New CWCI research that measures changes in California workers’ compensation medical expense payments from 2002 through the first half of 2009 confirms that there was a brief downturn in medical expenditures immediately following the enactment of reforms in 2004, but within two years the average amounts paid for treatment, pharmaceuticals and durable medical equipment (DME), med-legal reports, and medical cost containment management were again increasing, and have now moved back above pre-reform levels.
The new study, based on medical data from 1.8 million California job injury claims from 2002 through the first quarter of 2009, determined the average amount paid per claim for medical services at five valuation points: 3, 12, 24, 36 and 48 months post injury for all claims and for lost-time claims, with results broken out by accident year (AY). As in previous Institute studies published in 2007 and 2009, the latest figures show average medical payments dropped sharply immediately after the workers’ compensation reforms were enacted in 2004, but by 2006 they had reversed course and were increasing steadily. For example, among lost-time cases, which account for about one-third of all occupational injuries and more than 90 percent of all claim costs in California workers’ compensation, average first-year medical expenditures fell from $6,435 in AY 2002 to a post-reform low of $5,502 in AY 2005, but since then have rebounded sharply, climbing 49.5% to an average of $8,225 in AY 2008.
To measure how various medical components have contributed to the recent increases in medical expenditures, the study also examined the growth in average amounts paid for treatment, pharmacy/DME, medical management and med-legal reports at 12 and 24 months post injury. Again, looking at first-year payments on lost-time claims, the study found that since hitting their post-reform lows, average amounts paid per claim for treatment have increased 41%; average amounts paid pharmaceuticals and DME are up 69%; average amounts paid for med-legal reports are up 79% and average amounts paid for medical cost containment are up 86%. Looking at medical development at 24 months post injury tells a similar story, as the average medical paid for all four medical subcategories were well above their post-reform lows, with increases ranging from 22% for treatment to 49% for medical cost containment.
While medical cost containment expenditures (i.e., medical bill review, utilization review, medical case management, and network access fees) have risen sharply, these increases reflect implementation of several of the 2004 reforms designed to control costs and manage care, including the adoption of the Medical Treatment Utilization Schedule, mandatory utilization review, and the introduction of Medical Provider Networks, all of which require significant, ongoing outlays on the part of claims administrators. Such expenses must be viewed in the context of how much other medical cost components would have increased had the medical cost containment measures not been put into place. In 2009, the Institute modeled ultimate medical costs on insured claims, based on low and high projections of California workers’ compensation medical inflation trends and estimated that for AY 2002-2008, average medical payments per claim fell between 25.7 percent and 54.5 percent from what they would have been without the reforms. Thus, in terms of total medical expenditures, the reforms were associated with an estimated cumulative net savings of $12.8 to $25.3 billion in insured medical costs for AY 2004 through AY 2008.
The results of the Institute study have been published in a CWCI Research Update report, “Medical Development Trends in California Workers’ Compensation, Accident Years 2002-2009.” The report, which includes additional analyses and tables with results for both lost-time claims and all claims, is available to the public at no charge in the “Research” section at www.cwci.org. CWCI members and subscribers may log on to the Institute website and download a summary bulletin as well as the full report.