Cost-Shifting Evolves into Case-Shifting?

Last fall, the Workers' Compensation Research Institute (WCRI) issued an interesting report on the Affordable Care Act (ACA, or Obamacare) and cost-shifting. It asked the question of whether cost-shifting would occur as a result of cost-limitation efforts in group health, such as "capitation." I conjectured then that the report contents rather supported the probability or even certainty of cost-shifting, and that the appropriate question would instead be how much cost-shifting would occur. 

In April, WorkersCompenation.com reported that WCRI has published another study related to the cost-shifting issue. This time questioning Do Higher Fee Schedules Increase the Number of Workers' Compensation Cases? This is beyond "cost-shifting" and instead is about a broader effect being labelled "case-shifting." The report's premise is that "43 states have physician fee schedules that set maximum prices for health care providers to be paid." And the analysis is how those schedules affect medical decisions. A wrinkle in any analysis of the effects of these schedules has to include consideration of the fact that they are inconsistent with each other, "the established fee schedule rates vary widely across states."

WorkCompCentral also analyzed the WCRI report. It concluded that "financial incentives" in various states "lead doctors to classify more injuries as work-related." 

WorkersCompensation.com notes that "in many states, workers’ compensation pays higher prices than group health." and thus the potential exists for reimbursement to drive determinations of compensability, which are dependent on the opinions of physicians. The physician determines whether an injury is work-related and therefore whether she/he is entitled to workers' compensation rates or group health rate for her/his treatment. The WorkersCompensation.com article notes that "in some states, workers’ compensation prices were two to four times higher than group health prices." 

The recent WCRI study focuses on the extent to which workers' compensation fee schedules may influence physicians in the formation of their compensability opinions. The report posits "that physicians may call an injury work-related in order to receive a higher reimbursement for care he or she provides to the patient,” citing two of the WCRI report findings. 

First, the nature of the injury may be critical to this analysis. The report concluded that "there was no evidence of case-shifting from group health to workers’ compensation" when the medical condition was subject to objective determination, such as "fractures, lacerations, and contusions." These objectively verifiable injuries are less dependent upon, or subject to, doctor opinions, and therefore not susceptible to case-shifting. 

Second, when injuries are "not straightforward," then "case-shifting is more common in the states with higher workers’ compensation reimbursement rates." That is, case-shifting to workers' compensation is dependent upon the existence of a financial incentive (higher reimbursement) and discretion (the injury determinations are more dependent upon doctor opinion as to the existence and causation). In those instances, the report concludes "the number of soft tissue injuries being called work-related (increased) by 6 percent."

WorkCompCentral noted that the determination of compensability in these "soft tissue" would potentially be "tricky." It contents that the "tricky" cases could include "back, knee or shoulder pain." The implications for this phenomenon are intriguing, and perhaps the effects are more significant than described in the medical costs themselves, but the medical costs alone are significant. Two years ago, I posed the question Why Does Surgery Cost Double in Workers' Compensation? That post noted that Florida employers have been documented paying almost double for shoulder or knee surgery that is workers' compensation, compared to group health costs. So the implication of case-shifting in Florida could arguably be a doubling of cost. 

The WCRI report, according to WorkCompCentral, suggests however that case-shifting is perhaps not as likely in Florida. The report notes that "as of July 2011, six states had workers’ comp medical fee schedules with rates within 15% of Medicare rates. They were California, Massachusetts, Florida, North Carolina, New York and Hawaii." The WCRI conclusion is that case-shifting is more likely in states where the workers' compensation fee schedule is 20% or more above the group health rates, that is, not in Florida. The report seems to therefore predict the greater potential for this effect are in states such as "Oregon, Delaware, Idaho, Illinois and Arkansas." 

But this analysis of workers' compensation fee schedules does not appear to include analysis of the reimbursement rates for hospitals. It also seems contradictory to the assertions that Florida workers' compensation costs for various surgeries have been documented as roughly double the group health rates (100% higher, not 15% higher). Some reconciliation of this seeming contradiction between the specifics cited in Why Does Surgery Cost Double in Workers' Compensation and the broader WCRI generalities about fee schedules might be enlightening. 

The medical cost could be only a beginning, however. A great many employers do not offer group disability insurance. Others that do offer this benefit do not pay the cost, leaving the purchase decision to the employee. A potential direct end-result is that an employee might be entitled to workers' compensation indemnity (lost wage) benefits if a physician opines that the soft-tissue injury is work-related, but may be entitled to no wage replacement otherwise. An indirect result of this disparity may be that return to work could occur sooner in group health cases compared to workers' compensation cases, as financial pressure affects behavior.

The indirect cost issues may be harder to measure. But the direct cost of workers' compensation indemnity is perhaps more easily illustrated. Missed work in the Florida workers' compensation system could be compensated in 2016 at a rate as high as $862.51 per week, the "maximum compensation rate." So, if recovery from such a "soft-tissue" injury required ten weeks off-work, the case-shifting to workers' compensation might add another four to nine thousand dollars to the already doubled cost of surgical repair under workers' compensation. This could be directly born by the employer if the employer is self-insured for workers' compensation. Or, if the employer has purchased workers' compensation insurance, the effect on the employer would be indirect in the form of potentially increased premium costs for workers' compensation following such events and payments.  

These effects are already occurring. Cases are demonstrably shifted from group health to workers' compensation according to WCRI. When the capitation effects of the ACA become more widespread, as discussed last fall, there is every potential that this tendency will increase. Capitation is expected to constrain reimbursement in group health. As the financial incentive increases by constraining group health reimbursement, who contends that physicians will be less likely to case-shift to the more financially rewarding opinion, workers' compensation? 

According to WorkCompCentral's analysis of the report, a very small percentage of case-shift, one percent, could result in significant cost-shifting. It concludes "a 1% shift of soft-injury cases from group health to workers’ comp would" increase workers' compensation costs "$35 million . . . in Pennsylvania, $80 million in California and $9 million in Iowa." As they say, "a million here, a million there, pretty soon you are talking about real money." 

So, there are consequences to price controls like fee schedules and capitation. If medical fees are restricted within a market, like workers' compensation, then cases may be shifted to another market such as group health. The opposite is not only possible, but according to the WCRI study it has occurred. There seems to be evidence that all third-party payer systems (those in which someone other than the patient pays) are struggling to control costs with these and other tools.  

According to WCRI "policymakers have always focused on the impact (workers' compensation) fee schedules have on access to care as well as utilization of services." This has been a two-part analysis. First, fee schedules have to be sufficient such that physicians are willing to provide care in the workers' compensation system. Second, the reimbursement cannot be too high, or perhaps overutilization is encouraged. But this recent WCRI report adds yet another consideration for policymakers, that workers' compensation fee schedules should be relatively comparable to group health reimbursement, such that case-shifting is also not incentivized. 

This disparity between costs has also been noted in discussions of "medical tourism." I noted some discrepancies last June in Medical Costs, Fee Schedules, Disparate Reimbursement and Medical Tourism. After years of suppression, the Federal Government released Medicare reimbursement data in 2013. That data supports that charges for medical services can vary markedly among providers, even in the same city. With the availability of such data, can competition in the market have any effect on medical reimbursements? In other words, might medical decision makers direct care to more efficient providers, across town, across state lines?

In the context of regulation and fee schedules, it is possible that reimbursement floors could be created. That is, a published schedule stating a price for a particular procedure in workers' compensation might drive the market to provide that price or more in other pricing models such as group health. The converse is also possible, that such fee schedule could create a ceiling such that the market would insist on that price or less in other pricing models like group health. The suggestion of the WCRI report seems to be that when the differential is less than 20% it may not significantly drive discretionary compensability opinions. But will that conclusion hold as the market enters the predicted era of greater capitation in the pricing models generally?

The evidence on fee schedules provides policymakers with interesting issues for consideration.