Baseline Provided for Evaluating California SB 863 Reforms

WCRI Analyzes Pre-Reform Data and Expected Impact of Reforms

By John Stahl, Esq.

WCRI’s 13th Medical Benchmarks study based on data through the first quarter of 2011 is intended to provide a baseline from which the impact of SB 863’s reforms of California’s workers’ compensation system can be evaluated. Comparison of reform findings and trends in workers’ compensation medical costs and utilization rates with those post reform will reveal whether or not the policy goals of SB 863 to offset benefit increases with cost-savings measures in medical treatment expense without compromising quality of care have been achieved.

Overview of Pre-Reform Price and Utilization Statistics

WCRI’s “Baseline for Monitoring The Impact of 2012 Reforms in California”, authored by Rui Yang, focused on “key reform provisions” in SB 863 that “related to medical reimbursement and treatment, as well as the medical-legal process.” Yang added that the underlying research addressed “how California compared with [fifteen] other study states prior to SB 863 on overall medical payments per claim and its components, such as prices paid for and utilization of different types of services and providers.”

The findings regarding pre-reform utilization statistics related to the workers’ compensation system in California compared to the other 15 states were:

  • The per-claim medical payments in California “were fairly typical” of the other study states.
  • The prices for professional services in California “were lower than typical.”
  • The “utilization of nonhospital services was higher than typical.”
  • “Hospital outpatient and/or ambulatory surgical center costs in California were lower than in many states.”
  • “California had more frequent use of chiropractic care and nonhospital physical therapist services” than the other study states.
  • “Medical-legal expenses per claim in California were among the highest of the study states. The rapid growth of these costs from 2004 to 2010 may relate to increasing disputes over medical treatment and utilization review denials in the state.”

The report stated more generally that “medical payments in California grew more rapidly since 2005. Growth in utilization of nonhospital care and hospital outpatient and/or ambulatory surgical center [ASC] costs may reflect the combined impact of regulation and participant behavior.”

These general conclusions regarding workers’ compensation in California reflect nation-wide trends that have prompted concern and resulting reform in other states. Like other for-profit entities, private medical providers in the workers’ compensation system adopt business strategies that maximize their revenue within the parameters of the applicable legal guidelines.

In the case of the workers’ compensation system, maximizing profits requires promoting increased utilization of services if the permitted payment for those services does not at least equal the price that can be obtained outside the workers’ compensation system. In simpler terms, these providers increase the volume in response to a decreased per-treatment profit.

The WCRI research determines as well that a connection may exist between California’s above-average medical-legal expenses and the high utilization rate. This relates to the state’s mandatory utilization review and its management of medical provider networks triggering an unusually high number of disputes. In other words, the theory is that the number of disputes relates to the amount of treatment that medical care professionals prescribe claimants.  

Additionally, WCRI attributes the lower prices for professional services in California to lower fee schedule rates compared to those rates in other study states. Yang adds that “one provision in the 2012 reforms mandates adoption of a new fee schedule based on the resource-based relative value scale (RBRVS) for professional services.”

Yang predicts as well that the transition to RBRVS-based fee schedules will increase the rates for physician office visits, especially primary care physicians. Whether there will be an increase in the rates for specialty physicians is unknown. Similarly, whether there will be a decrease in the number of visits and complexity of visits remains to be seen.

The study further links the above-average utilization rate for nonhospital services in California to “more visits per claim and more complex services billed.” The average 13 visits per-claim in California during the study period far exceeds the median number of 8 visits per claim in the other states. The significance of this statistic extends beyond its influence in shaping the reforms to creating a possible need to investigate whether the nature of a significant portion of compensable incidents in California truly require such a highly above-average level of care.

The findings regarding that utilization rate also reflect the profit-motivated response of California physicians to the reimbursement rate under the workers’ compensation system for routine office visits. Increasing the number of total visits and the percentage of those visits that justify a classification above routine care helps maximize profits.

Summary of 2012 Reforms

The “policy goals” of SB 863 that Yang identified included:

  • Increased permanent disability benefits for claimants
  • “Cost savings to more than offset the increase in [workers’ compensation] benefits”
  • “Improved medical care and access to care for” claimants
  • A streamlined workers’ compensation system with a reduced need for litigation

Specific key provision in SB 863 included:

  • Adoption of Medicare’s RBRVS schedule for professional services
  • Reducing “reimbursement for ASCs from 120 percent to 80 percent of the Medicare rate for hospital outpatient departments”
  • “30-day independent medical review (IMR) process for medical treatment disputes”
  • Streamlined agreed medical evaluator (AME) and qualified medical evaluator (QME) process
  • “A $150 lien filing fee and a $100 activation fee for liens that have already been filed.”
  • Medical Provider Networks (MPNs) approved by the Division of Workers’ Compensation are deemed to be valid.

An even more condensed description of this brief recap of SB 863’s highlights is that the reforms under that law are designed to ensure that an employer provides a claimant the appropriate workers’ compensation benefits for a reasonable price. This effort includes expediting the medical review process and eliminating disputes regarding MPNs.

Analysis of the Reforms' Expected Impact

The report’s predictions regarding the reforms summarized above included a possible increase in prices for primary care services and decreased prices for specialty services. Other anticipated impacts included decreased payments for ASC services, “changes in utilization of different types of services due to changes in relative prices, [and] better or worse access to care for different services” that reflected changes in fee schedules and other workers’ compensation standards. WCRI reported as well that “future editions of CompScope Medical Benchmarks will monitor the collective impact of the reform provisions, as well as behavioral changes by [workers’ compensation] system participants as they adapt to the reforms.”

WCRI further noted that “the reform provisions have different effective dates, and some of the changes require more mature data to observe the majority of the impact.”

The simplified version of WCRI’s thoughts regarding the impact of the reforms is that these changes to the workers’ compensation system reflected that California’s lawmakers determined that allowing participating medical care providers to increase the prices for basic services while decreasing the allowable charges for more expensive ones would lower workers’ compensation costs without any detrimental effect on claimants.

Bottom Line

The preliminary changes under SB 863 have only been effective for a few months, and other initiatives will roll out during the next few years. This timeline requires patience regarding the impact of the reforms, and the results of relevant WCRI studies will be shared as they are released.

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