California: WC medical expense payments surge to pre-reform levels

Workers' compensation medical expense payments in California have jumped significantly in recent years after a brief downturn following the enactment of comprehensive reforms in 2004.

According to the California Workers' Compensation Institute, the average amounts paid for treatment, pharmaceuticals and durable medical equipment, med-legal reports, and medical cost containment management began to increase two years after the reforms and have now moved above pre-2004 levels.

The study, which was based on medical data from 1.8 million California job injury claims from 2002 through the first quarter of 2009, determined the average amount paid per claim for medical services at five valuation points -- three, 12, 24, 36 and 48 months postinjury for all claims and for lost time claims. As in previous studies by the CWCI in 2007 and 2009, researchers said the latest figures showed average medical payments dropped sharply immediately after the reforms were enacted, but by 2006 they had reversed course and were increasing steadily. For example, among lost time cases, which account for more than 90 percent of all claim costs, average first-year medical expenditures fell from $6,435 in accident year 2002 to a post-reform low of $5,502 in accident year 2005. However, they have rebounded sharply, climbing 49.5 percent to an average of $8,225 in accident year 2008.

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To measure how various medical components have contributed to the recent increases in medical expenditures, the study also examined the growth in average amounts paid for treatment, pharmacy/durable medical equipment, medical management, and med-legal reports at 12 and 24 months postinjury. Again, looking at first-year payments on lost time claims, researchers found that since hitting their post-reform lows, average amounts paid per claim for treatment have increased 41 percent; average amounts paid for pharmaceuticals and durable medical equipment are up 69 percent; average amounts paid for med-legal reports are up 79 percent; and average amounts paid for medical cost containment are up 86 percent. Looking at medical development at 24 months postinjury told a similar story.

Reforms still made impact. While medical cost containment expenditures -- medical bill review, utilization review, medical case management, and network access fees -- have risen sharply, researchers said these increases reflect implementation of several of the reforms designed to control costs and manage care. This includes the adoption of the Medical Treatment Utilization Schedule, mandatory utilization review, and the introduction of Medical Provider Networks, all of which require significant, ongoing outlays on the part of claims administrators.

According to the study, such expenses must be viewed in the context of how much other medical cost components would have increased had these measures not been put into place. In 2009, the CWCI modeled ultimate medical costs on insured claims -- based on low and high projections of comp medical inflation trends -- and estimated that for accident years 2002-08, average medical payments per claim fell between 25.7 percent and 54.5 percent from what they would have been without the reforms. Thus, in terms of total medical expenditures, researchers said the reforms were associated with an estimated cumulative net savings of $12.8 billion to $25.3 billion in insured medical costs from accident years 2004-08.

Read more at the WorkersComp Forum homepage.

July 26, 2010

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