Tennessee Workers’ Compensation Reforms of 2004 Lowered Costs

Workers’ compensation reforms enacted in Tennessee in 2004 have helped reduce costs in certain specific areas of the workers’ compensation system.

The reform provisions related to permanent partial disability (PPD) or lump-sum payments had a large and sustained impact on the average PPD/lump-sum payment per claim with more than seven days of lost time and PPD or lump-sum settlement, according to a new study by the Cambridge, Mass.-based Workers Compensation Research Institute (WCRI).

The average PPD/lump-sum payment per claim in Tennessee decreased 11 percent for claims with 36 months of experience, according to WCRI.

The reforms also resulted in stable growth rates of the average PPD/lump-sum payment per claim for less mature claims. Since 2005, the average PPD/lump-sum payment per claim grew in line with the changes in wages.

Although the average PPD/lump-sum payment per PPD/lump-sum claim decreased 11 percent for more mature claims, Tennessee ranked second highest among the other 10 non-wage loss states in 2005/2008. Before the reforms, Tennessee was 30 percent higher than the second highest state for the average PPD/lump-sum payment per PPD/lump-sum claim.

These were among the findings of the WCRI study Monitoring 2004 Reforms in Tennessee: CompScope Benchmarks, 10^th Edition, which monitors the impact of the 2004 reforms on certain specific areas.

Tennessee implemented medical fee schedules for services delivered on or after July 1, 2005. As a result of the medical reforms, the average medical cost per claim with more than seven days of lost time saw a one-time decrease of 11 percent in 2006/2008.

Without the reforms and assuming continued steady growth, WCRI reported that medical costs per claim in Tennessee would likely have grown 6 percent (annual average percentage change from 2001 to 2004).

In the year following the introduction of the fee schedule (2007/2008), the growth in the medical costs per claim resumed at 8 percent driven by factors other than nonhospital prices paid.

Despite the fact that Tennessee implemented a fee schedule that was relatively higher compared to the median of 42 states with fee schedules in 2006, prices paid for services delivered by nonhospital providers were reduced.

Overall, nonhospital prices paid went from 24 percent higher than the median of 25 study states prior to introduction of the fee schedule to 12 percent higher than the median of 25 states in 2007 (post-reform), according to another WCRI study.

The introduction of the new fee schedule may also have created incentives to increase the use of evaluation and management services (office visits) and reduce the use of invasive and specialty care. The price paid for evaluation and management services grew 23 percent from 2004 to 2006 and an additional 6 percent in 2007 – the latter increase was in line with Medicare annual updates to the fee schedule.

On the other hand, prices paid for invasive care (major surgery such as arthroscopic knees and shoulders) decreased 18 percent from 2004 to 2006. Furthermore, prices paid for major radiology services (MRI, CT scan) decreased 6 percent and minor radiology (X rays) decreased 27 percent from 2004 to 2006.

WCRI also reported that provisions under the reforms related to PPD benefits and the dispute resolution process in Tennessee might be expected to have an indirect impact on the involvement of defense attorneys and payments to the defense attorneys.

The average defense attorney payment per claim with more than seven days of lost time and payment greater than $500 decreased by 20 percent in 2005/2008, reflecting the combination of the introduction of the mandatory review conferences, establishment of the medical impairment registry, as well as PPD reforms.

Affected by the changes in the dispute resolution process, the average defense attorney payment per claim decreased about $600 per claim in 2005/2008, compared to the pre-reform period (2003/2006).

The 2004 reforms also addressed the timeliness of the first indemnity payment to injured workers by implementing a penalty program for late payments.

As a result of the penalty program, since 2005 more injured workers in Tennessee received their first indemnity check within 21 days of injury. Despite this improvement, Tennessee remained slightly below the typical study state in 2007/2008.

A previous study released in 2008 by WCRI showed that workers’ compensation costs per claim in Tennessee grew just 2 percent in the early post-reform period, after faster growth of 10 percent in the period before the legislative changes.

WCRI is a nonpartisan, not-for-profit organization conducting public policy research on workers’ compensation, health care, and disability issues.