharmacy, savings should be reported using AWP as the benchmark – if the vendor wants to include SFS, that’s fine, but AWP (and make sure they define the source) is the universal standard.
5. How is network penetration calculated? Is the basis the number of bills or dollars? Dollars are preferred, but may skew the numbers higher than number of bills, as network penetration tends to be higher for facilities (which have higher average bill charges).
6. Over time, have you seen a decrease in fee schedule reductions and an increase in so-called ‘nurse review’ or ‘bill audit’ or ‘professional review’ savings? Hint – if these are billed separately, there’s often an inherent motivation on the part of the vendor to lowball SFS reductions in favor of these ‘other’ reductions.
7. Semantics and definitions. Make sure there’s a clear and complete understanding of each and every term, including such seemingly-obvious ones as ‘bill’ – can be a ‘staple’, a single page, a date of service, or ‘up to x lines’.
What does this mean to you?
There’s lots more to this, but the message should be clear – don’t assume you understand the report, ask lots of questions, consider how the vendor gets paid, and don’t hesitate to ask the vendor to revise the report to give you the information you need the way you want to see it.
After all, you’re the customer.

It’s hard to overstate the importance of the claims IT system in workers comp.
Systems directly, and materially, affect: productivity; compliance; claimant and policyholder satisfaction; medical costs; litigation rates, expenses, and outcomes; administrative expense (both unallocated and allocated); claims cost; employee retention and satisfaction; and ultimately growth, revenues, and profitability.
To date there hasn’t been a comprehensive survey of claims systems providing insights and data on features, trends, user satisfaction, key attributes, cost, flexibility, connectivity, issues and problems.
That’s about to change.
Next month Health Strategy Associates will conduct the First Annual Survey of Workers Comp Claims Systems, gathering input from all stakeholders including IT executives, claims executives, managers, and desk adjusters. The results of the survey will be available early in the fourth quarter, with an executive summary available at no cost to interested parties.
Management responses will be gathered in a structured telephonic interview format, while an online survey instrument will be used to gather responses from desk-level experts. Input from the two groups will be compared and contrasted, and we’re betting there are areas where the folks ‘on the front lines’ see things a bit differently than the people ‘in the management suite’.
Sandy Blunt, former COO of the Ohio state workers comp fund and former CEO of the North Dakota state fund, is running the project, and we couldn’t have a better leader. Sandy’s been intimately involved identifying requirements, selecting systems, comparing vendors, assessing performance, and designing workflows. His leadership will ensure the Survey is as practical as it is timely.
If you are interested in participating in the survey, send an email to Sandy at SBluntAThealthstrategyassocDOTcom.
Participants will receive a detailed version of the Survey Report.
We anticipate this will become an annual Survey, one of the series of Surveys conducted by Health Strategy Associates as we continue to help work comp payers, providers, and stakeholders make more informed decisions.