This paper reviews the empirical evidence from the scholarly health policy literature about what works to contain health care costs. Some of this literature involves health care in workers' compensation and much of it draws on the literature involving the general health care system – those covered by either Medicare or group health insurance. After reviewing the evidence on what drives workers' compensation medical costs – and whether these cost drivers differ from state to state – the paper examines the evidence about the effectiveness of different tools that policymakers have to contain medical costs:

• Non-hospital fee schedules
• Hospital price regulation
• Laws that control the choice of provider
• Networks of providers
• Case management
• Utilization review and treatment guidelines
• Limits on visits to chiropractors

The evidence from existing empirical literature is uneven, depending on the cost containment tool.

There is a growing body of empirical knowledge about the impact of price regulation on costs, but little on price regulation and worker outcomes. The studies of the impact of Medicare price regulation on costs suggest that provider behavior to retain revenues offsets a significant part of any regulatory reduction in medical prices. One study shows that hospital prices are lower when there is more competition.

The strongest area of empirical evidence in workers’ compensation involves the impact of medical networks. There are a number of solid studies covering diverse states and time periods. All find that networks reduce medical costs. A few examine the impact on duration of disability or recovery of health, finding that workers that receive care from network providers are equally healthy and do not have longer durations of disability. Several studies also find that workers report higher levels of satisfaction with non-network care.

There are a few studies of the impact of provider choice laws on costs. The evidence is mixed, although recent studies suggest that network penetration is lower in states where the employee controls the selection of providers. As discussed above, lower network penetration means higher medical costs.

Studies of utilization review and treatment guidelines in workers’ compensation provide sketchy evidence of their impacts. Combined with evidence from Medicare and group health, the studies suggest fewer hospital admissions, shorter lengths of stay and fewer surgeries. A survey of physicians highlights a major limitation on the effectiveness of utilization review – 39 percent of physicians report that, at least sometimes, physicians do not provide accurate information for utilization review. One recent Australian study found that compliance with treatment guidelines led to better outcomes for workers with acute low back pain – better perceived physical health and reduced pain.

We found little evidence on the effectiveness of case management.

Public officials are often frustrated in their efforts to enact legislation or promulgate regulations to contain medical costs. It is indeed a difficult problem – made more difficult by the complexity of the problem, the inherent emotionality of the subject matter (“our health”), the absence of a consensus about how to ration care, and the very large amounts of money involved – hence the fierce politics that surround proposed legislative change that will reduce revenues to health care providers or redistribute monies from one group to another. None of this is made better by the too-often inadequate empirical foundation for making trade-offs between higher costs and better worker outcomes.

Moreover, past successes in reducing the rate of growth of medical costs have been transitory. The next round of medical cost containment will be much more difficult to achieve since the much of the low lying cost containment fruit was harvested in the cost containment activities of the 1990s. The next round will require more careful empirical analysis of the opportunities and a greater political will than required for the reforms of the 1990s.

However, there is another, often overlooked, way to frame the legislative debate. Invariably, there must be no shortage of opportunities to reform the financing and delivery of medical care in ways that improve outcomes for injured workers without materially raising costs to employers – or to reduce costs to employers without materially affecting the outcomes for workers. The best opportunities for constructive change in workers’ compensation, in our view, will come from these “win-wins”. Empirical research should begin immediately to identify where they exist and to disseminate these opportunities to employer representatives, worker advocates and public officials. Reform proposals driven by win-wins for workers and their employers, and supported by a solid base on evidence on employers’ costs and workers’ outcomes, should be hard to resist.

Evidence of Effectiveness of Policy Levers to Contain Medical Costs in Workers' Compensation – A WCRI Professional Paper. Richard A. Victor. November 2003. WC-03-08.

Copyright: WCRI