How Does the Massachusetts Medical Fee Schedule Compare to Prices Actually Paid in Workers Compensation?

How Does the Massachusetts Medical Fee Compare to Prices Actually Paid in Workers Compensation? WCRI Benchmarks Stacey Eccleston

About the Institute The Workers Compensation Research Institute is a nonpartisan, notfor-profit research organization providing objective information about public policy issues involving workers compensation systems. The Institute does not take positions on the issues it researches; rather it provides information obtained through studies and data collection efforts that conform to recognized scientific methods, with objectivity further ensured through rigorous peer review procedures. The Institute s work helps those interested in improving workers compensation systems by providing new, objective, empirical infor mation that bears on certain vital questions: How serious are the problems that policymakers want to address? What are the consequences of proposed solutions? Are there alternative solutions that merit consideration? What are their consequences? The Institute s work takes several forms: Original research studies on major issues confronting workers compensation systems Original research studies of individual state systems where policymakers have shown an interest in reform and where there is an unmet need for objective information Sourcebooks that bring together information from a variety of sources to provide unique, convenient reference works on specific issues Periodic research briefs that report on significant new research, data, and issues in the field Benchmarking reports that identify key outcomes of state systems

HOW DOES THE MASSACHUSETTS MEDICAL FEE SCHEDULE COMPARE TO PRICES ACTUALLY PAID IN WORKERS' COMPENSATION?

HOW DOES THE MASSACHUSETTS MEDICAL FEE SCHEDULE COMPARE TO PRICES ACTUALLY PAID IN WORKERS' COMPENSATION? STACEY ECCLESTON WC-06-27 April 2006 WORKERS COMPENSATION RESEARCH INSTITUTE CAMBRIDGE, MASSACHUSETTS

COPYRIGHT 2006 BY THE WORKERS COMPENSATION RESEARCH INSTITUTE ALL RIGHTS RESERVED. NO PART OF THIS BOOK MAY BE COPIED OR REPRODUCED IN ANY FORM OR BY ANY MEANS WITHOUT WRITTEN PERMISSION OF THE WORKERS COMPENSATION RESEARCH INSTITUTE. LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA [TO COME] PUBLICATIONS OF THE WORKERS COMPENSATION RESEARCH INSTITUTE DO NOT NECESSARILY REFLECT THE OPINIONS OR POLICIES OF THE INSTITUTE S RESEARCH SPONSORS.

ACKNOWLEDGMENTS I would like to thank those who provided invaluable assistance throughout this study. First we wish to thank the DMBI Core Funder Group for their continued support and guidance that makes this and other related reports possible. The Technical reviewer, Dr. Jay Himmelstein, made valuable comments and suggestions that led to improvements in the study s presentation and focus. Kevin Flynn of the Massachusetts Division of Health Care Finance and Policy also assisted along the way, answering specific questions with respect to Massachusetts fee schedule. Institute staff Xiaoping Zhao and Dawn Albright provided expert technical and programming assistance and Linda Carrubba, Stephanie Deeley, and Jammie Middleton provided quality administrative assistance in formatting the tables and text. Karen Holt shepherded the publication of the document through the publication process and Dr. Richard Victor provided invaluable insight and guidance throughout the process. Of course, any errors or omissions that remain are the responsibility of the author. Stacey M. Eccleston Cambridge, Massachusetts April 2006 v

TABLE OF CONTENTS List of Tables... vii How Does the Massachusetts Medical Fee Compare to Prices Actually Paid in Workers' Compensation?... 1 Background... 1 Summary of Findings... 2 Objectives and Scope... 3 Organization of the Report... 5 Data and Methods... 5 DISTRIBUTION OF MASSACHUSETTS WORKERS COMPENSATION MEDICAL PAYMENTS AMONG TYPES OF PROVIDERS AND SERVICES... 7 COMPARISON OF FEE SCHEDULE AMOUNTS AND PRICES ACTUALLY PAID FOR COMMON WORKERS COMPENSATION MEDICAL PROCEDURES... 11 Technical Appendix... 17 Statistical Appendix... 29 References... 38 vi

LIST OF TABLES 1 Distribution of Workers Compensation Medical Payments, by Type of Provider, Massachusetts / 8 2 Distribution of Workers Compensation Payments to Physicians, by Type of Service, Massachusetts / 9 3 Distribution of Payments to Physical/Occupational Therapists, by Type of Service, Massachusetts / 10 4 Distribution of Payments to Chiropractors, by Type of Service, Massachusetts / 10 5 Distribution of Payments to Hospitals, by Type of Service, Massachusetts / 11 6 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians / 12 7 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physical/Occupational Therapists / 16 8 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Chiropractors / 16 TA.1 List of Service Codes Analyzed in This Study / 21 TA.2 Services and Payments Represented by Codes Analyzed in the Study / 28 SA.1 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians / 30 SA.2 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians for Major Surgery / 33 SA.3 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians for Surgical Treatment / 35 vii

SA.4 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physical/Occupational Therapists / 36 SA.5 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Chiropractors / 37 viii

HOW DOES THE MASSACHUSETTS MEDICAL FEE SCHEDULE COMPARE TO PRICES ACTUALLY PAID IN WORKERS' COMPENSATION? BACKGROUND This study reports the results of an analysis requested by the Commonwealth of Massachusetts (Department of Industrial Accidents and Division of Health Care Finance and Policy (DHCFP)) for descriptive information that may provide input to their decisions about a revised medical fee schedule. The information helps policymakers to assess the extent to which prices paid for medical services in 2003 2004 were the same as those listed in the fee schedule in place at the time. We do this by comparing actual payments with the fee schedule level for the most common procedure codes. The study also provides information about the extent to which payments typically are made below the fee schedule or above the fee schedule. The study examines the fee schedule in effect in 2003 2004. The current fee schedule was adopted subsequently. Like all WCRI studies, this study makes no recommendations. The Massachusetts fee schedule is the lowest in the nation. Providers contend that this raises concerns about access to care for injured workers. Payors raise concerns about the relevance of the fee schedule, especially for surgery and specialty care, as they find they increasingly negotiate fees above the fee schedule for some providers and services. Several prior WCRI studies are relevant to this discussion. A WCRI study of state fee schedules in 41 states (Eccleston et al., 2002) found that Massachusetts had one of the lowest fee schedules in the U.S. in 2001, raising concerns about access to care. A subsequent study of the outcomes reported by injured workers in seven states found that Massachusetts workers, on average, reported better outcomes (including access) than a number of states with higher fee schedules or no fee schedule (Fox, Victor, and Liu, 2006). Additional studies on the impact of any changes in fee schedule levels on access to care may be warranted. One explanation for the relatively good outcomes with respect to access to care might be that the fee schedule was not entirely binding and that price 1

negotiation was common. We see evidence of this in an earlier WCRI study in two ways (Eccleston and Zhao, 2005). First, the average price paid for physician services in Massachusetts was not unusually low (86 percent of the price in the median of 12 large comparison states), despite the low fee schedule. Prices paid to surgeons were 18 percent higher than the price in the median state. Second, Massachusetts physicians bill a disproportionate number of office visits at higher revenue Current Procedural Terminology (CPT) codes notably higher than in most other states, particularly those with higher fee schedules. SUMMARY OF FINDINGS Unlike most physician-billed services, major surgical procedures were often paid above the fee schedule. For many of these procedures, it was not uncommon for the median payment for a procedure to be two or three times the fee schedule amount. Typically, 50 60 percent of procedures were paid above the fee schedule level. By major surgery we mean services categorized in the surgical section of the CPT manual that involve invasive procedures, generally requiring anesthesia. Common examples include knee and shoulder arthroscopy and spinal laminotomies and laminectomies (see Tables 6 and SA.2). Among the major surgical procedures, there were some important exceptions. For hernia repairs, 84 percent were paid at or below the fee schedule level. For shoulder reconstruction and carpal tunnel surgeries, the median procedure was paid at the fee schedule level, but 42 to 51 percent were paid above the fee schedule. For each major surgical procedure listed, the Massachusetts fee schedule level was significantly lower than all nearby state fee schedule levels. However, the typical amount paid for the listed surgery services in Massachusetts was typical of the fee schedule levels in Vermont, Maine, and the rural areas of New York, and only somewhat lower than the fee schedule amounts found in New York City. For most services the fee schedule levels in Connecticut and Rhode Island were substantially higher than the prices typically paid in Massachusetts (Table SA.2). 2

For most nonsurgical physician services, at least 90 percent of procedures were paid at or below the fee schedule levels. There were some exceptions, but even for the exceptions, at least 75 percent of procedures were paid at or below the fee schedule levels (see Tables 6 and SA.1). At least 80 percent of the time, most surgical treatments (surgical CPT codes that are less invasive than those defined under major surgery, such as wound repairs, arthrocentesis, and certain injections) were paid at levels equal to or less than the fee schedule. A few exceptions were found. One was spinal injections (CPT 62331), for which 20 percent were paid above the fee schedule. Another was the removal of a deep implant, for which half were paid above the fee schedule. The fee schedule levels and prices paid for surgical treatments in Massachusetts were also generally lower compared to fee schedule levels in other nearby states except for some procedures, such as arthrocentesis, paid at levels close to the fee schedule levels in Vermont and New York (see Tables 6 and SA.3). The majority (90 percent or more) of payments for physical/occupational therapists services were made at or below the applicable fee schedule level. Exceptions include physical performance tests or measurements which were paid above the fee schedule level about 30 percent of the time (see Tables 7 and SA.4). For chiropractic services, 95 percent of services were paid at or below the applicable fee schedule level. While the vast majority were paid at the fee schedule level, payments below the fee schedule amount were common for chiropractic extraspinal manipulative treatments and manipulative treatments to multiple regions of the spine (see Tables 8 and SA.5). OBJECTIVES AND SCOPE This study examines common medical procedures delivered to injured workers and paid for under workers compensation in Massachusetts. Services examined include physician services surgical 3

major surgery surgical treatment nonsurgical evaluation and management (e.g., office visits, emergency care) radiology nerve testing physical/occupational therapist services chiropractic services In addition, the Statistical Appendix (Tables SA.1 through SA.5) presents more detailed information on a larger set of services billed by physicians, physical/occupational therapists, and chiropractors, including services such as anesthesia, mental health services, nursing, home health care, and supplies and equipment when billed by these providers. The majority of nursing, home health care services, and supplies and equipment are billed by other providers as defined in this report. The study does not make comparisons to fee schedule amounts for these other services since they are either not covered under the provider fee schedule or the billing involves units of time, etc., that make it difficult to compare unit level pricings (anesthesia or home health care, for example). Hospital services are included in the distribution of payments found in Tables 1 and 5. However, the billings for diverse services are done under broadly defined revenue codes. We do not report the average payments for these codes since we do not consider them as meaningful as the average payments for individual CPT codes. Pharmaceuticals are not included in the medical cost measures in this study. Although the information contained here is useful for making inferences about access to care, such inferences should be made with care in the absence of data on worker outcomes. For example, for some procedures, namely major surgical procedures, we find that payments were often significantly above the fee schedule. One might infer that payors were negotiating higher rates with certain providers in order to obtain access to their services and but for the higher negotiated rates, workers would not have access to quality care. However, it should also be noted that for these procedures, there were also a significant number of workers who got care paid for at or below the fee schedule level. It 4

is unknown if the providers who delivered this care provided inferior quality care or good quality at a lower price. Without direct outcomes measures, one cannot know for certain. ORGANIZATION OF THE REPORT The next section describes the methods and data used. More detail is found in the Technical Appendix. Following the methods and data section, for context, is a description of the distribution of medical payments in the Massachusetts workers compensation system among different provider types and within the major groups of services delivered by those providers (Tables 1 through 5). The remainder of the study examines the relationship between the reimbursement rates actually paid and those listed in the fee schedule for the most common medical procedures rendered to injured workers. Tables 6 through 8 summarize the results for physicians, physical/occupational therapists, and chiropractors, respectively. The tables report the information for selected common procedures. A Statistical Appendix presents the information for a larger set of procedures billed by these providers. For surgical services, the state agencies requested that we compare the Massachusetts fee schedule to its counterparts in nearby states. This is done in Tables SA.2 and SA.3. DATA AND METHODS The data used in this study come from medical line item billings for services rendered from January 1, 2003, through June 30, 2004. Additional data cleaning and transformation is done by WCRI researchers to compensate for certain limitations in the reporting of modifiers and multiple units of service for certain types of procedures (see the Technical Appendix). The prices paid for services rendered in Massachusetts are compared to the applicable fee schedule level (the fee schedule in effect December 2002 through August 2004) as published by the DHCFP. Comparisons of those fees are also made to the current fee schedule effective September 2004 in Massachusetts. Information on fee levels in nearby states for surgery services come from the currently published fee schedules in each of those states. 5

The services analyzed in this study represent the most important services billed under workers compensation. The request from the Division of Industrial Accidents and DHCFP specified the desire to evaluate the most frequently billed services by each individual provider type. In addition, because surgery (particularly major surgery) services are less frequently billed, but make up a significant portion of medical payments, we separately analyzed the most frequent services billed within the major surgery and surgical treatment service groups independently. See the Technical Appendix for a full description of the services specifically analyzed in this report. The data come from bills for medical services with dates of service between January 1, 2003, and June 30, 2004, when a single Massachusetts fee schedule was in effect. There were 1,353,483 observations (individual medical services billed) within the given dates of service, representing over 53,000 workers compensation indemnity and medical-only claims, with injury dates from between January 1996 through October 2003 from Massachusetts insurers and self-insured employers. The data used in this study represent approximately 33 percent of the claim volume in the state from 12 claims paying organizations. 1 Because this study is based on a large subset of claims in the state, we have determined that the claims used in this analysis are representative of the population of claims in the state. An earlier report based on the same data used in this study shows that, in Massachusetts, the average incurred medical payment per claim in this dataset is quite similar to that reported by the Workers Compensation Rating and Inspection Bureau of Massachusetts (WCRIBMA) (Telles, Wang, and Tanabe, 2006, Table TA.5). For example, the average incurred medical payment per indemnity claim for insured employers for 2002 claims at 12 months maturity was $6,510 as reported in the WCRI Detailed Benchmark/Evaluation (DBE) database, compared to $6,661 as reported by the WCRIBMA, a difference of only 2 percent. 1 We estimate the percentage of representation by using the number of claims from the insured population as reported by the Workers Compensation Rating and Inspection Bureau of Massachusetts and the number of claims reported by self-insurers (from National Academy of Social Insurance reports) and comparing that to the number of claims in the DBE for the same time period (dates of injury). With a representative sample of 33 percent of the claims, it is expected that the volume of medical services delivered is also near 33 percent of total medical services delivered for the time period January 2002 to August 2003, since the average number of services delivered per claim is similar in the sample and in the population. 6

The reader should be aware of several possible limitations in the data. First, if the WCRI data sources (insurers and self-insurers) had more sophisticated or effective medical bill review processes or higher network penetration rates than the typical payor, then the average prices paid reported in this study would understate the true average price paid. The network penetration rate for the claims and services in our database is 39 percent overall and 26 percent for only nonhospital services. Second, the payment data used in the study come from 2003 and 2004. Comments received on an earlier draft from several payors suggested that negotiated prices for surgeries have increased significantly since that time. If so, then the prices paid that are reported here understate the true prices. The payments for the services analyzed in this study were covered by the fee schedule that was implemented in December 2002. The current fee schedule was implemented in September 2004. The later fee schedule is typically 3 to 5 percent higher than the December 2002 fee schedule for many physician nonsurgical services with the exception of nerve conduction tests, where reimbursement rates were increased 30 to 50 percent. For surgical services, the fee schedule was either increased by 3 to 5 percent on average, or decreased 5 to 10 percent depending on the surgical service. For physical medicine and chiropractic care, there was generally a 3 to 5 percent increase in fees with the exception of fees for iontophoresis, which were increased by 45 percent, and decreases of between 5 and 10 percent in certain modalities, such as whirlpool, electrical stimulation and therapeutic activities. The comparisons of the December 2002 and September 2004 fee schedule amounts can be found in each of the Statistical Appendix tables. DISTRIBUTION OF MASSACHUSETTS WORKERS COMPENSATION MEDICAL PAYMENTS AMONG TYPES OF PROVIDERS AND SERVICES Table 1 shows that 80 percent of workers compensation medical payments were made to either physicians or hospitals (34 percent to physicians and 46 percent to hospitals) with 8 percent going to physical or occupational therapists, 3 percent paid to chiropractors, and 7

8 percent going to other providers defined as retail pharmacies, 2 home health care providers, nurses, physicians assistants, psychologists, medical equipment suppliers, and radiology centers. The focus of this study is on the payments made to physicians, chiropractors, and physical/occupational therapists whose reimbursement rates were subject to the provider fee schedule. Table 1 Distribution of Workers' Compensation Medical Payments, by Type of Provider, Massachusetts Provider Type Total Medical Payments a (excluding drugs) Physician 34.0% Hospital outpatient 32.5% Hospital inpatient 13.5% Physical/occupational therapist 8.1% Chiropractor 2.6% Other provider b 7.7% Unknown provider 1.7% Total 100.0% c a "Total medical payments" represent total workers' compensation medical payments for services rendered and paid for from January 1, 2003, through June, 30, 2004. Pharmaceuticals are excluded from the total. The database includes a representative sample of claims from 9 individual data sources accounting for approximately 33 percent of the claims in the state. A comparison of the incurred medical cost per insured claim in the sample used for this study to the incurred medical cost per claim reported by the state rating bureau indicates that the sample is representative, at least of the insured population of claims in the state. b "Other providers" are primarily made up of home health care providers, medical equipment suppliers, retail pharmacies, nurses, physicians assistants, and radiology centers. c Column total may not add up to 100 percent due to rounding. Nearly half (46 percent) of payments to physicians were for surgical services. Nearly one-fourth (22 percent) were for evaluation and management services (e.g., office visits). Most of the rest of the physician payments were distributed among radiology services (professional component), anesthesia, nerve testing, and supplies and equipment (Table 2). As would be expected, nearly all payments (91 percent) to physical/occupational therapists were made for physical medicine services. About 5 percent were made for nerve and muscle testing (Table 3). Table 4 shows that 85 percent 2 Since drugs are not included in the analysis, the services delivered by retail pharmacies here are primarily supplies and equipment. 8

of payments made to chiropractors were for chiropractic manipulations and/or physical medicine modalities and procedures, with about 11 percent being made for evaluation and management services. Among hospital providers (both inpatient and outpatient), about 20 percent of payments were made for room and board associated with inpatient stays. Nearly 17 percent of payments were made for services defined as operating, recovery or treatment room services, while nearly 12 percent of payments were made for hospital physical medicine services. The rest of the payments were distributed among emergency services, hospital furnished supplies and/or equipment, radiology services, anesthesia, or clinic evaluation or management services (Table 5). Table 2 Distribution of Workers' Compensation Payments to Physicians, by Type of Service, Massachusetts Service Type Payments to Physicians Major surgery 35.6% Evaluation and management 22.5% Surgical treatment 10.6% Major radiology 9.5% Anesthesia 6.4% Minor radiology 3.6% Supplies and equipment 2.2% Neurological/neuromuscular testing 2.2% Emergency services 1.7% Legal and special reports 1.4% Other services a 2.5% Unknown services 1.8% Total 100.0% a "Other services" include mental health services, injections, and application of casts and splints among other miscellaneous services, each making up less than 0.5 percent of total medical payments to physicians. 9

Table 3 Distribution of Payments to Physical/Occupational Therapists, by Type of Service, Massachusetts Service Type Total Medical Payments a to PT/OTs Physical medicine 90.6% Nerve and muscle testing 4.9% Other services b 3.6% Unknown services 0.9% Total 100.0% a "Total medical payments" represent total workers' compensation medical payments for services rendered and paid for from January 1, 2003, through June, 30, 2004. Pharmaceuticals are excluded from the total. The database includes a representative sample of claims from 9 individual data sources accounting for approximately 33 percent of the claims in the state. A comparison of the incurred medical dollars on the sample set of claims used for this study to the incurred medical dollars reported by the state rating bureau on all claims indicates that the sample is representative of the population of claims in the state. b "Other services" here include evaluations, speech therapy, and specialized home care, each making up less than 1 percent of payments to physical/occupational therapists. Key: PT/OT: physical/occupational therapist. Table 4 Distribution of Payments to Chiropractors, by Type of Service, Massachusetts Service Type Total Medical Payments a to Chiropractors Physical medicine and chiropractic 84.7% Evaluation and management 10.8% Neurological/neuromuscular testing 1.5% Minor radiology 1.2% Supplies and equipment 1.0% Other services b 0.7% Unknown services 0.2% Total 100.0% c a "Total medical payments" represent total workers' compensation medical payments for services rendered and paid for from January 1, 2003, through June 30, 2004. Pharmaceuticals are excluded from the total. The database includes a representative sample of claims from 9 individual data sources accounting for approximately 33 percent of the claims in the state. A comparison of the incurred medical dollars on the sample set of claims used for this study to the incurred medical dollars reported by the state rating bureau on all claims indicates that the sample is representative of the population of claims in the state. b "Other services" here include evaluations, non-prescription drugs, exercise equipment, and other miscellaneous services, each making up less than 1 percent of payments to chiropractors. c Column total may not add up to 100 percent due to rounding. 10

Table 5 Distribution of Payments to Hospitals, by Type of Service, Massachusetts Service Type Total Medical Payments a to Hospitals Room and board 19.3% Operating/treatment/recovery rooms 16.9% Physical medicine 11.5% Emergency 9.7% Supplies and equipment 7.3% Major radiology 7.5% Minor radiology 6.0% Clinic evaluation and management 3.2% Anesthesia 3.8% Miscellaneous charges for ambulatory care 2.0% Laboratory and pathology 1.9% Neurological/neuromuscular testing 1.1% Other services b 2.8% Unknown 7.0% Total 100.0% a "Total medical payments" represent total workers' compensation medical payments for services rendered and paid for from January 1, 2003, through June, 30, 2004. Pharmaceuticals are excluded from the total. The database includes a representative sample of claims from 9 individual data sources accounting for approximately 33 percent of the claims in the state. A comparison of the incurred medical dollars on the sample set of claims used for this study to the incurred medical dollars reported by the state rating bureau on all claims indicates that the sample is representative of the population of claims in the state. b "Other services" here include respiratory services, intravenous therapy, preventative care, and skilled nursing among other miscellaneous services, each making up less than 0.5 percent of payments to hospitals. COMPARISON OF FEE SCHEDULE AMOUNTS AND PRICES ACTUALLY PAID FOR COMMON WORKERS COMPENSATION MEDICAL PROCEDURES Physician Services Table 6 compares the fee schedule and prices paid to physicians. The services were broken into seven major service categories billed by physicians. The majority of services billed by physicians in each category were paid at the fee schedule level. Exceptions to 11

this include major surgical services which were more often paid above the fee schedule, and a few services listed under other services (psychotherapy and special reports), paid at levels below the fee schedule. In fact, the median payment for most nonsurgical physician services was most often at the fee schedule level. Table SA.1 shows that the same is true for a much larger set of physician services. Table 6 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians Service Code Service Description (including modifiers) Percent Paid below Fee Percent Paid at Fee Percent Paid above Fee Median Payment as Fee Amount Evaluation and management 99212 99213 99214 99283 Office or other outpatient visit of an established patient, problem-focused history 17 78 5 100% Office or other outpatient visit of an established patient, expanded 21 75 3 100% Office or other outpatient visit of an established patient, detailed 22 75 3 100% Emergency department visit for the evaluation of a patient with an expanded history and exam and moderate complexity 15 83 2 100% X9157 Initial/comprehensive office visit, new patient 23 70 7 100% Nerve testing 95903 Nerve conduction, motor, with F-wave study 41 55 4 100% 95903_26 Nerve conduction, motor, with F-wave study professional component 9 85 6 100% 95904 Nerve conduction, sensory 14 86 0 100% 95904_26 Nerve conduction, sensory professional component 10 87 3 100% 95860 Needle electromyography 22 76 2 100% 95900 Nerve conduction, amplitude and latency 14 80 6 100% Major radiology 70450_26 72148_26 72148 Computed tomography, head or brain professional component 14 80 6 100% Magnetic resonance imaging, spinal canal and contents professional component 14 80 6 100% Magnetic resonance imaging, spinal canal and contents 36 60 4 100% 12

Table 6 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians (continued) Service Code Service Description (including modifiers) Percent Paid below Fee Percent Paid at Fee Percent Paid above Fee Median Payment as Fee Amount 73221_26 73721_26 Magnetic resonance imaging, any joint of upper extremity professional component 15 81 4 100% Magnetic resonance angiography professional component 14 81 5 100% Minor radiology 72100_26 73130_26 Radiologic exam, spine, two or three views professional component 15 83 2 100% Radiologic exam, hand, minimum of three views professional component 2 96 2 100% 73140_26 Radiologic exam, finger professional component 2 96 2 100% 73610_26 Radiologic exam, complete, minimum of three views professional component 2 96 2 100% 76005_26 Fluoroscopic guidance professional component 15 75 10 100% Major surgery 22851 Application of intervertebral biomechanical device 9 26 64 303% 23420 Reconstruction of complete shoulder 13 45 42 100% 29826 Arthroscopy, decompression of subacromial space 13 19 68 240% 29877 Arthroscopy, debridement/shaving of articular cartilage 12 20 68 247% 29881 Arthroscopy, with meniscectomy 10 28 62 238% 29888 Arthroscopically aided anterior cruciate ligament repair 10 28 62 202% 49505 Repair initial inguinal hernia, age 5 or over 21 63 16 100% 63030 64721 Laminotomy with decompression of nerve roots, one interspace 9 33 58 287% Neuroplasty and/or transposition, median nerve at carpal tunnel 11 39 51 100% 69990 Microsurgical techniques 5 42 53 153% Surgical treatment 12001 12002 Simple repair of superficial wounds of scalp, 2.5 cm 27 72 1 100% Simple repair of superficial wounds of scalp, 2.6 7.5 cm 18 81 1 100% 20550 Injection, single tendon sheath 11 79 9 100% 20605 Arthrocentesis, intermediate joint or bursa 12 77 11 100% 13

Table 6 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physicians (continued) Service Code Service Description (including modifiers) Percent Paid below Fee Percent Paid at Fee Percent Paid above Fee Median Payment as Fee Amount 20610 Arthrocentesis, major joint or bursa 13 78 8 100% 62311 Injection, lumbar, sacral 12 68 20 100% Other physician billed services 90806 Individual psychotherapy, insight oriented 42 49 8 100% 93010 Electrocardiogram, interpretation and report only 1 94 4 100% 99080 Special reports such as insurance forms 81 15 3 81% 99232 Subsequent hospital care, per day, expanded 17 76 8 100% A4556 Electrodes, per pair 4 87 9 100% Major Surgery For most major surgical services, payments were typically made above the fee schedule. For example, 62 percent of knee arthroscopies (CPT 29881) were paid at levels higher than the fee schedule and 28 percent were paid at the fee schedule level. The median price paid was more than double the applicable fee schedule rate (Table 6). Table SA.2 shows that the average price paid for this procedure was $1,533 and the median price paid was $1,607, while the fee schedule amount was $663. By comparison, the fee schedule rates in nearby states ranged from $1,043 in Maine to $2,885 in Connecticut. The disparities in payment above the fee schedule likely reflect a number of factors. First, some surgeons may be seen by payors as especially effective in treatment and facilitating return to work. Payors would likely pay a premium to such surgeons to induce them to see the payors patients. Some surgeons may have unusual bargaining power due to reputation or unique capabilities and may be able to extract higher payments. Other providers may be seen by payors as providing lower quality care. Such providers would likely limit their fees to the fee schedule or lower network negotiated rates. 14

Surgical Treatment Like the majority of physician services, surgical treatment was most often paid at levels equal to, or lower than, the fee schedule amount. Table SA.3 shows this was true of most surgical treatment services with the exception of certain injection procedures where services were paid at levels above the fee schedule 20 to 30 percent of the time, and for removal of an implant (CPT 20680) which was paid at levels above the fee schedule more than 50 percent of the time. Physical/Occupational Therapist Services Table 7 compares the fee schedule amounts and actual prices paid for common procedures billed by Massachusetts physical and occupational therapists. More than 95 percent of the time services were paid at levels at or below the fee schedule, and the median payment was equal to the fee schedule level. Table SA.4 shows this was true of the larger group of physical therapists services. In most cases, services were paid at the fee schedule level; however, for some services as many as 20 to 30 percent of the procedures were paid at levels lower than the fee schedule amount. For example, the most commonly billed procedure (CPT 97110) was paid at the fee schedule level 75 percent of the time and was paid at rates lower than the fee schedule 25 percent of the time (Table 7). For work hardening, payment below the fee schedule was not uncommon. Table SA.4 shows that there were other exceptions where 20 to 30 percent of the time the physical medicine procedure was paid at a level higher than the fee schedule. For example, physical performance tests or measurements were paid above the fee schedule level nearly 30 percent of the time. 15

Table 7 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Physical/Occupational Therapists Service Code (including modifiers) Service Description Percent Paid below Fee Percent Paid at Fee Percent Paid above Fee Median Payment as Fee 97035 97010 97110 97140 97530 Application of a modality, ultrasound, each 15 minutes 9 90 1 100% Application of a modality, one or more areas, hot or cold packs 0 100 0 100% Therapeutic procedure, one or more areas, 15 minutes 25 75 0 100% Manual therapy techniques mobilization/manipulation 17 83 0 100% Therapeutic activities, direct patient contact by the provider 26 74 0 100% Chiropractic Services Table 8 compares the fee schedule amounts and actual prices paid for common procedures billed by Massachusetts chiropractors. As with other providers, the majority of payments were made at levels equal to, or lower than, the fee schedule levels. There were a few exceptions. Payments below the fee schedule amount were common for chiropractic extraspinal manipulative treatments and manipulative treatments to multiple regions of the spine (see Table SA.5). Table 8 Comparison of Fee Amounts and Prices Actually Paid for Selected Common Medical Procedures Billed by Massachusetts Chiropractors Service Code (including modifiers) Service Description Percent Paid below Fee Percent Paid at Fee Percent Paid above Fee Median Payment as Fee 97010 97014 97032 98940 Application of a modality, one or more areas, hot or cold packs 0 100 0 100% Application of a modality, electrical stimulation 14 86 0 100% Application of a modality to one or more areas 32 67 1 100% Chiropractic manipulative treatment, spinal, one or two regions 16 84 0 100% 98941 Chiropractic manipulative treatment, spinal 24 76 0 100% 16

TECHNICAL APPENDIX DATA The data used in this study come from medical line item billings for services rendered from January 1, 2003 through June 30, 2004. Additional data cleaning and transformation is done by WCRI researchers to compensate for certain limitations in the reporting of modifiers and multiple units of service for certain types of procedures. REPRESENTATIVENESS OF DATA The data used come from WCRI s Detailed Benchmark/Evaluation (DBE) database which includes detailed line item medical bills for services rendered to injured workers with dates of injury between 1996 and 2003. The data used in this analysis relies on bills and medical services with dates of service between January 1, 2003, and June 30, 2004, when a single Massachusetts fee schedule was in effect. There were 1,353,483 observations (individual medical services billed) within the given dates of service, representing over 53,000 workers compensation indemnity and medical only claims with injury dates from between January 1996 through October 2003 from Massachusetts insurers and self-insured employers. The data used in this study represent approximately 33 percent of the claim volume in the state. 3 Although this study is based on a subset of claims in the state, we believe the claims used in this analysis are representative of the population of claims in the state. An earlier report based on the same data used in this study shows that in Massachusetts, the average incurred benefit payment and average incurred medical payment per claim in this dataset is quite similar to that reported by the Workers Compensation Rating and Inspection Bureau of Massachusetts (WCRIBMA) 3 We estimate the percentage representation by using the number of claims from the insured population as reported by the Workers Compensation Rating and Inspection Bureau of Massachusetts and the number of claims reported by self-insurers (from National Academy of Social Insurance reports) and comparing that to the number of claims in the DBE for the same time period (dates of injury). With a representative sample of 33 percent of the claims, it is expected that the volume of medical services delivered is also near 33 percent of total medical services delivered for the time period January 2003 to June 2004, since the average number of services delivered per claim is similar in the sample and in the population. 17

(Telles, Wang, and Tanabe, 2006, Table TA.5). For example, the average incurred medical payment per indemnity claim for insured employers for 2002 claims at 12 months maturity was $6,510 as reported in the WCRI DBE database compared to $6,661 as reported by the WCRIBMA, a difference of only 2 percent. One possible distortion might occur if the WCRI data sources (insurers and selfinsurers) had more sophisticated or effective medical bill review processes or had higher network penetration rates than the typical payor. If so, then the average prices paid reported in this study would understate the true price paid. The network penetration rate for the claims in our database is 39 percent overall, and 26 percent for just nonhospital services. SERVICES (CPT CODES) ANALYZED IN THIS STUDY The services analyzed in this study represent the most important services billed under workers compensation. The request from the Division of Industrial Accidents and Division of Health Care Finance and Policy specified the desire to evaluate the most frequently billed services by each individual provider type. In addition, because surgery (particularly major surgery) services are less frequently billed, but make up a significant portion of medical payments, we separately analyzed the most frequent services billed within the major surgery and surgical treatment service groups independently. Table TA.1 lists all the CPT codes and abbreviated definitions that are analyzed in this report. There are 155 unique CPT codes analyzed in this study (187 codes when considering the modified codes individually). Additionally, Table TA.1 shows the percentage of nonhospital services and payments that each code represents and the total for all codes together. These 187 codes make up the majority of all services (85 percent) billed by nonhospital providers and the majority (64 percent) of all payments made to nonhospital providers. Table TA.2 summarizes the percentage of services and dollars that are represented in the analysis for each provider type and/or service group found in Tables SA.1 through SA.5. It shows that the 187 services individually analyzed in this report cover 65 percent of physician expenditures (surgical and nonsurgical together); 80 percent of the payments made to physical/occupational therapists, and 81 percent of the payments to chiropractors. 18

DATA CLEANING METHODS Correcting for Multiple Units Billed as Single Unit WCRI identified that many paid amounts for CPT codes for certain supplies and equipment, neurological testing or physical medicine services were being billed in multiple units, but the number of units billed was not included in the data. For example, the most commonly paid amount for A4556, a pair of electrodes, is $10.27, but there were also many instances of $20.54 in the data. Clearly, that represented two pairs of electrodes and not a disparate payment amount. To correct for the multiple units in the majority of instances, WCRI identified the ten most frequently paid amounts and then looked for exact multiples of those amounts. Then WCRI replaced the aggregate cost of the multiple units with the correct number of individual services, and unit prices were then calculated. In our example, we would count that line as two pairs of electrodes with an amount paid of $10.27 each. Correcting for Missing Modifiers Some of the variation in the payments for an individual code can be explained by modifiers to that code, particularly for radiology services where there may be a separate technical and professional component. This analysis uses the CPT code plus the modifier as the basic unit of comparison, so that comparisons are made across the same medical procedure. However, the modifier does not always appear in the data. In order to correct for missing modifiers, we compared the prices paid for services where the modifier was present to the group of services that did not contain a modifier. If an unmodified service was paid at a level that matched the modified service, we assumed that the modifier was missing and reassigned that service and its payments to the modified service. For example, the professional component of radiology service 72141 (CPT 72141_26) has a fee schedule rate of $83.37. The fee schedule rate for the unmodified service (or whole procedure) is $532.12. If the amount paid on services grouped under 72141 (unmodified) was $83.37, that service and its payments were reclassified to 72141_26. WCRI performed this correction for modifiers 26 and 27 for the major and minor radiology groups, and for modifiers 50, 51, 59, 80, and 81 for the surgery and treatment surgery 19

service groups. These modifiers were chosen because they are common in their service category, and they represent a difference in price that was large enough to distinguish from the unmodified service. Other Issues Many types of services are billed on a time unit measure, such as charges per fifteen minutes of services. Such services include anesthesia and home health care. Since the units are typically not reported in the data, we are unable to accurately compare the fee schedule amounts and actual prices for a unit. Some physical medicine codes used by chiropractors and/or physical therapists are also based on fifteen minute intervals; however, these are far more likely to represent even multiples of fifteen minutes and so are corrected by the multiple units correction described above. The time units in anesthesia are more likely to be linear; e.g., to represent twelve minutes or nineteen minutes instead of an even multiple of fifteen. WCRI s algorithm to correct for multiple units was applied to physical medicine codes, but could not be applied to anesthesiology or home health for this reason. This study does not attempt to make price comparisons for anesthesia, home health care, and certain other procedures, such as broadly defined supplies, which together make up only 6.9 percent of total medical payments to nonhospital providers. Correcting for Outliers Any data set has outlier values, sometimes from data entry errors by the payors or their vendors. These extreme values contribute disproportionately to the average due to the skewed distribution. To mitigate the influence of the extreme values on our calculations of average medical payments per CPT code, we applied data capping. For each CPT code, we identified and examined highly unusual payment amounts. We applied an algorithm that we developed to flag likely data entry errors. In all, we flagged about 3 percent of the payments as likely data entry errors. We applied a data capping algorithm that eliminated the outliers at the high and low extremes of the price distribution. The algorithm basically identified implausible increases from one percentile to the next and capped the lines with amounts beyond the point of the increases. The upper bound starts 20

at the 90 th percentile of the price distribution for a unique procedure and searches upwards through percentiles. The upper bound is set to 120 percent of P i if the ratio of P i+1 to P i is greater than 1.5. The lower bound starts at 10 th percentile and search downward through percentiles. The lower bound is set to 80 percent of P i if the ratio of P i to P i-1 is greater than 2. Computations of Prices Paid and Fee Amounts For all analyses, the data were separated into different provider groups. Within each provider group, we chose the CPT codes with the highest frequency to include in the study. These codes typically also make up the highest percent of expenditures for each provider with the exception of some surgery codes that are less frequently billed, but represent a high proportion of dollars. We did a separate ranking within the surgery categories to additionally capture and analyze these important codes. For each code chosen within the provider group, WCRI computed the mean, median, and mode of the amount paid. The prices were then compared to the fee schedule, and we presented the percent of services that were paid at levels at, above, and below the fee schedule. For most services, the mode (most frequent price) was the fee schedule amount but not for most major surgical services. For major surgeries, we do not report the mode as it was not a meaningful value. The prices for major surgeries are very often negotiated either below or above the fee schedule at various levels, resulting in a wide variety of payment amounts, and the fee schedule amount is less often the amount paid. TA.1 List of Service Codes Analyzed in This Study CPT Code Number of Definition Services a Nonhospital Services Nonhospital Expenditures Top services included in analysis 97110 177,300 Therapeutic procedure, one or more areas, each 15 minutes 18.98 6.46 97010 69,611 Application of a modality to one or more areas, hot or cold packs 7.45 0.46 97140 58,483 Manual therapy techniques, mobilization/manipulation 6.09 1.93 99213 49,489 Office or other outpatient visit of an established patient, expanded 5.15 4.31 97530 37,510 Therapeutic activities, direct patient contact by the provider 4.02 1.66 97014 36,297 Application of a modality, electrical stimulation 3.89 0.71 99214 31,959 Office or other outpatient visit of an established patient, detailed 3.33 4.28 21

TA.1 List of Service Codes Analyzed in This Study (continued) CPT Code Number of Definition Services a Nonhospital Services Nonhospital Expenditures 97035 31,405 Application of a modality, ultrasound, each 15 minutes 3.30 0.46 97032 27,235 Application of a modality to one or more areas, electrical stimulation, 15 minutes 2.92 0.62 98940 23,820 Chiropractic manipulative treatment, spinal, one or two regions 2.55 1.14 98941 21,912 Chiropractic manipulative treatment, spinal 2.35 1.34 97112 18,418 Therapeutic procedure, neuromuscular re-education of movement 1.97 0.68 97124 16,383 Therapeutic procedure, massage 1.75 0.46 99212 14,337 Office or other outpatient visit of an established patient, problem focused history 1.49 0.89 X9157 12,673 Initial/comprehensive office visit 1.36 2.49 97012 9,302 97140_59 6,913 Application of a modality to one or more areas, traction, mechanical 1.00 0.18 Manual therapy techniques, mobilization/manipulation distinct procedural service 0.72 0.23 97799 6,653 Unlisted physical medicine 0.71 0.38 97002 6,581 Physical therapy re-evaluation 0.70 0.32 97001 5,725 Physical therapy evaluation 0.61 0.52 99283 5,057 Emergency department visit for the evaluation of a patient with an expanded history and exam and moderate complexity 0.53 0.50 97535 4,754 Self-care/home management training 0.51 0.82 97113 4,728 Therapeutic procedure, aquatic therapy 0.51 0.20 99204 4,058 Office or other outpatient visit of a new patient, comprehensive history, moderate complexity 0.43 0.87 95904 2,895 Nerve conduction, sensory 0.30 0.22 97033 2,781 99244 2,718 Application of a modality to one or more areas, iontophoresis, each 15 minutes 0.30 0.06 Office consultation for new or established patient with comprehensive history and exam with moderate complexity 0.29 0.80 97532 2,643 Development of cognitive skills to improve attention 0.28 0.08 99215 2,636 99211 2,571 Office or other outpatient visit of an established patient, comprehensive 0.28 0.48 Office or other outpatient visit of an established patient, may not require the presence of a physician 0.28 0.06 98942 2,558 Chiropractic manipulative treatment, spinal, five regions 0.27 0.19 99203 2,544 99243 2,487 Office or other outpatient visit of a new patient, detailed history, low complexity 0.27 0.40 Office consultation for new or established patient with detailed history and exam with low complexity 0.27 0.53 22