In recent years, the increasing cost of treatment at ambulatory surgery centers has been one factor in the escalation of California workers’ compensation medical costs. In 2012, state lawmakers sought to address these escalating costs by including provisions in SB 863 that, among other things, reduced the maximum facility fees for services performed in ASCs to 80 percent of the fee paid by Medicare for the use of hospital outpatient surgery departments. The WCIRB initially projected that this change in the fee schedule would reduce ASC payments by 25 percent. This new WCIRB CIRB joint study is a follow-up to the authors’ initial February 2014 study that measured the extent to which the change in ASC reimbursements achieved its intended goal of reducing these costs. It includes an entire year of additional data, encompassing episodes from January 2012 through June 2014.

Prior to 2004, California workers’ compensation outpatient surgery facility fees were not subject to a fee schedule, and payments varied widely as payers negotiated or paid usual and customary fees. In the absence of a fee schedule, California workers’ compensation paid significantly more than federal health care programs such as Medicare for comparable services, as was noted in a 2002 study by Kominsky and Gardner.

In 2003, California lawmakers amended Labor Code §5307.1(c)(1) in SB 228 to require the Division of Workers’ Compensation (DWC) to promulgate a fee schedule that utilizes the Medicare payment rules for the use of outpatient surgery rooms and emergency rooms. Under Medicare, each Current Procedural Terminology (CPT) code for a specific outpatient surgical procedure is classified into an Ambulatory Procedure Classification (APC). The final fee is calculated using a formula rather than a prescribed dollar amount. Under the fee schedule, which took effect for services on or after June 15, 2004, maximum facility fees could not exceed 120 percent of the Medicare fee. The adoption of the outpatient facility fee schedule had an immediate effect on costs. CWCI research from 2005 compared pre and post SB 228 payments for 239 distinct outpatient procedures performed in ASCs and found that after adjusting for medical inflation and changes in the mix of medical procedures, average outpatient surgery facility fee payments fell 38.9 percent following the adoption of the Outpatient Surgery Facility Fee Schedule in 2004.

By 2012, however, several years of escalating workers’ compensation medical costs and a growing desire to increase injured workers’ permanent disability benefits led state lawmakers to revisit the issue of ASC fees as one cost-saving component of a legislative reform deal (SB 863) hammered out by representatives of labor, employers and the Brown Administration.The final version of that bill called for the DWC to modify the Outpatient Facility Fee Schedule so that maximum facility fees for services performed in ASCs were reduced from 120 percent to 80 percent of the Medicare fee for those services, though hospital-based outpatient facility maximum fees were kept at 120 percent of the Medicare rate.

As found in the prior study, this update on the effects of SB 863 finds that the reduction in payments has been slightly better than the initial predictions, with a 27 percent decrease in payments per episode and a 29 percent decrease in the payments per procedure from the pre-reform to the post- reform period. There was no evidence of significant changes in service mix or intensity or shifts away from the ASC to the hospital setting. The study concludes by saying “These results are similar to the 2014 findings using the identical measures and show that thus far, the change in the ASC Fee Schedule has achieved its intended objective of reducing one aspect of workers’ compensation medical costs.