e-Texas e-Texassmaller smarter faster governmentDecember, 2000
Carole Keeton Rylander
Texas Comptroller of Public Accounts

Recommendations of the Texas Comptroller


Chapter 8: Health and Human Services

Extend the Use of Medical
Provider Networks to the
State Employees Workers’
Compensation Program


Summary

The medical care offered to state employees with work-related injuries or illnesses is costly and does not restrain the overuse of medical services. Extending the use of medical provider networks to the state workers’ compensation system could help control these costs. The State Office of Risk Management should be authorized to use medical provider networks to provide medical, pharmaceutical, and hospital services under workers’ compensation, and require employees with work-related injuries or illnesses to use the networks to obtain treatment.


Background

Texas provides state employees with comprehensive healthcare benefits covering illnesses suffered off the job as well as work-related injuries or illnesses. For off-the-job injuries or illnesses, state employees are treated primarily through medical networks that have contracted with the state. This arrangement gives employees access to high-quality health care while allowing the state to restrain medical usage and costs. To control overuse, these programs incorporate “gateway” physicians, preferred providers, and a system of variable co-payments or deductibles to create incentives for participants to manage costs. The use of medical provider networks generally is accepted as a reasonable arrangement that has not jeopardized the quality of state employees’ health care.

Medical provider networks are not used, however, to treat state employees with on-the-job injuries. The Texas Labor Code does not permit employers or insurers to restrict an injured worker’s choice of doctor or pharmacy. Under workers’ compensation, an injured state employee in effect can direct his or her own medical care. This has led to steady increases in Texas’ workers’ compensation costs, which are expected to reach more than $130 million in fiscal 2000-01.[1] Workers’ compensation claim costs per employee rose from $267 in fiscal 1995 to $297 in fiscal 1999.[2] Such figures are expected to continue rising due to increased usage and medical inflation rates.

According to the Texas Research and Oversight Council on Workers’ Compensation (ROC), Texas workers’ compensation medical costs are 49 percent higher than the national average.[3] ROC also reports that the average medical cost of Texas’ workers’ compensation claims is rising faster than in other states.[4]

Other jurisdictions have incorporated components of the use of networks into workers’ compensation systems that limit the number of providers available to injured employees. These programs require employees to obtain treatment from an employer-selected provider, or from a list of providers developed by the employer or a network provider organization.[5] A total of 37 states, including California, Florida, Michigan, New Mexico, New York, Ohio, Oklahoma, Pennsylvania and Virginia, impose some type of restriction.[6] To address concerns that injured workers may have about such restrictions, some states allow the employee to change providers after the initial visit or after a specific period of time. In California, for instance, injured workers must use their employer’s group coverage, if available, for the first 60 days before they can change providers.[7]

The State Office of Risk Management (SORM), which administers the state employee workers’ compensation program, is already experimenting with medical provider networks and is reporting savings through use of an optional pharmaceutical preferred provider organization (PPO). Under SORM’s current agreement, the state is guaranteed 10 percent savings below fee guidelines on each prescription that a participating pharmacy fills for an injured state employee.[8] From May 22, 2000 through November 1, 2000, the state saved $69,721 on 6,722 prescriptions filled through the voluntary program, an average savings of 10.4 percent per prescription.[9] SORM reports that requiring injured state employees to use the pharmaceutical PPO would save the state even more and allow SORM to negotiate better discounts for the state.[10]

Opportunities to use medical provider networks extend beyond pharmacy services. Workers’ compensation medical networks, similar to those networks already used to deliver medical services to state employees but focused on meeting the specific needs of injured workers, can reduce medical costs and could be used to provide medical and hospital services for injured state employees.[11] A survey conducted by the Oregon Department of Commerce and Business Services reports that private employers have saved 27 percent by using network providers.[12]


Recommendation

The Legislature should authorize the State Office of Risk Management (SORM) to use medical provider networks to provide medical, pharmaceutical, and hospital services under the state’s workers’ compensation program, and should require employees with work-related injuries or illnesses to use the networks to obtain treatment.

Under this recommendation, the Texas Labor Code would be amended to exempt SORM from prohibitions related to directing the medical care of an injured worker. Injured state employees would be required to obtain medical, hospital, and pharmacy services through state-approved medical provider networks. This would create a consistent system to provide state employees with similar medical benefits regardless of the nature of their injury, while ensuring quality care for injured employees and cost and usage control for the state’s workers’ compensation program.


Fiscal Impact

Authorizing SORM to use medical provider networks to provide medical, pharmaceutical, and hospital services under the workers’ compensation program for state employees and requiring state employee participation would reduce workers’ compensation medical costs.

In the first biennium, savings could equal $10.2 million. This assumes SORM negotiates a minimum discount of 10 percent for all medical, hospital, and pharmaceutical services provided to injured state employees, and that injured workers are required to utilize the network. SORM is already exploring the options discussed in this recommendation and could have a network in place by the beginning of fiscal 2002. The savings would be reflected in a reduction in SORM’s biennial appropriations.

Fiscal
Year
Savings/(Cost) to the General Revenue Fund
2002
$10,200,000
2003
$0
2004
$12,400,000
2005
$0
2006
$15,100,000


[1] Texas H.B. 1, 76th Leg., Reg. Sess. (1999), pp. I-77-78; and interview with Stuart B. Cargile, manager, Fund Accounting, State Office of Risk Management, Austin, Texas, August 28, 2000.

[2] Memorandum from the State Office of Risk Management, Austin, Texas, February 1, 2000.

[3] Research and Oversight Council on Workers’ Compensation, Medical Cost Trend Analysis Data from Three Workers’ Compensation Insurance Carriers, 1991-1998 (Austin, Texas, May 1999), p. 1.

[4] Research and Oversight Council on Workers’ Compensation, Medical Cost Trend Analysis Data from Three Workers’ Compensation Insurance Carriers, 1991-1998, p. 5.

[5] Workers’ Compensation Research Institute, Managed Care and Medical Cost Containment in Workers’ Compensation: A National Inventory, 1998-1999 (Austin, Texas, August 2000), p. 9.

[6] Workers’ Compensation Research Institute, Managed Care and Medical Cost Containment in Workers’ Compensation: A National Inventory, 1998-1999, p. 12.

[7] Workers’ Compensation Research Institute, Managed Care and Medical Cost Containment in Workers’ Compensation: A National Inventory,1998-1999, pp. 12-14.

[8] Interview with Jonathan Bow, general counsel, State Office of Risk Management, Austin, Texas, August 10, 2000.

[9] Memorandum from ScripNet PPO to Jonathan Bow, general counsel, State Office of Risk Management, November 1, 2000.

[10] Interview with Jonathan Bow, August 10, 2000.

[11] Workers’ Compensation Research Institute, “The Impact of Workers’ Compensation Networks on Medical Costs and Disability Payments,” (November 1999), p.1.

[12] Research and Oversight Council on Workers’ Compensation, Managed Care and Workers’ Compensation: A Review of Research (Austin, Texas, August 1996), pp. 20-21.



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