Medicare and Workers Compensation Medical Cost Containment

Posted Date: January 19, 2010
    

​​Industry InformationResearch

Medicare influences workers compensation medical cost containment in several important ways, including:

  • Medicare pays a significant share of overall US medical costs. As a result, Medicare reimbursement rates influence prices generally paid for medical services, including prices paid for medical services for workers compensation.
  • Many states base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule.
  • Some states control costs for services provided by facilities through systems based on either Medicare's DRG system for hospital stays or Medicare's APC system for services provided at ambulatory surgical centers.


In states that base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule, clearly workers compensation medical costs can be affected by changes to Medicare reimbursement rates. But workers compensation medical costs can also be affected by changes to either the underlying formulas Medicare uses to determine those reimbursement amounts or to the way Medicare allocates payments by type of service. Failures to account for changes to Medicare's methodology or for trends in how Medicare reimburses physicians in the various medical specialties might have reduced the effectiveness of some workers compensation physician fee schedules.

This paper looks at some aspects of the role that Medicare has played in workers compensation medical cost containment. Medicare confronts major near-term challenges, some in common with workers compensation. The tactics that Medicare uses to address those challenges might, in some cases, be worth considering for use in workers compensation. In addition to direct comparisons between Medicare and workers compensation, we use experience from Group Health to add perspective on the impact of workers compensation and Medicare fee schedules on workers compensation medical costs.

The key points that this article discusses are:

  • While there are administrative efficiencies from referencing the Medicare reimbursement formula, workers compensation fee schedules that do so must react appropriately to ongoing changes in Medicare methodology.
  • Some workers compensation fee schedules have not been adjusted to account for changes in the relationships between Medicare reimbursements and prices paid by private payers or Medicare reimbursement relativities between service types. In some cases, this has allowed excessive reimbursements to specialists by workers compensation insurers.
  • The proportion of workers compensation medical costs that are subject to physician fee schedules is declining, with proportionally more billings by facilities. To maintain the effectiveness of medical fee schedules, workers compensation might consider using Medicare billing approaches for hospital stays (DRG) and ambulatory services (APC), but in doing so should adapt Medicare models to workers compensation priorities.

    As the workforce ages, workers compensation might focus safety initiatives toward falls and hip injuries, where Medicare protocols should provide valuable insight in designing treatment guidelines.
  • Medicare faces enormous demographic and fiscal challenges. Workers compensation shares some of those challenges, and Medicare's response might offer suggestions to enhance workers compensation medical cost containment.