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

Texas Department of InsuranceWorkers’ Compensation Research and Evaluation GroupJune 2006

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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.

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Data, Methods, and CaveatsInitial 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”.

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Data, Methods, and CaveatsInitial 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.

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Data, Methods, and CaveatsProfessional 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.

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Claim Denials/Disputes

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Figure 1: Percentage of Reportable Claims That Are Initially Denied/Disputed, Injury Years 1998-

20041, 2

31%

35%37% 37% 37%

40% 41%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%%

of

Cla

ims

Den

ied

/Dis

pu

ted

1998 1999 2000 2001 2002 2003 2004

Injury Year

Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006.1 The 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.

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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, 2006.1 The 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.

24%

26%

29% 28%

31%32%

34%

0%

5%

10%

15%

20%

25%

30%

35%

% o

f C

laim

s D

en

ied

/Dis

pu

ted

1998 1999 2000 2001 2002 2003 2004

Injury Year

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Table 1: Range and Classification of Reportable Claim Denial Percentages for the Top 25 Workers’

Compensation Carriers1, 4

Denial Level2

Injury Year1998

Injury Year1999

Injury Year2000

Injury Year2001

Injury Year2002

Injury Year2003

Injury Year20043

Low 15%-26% 17%-30% 21%-30% 22%-33% 20%-30% 22%-31% 24%-33%

Medium 26%-35% 30%-37% 31%-41% 34%-39% 31%-42% 32%-46% 34%-47%

High 36%-54% 38%-56% 42%-56% 40%-52% 43%-53% 47%-55% 48%-62%

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.

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Table 2: Percent and Number of Reportable Claims Initially Denied/Disputed by Injury Year and Geographic

Region1Injury Year1998

Injury Year1999

Injury Year2000

Injury Year20013

Injury Year2002

Injury Year2003

Injury Year20042

North 29% 31% 34% 33% 36% 38% 42%

South 29% 32% 34% 34% 36% 38% 42%

West 31% 34% 36% 36% 38% 41% 48%

East 32% 33% 35% 34% 36% 36% 39%

Central 29% 32% 33% 33% 33% 36% 40%

Region Unknown

23% 28% 40% 42% 44% 40% 47%

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.

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Table 3: Percentage of Reportable Claims Initially Denied/Disputed By Injury Type and Injury Year, One

Year Post-Injury1Injury Year1998

Injury Year 1999

Injury Year 2000

Injury Year20013

Injury Year2002

Injury Year2003

Injury Year20042

Low Back Soft Tissue Injuries

25% 27% 30% 28% 29% 31% 32%

Shoulder Soft Tissue Injury

26% 28% 30% 29% 30% 32% 32%

Neck Soft Tissue Injuries

31% 33% 35% 34% 34% 36% 37%

Hand & Wrist Soft Tissue Injuries

24% 26% 28% 28% 30% 33% 34%

Knee Internal Derangement

23% 24% 28% 27% 28% 30% 29%

Hand & Wrist Superficial Trauma

19% 20% 20% 18% 21% 21% 23%

Musculoskeletal Soft Tissue Injuries

26% 28% 29% 29% 29% 30% 31%

Lower Back Nerve Compression

38% 39% 43% 40% 40% 40% 41%

Ankle & Foot Soft Tissue Injuries

20% 21% 23% 22% 22% 23% 25%

Hand and Wrist Nerve Compression

36% 39% 41% 41% 41% 44% 50%

Other 23% 25% 26% 25% 27% 27% 28%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.3 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

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SummaryInitial 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.

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Professional Medical Service Denials

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Figure 2: Total Number of Professional Medical Services and Percentage of Medical Services 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.

15%16%

17% 17%

22%

25%26%

0%

5%

10%

15%

20%

25%

30%

Per

cent

age

of M

edic

al S

ervi

ces

Den

ied

1998 1999 2000 2001 2002 2003 2004

Service Year

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Table 4: Range and Classification of Professional Medical Service Denial Percentages for the Top 25

Workers’ Compensation Carriers1 Denial Level 2

Service Year1998

Service Year1999

Service Year2000

Service Year20014

Service Year2002

Service Year2003

Service Year2004 3

Low 4%-11% 4%-12% 5%-14% 5%-13% 4%-15% 7%-16% 15%-19%

Medium 12%-19% 13%-25% 15%-23% 15%-24% 15%-22% 17%-29% 20%-28%

High 19%-26% 26%-44% 24%-50% 25%-32% 23%-43% 31%-50% 29%-50%

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.

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Table 5: Percent and Number of Professional Medical Service Denials for the Most Frequently Billed Professional

Medical Services in 2003 1,3Type of Medical Service ServiceYear1998

Service Year1999

Service Year2000

Service Year2001

Service Year2002

Service Year2003

Service Year2004 2

1 Therapeutic Procedure-97110 11%126,003

13%167,631

13%206,524

15%260,350

25%618,067

28%694,617

25%451,478

2 Office or Outpatient Visit -99213 13%177,448

14%189,081

15%216,150

15%232,221

24%406,711

24%332,585

21%155,857

3 Special Reports-99080 16%91,450

18%89,460

22%112,317

15%102,468

15%122,087

15%114,937

15%88,889

4 Hot or Cold Packs-97010 17%150,864

19%150,009

20%142,793

19%132,503

23%192,314

34%216,094

80%181,339

5 Therapeutic Activity-97530 12%57,248

13%59,658

14%64,793

16%69,570

25%153,471

29%174,482

28%109,750

6 Ultrasound-97035 12%60,450

13%61,639

15%69,104

15%72,722

21%121,934

24%124,320

25%89,721

7 Electrical Stimulation (unattended)-97014

18%104,112

19%104,578

20%107,397

19%105,533

23%157,434

25%114,082

49%20,647

8 Myofacial Release-97250 18%67,977

19%82,243

19%91,082

19%105,036

28%205,620

29%129,339

52%1,194

9 Neuromuscular Reeducation of Movement-97112

19%25,740

18%23,258

17%28,879

16%31,683

27%77,932

30%118,470

32%107,734

10 Electrical Stimulation (attended)-97032 16%39,491

19%47,753

19%50,580

18%52,263

26%100,849

30%115,455

32%92,128

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 .

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Table 6: Percent and Number of Professional Medical Services Denials for the Most Costly Professional

Medical Services Rendered1Type of Medical Service ServiceYear1998

Service Year1999

Service Year2000

Service Year20013

Service Year2002

Service Year2003

Service Year2004 2

1 Therapeutic Procedure-97110 11%126,003

13%167,631

13%206,524

15%260,350

25%618,067

28%694,617

25%451,478

2 Unlisted Medicine/Rehabilitation Procedure-97799

13%10,758

15%13,117

16%16,995

12%17,359

14%29,114

19%39,707

17%20,172

3 Office or Outpatient Visit -99213 13%177,448

14%189,081

15%216,150

15%232,221

24%406,711

24%332,585

21%155,857

4 Disability Examination-99456 12%3,411

9%2,367

9%2,349

8%2,204

6%3,708

9%6,603

9%7,575

5 Additional Hour of Work Hardening/Conditioning-97546

17%57,716

20%80,648

23%107,300

24%131,442

21%89,204

24%84,459

20%35,203

6 Therapeutic Activity-97530 12%57,248

13%59,658

14%64,793

16%69,570

25%153,471

29%174,482

28%109,750

7 Office or Outpatient Visit -99214 11%23,369

13%25,747

15%30,600

14%30,367

20%51,618

20%50,134

18%32,921

8 Work Hardening/Conditioning-97545 19%41,110

19%46,391

21%56,345

21%63,051

23%50,217

23%42,674

20%22,576

9 Myofacial Release-97250, 18%67,977

19%82,243

19%91,082

19%105,036

28%205,620

29%129,339

52%1,194

10 Physical Performance Test-97750 20%14,605

21%16,626

21%16,651

19%18,079

21%25,008

21%25,248

18%14,749

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 .

Table 7: Percentage and Number of Denied Professional Medical Services By Injury Type and Injury Year, One Year Post-Injury

Injury Type Injury Year1998

Injury Year1999

Injury Year2000

Injury Year20011

Injury Year2002

Injury Year2003

Low Back Soft Tissue Injuries

11%479,886

14%529,801

14%549,701

15%600,263

19%789,568

21%786,869

Shoulder Soft Tissue Injury

13%77,216

14%83,577

14%94,587

15%123,363

19%176,667

22%186,385

Neck Soft Tissue Injuries 17%149,172

20%168,201

19%167,842

21%199,372

27%257,931

30%239,252

Hand & Wrist Soft Tissue Injuries

11%27,876

17%44,787

16%48,306

19%77,161

23%94,829

23%78,112

Knee Internal Derangement

12%32,613

14%42,449

13%40,027

16%54,888

19%75,900

21%79,333

Hand & Wrist Superficial Trauma

10%13,596

12%16,262

13%18,397

14%22,376

17%31,566

19%32,186

Musculoskeletal Soft Tissue Injuries

17%33,879

19%39,204

20%40,568

24%60,848

30%86,888

29%63,123

Lower Back Nerve Compression

20%611,611

21%595,065

20%626,131

23%727,597

27%866,109

31%740,589

Ankle & Foot Soft Tissue Injuries

12%21,653

14%25,185

14%26,199

15%34,021

20%45,976

23%50,907

Hand and Wrist Nerve Compression

16%56,522

19%68,321

20%83,891

21%97,988

27%103,469

29%78,431

Source: Texas Department of Insurance, Workers’ Compensation Research and Evaluation Group, 2006.1 House Bill (HB) 2600, a workers’ compensation reform bill aimed at reducing medical costs, was passed in 2001.

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 .

Service Year1998

Service Year1999

Service Year2000

Service Year20013

Service Year2002

Service Year2003

Service Year20041

Unnecessary Treatment (without peer review)

10% 12% 12% 13% 25% 26% 22%

Unnecessary Treatment (with peer review)

<1% 0.3% 1.0% 3.5% 12.7% 15.7% 14.9%

Inappropriate Documentation

36% 42% 39% 26% 21% 14% 10%

Preauthorization Required But Not Requested

19% 17% 16% 16% 3% 2% 2%

Not by Treatment Guidelines

13% 7% 8% 10% 4% -- --

Entitlement to Benefits

6% 8% 9% 10% 9% 7% 7%

Extent of Injury 7% 6% 6% 7% 8% 8% 8%

Final Adjudication <1% <1% <1% <1% <1% <1% 1.6%

Unbundling 5% 4% 4% 5% 4% 7% 13%

Payment Policy <1% -- <1% <1% <1% 3.7% 10.5%

Other reasons2 4% 4% 5% 9% 13% 16% 11%

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SummaryProfessional 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;

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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 (77 th Legislature, 2001).

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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.