The Erosion of Workers' Comp Reimbursement and Patient Choice

Tuesday, May 22, 2012 | 0

Introduction

Undoubtedly, physicians have heard the grumblings of their patients.  Health insurance premiums continue to rise, and patients are exposed to higher financial burdens.  First, they bear an increased expense in contributing to the portion of the premium not paid by their employer.  Second, their out-of-pocket cost for service has generally increased in the form of higher deductibles or higher co-payments.  Due to these economic conditions, patients who now have a $40 copayment may put off that trip to the specialist or otherwise reduce their consumption of medically necessary services.  The physician’s waiting room may be a little less crowded and fewer patient visits may be performed.  Patients with commercial health insurances are generally the most affected population.  There is one population of patients who require medical care that are largely immune to the effect of rising premiums – those unfortunate patients who were injured on the job, and covered by workers' compensation.

Workers' Compensation Reimbursement

Workers' compensation has long been regarded by many medical providers as being the one of the best sources of reimbursement.  Historically, workers' compensation claims were reimbursed at 1.5 to 2.5 times more than HMOs, Medicare and other commercial health plans.  The higher reimbursement sometimes, but not always, resulted in higher profit margins.  Often, treating injured workers' requires more time and resources than providing care for patients with identical injuries who covered by group health plans.  Physicians frequently have to interact with case managers and attorneys, appeal adverse utilization reviews, and provide disability status reports.  Workers' compensation claims are often slow to pay, taking many more months than non-workers' compensation claims.  But, in general, workers' compensation claims were worth the additional time and effort.

That is slowly changing.  While the workers' compensation reimbursement is generally good, it is not as good as it used to be.  All areas of medicine are susceptible to cost cutting. Workers' compensation reimbursement is no exception.  For example, Illinois recently enacted legislation which reduced the workers' compensation fee schedule by approximately 20%.  Other states have made reductions to their workers' compensation fee schedules or are in the process of making reductions.  As part of its administrative regulatory process, Tennessee is currently engaged in its notice and comment period for proposed reductions to workers' compensation reimbursement.  And in February of this year, Florida’s House of Representatives passed a bill to close what it termed a loophole in the workers' compensation system for a physician’s sale of repackaged drugs, in an effort to control workers' compensation reimbursement to physicians.  Delaware also reduced physician reimbursement by migrating from a “usual, customary, and reasonable” approach to a fixed fee schedule.

Most states attempt to limit workers' compensation costs through provider fee schedules.  Many of these fee schedules reimburse at a multiple of Medicare, even though Medicare-based fee schedules have no relationship to the cost or value of the medical care provided.  California, Maryland, Pennsylvania, and Tennessee are just a few of the many states that tie their workers' compensation fee schedule to Medicare.  When reimbursement is pegged to fairly current Medicare reimbursement rates, there will always be uncertainty looming, given the current fragility of the Medicare program relative to the Balanced Budget Act.  For instance, Texas’ workers' compensation rules require that “[w]henever a component of the Medicare program is revised, use of the revised component shall be required for compliance with Division rules, decisions, and orders for professional services rendered on or after the effective date. . .”[1]   Other states use historic Medicare rates in arriving at a fee schedule.  Pennsylvania’s workers' compensation fee schedule is at 113% of 1994 Medicare, adjusted annually by the percentage change in the statewide average weekly wage.[2]   Overall, when taken at face value, many of the states’ workers' compensation fee schedules still provide good reimbursement.  However, some states workers' compensation acts deprive the injured workers of their choice of medical providers.  Employer direction of medical care tends to erode workers' compensation reimbursement to levels below the state fee schedule.

Employer’s Direction of Care

An employer’s direction of the injured worker’s care inherently siphons reimbursement away from medical providers.  The workers' compensation statutes in many states allow the employer, not the injured worker, to select the physician.  In a sense, the injured worker patient population can be viewed as a commodity.  In states that permit the direction of care, the employer controls who has access to treat this patient population  Unfortunately, the caveat is that, in order to gain access to treat the injured worker population, the physician frequently has to take a discount off of the state fee schedule.  Enter the “workers' compensation PPO.”  The workers' compensation PPO creates a network of providers who are willing to work at rates that are less than the state-mandated workers' compensation fee schedule.  In exchange for the provider’s discounted fees, the PPO purports to funnel patients to the physician.  The employer saves money, the PPO makes money, and the physician does the same work for less money.  To illustrate, one such network reportedly saved an insurer $28million below what would have been paid at the current state fee schedule.[3]  Taking money from physician is, seemingly, one of the easier ways to reduce the expenses associated with workers' compensation claims.

Numerous states permit the employer to direct the medical care of an injured worker.  Pennsylvania allows the employer to choose the injured worker’s medical providers for the first 90 days.[4]  Michigan allows the employer to control an injured worker's choice of physician for the first 28 days.[5]   New York allows the employer to participate in a preferred provider network, where the injured worker can chose any physician, as long as that physician is within the network.  New Jersey’s workers' compensation statute also allows the employer to direct the injured worker's care.  Interestingly, New Jersey has no state workers' compensation fee schedule.[6]  Instead, physicians are reimbursed the usual, customary, and reasonable rates.   As a consequence, a “de facto” fee schedule is created, because employers generally will only direct care to those physicians who agree to significantly reduced reimbursement terms.  The employer’s direction of care ratchets down the provider’s margins.  There are also a fair number of states that take the opposite approach.  These states empower injured workers to take control of their medical treatment.  Alaska, Arizona, Maryland, Delaware, Illinois, Washington D.C., and Louisiana – employee choice states -are examples of some states that permit injured workers to exercise their own discretion in selecting a physician.

Workers' Compensation PPOs and Employee Choice

But, there is a new threat rising against physician reimbursement in employee choice states – the expansion of workers' compensation PPOs into this marketplace. Through these PPOs, some employers have surreptitiously taken over the direction of an injured worker’s care in states that permit the employee, not the employer, to choose.  This conduct contravenes the express language of the respective states’ workers' compensation statute.   For example, Delaware’s workers' compensation statute states “[a]ny employee who alleges an industrial injury shall have the right to employ a physician, surgeon, dentist, optometrist or chiropractor of the employee’s own choosing.”[7]  Other state statutes are similar in wording.  Injured workers, many times, do what their employer tells them.  They are frequently unaware that the laws in these states permit them to seek treatment with the physician of their choice.  And, they are generally not informed by their employer of their ability to do so.  It is an easy sell to uninformed injured workers.

Similarly, the pitch to employers is easy.  One major workers' compensation network claims that it “[d]elivers average savings up to 21% below state fee schedules or provided allowable depending on bill type and charge amount, with successful negotiation rates averaging 58% of eligible charges for higher value bills.”[8]    Another PPO network, noting that it serves all 50 states, claims that it can offer “Superior Savings Rates – We negotiate with providers for rates that are significantly reduced from fee schedule or reasonable and customary charges.”[9]  This begs the question, why would a physician join a workers' compensation PPO in states where the injured worker is free to choose his or her own care?  Participation in a workers' compensation PPO always results in reduced physician reimbursement.  A physician would not ordinarily take a payment reduction without something in return.  There must be a return benefit in order for the physician to compromise his or her fees.  The answer appears to be that the PPO will direct care to that physician.

Even if there are physicians who are willing to join these workers' compensation PPOs in employee-choice states, how does the PPO apparently circumvent state statutes which prohibit the employer’s direction of care?  “Non-mandatory” suggestions appear to be the mechanism by which the PPO dupes the injured worker.  In the words of one PPO, injured workers can be “[a]ctively channel[ed] . . .to network providers, using state “employer choice” laws where available and non-mandatory recommendations where they are not. Some payers achieve very high network penetration percentages in “employee choice” states by offering injured workers scheduling services. . .” [10]  Scheduling services that function to make appointments with PPO providers and not non-PPO providers certainly tips the scales in favor of the employer.   With respect to recommendations, it is unlikely that the PPO is recommending anything other than the discounted PPO providers to the injured worker.  That is, when an injured worker is presented with a choice of providers, their choices are probably not between PPO and non-PPO providers.  Because many times an injured employee does not know that he or she has a choice, the PPO’s “non-mandatory recommendation”  and scheduling services are the functional equivalent of direction of care.

Conclusion

Clearly, not all 50 states permit the employer to direct an injured worker’s care.  Yet, several of these PPO’s boast networks in states whose workers' compensation statutes expressly empower the injured workers with their choice of medical provider.  Providers, like the injured workers, may be unaware of the law.  Find out the workers' compensation laws of your state.  When confronted with the opportunity to join a workers' compensation PPO, find out the benefit to participation. You should not be surprised to learn that the benefit of participation will be touted as an increase in patient volume, at the expense of a discount off of the fee schedule.  If you are in a state that allows the employee to choose, ask the PPO how they will direct care to your practice and stay within the parameters of the laws designed to protect injured workers.

Franklin J. Rooks Jr. is a physical therapist and practicing attorney in Philadelphia.  Prior to his practice of law, Frank was a founding partner of PRO Physical Therapy, a Wilmington, Del.-based operator of physical therapy clinics. This column was reprinted with his permission from Physicians' News Digest.