That giant sucking sound is hospitals hoovering dollars out of employers', work comp insurers' and taxpayers’ wallets.

Joe Paduda

The Workers Compensation Research Institute's latest report on hospital costs is a must-read for anyone involved in work comp claims, medical management and actuarial issues. Kudos to Drs. Olesya Fomenko and Rebecca Yang for their excellent work. 

The study focuses mostly on how payments for outpatient surgery vary across the different types of fee schedules (no fee schedule vs. fixed amount vs. cost-to-charge ratio vs. percent of charges) and how those payments have changed over time.

But there are several other issues that I’d argue are more impactful.

It’s not so much the type of fee schedule as other factors. There’s a lot of variation between states with the same type of fee schedules, and failing to expand Medicaid is a big problem for hospitals.

Basing fee schedules on percent of charges is a really bad idea. States with percent-of-charges schedules had — by far — the highest costs, averaging more than three times what Medicare pays. (Medicare reimbursement is slightly above break-even for hospitals).

Hospitals easily game the fee schedule by jacking up list prices. Two of the three states with the largest increases in hospital payments had fee schedules based on percent-of-charges.

States with no fee schedules were not quite as bad, averaging “only” 225% of Medicare.

Clearly, network arrangements have failed miserably. 

What does this mean for you?

Actuaries: Check the inflation trend to predict where costs will be in the future.

Medical management folks: Dig into your data to identify the worst offenders and direct care away from them. Hint: HCA facilities are usually among the worst offenders.

Bill reviewers: Stop relying on network discounts and start getting a lot smarter about dealing with facilities.

Joseph Paduda is co-owner of CompPharma, a consulting firm focused on improving pharmacy programs in workers’ compensation. This column is republished with his permission from his Managed Care Matters blog.