Workers Compensation Issue: Medical Costs Texas vs Massachusetts Presenters:

1. CAS Ratemaking Seminar San Antonio, TexasMarch 27-28, 2003 Workers Compensation Issue: Medical Costs Texas vs Massachusetts Presenters: Cecily Gallagher, Texas Mutual Insurance Company Don Bashline, WC Rating & Inspection Bureau of Mass Mark Phillips, Liberty Mutual Session: WCP-3

2. Session Outline • Massachusetts Overview • Overview of Medical Issues • Planned Questions • Audience Participation

3. THE ISSUE Source: WCRI, CompScope Benchmarks: Multistate Comparisons, 1994-1999

4. Massachusetts Medical Situation • Costs still low, but moving up • Fee schedule keeps costs down • UR and provider choice rules help • But negotiated rates are still a problem • Why are we headed higher?

5. Mass: Costs low, but moving up • 1998 medical costs per claim were less than 50% of countrywide and about 1/3 of Texas’s, but... • Our 3/1/03 rate filing shows double-digit increases in medical cost per claim for each of last three years • Medical fee schedule now at roughly Medicare levels after 12/02 increase.

6. Mass: Fee Schedule Keeps Costs Down • Mass. one of first states with fee schedules – early 1960’s • Always one of lowest – recent WCRI study found it 2nd only to Florida

7. Mass: UR & Provider Choice Rules Help • Mandatory Utilization Review began in 1993 • If insurer establishes Preferred Provider Arrangement, claimant’s first visit must be with PPA provider • UR helps prevent “procedure creep” associated with low fee schedules

8. Mass: Negotiated Rates are Still a Problem • 1991 law allows insurers to negotiate higher fee with provider • As much as 15% of payments are negotiated above schedule, especially surgery • Friction costs associated with negotiation becoming more significant

9. Mass: Why are we headed higher? • Fee schedule less effective • Increased cost and utilization of prescription drugs, particularly pain medication • Possible cost shifting as health insurance copays and deductibles become more prevalent

10. Texas Situation • 1990 Reforms addressed everything but medical • Overall the system is working well • Costs are below pre-reform levels • Very low lawyer involvement • Most seriously injured employees receiving more $ faster • Indemnity benefits stable High medical costs are the most serious issue

11. Texas: Medical Cost Drivers • Texas is an Employee Choice State • Chiropractors can be designated as “treating physicians”. • Texas law does not allow medical benefits to be settled. • Medical cost guidelines have been fairly effective at controlling cost per service but do nothing to control services per claim.

12. Texas Medical: Treatment Intensity is High

13. Texas Medical:Treatment Intensity is High

14. Texas Medical Cost Drivers (cont.) • Return to Work programs face bureaucratic obstacles for employers • Waiting Period on indemnity is 7 days which is not compensable unless loss time reaches 28 days. • This is double the requirement in most states and encourages workers to remain off work until they receive the benefit for the first 7 days.

15. Texas Medical: Recent Changes • Adopted the 4th Ed of the AMA Guides for determining impairment benefits • Includes methodology for chronic pain impairment • TWCC approved converting fee guideline to 125% of Medicare • NCCI estimated –4.7% decrease in medical costs • Effect on specific treatments varies widely • Implementation delayed pending outcome of legal challenge

16. What Can Insurers Do? • Improve Utilization Review. Ineffective practices found by the ROC include: • Accepting medical diagnosis without clinical validation • Using “screening lists” that search for key words rather than reviewing medical necessity of treatment • Misapplication of UR screening criteria • Lack of training of staff The ROC estimates that most Tx WC medical bills are reviewed by UR staff who exhibit some or all of these practices.

17. What Can Insurers Do? • Improve Data Collection for Outcome Studies • Manage Duration • Educate employers on return to work • Help TWCC identify good and bad medical providers

18. What Can Insurers Do? Texas Mutual has authorized a grant of $2.2 million to TWCC to: • Triple the number of Medical Quality reviews planned for 2003 and 2004 • Develop a medical “report card” to periodically notify providers, the public, and system participants how individual doctors’ practice patterns compare to norms • Contract access to and use of lost time guidelines.