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Comparing Workers’ Compensation and General Healthcare Costs: Compensable Care Incurs Higher Fees

June 27, 2013 (7 min read)
By John Stahl, Esq.
Countless studies and the experience of participants in workers’ compensation systems have shown that the prices for medical care within those systems far exceed the costs of comparable treatments in the general healthcare system. This statistical and anecdotal data has demonstrated as well that establishing fee schedules, creating medical provider networks, and other reforms have had limited success closing that gap.
The Workers’ Compensation Research Institute (WCRI) recently studied the specific issue of the differences in the costs of certain types of hospital care regarding workers’ compensation systems and the general healthcare system. WCRI presented the results of that study in a report titled “Comparing Workers’ Compensation and Group Health Hospital Outpatient Payments.” Olesya Fomenko, PhD, who is an economist with WCRI, prepared the report.
In addition to documenting the widespread perception that healthcare providers charge unduly higher rates for services within a workers’ compensation system, the report was designed to call attention to the issue of “whether the workers’ compensation hospital outpatient rates are higher than necessary to assure injured workers access to good quality care.” WCRI reasoned that demonstrating that the aforementioned premium exceeded reasonable compensation for the additional paperwork and other “burdens” associated with the workers’ compensation system provided state policymakers “special opportunities to reduce medical payments by modifying state statutes and regulations.”
The statistics on which WCRI  based the conclusions regarding the costs that were associated with surgical outpatient services were solely based on procedures that hospital outpatient facilities provided and did not include care that patients received at ambulatory surgery centers (ASCs) and other “nonhospital medical providers.” The institute additionally pointed out that “most states with fee schedules have different regulations for services provided in hospital outpatient settings and in ASC settings.”
[Author’s Note: A recent LexisNexis article titled Ambulatory Surgery Centers: Rapid Growth and Lack of Oversight in California offers an overview of research that the California Healthcare Foundation conducted regarding ASCs.]
Methodology of Study
Fomenko explained that “to set [workers’ compensation] fee schedule levels, [state] policymakers often seek a reference point or benchmark to which they can tie the state’s reimbursement rates.” She noted that that some states used Medicare rates or “some form of usual and customary charges in the area” as benchmarks when developing fee schedules. Her study utilized the alternative approach of comparing workers’ compensation hospital payments with commercial insurance reimbursement rates.
The rationale for comparing hospital costs within the workers’ compensation system to those expenses in the general healthcare system was “to better inform public policy debate and to assist policymakers and stakeholders in conducting more meaningful comparisons of hospital payments across states.” The report noted as well that “being the largest payor with the most widely accepted reimbursement rates by medical providers, private insurance rates might be the most appropriate representation of the prevailing reimbursement levels” for outpatient hospital care.
A related reason for the chosen benchmark was that “group health reflects what providers are willing to accept in order to be eligible to see a large share of patients. It is the result of negotiated agreements, rather than government-mandated rates.”
Fomenko stated further that “the analyzed surgical episodes were constructed around the most commonly used outpatient surgeries in workers’ compensation to treat common shoulder and knee conditions.” She added that the 16 large states, including Massachusetts and California, that the study included “represented 60 percent of the workers’ compensation benefits paid in the United States and covered hospital outpatient services delivered in 2008.”
Summary of Major Findings
WCRI emphasized that “in two thirds of the study states, workers’ compensation hospital outpatient payments related to common surgeries were higher than those paid by group health, and, in half of the study states, the workers’ compensation and group health difference for shoulder surgeries exceeded $2,000 (or at least 43 percent.)” [Author’s Note: Although the section of the report that included that statement did not address this, this result strongly indicated that workers’ compensation insurers incurred a significant premium solely based on care being provided within the workers’ compensation system as described above.]
Specific provided examples included that similar shoulder surgeries in Florida were “on average reimbursed at a $5,514 (98 percent) premium” and that that premium for that type of procedure in Florida was “$6,051 (115 percent) … over group health in Virginia.” On a more general level, the statistics revealed that “the average workers’ compensation hospital payments in almost a quarter of the study states were within 16 percent of the average comparable payments paid by commercial insurance.”
A broader summary of those results was that “overall, the workers’ compensation percentage difference over group health hospital payments demonstrated a substantial interstate variation, ranging from 45 percent below group health in Massachusetts to 116 above in Virginia.”
Fomenko additionally observed that “the absolute difference in workers’ compensation payments across most study states was more than double that observed in group health for similar surgeries.” She provided the example of a shoulder surgery within the workers’ compensation system in Virginia costing roughly $5,900 more, which was a difference of almost 110 percent, than a comparable procedure within the workers’ compensation system in Michigan. Fomenko compared that difference to a $2,710, or nearly 60 percent, variation in the cost of the procedure under general-health insurance between Indiana and Massachusetts.
Impact of Fee Schedules
Fomenko concluded that the results from the 30 percent of the states in the study that lacked hospital outpatient fee schedules in 2008 demonstrated that “the workers’ compensation and group health payment difference” in those states “varied greatly.” The difference at the low end of that scale was 6 percent and the variation at the high end was 116 percent. The data from those states showed that all of them “had higher-than-typical workers’ compensation payments per surgical episode,” and that “the states in the lower differential group [i.e., those at the lower end of the scale] also had higher group health hospital outpatient payments.”  The finding regarding “the higher differential states” was that those jurisdictions “had typical or lower-than-typical group health payments.”
Fomenko reported as well that high group health payments in some of the 30 non-fee-schedule states in the study did not necessarily reflect above-average healthcare costs in those states. The conclusion was that those payments might have reflected “network negotiations in which greater market power is concentrated on the side of the providers and not the payors.”
Fomenko then shifted her attention to fee-schedule states and observed that “states relying on percent-of-charge-based  [,or discounted charges,]  fee regulation for hospital reimbursements had higher workers’ compensation payments than ‘fixed-amount’ fee schedule states and similar or even higher payments than the states without fee schedule regulations.” She added regarding percent-of-charge states that “workers’ compensation and group health hospital outpatient payment differences were substantially higher than the ‘fixed-amount’ fee schedule states studied and even higher than in some study states without hospital fee schedules.”
The conclusion related to the finding described above was that fee schedules “that tie payments to hospital charges are vulnerable to the hospital’s changing practices, which can vary substantially within markets as well as across states.”
The statistics related to fixed-amount fee–schedule states demonstrated that those jurisdictions “had average workers’ compensation hospital outpatient payments either below or near group health levels. With the exception of Tennessee, the range of those differences in those states was between 45 percent below the cost to group-health insurers and 16 percent above those rates.”
Lesson Learned
The statistics on which WCRI bases the report demonstrate that, regardless of the nature of any fee schedules or other general variables, hospitals charge more for procedures that they conduct within the workers’ compensation system than for comparable treatment that they provide within the general healthcare system. The next step involves either determining that the additional cost is justified or getting states to act to reduce the price gap.
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