Workplace Issues

Why On-the-Job Injuries Cost So Much

In some states, the same surgery costs two to four times as much under workers compensation than it does under private insurance. CFOs need to ask ...
David KatzJune 27, 2013

Despite their battle to contain costs of all kinds, CFOs rarely look at their companies’ workers compensation payments.

Reasoning that the per-unit outlays for the medical care of workers injured on the job are fixed by state statute, finance executives tend to shrug and pay bills at 100 percent of the asking price of the doctor and hospital without questioning them.

Now, however, there may be a good basis for digging into what often seems like inordinately high workers comp costs – the rapid-fire publication in less than a week of two benchmarking studies by the Workers Compensation Research Institute. The reports compare payments for the same injuries under the workers comp and private insurance systems and find workers comp costing a whole lot more.

Armed with the WCRI statistics, a finance chief or risk manager could conceivably approach a doctor or a hospital and ask: Is there any rational reason you charge us so much more for the same procedure when the injury happens at work than when it happens at home?

The evidence is stark. Nonhospital prices paid for common surgeries performed on injured workers were higher than the prices paid by group health insurers for the same surgery in almost all of the 22 states covered by the survey.  

In some of the states, in fact, the workers comp prices paid for common surgeries were two to four times higher than the prices paid by group health insurers in the same state, says the WCRI study, which focuses on the prices paid for the professional services involved in certain kinds of surgeries and office visits.

Such payments made to surgeons and other medical professionals make up 10 percent to 20 percent of total workplace medical costs, according to Richard A. Victor, executive director of WCRI and a co-author of the surgery study. An even greater portion of the workers comp payment pie, 15 percent to 30 percent, consists of outlays to hospitals, where the same cost issue persists.

In a 16-state study released last Friday, for example, WCRI found that hospital outpatient payments for shoulder surgeries under workers comp were at least $2,000 (or 43 percent) higher than they were under group health. In two-thirds of the states, employers paid more for the identical outpatient hospital treatments under workers comp than under group health benefits.

Why are doctors and hospitals paid so much more for treating on-the-job injuries than they are for the same injuries suffered in the back yard, for instance? The hospital survey cites the usual suspects: “additional paper work, delays and uncertainty in reimbursements, formal adjudication and special focus on timely return to work.”

Much of that simply boils down to red tape. But there may be a more fundamental reason: the lack of what Victor, an economist, calls a “rational” basis for workers comp pricing. In most states, that pricing is determined by a fee schedule fixed by law or regulation.

That means politics are a big factor in determining rates, and “it is likely that the relative strength of the political influence of providers and payors…played a role,” according to the surgery study. In states where health-care providers have more political clout, fees are likely to be higher; in states where employers had more pull with legislators, rates would likely be lower.

The variations in prices among states end up being, in a word, outrageous. In 2009, among 25 states, “the average surgery price of the state with the highest surgery prices was more than quadruple the average price for surgery in the lowest state,” according to the study. (The italics are mine.)

A pricing system so variable and so politically based makes it hard for companies to budget and plan. It also can victimize employees: In states where workers comp payment rates are abysmally low, doctors may not place a priority on treating injured workers.

In contrast, while group-health rates vary from state to state, the variations are more moderate than they are under workers comp. And group health rates, minus the politics workers comp costs are prey to, are more subject to market forces, making more predictable as well as cheaper. (Insurance pricing tends to adhere to a pack mentality by insurers and are hence not hard to forecast.)

Given these advantages, you might think that quite a few states are moving in the direction of bringing workers comp pricing more in line with group health payments. But you would be wrong. Currently only one state, Montana, prices workers comp outlays that way.

So what’s a CFO to do? The WCRI numbers should “help the CFO determine how much to invest in the [workers comp] reform debate” in terms of political contributions, according to Victor.

Better yet, now that these numbers are available, finance chiefs should pick them up, walk over to their workers comp insurers and health care providers, and ask, ever so politely, “Why are my workers comp bills so much higher than my group-insurance payouts?”