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Facility costs lead charge on medical inflation in comp



A new report shows 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 the increases, experts say.

Between 2012 and 2021, workers’ medical costs increased nationally by an average of 2% per year, according to the Boca Raton, Fla.-based National Council on Compensation Insurance, which this month released its report on medical inflation. The report showed an average annual increase of 1.2% in facility costs, while drug costs fell by 0.2% and physician costs increased by 0.6%. The last category – “other” – rose 0.4%.

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

Costs for “hospitals are hard to control because you don̵

7;t have a lot of control over the market,” he said.

Bill Yaeger, Charlotte, North Carolina-based Southeast regional director, healthcare operations, for Gallagher Risk Management Services, a division of Arthur J. Gallagher & Co., noted that facility costs increased during the pandemic due to hospital staffing shortages, which continue to be a problem.

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

Rising medical malpractice insurance premiums also drive up costs, he said.

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

States, insurance companies, and their third-party administrators and pharmacy benefit managers have, over the past decade, implemented a number of changes—including formulary and prescription monitoring programs—that made prescribing addictive opioids more challenging and thus reduced costs. The increased availability of generic drugs also helps reduce costs, Chadarevian said.

Can regulating medical procedures in comp help keep facility costs from rising? That’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 to intervene on the issue of medical necessity. States can and have used fee schedules to control costs, and the results have been mixed, he said.

States with a fee schedule based on a different entity, such as those based on the Medicare fee schedule, fare better, Mr. Allen. States with percentage-of-billing fee schedules — which are based on a percentage of the actual cost of services — are not as successful, because hospitals tend to simply raise their fees to increase that percentage, he said.

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

“One of the reasons that facility costs are increasing is that there has been an increase in surgeries … in outpatient and ambulatory surgical centers,” said Steve Bennett, Washington-based assistant vice president for workers’ compensation programs and attorney for the American Property Casualty Insurance Association. “We certainly support all reasonable and necessary care, but we must ensure that operations are necessary, reasonable and effective.”


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