Workers’ Compensation Claim and Professional Medical Service Denials: An Examination of 1998-2004 Trends

1. Workers’ Compensation Claim and Professional Medical Service Denials: An Examination of 1998-2004 Trends Texas Department of Insurance Workers’ Compensation Research and Evaluation Group June 2006

2. This Presentation Will Highlight: Initial Claim Denials/Dispute Trends • Have the # of reportable claims (i.e., claims with more than one day of lost time) that are initially denied or disputed remained stable, decreased, or increased from injury year 1998-2004 for the top 25 insurance carriers in Texas?1 • Is there significant variation in initial claim denial/dispute rates among individual insurance carriers? • Do initial claim denial/dispute rates vary by geographic region and injury type? 1 The top 25 workers’ compensation insurance carriers represent the 25 insurance carriers/carrier groups that account for over 90 percent of the workers’ compensation premiums in 2003 and 2004 and account for 60-70 percent of the total amount of medical payments made during 1998-2004. For the purpose of this analysis, the same 25 insurance carriers were used in each year to calculate both the claim and medical billing denial rates.

3. This Presentation Will Highlight: (cont’d) Professional Medical Service Denials Trends • Have professional medical service denials remained stable, decreased, or increased during service year 1998-2004 for the top 25 insurance carriers in Texas? 1 • Is there significant variation in professional medical service denial rates among individual insurance carriers? • Have professional medical service claim denials remained stable, decreased, or increased for the most frequently billed and most costly services in the Texas workers’ compensation system? • Do professional medical service denials vary by injury type? • What are the most frequent reasons insurance carriers give for professional medical service denials? 1 The Top 25 Workers’ Compensation Insurance Carriers represent the 25 insurance carriers/carrier groups that account for over 90 percent of the workers’ compensation premiums in 2003 and 2004 and account for 60-70 percent of the total amount of medical payments made during 1998-2004. For the purpose of this analysis, the same 25 insurance carriers were used in each year to calculate both the claim and medical billing denial rates.

4. Data, Methods, and Caveats Initial Claim Denial/Dispute Trends • Reportable claim denials/disputes were calculated using a combination of data collected by the Texas Department of Insurance, Division of Workers’ Compensation and its predecessor, the Texas Workers’ Compensation Commission; • Claim denial/dispute rates can only be calculated for claims that are reported to the Texas Department of Insurance, Division of Workers’ Compensation. As a result, claim denial/dispute rates cannot be calculated for medical only claims. • Claim denial/dispute rates shown in this presentation represent the percentage of claims that were initially denied or disputed because of compensability and/or extent of injury issues generally. These denial/dispute rates do not take into account denials/disputes that were later adjudicated in favor of the injured worker or mutually resolved by the injured worker and the insurance carrier. • Initial claim denials/disputes were identified using an Electronic Data Interchange (EDI) 148 or A49 transaction with a maintenance reason code '04' (denial) or a TWCC/DWC 21 form with box 43 of that form (notice of refused or disputed claim) containing at least one of the following words: “deny”, “scope”, “disput”, “denial”, “non-co”, “denies”, “compen”, “liabil”, “liable”, “extent”, “course”, “contest”, “C&S” or “C/S”.

5. Data, Methods, and Caveats Initial Claim Denial/Dispute Trends • However, the data currently collected on claim denials is currently inadequate because: • some of the data is coming in electronically and some of the data is coming in on paper forms; and • there is not a single field on any of the DWC claim forms to indicate whether a claim is being denied and as a result, TDI must look for key words in a text box to determine whether a claim has been denied/disputed – this method is extremely imprecise. • TDI attempted to validate individual claim denial/dispute rates with four insurance carriers. The results of this validation showed that the claim denial/dispute rates calculated by TDI for individual insurance carriers are generally overestimated by as little as 10% and as much as 30-40%. However, using the data collected by TDI, it is possible to observe general claim denial trends over time.

6. Data, Methods, and Caveats Professional Medical Service Denials Trends • Professional medical service denials were calculated using data collected by the Texas Workers’ Compensation Commission through February 2005 (the most recent medical data available for research purposes); • The medical service denial rates shown in this presentation represent the percentage of individual medical billing lines that had an exception code indicating that the billing line was denied, not the % of medical bills that were denied – each billing line corresponds to one medical service billed by a health care provider; • These medical service denial rates do not take into account denials that were later adjudicated in favor of the health care provider during medical dispute resolution; • The medical service denial rates shown in this presentation do not take into account medical services that were billed, but not processed by the insurance carrier because the bills were incomplete or medical services that were denied because the health care provider submitted duplicate bills.

7. Claim Denials/Disputes

8. Figure 1: Percentage of Reportable Claims That Are Initially Denied/Disputed, Injury Years 1998-20041, 2 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1The 2004 figures should be interpreted with caution since the data are incomplete. 2 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs was passed in 2001.

9. Figure 1: Percentage of Reportable Claims That Are Initially Denied/Disputed for the Top 25 Workers’ Compensation Carriers, Injury Years 1998-20041, 2 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1The 2004 figures should be interpreted with caution since the data are incomplete. 2 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs was passed in 2001.

10. Table 1: Range and Classification of Reportable Claim Denial Percentages for the Top 25 Workers’ Compensation Carriers1, 4 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The number of carriers in the low denial level categories range from 6-8 for 1998-2004, the number of carriers in the medium denial level categories range from 9-13 for 1998-2004 and the number of carriers in high denial level categories range from 6-10 for 1998-2004. 2 The denial categories were defined using the yearly denial rate distributions for the top 25 workers’ compensation carriers in 2003 & 2004. For each service year, carriers whose denial rate fell at or below the 25th percentile of the denial rate distribution were assigned into the “low” denial category, carriers whose denial rate fell at the 26th-74th percentile of the denial rate distribution were assigned into the “medium” denial category, and carriers whose denial rate fell at or above the 75th percentile of the denial rate distribution were assigned into the high denial category. Carriers could fall into a different category each injury year. 3 The 2004 figures should be interpreted with caution since the data are incomplete. 4 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

11. Table 2: Percent and Number of Reportable Claims Initially Denied/Disputed by Injury Year and Geographic Region1 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The injury year or region could not be identified for approximately 19% or 87,405 of denied claims and are therefore not reflected in the figures presented above. 2 The 2004 figures should be interpreted with caution since the data are incomplete. 3 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

12. Table 3: Percentage of Reportable Claims Initially Denied/Disputed By Injury Type and Injury Year, One Year Post-Injury1 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The injury year or type could not be identified for approximately 19% or 87,405 of denied claims and are therefore not reflected in the figures presented above. 2 The 2004 figures should be interpreted with caution since the data are incomplete. 3House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

13. Summary Initial Claim Denials/Disputes • Initial reportable claim denials/disputes have increased since the passage of HB 2600 in 2001; • There is significant variation in denial/dispute rates for reportable claims among the top 25 workers’ compensation insurance carriers; • There is also variation in the denial/dispute rates for reportable claims by geographic region and injury type, with the highest denial/dispute rates in West Texas and for low back nerve compression and hand and wrist nerve compression injuries; • However, the data collected on claim denials is currently inadequate, and therefore, it is difficult to precisely calculate claim denial rates for individual insurance carriers, although it is possible to observe general trends over time; • In order to precisely calculate the denial rate for all claims in the system (including medical only claims) in the future and the denial rates for individual insurance carriers, new data collection requirements and methods are needed.

14. Professional Medical Service Denials

15. Figure 2: Total Number of Professional Medical Services and Percentage of MedicalServices Denied for the Top 25 Workers’ Compensation Carriers for Service Years 1998-2004 1, 2 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 Denial rates and billing line counts for 2004 should be interpreted with caution since these number are tentative and are current as of February 2005. 2 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001. In August 2003, the most recent professional medical fee guideline, which incorporated Medicare’s payment policies, went into effect.

16. Table 4: Range and Classification of Professional Medical Service Denial Percentages for the Top 25 Workers’ Compensation Carriers1 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The number of carriers in the low denial level categories range from 6-9 for 1998-2004, the number of carriers in the medium denial level categories range from 9-11 for 1998-2004 and the number of carriers in high denial level categories range from 7-8 for 1998-2004. 2 The denial categories were defined using the yearly denial rate distributions for the top 25 workers’ compensation carriers in 2003 & 2004. For each service year, carriers whose denial rate fell at or below the 25th percentile of the denial rate distribution were assigned into the “low” denial category, carriers whose denial rate fell at the 26th-74th percentile of the denial rate distribution were assigned into the “medium” denial category, and carriers whose denial rate fell at or above the 75th percentile of the denial rate distribution were assigned into the high denial category. Carriers could fall into a different category each professional medical service year. 3 The 2004 figures should be interpreted with caution since these number are tentative and are current as of February 2005. 4 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001. In August 2003, the most recent professional medical fee guideline, which incorporated Medicare’s payment policies, went into effect.

17. Table 5: Percent and Number of Professional Medical Service Denials for the Most Frequently Billed Professional Medical Services in 2003 1,3 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The “most frequently billed medical services” are defined as the services most frequently billed in 2003. 2 Denial rates for 2004 should be interpreted with caution since these numbers are tentative and are current as of February 2005. 3 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001. In August 2003, the most recent professional medical fee guideline, which incorporated Medicare’s payment policies, went into effect .

18. Table 6: Percent and Number of Professional Medical Services Denials for the Most Costly Professional Medical Services Rendered1 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The “most costly medical services” are defined as the services with the highest total amount billed during 2003. 2 Denial rates for 2004 should be interpreted with caution since these numbers are tentative and are current as of February 2005. 3 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001. In August 2003, the most recent professional medical fee guideline, which incorporated Medicare’s payment policies, went into effect .

19. Table 7: Percentage and Number of Denied Professional Medical Services By Injury Type and Injury Year, One Year Post-Injury Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

20. Table 8: Percentage of Denied Professional Medical Services by Top 10 Denial Reasons for Service Years 1998-20041 Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006. 1 The 2004 figures should be interpreted with caution since these numbers are tentative and are current as of February 2005. 2 “Other reasons” include “not timely filed”, “not treating doctor”, “inappropriate health care provider”, “final adjudication”, preauthorization requested, but denied”, etc. 3 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001. In August 2003, the most recent professional medical fee guideline, which incorporated Medicare’s payment policies, went into effect .

21. Summary Professional Medical Service Denials • Professional medical service denials have increased since the passage of HB 2600 in 2001; • There is significant variation in denial rates for professional medical services among the top 25 workers’ compensation insurance carriers, with the lowest denial rates ranging from 7-16% to the highest denial rates ranging from 31-50% for service year 2003 (the last injury year with complete year medical data available); • Denial rates have also significantly increased for the top 10 most frequently billed and most costly individual medical services over time – these services consist of mostly evaluation and management and physical medicine services;

22. Summary, cont. Professional Medical Service Denials, cont. • In particular, denial trends increased first in 2001 and then changed again in 2003 based on the adoption of the professional services fee guideline; • Reasons insurance carriers used to classify denials of professional medical services have also changed significantly over time. • Prior to 2001, the two most common reasons for denying medical services were “inappropriate documentation” and “preauthorization required but not requested”; • Since 2001, the two most common reasons for denying medical services have been “ unnecessary treatment” either with or without a “peer review”; • Additionally, since the fee guideline change in 2003, more professional medical services are being denied because of Medicare payment policies and unbundling edits that were adopted by reference in the rule as a result of HB 2600 (77th Legislature, 2001).

23. Summary, cont. Professional Medical Service Denials, cont. • Without individual reviews of insurance carrier claims processing practices, it is impossible to say whether these denial rates are “appropriate” just by looking at the data; • However, the data does confirm that insurance carriers have become more aggressive in reviewing the medical necessity of services billed by health care providers since 2001, most likely in response to increasing average medical costs per claim during the same time. • Additionally, since the adoption of the professional services fee guideline in August 2003, an increasing number of medical billing line denials appear to be due to issues relating to health care providers not billing in accordance with Medicare rules.