WORKERS’ COMPENSATION MEDICAL COSTS

What’s Happened Since 1993?

Medical Costs Since 1993
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average costs/claim initially declined then started rising again

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Medical Costs Since 1993
Year 1990 1991 1992 1993 1994 Average Charge/ Claim $1259.66 $1366.96 $1551.27 $1589.32 $1371.84

- a 13.7% decline in medical costs from 1993-1994

Medical Costs Since 1993
Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 Average Charge/ Claim $ 1,371.84 $ 1,714.23 $ 1,584.81 $ 1,478.99 $ 1,541.92 - a 99.6% $ 1,966.85 increase $ 2,012.21 since 1994 $ 2,356.39 $ 2,736.37

Medical Costs Since 1993
$3,000.00

Average Charge per Claim:
$2,500.00

$2,000.00

$1,500.00

$1,000.00

$500.00

$1994 1995 1996 1997 1998 1999 2000 2001 2002

Medical Costs Since 1993
!

of course, some of the increase is due to the statutory provision allowing the maximum fees to increase by no more than the SAWW but this is not the whole story

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WORKERS’ COMPENSATION MEDICAL COSTS
What Drives Growth in Medical Costs?

Medical Cost Drivers
the usual suspects…
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increasing cost of services increasing number of services changing mix of services

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WORKERS’ COMPENSATION MEDICAL COSTS
Cost Containment Issues

Cost Containment Issues
Pharmaceutical Costs
!
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Reimbursement formulas
Flat rate Max fee subject to usual & customary

!
" "

Pharmacy networks
Employee access Price discounting Types of drugs included Compliance & implementation

" Drug formularies
" "

Cost Containment Issues
Certified Managed Care
! !

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Negotiation of rates with network providers Network exemption for previous treating provider Use of alternative managed care arrangements, such as provider networks Who may form plans

Cost Containment Issues
Hospital Costs
!
" "

Distinction between large & small hospitals
Large and small hospitals defined Onsite and offsite clinics and services Percentage of usual & customary charge Medicare cost/charge ratio

" Reimbursement formula
" "

Cost Containment Issues
Medical Fee Schedule
! !
" "
" " " " "

Provider group distinctions Conversion factor
Relationship to Medicare conversion factor Annual adjustment factor
Medicare CPI-U CPI-Medical PPI-Physician SAWW

Cost Containment Issues
Utilization Review
! !
" "

Limits on passive treatment Treatment parameters
Process for updating Formatting and application(including dispute resolution)
! ! !

Mandatory application Mandatory discussion Rebuttable presumption

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New medical technology, procedures and medications

Pharmacy Costs in MN WC
September 9, 2003

Pharmacy Costs
In General(1) more drugs are being prescribed (2) more prescriptions for new (expensive) drugs (3) generic drug costs have risen

Drug Costs in MN Work Comp
Drug Costs/Claim
$180.00 $160.00

$161.63

$140.00

$120.00

$109.03
$100.00

$85.85
$80.00

$60.00

$60.13

$65.26 $57.95

$40.00

$20.00

$1996 1997 1998 1999 2000 2001

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Workers’ Comp Drug Costs
Possible Cost Drivers:
!

Increased treatment with drugs:
Doctors may be choosing to treat conditions more often with drug therapy Or, doctors may be prescribing longer regimes of drug treatment and/or higher dosages.

Drug Costs in MN Work Comp
Total Units Prescribed
1200000

1000000

800000

600000

400000

200000

0 1996 1997 1998 1999 2000 2001

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Workers’ Comp Drug Costs
Possible Cost Drivers:
!

Increases in underlying wholesale drug costs:
As manufacturers’ wholesale prices increase, fee schedules based on this measure will rise proportionally.

Pharmacy Costs
CPI-Prescription Drugs
350

300

250

200

150

100 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Taken from: U.S. Department of Labor, Bureau of Labor Statistics Website; http://www.bls.gov/

Workers’ Comp Drug Costs
Possible Cost Drivers:
!

Changing formulary:
New drugs are nearly always more expensive and tend to drive up average costs.

Cost Control Options: Fee Schedule
Pharmacy Fee Schedule Formulas

Minnesota WC – current Minnesota Medicaid – current Minnesota Medicaid – proposed Washington state WC 2001 national survey of HMOs Other WC jurisdictions

Ingredient Reimbursement 100% AWP 91% AWP 86% AWP 90% AWP 86% AWP 16 – 100% AWP 1 – 95% AWP 1 – 90% AWP Av. 89.6% AWP

Dispensing Fee $5.14 $ 3.65 $ 4.15 $ 4.50 $2.21 12 – av. $ 5.24 fee 6 – av. 20% mark-up Av. $ 5.10

Other Medicaid jurisdictions

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Cost Control Options
Recommendation # 1:
#

Set Maximum Allowable Fee for Medications atMAC + $3.65; or 86% AWP + $3.65, if no MAC price

Cost Control Options
Recommendation # 2:
#

Allow an employer/insurer to contract with, and negotiate rates with, a pharmacy network from which the injured employee must select a pharmacy to fill prescriptions. Mileage parameters would be included to ensure reasonable access

Cost Control Options
Recommendation # 3:
#

Require pharmacy benefit managers to disclose to employers/insurers any rebates

Cost Control Options: Formularies
Note…
just a few classes of drugs account for almost all of the pharmacy costs in workers’ compensation and generics are not available for the most expensive options within these classes

Medications in Workers’ Compensation

CWCI Reports Pharmaceutical Cost Management in California Workers’ Compensation Oakland, CA; California Workers’ Compensation Institute, November 2002

Cost Control Options: Formularies
Moreover…
the most important effect of a closed formulary is on physician behavior by changing the way they prescribe medications
…and there is already a means for this type of intervention: treatment parameters

Cost Control Options: Utilization Review
Prior Authorization
Used to limit access to particularly expensive medications, drugs with misuse potential, or prescription of drugs for “off-label” uses

Cost Control Options: Utilization Review
Quantity Limitation
Limits the number of doses that can be dispensed per prescription or the number of refills allowed; targets drugs used for shortterm therapy to prevent excessive or inappropriate use.

Cost Control Options
Recommendation # 4:
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The workers’ compensation treatment parameters be amended to provide:
$

prescribing parameters for certain classes of drugs (such as use of narcotics for musculoskeletal pain) time and quantity parameters for the use of selected drugs for specific conditions (such as NSAIDs for initial treatment of musculoskeletal injuries)

$

Certified Managed Care
September 9, 2003

Certified Managed Care in MN
!MR 5218.0600
-

managed care plans shall pay the amount allowed under MR 5221 and MS 176.136 should managed care plans be allowed to negotiate fees with their providers?

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Cost Control Options
Recommendation # 5:
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Allow managed care plans to negotiate fees with participating providers.

Certified Managed Care in MN
!MS 176.1351
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peer review utilization review dispute resolution case management should employers and insurers be allowed to contract just for networks?

-

Cost Control Options
Recommendation # 6:
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Make peer review, utilization review, case management, and dispute resolution optional features of certified managed care.

Cost Control Options
Recommendation # 7:
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Redefine when there is a prior treating relationship

Recommendation # 8:

#Require the employee to use the plan’s designated provider for the first 14 days

Hospital Costs
September 23, 2003

Hospital Reimbursement
The current law provides:
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IPT services at large hospitals are capped at 85% of U&C OPT services at large hospitals are governed by the fee schedule or capped at 85% if not in schedule. All services at small hospitals are paid at 100% of U&C

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Medical Costs Since 1993
1989
Hospital 32.4% MD 37.6% DC 13.5% PT/OT 3.8% Other 12.7%

2001
Hospital MD DC PT/OT Pharmacy Other 41.0% 32.6% 3.8% 4.4% 4.2% 14%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Medical Costs Since 1993
300.0

Rate of Growth in Payments
250.0

200.0

Small Hospitals
150.0

Large Hospitals

100.0

50.0

0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Hospital Costs
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Costs Subject to Fee Schedule
Inpatient Outpatient

Large Hospital Small Hospitals

0% 0%

32% 0%

Hospital Costs
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Effective Reimbursement Rate
Inpatient Outpatient Overall

Large Hospital Small Hospital

85% 100%

74.5% 100%

79.7% 100%

Hospital Reimbursement
%What do Others Pay?
Hospital Reimbursement in General Health Care - 2001
Medicare MA/GAMC/MNCare Private Managed Care Commercial./Non-profit Health Plans $ $ $ $ Total Charges 4,647,546,260.00 1,441,926,499.00 3,022,295,868.00 2,573,032,139.00 Total Payments Payment/Charge Ratio $ 2,148,770,143.00 46.2% $ 678,672,543.00 47.1% $ 1,593,265,943.00 52.7% $ 1,679,724,328.00 65.3%

TOTAL

$ 12,608,778,199.00 $ 6,704,182,843.00

53.2%

Source: Minnesota Department of Health, Health Economics Program

Hospital Reimbursement
%How Do We Compare?
Hospital Reimbursement
All Payors Workers' Compensation Workers' Compensation -adjusted $ Total Charges 12,608,778,199.00 Total Payments Payment/Charge Ratio $ 6,704,182,843.00 53.2% 84.3% 85.7%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Cost Control Options
Recommendation # 9:
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Eliminate large vs. small distinction; separate out critical access hospitals for different reimbursement Pay non-critical access hospitals at the average payment-to-charge ratio for all hospitals plus 15% (i.e. 53% + 15% = 68%) Adjust reimbursement rate annually with updated data from Dept. of Health

#

#

Cost Control Options
Recommendation # 10:
#

#

Pay critical access hospital inpatient services at 100% U&C Pay all other services at …
" "

fee schedule + 15%, if it applies; otherwise, at average payment-to-charge ratio for all hospitals plus 30% (i.e. 83%)

Medical Fee Schedule
October 14, 2003

The 1992 Legislation
1992 - 176.136 subd 1A:
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conversion factor must be adjusted annually “by no more than the percentage change [in the state-wide average weekly wage (SAWW)]”

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MN Fee Schedule
$80.00 $70.00 $69.04 $66.41 $60.00 $59.47 $50.00 $40.00 $30.00 $20.00 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 $52.05 $52.91 $54.31 $56.35 $62.27

Conversion Factor:
$75.18 $73.13

…a 44.4% increase

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Medical Cost Drivers
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increasing cost of services
how does WC compare to other payors?

&

Intrastate Comparisons
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Only publicly available comparisons are with Medicare (204% in 2003) Private payors refuse to share information because of confidentiality agreements MMA letter indicates that nationally private payors reimburse at ~130% of Medicare rates in 20021
1Letter

to DOLI, February 10,2003, signed: Paul S Sanders, MD, Chief Executive Officer

Medical Cost Drivers
!

increasing cost of services
is the fee schedule conversion factor increasing too fast?

&

Fee Inflation
$80.00 $70.00

MN WC
$60.00 $50.00 $40.00 $30.00 $20.00
MN WC

Medicare

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

$52.05 $52.91 $54.31 $56.35 $59.47 $62.27 $66.41 $69.04 $73.13 $75.18 $76.18

Medicare $31.96 $33.72 $36.38 $35.42 $35.77 $36.69 $34.73 $36.61 $38.25 $36.20 $36.78

Research & Statistics, Minnesota Department of Labor and Industry, 2003

Minnesota Conversion Factor
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What are the alternatives for adjusting the conversion factor?
! ! !

publicly available reputable relevant

Consumer Price Indexes Producer Price Indexes
HCFA Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2004 http://cms.hhs.gov/providers/sgr/sgr2004p.pdf

Cost Control Option
Recommendation # 11:
#

The appropriate inflator for the conversion factor is the PPI-P Cut the CF to what it would have been had the PPI-P been used when available: $62.68 and in the future adjust by PPI-P

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Cost Control Option
Recommendation # 12:
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Pay non-hospital services not covered by the fee schedule at 68% of U&C

The 1992 Legislation
1992 - 176.136 subd 1A:
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“…shall contain reasonable classifications ...that differentiate among health care provider disciplines”

2001 MSRB PROCESS
MCA REQUEST maximum fees for services identified by the same CPT code be the same regardless of provider discipline

2001 MSRB PROCESS
CONCLUSIONS
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Chiropractic manipulation and Physical medicine procedures & modalities should should be paid without application of the scaling factor. No change in fee schedule for Evaluation & Management and Radiology services

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Utilization
October 28, 2003

Cost Control Options
Utilization Control Strategies
Limited Initial Provider Choice X X X X X X Limited Provider Change X X X X X X X X X X c X c X X X X 32 Jurisdiction Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Totals Managed Care X Treatment Guidelines X X X X X X X X X

X X X X X X 25

X X X X X X X 35

X X

X 20

WCRI “Managed Care and Medical Cost Containment in Workers’ Compensation: A National Inventory, 2001-2002” Cambridge MA; December 2001

Utilization Control in Minnesota
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Current Options
'

managed care mandatory treatment parameters

'

Cost Control Option
Recommendation # 13:
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Allow employer to select initial health care provider for the first 14 days of treatment

… 29/50 states place more limits on provider choice than current MN practice

The 1992 Legislation
!

reduce inappropriate utilization
'

mandatory treatment parameters
for the most common/costly problems decrease unexplained variation define “reasonable & necessary”

& & &

MN Treatment Parameters
& do the treatment parameters work?

MN Treatment Parameter Study
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Of 626 claimants with complete information available, care delivered for 443 (70.8%) was completely compliant.
29% Compliant Non-compliant 71%

D Gilbertson, W Lohman “Mandatory Treatment Parameters Evaluation” RWJ Workers’ Compensation Health Initiative

MN Treatment Parameter Study
Does Compliance Affect Outcomes?
improvement in pain improvement in function satisfaction with care satisfaction with job work status at 6 months mental health physical health lost work time cost no difference no difference no difference no difference no difference no difference maybe better yes, faster yes, lower

D Gilbertson, W Lohman “Mandatory Treatment Parameters Evaluation” RWJ Workers’ Compensation Health Initiative

Medical Cost Drivers
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increasing number of services
&

do treatment parameters work? yes, but…
can compliance be increased? should parameters be extended?
lower extremity injuries new surgical technologies chronic analgesic medications

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Cost Control Option
Recommendation # 14:
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Add to the statutory definition of “reasonably required treatment” –
" "

"

“as defined by any applicable treatment parameter” that treatment exceeding a parameter is presumed to be “not reasonably required” presumption is rebuttable by clear & convincing medical evidence that a reason for departure exists

Cost Control Option
Recommendation # 15:
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Require judges and payors to apply the parameters" " "

payors must cite parameters in denials of “unreasonable” treatment fact finders must make decisions based on parameters if parameter was not used, fact finder must explain why

Cost Control Option
Recommendation # 16:
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Authorize the Department to use “expedited” rule-making to update and extend parameters
" "

with legal standard that parameter must reflect evidence-based medical practice and be developed in consultation with MSRB (Department will work with MSRB to streamline parameter development process)

Medical Cost Drivers
!

inappropriate utilization

… are there any other options?

Statutory Limitations
Nine states limit some aspect of treatment:
! ! ! ! ! ! ! !

AL: CO: FL: KS: NC: OR: RI: WA:

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6 total MD/PT/DC visits in first 6 months 34 manipulations per case DC limited to 24 treatments or 12 weeks PT/DC limited to 21 visits PT limited to 30 visits; DC to 20 visits DC may only be treating provider for 30 days or 12 visits palliative care after MMI limited to 12 visits DC limited to 60 days or 12 visits, cannot provide physical therapy services on > 6 visits CA: DC/PT limited to 24 visits each

Statutory Limitations
Medicare:
!

as of 9/1/03! !

limits PT services to $1590 per calendar year limits OT services to $1590 per calendar year

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only reimburses DCs for manipulation for spinal subluxation (i.e. does not pay for E&M, physical therapy,or radiology)

Statutory Limitations
MN Medical Assistance, General Assistance Medical Care, Minnesota Care :
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Only pay for manipulation of the spine for treatment of spinal subluxation and x-rays that are needed to support a diagnosis of subluxation An office visit is not separately billable Limits manipulations to 6 in a month, 24 in a calendar year

Cost Control Option
Recommendation # 17:
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Amend the statute to limit physical medicine modalities and procedures to 24 visits per injury

Medical Cost Drivers
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changing mix of services
really three different problems…
! ! !

substitution of more expensive options introduction of new technologies addition of new types of therapy

Medical Cost Drivers
!

substitution of more expensive options
imaging:
! !

MRI for CT (for lumbar x-ray) SPECT scan for bone scan oxycodone for hydrocodone celecoxib for ibuprofen

medications:
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Medical Cost Drivers
!

introduction of new technologies
surgery:
! !

IDET artificial intervertebral discs STS Therapy System AlphaStim 100

physical therapy:
! !

Medical Cost Drivers
!

addition of new types of therapy
! ! !

massage therapy herbal medications homeopathic treatments

Medical Cost Drivers
!

changing mix of services
!

the common problem is the widespread use of new interventions before there is any evidence of their efficacy:
! ! ! !

the patients hope for a “breakthrough” providers yearn for a “silver bullet” manufacturers work to establish a market medical science takes time

Cost Control Option
Recommendation # 18:
#

Amend the statute to define any technology not approved by the FDA prior to the date of enactment as “not reasonably required” unless approved for use by the Commissioner in consultation with the MSRB

Cost Implications

COST IMPLICATIONS
#

Eliminating all scaling factors :
increases costs…

WC Medical Costs WC System Costs 3.3% 1.2%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

COST IMPLICATIONS
#

Pay non-critical access hospitals at the average payment-to-charge ratio for all hospitals plus 15% (i.e. 53% + 15% = 68%):

decreases costs…

WC Medical Costs WC System Costs -9.1% -3.3%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

COST IMPLICATIONS
# #

Pay critical access hospital inpatient at 100% U&C Pay all other services at …
• •

fee schedule + 15%, if it applies; otherwise, at average payment-to-charge ratio for all hospitals plus 30% (i.e. 83%) :

decreases costs…

WC Medical Costs WC System Costs -3.3% -1.2%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

COST IMPLICATIONS
#

Cut the CF to what it would have been had the PPI-P been used when available ($62.86) and in the future adjust by PPI-P:

decreases costs…

WC Medical Costs WC System Costs -5.4% -2.0%

Research & Statistics, Minnesota Department of Labor and Industry, 2003

COST IMPLICATIONS
#

Pay non-hospital services not covered by the fee schedule at 68% of U&C:

decreases costs…

WC Medical Costs WC System Costs -4.7% -1.7%

Research & Statistics, Minnesota Department of Labor and Industry, 2003