The Impact of Workers’ Compensation Networks on Medical Costs and Disability Payments

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November 1, 1999 Related Topics: Medical Costs

One significant change in the delivery of medical care over the past decade has been the emergence of workers’ compensation networks—organizations of health care providers that contract with workers’ compensation insurance companies to provide services, sometimes at a discounted price. Few studies to date have examined how these networks affect medical costs, utilization and income-benefit costs. This study provides substantial evidence on these issues and serves as the basis for improved public policy and business decisions.

Based on analyses of more than 160,000 closed workers’ compensation claims in three large and diverse states—California, Texas and Connecticut—this study is the largest and most comprehensive of its kind.

Our analysis found that workers’ compensation networks are associated with much lower costs and that those savings do not increase either the duration of disability or income-benefit costs. Although some of the differences in costs can be attributed to networks charging lower prices, most cost savings result from network providers using fewer services than nonnetwork providers when treating similar claims. The study did not measure the quality of care nor workers’ satisfaction with care, two important issues that will be the subject of future WCRI research.

Network/Nonnetwork Differences (%) in medical costs

After controlling for medical diagnosis and injury type, the worker’s age, state of residence, gender and the type of claim, our research found large cost differences between network and nonnetwork claims in medical costs. In California and Texas, network costs are generally 30 to 50 percent lower than nonnetwork costs. Less dramatic but still significant are cost savings in Connecticut, where network costs are 10 to 50 percent lower than nonnetwork costs.

Additionally, we found that indemnity costs for claims treated in workers’ compensation networks were not higher than the indemnity costs for nonnetwork claims. This was true in every injury type and across all three states and was also true for the duration of disability payments.

The Impact of Workers’ Compensation Networks on Medical Costs and Disability Payments. Dr. William G. Johnson, Dr. Marjorie L. Baldwin and Steven C. Marcus. November 1999. WC-99-5.

Copyright: WCRI

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Research Questions:

  1. Do workers’ compensation networks lower the cost of medical care?
  2. If so, is this due to lower prices or lower utilization of services, or both?
  3. Do lower medical costs come at the expense of higher indemnity costs?

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