New Study Says Employer-Directed Choice of MD May Actually Increase Overall Claim Costs

Employer-Controlled Medical Care Drives Claimants to Attorneys, Erasing Savings in Medical Costs

A common mantra from the employer-carrier side of the workers’ compensation world goes something like this, “If you really want to gain control of claim costs, you need to move toward a system that gives the employer/carrier the right to choose the injured worker’s treating physician. A recent study to be published in the Journal of Occupational and Environmental Medicine [See Tao, Xuguang Grant, M.D., Ph.D., et al., “Is Employer-directed Medical Care Associated with Decreased Workers’ Compensation Claim Costs?” JOEM, December 8, 2017, DOI: 10.1097/JOM.0000000000001247], cautions that such conventional wisdom may be wrong, that while employer-mandated physician choice may reduce medical care costs themselves, the practice may also wipe away any such savings by increasing other claims expenses associated with higher attorney involvement on the claimant’s side.

The Physician-Choice/Attorney Involvement Study

The researchers identified and collected data related to 35,640 “lost time” indemnity claims from a nationwide beverage company’s workers’ compensation claims database for the period beginning January 1, 2003 and ending December 31, 2015. Data was obtained from all 50 states and the District of Columbia. Claims were primarily classified on the basis of the level of control allowed the employer in the selection of the treating physician. Accordingly, the researchers divided the claims among four groups:

  • G1: Employee-directed without employer Involvement, where employees have full control of the choice of physicians
  • G2: Employee-directed with employer Involvement, where employees choose from a list of physicians authorized by their employer
  • G3: Employer-directed with employee Involvement, where employers choose physicians for an initial period, and employees could subsequently choose their own physician
  • G4: Employer-directed without employee Involvement, where employers have full control of the choice of physicians.

The 50 states and the District of Columbia were grouped as follows:

  • G1 (total of 25): AK, AZ, CT, DE, DC, HA, IL, KY, LA, MD, MA, MN, MS, NH, OH, OR, RI, SD, TN, TX, UT, WA, WV, WI, and WY
  • G2 (total of 6): CO, GA, NV, NY, PA, and VA
  • G3 (total of 5): CA, ME, MI, NE, and NM
  • G4 (15 in total): AL, AR, FL, ID, IN, IA, KS, MO, MN, NJ, NC, ND, OK, SC, and VT

Among the four groups, G3—employer-directed with employee Involvement—had the highest average total paid/incurred. That group also had the lowest claim closure rate (90.0%). The researchers discovered that the two employer-directed groups (G3 and 64) had higher attorney involvement rates, as compared to the two employee-directed groups (G1 and G2).

Employer-Control Med Care Equates to Much Higher Claimant Attorney Involvement

The researchers noted that, among the groups, the attorney involvement rate was highest in G3. In fact, the researchers found that within category G3 (Employer-directed with employee Involvement), claimant attorney involvement was twice that of claims in G1.

Employer-Control Med Care Equates to Higher Overall Claims Costs

The data also showed that employers within category G3 saw increases in the risk of paying and incurring a claims cost exceeding $50,000. According to the researchers, the results suggest that attorney involvement might be an important factor in the “causal pathway between the types of medical direction and paid or incurred costs.”

In summary, the researchers indicated the data clearly pointed to the conclusion that claims administered in jurisdictions utilizing either form of employer-direction, i.e., G3 and G4—especially the group without employee involvement (G3)—might see lower cost in medical claims, but only so long as attorney involvement was removed from the equation. Considering overall claims costs, the savings in medical costs evaporated once the expenses associated with increased attorney involvement were added to the mix. The researchers noted that multiple earlier studies supported the conclusion that attorney involvement was generally associated with longer claim duration and high claim costs.

What Drives Claimants to Attorneys

The researchers cautioned that they could not determine the reason for greater attorney involvement in jurisdictions permitting employer involvement in the choice of treating physicians (G3 and G4). They speculated that in G3 and G4 states, employees might be more likely to seek out an attorney in an effort to gain more control over the overall claims process. They added that if injured workers conclude at the beginning of the claims process that they have little or no choice in their medical care, they may come to see “the system” as adversarial and, therefore, seek out legal representation to protect their interests. Even in G3-like jurisdictions, which allow for some employee choice later in the treatment process, the injured workers may conclude that they need legal help to maneuver through that process.

Strengths of the Study

The researchers posited that their study was strengthened by three factors:

  • It was a large-scale national study utilizing date for an extended period of time (2003-2015)
  • It utilized controls to account for potential “confounding” factors, such as sex, race, weekly wage, attorney involvement, injury severity, and the like
  • The claims had a high close rate over the time period (approximately 94 percent), reducing the uncertainty associated with open claims.

Study’s Limitations

The researchers acknowledged certain limitations. For example, the study included a relatively small number of states within the G2 and G3 groups and a large contribution of California claims in the G3 category. A second potential limitation arose from the fact that the population studied was from a single employer in one industry. It might not represent other employers and/or other industries within the United States.

Commentary

The study speaks to the complexity of many workers’ compensation claims and the notion that savings in one category of claims administration need not always equate with savings across the board. Certainly, the notion that attorney involvement drives up the costs of claims is not new; it’s been understood—or at least suspected—for decades. Yet, the importance of this study is that it tends to show that employer-controlled medical care and increased attorney involvement may be opposite sides of the same coin, such that the employer can enjoy reduced medical costs through controlling the system, as long as it is willing to pay out more than those savings in the long run.

The proponents of the Oklahoma opt-out program seem to have been prescient as to the results of this study since that short-lived “reform” of the Sooner State’s system included not only significant controls on the part of employers over the care provided to the injured workers, but also allowed the employers’ opt-out plans to limit significant any attorney involvement on the part of the injured worker. It was as if the proponents understood that if they were merely to control the choice of treating physician, that would be insufficient to drive down their costs.

The study has important implications even in states that allow the injured worker substantial freedom in choosing his or her own treating physician (e.g., the G1 category, with 25 jurisdictions), since it buttresses the notion that the more adversarial the employer makes its claims process, the more likely it is that the injured worker will seek out legal assistance and, on average, the higher the resulting cost of the claim itself.

The story also supports the argument that the more complicated a state makes its claims process, the more likely it is that claims costs will actually rise. We’ve observed this in several recent appellate decisions. For example, in Florida, where claims costs appeared to have yo-yoed in recent years, and in which the state’s Supreme Court struck down the state’s mandatory attorney fee schedule for claimants [see  Castellanos v. Next Door Co., 192 So.3d 431 (Fla. 2016)], the Court complained that the litigation of workers’ compensation claims in the state had become far too complex, to the detriment of the claimant, “who depends on the assistance of a competent attorney to navigate the thicket” [92 So.3d at 494]. As long as claimants view the comp arena as “a thicket,” claims costs will likely continue to rise, even allowing for the apparent savings experienced through employer-controlled medical care, at least according to the data presented in this study.

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