A WCRI FLASHREPORT. Benchmarking Pennsylvania s Workers Compensation Medical Fee Schedule. Stacey Eccleston Xiaoping Zhao. Updated February, 2002

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1 A WCRI FLASHREPORT Benchmarking Pennsylvania s Workers Compensation Medical Fee Schedule Stacey Eccleston Xiaoping Zhao Updated February, 2002 FR WCRI FLASHREPORTS are data-based analyses of specific and highly topical issues that are typically being debated in current public policy debates. They are often done in response to requests for analyses by public officials or stakeholder groups. Since they are based on already-published WCRI data and methods, they are not separately subjected to the standard WCRI review process. Typically these reports rely on the WCRI Detailed Benchmark/Evaluation (DBE) Database. WCRI FLASHREPORTS are published in electronic format and widely distributed at no charge to the workers compensation community at the time of publication. Subsequent copies can be ordered at a nominal charge from the WCRI web site at Workers Compensation Research Institute 955 Massachusetts Avenue Cambridge, MA (617)

2 Benchmarking Pennsylvania s Workers Compensation Medical Fee Schedules This WCRI FLASHREPORT benchmarks how the Pennsylvania workers compensation fee schedule (effective April, 2001) compares with the 2001 Pennsylvania Medicare fee schedule. The study was done at the request of the Pennsylvania Compensation Rating Bureau. It benchmarks the Pennsylvania fee schedule overall and for five major service groups covered by the fee schedule (Evaluation and Management, General Medicine, Physical Medicine, Radiology and Surgery). The methods used are drawn from earlier WCRI studies that benchmark state medical fee schedules 1, and the data are from the WCRI Detailed Benchmark/Evaluation (DBE) Database. The Pennsylvania workers compensation medical fee schedule was enacted on August 31, At that time, the schedule set reimbursement rates at 113 percent of the Medicare Resource Based Relative Values (RBRVS) in the state. The workers compensation physician fee schedule is then updated annually, beginning January 1, 1995, on the basis of the percentage change in the statewide average weekly wage, regardless of further changes in the Medicare fee schedule. At the time of implementation of Pennsylvania s workers compensation fee schedule, the Medicare RBRVS was in its early stages of implementation. Since then, significant changes have been made in the Medicare RBRVS as it transitions to its final phase in It is important to note that the provider fee schedule in Pennsylvania analyzed in this report generally covers about 60 percent of the workers compensation expenditures in the state, while hospitals receive the other 40 percent. Hospital fees in Pennsylvania were also limited to 113 percent of Medicare plus pass-through costs and were frozen as of December 31, They too are updated annually beginning January 1, 1995 on the basis of the change in the statewide average weekly wage. A soon-tobe-published WCRI study called The Anatomy of Workers Compensation Medical Costs and Utilization: Trends and Interstate Comparisons, finds that payments per service (average prices) to both hospital and non-hospital providers (MDs) tends to be lower than their counterparts in seven large states (California, Connecticut, Florida, Georgia, Massachusetts, Texas and Wisconsin). That report also finds that there has been a 13 percent increase in payments per service (average prices) for hospital facility services from 1997 to Hospital facility services are made up largely of inpatient room and board and associated services. MAJOR FINDINGS The current Pennsylvania fee schedule is only loosely based on the Medicare RBRVS structure and rates. It was modeled on the 1993 transitional structure for Medicare reimbursement rates, which only partially relied on RBRVS. Since that time, Medicare has continued to phase in the full RBRVS structure. The Pennsylvania workers compensation fee schedule has remained tied to the 1993 transitional structure and rates. Today, the Pennsylvania workers compensation fee schedule sets fees that are overall, 11 to 18 percent higher than rates set by Medicare. However, this varies by service group with workers compensation fees that are 7 to 10 percent below Medicare fee schedule levels for evaluation and management services, and 3 to 11 percent higher for general medicine and physical medicine. Workers compensation levels are 34 to 43 percent higher than Medicare rates for surgery services. The disparity in the reimbursement rates set across service groups in relation to Medicare levels results from relying on practice expense relative values from the early implementation stages of the RBRVS system. Since 1994, Medicare has been adjusting practice expense relative values and reimbursement levels that have increased fees generally in the evaluation and management service category while decreasing fees for surgical services. 1 Burstein, Philip. Benchmarks for Designing Workers' Compensation Medical Fee Schedules: Workers Compensation Research Institute, Cambridge, Massachusetts. WC May WCRI FLASHREPORT October 2001 FR Page 2 of 8

3 Organization of This Report This report has three main sections. Section 1 compares Pennsylvania s medical fee levels set by its workers compensation fee schedule to those set by the state s Medicare RBRVS schedule. Section 2 contains information on the distribution of payments and services for those services that receive the largest percentage of the total workers compensation dollar. This section shows which service group makes up the greatest percentage of expenditures overall for services rendered to Pennsylvania workers from January 1998 through June It also shows which services within each major service group make up the greatest percentage of expenditures within the group. It compares the fee levels set specifically for those services in the workers compensation fee schedule and the Medicare fee schedule. Section 3 presents the conclusions and policy implications. Methods, Data and Definitions For this analysis, we created medical fee schedule price indices for each of the four regional state workers compensation fee schedules and for the two Medicare fee schedules. These price indices are conceptually similar to the Consumer Price Index (CPI), but developed for workers compensation medical care, since they are based on a market basket representing the medical services that are used in the treatment of injured workers. Using the 2001 Medicare fee schedules as a base, we compare the four regional 2001 workers compensation fee schedules as follows: The fee schedule for the Philadelphia and area is compared to the Medicare fee schedule for Metropolitan Philadelphia. The fee schedule for the suburbs of Philadelphia and is compared to Medicare fee schedule for Metropolitan Philadelphia. The fee schedule for Harrisburg and surrounding areas is compared to the Medicare fee schedule for Rest of Pennsylvania. The fee schedule for non-metropolitan areas is compared to the Medicare fee schedule for Rest of Pennsylvania. The 176 medical procedures included in the market basket represent approximately 80 percent of the total workers compensation medical expenditures in Pennsylvania that are covered by the provider fee schedule. Within each major service group, we include the medical procedures for the services with the highest expenditures until we achieve 80 percent of total expenditures on services in that service group. For surgery, we included procedures that constitute 70 percent of expenditures on surgery. To create the fee schedule price indices, the individual CPT services are given a weight equal to their relative importance as a percentage of the total expenditures within the service group. Each of the five service groups are then weighted to represent their relative importance as a group for Pennsylvania expenditures to create the overall index levels. The CPT categories are defined as follows: Evaluation and Management includes codes numbered through and covers office visits, hospital observation/evaluation visits, consultations, and evaluation and management services provided in emergency departments, critical care services, nursing and home services, case management services, and special evaluation and management services such as disability examinations. General Medicine includes codes through and covers immunizations, diagnostic injections, psychiatry, dialysis, gastroenterology, opthamology, cardio-vascular, pulmonary, neurology and dermatological procedures. Physical medicine includes codes through and covers physical medicine and rehabilitation, osteopathic manipulative treatment and chiropractic manipulative treatment. Radiology includes codes through and covers diagnostic radiology, X-rays and imaging, diagnostic ultrasound, radiation oncology and nuclear medicine. Surgery includes codes through and covers incisions, excisions and repairs of all systems including integumentary system, muscuoloskeletal system, including spine, nervous system and cardiovascular system. WCRI FLASHREPORT October 2001 FR Page 3 of 8

4 Not included in the market basket are anesthesiology and laboratory/pathology. Also not included in the market basket are other procedures that are not consistently given fee schedule reimbursement rates in many states, such as supplies and codes ending in 99 which are typically reimbursed on a by report basis. Pennsylvania s fee schedule is typical in structure to other state fee schedules and generally covers most services included in the major service groups identified above. The fee schedule price index used in the analysis measures only fee schedule fee levels, not actual prices charged or paid, nor total medical costs or medical paid per case. SECTION 1: FEE SCHEDULE PRICE INDEX PENNSYLVANIA S WORKERS COMPENSATION AND MEDICARE RBRVS COMPARED Table 1 compares Pennsylvania s four regional workers compensation fee schedules to the relevant Medicare RBRVS regional fee schedule. Overall, the workers compensation fee schedule is between 11 and 18 percent higher than the most relevant Medicare fee schedule for each region. (Note: An index of 111 means that the 2001 workers compensation fee levels are 11 percent higher on average than the 2001 Pennsylvania Medicare RBRVS fee levels. The Medicare RBRVS schedules represent the base of 100 and each workers compensation fee schedule is compared to the base as described above.) The differences vary, however, by service group: For evaluation and management services (new and established patient office visits), each of the four regions are below Medicare levels by 7 to 10 percent, on average. For general medicine, largely made up of neuromuscular diagnostic procedures, 2001 workers compensation fee schedule rates are 5 to 11 percent higher than Medicare levels in each region. For physical medicine services, the 2001 workers compensation fee schedule rates are between 3 and 10 percent higher than 2001 Medicare rates. The fee schedule rates for radiology services, including major radiology such as MRIs and CAT Scans, as well as X-rays, are between 18 and 29 percent higher than Medicare rates. The 2001 fee schedule rates for surgery are between 34 and 43 percent higher than 2001 Medicare rates. Table 1 Pennsylvania Workers' Compensation Fee Schedule Index by Region and by Service Category (Medicare = 100) Suburbs of Philadelphia Harrisburg and Surrounding Non-Metropolitan Areas Overall Evaluation and management General medicine Physical medicine Radiology Surgery Note: Pennsylvania workers' compensation fee schedules as of April, 2001; Pennsylvania Medicare Fee Schedule as of January and Philadelphia Suburbs are compared to Medicare Metropolitan Philadelphia region. Harrisburg and Surrounding areas and Non-Metropolitan (rural) areas are compared to Medicare "Rest of Pennsylvania". The Pennsylvania workers compensation fee schedule was originally set at 113 percent of Medicare levels. Beginning on January 1, 1995, the fees in the fee schedule were increased annually across the board, for all service groups and regions, by an amount equal to the increase in the statewide average weekly wage. If the Medicare reimbursement structure and rates had not changed since 1994, one might expect that the 2001 Pennsylvania fee schedule would be 140 percent of Medicare for all services and regions the original 13 percent premium above Medicare, increased by the increase in the statewide average weekly wage over the period 1994 to 2000, or 24 percent (see Table 2). WCRI FLASHREPORT October 2001 FR Page 4 of 8

5 Table 2 Statewide Average Weekly Wage, Pennsylvania Calendar Year SAWW % Change 1994 $ $ % 1996 $ % 1997 $ % 1998 $ % 1999 $ % 2000 $ % Percent Change ( ) is 23.9% Annual Average Percent Change ( ) is 3.6% Source: CompScope TM Benchmarks: Multistate Comparisons, Workers Compensation Research Institute. Cambridge, Massachusetts. CS Aug Table 8.6. The Medicare RBRVS system was in transition in 1993 when the Pennsylvania fee schedule was designed with full RBRVS being phased in gradually through Among the most important changes since 1993 for the purposes of this study are: Medicare has reduced payments for surgical services relative to payments for primary care practices. The Pennsylvania fee schedule has not incorporated this change. As a result, these services are at different percentages of Medicare reimbursements. Medicare defined regions more broadly moving to only two Pennsylvania regions. This change is also not incorporated into the Pennsylvania fee schedule. As a result, the areas can be at different percentages of Medicare reimbursements. 3 These changes are apparent in the comparisons of the 2001 workers compensation and Medicare fee schedules for Pennsylvania. Notice in Table 1, for example, that for surgery services, the region is 36 percent higher than the corresponding Medicare fee schedule (that for Metropolitan Philadelphia), but for evaluation and management, the 2001 workers compensation fee levels for are set, on average, 8 percent lower than Medicare rates. This is despite the fact that the workers compensation fees have increased in all service groups in accordance with the increase in the state-wide average weekly wage. Because of the Medicare RBRVS transition rules, the increase in these evaluation and management services in the Medicare schedule from 1994 to 2001 was greater than the increases in the workers compensation schedule over the same period. In contrast, surgery rates have decreased somewhat over the period 1994 to 2001 for the Medicare schedule, while they have continued to increase for workers compensation in accordance with the increase in the state-wide average weekly wage. The result is workers compensation surgery rates that are 34 to 43 percent higher than Medicare rates for SECTION 2: BENCHMARKING THE FEE SCHEDULE RATES FOR THE MOST IMPORTANT PENNSYLVANIA WORKERS COMPENSATION SERVICES To illustrate the interstate differences in fee levels for the most important workers compensation procedures in each category, we can look at the Pennsylvania workers compensation fee schedule and 2 In 1993, only the physician work component of the Resource Based Relative Value Scale (RBRVS) payment system was actually resource-based. The practice cost component, which makes up more than 40 percent of the Medicare payments, was still based on the old charge-based system. 3 There has been a reduction in the number of geographic practice cost indices for all states from 210 originally to just 89 in Here, we compare the Philadelphia and regions and their suburbs to the Philadelphia metropolitan Medicare fee schedule, while the Harrisburg and Surrounding areas and other Non-Metropolitan areas are compared with Medicare s Rest of Pennsylvania. WCRI FLASHREPORT October 2001 FR Page 5 of 8

6 Medicare reimbursement rates for the medical procedures that comprise the largest share of workers compensation medical expenditures covered by the fee schedule. Table 3 shows the Medicare and fee schedule rates for the five medical procedures within each major service group that have the highest expenditure among those covered by the fee schedule and Medicare. Evaluation and Management services make up 26 percent of total workers compensation expenditures covered by the fee schedule. Of these, established patient office visits of low and moderate complexity make up 25 percent. For these services as well as the other three office visit services in this group, Pennsylvania s workers compensation fees are lower than the fees set in the corresponding Medicare schedule. For general medicine services (which makes up about 5 percent of total covered expenditures), workers compensation fees are somewhat higher than Medicare fees. Physical medicine services make up 33 percent of workers compensation expenditures covered by the fee schedule. For the top procedure for physical medicine, the fee schedule sets rates similar to Medicare rates. Therapeutic activities (97530) are reimbursed higher under workers compensation than under Medicare and manual therapy techniques (mobilization, manipulation) are reimbursed slightly lower under the workers compensation fee schedule than Medicare. Radiology makes up 12 percent of workers compensation expenditures in Pennsylvania that are covered by the fee schedule. The top five radiology procedures (all are forms of MRIs) make up more than one half of expenditures in the radiology service group. In each case, the 2001 workers compensation fee level is higher than the Medicare level. This also holds true for the X-rays and ultrasounds (although not among the top five radiological procedures in terms of total expenditure, they are also commonly used). For surgeries, which account for 24 percent of total workers compensation expenditures covered by the fee schedule in Pennsylvania, the fee schedule sets workers compensation fees significantly higher than the Medicare fees for This group contains a diverse group of services ranging from very minor to major surgical procedures. The top procedure in terms of total expenditure accounts for just 5 percent of total expenditures within the surgery group. The reimbursement rate under workers compensation for this procedure in Philadelphia ($1,154) is 64 percent higher than the reimbursement set by the Medicare fee schedule ($704). SECTION 3: CONCLUSIONS AND POLICY IMPLICATIONS The current Pennsylvania fee schedule is only loosely based on the Medicare RBRVS structure and rates. It was modeled on the 1993 transitional structure for Medicare reimbursement rates, which only partially relied on RBRVS. Since that time, Medicare has continued to phase in the full RBRVS structure. The Pennsylvania workers compensation fee schedule has remained tied to the 1993 transitional structure and rates. This means that Pennsylvania does not fully benefit from the resource-based methodologies now applied to both the work and practice expense components for the Medicare RBRVS system. Should policymakers in Pennsylvania decide to adopt the fully phased-in methodology, this would redistribute payments across service groups to provide higher reimbursements to primary care physicians and lower reimbursements to surgeons. Also, Medicare has evolved into two regions, rather than the four used in the current Pennsylvania fee schedule. It may be worth evaluating the merits of paralleling the Medicare regional structure. WCRI FLASHREPORT October 2001 FR Page 6 of 8

7 Table 3 Comparing Pennsylvania Medicare Reimbursements with Workers' Compensation Fee Schedule Levels, for Medical Procedures with Highest Expenditures for Each Major Service Group CPT Code Brief Service Description % of Service Group Expenditures Suburbs Harrisburg and Surrounding Rural Areas (Non- Metropolitan) Medicare - Metro Philadelphia Medicare - Rest of Pennsylvania Evaluation and management - 26 % of total expenditures Established patient office visit/expanded problems - low complexity Established patient office visit/detailed exam - moderate complexity Office consultation - comprehensive history-high complexity Established patient office visit - straightforward medical decision-making New patient office visit - comprehensive history - moderate complexity General medicine - 5% of total expenditures Nerve conduction sensory/mixed Nerve conduction amplitude and latency Nerve conduction amplitude with F-wave study 25.0% $50 $49 $47 $46 $54 $ % $77 $75 $68 $68 $83 $75 7.8% $214 $213 $202 $194 $232 $ % $35 $34 $33 $32 $38 $34 7.0% $131 $122 $109 $108 $140 $ % $44 $47 $44 $43 $41 $ % $50 $53 $50 $50 $47 $42 9.1% $62 $59 $56 $55 $48 $ Needle electromyography 7.3% $181 $159 $159 $159 $133 $ Individual psychotherapy 7.3% $119 $114 $105 $93 $105 $97 WCRI FLASHREPORT October 2001 FR Page 7 of 8

8 Table 3 Comparing Pennsylvania Medicare Reimbursements with Workers' Compensation Fee Schedule Levels, for Medical Procedures with Highest Expenditures for Each Major Service Group (continued) CPT Code Brief Service Description % of Service Group Expenditures Physical medicine - 33% of total expenditures Therapeutic procedure/exercises Therapeutic activities to improve function Suburbs Harrisburg and Surrounding Rural Areas (non- Metropolitan) Medicare - Metro Philadelphia Medicare - Rest of Pennsylvania 30.8% $26 $26 $25 $24 $27 $ % $35 $34 $34 $33 $26 $ Electrical stimulation 6.0% $22 $21 $21 $23 $18 $ /97140 Manual therapy techniques 5.3% $28 $26 $26 $26 $31 $28 Radiology -12% of total expenditures Modality - ultrasound 4.7% $17 $17 $16 $16 $15 $ MRI spinal canal lumbar 17.7% $760 $747 $692 $682 $633 $ MRI lower extremity joint 12.1% $655 $653 $618 $602 $541 $ MRI upper extremity joint 10.4% $655 $653 $618 $602 $541 $ MRI spinal canal cervical 8.0% $706 $694 $644 $634 $586 $ MRI with and then without contrast material 7.4% $1,476 $1,450 $1,342 $1,322 $1,232 $1, * X-ray, ankle, minimum of three views 1.3% $41 $41 $39 $38 $34 $29 Surgery - 24% of total expenditures Arthroscopy - knee with meniscectomy 4.9% $1,154 $1,134 $1,053 $1,034 $704 $ Lumbar laminectomy 3.7% $1,695 $1,664 $1,540 $1,518 $1,031 $ Neuroplasty at carpal tunnel 3.5% $560 $554 $513 $512 $436 $ /62311 Lumbar injection of diagnostic substance 2.3% $255 $222 $222 $222 $227 $ Arthroscopy - shoulder 2.3% $1,379 $1,367 $1,321 $1,188 $837 $734 Notes: Data for distribution of services is from services rendered, January 1998 through June Fee levels are for April 2001 workers' compensation fee schedule and Medicare 2001 fee schedule. *Although not among the top five codes in terms of expenditure, we present this service here since X-rays are commonly used in workers compensation. WCRI FLASHREPORT October 2001 FR Page 8 of 8