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.

Part 2 of The NCCI State o’ the Line; aka the Dennis Mealy farewell tour.

There was a good bit of discussion re frequency in his SoL report, with Mealy noting there was a sharp decline in relatively low-cost claims early in 2008/9, but little change in the number of high cost claims. This is consistent with other research indicating employees are reluctant to file claims in a recession for fear of losing their jobs; however those with major injuries really have to file.

Indemnity severity (cost for wage replacement) was up just a point over 2011; not surprising given the continued tough employment situation – wages weren’t up, so wage replacement costs weren’t either.

Medical severity was up 3 percent, overall “not bad” according to Mr Mealy.  Recall workers’ comp is just 2 percent of total national health spend, thus we are more affected by external factors than in control of our own destiny.  There are structural changes working their way thru the medical community, driven in large part by efforts to prepare for PPACA implementation in 2014 that are likely having a significant impact.

Somewhat surprisingly, the medical CPI is actually running a full point higher than lost time medical severity – only the second time in memory this has happened.

There was a bit of discussion about the impact of health reform on workers’ comp; I remain convinced the overall impact will be quite positive; I was puzzled by some comments that ACA might increase cost shifting.  As ACA will ensure somewhere around 20 – 30 million more Americans have health insurance, there’s no question there will be LESS need for providers to cost shift post-ACA than there is today.  

Those uninsured are getting free care today, and that care will be reimbursed tomorrow. Even if that reimbursement is at Medicaid levels, that’s a heckuva lot better than zero reimbursement.

That said, I’d also note access to key specialties – think orthopedics – is going to be very tight this time next year as pent-up demand meets insurance coverage.