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Workers' Compensation

Size Matters: NCCI Attributes Medical Costs Trends to Claim Categories

Many studies have analyzed why the medical component of workers' compensation costs have risen rapidly the past several years despite the recession. Explanations for the higher costs have ranged from increased workers' compensation prescription drug costs to the decline in the Dow Jones Industrial Average.

A November 2011 National Council on Compensation Insurance, Inc. (NCCI) study entitled "Medical Services by Size of Claim - 2011 Update" addresses broad issues related to increased workers' compensation medical services costs. This research identifies trends related to claims of varying sizes.

NCCI's overview explains that "knowing how different medical services contribute to WC claim costs over time provides insight into the growth in medical costs." NCCI also concludes broadly that the medical services cost element of workers' compensation claims has increased from roughly 40 percent in the early 1980s to nearly 60 percent today.

NCCI states specifically that "large claims have a substantially different mix of medical services from that for smaller claims. The difference in the mix of services affects the overall payout pattern for a given service and has implications for differences in trends for claims of varying sizes."

The study also ties into a recent NCCI study on medical service cost trends over the life of a workers' compensation claim. The current study shows how "the medical services profile for workers with serious injuries is quite different in the later years of their treatment from the mix of services required early on."

NCCI comments further that the primary differences between the current results and a January 2009 NCCI study on the same subject were that prescription drug payouts have generally increased and the payout pattern for office visits have generally decreased in the past few years. Other differences are that the current study includes data from a larger number of states and from self-insured employers.

Study's Scope and Methodology

NCCI compares the care that more serious injuries and illness required with the services associated with "minor mishaps." The service groups within the study's scope are listed below.

- Office visits
- Physical therapy
- Emergency services
- Hospital services
- Diagnostic testing
- Surgery and anesthesia
- Prescription drugs
- Other services, including nursing home and home-based care, and supplies

Cost Distribution by Service Group

NCCI concludes that no single service group category contributed more than 20 percent to the overall medical cost of a workers' compensation claim. The research reveals as well that costs related to surgery and anesthesia and to prescription drugs represent the largest percentages of medical costs; emergency services, which typically are a one-time expense, represent the lowest percentage of medical costs.

Findings related to the relationships between a claim's size and service group categories include that the costs of office visits and emergency services are the most significant elements of medical costs for smaller claims. NCCI discovered additionally that costs related to surgery and anesthesia represent a larger percentage of the medical costs of mid-range claims than for other size claims.

According to NCCI, costs associated with hospital services and prescription drugs are more than 40 percent of the cost of claims that exceed $100,000.

NCCI's comparison of lost-time and medical-only claims reveals that the percentage of costs associated with emergency services and office visits were lower for lost-time claims. The percentage of costs related to hospital services and prescription drugs was higher for this type of claim.

Payout Patterns

NCCI comments that the payout pattern related to larger claims tended to be longer than the pattern associated with smaller claims. Specifically, 80 percent of medical costs for claims of less than $50,000 were paid by the end of the second relative service year and that 32 percent of those costs were paid by the sixth relative service year if claim exceeded $1M.

According to NCCI, this shows that "the types of services that are more prevalent in the smaller claim size categories will generally pay out faster than the types of services that are more prevalent in the larger claim size categories."

NCCI observes additionally that prescription drugs had the slowest payout rate; the research revealed that less than 20 percent of prescription drug costs related to lost-time claims were paid by the end of the sixth relative service year.

As determined by NCCI, one reason for this slow payout rate is that most of these payments are associated with upper-level claims, which typically experience slower payouts than smaller claims. NCCI qualifies this by stating that the prescription drug payout rate for claims of all sizes was slower for all service categories regardless of the underlying claim size.

NCCI identifies physical therapy and office visits as having above-average payout rates for lost-time claims of all sizes.

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