Worker’s comp needs to be competitive

Wisconsin employers are increasingly frustrated with excessive medical costs in the state’s Worker’s Compensation (WC) program, so much so that they are organizing to get some relief.

There is a good-news-bad-news picture for Worker’s Compensation here. The good news is that the number of claims for injuries on the job has dropped dramatically in the state over the last two decades. About 220,000 claims were filed in 1994, a big number, but intensified safety programs in workplaces across the state have cut that number by half. That’s more than 100,000 fewer injuries – a remarkable accomplishment, especially since the population has grown in the last 20 years.

In manufacturing, where companies are pushing lean disciplines deeper and wider into their operations, safety is always the number one metric. It’s always safety first as a goal, and then secondary metrics like scrap rates, throughput, inventory turns, productivity and many others.

Lean disciplines have worked so well to transform manufacturing and thereby make U.S. companies globally competitive that other sectors — service industries, the military and even a few hospitals — have adopted them as well.

So that’s the good news. The dark side is that the savings on the sdamagess side of the WC cost structure have been gobbled up by a rise in the associated medical expenses. In the last 20 years, medical expenses for Wisconsin WC claims have more than doubled.

The total WC bill in Wisconsin for 2011 was about $1.7 billion, which covers medical costs, lost pay and compensation for injuries. The medical part has been estimated at 70%.
That percentage is among the highest in the country. The result is that there has been no dividend for the much improved safety performance. Clearly, something is out of whack.

The something is that employers are forced by state law to pay sticker prices for medical services for an injured worker. They are not allowed to use the discounts that they bring to bear in their main line health plans. That means payments far above average health plan prices.

“I’m paying full boat,” said one corporate benefits manager, “and I don’t get that.”

Another said her company’s WC prices are 40% to 50% higher than for its health plan.

Here’s an example. For a carpal tunnel treatment, the Wisconsin WC rate is $2,762 vs. a national average charge of $1,489. Medicare pays no more than $410.

Wisconsin’s WC program goes back more than a century to 1911 and it generally has been regarded as one of the best managed in the country. For instance, the return-to-work culture and track record for injured employees is one of the most effective of the states. For another, 95% of claims get paid without dispute. Less litigation is always a good idea.

That is positive testimonial to a collaborative program has been managed since its inception by the Worker’s Compensation Advisory Council, a joint entity with five labor and five management representatives. Every two years, they come up with an agreed-upon bill to update rules and payments. It involves lots of compromise, and the legislature has historically followed its recommendations.

But the soaring medical costs have strained that process. Labor generally agrees, having learned that high prices do not mean high quality. Indeed, the opposite now appears to be true. The best providers that have driven out defects, waste and infections generally have lower prices. There is an emerging inverse correlation between price and quality.

At least two business groups will be making the case for medical payment reform. They will be asking to be allowed to make value-based purchases from the best hospitals and doctors. The current system allows injured workers to go anywhere, regardless of quality or price.

That is an unsustainable model. So, if the council can’t fix it, the legislature may bypass the time-honored process. That almost happened in the last legislative session. A bill was forwarded that would put some kind of caps on prices for procedures. The providers fought the proposal and won.

That stalemate isn’t going to last, because the estimated savings from going to more average payment schedules, whatever form they take, is $100 million to $200 million per year. That level of savings would go a long way to making Wisconsin a more competitive state.

Nobody wants to make sausage in the legislature, so the unions, providers and employers have every incentive to work out a more effective purchasing method for the next budget cycle that starts in 2015.

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