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Are Workers’ Comp Systems Broken?

As national conversations occur about the direction of workers’ compensation (WC) systems, I sometimes hear comments that “WC systems are broken.” Rarely are public programs either all black or all white. The material below summarizes relevant information from a variety of published Workers Compensation Research Institute (WCRI) studies about how most workers fare in WC systems. How workers fare is critical to assessing the performance of WC systems, and the effectiveness of these systems affects the competitiveness of American business.

See also: States of Confusion: Workers Comp Extraterritorial Issues

The data from WCRI illustrates that the majority of workers in the workers’ compensation system:

  • Return to work within a few weeks of the injury, typically to their pre-injury employers at the same jobs and pay as before the injury
  • Receive their first income benefit payment in 30 days or less from the time that the payer is notified of the claim
  • Report that they were satisfied with the overall medical care received, including the time it took to have the first non-emergency visit with a provider and access to the desired medical services

See also: Return to Work Decisions on a Worker’s Comp Claim

Here is more detail:

Return to work and recovery of earnings capacity

The overwhelming majority of injured workers return to work and do so to their pre-injury employer at the same or higher pay:

  • 75% to 85% of workers had less than one week of lost time[1]
  • 80% to 90% of workers had four weeks of lost time or less[2]
  • 85% to 95% of workers had six weeks or less of lost time[3]
  • Only 5% to 10% said they earned a lot less when they first returned to work (for those who returned to work)[4]
  • 87% to 95% said they returned to their pre-injury employer[5]
  • Half of those changing employers reported that the change was not due to the injury[6]

Timely payment

Most workers receive their first indemnity payment without dispute or substantial delay:[7]

  • 40% to 50% in 14 days or less from the time payer was notified of injury
  • 60% to 75% in 30 days or less

Satisfaction and access to medical care

By an overwhelming majority, most workers were satisfied with medical care received (workers with more than seven days of lost time):

  • 75% to 85% reported somewhat or very satisfied[8]
  • 85% to 90% reported no problems or small problems getting desired care[9]
  • 80% to 90% reported being somewhat or very satisfied with the time it took to have the first nonemergency care[10]

While the systems may serve most workers reasonably well, the data also shows that there are injured workers with certain attributes that make them less likely to receive these good outcomes. Discussions that focus on system changes that improve outcomes for these injured workers have high-impact potential. A subsequent post will highlight the evidence on who these workers are.

How Crucial Is Trust in Workers’ Comp?

Your employee was just injured at work. He is in pain, cannot perform regular job duties and is unsure how quickly he can return to work. His mortgage, medical care and kid’s tuition payments are due next month. It is a vulnerable time for him, with substantial uncertainty.

When a football player goes down on the field and is carried off, the crowd applauds in support of the player, and the player often returns a smile. When a worker is injured on the job, what happens at the workplace before and after the injury can affect the costs incurred by the employer and the outcome achieved by the injured worker.

Twelve new state studies from the Workers Compensation Research Institute (WCRI) aim to help CFOs and other stakeholders identify ways they can improve the treatment and communication an injured worker receives after an injury, leading to better outcomes at lower costs.

The studies interviewed 4,800 injured workers from across 12 states who suffered a workplace injury in 2010 and 2011 and received workers’ compensation income benefits. The 12 states surveyed were Arkansas, Connecticut, Indiana, Iowa, Massachusetts, Michigan, Minnesota, North Carolina, Pennsylvania, Tennessee, Virginia and Wisconsin. The surveys were conducted during February through June in 2013 and 2014—on average, about three years after these workers sustained their injuries.

The research found that a worker’s fear of being fired after an injury had a large and pervasive effect on costs and worker outcomes, like return to work. The fear of being fired may arise out of the relationship between the worker and the supervisor. If the relationship is low trust, the worker is more likely to fear firing when injured.

To describe the level of trust or mistrust in the work relationship, workers were asked to agree with the statement, “I was concerned that I would be fired or laid off.” Workers were given four possible answers—strongly agree, somewhat agree, somewhat disagree and strongly disagree. Depending on the state, 18% to 33% of workers strongly agreed that they feared being fired when injured.

Overall, workers who were strongly concerned about being fired after the injury experienced poorer return-to-work outcomes than workers without such concerns. Across all 12 states, 23% of those concerned about being fired reported that they were not working at the time of the interview—double the rate observed for workers without such concerns. The following are other findings from workers who were strongly concerned about being fired:

  • Concerns about being fired were associated with a four-week increase in the average duration of disability.
  • Workers who were strongly concerned about being fired had higher rates of dissatisfaction with care (21% were very dissatisfied with care) when compared with workers who were not concerned about being fired after the injury (9%).
  • Workers who were concerned about being fired were much more likely to report problems with access to care. Among workers who were concerned about being fired, 23% reported big problems getting the services they or their provider wanted. The rate was double the 10% among workers who were not concerned about being fired.
  • 16% of workers who were strongly concerned about being fired reported large earnings losses at the time of the interview predominantly because of injury, compared with 3% of workers who were not concerned about being fired.

What do these findings really signify? The following are some alternative possibilities:

  • Workers reporting a strong fear of being fired might know they have a difficult relationship with their supervisor. That difficulty might translate into fewer opportunities to return to work, or more active management of the nature of medical care and the selection of medical care providers.
  • The worker may be exaggerating the possibility of termination, being a pessimist by nature, and that tendency to overreact might characterize the workers’ general performance on the job—perhaps resulting in fewer return-to-work opportunities and more active management of the care by the payers.
  • The worker may be more likely to retrospectively report a fear of being fired if the worker has had a poor outcome. Poor outcomes color the worker’s view of most events in the course of the claim. Conversely, workers who have experienced excellent outcomes tend to see events in the course of handling the claim in a much more positive fashion.

This is not the first time we looked at trust as it relates to workers’ compensation. A study we did several years ago on attorney involvement, which was covered by CFO magazine, looked at why injured workers hired attorneys. The character of the employment relationship, for example, was a factor for the 23% who strongly agreed that they hired attorneys because they feared being fired or laid off. 15% also strongly agreed that they needed attorneys because their employer could perceive their claims as illegitimate.

Employers Can Make a Difference

WCRI contacted Lisa Healy, who is a manager of claims at AGL Resources, a natural gas-only distribution company in the U.S. She told us that AGL has been very successful in managing and reducing its workers’ compensation costs. In part, she ties this success to practices where employees in the organization feel engaged and trust the company. The following are five things she told us the company is doing to facilitate trust:

  1. Establishing a set of values and a code of conduct with the ability to report those who violate it without fear of retaliation. This gives an organization depth in terms of morals and standards, which appeal to workers of all ages.
  2. Holding claim adjusters accountable for treating injured employees in an honest fashion with dignity and respect.
  3. Encouraging employees to identify possible safety hazards as well as recommend opportunities to improve safety. When workers are encouraged to point out safety issues or offer suggestions on how to improve things and these comments are taken seriously and addressed, trust is formed.
  4. Providing a 24/7 nurse triage program to speed treatment for injured employees so they get the care they need as soon as possible. The employee can contact the nurse triage line immediately after feeling a twinge of pain or sustaining an injury that doesn’t require emergency treatment. This service not only ensures the employee gets the right care immediately, it also cuts down on unnecessary visits to the physician when the employee can use self-care treatments such as ice, rest, elevation or an aspirin.
  5. Promoting early return to work with transitional duty positions whenever possible. Research has shown that the longer a worker is out, the harder it is to for the worker to return―not to mention that the costs go up the longer that person is out, so getting him or her back quickly shows the worker you care and is good for the worker and the employer.

The WCRI research is an important first step in realizing how important trust is between employee and employer to ensuring good outcomes when the employee is injured on the job. Additional studies by WCRI and others will provide further information on which policymakers can base appropriate measures. But employers can act now, as AGL Resources has demonstrated, to improve trust while lowering their workers’ compensation costs — through early intervention, putting safety first, effective return-to-work programs and access to medical care.

‘Montana Model’ for Workers’ Comp Fees

Policymakers in many states increasingly enact medical fee schedules in the quest to limit the growth of hospital costs. They often seek a reference point or benchmark to which they can tie reimbursement rates. Usually, that benchmark is either Medicare rates in the state or some measure of historic charges by the hospitals. Medicare rates are usually seen by healthcare providers as unreasonably low; charge-based fee schedules are often seen by payers as unnecessarily high.

This study examines an alternative benchmark for workers’ compensation fee schedules—prices paid by group health insurers. In concept, this benchmark has certain advantages. Unlike Medicare, the group health rates are not the result of political decisions driven by the exigencies of the federal budget. Rather, these rates are the result of negotiations between the payers and the providers. Unlike a charge-based benchmark, group health rates are what is actually paid to providers. This is important given the growing public attention to the arbitrariness of many hospital charges.

The major limitation of using group health prices paid as a benchmark for workers’ compensation fee schedules is that these prices are seen by group health insurers as proprietary. However, one state, Montana, has adopted a fee schedule based on group health prices paid and implemented relatively straightforward processes to balance the need for a fee schedule and the need to protect the proprietary information of the group health insurers.

This article does the following: (1) describes the major findings of the study, (2) suggests a framework for thinking about whether prices paid by workers’ compensation payers are too high or too low, and (3) discusses the Montana approach.

Major Findings

What do we find when we compare the prices paid to hospital outpatient departments by group health and workers’ compensation payers? Among the major findings of this study are:

  • In many study states, workers’ compensation hospital outpatient payments for common surgical episodes were higher, and often much higher, than those paid by group health. For example, in half of the study states, workers’ compensation paid at least $2,000 (43%) more for a common shoulder surgery (see Figures 1a and 1b).
  • The amount by which workers’ compensation payments exceeded group health payments (“the workers’ compensation premium”) was highest in the study states with either no fee schedule or a charge-based fee schedule (Tables 1a and 1b).

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Are Prices Paid By Workers’ Compensation Payers Too Low or Too High?

The comparison of workers’ compensation and group health hospital outpatient payments raises the question in many states as to whether workers’ compensation hospital outpatient rates are higher than necessary to ensure injured workers access to good quality care. For example, in Indiana, hospital outpatient services associated with shoulder surgery were, on average, reimbursed $9,183 by workers’ compensation as compared with $7,302 by group health. Is this differential of $1,881 necessary to induce hospital outpatient departments to provide facilities, supplies and staff to treat injured workers in an appropriate and timely manner?

Consider the following framework for analyzing the question. If hospital outpatient departments were willing to provide timely and good-quality care to group health patients at the prices paid by group health insurers, then two questions should be answered by policymakers:

  • What is the rationale for requiring workers’ compensation payers to pay more to hospital outpatient departments than group health insurers pay for the same treatments?
  • If there is such rationale for higher payment, is a large price differential necessary to get hospital outpatient departments to treat injured workers?

In addressing the first question, let’s say that the hospital outpatient department provided identical treatment for a group health patient and a workers’ compensation patient. If the care was identical—same facilities, supplies and staff—and workers’ compensation imposed no unique added costs on the hospital outpatient department, then there is little rationale for workers’ compensation payers to pay more than the group health payers.

Healthcare providers often cite a special “hassle factor” in workers’ compensation that does not exist in treating or billing for the group health patient. Common examples of the alleged hassle factor include longer payment delays, higher nonpayment rates (where the compensability was contested or where care given was not deemed appropriate), more paperwork, more missed appointments, lower patient compliance with provider instructions and so on. If these hassles are unique to workers’ compensation patients, then this forms a potential rationale for workers’ compensation paying higher prices than group health, for the same care. Let’s assume that this accurately describes the real world.

Then the question becomes: Are the unique costs imposed on hospital outpatient departments large enough to justify workers’ compensation payers having to pay $2,000-$4,000 more per surgical episode than group health payers pay for the same care? If the costs of these hassles total less than, say, $2,000, then workers’ compensation fee schedules could be lowered without adverse effects on access to care for injured workers. In other words, the large price differentials observed in this study can only be justified by the large costs of these hassles that are unique to workers’ compensation.

In applying this framework to different types of providers, where these hassles exist, some types will be larger for some kinds of providers than for others. For example, the first doctor who treats may be more exposed to nonpayment risk than other providers who treat later in the claim; or the hospital outpatient departments’ use of the operating and recovery rooms would be less affected by paperwork but exposed to payment delays. Because the majority of payments to hospital outpatient departments are for physical facilities (e.g., recovery room), equipment (e.g., the MRI machine but not the radiologists’ professional services) and supplies (e.g., crutches), it is more likely that hospital outpatient departments are more exposed to billing delays, nonpayment risk (at emergency rooms for initial care) or canceled appointments and less exposed to time-consuming paperwork hassles or patient compliance issues.

Moreover, if the additional burden that the workers’ compensation system places on hospital providers (e.g., additional paperwork, delays and uncertainty in reimbursements, formal adjudication and special focus on timely return to work) is sizable, policymakers have two choices. The first is to adopt a higher-than-typical fee schedule that embraces large costs for the hassle factor. The alternative is to identify and remediate the causes of the larger-than-typical hassles — especially where these are rooted in statutory or regulatory requirements.

The Montana Approach

The major limitation of group health as a benchmark for workers’ compensation is that the group health rates are the proprietary competitive information of commercial insurers. The Montana legislature found a way to use group health prices as a benchmark for its workers’ compensation fee schedule while respecting the confidentiality of the commercial insurers’ price information. The approach used is to obtain the price information (conversion factor) from each of the five largest commercial insurers and group health third-party administrators (TPAs) in the state and compute an average. The average masks the prices paid by any individual commercial insurer or TPA. In addition, the statute guarantees the confidentiality of the individual insurers’ information.

Conclusion

This study raises a number of concerns about whether fee schedules are too high or too low. There are two key pieces of information needed to address this — (1) how much other payers in the state are paying, and (2) whether there is a unique workers’ compensation hassle factor.

This study addresses the first question for common surgeries done at hospital outpatient departments. A related WCRI study does the same for professional fees paid to surgeons and primary-care physicians.

Quantifying the presence and magnitude of any unique workers’ compensation hassle factor remains to be done. However, in some states, these studies show that workers’ compensation prices were below those paid by group health. For those states, policymakers may want to inquire about access-to-care concerns, especially for primary care. For other states, the workers’ compensation prices paid were so much higher than prices paid by group health insurers that policymakers should ask if the large differences are really necessary to ensure quality care to injured workers.

One way of framing that question using the results of the WCRI studies is as follows: “Workers’ compensation pays $10,000 to hospital outpatient departments for a shoulder surgery on an injured worker, and group health pays $6,000 for the same services. Does it make sense that if workers’ compensation paid $9,000 that hospital outpatient departments would no longer treat injured workers—preferring to treat group health patients at $6,000, or Medicare patients at a fraction of the group health price, or Medicaid patients at prices lower than Medicare?”

Ms. Tanabe is sharing this article on behalf of its authors, Richard Victor and Olesya Fomenko.