Florida Workers’ Comp Reform Slowed Cost Growth

Reform of Florida’s workers’ compensation fee schedule in 2003 achieved its intended results, significantly increasing the prices paid for physician services and reducing the average payment per service for hospital outpatient services, according to a study by the Workers Compensation Research Institute (WCRI).

These offsetting trends resulted in stabilizing the growth in medical costs per claim with more than seven days of lost time in Florida in 2004, following years of rapid growth at an average of 11 percent per year between 2000 and 2003, the study reported.

However, the WCRI study, CompScope^TM Medical Benchmarks for Florida, 10^th Edition, found medical costs per claim began to grow again in 2005, but at rates that were slower than the pre-reform growth rate.

Medical costs per claim in Florida rose an average of six percent per year beginning in 2006, driven by increases in the average hospital outpatient payment per service. This measure increased 25 percent in 2006 and 10 percent in 2007.

The study found the factors underlying the increases in hospital outpatient payment per service after 2005 may be related to features in the 2004 fee schedule reform. For example, for radiology and lab services, the 2004 fee schedule capped scheduled, non-emergency services at nonhospital fee schedule rates, while the rates for unscheduled, emergency services remained at pre-reform rates.

The study found that after 2005, hospital outpatient radiology services were more frequently paid as unscheduled, emergency-based services, with payments much higher than the nonhospital fee schedule rates.

Another factor driving the increase in hospital outpatient payment per service after 2005 was the increase in charges per service for hospital outpatient facilities associated with surgery, according to the study.

The 2004 fee schedule reduced hospital fees for scheduled outpatient surgery from 75 percent of charges to 60 percent of the charges and, correspondingly, the average payment per service for hospital outpatient facilities associated with surgery decreased in 2004.

But starting in 2006, the average charge per service for those hospital outpatient facilities increased rapidly again, leading to increases in hospital outpatient facility payments per service in 2006 and 2007.

Compared to the 14 other states in the study, the average payment per service for hospital outpatient services in Florida was higher than typical in the post-reform year 2007.

However, the utilization of hospital outpatient services in Florida, measured in this report by the average number of services per claim, was lower than the 15-state median.

The study also found that after the 2004 fee schedule changes, there were proportionally more physical medicine services shifted from hospital outpatient providers to nonhospital providers.

The frequency of claims with physical medicine services provided in hospital outpatient settings fell nearly ten percentage points starting in 2004, following a more than 50 percent decrease in the average payment per service for hospital outpatient physical medicine services due to the fee schedule changes, the study said.

Meanwhile, the frequency of claims with physical medicine services by nonhospital providers grew about six percentage points from 2003 to 2007.

The Workers Compensation Research Institute is a nonpartisan, not-for-profit membership organization conducting public policy research on workers’ compensation, health care and disability issues. Its members include employers, insurers, and governmental entities, insurance regulators and state administrative agencies, as well as several state labor organizations.