Casualty Actuarial Society

2013 Ratemaking and Product Management Seminar

WC-4
Do Medical Fee Schedules Really Work? Evidence on Provider Behavior Reflected in Observed Changes in Medical Utilization and Severity as Well as the Prices Actually Paid

Wednesday, March 13, 2013: 9:45 a.m.
Seacliff Room (Hyatt Regency Huntington Beach Resort and Spa)
Quantifying the effects of changes to physician fee schedules in workers compensation has become an integral part of NCCI legislative pricing, as an increasing number of jurisdictions have introduced such legal provisions over the past decades. Indeed, understanding the dynamics of WC medical costs in response to market changes is critical to effective ratemaking for all workers compensation market participants.
The session will start with a discussion of the creation of a series of medical cost indexes (for fee schedule prices, prices actually paid, severity, and utilization) and offer evidence on how changes in actual medical prices paid depart from and may offset changes in the fee schedule itself. The analysis also provides evidence to evaluate the common belief that changes in utilization enable medical providers to further offset the direct impact of fee schedule changes. This analysis provides important insights into the dynamics of WC medical costs.
This will be followed by a discussion of the impact of the introduction of fee schedules in states where previously there were none. The introduction of fee schedules likely serves as a “shock” to the status quo in markets for WC medical services. The market reaction to such a shock is likely to differ in material ways from patterns observed once fee schedules are the norm. The medical index methodology presented in the first part of the session can also be used to assess the impact of the introduction of fee schedules in states that previously had no direct pricing controls. This analysis also requires the development of additional methods to estimate the cost trends that would have been observed if the fee schedules had not been introduced. The analysis indicates that fee schedules impact trends as well as levels of medical costs.
Moderator: Harry Shuford, Chief Economist, National Council on Compensation Insurance, Inc.

Speakers

Presentation 1
Harry Shuford, Chief Economist, National Council on Compensation Insurance, Inc.
Presentation 2
Nathan Lord, Senior Actuarial Analyst, National Council on Compensation Insurance, Inc.
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