The cost of medicine in this country is a big part of what has been behind the Affordable Care Act, and is a big component of what gets passed down to the employer in the pricing of workers' compensation insurance.
Because medical goods and services are so essential to the health, comfort and happiness of the entire human population and because the vast majority of people have no way of discriminating their medical purchases, most developed countries regulate what can be charged, particularly in captive systems such as any medical insurance program.
I define a captive system in the medical economics context as one where the ultimate consumer, i.e. the patient, has no direct responsibility for the payment of such goods or services and where the vast majority of decisions concerning care are outside the scope of understanding of the consumer.
In this country, Medicare is a captive system.
And so is workers' compensation.
Because there is so little choice and ability to discriminate based on cost versus quality (what is called "value" in economic terms) big systems regulate what can be charged for any given procedure or item.
And it isn't surprising that the Workers Competition Research Institute reported Thursday that states without medical fee schedules in their workers' compensation systems have seen the most rapid increases in prices for outpatient hospital and professional services, while states with fee schedules based on fixed amounts generally fared better.
"States without fee schedules saw faster price growth than states with fee schedules, and, for states with charge-based fee schedules, we saw prices for hospital outpatient services growing faster than states with fixed prices," said Rebecca Yang, the author of WCRI's 2nd Edition of its Outpatient Cost Index and the Fifth Edition of its Medical Price Index for Workers' Compensation, in a webinar yesterday.
On the other side of the nation yesterday the California Division of Workers’ Compensation held a public hearing on proposed regulations concerning the revision of its Resource-Based Relative Value Scale fee schedule rules to say any procedure for which there is no relative value unit in the U.S. Centers for Medicare and Medicaid Services National Physician Fee Schedule Relative Value File should be billed “by report.”
"By report" essentially means that the procedure or item is not covered by a fee schedule.
The DWC received critique that there were over 1,000 billing codes that would end up "by report" if the proposed revision, which would eliminate the use of federal Office of Workers’ Compensation Program relative value units, were implemented.
According to the division’s Initial Statement of Reasons for the proposed change, OWCP uses a conversion factor of $48.52 that is multiplied by the relative value unit assigned to a particular procedure. In some cases, however, OWCP uses a payment amount as the relative value and then uses a multiplier of 1.25 as the conversion factor.
“As a result of the use of a 1.25 multiplier, the data appearing in the relative value column is not truly a relative value,” the division said. “For example, use of the erroneous OWCP relative value data in the RBRVS payment methodology can result in a payment that is close to 40 times higher than the OWCP payment amount.”
The Initial Statement of Reasons says as an alternative to eliminating the OWCP value units, the division could create a formula specifically for these codes that have the 1.25 conversion factor that would be similar to the formulas used to calculate base maximum fees for procedures performed in non-facility and facility sites.
“However, this would add another layer of complexity,” the administration said. “In light of the many administrative changes needed to implement the RBRVS-based fee schedule, the acting administrative director has rejected this alternative at this time because the burdens outweigh the potential benefits.”
Suzanne Honor-Vangerov, former head of the DWC Medical Unit, an associate attorney for Floyd Skeren and Kelly and a regular instructor on medical billing for WorkCompCentral Education, said in written comments submitted on Wednesday that there are 1,012 codes in the RBRVS fee schedule that use OWCP data.
“Of these, 582 would be inappropriately priced using the original methodology adopted with the fee schedule and the rest would have been fine,” she wrote. “By making all of these codes payable ‘by report,’ you create the possibility of disputes over the value of the service, remove them from the independent bill review process and put them back in the hands of the judges who are ill-equipped to determine the value.”
In the WCRI webinar presentation, Yang said, "We do find that if you choose a (Medicare) 'cost-plus' model … the cost growth is more predictable than with charge-based fee schedules."
In any medical fee regulatory environment there are winners and losers. Policy makers have to weigh numerous considerations in the attempt to deliver value.
It's not an easy job.