Posted Date: February 7, 2023 ``


Key Observations

  • The average physician-paid cost per claim1 grew moderately from 2012 to 2021 at about 1.5% per year.
  • Annual average physician payments by region varied modestly, increasing between 1.3% and 1.8%, with the Midwest and Northeast seeing the largest and smallest growth, respectively.
  • Prices for physician services increased, which was the primary driver of growth in costs across regions.
  • A change in utilization was the principal contributor to shifts in costs for surgeries and physical medicine services, with surgery use decreasing while physical medicine use increased.
  • Physical medicine services were the most prominent contributor to the increase in physician costs across all regions.

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.

Introduction

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.

Physician-Paid Cost per Claim

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

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Alabama, Southeastern Region, and Countrywide

Image for Alabama was not found

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

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Price and Utilization Changes

To further examine changes in costs over time, it helps to separate the costs into two components: price and utilization.

  • Price changes can be tracked by using a price index2 that measures the effect of price changes by holding a basket of services constant between two consecutive years.
  • The utilization metric uses an index that tracks the number and changes in the mix of services by holding prices constant between two consecutive years.
Cumulative Change in Physician Price Indexes

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

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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

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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

Image for Alabama was not found

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

Image for Alabama was not found

Concluding Remarks

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.


  1. In this article, references to claims include all WC claims that receive any medical services in a given year.↩︎

  2. In this study, the price index used is the Fisher price index.↩︎

  3. The PPI measures what is paid to service providers, which more closely aligns with WC medical payments.↩︎