1. The Impact of Workers’ Compensation Networks on Medical Costs and Disability Payments William G. Johnson Arizona State University Marjorie L. Baldwin East Carolina University Steven C. Marcus Health Resources Associates

2. Questions o Does network care reduce workers’ compensation health care costs? o What are the sources of network savings in health care costs? o Do networks reduce health care costs but increase indemnity costs?

3. Potential Savings California - The Zenith Project

4. Data o California, Connecticut, Texas o Three insurers o Eight networks o 192,500 closed claims o Injury dates from August 1995 to June 1997

5. Stratification of Data o Three injury groups back sprains and strains inflammations, lacerations and contusions all other injuries o Two claim types medical only (MO) indemnity (TDO, PPD)

6. Network Comparison Groups o Network/Non-network 1 100% network vs. 0% network o Network/Non-network 2 81-99% network vs. 1-24% network o Network/Non-network 3 50-80% network vs. 25-49% network

7. Pairwise Matching Network cases matched to non-network cases on: primary ICD9 diagnosis type of injury claim type (MO or indemnity) age (+ or - 5 years) gender state of residence

8. A Matched Pair o Network claim o 55 year old male from Texas o closed fracture/phalanx of the foot o medical only claim o Non-network claim o 55 year old male from Texas o closed fracture/phalanx of the foot o medical only claim

9. Sample Sizes Total eligible claims 192,537100% Total matched claims 162,238 84% Total unmatched claims 30,299 16%

10. Matched Samples Network Non-network Percent Network/Non-network 1 45,523 75,565 74% Network/Non-network 2 8,034 9,110 11% Network/Non-network 3 13,293 10,713 15%

11. Results Do networks reduce health care costs?

12. Health Care - Medical Only

14. Health Care - Indemnity Claims

16. Results What are the sources of network savings in health care costs?

17. Sources of Payments Differentials o Price Effect o Price Effect Difference in payments attributed to differences in network and non- network prices o Quantity Effect o Quantity Effect Differences in payments attributed to differences in utilization o Service-Provider Mix Effect o Service-Provider Differences in payments attributed Mix Effect to different types of services and providers

18. Sources of Payments Differentials - Medical Only Claims

20. Sources of Payments Differentials - Indemnity Claims

22. Results Do networks reduce health care costs but increase indemnity costs?

23. Indemnity Costs

25. Caveats o Closed claims of relatively short duration o Differences between matched and unmatched samples o Key indemnity variables are imputed (TD rates, durations) o Variations among states, particularly for indemnity costs o Small numbers of indemnity claims in some state/injury/network groups

26. Differences in Total Health Care Costs: Matched Network Claims

27. Conclusions o Network health care costs are lower than non- network costs o Indemnity costs are not higher for network claims o The sources of lower network health care costs are: lower utilization of services by network patients network price discounts