Why a Medicare Fee Schedule Won't Work in CA

Saturday, August 30, 2003 | 0

The California Medial Association has published a position paper on the Official Medical Fee Schedule, the revision of it and tying the schedule to the Medicare schedule, as proposed by Senator Richard Alarcon (D, SF Valley). With California (and other state) health practitioners under fire from all angles as the cause-de-jour for out of control workers' compensation costs, this position paper provides an important perspective of an integral part of the workers' compensation system: the provision of timely and adequate medical services.

Why Medical Expenses Have Risen

An underlying theme of the report, not specifically stated, but nevertheless inherent in the analysis, is that the cost of providing medical services has risen dramatically, and not just for workers' compensation. Medical malpractice insurance has risen almost as fast as workers' compensation insurance. Advanced diagnostic equipment, increasingly requested to confirm medical conditions, comes at a high price. And the complexity of the workers' compensation system itself requires more paperwork, more consideration of outside factors (such as causation) and increased the billing and collection practices that increase overhead and financial burden.

The bottom line position of the CMA is that a pure Medicare reimbursement system is opposed for various reasons. CMA prefers a Resource Based Relative Value of Services (RBRVS) system similar to what exists currently though with modification, and more thorough and complete collection, analysis, and dissemination of medical treatment data (inclusive of utilization) to assist in further policy development and cost control.

The Working Group

The 47 page report, just recently released, was the product of a working group established early in 2003 to explore the feasibility of establishing a California Relative Value Update Committee in response to the introduction of SB 228. However, as explained in the Executive Summary of the report, the group concluded early on that "there was insufficient time, expertise and resources to establish a RUC." Rather, the panel, given the limited time available, decided to review the information that was available through research already conducted by the CWCI, WCRI, The Lewin Group, and others. They came to an agreement that a fee schedule based on Medicare was inadequate and that a model based on RBRVS based methodology was more appropriate. The panel also concluded that there was insufficient data to maintain an appropriate fee schedule, that there was inadequate utilization guidelines or controls which was the root cause of the high proportion of medical expense, and that attempts to shift to a Medicare system will only result in further barriers to treatment for injured workers.

The Medicare System Challenged

In Medicare, there are 9 different geographic areas in California, each with unique adjustment factors that were intended to reflect the cost of practice in that area. Medicare applies these adjustment factors based on the geographic location of the provider. Since the Medicare payment will vary, depending on where the service was rendered, establishing the conversion factor for Workers' Compensation is not straightforward, concludes the study.

The panel report challenges conclusions made regarding a conversion to Medicare at 120%, stating that the analysis provided by the California Commission on Health and Safety and Workers' Compensation ("CHSWC") is flawed because it fails to incorporate the reduction in unit values that have occurred under the Medicare system over the past years.

While the CHSWC recommendation was to peg reimbursement levels at 120% of Medicare, The Lewin Group study recommended an average increase of 28% for evaluation and management codes ("E&M") that TLG estimated would result in an increase of 7% overall. CMA's analysis finds the 120% would fall short of the preliminary analysis of budget neutrality plus E&M adjustment using the approach espoused in the CHSWC report.

Winners and Losers

Under a straight application of 120% of RBRVS, there are clear winners and losers, according to the report, which implies that the law of unintended consequences may in fact eliminate any supposed savings.

Miscellaneous surgeries gain the most on a per RVU basis. E&M office based services (visits and consults), improve in compensation by 35%. Mental Health, a service that has clearly articulated a burden under Workers' Comp that does not occur with routine medical patients, has a net gain of 14% and chiropractic and physical therapy gains are erased by losses as the value of services are re-priced within this category.

Spine surgery and arthroscopy lose the greatest percentage per RVU under a Medicare based system - an estimated 43%. Anesthesia loses significant compensation on every service, since the units are identical to those presently used, but the conversion factor would be reduced 41%. Pain medicine and medicine lose the next greatest amounts. While these amounts are estimated at 33% and 36% respectively, the CWCI data show that these two areas routinely receive payments greater than the OMFS allowed amounts, according to the report.

Other surgery (composed largely of other orthopedics in the report analysis) loses 21%. E&M services rendered in the hospital, in the emergency room and for prolonged services all decline in value between 11% and 29%.

Psychiatric Care Losses

The California Psychiatric Association asserts higher costs, noting, "more data is needed for evaluation in Workers' Compensation cases, since causation is an important issue. For Medicare patients, evaluation provides diagnosis. Causation is not usually important - it often remains unknown. In Workers' Compensation, the nexus between work and injury must be demonstrated. For psychiatric injury, the work required for an evaluation is often two to three times the work required for evaluation of a Medicare patient, because of the complex causation thresholds that must be met."

Further, "more work is required to generate documentation in the Workers' Compensation system. Medicare claims do not usually require narrative documentation. In the rare cases when documentation is requested, it is no more than a progress note or a procedure note. The extensive reports, including treatment plans, which are integral to the Workers' Compensation system, require work not tabulated in the RBRVS."

Additional concern for access to quality psychiatric services for the injured worker arises from evidence that psychiatrists disproportionately are leaving Medicare. Data provided by California's Medicare intermediary on those physicians who have selected to "Opt Out" of Medicare (voluntarily discontinue all participation under the Medicare program for a minimum of two years) suggest mental health providers are disproportionately leaving the Medicare program. Of the more than 160 providers who have notified the intermediary of their decision to Opt Out recently, 43% are psychiatrists.

The Panel, through the report, argues that given this pattern in Medicare and the significantly greater obligation required of the Workers' Comp patient, there is reason to consider mental health services for special treatment, if quality psychiatric interventions are to be available.

Goals for an OMFS

Many of the reasons underlying the establishment of a new OMFS and their import for public policy are clear. Two understandable and achievable goals are simplicity in updates and use of publicly available and widely vetted processes. A stated goal of the new fee schedule is to assure equity and fairness, but the CMA argues, "It is likely there can be full agreement on the fact that an immediate compensation reduction of 43% is not likely to feel fair under anyone's definition."

Another stated goal is to maintain access. CMA has been assured by surgeons, whose compensation will be most significantly impacted, that access will be impaired under the proposed approach. To support their argument they commissioned a study of other states whose reimbursement for surgical procedures is similar to that proposed under SB228 and who have experienced reductions in participation of qualified surgeons. This study reported that these states found it necessary to pay above the scheduled rate to obtain access.

Low Rates Drive Over-Utilization

CMA implies in the report that the larger problem with controlling medical costs in the state are more the result of the present low reimbursement rates which cause treaters to promote over-utilization in order to make up lost profits.

"Neither SB228 nor CWHSC address the low fee schedule in operation in California for the WC program. While the total dollars spent on services within this category are a concern, a more appropriate concern should be that this amount of money can be expended using the 5th lowest compensation in the nation. Nothing in the SB 228 or CHSWC fee schedule proposals addresses this substantial undercompensation or the implied egregious over-utilization," the authors of the report note.

California, among the most expensive cost of living states in the nation, compensates its providers at the lowest levels, say report authors, based on an analysis of WCRI data.

Between 1991 and 1997, the relative proportion of costs (indemnity versus medical) remained unchanged. Since 1997, medical costs have become an increasingly large percent of overall costs, outstripping indemnity costs at an accelerating rate.

Even though there has been no increase in the OMFS for most codes in 16 years, CWCI reports the average monthly amount paid per claim (a "claim" means an injured worker) for professional fees increased 76% between 1994 and 1999, with the majority of this increase occurring since 1997.

Physical medicine (consisting primarily of physical therapy and chiropractic codes) average monthly paid amounts have increased 96% during this same period. Surgery increased 114%. According to CWCI, the clinical mix of cases changed only 1.1% - providing no identifiable clinical basis for this change in utilization and corresponding increase in costs.

Proposal for Cost Shifting, Improved Utilization

Two bills currently propose changes to the WC program to address utilization. SB354, Jackie Spier's bill, would place a cap on chiropractic visits. Whether or not this is a good solution, there can be no question that chiropractic and physical therapy services constitute an unusually large part of the services rendered to injured workers admits the authors.

Of the 9.5 million services identified in the CWCI data studied by CMA, nearly 6.5 million of them are classified as physical therapy and chiropractic manipulations (the services primarily reported in the OMFS "physical medicine" section). Substantial savings would accrue from improved utilization of these services argues CMA.

CWCI estimates that if SB354 were passed and visits for these services were limited to 15, the overall cost of chiropractic services would drop by 57%9. For the subset of claims reviewed by CMA, nearly 8% of all dollars spent reimbursed chiropractic manipulations. Thirty six percent of total payments were for physical therapy codes. Improved utilization should free up significant savings for professional services. Utilization improvements in other areas could bring additional cost savings. Such dollars, more wisely deployed, could be used to improve the poor compensation currently offered for most services under the OMFS.

The authors argue that under the proposed methodology there is no incentive for providers to actively participate in reducing utilization. "Given the abysmal performance of the carriers in dealing with utilization problems," says the report, "it would seem a logical policy choice to encourage providers to join efforts to achieve utilization improvements."

Report authors suggest that policy efforts to encouraged improved utilization might include: helping develop clinical guidelines that are designed to optimize outcomes for the injured worker, identifying current practices that bring value for the expenditure, and participating in designing guidelines and systems that will benefit all stakeholders in the system.

Conclusion

Research of available studies show states employing RBRVS in their Workers' Compensation programs have chosen to use single conversion factors and multiple conversion factors about equally. Those who have successfully implemented single conversion factors softened the transition by introducing relatively high conversion factors, say the report authors.

"California WC compensation is among the lowest in the nation. With California's cost of living, California physicians should expect fair compensation, not a system that only pays adequately for some services and penalizes those providers who refuse to game the system through billing or utilization aberrations.

"Implementing a single conversion factor at the levels proposed by the DWC and SB228 will have dramatic income distributions that will not be acceptable to important segments of the medical community. Evidence in other states and appeals by potentially so effected physician specialties suggest important access will be lost if these services receive significant reductions."

A copy of the full 47 report can be downloaded in PDF format at http://www.calphys.org/assets/applets/workers_comp_issues.pdf.