What Makes a Workers’ Compensation Claim a High-Cost Claim? The Latest Word

By Hon. Susan V. Hamilton, Former Assistant Secretary and Deputy Commissioner, California Workers’ Compensation Appeals Board

Over the past several decades California has implemented broad legislative changes aimed at lowering the costs associated with workers’ compensation, especially medical expenditures. Such measures as fee schedules, treatment guidelines, medical provider networks, and utilization review exemplify legislative enactments intended to curb rising medical costs. In most instances those legislative measures were guided by extensive research. Studies conducted outside of the workers’ compensation field have shown that health care costs are concentrated among a relatively small number of individuals. Those studies have identified factors such as lack of provider involvement and care coordination as contributing to high costs of medical care. A new study conducted by the Workers’ Compensation Research Institute (WCRI) is among a small number of studies to examine the characteristics associated with high-cost claims in workers’ compensation. (Factors Associated With High Cost- Claims, Wang, D., Mueller, K.L, Lea, R. D, WCRI, WC-24-23, 8/2024, https://www.wcrinet.org/reports/factors-associated-with-high-cost-claims). The study’s findings better inform our understanding of those cost factors as well as the most effective policy measures for preventing a claim from becoming a high-cost claim.

The Study Objectives

The study had three objectives. First, to define and identify high-cost workers’ compensation claims based on medical payments. Second, to characterize the nature of a high-cost claim and identify the key factors associated with an increased or decreased likelihood of a claim becoming high-cost. Third, to identify factors/strategies that mitigate against a claim becoming high cost.

The Study’s Definition of a High-Cost Claim

There is no universally recognized standard definition of a high-cost claim. The authors looked to prior research and observed that the National Council on Compensation Insurance defines a claim as large if it exceeds $1 million in incurred losses and specifically distinguished fast emerging high-cost claims (i.e., incurred costs exceeding $1 million within two years of injury) and slow emerging large claims (i.e., incurred costs reaching $1 million after two years from date of injury. A study conducted of the Louisiana workers’ compensation system identified a high-cost claim as a closed claim with expenditures of $50,000. Studies outside of workers’ compensation have defined high-cost claims as those claims in the top 5% of claim costs. The authors of this study defined a high-cost claim as one with more than seven days of lost time with payments in the 95^th percentile of medical payments within 36 months of injury. The study excluded catastrophic claims (i.e., severe brain injuries, burns, and spinal cord injuries) since they are usually identified early on following injury and have a high likelihood of large indemnity and medical payments over the course of the claim. Additionally, the study excluded those claims with more than seven days of lost time but with total medical payments of less than $5,000 at 36 months post-injury.

The Data and Methods Employed

The study used WCRI’s Detailed Benchmark Evaluation (DBE) database, which is made up of open and closed claims from 32 states, including California. Injury claims with detailed medical expenditures during the period from 10/1/2015 through 3/31/2019 were analyzed and observed at 36 months post-injury up to 3/31/2022.

The medical transaction data from the DBE provides comprehensive information such as the date of service, the specific medical procedure(s)/service(s) performed, the amount charged by and paid to a specific provider, and diagnostic codes.

The study also used the World Health Organization’s 10^th Revision of the International Classification of Diseases (ICD-10) to identify and classify claims with specific injuries and conditions.

As mentioned above, catastrophic injury claims like severe brain and spinal cord injuries were excluded since these types of injuries are typically identified early on and necessarily have a strong likelihood of high medical and indemnity payments. Similarly, those claims at 36 months post injury with less than $5,000 in medical payments were excluded.

The ICD-10 codes were used to identify the specific type of injury/condition, such as disc herniation or rotator cuff tear. Interestingly, the study also considered the presence of comorbidities/degenerative conditions as reflected in the ICD-10 codes on the assumption that two workers with the same disc herniation but with different levels of comorbidities/degenerative conditions would be likely to have different health care needs, which could affect the overall cost of each claim. For example, an injured worker with a disc herniation but who is also diabetic and has hypertension might require more extensive medical treatment than another worker with a similar disc herniation but no comorbidities or degenerative conditions. The authors, however, offer a caveat: it was not possible within the DBE dataset used in the study to distinguish between pre-existing comorbidities and those that occurred because of treatment for the industrial injury.

The authors recorded the tax identification numbers for all providers involved in the patient’s medical care. This information was especially critical because it helped the authors measure the level of care coordination for a particular claim.

Next, the authors looked at the types of services received by a worker and whether the claim involved the same provider/organization for both initial and subsequent services. Payments for medical services were reviewed at 30-day intervals to identify those months in which there were no services, minimal services, or “resource intensive services.” The term, “resource intensive services,” was used to define those claims with medical spending during the 30-day interval exceeding $10,000. Generally, when the authors found a 30 day interval to meet the “resource intensive services” designation it was an indication that the services provided during the period tended to be surgery and/or in-patient hospital stays.

The authors then grouped claims into four different categories. The first category was those claims with no months of resource intensive care. The second category was claims with one or more months of resource intensive care during the initial four months of treatment following injury. The third category was claims with one or more months of resource intensive care with at least one month of resource intensive care occurring between the fifth- and twelfth-month post injury. The fourth category was claims with one or more months of resource intensive care after one year following injury.

The authors noted and analyzed the following six factors, all of which were obtained from the DBE. First, the individual worker characteristics, including age, gender, marital status, preinjury AWW, job tenure, and industry. Second, the injury type. Third, whether comorbidities, degenerative conditions, or multiple anatomical areas were involved. Fourth, whether multiple taxpayer IDs were reflected within the initial three months of treatment following injury. Fifth, the injury category, as discusses previously. Sixth, whether an attorney was involved in the claim.

The Major Findings

Among the important findings, one stands out: the wide variation in the percentage of high-cost claims across the 32 states included in the study. For example, California was at the lower end, with approximately three percent of claims meeting the criteria of a high-cost claim. Louisiana, on the other hand, was at the top, with fifteen percent of claims meeting the criteria for a high-cost claim.

Next, the study found the average overall cost (medical and indemnity benefits) of a high-cost claim was $200,600 and the overall cost of a non-high-cost claim was $41,363. Medical payments for a high-cost claim averaged $103,368 and for a non-high-cost claim averaged $19,836. The average duration of temporary disability for a high-cost claim was 64 days versus 18.3 days for a non-high-cost claim.

Men were found to have the largest percentage of high-cost claims compared to women (63% versus 35%), and those percentages were nearly identical for non-high-cost claims as well. Similarly, there was little difference between high-cost claims and non-high-cost claims in the percentage of those claims based on job tenure. The largest percentages of both high-cost claims and non-high-cost claims occur within two years or less of initial employment, followed by injuries occurring between two and five years of initial employment.

Those industries with the largest proportion of high-cost claims were construction, manufacturing, high-risk services, transportation, warehouse, utility, and wholesale and retail trade.

Attorney involvement does appear to be a factor in whether a claim is high-cost or non-high cost. 70% of high-cost claims had attorney involvement, versus 44% for non-high-cost claims.

Five different types of injury were associated with a claim becoming high cost: (1) neurological back injuries, (2) neurological neck injuries, (3) shoulder impingement/rotator cuff tear, (4) fractures above the ankle, and (5) disc herniation.

Not surprisingly, comorbidities/degenerative conditions, or multiple anatomical areas injured were found to be more prevalent among high-cost claims. 71% of high-cost claims had at least one degenerative condition whereas only 30% of non-high-cost claims involved at least one degenerative condition. 58% of high-cost claims had at least one comorbidity, such as hypertension versus 23% for non-high-cost claims.

The study findings also revealed that provider involvement and practice patterns play a significant role in shaping costs and outcomes. The findings strongly suggested that high-cost claims are more likely to involve multiple providers, especially in the first three months following injury.

The Study’s Limitations

The authors candidly admitted that the study had limitations which could impact its major findings. First, the authors chose to define “resource intensive services” based on medical payments of $10,000 or more during 30-day intervals within 36 months post-injury in the study period. Thus, the underlying study data included both open and closed claims. Some of those open claims may have gone on to develop into high-cost claims, meaning that the study may under-identify a more precise percentage of high-cost claims within the study period.

Another limitation of the study and its 36-month medical payment data was the inability within the data to differentiate between preexisting degenerative conditions/comorbidities from those that may have arisen post-injury during treatment. For example, the comorbidities of chronic pain, depression, or hypertension. To do so would have required the authors to include medical data with ICD codes for a period prior to the date of injury. However, the authors also pointed out that there is a lack of consistency of the recording of preexisting conditions/comorbidities, which can result in an understatement of such conditions. While the authors admitted that the percentages of comorbidities/degenerative conditions may have been understated in this study, the ultimate findings still underscore the significance of comorbidities and degenerative conditions as being associated with a claim becoming high cost.

Also, the authors acknowledged that the need of a worker for social support is another factor that can affect the costs of a claim. For example, an injured worker with unmet social needs may have a slower recovery and need additional medical services than a worker whose needs are appropriately met. However, the DBE dataset did not include individual level variables that would have enabled the authors to construct variables that would reflect a workers need for social support.

As a final caveat, the authors admitted that the study period coincided with the COVID-19 pandemic in the United States. Other studies have documented the impact that COVID-19 had on the provision of such medical services as surgeries. The authors were able to conduct a sensitivity test to determine whether surgery rates decreased during the COVID-19 pandemic. While they did observe a slight downward trend in the number of surgeries during the pandemic, they expressed confidence that the magnitude was small and unlikely to affect their findings.

The Four Main Factors Associated with High Cost Claims

While it is anticipated that future studies will deepen our understanding of why a workers’ compensation claim may become a high-cost claim, this study offers important insights that will guide efforts to contain excess expenditures in the meantime. Through their analysis of the study findings, the authors were able to identify the four main factors associated with a claim becoming a high-cost claim. First, and most important, is a claim with one or more months of resource intensive services one year or more after the date of injury. Such claims are 35% more likely to become a high-cost claim as compared to those claims that had no months of resource intensive services. And when compared to claims that received resource intensive services during the initial four months following injury, the claims with a late pattern (i.e., 12 months post-injury) of resource intensive services were nearly 15% more likely to become high-cost claims. A late pattern of such services may also be an indication of treatment that is inconsistent with medical guidelines. These findings caused the authors to conclude that for most injuries and conditions, including serious injuries, once a diagnosis is confirmed and resource intensive services are indicated, they should be provided as early as possible. As a caveat, the authors recognized that in some instances the initial recommendation is conservative treatment, with the hope of avoiding more resource intensive services like surgery. But failed conservative treatment can and often unavoidably does lead to a pattern of resource intensive services more than one year post injury. Nonetheless, the goal wherever possible should be the earliest possible provision of resource intensive services.

Second, the authors identified injury complexity as another important factor associated with the probability of a claim becoming high cost. Fractures between the ankle and hip/pelvis, fractures of the spine (but not spinal cord injuries), and severe burns are approximately nine times more likely to become high-cost claims. Similarly, disc herniations, neurological back and neck conditions, sprains, strains, and non-specific spine pain make claims approximately five times more likely to become high cost. And most significant, degenerative conditions or comorbidities increase the likelihood of a claim becoming a high-cost claim by 46% (degenerative conditions) and 33% (comorbidities), respectively. Of course, having multiple comorbidities and degenerative conditions further increases the likelihood that a claim will become high cost.

Third, lack of care coordination is a factor strongly associated with high-cost claims. The authors found that claims with four or more provider/organizational tax ID’s during the initial three months of treatment are more likely to become high cost. Interestingly, claims with the same provider/organizational tax ID for initial physical medicine visits and most subsequent physical medicine visits are 33% less likely to become high cost than those claims with multiple provider tax IDs.

Fourth, individual worker characteristics are only moderately associated with the likelihood that a claim will become high cost. The data indicated that older workers (55 years and up) have a 6% increased likelihood of having a high-cost claim when compared to workers aged 35 to 40.

The Study’s Implications

The authors concluded the study by identifying three important implications, summarized as follows:

1. Pay close attention to claims that exhibit a pattern of late resource intensive services. Intervention can help keep claims on track as well as facilitate adjustments to address issues preventing the workers’ recovery.
2. Identify claims with comorbidities and degenerative condition as soon as possible to better address workers’ needs for appropriate care while controlling costs.
3. Employ a high level of care coordination and continuity of care because it offers the potential to reduce costs and improve recovery.

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