Human Capital & Careers

Trendy Health-Care Payment Scheme Hikes Workers’ Compensation Costs

An ongoing shift to the "capitation" model for reimbursing medical providers leads them to classify more injuries as work-related.
David McCannOctober 8, 2015
Trendy Health-Care Payment Scheme Hikes Workers’ Compensation Costs

A major trend in contractual payment arrangements between medical providers and payers, intended to lower costs while improving the quality of care, triggers cost-shifting from group health plans to workers’ compensation, according to a new study. The shift hinders some employers from reaping the hoped-for cost benefits, study results suggest.

Pain picPartly buttressed by provisions of the Affordable Care Act (ACA), more medical providers are agreeing to full or partial capitation arrangements, under which they’re paid a set amount for each enrolled plan member assigned to them per period of time. It’s a counter to the fee-for-service model, under which providers have a financial motivation for ordering care that a patient may not actually need.

The ACA authorized the Health and Human Services department and Centers for Medicare and Medicaid Services to use partial capitation models for paying Accountable Care Organizations under the ACA-created Medicare Shared Savings Program. The provision is generally credited with accelerating a national movement toward capitation, not just with regard to Medicare but across the universe of medical care.

Most recently, Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, on Monday announced new deals with three large health systems that “set budgets to care for patients and reward providers for keeping patients healthy and away from expensive hospital stays and procedures,” the Boston Globe reported.

That all sounds good — but there’s a little-discussed wrinkle. That is, for some common ailments, like soft-tissue back, knee, or shoulder pain, it’s often not clear whether the injury was work-related or non-occupational. Doctors are given a degree of discretion under workers’ compensation law to make that determination, which creates a conflict of interest, because they usually end up benefiting financially by classifying the injury as work-related.

That’s because workers’ compensation reimbursement rates are established by law, and they’re almost always at higher price points than rates contracted with insurers or self-insured employers. And in cases where a provider has a capitation-based contract with a payer, it will do even better, because most workers’ compensation reimbursements are based on fee for service.

And that’s just the beginning of the costs that employers will incur — directly, in the case of self-insured employers, and indirectly for those that are fully insured — when an injury is classified as work-related

“The employer may have a non-occupational disability insurance policy, but that’s very different from workers’ comp,” says Richard Victor, CEO of the Workers Compensation Research Institute (WCRI), an independent, not-for-profit organization that says it provides objective information about public policy issues relating to workers’ compensation.

Depending on the state, Victor says, workers’ compensation income benefits for those deemed unable to work are triggered after a three, four, or seven-day waiting period. Under non-occupational plans, waiting periods of 30, 60, and 90 days are the most common. Also, the weekly income benefit is higher under workers’ compensation, as are limits on the number of weeks income benefits are paid.

At the bottom line, the many companies that employ lots of factory workers, manual laborers, and other physically active employees, and sought or are planning to decrease overall health-related costs via capitation-based contracts with medical providers, actually cost themselves money, the results of a recent WRCI study suggest.

The study found that soft-tissue injuries suffered by patients covered under capitated group health plans were 11% more likely to be classified as work-related. And that proportion rose to 31% in states where at least 22% of workers were covered by capitated plans. “It’s a sizable difference,” says Victor.

But some companies, even large ones, may not be aware of the cost impact, especially where health benefits and workers’ compensation are handled by different departments. The one handling health benefits will show a cost savings from shifting cases away from group health coverage and into workers’ compensation, but such savings are a mirage. “The employer’s net costs increase,” Victor says. “The higher workers’ comp costs are greater than the savings on the group health side.”

According to WCRI, if just 3% of soft-tissue-condition cases under group health plans were shifted to workers’ compensation, total workers’ comp costs would increase by $225 million in California alone. Providing two other examples, the institute said the comparable figures would be $100 million in Pennsylvania and $25 million in Iowa.

Meanwhile, the prevalence of capitation arrangements is on the rise. A late-2014 study of reimbursements for care provided to 101 million people, conducted by Catalyst for Payment Reform, an employer-funded health policy group, found that 15% of what health insurers spend on medical bills is paid under capitation.

In some states, it’s a much bigger slice of the pie. For example, for Blue Cross Blue Shield of Massachusetts, 40% of its 2.1 million individual members will be, as of Jan. 1, covered under health plans that shift financial risk to medical providers.

Photo: Thinkstock