This blog entry isn't going to put a new spin on an old fairy tale, like Mad Magazine once did in its “Scenes We'd Like to See” cartoons.Not because a new spin cannot be spun, of course, but rather because workers' comp has very little in common with fairy tales.Fairy tales have happy endings.
No one seems happy in workers' comp cases.Perhaps this is because workers' compensation is, at its heart, a compromise of everyone's interests.Employees, who are interested in compensation for their disability, compromised the availability of non-economic damages in exchange for limited recoveries defined by lost earning capacity.Employers, who are interested in limited liability, compromised the availability of fault-based defenses in common law and now must pay—well, depending on who you ask—“swift and sure” payments of compensation at a lesser rate.The judicial system has an interest in administrative economy.There are also societal interests such as the implementation of an experience-rating mechanism (encouraging insurability and actual payment of claims) and financial incentives to encourage and improve workplace safety.Finally, the public has an interest in promoting the fundamental purpose of workers' compensation—to “privatize” the consequences of industry wreckage so its costs are not shifted to the public, that is, the taxpayer.Just as a broken machine must be replaced to improve productivity, the earning capacity of broken employees must be replaced until they can be reintegrated into suitable employment.If this compromise loses balance, the consequences of work-related injuries place increasing stress on public benefit programs, and the burden on the taxpayer increases as benefits decrease and costs are shifted.
From time to time, WCRI has published studies that have, coincidentally or not, served as platforms for subsequent workers' compensation reform efforts in various states.This post considers WCRI's latest study of the North Carolina system, CompScope™ Medical Benchmarks for North Carolina, 9th Edition (2009).The post does not intend to criticize the specific data or its conclusions on a “micro” level—this would require more than a single blog post—but rather wants to provoke some thoughts on a “macro” level as to the utility of the study and whether its academic conclusions match up to experience in our day-to-day practices.
Generally speaking, academic research is a curious thing.It is, rightly or wrongly, presumed to be objective because it is, well, academic.Pro bono academic research must be a great gig, because you can draw your conclusions without fear of consequence because, well, you're not getting paid.Unlike pro bono researchers, most people must work and earn a living.Everybody has a mortgage to pay.I can only presume, therefore, that the 166-page WCRI research project was funded by someone, because most substantial research projects like this aren't done for free.And by “funding,” we're not only talking about monetary contributions, but also contributions of information.
Let's Expand the Scope to Accommodate Everyone's Interests
There is one thing that both funded and non-funded research studies have in common: they are only as valid as (1) the data upon which they rely and (2) their intended scope.Otherwise, their conclusions are of skeptical validity.For example, do you remember all the scientific and medical research supporting the tobacco industry's claim that cigarette smoking doesn't really cause cancer?Who do you think funded that research?In recent years, we've seen the same kinds of concerns in pharmaceutical research and full disclosure of funding and grants.The lesson here is that academic research has become a lucrative trade, even for some non-for-profit organizations.As Enron and AIG have taught us, we all know that books can be cooked one way or the other, and the real question is how soon it will catch up to us on a societal level.Academic research is no exception.
No One Wants to Win the “Race to the Bottom”
Another “macro” concern of research in general is that researchers only seek answers to the questions that are asked of them.Likewise, if you don't ask the question, you won't get an answer.The priority of issues researched—and who sets those priorities—is critical to measuring the objectivity of any study.Oftentimes, the issues that are not analyzed are far more important to the big picture than the issues analyzed, at least to the people not funding the research.
I suspect that the 2009 WCRI Medical Benchmark's focus on “costs,” without mentioning its Siamese twin of “benefits,” occurred because WCRI wasn't asked to look at benefits.However, you can't have one without the other in an efficient economy.In a perfectly efficient workers' compensation system, there is commensurability between the cost to employers and dollars per benefits paid.While we all know that perfection is fictitious—largely because of issues such as misclassification of risk categories or employment status (for example, independent contractor/employee/statutory employee or employer), misrepresentation of payroll information, and the impact on premiums from uninsured entities—this doesn't mean that states shouldn't strive for a perfect model and better efficiency.And you can only do this by incorporating benefits into the large-scale analysis.
In addition, no one wants to be just average.This is why, to me at least, the 2009 WCRI Medical Benchmark should be taken with a grain of salt, because its analyses are all grounded on median state comparisons. While statistically common, all this says is that you are better or worse than the ordinary Joe, who is lodged on the 50-yard-line the entire football game.Ironically, this focus on “normalcy” or median standards is also the most likely reason why WCRI research studies have served as platforms for reform efforts.In the real world, this race to achieve mediocrity is a race to the bottom.You rarely, if ever, see states already at the bottom trying to improve benefits, at least not in the real world.And someone has got to pay for injury-related medical expenses and disability.When legislatures set arbitrary limits on coverage, it is usually you and me, the taxpayer.
The fixation on cost alone is something to be wary of.Anyone can say “a rainbow is blue” by ignoring all the other colors.It doesn't mean the statement is right or wrong.Rather, it's just not helpful information.By broadening the issues to more than cost, we can better figure out if workers' compensation systems are working efficiently and adequately for everyone's best interests.As far back as 1972, the National Commission on State Workmen's Compensation Laws (established by OSHA) reported an irrational “fear that compensation costs may drive employers to move away to markets where protection for disabled workers is inadequate but less expensive” in response to a noticeable preoccupation with costs.More recently, the “National Commission on State Workers' Compensation Laws Act of 2009,” H.R. 635 (D-Baca, filed Jan 22, 2009), have resurrected the idea of a National Commission to look at things from a national perspective and a broader range of factors.Cost is one important factor, but only one color in the rainbow.What needs to be done are more comprehensive studies that look not only at this component, but the adequacy of employee benefits, the prevention of cost-shifting to the public, the delivery of competent and quality medical care, and other factors relevant to everyone's interests in the workers' compensation system.
Let's Look at More Comprehensive Data
To reiterate a logical axiom, a conclusion is only as valid as its premises.The 2009 WCRI Medical Benchmark only considered data from “medical bill review systems of data contributors,” and even then it considered complete data from less than one-fourth of some claims (p. 27).Let's put it in lay terms and call it a “fraction.”Even if this narrow slice were representative of the whole pie, it is still dependent—entirely so—on the validity of the little slice, which here consisted of allocations between disability and medical compensation made by (presumably) insurance carriers, and only by insurance carriers.This causes a few problems.
First, consider the difference between accepted claims and denied claims.In accepted claims, claims payment histories can trace the relative expenditures of indemnity and medical compensation in a straightforward fashion.In denied claims, however, carriers in North Carolina universally allocate settlement payments all towards indemnity, and none towards medical.In real life, these allocations necessarily represent—or perhaps misrepresent—that the injured employee was severely disabled, but never went to or does not need to go to a doctor.
The same allocations between indemnity and medical compensation occur in accepted claims, where future indemnity is also maximized and future medicals zeroed out. Take a look at the next Form 28C in one of your cases.What does it show?I told you so.
Anyway, there are consequences to these types of fiction.First, the data generated from them is arbitrary and inaccurate.Second, and perhaps more importantly, they represent (misrepresent?) that there are no medical consequences to an injury on paper, when in the real world everyone knows medical costs are the primary cost driver in workers' compensation.This suggests that there is some cooking of the proverbial books when it comes to these figures.The consequence is that the “unrealized” but real medical costs are shifted to another source, whether it is group health, Medicare or Medicaid, or doctors and hospitals that get stiffed for their bills.
The federal government has called Business and Industry's hand on this attempt to shift costs back to the public.Ten years ago, no one had heard of Medicare set-aside accounts, and it is no coincidence that their advent concurred with attempts in numerous states to cut back on workers' compensation benefits because of, you guessed it, a fixation on limiting costs without considering the impact on benefits.You can put a zero-dollar allocation on a Form 28C, but in real life someone has got to pay for the treatment received or to be received by the injured employee.Thanks to their historical habit of zeroing out medicals in attempts to shift costs, carriers today are under stringent reporting requirements from the Centers for Medicare and Medicaid Services for not reporting work-related injuries to Medicare.Bad habits really do catch up with us sooner or later.
Although I could be mistaken, I am not aware of any WCRI study that has looked at the cost-shifting effect of reducing workers' compensation benefits on the federal government's assumption of those costs once workers' compensation coverage runs out (or is denied in the first place).I am also not aware of any WCRI study that has looked at a similar impact on Medicaid, group health carriers, or other sources of medical coverage in claims involving denied treatment.Aren't these important enough issues, considering that the fundamental purpose of workers' compensation systems is to prevent this cost-shifting?Particularly when, as a general rule over the past 15 years or so, there has been a decline in the number of workplace injuries as well as costs, but an increase in profitability by insurance carriers in the voluntary market?
Hospitals Don't Recommend Surgery, but Doctors Do
One final observation on the WCRI study is its rationale behind its forecast in North Carolina.On one hand, the 2009 WCRI Medical Benchmark study concludes that hospital costs are the biggest driver in medical costs in North Carolina , attributing the increase to a higher incidence of surgical admissions by hospitals.On the other hand, the study concluded that payments to nonhospital providers were lower than the median for 42 other states.By this standard, North Carolina is quite cheap.
The problem here is that hospitals themselves do not recommend surgery.This function is rather left to doctors, who are the “nonhospital providers” in this context.In the context of academic research, it is sometimes difficult to realize that there is a real world outside of the books and data, and that real live people—not legal “persons” like corporations—are the ones that have to recommend surgery.But it is equally hard to believe that the medical community of North Carolina, thousands and thousands of doctors and surgeons, practice medicine according to standards of care that are out-of-whack compared to their colleagues in other states.Therefore, the higher incidence of hospital costs is not a function of surgery itself, which instead has to be attributed to the nonhospital provider—that is, the “cheap”—costs.
The conclusion here is that there are no conclusions.Rather, this entry aims to prompt discussion by proposing that we shouldn't take academic research, including the WCRI study, at face value without further verification and validation.In any event, the Industrial Commission's Order of January 27, 2009, which significantly reduces fees to hospitals starting on July 27, 2009, will likely make the WCRI report—and the data upon which it relies—last night's news by the time you read this entry.Until then, we are left to debating the issue with reference to data that might not have any correspondence to the real world, and that's certainly not a scene we'd like to see.