Physician Prices for Workers' Compensation Plans

Objectives

We examine the influence of market-level factors and state regulation on the prices of office-based services paid to physicians by small insurers like workers’ compensation (WC) insurers.  We hypothesize that these prices reflect physician supply prices because WC plans are price takers due to their small share of the market and little negotiation power.   Specifically, we estimate the impact of physician and hospital capacity, hospital competition, managed care penetration and state regulation on prices.

Study Design

We use administrative data from 2009 and 2010 from a large nationwide WC plan and estimate the price models for six procedures: three low and moderate priced procedures that are provided mostly by other healthcare professionals and three moderate and high priced procedures that physicians mostly provide.

Methods

We estimate regression models using GLM, correcting for skewedness and heteroskesdascity in the dependent variable. 

Results

We find that market-level factors had statistically significant impacts on prices in the expected directions but were relatively inelastic.  Market factors that increase physician practice costs also tended to increase physician supply prices. WC plans were especially vulnerable in markets with high managed care penetration. While state regulation dampened the impact of market forces, it  substantially lower prices for WC plans.

Conclusions

WC plans are vulnerable to higher prices relative to other types of plans. Market forces given their directions and relative size do not provide much relief for WC plans.  State regulation seems to be an effective way to help WC plans obtain lower physician rates.