Two things - facility costs and pharmacy.

We'll get to pharmacy next week (I'm finishing up the Seventh Annual Survey of Prescription Drug Management in Workers Comp), but for now here's a couple quick hits on the growing problem in facility expenses.

Today's WorkCompCentral [sub req] highlights the results of a recent WCRI study examining cost drivers in North Carolina. a study that indicates the "average hospital payment per claim was about $9500 in North Carolina, the highest among all the states examined. The average charge for inpatient procedures was 49% higher than the median." [emphasis added]

Note this was back in 2007; while WCRI does good work, the nature of their process is such that the results are somewhat dated.

The fee schedule was changed back in mi-2009, lowering the cap on inpatient hospital reimbursement from 77.07% to 75%, a whole 2.07 percentage points and outpatient from 95% to 79%.

If anyone thinks this is going to make any difference at all, they're not thinking.

Gaming the 'percentage off charges' 'fee schedule' is ridiculously easy; this nominal decrease will have zero effect on actual payments to hospitals, and thus will do nothing to lower payers' medical costs in North Carolina, costs which, according to WCRI, wer up 9% in 2007.

The fee schedule reduction was a complete waste of time. That may not endear me to the folks who, I am sure, worked diligently to address the issue, but that's a fact. What NC should have done was change the methodology from a percentage off charges to something much more certain and fair - a cost-plus based system would have been a good, albeit imperfect, alternative.

We need a reality check.

Workers comp will pay about $31 billion in medical expense this year.

Health care costs will total about $2.7 trillion this year.

I raise this often-overlooked fact to point out that employers and insurers will not be able to rely on networks to control costs, as work comp networks have little buying power, and thus little ability to influence price per service.

Therefore, regulators have to step into the breach, and provide real, actionable, metric-based fee schedules based on something much more solid than the facility's charges.

What does this mean for you?

Higher facility costs will drive medical expense which will drive up combined ratios - and premiums.