Posted Date: February 7, 2023 ``
About this article: This is the third of four installments in NCCI’s series on inflation and workers compensation (WC) medical costs. This one explores price and utilization trends in physician services and how each contributes to WC costs in four US geographical regions. This article also provides state-specific results.
Physician and facility services represent the bulk of medical expenditures in WC. In this third installment of NCCI’s series concerning inflation and WC medical costs, we focus on physician services and how evaluation and management (E&M), surgery, radiology, and physical medicine contribute to changes in WC medical costs.
Payments for physician services generate approximately 40% of WC medical costs. The chart below illustrates that between 2012 and 2021, the countrywide (CW) average payment per year for physician services grew by approximately 15%, or at an average increase of 1.5% per year. By region, the growth did not vary significantly, averaging between 1.3% and 1.8% per year, with the Northeastern and Midwestern regions having the slowest and fastest growth, respectively. Physician costs in the Western, Southeastern, and Northeastern regions all increased at a slower rate than the CW average. Physician costs grew fastest in the Midwest, where several states do not have any fee schedule provisions for physician reimbursement.
Cumulative Change in WC Physician-Paid Medical Costs Indexed to 2012
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
Physician services can be categorized into different types of services: physical medicine, evaluation and management (E&M), surgery, radiology, and all others. Showing the breakdown of physician costs helps demonstrate how these different services can contribute to changes in total physician costs.
The chart below shows the distribution of physician costs by service in 2012 and 2021. Over this period, the shares of physician costs associated with surgery and radiology decreased while the share of physical medicine costs increased. This pattern is observable across all regions to varying degrees. Declines in the surgery share of physician costs by region ranged from 2.6 to 5.7 percentage points between 2012 and 2021, with Southeastern and Western regions having the smallest and largest reductions, respectively. Regional physical medicine shares grew by 5.9 to 8.3 percentage points from 2012 to 2021, with the Western and Northeastern regions seeing the smallest and largest increases, respectively.
Distribution of Physician Services
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
The following charts show how each service contributes to the change in overall average physician costs since 2012. Each physician service contributes to varying degrees to the overall average change in physician cost, reflecting both the share of services and the growth in the price per service. The first column shows the average annual change in physician costs, and the columns to the right represent the annual contribution from each type of physician service. On a CW basis, physical medicine was the most significant driver of physician cost increases, followed by E&M services. However, surgery and radiology services have dampened the growth in physician costs. These patterns are relatively similar across regions.
Contribution to Change in Physician-Paid Cost per Claim by Type of Service, 2012 to 2021
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
To further examine changes in costs over time, it helps to separate the costs into two components: price and utilization.
The chart to the right shows the CW cumulative change in prices between 2012 and 2021 using the Consumer Price Index (CPI) for physician services, Producer Price Index (PPI3) for physician care, and WC physician prices based on NCCI’s Medical Data Call. Between 2012 and 2021, WC prices paid for physician services grew at about 1.2% per year, which was slower than the CPI but faster than the PPI.
When we examine regional trends for physician services, the average annual growth in prices is between 0.8% and 1.4%, which is below the regional CPI rate. The chart below, indexed to 2012, shows that the Western region had the fastest growth rate while the Southeastern region saw the slowest.
Physician Cumulative Price Changes
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
Not unexpectedly, you can also observe differences in the rate of change in prices for the various services. The chart below shows the annual average rate of change in physician prices between 2012 and 2021 for each type of physician service by region. Across the regions, radiology was the only type of physician service that had a negative annual average rate of change in prices between 2012 and 2021. On the other hand, E&M prices experienced the largest annual average rate of growth. This increase is mostly due to the Centers for Medicare and Medicaid Services increasing reimbursement rates for E&M services in 2021 coupled with the fact that WC physician fee schedules are often based on Medicare rules and reimbursement rates.
Average Annual Change in Price
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
In the chart below, the focus is switched to the other component of physician costs—utilization. Changes in utilization reflect changes in claim mix, injury mix, as well as the utilization of services. This chart shows the cumulative change in utilization by region, indexed to 2012. The annual average rate of change in utilization by region is less than 0.5%, which indicates relatively small changes in the utilization of physician services.
Physician Cumulative Utilization Changes
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
The chart below compares the annual average change in the utilization of physician services by type of service. Across all regions, the annual utilization of physician surgery services declined the most, while physical medicine saw the largest annual growth. These two categories have the largest magnitude of annual utilization changes—even larger than the services’ corresponding annual change in prices. Thus, the utilization of these services is the primary driver for their average annual change in costs.
Average Annual Change in Utilization
Regions and Countrywide
Alabama, Southeastern Region, and Countrywide
As the third installment in NCCI’s Inflation and WC Medical Costs series, this article provides insight into the drivers of physician costs and trend differences by US region. While changes in physician costs have been moderate during the past decade, physical medicine has contributed the most to the observed annual increase in physician costs, whereas surgeries and radiology have dampened the growth in physician costs.
In the next installment, we will discuss prescription drugs and how they contribute to medical cost changes in WC.
In this article, references to claims include all WC claims that receive any medical services in a given year.↩︎
In this study, the price index used is the Fisher price index.↩︎
The PPI measures what is paid to service providers, which more closely aligns with WC medical payments.↩︎