CAMBRIDGE, MA, September 3, 2002 – The substantial variation in workers’ compensation medical fee schedules among the states is not related to the different costs health care providers incur delivering medical services to injured workers, according to a new study by the Workers Compensation Research Institute (WCRI).

The disparity between medical fee schedule levels and provider costs raises concerns that states may be creating incentives to either over-utilize or under-utilize medical services in their workers’ compensation systems, said the study, Benchmarks for Designing Workers’ Compensation Medical Fee Schedules: 2001-2002.

Medical fee schedules are used in 42 jurisdictions to contain medical costs in their workers’ compensation systems. If scheduled rates are set too high, the fee schedule will not achieve its cost containment goal. Conversely, if rates are too low, access to quality care may be jeopardized.

The study also found:

• While a few state fee schedules reimburse health care providers at or near Medicare levels in their states, a large number reimburse providers at a "premium" of double the Medicare levels or more.
• Three states set fee schedules, on average, at or below the Medicare levels in their states.
• The "premiums" over Medicare levels vary greatly across different service groups within a state, with the highest premiums for surgery and radiology and the lowest for physical medicine and evaluation and management.
• A significant number of state fee schedules may be higher than necessary to support quality medical care.
• In states where fee schedules are below Medicare reimbursement levels, policymakers should pay attention to concerns about access to services.

"By providing important benchmarks for the design of fee schedules in workers’ compensation, this report helps to ground the debates about fee schedules in analytic facts, rather than anecdotes or partisan claims," said Dr. Richard Victor, executive director of WCRI, the Cambridge, Mass.-based independent, not-for-profit research organization. "This is especially important since the development or update of a fee schedule is often subject to considerable political pressure from payors and providers."

The study reported that there is very little correlation between the fees in Medicare fee schedules (a good measure of how costs to providers vary among the states) and fees in workers’ compensation fee schedules as they vary from state to state. For example, average Medicare fees in Massachusetts and Connecticut, are 13 percent and 15 percent higher, respectively, than Medicare fees in the median state. By contrast, the Massachusetts workers’ compensation fee schedule is 26 percent lower than the median state, and the workers’ compensation fee level in neighboring Connecticut is 48 higher than the median state.

"A rational system of fee schedules would provide for higher reimbursements in states where it costs providers more to deliver services, and vice versa," said Stacey Eccleston, senior analyst and author of the study. "This does not occur in workers’ compensation fee schedules when you look across states."

Out of the 40 states studied, five states – Nebraska, Connecticut, Oregon, Alaska and Idaho – set the fee schedule at nearly double or even triple the Medicare rate in each state. In three states – Florida, Massachusetts and Maryland – the fee schedules are, on average, at or below the Medicare levels in their state.

The study also reported that the greatest interstate variation and the largest "premium" over Medicare reimbursement rates occur for surgical services and radiology. The median "premiums" are about 80 percent for surgery and 60 percent for radiology.

Physical medicine and evaluation and management services have the least interstate variation and smallest "premiums" over Medicare with the median "premium" for these two services at less than 20 percent.

"Many argue that workers’ compensation reimbursement may require certain premiums over Medicare due to the special administrative requirements, such as the focus on return to work and other issues unique to occupational health," said the study. "Ironically, this should have created a higher premium over Medicare for office visits or physical medicine procedures where greater documentation and targeted procedures are required, rather than standard radiology and surgical procedures."

The study found that a significant number of state fee schedules may be higher than necessary to support quality medical care. This conclusion is based on the large variation in fee schedules across the states, the low correlation between fee schedule levels and the costs to deliver services and large differences in many states between the workers’ compensation fee levels and the Medicare benchmark in each state.

The study reported that 18 of 40 states have "premiums" over Medicare that are more than 100 percent for at least one major service category. In addition, 13 have surgery fee levels that are double the Medicare rates in the state and three states have surgery fees that are nearly or more than triple.

"It is not unreasonable to insist that such a substantial premium over Medicare should have a clear public policy justification in terms of improved health outcomes," said the study.

On the other hand, the study observed that "policymakers should certainly pay attention to questions of access to primary care services in states where the workers’ compensation fee schedule levels are near or below Medicare reimbursement levels."

The study found that 17 of 40 states have less than a five percent premium over Medicare for evaluation and management services (office visits). In fact, 11 states have evaluation and management fees that are below the Medicare level in their state.

In Massachusetts, Florida and New York, for example, evaluation and management fees are 17 percent to 36 percent below Medicare levels. For physical medicine services, 13 of 40 states have less than a five percent premium over Medicare. In Maryland, Florida and Colorado, physical medicine fees are 17 percent to 37 percent below the Medicare fees.