CWCI Study Finds California Workers’ Comp Medical Payments Exceed Pre-Reform Levels

Average amounts paid per claim for treatment, prescriptions and durable medical equipment (DME), medical management and cost containment, and med-legal reports in the California workers' compensation system have grown steadily since 2005, pushing average medical expenditures above the levels noted prior to enactment of the 2002-2004 reforms according to the latest data from the California Workers' Compensation Institute (CWCI).

For its study, CWCI analyzed data from more than 1.96 million California work injury claims with January 2002 through September 2010 injury dates. The data included policy, claim, benefit and medical service detail based on payment and medical bill review transactions through December 2010, which were used to calculate average medical payments at six valuation points: 3, 12, 24, 36, 48 and 60 months post injury for claims from the nine different accident years. The latest outcomes confirm the results of CWCI studies from 2010 and earlier this year, showing a decline in average medical expense payments per claim from accident year (AY) 2002 through AY 2005, followed by continued growth from AY 2005 through the most recent measurements. For example, the latest data show that since declining 14.3% from $6,399 in AY 2002 to a post-reform low of $5,484 in AY 2005, average first-year medical payments on indemnity claims have increased 64.2% to $9,005 in AY 2009. Preliminary medical payment data for indemnity claims from AY 2008 through the first 3 quarters of 2010, measured at 3 months post injury, suggest that the rate of medical inflation is slowing, though average payments at the 3-month valuation are still rising and are now more than double the pre-reform levels noted for AYs 2002, 2003 and 2004.

To see how various medical components have affected the overall medical cost trend, CWCI also measured changes in the average amounts paid for treatment, pharmacy/DME, medical management and med-legal reports at 12 and 24 months. All four medical expense sub-categories displayed similar patterns at the 12- and the 24-month valuations, with average payments bottoming out in 2004 or 2005, then climbing to record highs over the last four to five years. The breakdown of first-year payments for the four medical expense categories shows that since the post-reform low, the average amount paid per claim for treatment has increased 51.8%; the average amount paid for pharmaceuticals and DME are up 94.6%; the average amount paid for medical management/medical cost containment is up 245.5%; and the average amount paid for medical-legal reports is up 89.9%.

Medical treatment remains the primary medical expense component in workers' compensation, accounting for nearly 74 cents out of every dollar paid in first-year medical expense on an AY 2009 claim, but that is down from about 85 cents in AY 2002 - a shift that coincided with increases in medical case management/cost control payments that occurred as the 2002-2004 reforms were implemented, requiring ongoing expenditures for items such as medical bill review, mandatory utilization review, and access fees to Medical Provider Networks. As a result, medical management/cost containment expenditures increased from 6.5% to 16% of the first-year paid medical dollar between AY 2002 and AY 2009. (To put this increase into perspective, prior CWCI research estimated that these reforms saved between $12.8 billion and $25.3 billion in insured medical expenses between 2004 and 2008). Meanwhile, the proportion of the workers' compensation medical dollar going toward pharmacy and DME showed only minor changes, ranging between 5.1% and 6.9% of the total first-year medical payout during the study period, while med-legal payments rose from 2.4% in AY 2002 to 4.3% in AY 2009.

The Institute has released its study in a CWCI Research Update report, "Medical Development Trends in California Workers' Compensation, Accident Year 2002-3Q 2010 Claims." In addition to the detailed tables and analyses on indemnity claims, the report includes appendices showing results for all claims, including medical only cases. The report is available to the public at no charge in the "Research" section of the Institute's website, California Workers' Compensation Institute. CWCI members and subscribers may log on to the Institute website and download a summary bulletin as well.

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