What's Driving Excessive Medical Costs in Work Comp?

Saturday, March 25, 2006 | 0

By Janet Jamieson PHD.

Although some of the increases we have seen in workers' compensation medical costs may be due to general inflation of the cost of medical services, I believe the greatest contributor is the lack of controls over both treatment and pricing.

Several years ago I conducted a study for the Ohio BWC where we identified the top cost driver diagnoses for workers' compensation and compared group health and workers' compensation on the number and type of treatments, and costs. The results showed workers' compensation had over 200% more treatments for the same medical conditions and over twice as much cost. However, the most interesting outcome was that not only were there significantly more treatments, but unique treatments, that were never provided for the same medical conditions under group health.

Workers' compensation medical treatment lacks controls over the treatment model and costs that exist in other private and public healthcare payer systems, Group health, Medicare and Medicaid are contract-based systems where limits on the coverage of services and reimbursement are specifically spelled out.

Before we can address the problem of excessive costs, we need to understand the cost drivers, and the unique attributes of the workers' compensation system that are driving excessive health care cost. We also need to identify who is responsible for creating and solving the problem.

Unique Attributes of the Workers' Compensation System

The unique attributes of the workers' compensation system that drive medical costs include:

Legal Representation
Workers' compensation provides for legal representation over treatment decisions and reimbursement. Although non workers' compensation health systems provide processes for appeals, they are not a legal adversarial system like we find in workers' compensation.

Unique Providers
Workers' compensation includes unique providers not included in other payer systems e.g. massage therapists, and occupational therapists, and provides expanded roles for other providers such as Chiropractors, Acupuncturists, and physical therapists that do not exist in other payer systems. Some of these "unique providers" obtain the majority of their income from workers' compensation and auto.

Unique Treatments
Workers' compensation pays for unique and excessive treatment not covered in other payer systems. When was the last time your group health insurer covered fifty Chiropractic treatments, manipulation under anesthesia, massage therapy or a gym membership?

Fee-for-service Reimbursement System
Workers' compensation and auto are the last "fee for service" healthcare payment systems, and when group health and public healthcare payers ratchet down their reimbursement levels, we should expect to see provider cost shifting occur.

Lack of Patient Control over Utilization of Services
Workers' compensation, unlike other payer systems, prohibits patients being responsible for any medical costs. Studies have shown that co-pays and deductibles, which place some financial responsibility on the patient, do control patient utilization of health care services.

Providers as Cost Drivers

Whenever there is a discussion on how to solve the problem of excessive health care costs, the solutions always focus on how to better control providers' excessive treatment and billing - pay them less and question everything. Well, folks, it's time we wake up and realize that the providers are NOT the problem. Workers' compensation providers do drive the excessive cost of health services - BECAUSE THEY CAN - not because they are crooks (studies show that less than 4% of providers are actually abusive), but because there are loopholes in the treatment and pricing regulations prescribed by state regulators and the failure of payers to utilize the cost containment tools appropriately.

First of all, most providers are not crooks, abusers or gamers, only a small percent of providers fall into these categories. What "gamers" do is not illegal; it is how providers work loop holes in the state rules and regulations that control medical reimbursement. Most providers only have one scheme and when that is closed down you often see the same providers pop up with a new one. For example, many of the same providers that were gaming the system before California enacted an outpatient surgery center fee schedule are now involved in "repackaged" drugs.

The schemes are not unique to one state, although they do play off of the state controls for medical cost containment. As states have identified these schemes, they have enacted laws and regulations to close the loopholes. I am going to share two examples of provider schemes and what states have done to address them.

Self Referral
The "Self Referral" scheme works like this: Providers own businesses that provide treatment such as diagnostic testing, physical therapy, etc. They prescribe and refer patients to their own companies for services. This is not illegal in many states. However, the data shows that when this occurs some providers prescribe excessive treatment and testing for financial gain, even when the injured workers medical condition does not warrant it. Several states have enacted regulations that prohibit self referral by prescribing providers to facilities in which they have an ownership interest.

Repackaged Drugs
The repackaged-drugs scheme works like this: Every medication has a special identification number attached by the manufacturer. That number is used to identify the medication for cost and billing purposes by Medicare and Medicaid and other payers. Medications are produced in bulk by manufacturers and repackaged for individual use by doctors' offices. Repackaging changes, or eliminates, the drug identification number, thus taking it off the fee schedule.

According to preliminary research done by CWCI and the Commission on Health and Safety and Workers' Compensation, some doctors in California charge between 400 and 700 percent more than what's charged at a pharmacy for the same medication.

There are also indications that providers change their prescribing behavior to maximize their profit, not what is best for the patients' medical conditions. Repackaging is being marketed and encouraged by some companies as a way for physicians to make extra money. In fact, one such outfit, called Physicians Total Care(PTC), provides dispensing tools. It discusses advantages of dispensing and how much money can be made, especially in workers' compensation.

To address this "loop hole" in the pharmacy fee schedule, California has proposed regulations that would put "repackaged drugs" under the Pharmacy Fee Schedule. States without a Pharmacy fee schedule are especially at risk for these types of schemes.

Jurisdiction Responsibility for Excessive Medical Costs
The failure to control medical costs is primarily the responsibility of the jurisdictions and regulators who have governance over workers' compensation. It is the regulators' responsibility to provide fair, current, comprehensive fee schedules for all medical services covered under workers' compensation. Reimbursement levels should represent the going rate paid by other private health care payers in the community and should consider the additional work requirements associated with workers' compensation. Out-of-date fee schedules provide opportunities for providers to "game" the system, by charging excessive fees for new services not included and priced in the fee schedule. Using outdated treatment codes makes it difficult for both payers and providers to bill and be reimbursed for services. Fee schedules should also include billing rules to the degree possible. There are standard billing rules used by the AMA and other coding initiatives. Using standardized rules such as Medicare follow-up-days for surgery provides clarification for the reimbursement of these services.

In spite of the fact that we know that fee schedules do provide cost controls, many states still have large gaps in the services they cover. Although most states have some type of fee schedule for professional services, a great number still do not cover hospital services, outpatient surgery centers, durable medical equipment, and pharmacy. Fee schedules do work. The CWCI research on the impact of implementing fee schedule reforms in California, found the average outpatient surgery facility fee payments fell 38.9% from 2001 to the implementation of a fee schedule in 2004.

Services not covered by fee schedules also provide opportunities for "profiteering" by vendors negotiating reimbursement with providers. Each year, millions of dollars are taken out of the system for negotiating services not covered by a fee schedule.

Regulators can also set limits to contain certain types of cost driver services. For example, several states have established limits for the number of Chiropractic and physical therapy treatments that will be reimbursed. A few states have adopted "treatment guidelines" to control the excessive and unique treatment provided for worker' compensation injuries. However, none of guidelines used to date, including ACOEM, have been evaluated in terms of outcomes for workers' compensation patients.

Regulators also need to take responsibility for supporting outcomes research to identify effective medical treatment models and to support denial of unique treatments and services which have no validity in the research.

We all need to recognize that regulating the reimbursement of workers' compensation medical services is a political process. Provider groups that have the most to lose from a regulated system push their agenda in the legislative arena. Every workers' compensation cost control over medical costs that exists today has been a challenge for regulators.

Payers Responsibility for Excessive Medical Costs
Workers' compensation payers also bear some responsibility for excessive medical costs. In that they fail to utilize the cost containment tools provided by the regulators in a reasonable and fair manner, and create adversarial relationships with providers.

The concept of "managed care" has come late to workers' compensation and for the most part the models that have emerged are fragmented, overlapping, and costly. Payers often fail to integrate the various managed care services and processes, and often outsource services such as utilization review, case management, etc. to vendors or third party administrators with little oversight or accountability. An example of this is the Broward School District in Florida, where outsourcing their worker's' compensation to a TPA resulted in an increase in the percentage of the workers' compensation program's funds from 14% in 2001-2002 to 22% in 2004-2005 and the increased dollars going "outside" the system rather than to injured workers or to the doctors caring for them. How did this happen? No one was providing oversight or audits of the contracted services.

We need to look at who is getting rich off of the efforts to control medical costs. The number of managed care service vendors that have their hands in the pot has grown considerably over the years, and the "percent of savings" model ensures that every layer of contracted services takes dollars out of the system. We wouldn't care if it worked, but with several years of managed care experience we have seen it fail to control the increasing cost of healthcare. The "percentage-of-savings method nudges the network and the TPA to show more savings by producing more bills. And this can add substantial overall costs, even though the charge on each bill is cheaper than it might have been. The response of one workers' compensation insurer, when the incentive was explained, was "what you are saying to me is that I'm saving myself to death."

Research has shown that PPOs, as they are constructed in workers' compensation, fail to significantly control medical costs. They make PPO vendors rich and they continue to be used by almost all payers as part of their managed care program. PPOs do not direct care, or manage care. For the most part, it is a scatter shot approach. If by chance the injured worker goes to a PPO network doctor there is a reduction of 10-15% in the reimbursement and the PPO receives about 25% of the "savings." These are not real savings since the discounted providers make it up from the volume, providing more treatment.

Payers have also failed to utilize existing technology solutions to standardize and improve the efficiency of the medical adjudication process, ensuring that providers are paid timely, accurately, and fairly. Some payers continue to touch every provider bill, even when a significant number of bills are processed and paid with no change. Analytical tools can identify what bills and providers need to be reviewed and managed and allow the rest to be processed and paid in a timely manner. The current model of managed care that is used by a large number of payers treats all providers like crooks, questions every service provided, and uses claim adjusters who have little or no formal medical training to challenge the appropriateness of treatment. In this way, payers bear part of the responsibility for excessive medical costs by creating adversarial relationships with providers.

Abusive and fraudulent billing practices will cease as soon as the providers are not paid for those services. It is incumbent on all of us to control the system. Nearly all caregivers are honest. Punishment must be reserved only to those that need it. The tools to control the system are available; we should use them, now.

By Janet Jamieson PH.D
jjamieson@medata.com
Director Health Policy & Research
Medata, Inc.
www.medata.com

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The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.