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Chapter 8: Health and Human Services
Extend the Use of Medical
Provider Networks to the
State Employees
Workers’
Compensation Program
Summary
The medical care offered to state employees with work-related injuries or
illnesses is costly and does not restrain the overuse of medical services.
Extending the use of medical provider networks to the state workers’
compensation system could help control these costs. The State Office of Risk
Management should be authorized to use medical provider networks to provide
medical, pharmaceutical, and hospital services under workers’
compensation, and require employees with work-related injuries or illnesses to
use the networks to obtain treatment.
Background
Texas provides state employees with comprehensive healthcare benefits
covering illnesses suffered off the job as well as work-related injuries or
illnesses. For off-the-job injuries or illnesses, state employees are treated
primarily through medical networks that have contracted with the state. This
arrangement gives employees access to high-quality health care while allowing
the state to restrain medical usage and costs. To control overuse, these
programs incorporate “gateway” physicians, preferred providers, and
a system of variable co-payments or deductibles to create incentives for
participants to manage costs. The use of medical provider networks generally is
accepted as a reasonable arrangement that has not jeopardized the quality of
state employees’ health care.
Medical provider networks are not used, however, to treat state employees
with on-the-job injuries. The Texas Labor Code does not permit employers or
insurers to restrict an injured worker’s choice of doctor or pharmacy.
Under workers’ compensation, an injured state employee in effect can
direct his or her own medical care. This has led to steady increases in
Texas’ workers’ compensation costs, which are expected to reach more
than $130 million in fiscal 2000-01.[1]
Workers’ compensation claim costs per employee rose from $267 in fiscal
1995 to $297 in fiscal 1999.[2] Such figures are
expected to continue rising due to increased usage and medical inflation rates.
According to the Texas Research and Oversight Council on Workers’
Compensation (ROC), Texas workers’ compensation medical costs are 49
percent higher than the national average.[3] ROC
also reports that the average medical cost of Texas’ workers’
compensation claims is rising faster than in other
states.[4]
Other jurisdictions have incorporated components of the use of networks into
workers’ compensation systems that limit the number of providers available
to injured employees. These programs require employees to obtain treatment from
an employer-selected provider, or from a list of providers developed by the
employer or a network provider organization.[5] A
total of 37 states, including California, Florida, Michigan, New Mexico, New
York, Ohio, Oklahoma, Pennsylvania and Virginia, impose some type of
restriction.[6] To address concerns that injured
workers may have about such restrictions, some states allow the employee to
change providers after the initial visit or after a specific period of time. In
California, for instance, injured workers must use their employer’s group
coverage, if available, for the first 60 days before they can change
providers.[7]
The State Office of Risk Management (SORM), which administers the state
employee workers’ compensation program, is already experimenting with
medical provider networks and is reporting savings through use of an optional
pharmaceutical preferred provider organization (PPO). Under SORM’s current
agreement, the state is guaranteed 10 percent savings below fee guidelines on
each prescription that a participating pharmacy fills for an injured state
employee.[8] From May 22, 2000 through November
1, 2000, the state saved $69,721 on 6,722 prescriptions filled through the
voluntary program, an average savings of 10.4 percent per
prescription.[9] SORM reports that requiring
injured state employees to use the pharmaceutical PPO would save the state even
more and allow SORM to negotiate better discounts for the
state.[10]
Opportunities to use medical provider networks extend beyond pharmacy
services. Workers’ compensation medical networks, similar to those
networks already used to deliver medical services to state employees but focused
on meeting the specific needs of injured workers, can reduce medical costs and
could be used to provide medical and hospital services for injured state
employees.[11] A survey conducted by the Oregon
Department of Commerce and Business Services reports that private employers have
saved 27 percent by using network
providers.[12]
Recommendation
The Legislature should authorize the State Office
of Risk Management (SORM) to use medical provider networks to provide medical,
pharmaceutical, and hospital services under the state’s workers’
compensation program, and should require employees with work-related injuries or
illnesses to use the networks to obtain treatment.
Under this recommendation, the Texas Labor Code would be amended to exempt
SORM from prohibitions related to directing the medical care of an injured
worker. Injured state employees would be required to obtain medical, hospital,
and pharmacy services through state-approved medical provider networks. This
would create a consistent system to provide state employees with similar medical
benefits regardless of the nature of their injury, while ensuring quality care
for injured employees and cost and usage control for the state’s
workers’ compensation program.
Fiscal Impact
Authorizing SORM to use medical provider networks to provide medical,
pharmaceutical, and hospital services under the workers’ compensation
program for state employees and requiring state employee participation would
reduce workers’ compensation medical costs.
In the first biennium, savings could equal $10.2 million. This assumes SORM
negotiates a minimum discount of 10 percent for all medical, hospital, and
pharmaceutical services provided to injured state employees, and that injured
workers are required to utilize the network. SORM is already exploring the
options discussed in this recommendation and could have a network in place by
the beginning of fiscal 2002. The savings would be reflected in a reduction in
SORM’s biennial appropriations.
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Fiscal
Year
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Savings/(Cost) to the General Revenue Fund
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2002
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$10,200,000
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2003
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$0
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2004
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$12,400,000
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2005
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$0
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2006
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$15,100,000
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[1] Texas H.B. 1, 76th Leg.,
Reg. Sess. (1999), pp. I-77-78; and interview with Stuart B. Cargile, manager,
Fund Accounting, State Office of Risk Management, Austin, Texas, August 28,
2000.
[2] Memorandum from the State
Office of Risk Management, Austin, Texas, February 1, 2000.
[3] Research and Oversight
Council on Workers’ Compensation, Medical Cost Trend Analysis Data from
Three Workers’ Compensation Insurance Carriers, 1991-1998 (Austin,
Texas, May 1999), p. 1.
[4] Research and Oversight
Council on Workers’ Compensation, Medical Cost Trend Analysis Data from
Three Workers’ Compensation Insurance Carriers, 1991-1998, p.
5.
[5] Workers’ Compensation
Research Institute, Managed Care and Medical Cost Containment in
Workers’ Compensation: A National Inventory, 1998-1999 (Austin, Texas,
August 2000), p. 9.
[6] Workers’ Compensation
Research Institute, Managed Care and Medical Cost Containment in
Workers’ Compensation: A National Inventory, 1998-1999, p.
12.
[7] Workers’ Compensation
Research Institute, Managed Care and Medical Cost Containment in
Workers’ Compensation: A National Inventory,1998-1999, pp.
12-14.
[8] Interview with Jonathan
Bow, general counsel, State Office of Risk Management, Austin, Texas, August 10,
2000.
[9] Memorandum from ScripNet
PPO to Jonathan Bow, general counsel, State Office of Risk Management, November
1, 2000.
[10] Interview with Jonathan
Bow, August 10, 2000.
[11] Workers’
Compensation Research Institute, “The Impact of Workers’
Compensation Networks on Medical Costs and Disability Payments,” (November
1999), p.1.
[12] Research and Oversight
Council on Workers’ Compensation, Managed Care and Workers’
Compensation: A Review of Research (Austin, Texas, August 1996), pp.
20-21.
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