Exploring Alternative Health Care Payment Models for California’s Workers’ Compensation System

Alternatives, Recommendations, and Next Steps

Denise D. Quigley, Petra W. Rasmussen, Nabeel Qureshi, Michael Dworsky, Melony E. Sorbero

Research SummaryPublished Aug 24, 2023

Key Findings

  • Stakeholders in California's workers' compensation (WC) system reported challenges relating to its fee-for-service health care model, including lack of access to care stemming from too few providers, a high administrative burden, issues with timeliness of care, low reimbursement to care providers for time spent, and issues with medical provider networks.
  • After an initial assessment of multiple alternative payment methods (APMs), three APMs were identified as most promising to evaluate for a pilot in California's WC system: pay-for-performance, value-based payments, and bundled payments.
  • Based on further analysis and input from stakeholders, pay-for-performance was assessed to be the most viable APM to pilot in California.

Recommendations

  • California's Division of Workers' Compensation should conduct a pilot of a voluntary pay-for-performance APM in the state’s WC system designed around the initial goal of improving provider participation in WC.
  • The state Division of Workers' Compensation should oversee the pilot.
  • The pilot should be developed in two stages. In stage one, the Division of Workers' Compensation should conduct working groups with stakeholders to discuss commitment, main players, goals, data needs, overall program design, and definitions. In stage two, the Division of Workers' Compensation, with stakeholder input, should develop a detailed process and plan to finalize the program’s components and processes, participants' roles, and needed resources.
  • Initial measures should be designed to capture the administrative aspects of successful participation in WC and patient experience.
  • The pilot's incentives should include easing utilization review and preauthorization requirements for high-performing providers.

To explore ways to improve health care delivery in California’s workers' compensation (WC) system, RAND researchers studied alternative payment methods (APMs) and recommended a voluntary pilot program based on a pay-for-performance model in which medical providers receive additional payments or other rewards when they reach certain benchmarks for quality of care.

A pay-for-performance model differs from the fee-for-service model predominant throughout the U.S. health care system (and California’s WC system), which pays medical professionals for individual services they provide without consideration of the quality of care provided. California, like other states, faces long-standing challenges relating to the quality, accessibility, and cost of care provided to injured workers through its WC system, partly reflecting limitations of the fee-for-service approach.

Seeking to address those challenges, California's legislature directed the California Department of Industrial Relations' (DIR’s) Division of Workers' Compensation (DWC) to compare and contrast potential APMs with the WC's Official Medical Fee Schedule (OMFS). DWC asked the RAND Corporation to study APMs and make recommendations on potential pilot programs viable for WC in California.

After examining input from the key participants in the WC's system and conducting a scoping review and environmental scan of the evidence and a rigorous assessment of five potential APMs, a RAND research team recommended a pilot pay-for-performance program run by the DWC, as well as other payment and policy changes. The research team suggested a two-stage process: In the first stage, the DWC would engage health care providers, unions, the legal community, employers, and insurers in working groups to discuss overall program design. In the second stage, the DWC would flesh out a detailed plan to finalize the pilot's processes, participant roles, and resource requirements.

How the Research Proceeded

The research team had three primary goals:

  • Evaluate and compare evidence on the effectiveness of potential APMs.
  • Assess each APM's applicability to the WC system.
  • Make recommendations to the legislature regarding alternative payment pilot programs.

The research team conducted a mixed methods study, beginning with a scoping review and environmental scan of literature on APMs and a quantitative analysis of claims data reported to DIR's Workers' Compensation Information System (WCIS). The goal of this review and analysis was to identify potential APMs to focus on in further analysis. Interviews and focus groups with key WC stakeholders— health care providers, employee representatives (unions, applicant attorneys, worker advocates), and employer representatives (employers, insurers)—were used to inform analyses of APMs and recommendations.

Identifying Issues in OMFS That Could Be Addressed Using APMs

Substantiating the legislature’s desire to explore APMs for the WC system, stakeholder input revealed problems with the current payment model. Stakeholders pointed to issues with

  • lack of access to care stemming from not having enough providers in WC
  • a high administrative burden to deliver care
  • delays and issues with the timeliness of care
  • low reimbursement relative to time spent on WC care and supporting activities
  • inadequacies of medical provider networks (MPNs).

These issues echo findings in previous research, and the RAND researchers recommended that these access issues be addressed when implementing an APM pilot by focusing on both financial and nonfinancial incentives to providers. Specifically, the researchers recommended that the APM pilot seek to improve provider participation and access to care because those areas were raised as the main impediments to providing high-quality care.

Based on their analysis of APMs used in the U.S. health care system, the researchers focused on five possible options, described in Table 1.

The scoping review and environmental scan of literature on APMs and the discussions held with WC staff from Ohio and Washington (both of which have implemented APMs) informed the research team’s comparison of relative advantages and disadvantages. The team also examined each APM's applicability to California’s WC system. Table 2 summarizes advantages and disadvantages of the five potential APMs.

Drawing from that analysis, the team recommended further discussion with California WC stakeholders on the following three APMs: pay-for-performance, value-basedpayments, and bundled payments.

Table 1. Describing Alternative Payment Models

APM Description
Pay-for-performance Additional payments to providers or nonfinancial rewards for reaching certain benchmarks for quality and other criteria
Value-based payments Assess provider performance on quality and other measures relative to benchmarks; hold providers accountable for meeting cost and quality of care benchmarks to receive payment
Bundled payments Patient care defined in terms of episodes of care for which providers are given a single, comprehensive payment that covers all services performed during that episode, creating incentives to control costs
Accountable care organizations (ACOs) Groups of providers that voluntarily partner to deliver coordinated care to a designated group of patients to reduce duplicative and low-value care. ACOs have risk-adjusted spending targets and quality targets set by the payer. If the ACO meets these targets and quality benchmarks, it receives a portion of the savings achieved.
Global budgets Provide a set dollar amount for a facility to spend. Require that the hospital provide all necessary services to the patients served with the resources provided by a prespecified budget

Table 2. APM Pros and Cons

APM Pros Cons
Pay-for-performance
  • Promotes focus on quality of care and other measures included in program
  • Incentives could increase provider participation in WC
  • Used in WC in other states
  • Incentive payments that are too high can lead to additional costs for system
  • Incentives that are too small will not motivate change
  • Lacks cost-savings incentives
  • Uncertainty around benchmarks can weaken incentives of program
  • Health outcome measures require risk adjustment, which may be underdeveloped in WC
Value-based payments
  • Promotes focus on quality of care and other measures included in program
  • Encourages providers to consider costs in addition to quality
  • Incentive payments that are too high can lead to additional system costs
  • Incentives that are too small will not motivate change
  • Cost-savings incentives are limited
  • Uncertainty around benchmarks can weaken incentives of program
  • Health outcome and cost measures require risk adjustment; accurate risk adjustment requires complete information on all patient conditions that affect the cost of care being delivered; this information may be incomplete for WC because it does not have access to patients' non-WC medical claims
Bundled payments
  • Disincentivizes overprovision of care
  • Encourages better care coordination
  • Narrowly used by some payers in other states' WC systems
  • Risk-adjustment parameters need to account for more-complicated cases and higher-risk patient population
  • Incentivizes shifting of care to provider types, settings, and time periods outside of the episode of care covered in the bundled payment
  • Can reduce access to care for more complex patients
ACOs
  • Promotes a focus on efficiency as well as quality, encouraging care coordination
  • Encourages providers to consider costs
  • Requires willingness for providers to have some “skin in the game”
  • Requires significant buy-in from providers who have to work together
  • Because savings are shared between payer and provider, cost-savings can be limited
  • Not used in WC in other states
  • Risk-adjusted spending targets and quality targets need to be set by the payer
Global budgets (including capitation)
  • Sets distinct, knowable budget
  • Incentivizes resolving patient problems using as few services as necessary
  • Disincentivizes overprovision of care
  • Challenging to implement in a multipayer system
  • Requires significant buy-in from providers who have to work together
  • Potential for upcoding of diagnoses to increase payment rates
  • Can reduce access to care
  • Budget is based on a risk-adjusted amount per person in the population served
  • Not used in WC in other states

Recommending a Pay-for-Performance APM for the Pilot

Feedback from California WC stakeholders on the three APMs led the research team to identify pay-for-performance as the most promising alternative to the current OMFS used in California's WC system.

Discussions with California WC stakeholders about quality incentive programs (including both pay-for-performance and value-based payments) and bundled payment models revealed support for the potential to implement a pay-for-performance model—and minimal interest in and several concerns about bundled payments.

Designing a Two-Stage Pay-for-Performance Pilot

The RAND researchers developed a potential structure for a voluntary pay-for-performance pilot managed by DWC that can be expanded over time as the program matures. Initially, a pilot could focus on a health care provider specialty that delivers a large amount of care for WC claimants; additional future pilots could include a focus on incentivizing insurers on timeliness of care or MPNs on providing up-to-date lists of providers who take injured workers. Engaging affected stakeholders in the planning process will be key to its success.

The researchers recommended that the pilot program's design further the goal of improving provider participation in WC care by addressing the system's main challenges: too few providers, administrative burdens, timeliness of care, low reimbursement for time spent, and MPN inadequacies.

Two-Stage Development Process

The researchers recommended a two-stage development process for the pilot. In the first stage, DWC would hold working groups with stakeholders to discuss commitment, main players, goals, data needs, overall program design and definitions, and possibly some data analysis on the feasibility of specific metrics.

In the second stage, DWC would develop a detailed process and plan to finalize the pilot's components and processes, participants' roles, and needed resources. This process and plan should be informed by input from the stakeholder working groups (from stage one) and include discussions and data analysis to finalize the pilot's components and processes, participants' roles and responsibilities, and the resources needed for successful program implementation, including in-depth analysis of data.

Pilot Program Measurements

The research team recommended that initial measurements focus on administrative aspects of WC participation (e.g., timely submission of forms and reports by providers) and patient experience (e.g., key aspects of patient experience captured through injured worker/patient experience surveys akin to the Consumer Assessment of Healthcare Providers and Systems [CAHPS] surveys).

As the program matures and the goals of the program evolve and expand to include quality of care, additional measures that focus on providing guidelines for consistent care and measures of improvement in functional status or ability to return to work could be added. Quality measures could focus on clinical areas of particular concern.

Pilot Program Incentives

Pay-for-performance and other incentive-based programs provide financial incentives, nonfinancial incentives, or both. Drawing from stakeholder input, the research team suggested that the pilot’s incentives include easing utilization review and preauthorization requirements for high-performing providers. The research team also suggested that the pilot be paired with changes to the OMFS to improve compensation for currently unreimbursed and under-reimbursed WC reports (i.e., those requiring effort that exceeds what is normally involved in the delivery of health care services).

Cover: Exploring Alternative Health Care Payment Models for California’s Workers’ Compensation System

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Document Details

  • Copyright: State of California Department of Industrial Relations
  • Publisher: RAND Corporation
  • Availability: Web-Only
  • Year: 2023
  • Pages: 4
  • DOI: https://doi.org/10.7249/RBA2481-1
  • Document Number: RB-A2481-1

Citation

Chicago Manual of Style

Quigley, Denise D., Petra W. Rasmussen, Nabeel Qureshi, Michael Dworsky, and Melony E. Sorbero, Exploring Alternative Health Care Payment Models for California’s Workers’ Compensation System: Alternatives, Recommendations, and Next Steps. Santa Monica, CA: RAND Corporation, 2023. https://www.rand.org/pubs/research_briefs/RBA2481-1.html.
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