Gun Boats on the Kennebec? Comp Medical Costs Sinking Bath Iron Works

Saturday, November 18, 2006 | 0

By Jon Coppelman

Bath Iron Works (BIW) builds ships. The first was The Cottage City, a passenger steamer completed in 1890. Over the past two decades, their work has been limited to building destroyers for the US Navy. We read in the Kennebec Journal that the builder of destroyers is being clobbered by the high cost of medical care for injured workers. There's supposed to be a fee schedule capping the cost of medical services in Maine, but the workers' comp board has never been able to reach agreement on the rates. So BIW is suing the workers' comp board to implement the fee schedule. Imagine: a major employer suing government to implement regulations! What brought about this irony-laced situation?

Deadlocked Board

Maine was supposed to implement a fee schedule for all medical services fourteen years ago. Ten years ago the board approved a list of fees for doctor visits, but after that they got stuck. They have been unable to come up with set fees for such key items as operating rooms, hospital beds or other hospital services and equipment. That kind of tells you that doctors were unable to lobby against the rate setters, but hospitals - with their collective clout -- succeeded very nicely.

In the absence of a fee schedule, self-insured BIW has to pay the "usual and customary fees" for all hospital services. We all know what that means: you have to pay the fees that have become highly unusual and no longer customary. Large insurers might be able to negotiate their own rates. But BIW is on its own in the workers' comp system. They have no friends in high places and no leverage for negotiating the fees.

Gunboats on the Kennebec?

BIW's lawsuit provides an example of a worker who was injured and needed surgery at a cost of nearly $6,500. BIW asked the workers' comp board to allow the company to examine the hospital's records and present evidence that the fee was higher than average. (Given that almost no one pays "usual and customary" rates, the fees were probably inflated.) But the hearing officer denied the request for records and refused to hear the company's arguments.

He ordered BIW to pay the bill, saying that since the board had never adopted a fee schedule, the question of whether the bill was reasonable was irrelevant. (Given the apparent arrogance of the hearing officer, we can imagine that BIW had fantasies of sending one of their boats up the Kennebec River to offer him an opinion of their own. Alas, the Kennebec is so shallow, it might float logs and canoes, but certainly not a destroyer.)

Breaking the Logjam

Paul Dionne is the executive director of the workers' comp board. He notes that the comprehensive fee schedule for hospitals and surgical centers has never come up for a vote. The board has been deadlocked on the issue for over a decade. Up until 2004, the board consisted of four members nominated by labor groups and four by management groups. They could not reach agreement on the fee schedule. Finally, frustration with the deadlock resulted in legislative action. The board has now been reconstituted into three labor representatives, three management representatives and Dionne himself, who chairs the panel and has a vote. We get the impression that Dionne has a mandate to build a fee schedule for Maine.

A group representing doctors, hospitals and other health care providers was asked last year to come up with their own fee schedule, but that panel reported earlier this year that it couldn't reach a consensus. Well, duh. That's like asking people how big a pay cut they would like this year. Fee schedules are not likely to emerge through a democratic process, especially when you limit the discussion to stake holders.

The Massachusetts Example

Maine does not have far to look for a fee schedule that radically reduced the costs of workers' comp. The Bay State has one of the lowest fee schedules in the nation, with the fees tied to Medicare rates. You won't find a single hospital that's happy with these rates (indeed, they are too low), but the fact is that in Massachusetts the medical portion of total workers comp costs is around 36% (compared to nearly 60% in many other states).

In practice, the scheduled fees in Massachusetts don't always prevail. Insurers often have to negotiate higher than fee schedule rates for specialty services. But overall, the fee schedule has driven down the cost of comp for the state's employers.

The bottom line is fairly simple: if you want to reduce the cost of workers' comp, someone has to pay. Injured employees pay through reduced benefits. Fee schedules make health providers pay. In the absence of a fee schedule, Maine is a relatively high cost state (ranked 13th overall in 2004). By contrast, Massachusetts is ranked 45th.

BIW's lawsuit is likely to provide the kick in the pants that Maine needs to get this particular administrative chore accomplished. Until they do, BIW will continue to pay a premium for medical services: highly unusual, not exactly customary and very expensive, indeed.

This column was posted on Lynch Ryan's Web log (blog) at www.workerscompinsider.com.

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