Tennessee Medical Fee Schedule Cuts Workers’ Compensation Costs: Study

July 16, 2009

The implementation of a medical fee schedule in Tennessee after reforms passed in 2004 has helped save employers $1,300 per workers’ compensation case, according to a study by a research group.

The study by he Workers Compensation Research Institute (WCRI) indicates that in 2006 and 2007, or 18 months post-fee schedule, Tennessee’s employers paid on average $1,300 less for medical cost per case compared to the pre-reform years.
The study, Monitoring the Impact of the Tennessee Fee Schedules: CompScope Medical Benchmarks, 9th Edition, reflects the impact of the new fee schedule that addressed fees for a wide 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 introduction of the fee schedule 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, carpal tunnel) decreased 9 percent, physical medicine (modalities and procedures) decreased 12 percent, major radiology (MRI, CT scan) decreased five 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.

In contrast to all other services, 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.

The study pointed out that having such substantial changes in prices paid may lead to changes in utilization of medical services.

In 2006-2007, the study 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 five percent in 2006-2007, 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, the study said, 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.

Tennessee’s fee schedule also focused on hospital inpatient cost. 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 study states, driven by typical payment per episode with surgery. In 2004-2005, or before regulations, the average total hospital payment per episode was 13 percent higher than the median study state.

The Workers Compensation Research Institute is a nonpartisan, not-for-profit organization that does public policy research on workers’ compensation, health care and disability issues. Its members include employers, insurers, and governmental entities, insurance regulators and state administrative agencies, as well as several state labor organizations.

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