Healthcare Pricing and Workers’ Compensation

At the 2019 National Council of Self Insurers Annual Meeting, Joe Paduda from Health Strategy Associates discussed how changes in the healthcare marketplace are impacting the price of medical services in workers’ compensation

Over half of all medical costs for workers’ compensation go to facilities. This includes hospital inpatient and outpatient services, and physician charges from facilities.

The total workers’ compensation medical spend in the United States is less than 1% of the total healthcare spend. This means that workers’ compensation has very little influence on the drivers in the healthcare system. As big as we think we are, we are insignificant in the healthcare world.

Medicare has been trying to cut costs by cutting reimbursements to providers. This has had a pretty significant impact on hospitals in particular. Because of this, hospitals are looking for ways to increase revenues and workers’ compensation is an easy target.

Employer health plan deductibles have also been increasing steadily. Many people struggle to afford to use their health insurance because they cannot fund their deductibles. This again can lead to more efforts to shift conditions to workers’ compensation. If you have a soft tissue with unknown origin, it’s pretty easy to claim it is work related. Not only does the employee benefit financially from this but so does the medical provider so they will happily find causation to work when possible.

Right now over 50% of physicians are employed by hospitals or health care systems. Physicians in facilities bill differently than independent physicians, which leads to higher reimbursement rates.

Currently over 65% of hospitals are part of larger health systems. This percentage is expected to increase until independent hospitals are essentially eliminated in the very new future. It is just not possible to independent hospital to keep up with information technology costs as well as keep providing the variety of services due to inability to access providers. These consolidated healthcare systems have much more negotiating power on pricing than the independent hospitals, which results in them being able to get higher reimbursements from both group health and workers’ compensation.

Workers’ compensation accounts for around 1.5% of a hospital system’s top line, but over 15% of their profits because the reimbursement rates are higher than other payers.

Drug pricing is very complex and lacks transparency. The “retail price” for medications is essentially meaningless. Healthcare companies and their PBMs get significant rebates from the drug manufacturers. Over half the difference between gross retail drug prices and the net price ultimately paid for the drug is in rebates to healthcare companies and PBMs. The price for consumers goes up while the price to the healthcare companies and PBMs goes down as patients do not benefit from these rebates.

Action Items

It is important for workers’ compensation payers to figure out which facilities have the best clinical outcomes. There is too much focus on discounts off fee for service without looking at outcomes. Paying less per visit when there are more visits because of poor outcomes does not produce medical savings.

Utilization review also needs to be done the right way. We need to expedite approval for appropriate treatment which ultimately produces better outcomes and less time away from work.