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Fee schedules aim to strike a balance between cost containment and fair reimbursement

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Fee schedules are a valuable cost-containment tool in workers compensation programs, although they raise questions about potential restrictions on injured employees' access to care.

Most states have a physician and/or facility fee schedule that sets rates for the care of injured workers, with momentum increasing for states to either adopt new or significantly revamp existing fee schedules, including transitioning toward a reimbursement model used by the federal government.

In February, the North Carolina Industrial Commission revised its medical fee schedule to lower maximum fees for hospitals and other institutional providers and increase fees for physicians, nurses and other professional providers.

Other states are likely to take up physician or facility fee schedule proposals in their next legislative sessions, according to the Boca Raton, Florida-based National Council on Compensation Insurance Inc. However, a handful of states, such as New Hampshire, do not have fee schedules, and legislative attempts to implement them have failed, according to NCCI.

Reining in prescription costs

Prescription drug fee schedules are another commonly used tool, with 37 states and the U.S. Department of Labor using a specific fee schedule for prescription drugs, according to St. Louis-based Express Scripts Holding Co.

“The goal of a fee schedule is to help provide a control on cost and a maximum reimbursement, while also ensuring providers receive a reasonable reimbursement,” said Kim Ehrlich, St. Louis-based vice president of workers compensation compliance at Express Scripts. “What you don't want is a fee schedule that hinders access to care.”

More than 30 states have medical fee schedules that follow the model used by the Medicare system to determine how much providers should be paid, a positive for providers because it is the “most fair and equitable” payment model, said Andy Parker, Seattle-based physician and senior vice president of strategy at U.S. HealthWorks Medical Group, which operates occupational health care systems at more than 200 medical and worksite clinics in 20 states.

Maintaining a fee schedule requires extensive effort and expertise, which is why many states base their fee schedules on the Medicare model, usually with modifications that reflect state goals or unique circumstances, said Francine Johnson, vice president of regulatory consulting and analysis at Coventry Workers' Comp Services in Salt Lake City. “There are always carve-outs and customization and components they don't adopt.”

However, states also may decide that reimbursement under the Medicare model is too low and could have unintended consequences, such as driving providers out of the workers comp system, so they adjust their fee schedules to add a premium to the Medicare rates, experts say.

While some states have had the Medicare-based system in place for years, California is among those that are recent converts. California's new physician fee schedule based on the Medicare model went into effect in January 2014. In August, a Workers' Compensation Insurance Rating Bureau report found that individual medical bill transactions decreased by $100 million, or 3.7%, in 2014 and cited the adoption of the model, which shifted payment shares from specialists to primary care providers, as one factor in the savings.

Studies have shown that properly designed fee schedules can help contain workers compensation costs, but it often is difficult to precisely attribute the level of cost reduction because factors such as utilization of medical services, utilization reviews, changes in treatment guidelines and provider decisions also come into play, experts say.

“It's difficult to point to the fee schedule and say that's the sole reason the savings are realized or not,” Ms. Ehrlich said.

For example, an NCCI study found that average wholesale price-based prescription drug fee schedules do affect workers comp drug pricing, and lower fee schedules seem to correspond with lower prescription prices paid. However, other factors also affect pricing, including that most prescription drugs are delivered through pharmacy benefit managers, the study authors said.

About 79% of the U.S. population is enrolled in programs that use PBMs or PBM tools, and 85% of retail prescriptions are likely managed through PBMs or their tools, according to the Pharmaceutical Care Management Association.

“PBMs, when they do contracts with insurance carriers, it tends to be a nationwide contract, so the contract price usually doesn't depend on what the fee schedule regime in a state is, except if the fee schedule for a state sets a lower price as a maximum other than the price the agreement sets with the carrier,” said John Robertson, director and senior actuary at NCCI in Boca Raton.

Implementing a fee schedule is not without challenges, namely determining the rates. Setting rates too high is not ideal from a cost-containment perspective, but setting them too low can jeopardize injured workers' access to care, said Rebecca Yang, senior public policy analyst at the Workers Compensation Research Institute in Cambridge, Massachusetts.

“It's a very delicate balance for deciding the fee schedule level for any state that is considering that,” she said.

“Where is the sweet spot?” said Dr. Robert Blink, CEO and medical director of San Francisco-based Worksite Partners Medical Group Inc. “There isn't a scientific answer to that. Every jurisdiction has to wrestle with that.”