The one-two punch on workers’ comp reforms
By Dennis A. Ross and Christine R. Sensenig
Special to the Star-Banner
Published: Sunday, March 22, 2009 at 8:21 a.m.
Last Modified: Sunday, March 22, 2009 at 8:21 a.m.
Florida employers have benefited enormously since the sweeping overhaul provided by the Workers’ Compensation Reform Act of 2003, enjoying rate decreases of 60 percent, less litigation, less fraud, better access to insurers and a slowing of increases in the cost of medical care. This is a welcome change from when Florida had one of the worst workers’ compensation systems in the country.
But here is a warning for employers: prepare for much higher costs ahead.
In the last year, reform provisions have suffered a one-two punch that could bring the system to its knees again, giving rise to much higher costs. The good news is that legislators and employers could intervene now to prevent this impending crisis.
The first punch to the system came in November’s Florida Supreme Court decision in Murray v. Mariners Health/ACE USA, which eliminated statutory caps on claimant attorney fees. Prior to 2003, open-ended hourly attorney fees were a perverse incentive contributing to Florida’s claim costs being 40 percent higher than any other state.
The second threat to the system is no less dire, but has attracted less public notice since it is more technical in nature. A new workers’ compensation hospital outpatient fee schedule tied to Medicare is being proposed by the Division of Workers’ Compensation and the three-member panel. Informed critics think this change could increase expenses to employers by $250 million to $400 million a year and create incentives that would increase medical utilization of high-cost hospital and specialist services. Over-use of expensive medical services is widely recognized as a primary system cost driver.
On the surface, looking to Medicare for a foundation of consistency would seem to be a sound direction, but careful analysis shows that the proposed cure is worse than the disease. With this fee schedule, some local hospitals would have emergency room payments reduced by as much as 39 percent. In addition, hospitals would have huge financial incentives to set up workers’ compensation clinics inside the hospital itself. Such clinics can charge a "facility fee" of roughly $1,600 per patient over what it would cost employers if the injured worker were treated in a free-standing doctor’s office. Incentives will also drive more outpatient procedures from cost-effective ambulatory surgery centers into more costly in-patient hospital procedures, resulting in yearly cost increases of millions to employers since in-patient surgeries cost two times more than those performed in same-day surgery facilities.
Workers’ comp is already the most profitable line of business for Florida hospitals, delivering gross margins in excess of 50 percent. The proposed fee schedule would make it even more lucrative.
California offers a concrete example of the market mayhem that could ensue. Since adopting a similar, but less radical, fee scheme a few years ago, surgery costs have soared and the state’s rating agency recently recommended a premium hike of 17.8 percent, largely due to a spike in surgery utilization.
Here in Florida, this method would likely lock in an annual 14 percent increase in outpatient service charges, a price inflation which would cost employers $38 million a year — every year, cumulatively.
Beyond cost, the system’s stated goal is to provide benefits and care that will return the injured worker to maximum productivity as expeditiously as possible. It doesn’t make sense to overlay a medical system that was designed for seniors on a working-age population that requires more aggressive treatment to arrive at a level of functionality that will afford timely return to work. As a result, employers’ lost-time costs will soar.
While no doubt well-intentioned, this fee scheme is not only dangerous but a piecemeal approach to a problem that requires a comprehensive solution. Medical costs and litigation costs are two of the largest system cost drivers and the basic pillars of the 2003 reforms. If these pillars collapse, the predictable results are higher costs for employers, a more contentious and prolonged medical treatments of injured workers, and a far more costly state for workers’ compensation insurers.
If you are a business owner, manager, employer, or an insurer, call your legislator to voice your concerns. Chaos and higher costs are not inevitable, and may be avoided with a prudent legislative path that does not include adoption of a flawed Medicare-based payment system for hospitals treating workers’ compensation patients.
Dennis A. Ross is a former member of the Florida House of Representatives where he served as chair of the reform effort which led to the successful passage of the Workers’ Compensation Reform Act of 2003. He is a Lakeland lawyer now specializing in business law and workers’ compensation. Christine R. Sensenig is a partner with the Sensenig Law Firm, P.A. in Sarasota, who concentrates her practice in employment related issues, including workers’ compensation.