Tuesday, October 23, 2012

NJ Medical Costs Demonstrate Competing Values

Is it any doubt that both Virginia and New Jersey, states that do not have medical fee schedules whatsoever in their workers' compensation systems, were at the top of all 16 states studied by the Workers' Compensation Research Institute (WCRI) for increases in medical costs?

Is it less surprising that New Jersey also spent the most per case in cost containment expenses?

New Jersey ranked first in the growth of spending on cost-containment for claims for 2008 claims with 36 months of experience. WCRI reported the average cost for medical containment per lost-time claim was $4,889.

WCRI concluded that medical costs were the main driver of overall increases in New Jersey workers' compensation costs per claim following the recent recession and accounted for 71% of the growth in all claims costs during 2010-2011.

Of a study of 25 states released by WCRI last May, New Jersey topped the list for professional payments for surgeries. New Jersey had a price index of 265, compared to a median index of 100.

Some attribute the increase in costs to the provision of quality services.

My friend Jon Gelman, New Jersey claimants' attorney and prolific blogger, told WorkCompCentral that the WCRI report underscores the cost of quality treatment in New Jersey.

"The cost of medical treatment doesn't surprise me, because New Jersey is in the vicinity of Philadelphia and New York and a number of major medical treatment centers with some of some of the finest physicians in the country," Gelman said. "You're seeing those physicians migrate to New Jersey and set up offices."

On the other side of the coin is the ability of employers to choose physicians.

Eric Stenson, spokesman for New Jersey Manufacturers Insurance Co., told WorkCompCental on Monday that the New Jersey's largest workers' compensation carrier has been able to control costs by choosing its doctors.

"New Jersey Manufacturers historically has not advocated for a fee schedule because of the employers' ability to select the provider," Stinson said.

The Oregon Department of Consumer and Business Services recently ranked New Jersey as the seventh most costly in terms of employer workers' compensation costs, with an average premium of $2.74 per $100 of payroll. New Jersey also placed seventh in the state agency's 2010 rankings. The national median for the study was $1.88.

The tradeoff for imposing a medical fee schedule would likely be relinquishing employer control over medical - and while the high medical treatment and cost containment expenditures may be cause for concern, it seems that employer control over physician selection impacts other aspects of New Jersey claims positively.

According to the WCRI study:
  • Prescription costs per claim were 17% lower than the median for the 16 study states. The average cost was $427 − compared to a median of $512.
  • Indemnity benefits per claim averaged $12,711 per lost-time claim − compared to a median of $16,227. 
  • Defense attorney fees per claim in New Jersey were $3,328 – the lowest among the 16 study states studied. Compare to Louisiana which WCRI reported had the largest average payments to defense attorneys at more than $8,000.
  • Injured workers in New Jersey are less likely than most of the study states to receive permanent partial disability (PPD) benefits and lump-sum settlements. PPD and lump settlements combined accounted for 38% of all lost-time claims in New Jersey.
  • Injured workers in New Jersey received their first indemnity payments more quickly than most other study states. For 2010-2011 claims, 54% of injured workers with indemnity claims received their first payment within 21 days. New Jersey followed Texas and Massachusetts, which topped the list with nearly 60% of claimants receiving their first indemnity payment in 21 days.
Still, there is a nagging question as to whether higher medical costs, free of bureaucratic control, are actually responsible for lower indemnity costs, and if so, then where is all that premium money going? 

In the overall scheme of things, is it more cost effective to the employer to pay doctors a whole lot more compared to other systems in order to pay claimants a whole lot less?

I've written before in these pages about value. Value is based upon the consumer's perception, which is shaped by the consumer's goals.

In the case of New Jersey employers, it seems that their goals are a) prompt payments to claimants, b) lower indemnity payments overall, c) less litigation. If medical costs in the state are interpreted to provide those outcomes, then it is understandable that New Jersey employers do perceive good value in the cost of medical services.

And just because the Oregon comparison study ranks a state high in terms of premium costs doesn't necessarily mean that a state is in fact out of control - state cultures are different, state risks are different, employer bases are different, safety and regulatory controls are different, etc.

I think what is most interesting, though, is that, according to Lynne Kramer, general counsel for the New Jersey Advisory Council on Safety and Health, which represents claimants' attorneys and doctors who provide independent medical examinations for injured workers, the claimants' bar has growing concerns over medical costs.

"The fact that employers can tell workers what doctors they see was supposed to keep costs down," Kramer said.

"It hasn't worked out that way. It's a concern of ours that because employers end up paying higher premiums, people are going to try and cut back on the treatment, which is expensive."

At least in the eyes of the claimant's bar there is a disconnect between the value of services received and the cost of those services - the threat being that "reform" will surface at some point in time that will threaten the claimant's ability to quickly receive indemnity and resolve claims.

In workers' compensation there is always some trade off - there is never some perfect solution. Pick your values, and pay for them one way or the other.

Summaries of the WCRI report and information on buying the report are here.

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