Department of Labor: Medcostreport04

J a n u a r y 2004
workers' compensation
medical costs
in minnesota
A summary of the Minnesota Department of Labor and Industry's

Medical Costs Task-f orce activities and recommendations
T h e M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y c o n v e n e d a Wo r k e r s ' C o m p e n s a t i o n
M e d i c a l C o s t s Ta s k - f o r c e t h a t m e t s e v e n t i m e s b e t w e e n A u g . 2 6 a n d D e c . 2 , 2 0 0 3 .
Tw e l v e r e p r e s e n t a t i v e s f r o m t h e l a b o r, b u s i n e s s , h e a l t h c a r e , i n s u r a n c e , h o s p i t a l a n d p h a r m a c y
industries considered the nature and scope of medical costs in the Minnesota workers’ compensation
system (see Appendix A). The department provided briefings of available information and data
about medical costs in Minnesota workers’ compensation, other Minnesota health care systems
a n d o t h e r s t a t e ’s w o r k e r s ’ c o m p e n s a t i o n s y s t e m s . T h e d e p a r t m e n t a l s o p r e s e n t e d a s e r i e s o f
r e c o m m e n d a t i o n s t o s e r v e a s a s t a r t i n g p o i n t a n d f o c u s f o r t h e t a s k - f o r c e ’s d i s c u s s i o n s a n d
considerations.
An overview of the department's recommendations:
Pharmacy costs
1 . Set maximum allowable fee for medications at: • time and quantity parameters for the use of
selected drugs for specific conditions (such
• maximum allowable charge + $3.65; or as nonsteroidal anti-inflammatories for initial
treatment of musculoskeletal injuries).
• 86 percent average wholesale price + $3.65,
if no maximum allowable charge price is Hospital costs
available.
1. For all services not covered by the medical
2. Allow an employer/insurer to contract with fee schedule, pay noncritical-access hospitals
and negotiate rates with, a pharmacy network at the most recent average overall payment-
from which the injured employee must select to-charge ratio for all hospitals plus 15 percent
a pharmacy to fill prescriptions. Mileage parameters (53 percent + 15 percent = 68 percent). Adjust
would be included to ensure reasonable access. this reimbursement rate annually with updated
data from Department of Health.
3 . Require pharmacy benefit managers to disclose
to employers and insurers any rebates or 2 . Identify critical-access hospitals for increased
discounts received from drug manufacturers reimbursement. Pay in-patient services at
or pharmacists. critical-access hospitals at 100 percent of
usual and customary (U and C) rate. Pay
4. Amend the workers’ compensation treatment all other services at the medical fee schedule
parameters to provide: rate plus 15 percent, if it applies, or at the
average payment-to-charge ratio for all hospitals
• rules for use of specific classes of drugs p l u s 3 0 p e r c e n t , i f i t d o e s n o t a p p l y.
(such as use of narcotics for musculoskeletal
pain); and
2
Summary of department's recommendations continued ...
Medical fees
1. The appropriate inflator for the conversion factor is the producers price index for physicians
(PPI-P). Re-adjust the Minnesota workers' compensation medical fee schedule conversion
factor to what it would have been had the PPI-P been used for annual adjustments since
1 9 9 3 — $ 6 2 . 8 6 — a n d i n t h e f u t u r e a d j u s t b y P P I - P.
2. Pay nonhospital services not covered by the fee schedule at 68 percent of the providers U
and C costs.
U t i l i z a t i o n c o n t ro l
1 . A m e n d t h e s t a t u t e t o l i m i t p h y s i c a l m e d i c i n e m o d a l i t i e s a n d p r o c e d u r e s t o 2 4 v i s i t s p e r i n j u r y.
2. Amend the statute to define any technology not approved by the FDA prior to the date of
enactment as “not reasonably required” unless approved for use by the Department of
Labor and Industry commissioner in consultation with the Medical Services Review Board
(MSRB).
Tre a t m e n t p a r a m e t e r s
1. Add to the statutory definition of “reasonably required treatment”:

• “as defined by any applicable treatment parameter;”
• treatment exceeding a parameter is presumed to be “not reasonably required;” and,
• presumption is rebuttable by clear and convincing medical evidence that a reason for
departure exists.
2. Require judges and payors to apply the parameters:

• payors must cite parameters in denials of “unreasonable” treatment;
• fact finders must make decisions based on parameters; and
• if parameter was not used in adjudicating a claim, the fact finder must explain why it was
not used.
3. Authorize the department to use “expedited” rule-making to update and extend parameters
with legal standard that parameter must reflect evidence-based medical practice and be
developed in consultation with MSRB.
Wo r k e r s ' C o m p e n s a t i o n M e d i c a l C o s t s Ta s k - f o r c e r e c o m m e n d a t i o n s • J a n u a r y 2 0 0 4
3
M a n a g e d c a re
1. Certified managed care plans be allowed to negotiate fees with participating providers.
2 . M a k e p e e r r e v i e w, u t i l i z a t i o n r e v i e w, c a s e m a n a g e m e n t a n d d i s p u t e r e s o l u t i o n o p t i o n a l
features of certified managed care.
3. Redefine when there is a prior treating relationship.
4 . R e q u i r e t h e e m p l o y e e t o u s e t h e c e r t i f i e d m a n a g e d c a r e p l a n ’s d e s i g n a t e d p r o v i d e r f o r t h e
first 14 days of treatment.
5. Even when the employer does not have a managed care plan, allow employer to select initial
health care provider for the first 14 days of treatment.
Summary of medical task-force's recommendations

The labor representatives were universally opposed to any changes in the status quo,
consistent with their opinion that there was no medical cost problem and their concern that the
proposed changes would all have negative impacts on the injured workers’ access to health
care services.
The pharmacy representative also opposed any changes to the current system.
The health care provider representatives unanimously opposed any reductions in payments for
services, but frequently endorsed recommendations aimed at controlling inappropriate
utilization and strengthening the treatment parameters.
Only two of the health care provider representatives offered any comments about the
d e p a r t m e n t ’s m a n a g e d c a r e r e c o m m e n d a t i o n s . T h e y b o t h o p p o s e d a n y c h a n g e s – e s p e c i a l l y
allowing managed care plans to negotiate rates of payment with participating providers.
A m a j o r i t y o f t h e e m p l o y e r r e p r e s e n t a t i v e s g e n e r a l l y e n d o r s e d t h e d e p a r t m e n t ’s
recommendations or offered no comment.
Note: The task-forces agendas, testimonials and minutes can be found online at
w w w. d o l i . s t a t e . m n . u s / m e d c o s t . h t m l .
4
Background about workers' compensation medical costs
The cost of medical care in workers’ compensation has been a recurrent concern both in
M i n n e s o t a a n d a r o u n d t h e c o u n t r y. Wo r k e r s ’ c o m p e n s a t i o n i n s u r e r s p a y f o r a n y “ r e a s o n a b l e
a n d n e c e s s a r y ” t r e a t m e n t f o r t h e “ c u r e o r r e l i e f ” o f t h e w o r k i n j u r y.
Unlike almost all other medical payment systems, there are no limits placed on the types of
services covered, the types of health care providers that can render treatment or the duration
o f l i a b i l i t y. M o r e o v e r, a n u m b e r o f c o s t - c o n t r o l t e c h n i q u e s u s e d i n g e n e r a l m e d i c a l i n s u r a n c e
are not compatible with the workers’ compensation system: deductibles, co-pays and co-
i n s u r a n c e p a i d b y t h e c l a i m a n t o r l i f e t i m e l i m i t s o n l i a b i l i t y.
In May 1988, the Minnesota Legislature provided funding to the Department of Labor and
Industry for the first comprehensive study of medical costs in workers’ compensation in the
U n i t e d S t a t e s . T h e s t u d y 1, r e l e a s e d i n M a r c h 1 9 9 0 , f o u n d t h a t :
• medical costs were increasing faster in workers’ compensation than in general health care;
• the rate of inflation was getting larger (9.3

percent in 1965-1970; 14.7 percent in
1980-1985);
• workers’ compensation insurers paid twice as

much as general medical insurers for comparable
injuries.
Since then, these findings have been extended

a n d r e p r o d u c e d i n s t u d i e s i n o t h e r s t a t e s 2.
As a result of these findings, in 1992 the Minnesota

Legislature enacted a number of workers’ compensation
reforms designed to control medical costs. These
included:
• a 15 percent reduction in maximum fees paid to health care providers, imposition of the
M e d i c a r e r e s o u r c e - b a s e d r e l a t i v e v a l u e s y s t e m ( R B RV S ) a n d l i m i t a t i o n o f f u t u r e f e e
i n f l a t i o n t o n o m o r e t h a n t h e c h a n g e i n t h e s t a t e w i d e a v e r a g e w e e k l y w a g e ( S AW W ) 3 ;
• Introduction of certified managed care and mandatory treatment parameters to reduce

i n a p p r o p r i a t e h e a l t h s e r v i c e s u t i l i z a t i o n 4.
Footnotes
1
Research and Education Division “Report to the Legislature on Health Care Costs and Cost Containment
i n M i n n e s o t a Wo r k e r s ’ C o m p e n s a t i o n ” S t . P a u l , M i n n . ; M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y ;
1 9 9 0 W. G. J o h n s o n , J . F. B u r t o n , L . T h o r n q u i s t , B . Z a i d m a n , “ W h y D o e s Wo r k e r s ’ C o m p e n s a t i o n P a y M o r e
for Health Care” Benefits Quarterly 1993; 9(4): 22-3.
2
J o h n s o n W. G. , B a l d w i n M . L . , B u r t o n J . F. , “ W h y i s t r e a t m e n t o f w o r k r e l a t e d i n j u r i e s c o s t l y ? N e w e v i d e n c e
from California” Inquiry 1996; 33: 53-65.
3
M i n n e s o t a St a t u t e s s e c t i o n 1 7 6 . 1 3 6 ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 / .
4
Minnesota Statutes sections 176.1351 and 176.83 subd. 5; available at:
w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 / .
5
Recent increases in workers’ compensation premiums Large increases in workers’ compensation medical
have again raised concerns about medical costs costs have not been unique to Minnesota, but
in workers’ compensation. While the average have occurred in other jurisdictions as well,
medical cost per claim grew 3 to 7 percent a many of which have recently begun to address
year from 1995 to1998, increases in the cost t h e s e i s s u e s 8. I n 2 0 0 3 , t h e M i n n e s o t a L e g i s l a t u r e
of medical care per claim reached double digits directed the Department of Labor and Industry
beginning in 1999: 16 percent in 1999, 12 percent to convene a “working group” with members
in 2000, and 15 percent in 2001, the most recent r e p r e s e n t i n g l a b o r, e m p l o y e r s a n d h e a l t h c a r e
y e a r f o r w h i c h d a t a i s a v a i l a b l e 5. p r o v i d e r s t o s t u d y m e d i c a l c o s t s i n t h e s t a t e ’s
w o r k e r s ’ c o m p e n s a t i o n s y s t e m 9.
Even after adjusting for annual growth in wages
to correct for general inflation, the rate of growth The working group was directed to identify cost
in costs has been substantial: 10 percent in 1999, drivers, determine if costs were excessive and
7 percent in 2000, and 12 percent in 2001. consider whether injured workers have adequate
access to health care. In particular the group
Likewise the cost of workers’ compensation, was asked to examine the growth of medical costs
which had fallen by almost half from 1994 to in workers' compensation in comparison to overall
2000, rose 5 percent relative to payroll in 2001, medical costs and medical costs that might be
with another 12 percent increase in cost in 2002, unique to the workers’ compensation system. The
t o $ 1 . 5 8 p e r $ 1 0 0 o f p a y r o l l 6. T h i s i n c r e a s e working group was required to make a report of
has occurred despite the fact that the number its findings and any recommendations it may have
of occupational injuries continues to decline – t o t h e Wo r k e r s ’ C o m p e n s a t i o n A d v i s o r y C o u n c i l
22.9 percent since 1995, 14.6 percent since 2000 7 . (WCAC) by Jan. 9, 2004. In turn, the WCAC
must report to the Legislature by Feb. 15, 2004.
Medical costs in Minnesota workers’ compensation since 1993
D e p a r t m e n t p re s e n t a t i o n : A f t e r a 1 3 . 7 p e r c e n t d e c l i n e b e t w e e n 1 9 9 3 a n d 1 9 9 4 d u e t o t h e c o s t
containment measures implemented after the 1992 legislative reforms, the average medical
payment per claim has nearly doubled:
Figure 1
$2,500
While the medical cost per case has risen most
dramatically for those claims with lost work
Average payment per claim
time, they have also increased for claims without
$2,000
lost time.
$1,500 Of course, some of this increase is explained

by the statutory provision that allows the maximum
fees paid to providers to increase each year by
$1,000
n o m o r e t h a n t h e c h a n g e i n t h e S AW W.
$500 But this is not the entire explanation; the increase

in the average payment per claim is greater
$-
than the increase in maximum fees due to the
1994 1995 1996 1997 1998 1999 2000 2001 2002
a n n u a l i n c r e a s e i n t h e m e d i c a l f e e s c h e d u l e ’s
Research and Statistics, c o n v e r s i o n f a c t o r.
M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3
5
R e s e a r c h a n d S t a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3 .
6
Ibid. The 2002 estimate is based on preliminary data from the Minnesota Workers' Compensation Insurers Association.
7
Ibid.
8
J . B . Tr e a s t e r “ C o s t o f I n s u r a n c e f o r Wo r k I n j u r i e s S o a r s A c r o s s U . S . ” T h e N e w Yo r k Ti m e s
J u n e 2 3 , 2 0 0 3 ; r e p r i n t a v a i l a b l e a t : www. w c r i n e t . o rg / a r t i c l e _ n y _ t i m e s _ 6 . 2 6 . 0 3 . h t m l .
9
2 0 0 3 L a w s o f M i n n e s o t a , C h a p t e r 1 2 8 , A r t i c l e 11 , S e c t i o n 1 2 .
6
Figure 2 While office visit costs per claim have increased
200 a little more than 200 percen,t radiology and
Rate of growth surgery costs per claim have gone up 270
p e r c e n t a n d 2 8 0 p e r c e n t , r e s p e c t i v e l y.
Average payment per claim
150
In short, there has been a shift to providers
that are not subject to the medical fee schedule
and to services with the highest rate of growth
in charges.
Conversion factor
100
Medical cost increases are generally attributed
to one or more of three mechanisms: an increase
in the cost of services; an increase in the number
of services provided; or a change in the type of
50
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 services provided. There is evidence of all
three phenomena in the Minnesota workers’
Research and Statistics,
M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3 c o m p e n s a t i o n s y s t e m 11.
Underlying these increases are a number of The cost for services covered by the Minnesota
t r e n d s 10: fee schedule has increased more than 44 percent
since 1993. This is substantially higher than
• There have been changes in the distribution the consumer price index and other measures
of payments among providers. More payments of inflation. Only the increase in the CPI-M, a
are being made to hospitals and pharmacies measure of inflation for medical services paid
now than prior to 1993. directly by consumers (as opposed to insurers),
is comparable. Likewise, there has been an increase
• There have been large differences in the in the number of services per claim, especially
rate of growth in charges among providers. for services not covered by the treatment parameters
While physician and chiropractor charges or services paid outside the medical fee schedule.
per claim have increased by 230 percent
a n d 1 7 2 p e r c e n t r e s p e c t i v e l y, h o s p i t a l c o s t s The change in the types of services provided
per claim have increased 247percent to 256 is really a result of three different situations:
percent and pharmacy costs have grown by substitution of more expensive services for less
829 percent. expensive options; introduction of new technologies;
a n d a d d i t i o n o f n e w t y p e s o f t h e r a p y.
• There have been changes in the distribution
o f p a y m e n t s b y s e r v i c e c a t e g o r y. W h i l e In the first instance, OxyContin™ is prescribed
office visits accounted for almost 25 percent i n s t e a d o f Vi c o d i n ™ , o r C e l e b r e x ™ ( $ 2 . 8 8 / p i l l )
of costs prior to 1993, they now represent is prescribed instead of naproxen ($0.29/pill).
less than 10 percent of the charges. On
the other hand, surgical services have increased An example of a new technology is intradiscal
from 8.8 percent of charges to 13.3 percent electrotherapy (IDET), which costs $8,000 per
and radiology services from 7.2 percent disc. The use of services from a massage therapist
to 9.8 percent. in treatment regimens already including chiropractic
and physical therapy modalities is an example
• There have been large differences in the o f t h e a d d i t i o n o f n e w t y p e s o f t h e r a p y.
rate of growth in charges among service categories.
10
R e s e a r c h a n d St a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3 . D e t a i l s a v a i l a b l e a t :
w w w. d o l i . s t a t e . m n . u s / p d f / m e d t a s k f o r c e 0 8 _ 2 6 _ 0 3 . p d f.
11
Ibid.
7
Charge to the task force
Pursuant to the legislative mandate, the commissioner of the Department of Labor and Industry
e m p a n e l l e d t h e Wo r k e r s ’ C o m p e n s a t i o n M e d i c a l C o s t s Ta s k - f o r c e ( s e e A p p e n d i x A f o r a l i s t o f
members) to review data about medical costs and cost drivers in the workers’ compensation
system. As part of its charge the task force was asked to specifically consider four components
of overall costs: pharmacy costs, payments to hospitals, medical fees and service utilization.
The task force also reviewed the efficacy of cost control mechanisms available in certified
managed care, treatment parameters and the medical fee schedule (see Appendix B for list of
meetings, agendas and testimony).
Pharmacy costs
D e p a r t m e n t p re s e n t a t i o n : S i n c e 1 9 9 3 , r e t a i l
drug expenditures have grown from about $50 The department reviewed a variety of cost control
b i l l i o n a y e a r t o m o r e t h a n $ 1 0 0 b i l l i o n a y e a r 12 . options to address pharmacy costs in Minnesota
Except for 1993 and 1994, the growth in prescription workers’ compensation.
drug spending in general health care has been
m o r e t h a n 1 0 p e r c e n t p e r y e a r 13 . It had convened an earlier informational meeting
in November 2002, of members of the WCAC
C o s t s h a v e i n c r e a s e d s o r a p i d l y, b e c a u s e m o r e and the MSRB, along with other interested parties
drugs are being prescribed. More prescriptions and open to the public, to explore the applicability
are being written for newer and, thus, more expensive to the workers’ compensation system of the wide
drugs. And generic drug costs have also increased. variety of pharmacy cost controls used in general
health care.
While retail drug expenditures have gone up about
100 percent since 1993, drug costs per claim in Based on those discussions, three cost control
Minnesota workers’ compensation have gone up mechanisms were presented to the task force:
from $60.13 to $161.63, almost 270 percent since
1 9 9 6 14. • fee schedules;
There is good evidence the same factors underlie • pharmacy networks;

the increase in drug costs in workers’ compensation
as explain the growth in drug costs in general • treatment parameters for selected medications.
medical care: more injured employees are being
prescribed medications, more pills are being dispensed In Minnesota, workers’ compensation pays
when medications are being prescribed, the cost more than other systems for which
p e r p i l l h a s i n c r e a s e d a n d n e w e r, m o r e e x p e n s i v e r e i m b u r s e m e n t i n f o r m a t i o n i s a v a i l a b l e 17.
brand-name medications are being substituted
for older medications available in generic formulations 15.
12
N o r m a n V. C a r r o l l , P h . D . “ R e s e a r c h i n P h a r m a c y B e n e f i t M a n a g e m e n t i n O u t p a t i e n t P r e s c r i p t i o n P r o g r a m s :
A Review and Critique” Internet Presentation; 2002.
13
Scott Leitz and Julie Sonier “An Overview of Health Care Costs in Minnesota: Presentation to the Joint
Ta s k F o r c e o n H e a l t h C a r e C o s t a n d Q u a l i t y M i n n e s o t a ” S t . P a u l , M i n n ; D e p a r t m e n t o f H e a l t h ; H e a l t h
Economics Program; Jan. 11, 2002.
14
h t t p : / / w w w. d o l i . s t a t e . m n . u s / p d f / m t f 9 _ 9 _ p h a r m a c y. p d f
15
Ibid.
16
Minnesota Rules Part 5221.4070.
17
The inability or unwillingness of providers to share information about reimbursement from HMOs and
commercial insurers was a constant problem for the task force. In most instances, this means
comparisons with other payment systems are limited to public programs such as Medicare and Medicaid.
8
Ta b l e 1 Ingredient Dispensing
reimbursement fee
Minnesota WC – current 1 0 0 p e r c e n t AW P $5.14
Minnesota Medicaid – current 8 6 p e r c e n t AW P $3.65
Wa s h i n g t o n s t a t e W C 9 0 p e r c e n t AW P $4.50
2 0 0 1 n a t i o n a l s u r v e y o f H M O s 18 8 6 p e r c e n t AW P $2.21
O t h e r M e d i c a i d j u r i s d i c t i o n s 19 Av g . 8 9 . 6 p e r c e n t AW P Av g . $ 5 . 1 0
Department recommendation: Change the current Pharmacists in the network are paid a negotiated
reimbursement formula to the one used by Minnesota rate and dispensing fee. “Point of service” technology
Medicaid: available to participating pharmacies permits
immediate calculation and submission of allowed
• m a x i m u m a l l o w a b l e c h a r g e ( M A C ) 20 p l u s a charges, online adjudication of the claim and
dispensing fee of $3.65; or imposition of any dispensing restrictions.
• 8 6 p e r c e n t a v e r a g e w h o l e s a l e p r i c e ( AW P ) Based on feedback from stakeholders at its November

plus a dispensing fee of $3.65, if no MAC 2002 meeting, the department recommended to
price is available. the task force that pharmacy networks be specifically
authorized in Minnesota workers’ compensation.
The department also discussed the use of pharmacy
benefit managers (PBMs). These corporate entities Department recommendation: Allow an employer/
control the utilization and cost of pharmacy insurer to contract with and negotiate rates with
products on behalf of payors. a pharmacy network from which the injured employee
must select a pharmacy to fill perscriptions.
A typical PBM would assist a health care insurer Mileage parameters would be included to ensure
in the design and management of pharmacy benefits, reasonable access.
claims processing, drug utilization review, formulary
development, pharmacy network management D u r i n g t h e t a s k - f o r c e ’s d i s c u s s i o n , n u m e r o u s
and cost discounting, demand management and concerns were raised about the business practices
customer service. of existing PBMs and whether the savings derived
from negotiated prices with pharmacists will
While a number of PBMs advertise full-service actually be passed on to insurers.
programs specifically for the workers’ compensation
market, the key component of success is access D e p a r t m e n t re c o m m e n d a t i o n : R e q u i r e p h a r m a c y
to a pharmacy network. Patients are restricted, benefit managers to disclose to employers and
in most circumstances, to using the network insurers any rebates or discounts received from
outlets for filling prescriptions. drug manufacturers or pharmacists.
18
P h a r m a c y B e n e f i t M a n a g e m e n t I n s t i t u t e 2 0 0 2 Ta k e d a P re s c r i p t i o n D r u g B e n e f i t s C o s t a n d P l a n D e s i g n
S u r v e y R e p o r t A l b u q u e r q u e , N . M . ; We l l m a n P u b l i s h i n g , I n c . , 2 0 0 2 .
19
B a s e d o n D L I a n a l y s i s o f 4 4 j u r i s d i c t i o n s ( o t h e r t h a n M i n n e s o t a ) t h a t u s e AW P i n d e t e r m i n i n g i n g r e d i e n t
r e i m b u r s e m e n t ; d a t a t a k e n f r o m : G e n c a r e l l i D M “ Av e r a g e W h o l e s a l e P r i c e f o r P r e s c r i p t i o n D r u g s : I s
There a More Appropriate Pricing Mechanism?” NHPF Issue Brief No.775/June 7, 2002.
20
The “maximum allowable cost” is the reimbursement set by Medicare and Medical Assistance for many
commonly used drugs.
9
F i n a l l y, t h e d e p a r t m e n t c o n s i d e r e d t h e u s e o f f o r m u l a r i e s . F o r m u l a r i e s l i m i t t h e s p e c i f i c d r u g s
that may be prescribed and dispensed to a patient. In general health care plans, drugs not
i n c l u d e d i n t h e f o r m u l a r y a r e e i t h e r n o t r e i m b u r s e d o r r e q u i r e a h i g h e r c o - p a y.
While there was no support for the development of a workers’ compensation formulary as such
a t t h e N o v e m b e r 2 0 0 2 m e e t i n g , t h e r e w a s i n t e r e s t i n s o m e o f t h e b e n e f i t s o f a f o r m u l a r y.
H o w e v e r, i t w a s n o t e d t h a t t h e b e n e f i t s o f a c l o s e d f o r m u l a r y c a n b e a c h i e v e d b y c h a n g i n g t h e
way physicians prescribe medications rather than by interfering with the dispensing of medications
by the pharmacist:
• encouragement of generic substitution (when a generic, less costly version of a drug is

dispensed instead of the brand-name form that may have been prescribed; e.g. a patient
would receive generic ibuprofen instead of Motrin™);
• support of therapeutic substitution, if appropriate (when the patient receives an equivalent,

alternative drug to the one actually prescribed; e.g. a patient would receive ibuprofen
instead of Celebrex™);
• prior authorization (used to limit access to particularly expensive medications, drugs with
misuse potential, or prescription of drugs for “off-label” uses);
• quantity limitation (used to limit the number of doses that can be dispensed per prescription
or the number of refills allowed; targets drugs used for short-term therapy to prevent excessive
or inappropriate use).
M o r e o v e r, s i n c e j u s t a f e w c l a s s e s o f d r u g s a c c o u n t f o r a l m o s t a l l o f t h e p h a r m a c y c o s t s i n
workers’ compensation – nonsteroidal anti-inflammatories, muscle relaxants and narcotic analgesics
– this narrows the scope of the problem.
Figure 3
F r o m : C W C I R e p o r t s P h a r m a c e u t i c a l C o s t M a n a g e m e n t i n C a l i f o r n i a Wo r k e r s ’ C o m p e n s a t i o n O a k l a n d , C a l i f ;
C a l i f o r n i a Wo r k e r s ’ C o m p e n s a t i o n I n s t i t u t e , N o v e m b e r 2 0 0 2
10
The Minnesota workers’ compensation system has a methodology for this type of focused
intervention on health care provider behavior: treatment parameters. This has led the department
to recommend using the treatment parameters to realize the potential benefits of a formulary
w i t h o u t h a v i n g t o c r e a t e a f o r m u l a r y.
D e p a r t m e n t re c o m m e n d a t i o n : A m e n d t h e w o r k e r s ’ c o m p e n s a t i o n t r e a t m e n t p a r a m e t e r s t o
provide:
• rules for use of specific classes of drugs (such as use of narcotics for musculoskeletal
pain); and
• time and quantity parameters for the use of selected drugs for specific conditions (such as
nonsteroidal anti-inflammatories for initial treatment of musculoskeletal injuries.
Ta s k - f o rc e d e l i b e r a t i o n s : Mark Arrington, being negated by the administrative costs charged

director of Claims Operations at State Fund by the PBMs. Others noted that an insurer would
Mutual Insurance, offered testimony in support have no incentive to contract with a PBM unless
of pharmacy networks and negotiated price discounts. there were some savings.
He noted that pharmacy networks, designed
to provide suitable geographical access, would Based on these concerns, the department modified
offer efficient delivery of medication to injured its final recommendations to the task force, increasing
workers with simplified authorization and billing the dispensing fee and adding a recommendation
procedures. that PBMs be required to disclose to insurers
the rebates and discounts they receive.
Moreover, pharmacy benefit management companies
are offering medications at prices lower than The Minnesota Pharmacists Association (MPhA)
the maximum fees currently allowed by the and the Minnesota Retailers Association (MnRA)
Minnesota workers’ compensation medical fee later submitted a written opinion opposing the
schedule. final recommendation as well, noting that it costs
a Minnesota pharmacist $7.21 to fill a prescription
Tim Gallagher and Joanne Schwecke, from Western and, because of this, the Minnesota Medicaid
National Insurance, testified that they had realized formula proposed by the department would result
savings of 32 percent with their current PBM in a $5.94 profit on a brand-name drug but a
arrangement. $0.37 loss on a generic.
G a l l a g h e r, h o w e v e r, w a s c o n c e r n e d a b o u t t h e F u r t h e r, t h e y a rg u e d t h a t t h e a d m i n i s t r a t i v e c o s t s
d e p a r t m e n t ’s o r i g i n a l r e c o m m e n d a t i o n t o l o w e r to the pharmacist in workers’ compensation are
the dispensing fee paid to pharmacists to $2.21; higher than in other payment systems (because
he argued that the maximum fee allowed under of billing procedures, payment delays and the
t h e d e p a r t m e n t ’s f i r s t p r o p o s a l w o u l d n o t c o v e r risk a claim may be denied) and proposed that
t h e p h a r m a c i s t ’s o v e r h e a d c o s t s . H e d e c l i n e d the reimbursement formula for medications include
to share with the task force any information a “processing fee” in addition to the dispensing
about payment rates for other types of insurance. fee to account for these additional costs.
Gallagher and some members of the task force
were also concerned about the possible shifting This would allow pharmacists to continue using
of any profit from the pharmacist to the PBM. third-party agents that pay the pharmacist a
negotiated discount from the current maximum
There was a concern that the use of PBMs allowable fee and then bill the insurer for the
simply shifted costs within the system with maximum.
any savings from reduced payments to pharmacists
11
T h e d e p a r t m e n t n o t e d i t w o u l d p r e f e r t h e d i s c o u n t g o t o t h e i n s u r e r, t h u s r e a l i z i n g s a v i n g s t o t h e
workers’ compensation system. The MPhA and MnRA generally supported the other pharmacy
recommendations with some added suggestions 21 .
There was a general concern among task-force members that pharmacy networks could result
in access problems if small-town pharmacists refused to accept the levels of reimbursement
offered by the network.
The department pointed out that the recommendation included provisions to guarantee injured
workers geographically convenient access to pharmacy services.
If a network did not have an outlet within the required mileage, the injured worker would be
able to go outside the network to obtain their medication. These provisions would also offer
some leverage to small town pharmacists in negotiating with the networks.
Hospital costs
D e p a r t m e n t p re s e n t a t i o n : H o s p i t a l c h a r g e s a c c o u n t e d f o r 3 2 . 4 p e r c e n t o f t h e c o s t s i n M i n n e s o t a
w o r k e r s ’ c o m p e n s a t i o n i n 1 9 8 9 ; b u t b y 2 0 0 1 , t h a t h a d r i s e n t o 4 1 p e r c e n t 22. A n d t h e r a t e o f
growth in payments per claim to hospitals was greater than for any other provider group,
excluding pharmacies.
M o r e o v e r, t h e d i s t r i b u t i o n o f s e r v i c e s p r o v i d e d b y h o s p i t a l s t o w o r k e r s ’ c o m p e n s a t i o n c l a i m a n t s
was markedly different than those to general medical care patients, especially at small hospitals.
While 67 percent of hospital charges are for inpatient services in general medical care, only 50
percent of large hospital and 18 percent of small hospital charges are for inpatient services in
the workers’ compensation system.
I n M i n n e s o t a w o r k e r s ’ c o m p e n s a t i o n , h o s p i t a l s a r e r e i m b u r s e d 8 5 p e r c e n t o f e a c h h o s p i t a l ’s
u s u a l a n d c u s t o m a r y c h a r g e ( U a n d C ) c o s t s , u n l e s s 23:
1. The hospital has 100 or fewer licensed beds (i.e. is a small hospital), in which case all of
the services provided by the small hospital are paid at 100 percent U and C; or
2 . T h e s e r v i c e i s p r o v i d e d b y a h o s p i t a l w i t h m o r e t h a n 1 0 0 l i c e n s e d b e d s ( i . e . i t i s a l a rg e
hospital) in an outpatient setting, in which case the service is paid at the medical fee
schedule rate, if it applies, or 85 percent U and C if it does not.
Because there is no control on how hospitals set their U and C charges and only 32 percent of
the outpatient services billed by large hospitals are subject to the medical fee schedule, these
statutory provisions mean there are very few limits on what hospitals can charge and receive
for services provided to workers’ compensation claimants.
The overall effective reimbursement rate (the actual percentage of the amount billed that is
paid) is 79.7 percent for large hospitals and 100 percent for small hospitals.
21
Minnesota Pharmacists Association and Minnesota Retailers Association “Pharmacy Providers Respond
t o Wo r k e r s ' C o m p e n s a t i o n M e d i c a l C o s t Ta s k - f o r c e P h a r m a c y R e c o m m e n d a t i o n s ” a v a i l a b l e a t :
www. d o l i . s t a t e . m n . u s / p d f / m c t f 1 2 _ 0 2 _ r e c o m m e n d 4 . p d f .
22
w w w. d o l i . s t a t e . m n . u s / p d f / m t f 9 _ 2 3 _ h o s p i t a l c o s t s . p d f .
23
M i n n e s o t a St a t u t e s s e c t i o n 1 7 6 . 1 3 5 s u b d 1 b ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 / .
12
In comparison, the reimbursement rates reported by hospitals to the Minnesota Department of
H e a l t h f o r o t h e r p a y m e n t s y s t e m s a r e f a r l o w e r.
Ta b l e 2
Hospital reimbursement in general health care – 2001
To t a l To t a l Payment/
charges payments charge ratio
Medicare $4,647,546,260 $2,148,770,143 46.2%
MA/GAMC/MNCare $1,441,926,499 $678,672,543 47.1%
Private Managed Care $3,022,295,868 $1,593,265,943 52.7%
Commercial/ $2,573,032,139 $1,679,724,328 65.3%
Non-profit health plans
To t a l $12,608,778,199 $6,704,182,843 53.2%
The overall average reimbursement rate for hospital services is 53.2 percent, as compared to
the Minnesota workers' compensation average rate of 84.3 percent for all hospitals. Therefore,
the department recommended large-hospital reimbursement rate for all services not subject to
the Medical Fee Schedule be tied to the average reimbursement rate of other payment systems.
D e p a r t m e n t re c o m m e n d a t i o n : F o r a l l s e r v i c e s n o t c o v e r e d b y t h e m e d i c a l f e e s c h e d u l e , p a y
noncritical-access hospitals at the most recent average overall payment-to-charge ratio for all
hospitals plus 15 percent (53 percent + 15 percent = 68 percent). Adjust this reimbursement
rate annually with updated data from the Department of Health.
When arriving at the recommendation, the department believed that linking the workers' compensation
reimbursement rate to the average reimbursement rate in the Department of Health data benchmarks
workers' compensation to the other payors in the state, which have the resources and data to
determine market-based compensation unrelated to the hospitals' U and C charges. It also
reduces the likelihood that any biller could successfully "game" the system by simply raising U
and C charges to increase workers' compensation payments (since the average reimbursement
rate, determined by the other systems, would simply fall, thereby reducing the ultimate workers'
compensation payment).
The department also examined whether small hospitals should continue to receive a higher rate of
reimbursement. This statutory provision was originally enacted in 1992, to help financially struggling
r u r a l h o s p i t a l s . H o w e v e r, t h e r e h a v e b e e n a n u m b e r o f c h a n g e s i n t h e h o s p i t a l i n d u s t r y s i n c e
then. Many hospitals have become part of larger health care systems that include hospitals of
varying sizes, along with other health care businesses. And hospitals have expanded to include
clinics and other outpatient venues. Some small hospitals continue to be at particular financial
risk when delivering inpatient care and are the only source of these health care services in their
geographical area. And other payment systems, in particular Medicare, pay some Minnesota
hospitals at a higher rate.
In light of the continuing problems for some hospitals, the department recommended replacing the
classification of hospitals based on the number of hospital beds, with the distinction made by
Medicare and administered by the Joint Commission on the Accreditation of Hospitals of “critical-
access hospitals.” A critical access hospital is a hospital with a patient census of less than 25 and
is located more than 35 miles from a hospital or another critical-access hospital, or is certified by
t h e s t a t e a s b e i n g a n e c e s s a r y p r o v i d e r o f h e a l t h c a r e s e r v i c e s t o r e s i d e n t s i n t h e a r e a 24.
24
w w w. j c a h o . o rg / a c c r e d i t e d + o rg a n i z a t i o n s / c r i t i c a l + a c c e s s + h o s p i t a l s / .
13
Department re c o m m e n d a t i o n :
• Identify critical access hospitals for increased reimbursement.
• Pay inpatient services at critical-access hospitals at 100 percent U and C.
• Pay all other services at the medical fee schedule rate plus 15 percent, if it applies, or at
t h e a v e r a g e p a y m e n t - t o - c h a r g e r a t i o f o r a l l h o s p i t a l s p l u s 3 0 p e r c e n t , i f i t d o e s n o t a p p l y.
Task-force deliberations: Gary Strong, president, costs per $100 of payroll have increased substantially
Fairview Southdale Hospital, testified to the task force and have created cost pressures independent of any
on behalf of the Minnesota Hospital Association (MHA). other factors 25 .
He argued that there was no cost problem in Minnesota
workers’ compensation: premiums are 43 percent lower The department also noted that the WLDI study report
than 10 years ago and Minnesota’s costs are average is based on Bureau of Labor Statistics (BLS) data
compared to other states. Moreover, he argued that derived from OSHA logs, not actual workers’ compensation
insurers and employers get “good value” for the money data and, while the claim is made that Minnesota’s
paid, according to a study done by the Work Loss “A” rating shows that employers and insurers receive
Data Institute (WLDI). “good value” for the medical costs incurred in the
workers’ compensation system, there is no apparent
The department noted that while workers’ compensation correlation between the WLDI grade and measures
costs per $100 of payroll declined 48.4 percent from of medical cost across states 26 .
1993 to 2000, they have increased 17.6 percent since
then. While it may be true that insurer business practices As indicated in Figure 4, there is no consistent relationship
and low returns in the investment markets have contributed between grade and medical fee index; the WLDI grades
to increased costs, it is certainly true that benefit are scattered randomly around the fee index line.
F i g u r230
e4
Minnesota 210
190
170
150
A 130
B
110
C
90
D
70
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WDLI Grade Fee Index
25
D . B e r r y “ Wo r k e r s ’ c o m p s y s t e m c o s t b u m p s u p i n 2 0 0 1 " ; R e s e a r c h a n d S t a t i s t i c s , M i n n e s o t a D e p a r t m e n t
o f L a b o r a n d I n d u s t r y ; a v a i l a b l e a t : w w w. d o l i . s t a t e . m n . u s / w n 0 2 d e c 1 . h t m .
26
O c t . 2 9 , 2 0 0 3 , M e m o r a n d u m t o M e d i c a l C o s t Ta s k F o r c e ; a v a i l a b l e a t :
w w w. d o l i . s t a t e . m n . u s / p d f / m c t f 1 0 _ 2 8 _ w l d i r e p o r t . p d f .
14
The MHA opposed any changes to current hospital and recommended less reduction in the rate of
reimbursements. They objected to tying workers’ payment for outpatient services.
compensation payments to Medicare and Medicaid,
but declined to share information about rates Kathryn Marks and Margaret Kasting, State Fund
of reimbursement from other payers. Mutual, presented data that indicate wide variations
among hospitals in the U and C charge for a
The MHA also opposed cutting the rate of reimbursement variety of common services. In some instances,
to small hospitals or paying inpatient and outpatient the more expensive hospital charges as much
services at small hospitals at different rates. as 583 percent more than the least expensive
They noted that some small hospitals receive hospital.
higher payments from Medicare, Medicaid and
many private health plans, such as Blue Cross Some members of the task force were concerned
Blue Shield of Minnesota. about using U and C charges as the basis for
hospital payments. A variety of alternative payment
The department noted that the proposal does systems for hospital services were discussed:
not link reimbursement in workers’ compensation using hospital-specific payment-to-charge or cost-
with Medicaid or Medicare, but with the average to-charge ratios to determine reimbursement
r e i m b u r s e m e n t f r o m all p a y e r s i n t h e s t a t e . B a s e d rates, establishing prevailing cost to replace
o n t h e t e s t i m o n y t h e d e p a r t m e n t ’s f i n a l p r o p o s a l hospital U and C charges or implementing the
recommended a reimbursement rate lower than Medicare diagnosis-related group (DRG) prospective
the current 85 percent of U and C but higher payment system. The department, for administrative
than the next best source of payment, commercial reasons, considered none of these suggestions
insurers (68 percent versus 65 percent). as viable solutions.
T h e d e p a r t m e n t ’s f i n a l p r o p o s a l f o r c r i t i c a l - Some members of the task force were concerned

access hospitals continued the current payment that lowering reimbursement to hospitals would
of 100 percent of U and C for inpatient services restrict access, especially in rural areas of the
state.
Medical fees
D e p a r t m e n t p re s e n t a t i o n : S l i g h t l y m o r e t h a n based on the resources required to produce specific

half (51 percent) of the services provided to services. Each service is assigned a numeric
workers' compensation claimants are subject relative-value that is the sum of the provider
to the Minnesota workers' compensation medical work, practice expense and malpractice expense
fee schedule (MN-MFS). incurred to deliver the service. The relative
values were established based on extensive survey
In 1992, the Minnesota Legislature directed the research done by the federal Health Care Financing
Department of Labor and Industry to develop a A g e n c y ( H C FA ) .
new relative-value fee schedule, specifically
authorizing the use of the resource-based relative- W h e n a d o p t i n g t h e M e d i c a r e R B RV S i n 1 9 9 3 ,
v a l u e s y s t e m ( R B RV S ) d e v e l o p e d b y M e d i c a r e 2 7 . the department made some modifications. First,
Relative-value fee schedules are used by 33 of there are differences in the scope of services
the 42 states that have any form of a workers' allowed that had to be reconciled through rules
compensation fee schedule, with more than half (e.g. Medicare only pays chiropractors for manipulations,
u s i n g t h e f e d e r a l R B RV S . while workers' compensation pays them for office
visits, radiology and physical medicine services
T h e R B RV S w a s d e s i g n e d t o r e p l a c e c h a r g e - as well). Next, the application of the relative
based payment systems with one that pays physicians values had to be adapted to the bill review and
27
M i n n e s o t a St a t u t e s s e c t i o n 1 7 6 . 1 3 6 s u b d . 1 a ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 .
15
payment rules used in the workers' compensation system. Also, the relative values were mathematically
revised to reflect Medicare's procedures for geographical market adjustments. Then, rules
w e r e a d d e d t o a l l o w m u l t i p l e p r o c e d u r e d i s c o u n t i n g . F i n a l l y, s e r v i c e s w e r e a s s i g n e d t o o n e o f
four groups pursuant to a legislative direction that the fee schedule differentiate among health
care providers: medical and surgical services provided primarily by M.D.s, pathology and
laboratory services, physical medicine and rehabilitation services provided primarily by physical
t h e r a p i t s t s a n d o c c u p a t i o n a l t h e r a p i s t s , a n d c h i r o p r a c t i c s e r v i c e s 28.
I n o r d e r t o i m p l e m e n t t h e R B RV S , a c o n v e r s i o n f a c t o r ( C F ) h a d t o b e e s t a b l i s h e d . T h e C F
r e p r e s e n t s t h e d o l l a r v a l u e o f a r e l a t i v e - v a l u e u n i t ( RV U ) . T h e 1 9 9 2 l e g i s l a t i o n a u t h o r i z i n g t h e
adoption of a relative-value fee schedule also directed the department to effect a 15 percent
overall reduction in payments in workers' compensation from that allowed by the 1991 fee
s c h e d u l e . T h i s w a s a c c o m p l i s h e d d u r i n g t h e c a l c u l a t i o n o f t h e 1 9 9 3 c o n v e r s i o n f a c t o r. To a p p l y
the 15 percent reduction separately to each of the four groups identified above, while setting a
s i n g l e c o n v e r s i o n f a c t o r f o r a d m i n i s t r a t i v e e a s e , t h e RV U s f o r p a t h o l o g y a n d l a b o r a t o r y s e r v i c e s ,
physical medicine and rehabilitation services, and chiropractic services were reduced or "scaled."
Since the new MN-MFS was introduced in 1993, there have been three updates. In 1995, the
1 9 9 5 M e d i c a r e RV U s r e p l a c e d t h e RV U s u s e d i n 1 9 9 3 . I n 1 9 9 7 , n e w c h i r o p r a c t i c m a n i p u l a t i o n
t h e r a p y ( C M T ) c o d e s a n d RV U s r e p l a c e d t h e o l d e r c o d e s u s e d i n 1 9 9 3 . I n 2 0 0 1 , t h e 1 9 9 5 RV U s
w e r e r e p l a c e d b y 1 9 9 8 M e d i c a r e RV U s ( a n d o n e 1 9 9 9 p h y s i c a l t h e r a p y c o d e ) , a n d C P T c o d i n g
(the system used by M.D.s) was introduced for all chiropractic services.
The 1992 legislation also provided that the conversion factor must be adjusted annually “by no
m o r e t h a n t h e p e r c e n t a g e c h a n g e ( i n t h e s t a t e - w i d e a v e r a g e w e e k l y w a g e ) 29. ” U n t i l 2 0 0 2 , t h e
C F w a s i n c r e a s e d b y e x a c t l y t h e c h a n g e i n t h e S AW W ( i n 2 0 0 2 a n d 2 0 0 3 , t h e C F w a s i n c r e a s e d
b y t h e c h a n g e i n t h e p r o d u c e r s p r i c e i n d e x f o r p h y s i c i a n s ) . U s i n g t h e i n c r e a s e i n t h e S AW W a s
the annual adjustment has led to a 44.4 percent increase in the cost of services covered by the
MN-MFS.
Figure 5
$80
Conversion factor
$75
$75.18
$73.13
$70
$69.04
$65 $66.41
$62.27
$60
$59.47
$55 $56.35
$54.31
$52.91
$52.05
$50
$45
$40
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
R e s e a rc h a n d St a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3
28
M i n n e s o t a St a t u t e s s e c t i o n 1 7 6 . 1 3 6 s u b d . 1 a ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 .
29
Ibid.
16
B e c a u s e M e d i c a r e u s e s t h e s a m e r e l a t i v e - v a l u e s y s t e m b u t w i t h a d i f f e r e n t c o n v e r s i o n f a c t o r,
the payments in the two systems can be directly compared. In 1993, the first Minnesota workers’
c o m p e n s a t i o n C F w a s 1 6 3 p e r c e n t o f M e d i c a r e ’s C F ; b y 2 0 0 2 , i t w a s 2 0 8 p e r c e n t o f t h e M e d i c a r e
c o n v e r s i o n f a c t o r.
Figure 6
$80
$70
Minnesota workers' compensation
conversion factor
$60
$50
$40
Medicare conversion factor

$30
Minnesota workers' compensation as a percentage of Medicare:

163% 157% 149% 159% 166% 170% 191% 189% 191% 208%
$20
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
I n a s t u d y d o n e b y t h e Wo r k e r s ' C o m p e n s a t i o n R e s e a r c h I n s t i t u t e ( W C R I ) , M i n n e s o t a w a s 2 0 t h
o u t o f 4 0 s t a t e s s t u d i e d i n t h e s i z e o f t h e " p r e m i u m " 30 o v e r M e d i c a r e p a i d f o r h e a l t h c a r e
s e r v i c e s t o i n j u r e d w o r k e r s 31. F u r t h e r m o r e , t h e W C R I r e s e a r c h e r s f o u n d t h e r e w a s n o r e l a t i o n s h i p
between the interstate differences in workers' compensation payments and the underlying costs
to the provider for doing business in their state.
Additional analysis shows that Minnesota's "middle of the road" position depends on the distinction
m a d e b e t w e e n p r o v i d e r s i n t h e f e e s c h e d u l e a n d t h a t t h e RV U s i n t h e M i n n e s o t a w o r k e r s '
compensation medical fee schedule are those introduced by Medicare in 1998. If all Minnesota
health care providers were paid without the application of the scaling factors developed in
1 9 9 3 , a n d i f t h e RV U s w e r e u p d a t e d t o t h o s e c u r r e n t l y u s e d b y M e d i c a r e , M i n n e s o t a w o u l d
h a v e t h e h i g h e s t p a y m e n t s o f a n y s t a t e u s i n g a r e l a t i v e - v a l u e s y s t e m f e e s c h e d u l e 32.
The department also attempted to learn how medical fees in Minnesota workers’ compensation
c o m p a r e d t o t h o s e i n o t h e r p a y m e n t s y s t e m s i n t h e s t a t e . U n f o r t u n a t e l y, t h e o n l y d e t a i l e d a n d
publicly available comparisons are with the Medicare and Medicaid systems. Private payors
declined to share any payment information with the department because of confidentiality agreements.
A l e t t e r f r o m D r. P a u l S . S a n d e r s , c h i e f e x e c u t i v e o f f i c e r o f t h e M i n n e s o t a M e d i c a l A s s o c i a t i o n
30
The percentage above (or in two cases – Florida and Massachusetts – below) the Medicare payment paid
by workers’ compensation insurers for the same health care services.
31
W C R I B e n c h m a r k s f o r D e s i g n i n g Wo r k e r s ’ C o m p e n s a t i o n M e d i c a l F e e S c h e d u l e s , 2 0 0 1 - 2 0 0 2 C a m b r i d g e ,
MA; 2002.
32
h t t p : / / w w w. d o l i . s t a t e . m n . u s / p d f / m t f 1 0 _ 1 4 _ m f s . p d f a n d
h t t p : / / w w w. d o l i . s t a t e . m n . u s / p d f / m c t f 1 0 _ 2 8 _ a d d e n d u m . p d f .
17
( M M A ) , i n d i c a t e d t h a t , n a t i o n a l l y, p r i v a t e p a y o r s r e i m b u r s e d p h y s i c i a n s a t a p p r o x i m a t e l y 1 3 0
percent of Medicare rates in 2002, in contrast to the Minnesota workers’ compensation rate of
2 0 8 p e r c e n t f o r t h e s a m e y e a r.
The department also considered whether the MN-MFS conversion factor has been increasing too
f a s t . A n u m b e r o f a l t e r n a t i v e s t o u s i n g t h e c h a n g e i n t h e S AW W a s a n i n f l a t i o n a d j u s t m e n t w e r e
c o n s i d e r e d : t h e c o n s u m e r p r i c e i n d e x ( C P I - U ) 33, t h e c o n s u m e r p r i c e i n d e x f o r m e d i c a l c a r e
( C P I - M ) 34, o r t h e p r o d u c e r p r i c e i n d e x f o r p h y s i c i a n s e r v i c e s ( P P I - P ) 35. T h e c h o i c e i s i m p o r t a n t ,
because the rate of inflation since 1993 has been markedly different among these indices.
Figure 7
150
A common index of inflation since 1993
140
SAWW
CPI-M
130
CPI-U
120
PPI-P
110
NB: The PPI-p was not available for

1993 and 1994 so the SAWW is
100 used
90
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Based on the available evidence and the original legislative mandates that led to the development
of the current MN-MFS, the department recommended that both issues – the right price for
health care services in workers' compensation and how fast should those prices be allowed to
increase – could be addressed by focusing on the appropriate measure of price inflation and
then applying it retrospectively to the conversion factor beginning in 1994 (the first time the
original CF was adjusted).
This recommendation assumes the original CF – $52.05, representing a 63 percent premium

o v e r M edicar e's 1993 conversion fac tor (e v en aft er t h e 1 5 p ercen t red u ct i o n i n wo rk ers ' com p e n s a t i o n
payments from 1991 levels required by the Legislature) – was an appropriate price for services,
33
The CPI-U is a measure of the average change over time in the prices paid by urban consumers for a market
basket of consumer goods and services.
34
The CPI-M is a component of the CPI-U and is a measure of the average change over time in the prices paid
by consumers for prescription drugs and medical supplies, physicians’ services, eyeglasses and eye care,
and hospital services.
35
The PPI-P measures the average change over time in the revenues received by health care providers for
their services, and would include payments made by health insurers as well as those made directly by
consumers.
18
recognizing any increased administrative burdens created by the workers' compensation system.
The annual change in the PPI-P is recommended as the appropriate adjustment for the conversion
f a c t o r, b e c a u s e i t i s a m e a s u r e o f t h e i n c r e a s e i n h e a l t h c a r e p r o v i d e r r e v e n u e s b a s e d o n t h e
entire health care market, including both government and private payment systems.
• T h e a p p r o p r i a t e i n f l a t o r f o r t h e c o n v e r s i o n f a c t o r i s t h e P P I - P.
• Readjust the Minnesota workers' compensation medical fee schedule conversion factor to
what it would have been had the PPI-P been used for annual adjustments since 1993 –
$ 6 2 . 8 6 . A n d , i n t h e f u t u r e , a d j u s t b y P P I - P.
Not all outpatient services are covered by the MN-MFS. Currently services that are not covered
b y t h e f e e s c h e d u l e a r e p a i d a t 8 5 p e r c e n t o f t h e U a n d C c h a r g e 36, t h e s a m e r a t e a s a p p l i e d t o
large-hospital services. In light of the recommended reductions in payment rates for hospital
services and services in the MN-MFS, the department recommended the following.
• Pay nonhospital services not covered by the fee schedule at 68 percent of U and C
charge.
Ta s k - f o rc e d e l i b e r a t i o n s : A n u m b e r o f c o m m e n t s r e v i e w e d b y t h e t a s k f o r c e w e r e s e n t t o t h e
Wo r k e r s ' C o m p e n s a t i o n A d v i s o r y C o u n c i l i n F e b r u a r y 2 0 0 3 , f r o m h e a l t h c a r e p r o v i d e r s t h a t
contended it is it more expensive to deliver health care services to workers' compensation
patients and, therefore, a higher rate of payment is justified:
! C a re o f i n j u re d w o r k e r s re q u i re s a p h y s i c i a n t o t a k e a m o re e l a b o r a t e h i s t o r y, d o a
m o re t h o ro u g h e x a m i n a t i o n o r s p e n d m o re t i m e i n c o u n s e l i n g t h a n c a re i n t h e g e n e r a l
medical setting. The department noted that physician office visits are already
billed according to the amount of work done in these activities; so no matter where the
c o n v e r s i o n f a c t o r i s s e t , p h y s i c i a n s t h a t d o m o r e w o r k – a l o n g e r h i s t o r y, a m o r e d e t a i l e d
physical examination or more time talking to the patient – get paid more.
! C a r i n g f o r a n i n j u re d w o r k e r re q u i re s a p h y s i c i a n t o d e a l w i t h l a w y e r s a n d q u a l i f i e d
re h a b i l i t a t i o n c o n s u l t a n t s ( Q R C s ) , w o r k n o t re q u i re d i n g e n e r a l m e d i c a l c a re . T h e
department noted that physicians are allowed to, and do, charge lawyers and others
f o r c o n f e r e n c e s a n d r e p o r t s d i r e c t l y. T h e s e c h a rg e s a r e i n a d d i t i o n t o a n y c h a r g e s f o r t h e
medical care delivered to the injured employee. Meetings with QRCs can be, and are,
billed separately using the fee schedule.
! C a r i n g f o r a n i n j u re d w o r k e r re q u i re s m o re t i m e , e f f o r t a n d e x p e r t i s e t h a n c a r i n g
f o r o t h e r p a t i e n t s . E v e n t h e l e v e l s o f re i m b u r s e m e n t i n n o n g o v e r n m e n t a l g e n e r a l
health plans would not be enough. The department noted that almost all work-related
conditions are common medical problems that also occur in the general public. The
unique aspects of caring for injured workers are the need to cooperate with rehabilitation
and return to work, and the increased administrative burden.
! H e a l t h c a re p ro v i d e r s m u s t c o m p l e t e re q u i re d f o r m s f re e o f c h a rg e . B e c a u s e o f t h e
c l a i m s i m p l i c a t i o n s o f m e d i c a l o p i n i o n s , p h y s i c i a n s m a y b e b u rd e n e d t o a g re a t e r
36
M i n n e s o t a S t a t u t e s s e c t i o n 1 7 6 . 1 3 5 s u b d 1 b ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 / .
19
d e g re e t h a n i n g e n e r a l m e d i c a l c a re b y as a percentage of all services has gone down,
c a l l s f ro m e m p l o y e r s , c a s e m a n a g e r s a n d payments to physician per claim have increased
claims adjusters. The department acknowledged 126 percent; physician services as a percent of
these are valid issues. The burden of administrative the whole have gone down only because the rate
requirements in workers’ compensation is o f g r o w t h f o r o t h e r s e r v i c e s h a s b e e n e v e n h i g h e r.
h i g h e r, o n a r e g u l a r b a s i s , t h a n i n g e n e r a l
medical care. In fact, the perception of T h e d e p a r t m e n t a c k n o w l e d g e d t h a t t h e RV U s
an increased administrative burden is, perhaps, currently used in the MN-MFS are from 1998.
the major reason that some additional percentage H o w e v e r, s i m p l y u p d a t i n g t h e RV U s , w i t h o u t
of compensation over Medicare reimbursement any corresponding cuts to the CF would increase
rates has been almost universally accepted medical costs 3.9 percent and total system costs
in workers’ compensation systems throughout 1.4 percent.
the United States.
John Whisney testifying for the Minnesota Medical
Group Management Association, pointed out that
Michael Goertz, M.D. and Janet Silversmith testified
a clinic's administrative overhead costs are greater
to the task force on behalf of the Minnesota
for a workers' compensation claim than for other
Medical Association (MMA). The MMA presented
medical claims. More staff time is needed to
many of the same objections as the MHA during
i d e n t i f y t h e i n s u r e r, p r o c e s s s p e c i a l i z e d c l a i m s
the discussion of hospital costs (see above):
forms and submit accompanying medical records.
• workers’ compensation system costs are Wo r k e r s ' c o m p e n s a t i o n c l a i m s s p e n d m o r e t h a n
down 44 percent since 1993; and twice as much time in a clinic's accounts receivable
than others.
• Minnesota gets “good value” as demonstrated
by the WLDI report. Mary Beth Misner, DC, and Tim Mick, DC, testified
for the Minnesota Chiropractors Association (MCA)
The MMA also pointed out: about the scaling factors incorporated into the
current MN-MFS. The MCA contends chiropractors
• physician services as a percentage of all
are paid less than other providers for the same
services has gone down;
services. This issue was brought before the WCAC
• physician fees were cut 15 percent when in 2001, and extensively studied by the MSRB.
t h e R B RV S f e e s c h e d u l e w a s i m p l e m e n t e d ; The MSRB recommended to the WCAC that scaling
and factors be removed for manipulations and physical
m e d i c i n e s e r v i c e s . H o w e v e r, t h e W C A C t o o k
• t h e RV U s i n t h e c u r r e n t M N - M F S a r e no action on this recommendation.
out-of-date.
The MCA recommends all scaling factors be removed.
The MMA opposed any cut in the CF and changing Terry Cahill, M.D., testifying for the MMA, strongly
t o t h e P P I - P a s a n i n f l a t i o n a d j u s t o r. I n s t e a d opposed eliminating the scaling factors applied
t h e y p r o p o s e d u p d a t i n g t h e RV U s a n d u s i n g t h e t o t h e RV U s f o r o ff i c e v i s i t s e r v i c e s . T h e M N
CPI-U as the inflation adjustment, which they A P TA s u p p o r t e d e l i m i n a t i n g t h e s c a l i n g f a c t o r s
feel better reflects the increased costs of doing for manipulations and physical medicine services.
business.
The department noted that removing all scaling
David Thoreson, RPT, testifying for the Minnesota factors from the current fee schedule, without
Chapter of the American Physical Therapy Association a n y c o r r e s p o n d i n g c h a n g e i n t h e C F, w o u l d b y
( M N A P TA ) c o n c u r r e d w i t h t h e M M A ' s g e n e r a l itself raise medical costs 3.3 percent and total
positions that there is no evidence of a workers' system costs 1.2 percent.
compensation cost problem and that Minnesota
A number of commentators and task-force members
g e t s " g o o d v a l u e . " T h e M N A P TA a l s o o p p o s e d
raised concerns about restricting injured workers’
any cut in the CF and recommends updating the
access to care if there were any reductions in
RVUs, but did not take a position about the appropriate
reimbursement. The department noted there was
inflation adjustment.
no data presented that indicated any loss in access
The department noted that while physician services at the proposed rates of reimbursement .
20
Service utilization
D e p a r t m e n t p re s e n t a t i o n : To t a l m e d i c a l c o s t s a r e t h e f i n a l p r o d u c t o f t h e p r i c e s p e r s e r v i c e s
paid and the number of services allowed. Overall costs can increase because prices are rising,
the number of services provided is increasing or both. Increases in the number of services may
be appropriate or inappropriate. The number of services provided to a patient population may
increase appropriately if the types of health conditions being treated and their severity have
c h a n g e d . C o n v e r s e l y, p r o v i d i n g s e r v i c e s t h a t a r e i n e f f e c t i v e o r u n n e c e s s a r y r e s u l t s i n e x c e s s i v e
and inappropriate treatment.
There are a variety of studies, both from Minnesota and elsewhere in the United States, that
indicate inappropriate utilization is a problem in workers' compensation. The 1989 Minnesota
medical study showed the duration of treatment was higher for certain classes of injuries in
workers' compensation compared to a similar population in general health care. These differences
w e r e m o s t m a r k e d f o r p h y s i c a l m e d i c i n e s e r v i c e s 37 i n t h e t r e a t m e n t o f c o m m o n m u s c u l o s k e l e t a l
injuries such as low back pain and strains/sprains.
Numerous studies of managed care in workers' compensation have shown dramatic reductions
in the utilization of health care services in the managed care population, without any significant
d i f f e r e n c e s i n t r e a t m e n t o u t c o m e s 38.
A 2 0 0 2 s t u d y d o n e b y t h e Wo r k e r s ' C o m p e n s a t i o n R e s e a r c h I n s t i t u t e i n Te x a s f o u n d l a r g e a n d
unexplainable differences between different regions of the state in the number of physical
m e d i c i n e s e r v i c e s p r e s c r i b e d b y p h y s i c i a n s t o c l a i m a n t s w i t h c o m p a r a b l e i n j u r i e s 39.
Another 2002 WCRI study looked at 52,000 workers' compensation claims from five states
( C o n n e c t i c u t , Te x a s , M a s s a c h u s s e t t s , F l o r i d a , C a l i f o r n i a ) 4 0 . I t f o u n d t h a t b a c k a n d u p p e r e x t r e m i t y
injuries accounted for two-thirds of physical medicine costs. For cases with the same duration
of work loss, chiropractic care cost more in four of the five states studied, even though chiropractors
were paid less per visit than other health care providers. This difference in cost was attributable
to physical medicine costs, especially the higher number of treatment visits for patients taken
care of by chiropractors. Of note, the only state in which this pattern was not found (Florida)
h a d s t r i c t l i m i t s o n t h e n u m b e r o f r e i m b u r s a b l e v i s i t s p e r c a s e f o r t h e s e k i n d s o f t r e a t m e n t 41.
37
Physical medicine services include the types of treatments provided by physical therapists, occupational
therapists and chiropractors.
38
S u m m a r i z e d b y R e s e a r c h a n d St a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3 . D e t a i l s
a v a i l a b l e a t : w w w. d o l i . s t a t e . m n . u s / p d f / m t f 9 _ 9 _ c m c a r e . p d f .
39
W C R I “ Ta rg e t i n g M o r e C o s t l y C a r e : A r e a Va r i a t i o n s i n Te x a s M e d i c a l C o s t s a n d U t i l i z a t i o n ” C a m b r i d g e ,
MA; 2002.
40
R . A . Vi c t o r, D . Wa n g P a t t e r n s a n d C o s t s o f P h y s i c a l M e d i c i n e : C o m p a r i s o n o f C h i r o p r a c t i c a n d
Physician-Directed Care Cambridge Mass.; WCRI, December 2002.
41
At the time the study was done, Florida law limited chiropractic treatment to 18 visits or eight weeks,
whichever came first.
21
Data from Minnesota also shows the importance of physical medicine services in overall
m e d i c a l c o s t s 42.
Ta b l e 3
Service groups Percent of all services

Office visits 11 . 5
Physical medicine* 34.0
Chiropractic manipulation therapy 6.8
Medical imaging 4.0
Surgery 0.7
Laboratory testing 2.42
All others 38.5
*From all providers including physical therapists,

occupational therapists and chiropractors
In fact, physical medicine services are eight of the top 10 most frequent services provided to
workers’ compensation patients in Minnesota, with these eight services accounting for 31.8
percent of all services. The frequency of these services is increasing, even though there are
fewer overall work injuries in Minnesota and fewer are so severe as to cause lost time from
work. For comparable groups of short-duration mild low back injuries, there has been a marked
variation in the number of physical medicine services per claim. After marked declines in the
frequency of these services after the implementation of the 1992 workers’ compensation reforms,
there has been a steady increase.
Figure 8
Services/Claim
40
35
30
DC Services
25
20
PT
15
10
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
42
www. d o l i . s t a t e . m n . u s / p d f / m c t f 1 0 _ 2 8 _ u t i l i z a t i o n . p d f.
22
In response to the problem of inappropriate and Besides the changes in the number of services
excessive physical medicine services, at least provided, changes in the types and proportions
nine states limit some aspect of physical medicine of services can also strongly affect overall costs.
treatment to workers’ compensation claimants The changing mix of services is really three
without prior authorization: distinct problems:
AL: Only six total treatment visits allowed 1 . The substitution of more expensive options
in the first six months. for less costly ones; e.g. ordering a SPECT
CO: Only 34 manipulations allowed per case scan instead of a bone scan or prescribing
FL: Chiropractic treatment limited to 24 treatments O x y C o n t i n ™ i n s t e a d o f Vi c o d i n ™ .
or 12 weeks.
KS: Physical medicine treatment limited to 2 . The introduction of new treatment technologies;
21 visits. e.g. intra-discal electrotherapy (IDET)
NC: Physical therapy limited to 30 visits; for treatment of low back pain.
chiropractic care limited to 20 visits.
OR: Chiropractor may only be the treating
provider for 30 days or 12 visits. 3. The addition of new types of therapy to
RI: Any palliative care, including physical the conventional regimens; e.g. involving
medicine, after MMI limited to 12 visits. massage therapists in treatment programs
WA : C h i r o p r a c t i c c a r e l i m i t e d t o 6 0 d a y s o r already including physical therapists and
12 visits and chiropractor cannot provide chiropractors or the use of herbal medications
physical therapy services on more than in addition to prescription drugs.
six visits.
C A : Physical therapy and chiropractic treatment These have in common the widespread use of
limited to 24 visits each. new interventions before there is any evidence
of their efficacy or advantage over established
In addition, Medicare and Medicaid both limit t r e a t m e n t s . A c l a s s i c e x a m p l e i n M i n n e s o t a ’s
physical medicine services. workers’ compensation system was the extensive
use of chymopapain injections for the treatment
• As of Sept. 1, 2003 Medicare limits physical of low back pain before well-controlled scientific
therapy and occupational therapy services studies called into question their usefulness.
to $1,590 each per calendar year and only By the time the studies were done and the results
reimburses chiropractors for manipulation w i d e l y d i s s e m i n a t e d i n t h e m e d i c a l c o m m u n i t y,
for spinal subluxation (i.e. does not pay a large number of injured workers had been
for office visits, other physical medicine subjected to a costly and often ineffective treatment.
treatments, medical imaging or for treatment Since delaying the introduction of new technologies
of conditions other than back pain). until there is evidence that they work can only
prevent these kinds of problems, the department
• Minnesota Medical Assistance, General Assistance made the following recommendation.
Medical Care and Minnesota Care only
pay for manipulation of the spine for treatment D e p a r t m e n t re c o m m e n d a t i o n : A m e n d t h e s t a t u t e
of spinal subluxation and X-rays that are to define any technology not approved by the
needed to support a diagnosis of subluxation. F D A p r i o r t o the date of enactment as “not reasonably
Furthermore, manipulations are limited to required” unless approved for use by the
six in a month and no more than 24 in a commissioner in consultation with the MSRB.
c a l e n d a r y e a r.
Task-force deliberations: Thomas Mottaz, testifying
D e p a r t m e n t re c o m m e n d a t i o n : B a s e d o n t h e
f o r t h e M i n n e s o t a Tr i a l L a w y e r s A s s o c i a t i o n ,
available data, amend the statute to limit physical
opposed any statutory limitations on healthcare
medicine modalities and procedures to 24 visits
services.
p e r i n j u r y.
23
Tr e a t m e n t p a r a m e t e r s
D e p a r t m e n t p re s e n t a t i o n : T h e 1 9 9 2 l e g i s l a t i v e r e f o r m s d i r e c t e d t h e d e p a r t m e n t t o e s t a b l i s h
t r e a t m e n t p a r a m e t e r s f o r t h e m o s t c o m m o n a n d c o s t l y w o r k e r s ’ c o m p e n s a t i o n i n j u r i e s 43. T h e
parameters were intended to decrease unexplained variation in treatment between injured workers
w i t h s i m i l a r i n j u r i e s a n d t o h e l p d e f i n e w h i c h t r e a t m e n t s a r e “ r e a s o n a b l e a n d n e c e s s a r y. ”
In consultation with the Medical Services Review Board the department promulgated
permanent treatment parameters in 1995, covering general medical practices, medical imaging,
hospitalization, selected surgeries, chronic management, administrative procedures, low back
p a i n , n e c k p a i n , t h o r a c i c b a c k p a i n , u p p e r e x t r e m i t y d i s o r d e r s a n d r e f l e x s y m p a t h e t i c d y s t r o p h y 44.
I n 1 9 9 9 , t h e d e p a r t m e n t , i n c o o p e r a t i o n w i t h S t r a t i s H e a l t h , c o m p l e t e d a s t u d y, f u n d e d b y t h e
R o b e r t Wo o d s J o h n s o n F o u n d a t i o n a b o u t t h e e f f e c t i v e n e s s o f t h e t r e a t m e n t p a r a m e t e r s 4 5 . A
group of claimants with low back injuries were followed for the first six months after the date
o f i n j u r y.
In this group only 70.8 percent of the cases received treatment that was completely compliant
w i t h t h e l o w b a c k p a i n p a r a m e t e r. I n c o m p a r i n g t h o s e p a t i e n t s w h o r e c e i v e d c o m p l i a n t c a r e
versus those who did not, the study found:
Ta b l e 4
Outcome measured Results

Improvement in pain No difference
Improvement in function No difference
Satisfaction with care No difference
Satisfaction with job No difference
Wo r k s t a t u s a t s i x m o n t h s No difference
Mental health No difference
Physical health Maybe better in those who had compliant therapy
Lost work-time Less lost time in those who had compliant treatment
Medical cost Lower costs in those who had compliant treatment
D . G i l b e r t s o n , W. L o h m a n , " M a n d a t o r y Tr e a t m e n t P a r a m e t e r s E v a l u a t i o n "
Further analysis found that noncompliance with those parts of the parameter regulating passive
care (mostly physical medicine treatments) and the use of diagnostic testing (mostly medical
imaging techniques) were particularly responsible for the increased lost work-time and increased
costs in cases that had noncompliant care.
M o r e r e c e n t l y, t h e d e p a r t m e n t h a s e x a m i n e d g r o u p s o f s i m i l a r l o w b a c k i n j u r i e s o c c u r r i n g
d u r i n g 1 9 9 0 t o 2 0 0 1 46. T h i s s t u d y l o o k e d a t t h e c o s t a n d u t i l i z a t i o n o f t r e a t m e n t s i n t h e f i r s t 1 6
43
M i n n e s o t a St a t u t e s s e c t i o n 1 7 6 . 8 3 s u b d . 5 ; a v a i l a b l e a t : w w w. r e v i s o r. l e g . s t a t e . m n . u s / s t a t s / 1 7 6 / .
44
Minnesota Rules Parts 5221.6010 through 5221.8900; available at:
w w w. r e v i s o r. l e g . s t a t e . m n . u s / a r u l e / 5 2 2 1 / .
45
D G i l b e r t s o n , W L o h m a n “ M a n d a t o r y Tr e a t m e n t P a r a m e t e r s E v a l u a t i o n ” RWJ Wo r k e r s ' C o m p e n s a t i o n H e a l t h
I n i t i a t i v e ; d e t a i l s a v a i l a b l e a t : w w w. u m a s s m e d . e d u / w o r k e r s c o m p / g r a n t s / g r a n t 1 6 . c f m a n d
www. d o l i . s t a t e . m n . u s / p d f / m c t f 1 0 _ 2 8 _ u t i l i z a t i o n . p d f .
46
www. d o l i . s t a t e . m n . u s / p d f / m c t f 1 0 _ 2 8 _ u t i l i z a t i o n . p d f .
24
m o n t h s a f t e r t h e d a t e o f i n j u r y. A l l o f t h e s e w o r k e r s h a d s h o r t d u r a t i o n , r e l a t i v e l y m i l d l o w
back injuries. The data shows there was a marked decrease in the frequency of services per
claim for those types of services most affected by the treatment parameters at the time of their
first implementation, particularly for physical medicine treatments (see Figure 8 on page 21).
As already noted, there has been a gradual increase in the frequency of those services since
that time, despite that there has been no change in the nature or severity of these injuries.
There has also been a parallel increase in the cost of these claims, as shown below in Figure 9.
Figure 9
Average total payment/claim

includes payments for all services provided
650
600
550
500
450
400
350
300
250
200
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
DC directed 571.98 602.74 563.83 520.81 408.92 448.12 385.32 393.30 432.24 489.70 502.40 504.41
MD directed 424.48 366.57 378.42 399.70 319.38 334.17 330.90 367.23 364.00 391.25 462.90 441.31
R e s e a r c h a n d St a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3
The studies show that treatment parameters do work to control excessive and inappropriate
t r e a t m e n t , b u t t h a t c o m p l i a n c e i s a n i s s u e 47. T h e d e p a r t m e n t a l s o n o t e d t h e c u r r e n t p a r a m e t e r s
do not include a number of common and important workers’ compensation injuries, e.g. lower
e x t r e m i t y p r o b l e m s , w h i c h a c c o u n t f o r 2 2 p e r c e n t o f a l l o c c u p a t i o n a l i n j u r i e s i n M i n n e s o t a 48.
47
F o r e x a m p l e , t h e Wo r k e r s ' C o m p e n s a t i o n C o u r t o f A p p e a l s a n d c o m p e n s a t i o n j u d g e s a p p l y c a s e l a w s t a n d a r d s
rather than the treatment parameters in disputes over the reasonableness of medical treatment if the
p a r t i e s h a v e n o t r a i s e d t h e p a r a m e t e r s a s a n i s s u e ; S e e , R o s c h v. L o n g P r a i r i e M e m o r i a l H o s p i t a l
(WCCA 10-1-2003)
48
B Z a i d m a n M i n n e s o t a Wo r k p l a c e S a f e t y R e p o r t : O c c u p a t i o n a l I n j u r i e s a n d I l l n e s s e s , 2 0 0 1 R e s e a r c h
and Statistics, Minnesota Department of Labor and Industry; May 2003; available at:
h t t p : / / w w w. d o l i . s t a t e . m n . u s / p d f / s a f e r p t 0 1 . p d f
25
In addition, changes in medical science and the introduction of new technologies could be
incorporated into the parameters. Based on all of the available evidence, and these administrative
considerations, the department made a series of recommendations regarding the current treatment
parameters.
D e p a r t m e n t re c o m m e n d a t i o n : A d d t o t h e s t a t u t o r y d e f i n i t i o n o f " r e a s o n a b l y r e q u i r e d t r e a t m e n t " :
• "as defined by any applicable treatment parameter";
• that treatment exceeding an applicable parameter is presumed to be "not reasonably required"; and
• this presumption is rebuttable by clear and convincing medical evidence that a reason for
departure from the parameter exists in a particular case.
D e p a r t m e n t re c o m m e n d a t i o n : R e q u i r e j u d g e s a n d p a y o r s t o a p p l y t h e p a r a m e t e r s :
• payors must cite parameters in denials of "unreasonable" treatment;
• fact finders must make decisions based on parameters; and
• if parameter was not used in adjudicating a claim, the fact finder must explain why it was
not used.
D e p a r t m e n t re c o m m e n d a t i o n : A u t h o r i z e t h e d e p a r t m e n t t o u s e " e x p e d i t e d " r u l e m a k i n g t o
update and extend parameters with a legal standard that the parameter must reflect evidence-
based medical practice and be developed in consultation with MSRB.
Ta s k - f o rc e d e l i b e r a t i o n s : Te s t i m o n y f r o m t h e M H A , M M A a n d M N A P TA w a s g e n e r a l l y i n
favor of maintaining, updating and strengthening treatment parameters. Kristine Gjerde, testifying
f o r M N A P TA , c a l l e d f o r m o r e u s e o f p e e r r e v i e w i n s e t t l i n g d i s p u t e s r e g a r d i n g a p p r o p r i a t e
c a r e . T h o m a s M o t t a z , t e s t i f y i n g f o r t h e M i n n e s o t a Tr i a l L a w y e r s A s s o c i a t i o n , o p p o s e d a n y
changes in the legal status of the treatment parameters, but encouraged measures to update the
parameters to be consistent with the most current medical science.
26
Certified managed care
Department presentation: The 1992 legislative reforms also directed the department to establish
r u l e s f o r t h e i m p l e m e n t a t i o n a n d c e r t i f i c a t i o n o f m a n a g e d c a r e p l a n s 49. M a n a g e d c a r e i s a t e r m
used in the health care industry to describe health care systems that integrate the financing and
delivery of appropriate health care services to covered individuals by: making arrangements
with selected providers to furnish health care services; having standards for selection of health
c a r e p r o v i d e r s ; a n d m a i n t a i n i n g p r o g r a m s f o r o n g o i n g q u a l i t y a s s u r a n c e a n d u t i l i z a t i o n r e v i e w 50.
The introduction of managed care in workers' compensation was intended to provide another
mechanism for controlling inappropriate utilization of health care services.
A Minnesota employer may require that care for a work injury be received from a designated
m a n a g e d c a r e p l a n 5 1 . Wo r k e r s ' c o m p e n s a t i o n c e r t i f i e d m a n a g e d c a r e p l a n s ( C M C s ) a r e r e q u i r e d
to make treatment available that is geographically convenient and allows access to emergency
s e r v i c e s a n d a n y c a t e g o r y o f h e a l t h c a r e p r o v i d e r. C M C s a r e a l s o r e q u i r e d t o p r o v i d e p e e r
r e v i e w, u t i l i z a t i o n r e v i e w, d i s p u t e r e s o l u t i o n a n d c a s e m a n a g e m e n t s e r v i c e s . B y s t a t u t o r y d e c r e e ,
CMCs must allow the injured employee to treat with a health care provider with whom the
employee has an established treating relationship, whether or not the provider participates in
the managed care plan's network. By rule, CMCs must pay participating providers the amount
allowed under the Minnesota workers' compensation medical fee schedule (MN-MFS) or 85
percent of the providers U and C charge if the service is not covered by the MN-MFS. In 1995,
t h e r e w e r e 1 0 C M C s i n M i n n e s o t a ; c u r r e n t l y t h e r e a r e f o u r.
The department first considered whether there was any evidence that managed care controlled
costs while maintaining access to services and quality of care. Managed care for workers'
compensation has not been studied in Minnesota, but has been extensively researched in other
jurisdictions. Multiple studies show that medical costs are lower in the managed care plans with
c o m p a r a b l e t r e a t m e n t o u t c o m e s , t h o u g h p a t i e n t s a t i s f a c t i o n i s l o w e r 52.
Minnesota differs from many other states by not allowing managed care plans to negotiate rates
o f p a y m e n t w i t h h e a l t h c a r e p r o v i d e r s i n t h e p l a n ' s n e t w o r k . A s t u d y d o n e b y t h e Wo r k e r s '
Compensation Research Institute, shows that up to 15 percent of the savings realized in some
other states' managed care systems are attributable to negotiation of rates of payment with the
p l a n ' s p a r t i c i p a t i n g p r o v i d e r s 53.
D e p a r t m e n t re c o m m e n d a t i o n : C e r t i f i e d m a n a g e d c a r e p l a n s b e a l l o w e d t o n e g o t i a t e f e e s w i t h
participating providers.
Another significant difference between managed care in Minnesota workers’ compensation

a n d p l a n s i n s o m e o t h e r s t a t e s i s t h e r e q u i r e m e n t t h a t t h e C M C p r o v i d e p e e r r e v i e w, u t i l i z a t i o n
r e v i e w, d i s p u t e r e s o l u t i o n a n d c a s e m a n a g e m e n t s e r v i c e s . T h e d e p a r t m e n t r e v i e w e d c o m m e n t s
that argued managed care plans should be able to tailor the services offered to insurers and
employers, rather than requiring a “one size fits all” approach.
49
Minnesota Statutes section 176.1351.
50
National Conference of State Legislatures “What Legislators Need to Know About Managed Care” Washington,
D . C . ; 1 9 9 7 . Av a i l a b l e a t : www. n c s l . o rg / p u b l i c / c a t a l o g / 6 6 4 2 e x . h t m .
51
Minnesota Statutes section 176.135 subd. 1 (f).
52
S u m m a r i z e d b y R e s e a r c h a n d S t a t i s t i c s , M i n n e s o t a D e p a r t m e n t o f L a b o r a n d I n d u s t r y, 2 0 0 3 . D e t a i l s
a v a i l a b l e a t : w w w. d o l i . s t a t e . m n . u s / p d f / m t f 9 _ 9 _ c m c a r e . p d f .
53
W. G. J o h n s o n , M . L . B a l d w i n , S . C . M a r c u s T h e I m p a c t o f Wo r k e r s ’ C o m p e n s a t i o n N e t w o r k s o n M e d i c a l
Costs and Disability Payments Cambridge, Mass.; WCRI, 1999.
27
Department recommendation: Require the employee
! T h e re a re a l re a d y n o n c e r t i f i e d m a n a g e d to use the certified managed care plan’s designated
c a re p l a n s o p e r a t i n g i n M i n n e s o t a t h a t provider for the first 14 days of treatment.
o f f e r w o r k e r s ’ c o m p e n s a t i o n i n s u re r s o n l y
a p ro v i d e r n e t w o r k . T h e d e p a r t m e n t n o t e d D e p a r t m e n t re c o m m e n d a t i o n : E v e n w h e n t h e
that these noncertified plans do not have employer does not have a managed care plan,
to meet any of the access requirements allow the employer to select the initial health
that are mandated for CMCs. care provider for the first 14 days of treatment.
! S o m e i n s u re r s h a v e i n v e s t e d i n d e v e l o p i n g Ta s k - f o r c e d e l i b e r a t i o n s: P a t J o h n s o n , p r e s i d e n t
i n - h o u s e c a p a b i l i t i e s t o p ro v i d e s o m e o f of State Fund Mutual Insurance Company, presented
these additional services, particularly testimony to the task force favoring the negotiation
case management, for all of their claims. of fees with participating providers, more flexible
Some commentators noted that it is inefficient arrangements of MCO operations between plans
and sometimes detrimental to have duplication and insurers, and a new definition of the prior
of these services. treating relationship.
D e p a r t m e n t re c o m m e n d a t i o n : M a k e p e e r r e v i e w, Te r i S i m o n , d i r e c t o r o f C o m p r e h e n s i v e M a n a g e d
u t i l i z a t i o n r e v i e w, c a s e m a n a g e m e n t a n d d i s p u t e Care, spoke for the four MCOs still operating
resolution optional features of certified managed in Minnesota. The MCOs favor “unbundling”
care. of the various components of the current managed
care plans to allow more flexible arrangements
F i n a l l y, c e r t i f i e d m a n a g e d c a r e i n M i n n e s o t a ’s with insurers and would support elimination or
workers’ compensation system differs from managed redefinition of the prior treating physician exception.
care in general medical care by allowing injured The plans were split on the issue of negotiating
workers to treat with a health care provider fees with participating providers. Simon agreed
t h a t i s n o t p a r t o f t h e p l a n ’s n e t w o r k w h e n t h e r e with Johnson that the current managed care
is a history of a previous treating relationship. rules are overly complex and onerous.
A study done by WCRI shows that medical costs S e v e r a l o f t h e t a s k - f o r c e ’s h e a l t h c a r e p r o v i d e r

are 16 to 46 percent lower if all of an injured representatives stated that managed care plans
worker ’s treatment is provided exclusively within would not negotiate fees but rather impose them
a n e t w o r k , a n d u p t o 11 p e r c e n t l o w e r i f m o s t unilaterally and health care providers would
o f t h e t r e a t m e n t i s p r o v i d e d w i t h i n a n e t w o r k 54. have no alternative but to accept these changes
Moreover, the use of the plan’s network is strongly i f t h e y w a n t e d t o s t a y i n t h e p l a n ’s n e t w o r k .
influenced by whether the first health care provider Other members noted the plan would have to
to treat the work injury was a member of the offer fees acceptable in the market or the providers
p l a n ’s n e t w o r k . sought after by the plans would in fact decline
to participate. There were also general concerns
A f o l l o w - u p W C R I s t u d y, f o u n d t h a t u s e o f a that rules requiring timely and geographically
p l a n ’s n e t w o r k a n d m e d i c a l c o s t s a r e r e d u c e d convenient access be maintained.
by 7 to10 percent if the employer controls the
c h o i c e o f h e a l t h c a r e p r o v i d e r 55. Thomas Mottaz, testifying for the Minnesota
Trial Lawyers Association, opposed any limitations
D e p a r t m e n t re c o m m e n d a t i o n : R e d e f i n e w h e n o n a n e m p l o y e e ’s c h o i c e o f t r e a t i n g h e a l t h c a r e
there is a prior treating relationship. p r o v i d e r.
54
S.E. Fox, R.A. Victor, X. Zhao The Impact of Initial Treatment by Network Providers on Workers’ Compensation
Medical Costs and Disability Payments Cambridge, Mass.; WCRI, 2001.
55
R . A . Vi c t o r, D . Wa n g , P B o r b a P r o v i d e r C h o i c e L a w s , N e t w o r k I n v o l v e m e n t , a n d M e d i c a l C o s t s C a m b r i d g e ,
Mass.; WCRI, 2002.
28
Cost implications
The department was asked to provide some information • Adding to the statutory definition of "reasonably
regarding the implications of its recommendations required treatment" – "as defined by any applicable
for workers' compensation medical costs and treatment parameter" and that treatment exceeding
total system costs. The department used actual a parameter is presumed to be "not reasonably
bills submitted to workers' compensation insurers required." This presumption being rebuttable
that provided data to the department specifically by clear and convincing medical evidence
for this purpose. that a reason for departure exists.
For the following recommendations, either the • Requiring judges and payors to apply the treatment
data available to the department lacks the necessary parameters.
details to compute an estimation, or the size of
the anticipated effect would be entirely dependent • Authorizing the department to use "expedited"
on unreliable assumptions about the future behaviors rulemaking to update and extend parameters
of insurers, health care providers, judges and with a legal standard that the parameter must
injured workers. reflect evidence-based medical practice and
be developed in consultation with MSRB.
• Setting the maximum allowable fee for medications
a t t h e M A C + $ 3 . 6 5 o r a t 8 6 p e r c e n t AW P • Amending the statute to limit physical medicine
+ $3.65, if no MAC price is available. modalities and procedures to 24 visits per
i n j u r y.
• Allowing an employer/insurer to contract
with and negotiate rates with a pharmacy • Amending the statute to define any technology
network from which the injured employee not approved by the FDA prior to the date
must select a pharmacy to fill prescriptions. of enactment as "not reasonably required"
unless approved for use by the commissioner
• Requiring pharmacy benefit managers to disclose in consultation with the MSRB.
any rebates to employers/insurers.
However, these recommendations are all extensions
• Amending the workers' compensation treatment of cost control methods introduced in the 1992
parameters. legislative reform that resulted in a 13.7 percent
decline from 1993 to 1994 in the average cost
• Allowing managed care plans to negotiate per claim or they are cost control measures
fees with participating providers. that have been studied in other workers' compensation
systems and found to be associated with medical
• M a k i n g p e e r r e v i e w, u t i l i z a t i o n r e v i e w, c a s e costs savings.
management and dispute resolution optional
features of certified managed care. Estimates of the impact on medical and system
costs could be provided for the remaining recommendations.
• Redefining when there is a prior treating
relationship with a provider who is not in a For each option, the impact on medical costs
CMC's network. and system costs is shown for that change alone.
In addition, for the hospital recommendations,
• Requiring employees to use the CMC's the impacts are shown for the scenario in which
designated provider for the first 14 days. the fee schedule conversion factor is also changed
a c c o r d i n g t o r e c o m m e n d a t i o n 11 ( b e c a u s e s o m e
• Allowing employers to select the initial hospital services are paid according to the fee
health care provider for the first 14 days of schedule).
treatment.
29
• Readjust the CF to what it would have been had the PPI-P been used when available ($62.86)
a n d i n t h e f u t u r e a d j u s t b y P P I - P.
Change in medical costs: Change in system costs:

-5.4 percent -2 percent
• Pay nonhospital services not covered by the fee schedule at 68 percent of U and C.

-4.7 percent -1.7 percent
• Eliminate the small hospital distinction and instead separate critical-access hospitals
reimbursement at the higher rate.

! In combination with change to conversion factor:

• Pay noncritical-access hospital inpatient services and outpatient services not covered by
the fee schedule at the average payment-to-charge ratio for all hospitals plus 15 percent
(i.e. 53 percent + 15 percent = 68 percent).

-9 percent -3.3 percent

• Pay critical-access hospital inpatient services at 100 percent U and C; pay all other
services at fee schedule + 15 percent, if it applies; otherwise, at average payment-to-
charge ratio for all hospitals plus 30 percent (i.e. 83 percent).


• F i n a l l y, t h e i m p a c t o f i m p l e m e n t i n g a l l o f t h e a b o v e r e c o m m e n d a t i o n s :

-20 percent -7.3 percent
30
Ta s k - f o r c e r e c o m m e n d a t i o n s
After receiving testimony from interested parties that had requested to speak to the task force,
each member was asked to submit their recommendations for distribution and discussion.
Members were asked to use the recommendations made by the department as a template for
their submissions and were asked to comment about each topic discussed. These task-force
recommendations were submitted prior to the Dec. 2, 2003 final meeting and were discussed
t h e n . S u b s e q u e n t l y, t h e d e p a r t m e n t h a s c o l l a t e d t h e c o m m e n t s a n d r e c o m m e n d a t i o n s f o r t h i s
r e p o r t . T h e a c t u a l s u b m i s s i o n s a r e a t t a c h e d a s A p p e n d i x C a n d a r e s u m m a r i z e d b e l o w.
Many of the general comments received from the members were similar to statements made by
various parties during their testimony and discussed above.
Ta b l e 5
General comments from members Number of members (of 12)
Given that workers' compensation costs are 43 percent

less now than in 1994, there is no cost problem. 7
Cutting reimbursement to health care providers will result

in less access to necessary services for injured workers. 5
The current treatment system gives good value for the price paid. 4
Because the task force only considered medical costs, it did not
fulfill the legislative mandate to look at all cost-drivers. 2
Cutting workers' compensation reimbursement will imperil

Minnesota's general health care system. 2
I n r e g a r d t o t h e d e p a r t m e n t ’s r e c o m m e n d a t i o n s , t h e l a b o r r e p r e s e n t a t i v e s w e r e u n i v e r s a l l y
opposed to any changes in the status quo, consistent with their opinion that there was no
medical cost problem and their concern that the proposed changes would all have negative
impacts on the injured workers’ access to health care services. The pharmacy representative
also opposed any changes to the current system.
T h e e m p l o y e r r e p r e s e n t a t i v e s g e n e r a l l y e n d o r s e d t h e d e p a r t m e n t ’s r e c o m m e n d a t i o n s o r o f f e r e d
no comment.
31
Among the remaining health care provider representatives, there was considerable variation in
a s s e s s m e n t o f t h e d e p a r t m e n t ’s r e c o m m e n d a t i o n s . T h e y u n a n i m o u s l y o p p o s e d a n y r e d u c t i o n s
in payments for services, but frequently endorsed recommendations aimed at controlling inappropriate
utilization.
Ta b l e 6
For Against
Pharmacy recommendations 3
Hospital cost recommendations 5
Medical fee schedule 5
Utilization control recommendations
1 . Allow employer to select initial health care provider
for the first 14 days of treatment. 1 1
2 . Amend the statutory definition of
"reasonably required treatment." 2 1
3. Require judges and payors to apply the parameters. 3 1
4 . Authorize the department to use "expedited" rulemaking. 3 1
5 . Amend the statute to limit physical medicine
modalities and procedures to 24 visits per injury. 3* 1
6 . Amend the statute to define any technology not
approved by the FDA prior to the date of enactment
as "not reasonably required." 2 2
*
Tw o o f t h e t h r e e r e c o m m e n d e d t h a t t h i s b e d o n e b y t r e a t m e n t
parameter instead of by statutory change.
O n l y t w o o f t h e h e a l t h c a r e p r o v i d e r r e p r e s e n t a t i v e s o ff e r e d a n y c o m m e n t s a b o u t t h e d e p a r t m e n t ’s
managed care recommendations.They both opposed any changes – especially allowing managed
care plans to negotiate rates of payment with participating providers.

Department of Labor: Medcostreport04

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J a n u a r y 2004

A summary of the Minnesota Department of Labor and Industry's

1. Add to the statutory definition of “reasonably required treatment”:

2. Require judges and payors to apply the parameters:

3. Redefine when there is a prior treating relationship.

Summary of medical task-force's recommendations

Background about workers' compensation medical costs

• the rate of inflation was getting larger (9.3

• workers’ compensation insurers paid twice as

Since then, these findings have been extended

As a result of these findings, in 1992 the Minnesota

• Introduction of certified managed care and mandatory treatment parameters to reduce

Medical costs in Minnesota workers’ compensation since 1993

$1,500 Of course, some of this increase is explained

$500 But this is not the entire explanation; the increase

There is good evidence the same factors underlie • pharmacy networks;

• 8 6 p e r c e n t a v e r a g e w h o l e s a l e p r i c e ( AW P ) Based on feedback from stakeholders at its November

• encouragement of generic substitution (when a generic, less costly version of a drug is

• support of therapeutic substitution, if appropriate (when the patient receives an equivalent,

Ta s k - f o rc e d e l i b e r a t i o n s : Mark Arrington, being negated by the administrative costs charged

Hospital reimbursement in general health care – 2001

• Identify critical access hospitals for increased reimbursement.

• Pay inpatient services at critical-access hospitals at 100 percent U and C.

WDLI Grade Fee Index

T h e d e p a r t m e n t ’s f i n a l p r o p o s a l f o r c r i t i c a l - Some members of the task force were concerned

D e p a r t m e n t p re s e n t a t i o n : S l i g h t l y m o r e t h a n based on the resources required to produce specific

Medicare conversion factor

Minnesota workers' compensation as a percentage of Medicare:

A common index of inflation since 1993

NB: The PPI-p was not available for

This recommendation assumes the original CF – $52.05, representing a 63 percent premium

Service groups Percent of all services

*From all providers including physical therapists,

Outcome measured Results

Average total payment/claim

• "as defined by any applicable treatment parameter";

• payors must cite parameters in denials of "unreasonable" treatment;

• fact finders must make decisions based on parameters; and

Another significant difference between managed care in Minnesota workers’ compensation

A study done by WCRI shows that medical costs S e v e r a l o f t h e t a s k - f o r c e ’s h e a l t h c a r e p r o v i d e r

Change in medical costs: Change in system costs:

Change in medical costs: Change in system costs:

Change in medical costs: Change in system costs:

! In combination with change to conversion factor:

Change in medical costs: Change in system costs:

Change in medical costs: Change in system costs:

! In combination with change to conversion factor:

Change in medical costs: Change in system costs:

Change in medical costs: Change in system costs:

! In combination with change to conversion factor:

Change in medical costs: Change in system costs:

Change in medical costs: Change in system costs:

General comments from members Number of members (of 12)

Given that workers' compensation costs are 43 percent

Cutting reimbursement to health care providers will result

Cutting workers' compensation reimbursement will imperil

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