Medical cost trends in CA workers’ compensation 2007-2012

Cost trends in CA workers’ compensation

At the March 6, 2014 CHSWC meeting, Henry Miller from the Berkeley Research Group presented information on access and cost trends in CA workers’ compensation for the period 2007-2012. There were several interesting numbers presented:

  • The number of injured workers receiving medical services declined 28%
  • The number of providers treating injured workers declined 21%
  • The number of bills submitted declined 21%
  • The number of services billed increased 11%
  • The total amount of billed charges declined 1%
  • The average charge per bill increased 26%
  • Total payments declined 24%

So what?

My key takeaway from these numbers is providers are getting paid materially less in 2012 than they were in 2007 so they have to become more productive. How much more productive? Let’s do a little math:

  • Nominal payments per provider have gone down 4%1 while inflation was 14% over that same period. Combining those two numbers means providers are getting paid 84% of what they were in 2007 (in constant dollars)2.
  • In order to maintain profits at the same level as 2007 (in constant dollars), providers need to generate 18% higher margins3.

Providers need to be 18% more efficient in 2012 than they were in 2007 just to maintain profits4

While this is a big number, our view at Healthonomy is this productivity increase is eminently possible with the application of better management practices supported by specialized technology. In fact, we think the regulatory changes introduced by CA SB863 make it easier to get paid for care, as long as it conforms to MTUS. More on that in another blog post…

1. Payments are 76% of 2007, there are 79% of the providers there were in 2007. Dividing the two gives 96%, so payments per provider are down 4%

2. 14% inflation means a dollar in 2012 was worth 1/(1+.14) = 88% of a dollar in 2007. 96% of 2007 payments provider combined with a dollar that’s worth 88% of 2007 = 84%. So revenues are 84% of what they were in 2007 in 2007 dollars.

3. If providers are making 84% of the revenue in constant dollars that means margins need to be higher by 1/.84 = 1.16 = 16%.

4. This probably understates the efficiency increase required, because administrative burdens have gone up.

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