California workers’ compensation medical expenditures fell sharply immediately after the enactment of the 2002-2004 reforms, but that decline was short-lived, and after rising steadily since 2005, average payments for treatment, pharmaceuticals and durable medical equipment (DME), medical management/medical cost containment and med-legal reports are back above pre-reform levels according to a new CWCI study.
For its study, the Institute examined data from more than half a million California workers’ compensation indemnity claims with dates of injury from January 2002 through March 2010. The data included policy, claim, benefit and medical service detail based on payment and medical bill review transactions through June 2010, which were used to calculate average medical payments at six valuation points: 3, 12, 24, 36, 48 and 60 months post injury for claims from the nine different accident years. The results reinforce the findings of a 2010 Institute study, noting a decline in average medical expense payments per claim from accident year (AY) 2002 through AY 2005, followed by a steady escalation from AY 2005 through the most recent measurements. For example, after declining 14.1% from $6,381 in AY 2002 to a post-reform low of $5,480 in AY 2005, average first-year medical payments on indemnity claims have jumped 63.4%, hitting $8,956 in AY 2009.
To understand the impact of various medical components on the medical cost trends, the authors also calculated the average amounts paid for treatment, pharmacy/DME, medical management and med-legal reports at 12 and 24 months. All four medical expense categories showed similar patterns at the 12- and the 24-month valuations, with average payments bottoming out in 2004 or 2005, then rebounding to new highs over the last five years. The breakdown of first-year payment data for the four medical expense categories shows that since the post-reform low, the average amount paid per claim for treatment has increased 48.9%; the average amount paid for pharmaceuticals and DME are up 106.5%; the average amount paid for medical management/medical cost containment is up 142.6%; and the average amount paid for medical-legal reports is up 73.3%.
Although medical treatment remains the dominant medical expense component in workers’ compensation, accounting for about 73 cents out of every dollar paid in first-year medical expense on an AY 2009 claim, that is down from about 85 cents in AY 2002. This decline coincided with the dramatic increase in payments for medical case management/cost control that occurred as the 2002-2004 reforms were implemented, requiring ongoing expenditures for items such as medical bill review, mandatory utilization review, and access fees to Medical Provider Networks. As a result, these expenses climbed from 6.5% to 16.9% of the first-year paid medical dollar between AY 2002 and AY 2009. (To put this increase into perspective, prior Institute research estimated that these reforms saved between $12.8 billion and $25.3 billion in insured medical expenses between 2004 and 2008). At the same time, the proportion of the workers’ compensation medical dollar going toward pharmacy and DME held fairly steady, ranging between 5% and 6.9% of the total first-year medical payout during the study period, while med-legal payments rose from 2.4% in AY 2002 to 4% in AY 2009.
The Institute has released its study in a CWCI Research Update report, “Medical Development Trends in California Workers’ Compensation, Accident Years 2002-2010.” In addition to the detailed tables and analyses on indemnity claims, the report includes appendices showing results for all claims, including medical-only cases.
The complete report is available for free here.