The Impact of Fee Schedule Updates on Hospital Outpatient Payments

In workers compensation (WC), payments for facility services (hospitals and ambulatory surgical centers) contributed 6.6% of the 7.5% overall increase in medical payments per claim from 2014 through 2018. Facility services comprised 40% of medical benefits in 2018. Medical advancements such as faster-acting anesthetics and less invasive procedures have allowed a growing number of surgeries to be performed in an outpatient setting. Comprising approximately 20% of medical costs, hospital outpatient (HOP) payments are having an increasingly significant share of medical expenditures for WC claims.

As a cost control measure, and to ensure access to hospital services, some states have implemented fee schedules that have established maximum allowable reimbursements (MARs) and rules for HOP services in WC. Updates to fee schedules result in changes in medical payments. Quantifying the effects of changes to fee schedules in WC is an integral part of NCCI’s legislative analysis process.

Previous NCCI research indicates a price realization factor of 80% for revisions to MARs for physician services. For example, a 10% change in the MARs for physician services would translate to an approximate 8% change in payments to providers. This study further explores how HOP payments are impacted by changes in the MARs.

The data source used in this study is NCCI’s Medical Data Call (MDC). Because there are recently enough years of MDC HOP data, this is the first NCCI publication on how HOP payments are impacted by changes in the MARs. The modeling approach is designed to measure the responsiveness of price changes to fee schedule updates while considering past price changes and general healthcare cost trends occurring apart from the change in HOP fee schedules.

KEY FINDINGS

  • Changes to medical fee schedules for HOP services affect prices paid for services that are subject to the fee schedule.
  • Approximately 75% of the average change in MAR for a HOP service was realized as a change in prices paid.
  • Although there is some variation across states, the indicated HOP price realization factor of 75% is an unbiased estimate for any jurisdiction included in this study.
  • The price response to fee schedule updates in a given quarter has some dependence on the price change in the prior quarter. However, this dependency is small in magnitude and generally only extends for a single quarter.

CONCLUDING REMARKS

This study examines the effect of changes in fee schedules on HOP payments and finds that in response to fee schedule changes, prices paid for HOP services changed by approximately 75%. Furthermore, price responsiveness to fee schedule updates in a given quarter has some dependence on the price change in the prior quarter. However, this dependency is small in magnitude and generally only extends to a single quarter.

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