A Method for Evaluating the Impact of Medical Networks in Workers Compensation Claims N. Mike Helvacian, PhD Director of Research and Chief Economist 1999 CAS Seminar on Health and Managed Care Hilton Head Island, SC October 18, 1999

Case Study Develop an econometric model to evaluate the effects of an integrated managed care program on claim costs

Data provided by two large self-insured clients of a TPA –Accidents in , paid costs evaluated as of 12/1995 Claims either managed in-house or by TPA –Medical Benefit Provisions Fee-for-service basis for in-house managed claims Medical Network for TPA claims –TPA also provides disability management No direct information on how claims are selected for referral to the program

Data Issues No incurred claim costs Paid claim costs evaluated as of a point in time Disparate data sources with variable quality No information on the medical procedures or fees No measures of severity

Claims Data on: –Type of injury –Date of injury –State –Claim status (Open vs. Close) –Date of closure –Date first referred to TPA –Paid indemnity and medical costs as of an evaluation date

Proportional Hazard Model Hazard Rate: The rate of claim closures at a time after the injury among the claims still open at that time –Density function / Survival Function –Same concept as force of mortality Models measure the proportionate shift in the hazard rate for: –Referred vs. not referred claims. A non-linear iterative procedure using SAS

Proportional Hazard Model Model parameters give the risk ratios (percentage change in the hazard rate) associated with the independent variables: Time dependent variable on referred claims Controls for accident year and state system features (benefit levels, employer choice and medical fee schedules) Models estimated for: All lost-time claims By type of injury By referral delay to TPA

Results Hazard rate of closing claims is, on the average, 31% greater for the referred claims. Hazard rate may depend on the type of injury. Hazard rate is greater for claims referred to the program soon after the injury. Hazard rate improves over time for claims not referred to the program. Hazard rate is affected by state system features.