Study Provides Reasons for Increasing Hospital Costs in Workers’ Comp

February 25, 2015

A new study from Mass.-based Workers Compensation Research Institute (WCRI), updates a recently published 33-state study with an extra year of data and the early impact analysis of major regulatory changes in North Carolina.

The study, Hospital Outpatient Cost Index for Workers’ Compensation, 4th Edition, compares hospital outpatient costs across states, identifies key cost drivers, and measures the impact of reforms.

“Rising hospital costs have been a concern and focus of recent public policy debates in many states,” said Dr. Olesya Fomenko, co-author of the report and an economist at WCRI. “To assist policymakers and business decision makers in managing this growth, WCRI has created this unique study, which is updated regularly, to help them better understand hospital payments associated with outpatient surgeries.”

The following findings are highlighted in the study:

  • States with percent-of-charge-based fee regulations or no fee schedules had the highest payments to hospitals for outpatient surgical episodes for knee and shoulder surgeries. In particular, states with no hospital outpatient fee schedules had 60 to 141 percent higher hospital outpatient payments per episode compared with the typical state with fixed-amount fee schedules.
  • There was tremendous variation in the rates of change in hospital payments per surgical episode across states. From 2006 to 2013, South Carolina saw a reduction of 31 percent in this metric while in Alabama the average hospital payment per surgical episode grew by 81 percent. States with percent-of-charge-based fee regulations or no fee schedules had more rapid growth in hospital outpatient payments per episode than states with other regulatory approaches. In particular, most percent-of-charge-based fee regulation states that did not have updates to the reimbursable percentage of charges experienced growth in hospital payments per surgical episode that was 157–286 percent faster than the median of states with fixed-amount fee schedules.
  • States with cost-to-charge ratio fee regulations had similar levels and growth rates in hospital outpatient payments per episode to states with fixed-amount fee schedules. Hospital outpatient payments per episode in states with cost-to-charge ratio regulations grew 10–25 percent from 2006 to 2013.

The hospital outpatient cost indices compare payments per surgical episode for common outpatient surgeries under workers’ compensation from state to state for each study year and the trends within each state from 2005 to 2013. To capture only payments for services provided and billed by hospitals, the indices exclude professional services billed by nonhospital medical providers (such as physicians, physical therapists, and chiropractors) and transactions for durable medical equipment and pharmaceuticals billed by providers other than hospitals. This study also excludes payments made to ambulatory surgery centers.

The study covers 33 large states representing 86 percent of workers’ compensation benefits paid in the United States. Geographically diverse, they represent a wide range of industries and a variety of regulation choices for hospital payments under workers’ compensation. The states are Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.

For additional information about this study or to purchase a copy, visit http://www.wcrinet.org/result/HCI_4_result.html.

Source: WCRI

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