Fee Schedules and Physician Charges in Workers’ Compensation

Workers’ compensation is sometimes considered a backwater of health care, even though medical costs are now well over 50% of total claim costs and growing rapidly.  While workers’ compensation is only about 4% of private health spending, lessons can be learned from provider behavior in this segment that may apply to other payers.  The National Council on Compensation Insurance prepares some outstanding research and recently issued a report on the effect of fee schedule changes on actual reimbursements.  The report looked at several test cases of changes in fee schedule amounts between 2002 and 2006 and how those changes affected what was paid.   (NCCI Brief)

Examination of these test cases revealed that a comparison of workers’ compensation provider fee schedule maximum amounts to market reimbursement, believed to be that reflected in prevailing group health payments, and depending on whether the fee schedule maximum was above or below market before or after the change, could affect both how quickly providers responded to the change and how many responded.  In general, fee schedules seemed to do a better job of controlling reimbursement for high-volume, low-cost services than low-volume, high-cost ones.  The same amount of a fee schedule decrease does not necessarily have the opposite effect of a fee-schedule increase.

One observation would be that it is surprising that apparently a number of workers’ compensation fee amounts are above the private market level as reflected by group payment amounts, particularly since workers’ comp has no copayments or deductibles for providers to worry about collecting.  The fee schedule maximums should be set somewhat below the prevailing private market.  The implications of provider behavior in reaction to fee schedule amounts and changes may provide guidance to other payers.  In general, it appears that reimbursement tends to move toward a maximum set amount, which is the economically rational thing for a provider to do.  Why bill for less?  So payers need to be careful to design fee schedules and fee schedule changes that are close to the median distribution of what might otherwise exist.  Paying more for a service may also encourage greater utilization, appropriate or not.