Executive Summary:
Goal of Analysis
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:
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.
Findings
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 year1, 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.2Projections 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.
"Dueling Docs"
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 3. 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.
Issues:
The 1996 report discussed several issues with the survey that are still of concern. The most important were:
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.
Conclusions
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 report's 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.