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Bob Young

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CWCI Study Examines Growth of California Workers’ Comp Medical Costs

A new CWCI study on post-reform changes in California workers’ compensation medical payments confirms that since accident year (AY) 2005, insurer payments for treatment, pharmaceuticals and durable medical equipment (DME), med-legal reports, and medical management have grown significantly. Despite these increases, however, the study estimates that the reforms, which included medical management tools such as a medical treatment utilization schedule, mandatory utilization review, bill review, and medical provider networks, are associated with cumulative net savings of $12.8 to $25.3 billion in insured medical costs for AY 2004-AY 2008.

Using medical data on AY 2002 through AY 2007 claims, including policy, claim, benefit and medical service detail, and medical payments through the 3rd quarter of 2008, CWCI calculated average medical payments at 12 and 24 months post injury for all claims and for indemnity claims for each of the six accident years. While the results show medical payments declined immediately following enactment of the reforms in 2004, that decline was short-lived. Between AY 2005 and AY 2007, average medical payments for all claims at 12 months post-injury rose 23% (from $2,100 to $2,582); while average medical payments on more expensive indemnity claims climbed 28% (from $4,443 to $5,665). To better understand the impact of various medical components on the medical cost trends, the study tracked the growth in average amounts paid for treatment, pharmacy/DME, medical management and med-legal reports. Between AY 2005 and AY 2007, first year payments for all four medical components increased (from 19.9% for treatment to 57.5% for med-legal reports). Similarly, between AY 2005 and AY 2006, average medical payments for all four medical components at 24 months post injury also were up, with increases ranging from 12.2% for treatment to 26.3% for med-legal reports.

To assess the value of the medical management expenditures, the study compared the latest estimate of post-reform ultimate medical costs on insured claims to projected estimates of what insurers might have paid without the medical reforms and medical management tools made available by the reforms. CWCI’s low-range estimate assumed that without the reform, California workers’ compensation medical inflation would have continued at 8.2% per year – half the pre-reform annual inflation rate – while the high estimate assumed workers’ comp medical inflation would have continued at the pre-reform rate of 16.4% a year (the average annual inflation rate between AY 1999- 2002). Using these two scenarios, CWCI estimated that without the reforms, AY 2004-2008 ultimate medical costs on California workers’ compensation insured claims would have totaled between $36.1 billion (low estimate) and $48.5 billion (high estimate.) In contrast, the Workers’ Compensation Insurance Rating Bureau projects that actual ultimate post-reform costs with the reforms in place will total $23.2 billion, which translates to an estimated cumulative net savings of $12.8 to $25.3 billion in insured medical costs between 2004 and 2008.

The Institute study has been released in a CWCI Research Update report, “Analysis of California Workers’ Comp Reforms: Changes in Medical Payments.” The report includes an additional analysis on recent changes in injury type, a comparison of unadjusted and case-mix adjusted medical costs, and appendices showing the average medical payments per claim for the 10 most common work injury categories in California workers’ compensation. The report is posted online under “Research” at www.cwci.org.