The 1996 report by the Commission on Health and Safety and Workers' Compensation (Commission) found dramatic savings in the cost of medical-legal reports following the peak years of the early 1990s. That analysis relied on projections made on small samples for the 1993 and 1994 accident years. This report follows-up that analysis by evaluating a full panel now available on 1993 permanent disability claims and extending the analysis through the 1995 accident year. These new data allow more accurate analysis of the 1993 data and preliminary evaluation of the reforms that went into effect for injuries occurring on or after January 1, 1994.
Data for this analysis come from the WCIRB Permanent Disability Survey. The survey summarizes accident claim activity, including such measures as the degree of impairment, the type and cost of specialty exams, whether the case was settled and, if so, what settlement method was employed.
Individual claims are stratified by injury severity based on second level individual case reports submitted to the WCIRB. Claims with estimates of permanent disability equal to or greater than 25 percent are considered "major" disabilities, while claims with ratings under 25 percent are considered "minor" disabilities. A stratified random sample of 3,500 permanent disability claims is drawn from all Permanent Partial Disability (PPD) claims on a selected subset of policies, with 1,500 claims coming from the "major" disabilities, and 2,000 claims coming from the "minor" disabilities. This survey has been conducted on claims from the 1989 through 1993 accident years.
The data available for the 1994 and 1995 accident years come from "special panels". These were drawn at 28 months and 16 months, respectively, from the beginning of the accident year. Both of these special panels consist of only 350 claims. As a result, variances for all estimates made for these years will be much wider than for the earlier target years.
Total cost of Medical-Legal Exams
For the insured community, the total cost of medical-legal exams performed on PPD claims by 40 months after the beginning of the accident year, has declined from a high of $394 million for the 1991 accident year to an estimated $59 million for the 1995 accident year. This is a decline of 85 percent in the cost of medical-legal reports and represents a savings of $336 million (see Chart 1).
This decline in costs reflects changes in all the components of the cost structure. Consider medical-legal exam costs on PPD claims as composed of the following components:
Total Cost = Number of PPD Claims * Average Cost/Exam * Average Number of Exams/Claim
Then, as Chart 2 displays, thirty-two percent of the decline in medical-legal costs can be attributed simply to a decline in the number of PPD claims. Thirty-five percent is due to a decline in the average cost per exam. And the other thirty-three percent of the savings results from a decline in the average number of exams per claim.
Number of PPD Claims
Table 1 shows the number of PPD claims for the 1989 through 1993 accident years based on WCIRB second level individuals case reports. Projections of PPD claim levels for the 1994 and 1995 accident years at a similar level of maturity (30 months following the beginning of the policy year) were made by UC DATA for comparison. The frequency of claims is broken down by major and minor disabilities.
The decline in PPD claims is driven by a decline in the number of reported injuries. Also, a substantial portion of the decline in PPD claim frequency may be the result of a steep drop in the number of claims with a psychiatric component, efforts to reduce fraudulent claims, and restrictions on post-termination claims. PPD claims are declining even more rapidly than disabling injuries.
Average Cost of Medical Legal Exams
As seen in Table 2, the average cost per exam has declined from a high of $987 for 1990 accident year claims to the current estimate of $518 for 1995 accident year claims. This improvement in exam cost is driven by at least three important changes:
1) the Medical-Legal Fee Schedule underwent several revisions.
2) the decline in the number of psychiatric exams is responsible for 19 percent of the decline in the average cost of all exams.
3) for injuries occurring after January 1, 1994, reform legislation reestablished the role of the treating physician in writing medical-legal reports.
Number of Exams Per Claim
Chart 3 illustrates the decline in the number of exams per claim. The 53 percent decline since 1989 is in part a reflection of changes made that were meant to reduce the "dueling docs" syndrome. Other changes include reestablishing the role of the treating physician and establishing the treating physician's findings as presumed correct except with a preponderance of evidence, limiting the number of exams allowed per specialty in litigated cases, coverage of all issues in a single "comprehensive" evaluation, and an aggressive effort to reduce psychiatric exams.
Cost of Psychiatric Exams
Much of the decline in the average number and the average cost of medical-legal exams per claim is the result of reductions in the number and cost of psychiatric claims.
As shown in Chart 4, the total cost of psychiatric exams has declined from a high for the 1991 accident year of $93.8 million to an estimated low of $5.8 million in 1995. This represents a savings of $88 million, or 94 percent, in the cost of psychiatric related medical-legal exams. This reduction accounts for 26% of the overall reduction in all medical-legal costs between the 1991 and 1995 accident years.
Improvement on Represented Claims
When these data are further disaggregated, it is clear that the decline in the number of exams is being driven primarily by the improvement on the represented claims. Chart 5 shows the data disaggregated by represented/unrepresented and major/minor injuries.
Regardless of whether the injury is major or minor, the represented cases in this period have had more exams than the unrepresented. This gap is, however, narrowing. While the frequency of exams on unrepresented claims has changed little, the change on represented cases has been substantial.
The percent of PPD claims with applicant and defense medical-legal exams by doctors in the same specialty has declined by just over 1/3 from the 1989 accident year to the 1993 and 1994 accident years. The percent of claims with both applicant and defense exam requests, regardless of the specialty, declined over the same period by nearly half (48%).
Impact of Treating Physician
The 1993 reform legislation reestablished the role of the treating physician in writing comprehensive medical-legal reports beginning in 1994. Discussions with insurers and doctors indicate that these reports are often paid and handled as treatment reports. When paid as medical treatment reports, they are reimbursed at a fraction of the cost of medical-legal reports.
If recorded as medical-legal reports, this would reduce the average cost per exam. If not recorded as medical-legal reports, this would reduce the average number of exams per claim.
The portion of claims closing with no recorded exams remained steady at approximately 14-16% from 1989-93. For the 1994 accident year, the portion of claims with no exams doubled to over 31%. It seems reasonable to attribute much if not most of this change to the reintroduction of the role of the treating physician.
The WCIRB PD Survey does not record the nature of the report writing physician other than to identify the report as Applicant, Defense, or AME. However, UC DATA examined a sample of several hundred files at the Workers Compensation Appeals Board with dates of injury in 1994 that closed prior to Feb. 1, 1997. As indicated in Table 3, of the medical-legal reports evaluating permanent disability filed on these claims, 36% were by treating physicians.
Time to Case Resolution
There has been no significant improvement in the rate at which cases close. Based upon the results of hazard analysis conducted as in our previous report, there are no significant differences in the time taken to case resolution in the 1990s. After controlling for injury severity, the number and type of specialty exams, and presence of employee legal representation, there is no statistically significant improvement in time to case resolution between 1990 and 1993, despite the variety of reforms which have been enacted during that time. Indeed, the only statistical difference between any particular accident years that we find is that cases following 1989 appear to be resolved more slowly than cases arising during the 1989 accident year. If anything, the 1993 claims show a disturbing trend towards slightly longer duration. The key will be when data on a full panel are available for 1994. This will allow hazard analysis to be performed for the first time on data for claims affected by the 1993 reforms.
The 1996 report discussed several issues with the survey that are still of concern. The most important were:
the sampling method used by the WCIRB not random
no variable exists to allow analysis of differences by geographic location
the source of request does not identify treating physician or QMEs chosen from panels
These concerns remain relevant since the survey has not been redesigned. In addition, the current year report highlights the importance that the treating physician may make in impacting the cost and frequency of medical-legal reports. This makes identification of reports by treating physician critical to evaluating the impact of recent reforms.
Another issue raised during the current review is the continued publication of calendar year injury statistics for PPD claims. These statistics have been developed and published by the Rating Bureau since the 1989 accident year. However, these data are being discontinued. Since legislative mandates are tied to calendar years and not policy years, continued publication of these data is critical for many evaluations and should be continued.
The 1996 report by the Commission evaluating the reforms to the medical-legal process found dramatic improvements since 1989 in the cost and frequency of medical-legal reports. Much of that analysis required projections for the 1993 and 1994 accident years. The current report, using more recent data, confirms those savings and the accuracy of the projections.
These more recent data also suggest that the substantial savings, especially for the 1993 and 1994 accident years, continue into the 1995 accident year. The 1996 report found that substantial savings resulted from changes in the Medical-Legal Fee Schedule and the decline in psychiatric exams and claims. These trends continue to be demonstrated in the 1997 reports findings.
In addition, data for the 1994 and 1995 accident years suggests an additional source of major cost savings, the reintroduction of the role of the treating physician. This legislative change is likely responsible for a substantial portion of the decline in the average cost and frequency of medical-legal reports on claims occurring after January 1, 1994. However, these data for 1994 and 1995 injuries come from special panels that are smaller than the full panels drawn for 1989-1993. The survey conducted during the current year, with a full panel of 3500 claims for 1994 injuries, will be important in analyzing this trend.
Finally, analysis of the time required to resolve PD claims continues to demonstrate the resistance of the system to more rapid claim resolution. The full 1994 panel, available late in 1997, will be critical to determining if the 1993 reforms have finally been able to achieve the goal of speeding up the claim resolution process.
This report has been prepared under contract for the Commission on Health and Safety and Workers' Compensation.
UC DATA would like to thank Christine Baker, Executive Officer of the Commission and the Commission staff for their assistance on this project. We would also like to thank Dave Bellusci and Larry Law of the Workers Compensation Insurance Rating Bureau for their assistance in obtaining and analyzing the data. And we would like to thank Bill Molmen of the Integrated Benefits Institute, Rhea Crane of CWCI, and Mark Gerlach for their helpful comments.