Tennessee: Fee schedule lowered medical costs per claim, study finds

The introduction of a medical fee schedule in Tennessee after the enactment of workers' compensation reforms in 2004 has helped reduce medical costs per claim in the state, according to a recent study.

The Workers Compensation Research Institute found that in the 18 months after the adoption of the fee schedule, employers paid on average $1,300 less for medical cost per case compared to the pre-reform year. Researchers said this reflected the impact of the schedule that addressed fees for a range of services provided by physicians, chiropractors, physical/occupational therapists, hospitals, and outpatient ambulatory surgery centers.

Although fee schedule rates were on average relatively higher in Tennessee compared to many other states, the study noted that the introduction led to a significant drop in the average prices paid to nonhospital providers. For example, in 2006, prices paid for major surgery (arthroscopic knee and shoulder, laminotomy, and carpal tunnel) decreased 9 percent, physical medicine (modalities and procedures) decreased 12 percent, major radiology (MRI, CT scan) decreased 5 percent, and minor radiology (X-rays) decreased 15 percent. For services billed in a hospital outpatient setting, the average payment per service for physical medicine services decreased 23 percent, major radiology decreased 34 percent, and minor radiology decreased 43 percent.

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In contrast to all other services, researchers said prices paid for nonhospital evaluation and management (office visits) services increased 9 percent, as expected, due to higher fee schedule rates in comparison to the average prices paid prior to the fee schedule.

Study highlights. Among the other highlights of the report, researchers found that:

Price changes may lead to utilization changes. The study pointed out that having such substantial changes in prices paid may lead to changes in utilization of medical services. In 2006-07, researchers found growing utilization among nonhospital providers and decreasing utilization among hospital outpatient services. Before the fee schedule regulations, utilization among all types of providers in Tennessee was relatively stable for a period of four years.
Utilization of medical services among nonhospital providers grew 5 percent in 2006-07, driven by an increase in the number of services per visit when surgery was performed and a somewhat larger volume of billed services among all other nonhospital services. The number of services per claim among hospital outpatient services declined 16 percent, especially for services delivered at the operating/treatment/recovery room.
However, researchers noted, the current trend in utilization in the post-fee schedule period should be analyzed in light of the typical use of medical services among nonhospital providers and lower use of services rendered in a hospital outpatient setting.
Schedule may have aided reduction in inpatient payments per episode. Tennessee's fee schedule also focused on hospital inpatient cost. The study found that the inpatient fee schedule may have helped to reduce the hospital inpatient payments per episode. Before the regulations, Tennessee had higher hospital inpatient payments per episode.
Based on claims with 12 months of experience in the post-fee schedule period, hospital inpatient payment per claim was typical of the states included in the study, driven by typical payment per episode with surgery. In 2004-05, or before regulations, the average total hospital payment per episode was 13 percent higher than the median state in WCRI's study.

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October 8, 2009

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