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Workers' Compensation

WCRI Continues to Build Baseline to Monitor Impact of California’s Workers’ Compensation Reforms

But the $64,000 question is whether IMR will actually reduce medical costs

As proponents and critics of controversial Senate Bill 863–California’s latest legislative effort to “reform” the state’s workers’ compensation laws–continue their argument about the relative efficacies of the legislation, they will need to bear in mind at least one important factor not known during the debate of the bill: that while medical payments per comp claim had grown rapidly from 2006 to 2009, such costs per claim had already begun to moderate in the two years preceding passage of the law. That is one of the important conclusions offered in a recent study by Rui Yang, published and released by the Workers’ Compensation Research Institute. The study, entitled “CompScopeTM Medical Benchmarks for California, 14th Edition,” continues to build a baseline for monitoring the impact of SB 863.

As noted within the WCRI study, its findings regarding the moderation in growth in 2010 and 2011 related to medical payments per claim are consistent with the result published by the Workers’ Compensation Insurance Rating Bureau of California in a September 30, 2013 report. Building upon data WCRI presented last year, the 2014 report reviews SB 863’s significant reform provisions that are related to medical reimbursement and treatment, as well as the medical-legal process. The report discusses the trends in medical payments per claim and their components, such as prices paid for and utilization of different types of services and providers in California before SB 863, as well as how California compared with other study states on the key metrics in the pre-reform period. The report also addresses the potential impact of some of the key reform provisions on price and utilization of medical services. Specifically, it discusses the potential implications of California’s transition to a resource-based relative value scale (RBRVS) fee schedule on prices and utilization for different types of services and potential changes in provider behavior, as well as access to care. Although it indicates the data is still incomplete, it also discusses independent medical review (IMR) and other changes brought to the California comp world through SB 863.

WCRI’s Major Findings

The report presents three major findings:

> That, as noted above, medical payments per claim moderated in growth in 2010 and 2011.

> The transition to an RBRVS-based fee schedule will likely shift payments from specialty care to primary care.

> Before the 2012 reforms, medical-legal expenses per claim in California grew rapidly and were among the highest of the study states.

Growth of Medical Payments Per Claim

WCRI reports that during the period 2006 to 2009, for claims with more than seven days of lost time at an average of 12 months of experience, the average payment per claim grew 8 percent per year, but that the rate moderated to 3 percent per year in 2010 and 2011.

A number of things influence this trend. Primary among them was the relative stabilization in utilization of services by nonhospital providers during the 2010–2011 period. From 2003 to 2005, there had actually been a 30 percent decrease in this measure, mostly brought about by the 2002–2004 reforms, which mainly focused on the utilization of medical care. In the years preceding those reforms, utilization growth in California had been far outpacing the growth in any of the other study states. The study emphasizes that an important component of the recent stabilization in utilization appears to be related to a similar stabilization in the duration of temporary disability during the slow economic recovery. One is left to wonder that as the economy improves, as some now say has begun to happen, if this “positive” factor will turn more negative.

Another factor impeding the growth of medical payments per claim is the fact that the percentage of claims that received physical medicine (including chiropractic care) remained stable in 2010/11 and 2011/12, after a gradual increase in the time period after 2006. Specifically, the percentage of claims with physical medicine visits beyond the 24-visit limit increased gradually during the years between 2006 and 2010, but then remained stable in 2010/11 and 2011/12.

Other positive factors include stability in (a) the percentage of claims that received major radiology and (b) the number of average visits per claim for many common types of services. For example, the study notes that the percentage of claims that received most types of magnetic resonance imaging (MRIs) and computerized tomography (CT) scans remained fairly stable in 2010/11 and 2011/12, with the only exception being MRIs of the upper joint. All this may point, says the study, to a change in practice pattern among providers.

The study also looked at the prices paid for professional services, based on a “marketbasket” of common medical procedures used in workers’ compensation cases, using detailed CPT billing codes, and reported that the index of such prices has remained relatively stable since 2010. Noting that the prices paid might reflect network discounts and/or other price negotiations between payors and medical providers, WCRI indicated this was an additional factor in tempering the growth in medical payments per claim.

There were negative factors to be noted, however. Hospital payments per inpatient episode continued to grow rapidly from 2006 to 2011. Both the average hospital payment per inpatient episode and the median payment for a typical episode increased at an 8 percent annual rate during the period. At least part of this growth is likely due to annual updates in the diagnostic-related group (DRG)-based fee schedule that governs most reimbursements for hospital inpatient services in California. The DRG-based fee schedule dovetails with Medicare and state-specific regulation changes.

Of note is the fact that the average hospital payment per inpatient episode in California was lower than in many of the states within the study. At $23,000, it was 22 percent lower than the 16-state median for 2010 claims with 24 months of experience.

Transition to RBRVS-based Fee Schedules

One of the most controversial provisions in SB 863 was its transition to Medicare’s RBRVS-based fee schedule for professional services. The provision is phased in over four years, beginning in 2014. It will remain in effect until the Division of Workers’ Compensation adopts an RBRVS schedule that allows no more than 120 percent of the aggregate fees allowed by Medicare. Because of the date of the phase-in, there is no data yet available on the effects of the legislation in this area.

The WCRI study posits, however, that lessons can be drawn from other states, such as Maryland and Georgia, who have adopted the RBRVS-based schedules in 2004 and 2005, respectively. In those states, after the fee schedule change, prices paid for office visits and physical medicine increased, while prices paid for surgeries decreased.

According to the study, prior to SB 863, prices paid for office visits in California were among the lowest of the 25 study states. More complex office visits were billed more often, however, in California than in the typical state. In fact, some 63 percent of the established patient office visits in California were billed for the two most complex types of visits in 2011, significantly higher than the 30 percent in the 16-state median. The author of the study poses an interesting question: whether, since the transition to the new RBRVS-based fee schedule will lead to an increase of the prices paid for office visits, the trend of billing for more complex procedures in the state will stop or at least decelerate after the policy change?

The study does posit that there should be a discernable shift from specialty care to primary care and likely some decrease in the prices paid for surgeries.

High Medical-Legal Expenses Per Claim Compared to Other States

To the surprise of virtually no one, the study observes that before SB 863, medical-legal expenses per claim in California were growing rapidly and were among the highest of the study states (for purposes of the study, medical-legal expenses include payments for medical-legal evaluations and reports, IMEs, depositions, medical expert fees, and medical testimony). After 2006, and allowing for some variability due to claim maturity, medical-legal expenses per claim in California grew annually between 7 and 11 percent. For example, in California 30 percent of claims with more than seven days lost time used medical-legal services, whereas the median in the 16-state study was approximately 25 percent. Morover, the average medical-legal expense per claim in California was the highest of the study states for 2009 claims with 36 months of experience—$3,200 per case, nearly 120 percent higher than the 16-state median. The average cost in New Jersey was a little over $1,000 per case.

The study adds that while one of the goals of SB 863 was to lower medical-legal expenses and reduce litigation related to medical treatment, the result seems to have been just the opposite. For example, SB 863 required the establishment of a 30-day independent medical review (IMR) process to handle medical treatment disputes. Effective July 1, 2013, IMRs are the only way to resolve utilization review (UR) decision appeals regardless of the date of injury. According to the study, since July of last year, the number of IMR applications has increased “drastically.” The number of referrals to the Independent Medical Review Organization (IMRO) has been four- to five-times greater than originally anticipated, leading to a significant backlog and the concomitant slow response times. All this, says the study, makes estimating any future cost savings difficult and uncertain.1

The study observes that some California stakeholders now suggest that “many miniscule items” are being referred to utilization review (UR), a prerequisite for referring a matter to IMR.

Continuing Studies by WCRI

The study points out that the reform provisions of SB 863 have different effective dates and that some of the changes in law require more mature data to observe the majority of the impact. Additionally, the development and implementation of regulations, not to mention system adjustment, will take time. The full impact of SB 863 will not, therefore, be known for several more years.


1. While the WCRI report did not include the costs of IMR, it should be noted that the costs of IMR are not inexpensive. For example, in 2014, the standard review by one MD or DO reviewer is $550. See 8 Cal. Code Reg. § 9792.10.8(a)(2)(A)(i). An expedited review can cost up to $830. See 8 Cal. Code Reg. § 9792.10.8(a)(2)(B)(i). Additionally, there is a charge of $215 when the review is withdrawn before the submission of documents. See 8 Cal. Code Reg. § 9792.10.8(a)(2)(C)(i). Note that these amounts were reduced 25 percent effective April 1, 2014. See DWC Newsline 2014-47 (May 19, 2014). Given that IMR requests are running four- to five-times higher than initially anticipated, the $64,000 question is whether or not IMR will actually reduce medical costs.

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