Study examines medical services by size of WC claim

Researchers from the National Council on Compensation Insurance are hoping the findings of a new study will offer a useful look at the makeup of medical costs of workers' compensation claims.

The council recently issued a report that examined medical services by size of workers' comp claim.

According to the study, large workers' comp claims have a different makeup of medical services than small claims. To a large degree, researchers said, this is common sense. For example, without reviewing data, it is known that complex surgery is not a significant cost component for small claims because the existence of complex surgery already pushes the claim size over some threshold. However, researchers said that knowing the distribution of services by size of claim can help explain claim costs and may have implications for future cost trends. With medical costs continuing to grow and making up about 60 percent of workers' comp claims costs, NCCI said it is useful to look into sources of this growth.

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For the study, researchers estimated the shares of ultimate medical costs for a variety of service categories. The report explored possible implications for differing trends by claim size.

Based on the distribution of claim costs and dollars of loss by size category, as well as the estimated ultimate medical cost per claim, researchers found that about three-fourths of the total number of claims were in the $1,000 to $50,000 claim size range.

Services differed with size of claim. According to the study, the mix of medical services differed between small and large workers' comp claims. Specifically, researchers found that:

Office visits and emergency service dominated smaller claims. In addition to office visits and emergency services, the shares for diagnostic testing and physical therapy were greater for smaller claims than for larger claims.
Surgery and anesthesia made up the largest shares of the $5,000 to $100,000 claims. Surgery and anesthesia costs represented a larger share of total medical costs for claims in the $5,000 to $100,000 range when compared with either larger or smaller claim sizes, the researchers noted.
Hospital services and prescription drugs comprised more than 50 percent of the cost of claims greater than $100,000.

The researchers said that the varying mix of services by claim size had implications for the payout rates by type of service. According to the study, larger claims tended to take longer to pay out than smaller claims. While 80 percent of medical costs were paid out by the second service year for claims that were less than $50,000, researchers said that only 40 percent were paid by the end of the sixth service year for claims that exceeded $1 million.

The study concluded that this implied that services that are more prevalent in the smaller claim size categories will generally pay out faster than services that are more prevalent in the larger claim size categories.

Among the highlights of the study, researchers found that:

Office visits, physical therapy, and emergency services had relatively fast payout patterns. More than 90 percent of physical therapy costs were paid by the sixth service year for claim sizes up to $500,000, the researchers said. In contrast, the percentages paid by the sixth service year for overall services on lost time claims ranged from 61 percent for the $100,000 to $500,000 claims to 87 percent for the $10,000 to $50,000 claims.

The researchers said there were two drivers contributing to the faster payout for physical therapy. One was that, within each size range, physical therapy paid out faster than the average service. The other was that physical therapy costs were more concentrated in smaller claim sizes, which researchers said tend to pay out more rapidly.

Hospital services and prescription drugs had relatively slow payout patterns. The study found that prescription drugs exhibited the slowest payout rate of any service category. On an overall basis, less than 20 percent of prescription drug costs for indemnity lost time claims were paid by the end of the sixth service year.

Researchers said two main drivers contributed to this slow rate of payout. First, most prescription drug payouts were associated with claims in the larger claim size categories, which they said typically pay out more slowly. In addition, prescription drugs had a slower payout rate versus any other service category, even for the small claim sizes.

For example, the study found that for claims in the $1,000 to $5,000 size range, only about 50 percent of drug costs were paid by the sixth service year, while nearly 95 percent of all medical costs for this size category were paid at that point.

Hospitals had the second slowest payout pattern. Researchers said this was mainly due to the fact that severe injuries are more likely to require a hospital stay earlier on in the claim's life when compared with less severe injuries.

February 2, 2009

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