Proposal ‘Actually’ a Good Solution to Workers’ Comp Hospital Costs

A proposal in the Labor Committee affirms the process that Connecticut hospitals and worker’s compensation insurers have been using for nearly two decades to fairly settle charges for claimants’ medical services—and help control workers’ comp costs in the state.

Last fall, a Workers Compensation Commission ruling (Gray v. Electric Boat) turned over that negotiation process by saying that insurers and employers must pay the full rates charged by hospitals. The problem is, it’s standard practice for hospitals to bill substantially higher than what their actual costs are or what they expect can be paid.

Here are two examples of why it would be so very problematic for employers to pay the full amount charged by hospitals if the negotiated process is disallowed: 

• In one shoulder surgery case, a hospital charged $44,000, the health insurer paid $4,000, and the workers’ comp insurer paid $14,000.
• In another case, of lumbar fusion surgery, the hospital charged $135,000, the group health insurer paid $28,000, and the workers’ comp insurer paid $61,000.

That’s why Connecticut workers’ comp law allows for charged rates to be based on the “actual costs” incurred by the hospitals, which sets the baseline for the parties to negotiate.

SB 1074 aims to provide employers or their insurers with the tools necessary to continue negotiating hospital reimbursement rates that are fair to both employers and hospitals for the treatment of work-related injuries or illnesses.

Employers are already facing an average workers’ comp increase of 7% this year, and the upward trend has been driven in large part by rising medical costs.

This is especially alarming because for many years, a much higher portion of payouts in Connecticut have gone to wage replacement and other indemnity benefits than medical benefits. But now, 50% of payouts are for medical treatment–and of that, a third are payments to hospitals. Without a way to check this trend, employers will face even higher increases going forward.    

Most hospital reimbursement rates for the last two decades have been the result of negotiations—which has worked well for both employers and hospitals alike. But hospitals will be pleased not to negotiate under the commission’s decision (which is being challenged) because it guarantees higher payouts from the already lucrative workers’ compensation business than they would get if they didn’t negotiate.

That’s why the term “actual costs” is used in the law. It was deemed a necessary tool for negotiating hospital fees, for without it, employers had no leverage and would face unreasonably high costs.

Given that workers’ compensation is a core issue for employers, allowing the decision on Gray v. Electric Boat to stand would be quite problematic and a significant cost-driver for public- and private-sector employers alike. Not only do they need the ability to negotiate, they need to have a tool to ensure the hospitals will reasonably negotiate with them.

However, the term “actual cost” could be more clearly defined to establish a reasonable baseline measure under the Workers’ Compensation Act for determining reasonable the cost of hospital services, and to facilitate reimbursement rates for those services that are fair to both employers and hospitals going forward as soon as possible.

The business community is willing to participate in that process.

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.