How Workers’ Compensation Outpatient Costs Compare Across States by Fee Regulation

Hospital outpatient payments were higher and growing faster in states with percent-of-charge-based fee regulations or no fee schedules, finds a study from the Workers Compensation Research Institute (WCRI) that compares 35 states.

States with percent-of-charge-based fee regulations had substantially higher hospital outpatient payments per surgical episode than states with fixed-amount fee schedules—30 to 196 percent higher than the median of the study states with fixed-amount fee schedules in 2016.

States with no fee schedules also had higher hospital outpatient payments per episode—38 to 143 percent higher than the median of the study states with fixed-amount fee schedules in 2016.

WCRI also found that hospital outpatient payments per episode in most states with percent-of-charge-based fee regulations or no fee schedules grew faster than in states with fixed-amount fee schedules.

“Rising hospital costs continue to be a focus for public policymakers and system stakeholders in many states,” said Ramona Tanabe, WCRI’s executive vice president and counsel. “This study provides meaningful comparisons of hospital payments across states, as well as hospital payment trends in relation to reforms of hospital outpatient fee regulations.”

The study, Hospital Outpatient Payment Index: Interstate Variations and Policy Analysis, 7th Edition, is an annual series comparing hospital payments for a group of common outpatient surgeries in workers’ compensation across 35 states from 2005 to 2016.

To put these reimbursement rates in perspective, the study provides a comparison between workers’ compensation hospital outpatient payments and Medicare rates for the most common group of surgical procedures across states. Medicare rates capture payments to hospital outpatient providers for similar services by a large payor other than workers’ compensation. Variation in the difference between average workers’ compensation payments and Medicare rates for a common group of procedures across states was even greater—reaching as low as 38 percent (or $2,012) below Medicare in Nevada and as high as 502 percent (or $21,692) above Medicare in Alabama.

The study also provides an analysis of major policy changes in states with recent fee schedule reforms. For example, effective October 1, 2015, New York transitioned from a Products of Ambulatory Surgery (PAS) based reimbursement method to an Enhanced Ambulatory Patient Groups (EAPG) based methodology. In New York, following the 2015 update, hospital outpatient payments increased by 56 percent from 2014 to 2016.

The 35 states included in this study represent 87 percent of the workers’ compensation benefits paid, are geographically diverse and represent a range of industries and a variety of regulation choices for hospital payments. The states are Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin.

This study captures payments for services provided and billed by hospitals; it excludes professional services billed by nonhospital medical providers (such as physicians, physical therapists, and chiropractors) and transactions for durable medical equipment and pharmaceuticals billed by providers other than hospitals. The analysis also excludes payments made to ambulatory surgery centers.

This article was first published by Insurance Journal.

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