Health Care Reform To Have Major Impact on Workers’ Compensation

December 16, 2009

Workers’ compensation insurers and actuaries need to prepare for upcoming changes arising from proposed healthcare reform and the shifting medical landscape, attendees of the Casualty Actuarial Society (CAS) annual meeting heard.

Joseph Paduda, principal, Health Strategy Associates, LLC and writer of the blog “Managed Care Matters,” observed that with or without healthcare reform, changes in the medical landscape will have a major impact on workers’ compensation insurers.

Paduda noted that a number of pre-reform measures have already started to impact workers’ compensation.

“The stimulus bill, the American Reinvestment and Recovery Act, included funding for development and implementation of Electronic Health Records (EHR). EHR supports clinical decision making, physician order entry for scripts or for imaging, and clinical data capture and sharing. Providers will all have access to the same amount of information instantly,” he said.

Paduda explained that the funding will improve the quality and depth of the data available, and pointed out that the use of electronic health records in workers’ comp would be beneficial for actuaries practicing in that field.

The stimulus bill also calls for an estimated $1.3 billion investment in various agencies and research to evaluate the effectiveness of specific procedures and the impact of medical care on functionality, outcomes, and quality of life.

According to Paduda, this is likely to directly affect Medicare reimbursement policies, and over time, this will impact private pay and workers’ compensation. “In my view this is a strong positive for workers’ comp. A lot of medicine is more of an art than a science, so adding more science to medicine will dramatically improve outcomes and potentially reduce costs,” he said.

Paduda highlighted drug pricing as one area of potential change where the likely impact on workers’ compensation will not be so positive. Currently, the United States is the only developed country where the government does not negotiate drug prices with pharmaceutical manufacturers, but this could change under several reform bills under consideration.

“The impact on workers’ comp, if the Department of Health and Human Services negotiates for drug prices, is uncertain but not positive. Cost shifting is a distinct possibility. If one of the biggest payers of pharmaceuticals is suddenly paying them less, they’re going to want to make up their revenues from somewhere else, like workers’ comp,” Paduda said.

Alex Swedlow, executive vice president of the California Workers’ Compensation Institute (CWCI), gave an overview of the intended and unintended consequences of workers’ compensation medical reforms in California.

Swedlow noted that prior to the 2003-2004 reforms, the California workers’ compensation system was plagued by high rates and excessive variability in benefits paid to injured workers. Medical reforms focused on core elements of the system’s dysfunction, such as out-of-date fee schedules, the lack of a standard of care, and medical network utilization.

While enactment of the reforms in 2004 resulted in an immediate reduction in medical costs in the California workers’ compensation system, Swedlow noted that the decline was short-lived. For example, in the post-reform period between 2005 and 2008, estimated ultimate medical benefit costs in California increased by 55 percent.

Swedlow observed: “The medical market has found a way to recover its pre-reform growth trends.” Another unintended consequence of California’s workers’ compensation medical reforms is in the area of pharmaceutical utilization and cost.

Despite the reforms and the adoption of a pharmacy fee schedule, both the average number of prescriptions and average pharmaceutical payments per California workers’ compensation claim have increased sharply since 2002.

Swedlow cited data showing that the average cost of “brand name” medications rose by 56 percent between 2002 and 2007. The average first-year cost of pharmaceuticals also jumped from $269 in 2002 to $462 in 2008 — an increase of 72 percent.

One of the key cost drivers was a post-reform surge in the use of “Schedule II” drugs. These drugs are controlled substances that the federal government says have specific medical uses, but very high potential for abuse and addiction. “There has been a recent meteoric rise in the use of Schedule II drugs,” Swedlow noted.

The Casualty Actuarial Society’s mission is to advance actuarial science through a focus on research and education. Among its 5,100 members are experts in property/casualty insurance, reinsurance, finance, risk management, and enterprise risk management.

Source: CAS

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