Workers Compensation
and Group Health
Presented by
John Robertson, FCAS, MAAA
Casualty Actuaries of the Southeast Meeting
April 11, 2006
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Medical Costs
• Workers Compensation (WC) medical costs per claim grew
9% to 12% per year over the last several years
• WC does control prices for non-hospital medical services
through fee schedules in most states
• But medical costs can be high even with price controls due
to overutilization
• Utilization controls are new to WC, but have been in place
in Group Health (GH) for many years
• How do WC medical costs compare to those in GH?
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Workers Compensation
Medical Cost Trends
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WC Medical Claim Cost Trends
Remain High in 2004
Lost–Time Claims
Medical
Claim Cost (000s)
+10.3%
21
+9.1%
19
Annual Change 1991–1995:
Annual Change 1996–2003:
+3.9%
+9.2%
+8.7%
+12.3%
17
+8.1%
15
$17.4
1996
$16.0
1995
$13.2
1994
$12.0
1993
$11.1
$8.2
1992
$10.1
$8.4
1991
$9.4
$8.3
7
+6.8% +1.3% -2.1%
$8.9
9
+9.0% +5.1%
$14.2
11
+10.1%
+7.4%
$19.0
+8.3%
13
$20.9
+9.5%
5
1997
1998
1999
2000
2001
2002
2003
Accident Year
1991-2004: Based on data through 12/31/2004, developed to ultimate
Based on the states where NCCI provides ratemaking services
Excludes the effects of deductible policies
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2004
Workers Compensation Medical Severity
Has Been Growing Much Faster Than the
Medical CPI
Percent Change
Lost–Time Claims
14
12.3
12
10.3
10.1
9.5
10
8.3
9.1
8.7
8.1
7.4
8
6
4.5
5.1
3.6
4
2.8
3.2
4.1
3.5
4.6
4.7
4.4
4.0
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
Change in Medical CPI
Change in Medical Cost per Lost-Time Claim
Medical severity 1995-2004: Based on data through 12/31/2004, developed to ultimate
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies
Source: Calendar year medical Consumer Price Index (CPI), Economy.com; accident year medical severity, NCCI
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Workers Compensation Medical Losses
Are More Than Half of Total Losses
All Claims—NCCI States
2004
1994
1984
Indemnity
49%
Indemnity
55%
Medical
Indemnity
Medical
44%
56%
51%
Medical
45%
Based on data through 12/31/2004, developed to ultimate
Based on the states where NCCI provides ratemaking services
Excludes the effects of deductible policies
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Cost, Price, and Utilization
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Price Versus Cost
of Medical Services
• Cost = Price x Utilization
• Utilization = Quantity adjusted for Quality/Mix
• Cost and price are usually but not always correlated
• Utilization patterns are the difference
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Prices Per Service
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Prices for Individual Medical Services
Excluding Hospitals
• Prices paid per service for WC are similar to those
paid for GH
• States with a WC medical fee schedule showed a
WC price level from 8% to 31% below that of GH
• States with no applicable fee schedule showed a WC
price level 16% to 19% above that of GH
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States Studied
• Comparisons are based on workers compensation
[WC] and group health [GH] data for 1997 to 2001
• Studied five states: Florida, Georgia, Illinois,
Kentucky, Tennessee
• States selected to represent some variety of
physician cost controls in the workers
compensation system
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Comparison of State Controls
State
Basis of
Fees
physician
relative to
fee
Medicare
schedule
Choice
Basis of
Basis of Authorized
Initial
from
prescription hospital
use of
choice of
provider
drug fee
fee
managed
physician
1
list?
schedule schedule
care?
Illinois
None
NA
Employee
No
NA
NA
No
Tennessee
None
NA
Employee
Yes
NA
NA
No
Florida
RBRVS
83%
Employer
No
AWP + $4.18
Per
procedure
Yes
Georgia
UCR
146%
Employee
Yes
AWPx1.2 +
$4.00
Per DRG
Yes
Kentucky
RBRVS
128%
Employee
No
When DAW
Cost based
AWP + $5.00
1 WCRI
Managed Care & Medical Cost Cont Inventory 2001-2002, Table 3.8
AWP: Average wholesale price for a prescription drug
DAW: Dispense as written
DRG: Diagnosis Related Group
RBVRS: Resource based relative value scale
UCR: Usual, customary and reasonable
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Yes
WC Prices Are Lower Than GH
in Fee Schedule States
Median Reimbursement per Service
Excluding Hospitals
$125
WC
GH
$94
$100
$83
$68
$63
$72
$79
$76
$49
$50
$69
$71
$75
$25
$0
FL
GA
IL
KY
TN
Illinois and Tennessee did not have fee schedules in timeframe of study
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Network Price Discounts Bigger if
There Is No Fee Schedule
Median Reimbursement per Service
Excluding Hospitals
$125
$100
$75
WC In-Network
WC Out-of-Network
GH In-Network
GH Out-of-Network
$50
$25
$0
FL
GA
IL
KY
TN
Illinois and Tennessee did not have fee schedules in timeframe of study
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Injuries Studied
• Price per service comparisons based on a market basket
of professional services for five injuries
– Carpal Tunnel Syndrome
– Inguinal Hernia
– Back Strain or Sprain
– Open Wound of Fingers
– Contusion of Lower Limb
• Injuries selected to include
– Hard and Soft Tissue Injuries
– Cumulative and Traumatic Injuries
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Treatments Associated With
Carpal Tunnel Cases
CPT Code*
0181
6472
7311
9586
9590
9700
9701
9702
9703
9711
9712
9714
9725
9726
9753
9775
9907
9920
9921
Description of procedure
Anesthesia for lower arm surgery
Carpal tunnel surgery
Radiologic exam (x-ray) of the wrist
Needle electromyography, one limb
Motor nerve conduction test
Physical or occupational therapy evaluation
Hot or cold pack therapy
Microwave therapy
Physical therapy treatment
Therapeutic exercises
Electrical stimulation therapy
Extended physiotherapy
Manual therapy
Regional manipulation therapy
Kinetic therapy
Muscle testing with exercise
Special supplies
Office visit, new patient
Office visit, established patient
CPT: Current procedural terminology
* Truncated to four digits
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Strong Correlation Between WC and GH
for Individual Treatments
$600
Prices for Services on Carpal Tunnel Cases
Florida
Median Price
$500
$400
WC
GH
$300
$200
$100
9924
9921
9920
9907
9775
9753
9726
9725
9714
9712
9711
9703
9702
9701
9700
9590
9586
7311
6472
0181
$0
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Costs of Treating Injuries
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Overall Cost of Treating an Injury
• WC costs more than GH to treat similar injuries, mostly
because of differences in by utilization
• WC has more intense and costly treatments earlier on
than does GH
• Cost differences are smaller than average for acute
injuries and trauma-related conditions like fractures or
sprains
• Cost differences are greater for injuries subject to surgery
and for chronic or pain-related injuries
• GH has a greater proportion of low cost treatments than
does WC
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Medical Conditions Included
in Cost Analysis
Cost analysis is based on treatment of twelve conditions
InH-Inguinal hernia
HID-Herniated intervertebral disc
CTS-Carpal tunnel syndrome
BRS-Bursitis
OSD-Other spinal and back disorders
SSC-Injury: spine and spinal cord
FSA-Fracture or sprain: ankle
FDS-Fracture, dislocation, or sprain: humerus (head) or shoulder
FDH-Fracture, dislocation, or sprain: wrist or hand or fingers
LKL-Injury, knee, ligamentous
ILE-Injury, open wound, or blunt trauma: lower extremity
IUE-Injury, open wound, or blunt trauma: upper extremity
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Surgery
Option
Chronic &
Pain Related
Acute &
Trauma
Related
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Cost Analysis is Based on
Super-Episodes
•
GH does not have a concept similar to “claim” in WC
•
Sophisticated episode groupers have evolved for
analyzing GH medical data, including Medstat’s
Episodes Grouper™ (Grouper)
•
As Grouper builds episodes, each is put into a “major
diagnostic category” (MDC)
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Super-Episodes
• Grouper splits WC claims into several episodes
• Noticed that many WC injuries have a “core episode,”
i.e., an episode that occurs exactly once and that is
characteristic to the WC injury
• A “Super-Episode” is a combination of a unique core
episode with other related treatment episodes within
a claim for WC and Patient ID for GH
• Identified 12 core episode MDCs
• For each core episode, developed a customized list
of related treatment MDC codes
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Assembling Super-Episodes
• Core Outliers: Remove WC claims/GH patients with any
core episode for which paid is greater than the 95th
percentile or less than the 5th percentile
• Time Window: Include only episodes within defined time
periods relative to the core episode
• Related Care: Include only episodes with MDC in the
related treatment list
• Related to Total: For WC, include only WC claims for
which core plus related care accounts for 90% of all care
over the time window
• Core to Related: Include only super-episodes for which
the ratio of core episode paid to all related paid exceeds
the 5th percentile for that ratio among the included WC
claims
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Super-Episode:
Related Episodes
Core Episode
Time Window
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Super-Episodes
Kentucky WC Paid — Hernia External
Core to
Related
Related
to Total
Related
Care
Time
Window
Core
Outliers
Start
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
Steps
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Methodology
• Most analysis from regression models
• Controlled for age, gender, time (inflation)
• Generally based on costs of treatments provided
in first three months
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Demographics Play a Role
• Medical costs correlate with age
• Do costs also correlate with gender?
• Before we compare WC and GH costs, we need to
adjust for cost differences due to differing
demographics
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Costs Increase with Age
Cost Relativity by Age Group
Percent
Age Group 40-49=100%
117%
120%
109%
100%
100%
88%
95%
20-29
30-39
80%
60%
40%
20%
0%
40-49
50-59
60-70
Based on WC and GH Combined
Five-State Average
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WC Claimants Are More Likely To Be Male
70%
64%
WC
Workforce
60%
GH
56%
53%
47%
50%
44%
40%
36%
30%
20%
10%
0%
Five-State Average
Male
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Female
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Costs by Gender Are Less Straightforward
Female Cost Relativity by Medical Condition
Male = 100%
Percent
125
109%
109%
102%
101% 100%
97%
100
105%
97%
90%
89%
95%
75
59%
50
INH
BRS FSA FDS FDH
HID
IKL
ILR
IUE
OSD CTS SSC
Based on WC and GH Combined
Five-State Average
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Nearly Half of the GH Cases Are Below $500
Distribution of Costs for
Carpel Tunnel [393] Cases in FL
GH
WC
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$'7500-$8000
$7000-$7500
$6500-$7000
$6000-$6500
$5500-$6000
$5000-$5500
$4500-$5000
$4000-$4500
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$3500-$4000
$3000-$3500
$2500-$3000
$2000-$2500
$1500-$2000
$1000-$1500
$500-$1000
$0-$500
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
After Removing Cases Under $500
WC Still Has Higher Costs
Distribution of Costs for
Carpel Tunnel Cases > $500 in FL
GH
WC
Removed
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$'7500-$8000
$7000-$7500
$6500-$7000
$6000-$6500
$5500-$6000
$5000-$5500
$4500-$5000
$4000-$4500
$3500-$4000
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$3000-$3500
$2500-$3000
$2000-$2500
$1500-$2000
$1000-$1500
$500-$1000
$0-$500
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
WC/GH Cost Relativities by Condition
• All the 12 medical conditions show a similar pattern
of relative costs across the 5 states
• Inguinal hernia (INH), degenerative disk disease
(HID), and carpal tunnel (CTS) have cost relativities
that are both the largest and the most variable by
state of the 12 conditions studied
• Fractures, cuts, and knee injuries (FSA, FDS, FDH,
ILR, IUE, and IKL) exhibit the lowest and the least
variable cost relativities by state
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WC/GH Cost Comparison by Injury Group
Within Three Months of Injury
GH = 100%
Percent
350
297%
303%
300
242%
250
203%
192% 198%
200
138%
150
121%
122% 123% 121%
122%
100
50
0
INH HID CTS
BRS OSD SSC
Surgery
Option
Chronic and
Pain Related
FSA FDS FDH IKL ILR IUE
Acute Injury or
Trauma Related
Five-State Average
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WC/GH Cost Comparison by State
• All the states show a similar pattern of relative costs
across the 12 medical conditions
• Illinois and Tennessee, the two states without
workers compensation medical fee schedules, have
the highest relativities for workers compensation
above group health
• Georgia and Kentucky have somewhat more
moderate (but still high) relativities
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WC/GH Cost Comparison by State
• Florida workers compensation costs are moderately
higher than group health
• One would expect Florida to have a lower cost
relative to group health based on it’s price advantage
for physician services
• Recent legislation in Florida, effective last year,
established a hospital fee schedule (SB 50A)
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WC Costs Are Consistently
Greater Than GH Costs
Within Three Months of Injury
GH = 100%
Percent
250
200
153%
150
207%
194%
153%
122%
100
50
0
FL
GA
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IL
KY
TN
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WC/GH Cost Comparison by
State and Injury Group
Percent
Within Three Months of Injury
GH = 100%
600
500
419%
400
354%
300
227%
200
151%
226%
181%
262%
239%
186%
146%
122%
160%
112%
83%
100
241%
0
FL
Surgery Option
GA
IL
Chronic & Pain-Related
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KY
TN
Acute & Trauma-Related
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Cost Comparisons Show Small Decline
as Time Window Is Increased
WC/GH Cost Comparison
by State and Time Window
250%
GH=100%
3 mo
6 mo
1 yr
2 yrs
200%
150%
100%
50%
0%
FL
GA
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IL
KY
TN
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Summary
• Prices paid by WC and GH for medical services are
roughly comparable
• WC costs are higher than GH; differences are due to
utilization
• WC costs for injuries where surgery is a likely option and
chronic or pain-related injuries are significantly higher than
those for GH
• The cost difference between WC and GH is lower in states
with fee schedules than in states without
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Questions?
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