How to Reduce Workers’ Compensation Costs

When it comes to lowering costs, the devil is in the details.

by Michael Davis, IWIRC
Michael Davis

There are three primary ways to reduce workers’ compensation costs: by reducing injury frequency, lowering claim cost or decreasing lost workdays. All other efforts have little impact on your premium, according to workers’ compensation specialists. Employers can control claim frequency and severity through safe work practices. Average claim cost and lost workdays, however, often depend on medical providers.

Some have marketed a fourth way to reduce medical costs and lost workdays. Provider networks that give discounts for medical services are becoming pervasive, offering to reduce the reimbursement to a provider for a medical procedure, regardless of quality. But rarely does objective data validate this claim of lowering overall costs. Frequently, the networks give employers procedure costs, not the case cost data (including direct and indirect costs).

If an out-of-network primary care provider charges $100 per visit, and an in-network provider only receives $75, which provider is more cost-effective? It depends. How frequently was the patient seen? Did the provider take the worker off work? What diagnostics were ordered? Was physical therapy part of the treatment plan? Did they correctly find a work-related causal connection? What are the indirect claim costs? Indirect costs of replacement workers, reduced productivity, overtime, and premium increases due to lost/modified workdays are estimated at four to 10 times the direct costs. These “hard” and “soft” factors determine the total cost of an injury.

The Illinois legislature has offered another alternative to reduce WC costs: decrease reimbursement levels, based on specialty, for work-injury care. These levels are reported as a percentage of the Medicare level. Primary care providers are reimbursed about eight percent above Medicare. Orthopedic surgeons (at 303%) and pain management specialists (212%) are far better paid.

Sadly, Illinois has deemed that frontline providers are less valuable than those delivering expensive care. Professionals who provide conservative, cost-effective solutions for the vast majority of work injuries—often preventing unnecessary referrals to higher-reimbursed specialists—are less valued. This strategy has led to high-quality primary care providers’ abandoning the WC arena for greener pastures, causing indirect costs to skyrocket and the quality of primary medical care to plummet.

Quality of outcome should drive reimbursement. Everyone loses when it doesn’t. PM

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