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Facilities costs lead charge on medical inflation in comp


A new report shows that medical inflation in workers compensation over the past decade has been modest, but one area to watch is costs paid to facilities, which make up the lion’s share of increases, according to experts.

Between 2012 and 2021, workers comp medical costs increased nationally at an average of 2% a year, according to the Boca Raton, Florida-based National Council on Compensation Insurance, which this month released its report on medical inflation. The report showed an average annual 1.2% rise in facilities costs, while costs for drugs dropped 0.2% and physicians costs increased 0.6%. The final category — “other” — rose 0.4%.

Raji Chadarevian, director of medical regulation and informatics at NCCI, said states with fee schedules for hospital services fared better in cost containment, but the issue is difficult to address with little competition in some areas.

Costs for “hospitals are difficult to control because you don’t have a lot of control over the marketplace,” he said.

Bill Yaeger, Charlotte, North Carolina-based southeast regional director, health care practice, for Gallagher Risk Management Services, a division of Arthur J. Gallagher & Co., noted that facilities costs increased during the pandemic due to staffing shortages in hospitals, which continues to be an issue.

“If you don’t have enough employees, the hospitals have had to hire temporary workers or go through staffing agencies,” he said. “The facilities costs went through the roof on account of that.”

Increases in medical malpractice insurance premiums are also driving up costs, he said.

The drop in fees paid for drugs in comp is attributed to declining opioid prescriptions, which has been well documented in other industry reports, according to Mr. Chadarevian.

States, insurers and their third-party administrators, and pharmacy benefits managers implemented over the past decade a number of changes — including formularies and prescription monitoring programs — that made the prescribing of addictive opioids more challenging, thus decreasing costs. The increased availability of generic drugs is also helping to decrease costs, Mr. Chadarevian said.

Can regulation of medical procedures in comp help keep facilities costs from rising? It’s not likely, said Brian Allen, Salt Lake City-based vice president of government affairs, pharmacy solutions, for Mitchell International Inc., a subsidiary of Enlyte Group, who said regulators have little appetite for intervening on the question of medical necessity. States can and have used fee schedules to control costs, however, and the results have been mixed, he said.

States with a fee schedule based on another entity, such as those based on the Medicare fee schedule, fare better, Mr. Allen said. States with percentage of bill fee schedules — which are based on a percentage of the actual cost for services — aren’t as successful, as hospitals tend to simply raise their fees to increase that percentage, he said.

To reduce facilities spending, insurers and employers can look at the medical necessity for some procedures, as some costly surgeries performed in the comp sector have not always led to optimal results, experts say.

“One of the reasons facility costs are going up is that there's been an increase in surgeries ... in outpatient and ambulatory surgical centers,” said Steve Bennett, Washington-based assistant vice president for workers compensation programs and counsel for the American Property Casualty Insurance Association. “We certainly support all reasonable and necessary care, but we have to make sure that surgeries are necessary, reasonable and efficient.”