Starting in the 1980s, when medical cost analysis and bill review emerged as a distinct expertise in workers? compensation, medical providers, claims payers and state governments have tried to agree on what to pay doctors for their services.
Doctors and other medical providers submit 80 million medical invoices a year, according to Jopari Solutions, an e-billing firm. Those medical professionals are paid about $30 billion a year, according to an extrapolation of data from the National Academy for Social Insurance. As of January 2013, payers and providers remain as far apart as ever from striking what one might call a grand bargain over a pricing policy that is comprehensive, un-contentious and durable.
The most popular state policy for medical reimbursement is to impose a fee schedule that ties explicitly to the Medicare fee schedule. Some 25 states have adopted this policy since the mid-1990s, says the Workers Compensation Research Institute. The insurer community generally supports this approach; medical providers are generally opposed. Some 20 other states have introduced fee schedules that stand alone, not linked to Medicare or any other schedule, says the WCRI. Five states have no fee schedule at all. (Some states have blended policies.)
How are prices set for the 8,000 treatments in the American Medical Association's manual? One way is to make deals. The insurer can negotiate a fee with a provider in advance, and agree to a simple and summary protocol to resolve disputes. This might be an efficient approach, and it is, to an extent. Insurers have outsourced the job to preferred provider organizations that do the negotiating.
But there are two problems. One is that medical providers are prohibited by antitrust standards from negotiating by class, for instance by all physical therapists acting in concert. The contracting process is thus tedious for statewide provider networks. On the other hand, insurers (and in particular self-insured employers) have been successful in building small provider networks especially where injured workers by law must stay "within network" for their care.
The second problem with the PPO approach is the inflationary nature of the insurer-PPO agreement, which compensates the PPO on the amount of discount it negotiates below a reference point. It is in the interest of the PPO that the reference point move ever higher.
Usual and Customary
This reference point, in a state without a fee schedule, is what is commonly called "usual and customary." The insurer can dispense with a PPO and follow the second way to set a reimbursement amount by simply paying according to usual and customary.
Consider this simple analogy. A Parks Department invites people to help with fall leaf cleanup. Those interested have to submit an hourly wage -- their usual and customary wage for casual labor. The Parks Department determines the 80th percentile of the bids, and uniformly compensates anyone at that rate.
Or, it compensates the worker at the "lower of" his or her submitted offer or that rate. This is how usual and customary works in compensating medical care when the insurer and provider do not have a contract. Courts have approved the legality of insurers to unilaterally compensate medical providers using a usual & customary formula, provided that the percentile is deemed fair. Insurers frequently use the 80th percentile.
The usual and customary method is often referred to as taking care of "out of network" medical care, when a PPO contract is not in place. But PPOs use the method as a reference point for their discounts. Thus the method is ubiquitous, along with its vulnerabilities. Medical providers could agree to increase their usual and customary charges. For instance, all the hand surgeons in St. Louis can, at their annual summer barbeque, pass around an updated charge list for the following year. But that would be a violation of antitrust.
The usual and customary method depends upon there being a credible data base on a huge percentage of medical treatments by a huge percentage of providers in a geographical area. This was performed by several vendors, notably Ingenix. Insurers contributed their data on provider charges. The method's integrity requires a high level of trust by providers that the percentile selected faithfully reflects actual charges.
In 2009, the attorney general of New York State sued Ingenix for manipulation of the charge database. Subsequently, Ingenix withdrew from the marketplace, and has been replaced by a New York-based nonprofit, FAIR Health.
States that elect to promulgate fee schedules -- about 45 -- face a major challenge on designing a fee schedule that stakeholders agree upon. They also have to revise their schedules in light of changes in medical treatments and cost inflation. Between the 1990s and 2006, as many as 25 states elected to use fee schedules tied to Medicare rates, says WCRI. The primary rationale for referencing Medicare rates is that, since the early 1990s, these rates have been set to reflect a careful analysis of the relative value of medical treatment based on factors such as the difficulty of treatment and the specialization demands upon the provider.
(Critics often note that the relative values used by Medicare are designed to work for a personal health market, not for a market composed of patients recovering from a work injury.)
There is another major and controversial rationale for a Medicare-related method, which is the very low rates that Medicare is able to get away with given its huge power as a major buyer of medical care. Using Medicare rates in this respect would be similar to a local business using Walmart's supplier contracts for purchasing supplies for itself. The Medicare rates are generally so low compared with the rest of the health care market that provider associations uniformly protest and demand that states adjust the rates upward for workers' compensation. These adjustments can be in excess of 100 percent of the Medicare rates. They are hammered out in tough negotiations between state governments and lobbyists often using -- guess what? -- usual and customary charge data as informal references. Medicare rates are sometimes set in ways that disadvantage workers compensation insurers, such as setting higher reimbursements for similar treatments based on type of provider, even in the same market area.
But on balance, Medicare-related workers' compensation fee schedules result in medical reimbursement below comparable levels observed in the usual and customary states, which include New Jersey, New Hampshire, Indiana, Iowa, Missouri and Virginia. The Workers Compensation Research Institute and the National Council for Compensation Insurance publish studies that show, overall, higher comparable medical costs and higher rates of increases in costs among the usual customary states.
Should a Reimbursement Policy Aim For?
By observing stakeholders wrestle over a state's policy on medical reimbursement, one can tease out five attributes of an ideal policy.
* The policy should apply to as many medical treatments and as many providers as possible. Gaps encourage gaming by provider and payer and spawn disputes.
* Reimbursement should be appropriate in light of overall health care reimbursement. It should avoid high year-to-year volatility.
* The policy should take into account the unique performance demands of injured worker treatment, which includes focus on return-to-work and speedy referral. This higher performance level is known to greatly reduce disability duration and total cost of medical care.
* The state has in interest in encouraging supply of and access to the portion of the provider community that is adept at or interested in meeting these performance expectations.
* The policy should be as easy as possible for providers, payers and the state to understand and manage, including keeping disputes to a minimum and resolve disputes without resorting to litigation.
Ironically, focusing on reimbursement rates for medical treatment may distract workers' compensation professionals from what researchers have found to be the major cause for why, at the end of the day, medical care for a comparable medical condition tends to cost more in workers' compensation than in health insurance. The reason is higher utilization, that is, more services such as tests, surgeries and physical therapy are performed on injured workers. That problem is being addressed through utilization review, treatment guidelines and careful recruitment of providers into provider networks.
January 9, 2013
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