Hospital Outpatient Payments per Episode Higher and Growing Faster in States with Percent-of-Charge-Based Fee Regulations or No Fee Schedules, Finds New WCRI Study

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Rising hospital costs in the treatment of injured workers have received attention from public policymakers and system stakeholders in many states. To assist in better understanding these costs, this study compares hospital outpatient payments across states and monitors the impact of fee schedule reforms.

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Hospital outpatient payments were higher and growing faster in states with percent-of-charge-based fee regulations or no fee schedules, finds a new study from the Workers Compensation Research Institute (WCRI). The study is an annual series that compares hospital payments for a group of common outpatient surgeries in workers’ compensation across 35 states, representing 88 percent of the workers’ compensation benefits paid in the United States. This study also monitors the trends within each state from 2005 to 2015.

“Rising hospital costs have been a focus for public policymakers and system stakeholders in recent policy debates in many states,” said Ramona Tanabe, WCRI’s executive vice president and counsel. “This study will help policymakers and stakeholders conduct more meaningful comparisons of hospital payments across states, as well as to monitor the hospital payment trends in relation to reforms of hospital outpatient fee regulations.”

The study, Hospital Outpatient Payment Index: Interstate Variations and Policy Analysis, 6th Edition, found that states with percent-of-charge-based fee regulations had substantially higher hospital outpatient payments per surgical episode than states with fixed-amount fee schedules—37 to 151 percent higher than the median of the study states with fixed-amount fee schedules in 2015. States with no fee schedules also had higher hospital outpatient payments per episode—44 to 136 percent higher than the median of the study states with fixed-amount fee schedules in 2015. WCRI also found hospital outpatient payments per episode in most states with percent-of-charge-based fee regulations or no fee schedules grew faster than in states with fixed-amount fee schedules.

To put these reimbursement rates in perspective, the study provides a comparison between workers’ compensation hospital outpatient payments and Medicare rates for the most common group of surgical procedures across states. Medicare rates capture payments to hospital outpatient providers for similar services by a large payor other than workers’ compensation. The variation in the difference between average workers’ compensation payments and Medicare rates for a common group of arthroscopic procedures across states was tremendous—ranging from below Medicare levels in Nevada, New York, and Massachusetts to as high as 527 percent (or $9,927) above Medicare in Alabama.

Also discussed in this study is an analysis of major policy changes in Connecticut, Florida, and North Carolina—states with recent fee schedule reforms. For example, Connecticut adopted a fee schedule for hospital and ambulatory surgery center services, with the hospital outpatient reimbursement rate set at 210 percent of the Medicare rate. Following the introduction of this ambulatory payment classification (APC) based fee schedule, the average hospital outpatient payment per surgical episode decreased in Connecticut by about 14 percent from 2014 to 2015.

The 35 states included in this study are Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin. The study states are geographically diverse and represent a wide range of industries and a variety of regulation choices for hospital payments under workers’ compensation.

This study captures payments for services provided and billed by hospitals; it excludes professional services billed by nonhospital medical providers (such as physicians, physical therapists, and chiropractors) and transactions for durable medical equipment and pharmaceuticals billed by providers other than hospitals. The analysis also excludes payments made to ambulatory surgery centers.

To download this study, visit WCRI’s website at
https://www.wcrinet.org/reports/hospital-outpatient-payment-index-interstate-variations-and-policy-analysis. The authors of this study are Dr. Olesya Fomenko and Dr. Rebecca (Rui) Yang.

ABOUT WCRI:

The Workers Compensation Research Institute (WCRI) is an independent, not-for-profit research organization based in Cambridge, MA. Organized in 1983, the Institute does not take positions on the issues it researches; rather, it provides information obtained through studies and data collection efforts, which conform to recognized scientific methods. Objectivity is further ensured through rigorous, unbiased peer review procedures. WCRI's diverse membership includes employers; insurers; governmental entities; managed care companies; health care providers; insurance regulators; state labor organizations; and state administrative agencies in the U.S., Canada, Australia, and New Zealand.

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Andrew Kenneally
Workers Compensation Research Institute - WCRI
since: 06/2011
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