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Workers’ Comp Medical Costs Fall in Wake of Reforms


The workers’ comp reforms in 2013 have generated surprising cost savings in treating injured workers in California, with overall medical costs per claim falling 8% over a three-year period.
That’s in contrast to the years of inflation before the reforms, when the average medical costs per claim were increasing by an average of 6.5% a year. The new study by the Workers’ Compensation Insurance Rating Bureau of California dissected claims costs between July 2012 and June 2015, finding the medical cost savings were greater than originally anticipated.
SB 863 increased benefits effective January 1, 2013 and January 1, 2014 and provided for a number of structural changes to the California workers’ compensation benefit delivery system.
In total, based on the most current information available, the WCIRB estimates the impact of SB 863 is an annual net savings of $770 million, or 4.1%, of total system costs.
The new study, released in early December, looked at the effects of the legislation on the medical costs associated with treating injured workers. The Rating Bureau had anticipated that reforms would cut medical costs, but it underestimated the effects.
These cumulative savings were primarily driven by changes to the physician fee schedule and pharmacy services, which collectively represent around 61% of all medical service payments. The use of medical services also dropped, due to a more stringent regimen of independent medical review (IMR) of claims.
Additional savings were generated by outpatient facilities and medical equipment providers, which when combined, represent roughly 16% of all medical service payments.
Medical-legal and inpatient hospital services, when taken together, represent approximately 23% of all payments and were the only services to register increases in costs per claim over the three-year period.

Other findings of the study include:
• Payments per claim via the physician fee schedule (46% of all medical costs) decreased by 9% over the three-year study period. This decline was due in part to the introduction a new and more accurate fee schedule that is widely used in many states. That fee schedule took effect on Jan. 1, 2014.
• Costs per claim for pharmaceuticals (which account for 15% of all medical costs) declined by 22% during the study period. But the legislation did not address drug costs, and the decline was largely the result of a drop in medical service usage – or utilization – due to the increased use of IMR.
This reduction in utilization had a particular effect on the prescriptions of highly addictive drugs called opiates, such as OxyContin, the outlays for which fell 48% during the study period.
• Inpatient hospital costs (12% of all medical costs) increased by 14% on a cost-per-claim basis over the study period. The costs declined in the first half of 2013 likely due to the elimination of payments for duplicate surgical hardware enacted by SB 863.
• Costs per claim for outpatient facilities (7% of all medical costs) dropped 7% during the study period. Since the majority of these payments are to ambulatory surgical centers (ASCs), the primary driver of the savings was the reduction in reimbursements to ASCs enacted by SB 863.
That said, outpatient facility cost payments started inching higher in 2015 due to upward adjustments in the Medicare ASC fee schedule as well as changes in the types of outpatient services these facilities provide.
• Costs under another fee schedule for a variety of services like durable medical equipment, prosthetics and orthotics, fell 12% over the study period. The reforms had nothing to do with this, but rather, the costs were affected by changes to Medicare fee schedules.

Despite these results, the Rating Bureau noted that the trend may be reversing. It said payments per claim for all medical services increased 4% in the first half of 2015 from the same period the year prior.