Work Comp Cost Drivers - NCCI's Update and Implications

Friday, August 6, 2010 | 0

By Joe Paduda
Health Strategy Associates

The good folks at the National Council on Compensation Insurance just released a report detailing workers comp medical cost drivers. There are two 'headline' findings: Severity is increasing at a slower rate, and the price of medical services is becoming a larger contributor to overall cost increases.

(The studies are based on lost time claims closed within 24 months of accident, so an increase in the length of time claims are open or the number of claims open longer than 24 months won't show up.)

A quick side note than we'll discuss these and other findings. The study covers experience through 2006, thus changes over the last three plus years are not considered. As I've reported here and NCCI has covered in many papers, several components of medical have seen rather significant changes since 2006: Pharmacy costs are up; facility costs are spiking; surgical expenses, driven in large part by implants have increased dramatically in several ares; physical medicine costs in several jurisdictions are down and imaging expenses appear under control, due in large part to the impact of networks.

The big news is the increase in utilization has tapered off; we haven't seen fewer medical services, but we also haven't seen continued growth in the number of services provided to claimants. I'd hasten to add that while this is good news, we're still dealing with too many services delivered to to many claimants.

The bleeding isn't getting worse, but it's still pretty bad.

The price issue is troubling. Most of the 21% increase in severity was due to higher prices for medical services, this at a time when the utilization of provider networks, offering discounted pricing for medical services, has grown significantly. PPO penetration, on a national average basis, is in the 60% range with wide variation among states New Jersey and Florida commonly see rates above 85%, while Texas and California are closer to 50%.

PPO penetration has increased significantly over time, yet prices have also grown. There are several potential explanations for this:

A) A change in utilization patterns over time, wherein more expensive procedures are used more often. This doesn't appear to be the case, as the NCCI study accounted for changes in service type.

B) An increase in fee schedules. again, this doesn't appear likely as most fee schedules have seen modest increases, with a couple notable exceptions.

C) Increased provider pricing in UCR states. I'm thinking this has undoubtedly contributed to price increases. UCR pricing (usual, customary, and reasonable) are based on charges (not payments) for that procedure in that area in the preceding time period. Historically, UCR increases by double digits each year.

D) Increased provider leverage in contracting. There's no doubt this has contributed to cost increases, as we've seen in California, Illinois, and many other states.

What does this mean for you?

You will want to assess how the prices you've been paying for specific procedures (and the number of procedures themselves) have changed over the past few years to see if NCCI's findings re price and utilization have continued since 2006.

The NCCI report can be found here:
https://www.ncci.com/nccimain/IndustryInformation/ResearchOutlook/Pages/MedicalSeverityStudy-July2010.aspx

Joe Paduda is owner of Health Strategy Associates, an employer consulting firm based in Connecticut. This column was reprinted with his permission from his blog, http://www.managedcarematters.com