Workers' Comp

Equitable Fee Schedules Are Crucial to Good Care in Workers’ Comp; This Guide Should Help

A new WCRI report includes fee schedule analyses, focusing on design choices like conversion factors and workers’ compensation fee schedules’ relationship to Medicare reimbursement rates.
By: | May 17, 2019
Topics: Workers' Comp

The Workers’ Compensation Research Institute (WCRI) recently issued a new report — Designing Workers’ Compensation Medical Fee Schedules, 2019 — as a follow-up to the 2016 edition of the same study. The 2019 edition includes similar analyses, focusing on design choices like conversion factors and workers’ compensation fee schedules’ relationship to Medicare reimbursement rates.

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Authors Olesya Fomenko and Te-Chun Liu note in their discussion of the study’s purpose that relative fee schedule levels are the most important issue at hand for policymakers when modifying or creating a fee schedule.

Low or disparate reimbursement levels drive providers out of the system and create access to care issues, while excessively high fee schedule rates negate one of the fee schedule’s primary objectives, that is, cost containment.

The study’s scope includes 44 states and the District of Columbia, all of which have established fee schedules for workers’ compensation prior to February 29, 2019.

In a conversation with Risk & Insurance®, Fomenko explained that the impetus for these periodic reports is to distill policy debates into easier-to-digest data analysis.

“We want to facilitate discussion by highlighting some of the most important choices that policymakers make when updating or constructing a fee schedule,” she said.

Fomenko and Liu focused on specific design choices in order to compare states to each other. These design choices included:

Dr. Olesya Fomenko, economist, WCRI

  • Whether the fee schedule should be based on relative value units of different services or another metric like usual and customary charges? And if relative value, should the Medicare scale be used?
  • Should states use a single conversion factor or multiple for different service groups?
  • Should different fee schedules be adopted for different parts of a state?
  • How often should fee schedules be updated?
  • How should services not listed in the schedule be reimbursed?

As the selected design choices indicate, the differences observed in the study between states had much to do with Medicare as a benchmark. Fomenko and Liu explain in the study that the reason for this is to promote intrastate and interstate comparison, “since the office practice and malpractice insurance expenses paid by providers vary from state to state, the analysis of the interstate variations in fee schedules is best made after adjusting for these differences.”

Geographic data collected by Medicare creates Medicare rates for each state, plus, most jurisdictions are using Medicare rates to set their fee schedules.

In all, WCRI found that 31 states and the District of Columbia (out of the 45 jurisdictions in this study) used Medicare’s resource-based relative value scale as the basis of their fee schedule. An additional five states used relative value units from another source, and eight states used an alternative metric like usual and customary charges in their state.

Fomenko believes that the popularity of Medicare-based fee schedules has to do with the fact that it eliminates some of the regulatory burden of updates.

“Medicare definitely makes it easier to set up a fee schedule because they issue quarterly updates and regular updates to the entire system,” she said.

“In general, what Medicare tries to accomplish is to reimburse at a rate relative to what resources are required to provide the service. Their geographic differences take into account usual costs like wages for physicians. From that point of view, it’s a well-designed benchmark for workers’ comp.”

Te-Chun Liu, senior quantitative associate, WCRI

Fomenko added that it is only a benchmark, pointing to the part of the study that addresses conversion factors (multiplier of the Medicare rate for different service groups), which vary widely from state to state. The study’s third chapter notes that:

In 16 states, the amount between the service groups with the highest and lowest rates (or conversion factors) was more than 200 percentage points. For 11 of them, the disparity was more than 300 percentage points. In 26 states, there was a difference of more than 100 percentage points between the highest premium over Medicare in a service group and the lowest for a different service group.

Fomenko and Liu explain in the conclusion of the study that these wide disparities between conversion factors in different service groups can create a “distorted utilization incentive” toward higher paying specialty care.

“It’s difficult to say that the differences we observed between specialty care and something like office visits in workers’ comp are market-driven because we don’t see such a substantial difference in group health, which is of course dictated by market forces,” Fomenko said, referring to a previous WCRI study that compared workers’ comp to group health.

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For several jurisdictions, including Louisiana, Massachusetts, Michigan, Minnesota, Texas, Vermont and the District of Columbia, where a substantial amount of care fell outside of the fee schedule (defined in the study as between 5 and 25 percent of payments) the reasons often boiled down to regulatory slowdown.

This is especially true for states that use Medicare as the basis for their fee schedules.

“Medicare does not establish rates for some services that they deem not medically necessary or that may be not relevant for Medicare, like the codes for work hardening programs,” Fomenko explained.

“Medicare also doesn’t set rates for unlisted codes or procedures that aren’t well-defined. For systems that aren’t Medicare-based, we find that states that don’t update their fee schedules regularly have more care that falls outside of their fee schedules because updated procedures don’t have an assigned rate.”

This study and all others produced by WCRI can be purchased through the Institute’s website here&

Nina Luckman is a business journalist based in New Orleans, focusing primarily on the workers' compensation industry. Her credentials include a B.A. and M.A. from Tulane University, both in the study of English Literature. Over the last several years, Nina has served as Editor of Louisiana Comp Blog, a news site she started in 2014 under the auspices of a group self-insurance fund. Louisiana Comp Blog won the WorkersCompensation.com Best Blogs award in 2016, 2017, and 2018. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]