Workers' compensation insurance provides wages and medical benefits to employees injured in the course of their work. In the United States, workers' compensation is administered on a state-by-state basis, and many systems face significant challenges as medical and administrative costs have risen. Systems needed to be improved to save both public and private funds, while also improving the quality of care for injured workers.
In California, payments for workers’ compensation medical care had been increasing twice as quickly as payments for temporary and permanent disability. In response, in 2004, the California Commission on Health and Safety and Workers’ Compensation (CHSWC) adopted policies intended to control payments while improving program efficiency.
Immediately after these changes were implemented, average medical expenses decreased, but after 2005, the system experienced annual double-digit increases. This high rate of growth prompted concerns about whether further policy changes were needed to create better incentives for the efficient delivery of high-quality care under California’s workers’ compensation program.
"We have the chance to make the Workers' Compensation System better—much better—for workers and cheaper for business."
In 2010, the CHSWC asked RAND to analyze the effects that the 2004 policies had on access to medically appropriate care and efficiency of service delivery, then recommend additional changes to improve both quality and efficiency of care.
Researchers analyzed the available data and conducted interviews with myriad stakeholders in the workers’ compensation medical-treatment system: self-insured employers, payers, providers, applicants’ attorneys, state regulators, appeals judges, and researchers.
- How did payment control reforms affect workers’ compensation medical expenditures?
- What changes could increase the quality and efficiency of care delivered under the workers’ compensation system?
Key Findings & Recommendations
An examination of overall changes in annual expenditures showed that the costs of care had risen more slowly than they would have absent the 2004 reforms, but administrative costs had risen much more sharply and accounted for much of the growth.
The researchers recommended that, to increase administrative efficiency, California should
- use an external organization to review medical-necessity determinations, and
- explore best practices of other workers’ compensation programs and health programs.
To improve incentives for efficiently providing medically appropriate care, California should
- revise its fee schedule allowances,
- create nonmonetary incentives for providing medically appropriate care,
- reduce incentives for inappropriate prescribing practices, and
- implement pharmacy benefit network regulations.
RAND researchers participated in several working group meetings that led to the development of California Senate Bill 863. The bill adopted many of the recommendations in RAND’s report, including requiring independent medical review and updating the medical fee schedule, and in September 2012, California governor Jerry Brown signed it into law.
"The result of this work is a comprehensive reform proposal that protects workers and employers by improving benefits and ending wasteful litigation."
Christine Baker, director of the California Labor and Workforce Development Agency