Do Higher Workers' Compensation Reimbursement Rates Increase Number of Workers' Compensation Cases?

There is a great deal of speculation surrounding claim-shifting from other payers to workers’ compensation. This research contributes to understanding of claim-shifting in response to financial incentives facing medical providers. In particular, we investigate the effect of higher workers’ compensation reimbursement rates on the likelihood of a case to be classified work-related or not. This research shows that in addition to the more direct effect of higher fee schedules (or no fee schedules) on workers’ compensation costs via higher payments for medical treatments, higher fee schedules contribute to higher workers’ compensation costs by increasing the number of injuries paid by workers’ compensation through the case-shifting mechanism. Workers’ compensation fee schedules and prices paid vary widely from state to state. Also in states with higher fee schedules or no fee schedules, the workers’ compensation prices paid are much higher than group health prices paid compared with states with lower fee schedules. This is even more true when comparing workers’ compensation and Medicare prices paid—and even more so for Medicaid prices paid. Hence providers in states with higher workers’ compensation fee schedules have stronger incentives to label, for example, a back injury to be work-related than a provider in a lower fee schedule state.

This analysis relies on workers’ compensation and group health medical data coming from a large commercial database, Truven MarketScan®. It includes individuals employed by mostly large employers and insured by one of approximately 100 group health plans. The database is unique in that it shows whether a given medical visit was paid for by group health or workers’ compensation. This research focuses on patients with fee-for-service group health plans. Under fee-for-service arrangements, medical providers are paid a stated fee for each service rendered similarly to workers’ compensation. For this study, we selected a sample of workers who had one of two types of injuries that are frequent sources of workers’ compensation claims and represent very different degrees of difficulty in establishing the work-relatedness of the injury. The first type of injury included certain soft tissue conditions, such as back pain, knee pain, and shoulder pain for which work-relatedness may be uncertain. The second type of injury included injuries by trauma, including fractures, lacerations, and contusions. For these conditions, it is much more straightforward to determine whether the injury was work-related or not, since the timing of the injury is better identified.

This analysis shows that case-shifting is more common in states with higher workers’ compensation payments. In particular, 20 percent higher workers’ compensation payments for physician services during an office visit resulted in 6 percent greater odds of a soft tissue injury being deemed work-related among fee-for-service patients. For the control group, patients with conditions for which causation is more certain, we did not find any evidence of more common case-shifting from group health to workers’ compensation in states with higher workers’ compensation reimbursement rates. This additional finding is consistent with the financial incentive explanation behind case-shifting of soft tissue injuries.