The authors consider possible alternative payment models for use in the California workers' compensation (WC) system, including discussion of the unique constraints and factors embedded within the California WC environment. They recommend that California use a two-stage process to develop a pilot pay-for-performance program that aims to increase provider participation in WC and improve injured worker's access to WC care.

Alternative Payment Models for California's Workers' Compensation System

A Review of Issues and Possible Next Steps

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

ResearchPublished Jul 31, 2023

In California's workers' compensation (WC) system, there have been long-standing concerns about the costs and quality of medical care provided to injured workers and the ability of workers to access care. These challenges are not unique to WC and in part reflect the limitations of fee-for-service payment. Alternative payment models (APMs) have been implemented outside WC to rein in costs, discourage overtreatment, and incentivize quality improvement. The California State Legislature has expressed interest in developing pilot programs that could bring APMs into WC in California, and the California Department of Industrial Relations, Division of Workers' Compensation (DWC), asked the RAND Corporation to study alternatives to using the California Official Medical Fee Schedule (OMFS).

The authors of this report sought to (1) evaluate potential APMs for use in California WC, (2) examine advantages and disadvantages of each, and (3) make recommendations to the California Legislature on pilot programs for APMs. To do so, the authors conducted a scoping review and an environmental scan of literature on APMs and conducted interviews and focus groups with key WC stakeholders (providers, unions, applicant attorneys, employers, and insurers). The authors considered four APMs: quality incentive programs (such as pay-for-performance and value-based payment programs), bundled payments, accountable care organizations, and global budgets.

Stakeholders most consistently supported exploring the implementation of a pay-for-performance pilot program for California WC. The authors recommend that DWC use a two-stage process to develop a pilot pay-for-performance program that aims to increase provider participation in WC and improve injured worker's access to WC care.

Key Findings

Each APM has advantages and disadvantages

  • Pay-for-performance and value-based purchasing have shown little effect on health care spending but have the potential to incentivize the delivery of high-quality care. In addition, pay-for-performance programs are being used in WC in other states, establishing its feasibility in WC.
  • Bundled payment arrangements have the potential to reduce spending without compromising quality of care, but significant planning would be needed to implement them in WC.
  • Accountable care organizations (ACOs) are associated with reductions in spending but have mixed results for patient experience. The authors identified no examples of ACOs being implemented in WC.
  • Global budget programs have the potential to reduce costs and unnecessary utilization but need to be monitored for negative impacts on quality of care. The authors found no indication of global budget programs being used in WC.

APMs vary in their applicability to WC and to California's WC system

  • The nature of WC, and of California's WC system specifically, present many unique challenges that could make it difficult to adapt APMs for WC.

Stakeholders highlighted key features to adopt in an APM for WC

  • WC stakeholders most consistently supported exploring the implementation of a pay-for-performance pilot program.
  • Employees and employers suggested incentivizing provider behavior using performance measures that were broad rather than narrowly focused on specific treatments or injuries.
  • All stakeholder groups supported the idea of provider incentives taking the form of bypassing utilization review or independent medical review and/or expedited approvals for providers who perform well on identified measures and are designated as preferred providers.

Recommendations

Use a two-stage process to develop a pilot pay-for-performance program

  • DWC should use a two-stage process to develop a pilot pay-for-performance program that aims to increase provider participation in WC and improve injured worker's access to WC care.
  • The first stage should focus on holding working groups with stakeholders to discuss commitment, main players, goals, data needs, overall program design, and definitions; the second stage should develop a detailed process and plan to finalize the program's components and processes, participants' roles, and needed resources.
  • The pay-for-performance program should be centrally managed by DWC.
  • Participation should be voluntary to allow providers, employers, and insurers time to acclimate to the program before participation becomes mandatory.

Focus on initial goals, measures, and incentives

  • The pilot program should be designed around the initial goal of improving provider participation in WC and focus on addressing the interrelated issues identified by stakeholders that ultimately deter providers from participation in WC.
  • Initial measures should focus on 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. This could be paired with modifications to the OMFS to reimburse for reports that are not currently compensated, with the level of payment tied to timeliness and completeness of reports. Combined, these incentives could increase providers' willingness to participate in WC.

Topics

Document Details

  • Copyright: State of California Department of Industrial Relations
  • Publisher: RAND Corporation
  • Availability: Web-Only
  • Year: 2023
  • Pages: 95
  • DOI: https://doi.org/10.7249/RRA2481-1
  • Document Number: RR-A2481-1

Citation

Chicago Manual of Style

Quigley, Denise D., Petra W. Rasmussen, Nabeel Qureshi, Michael Dworsky, and Melony E. Sorbero, Alternative Payment Models for California's Workers' Compensation System: A Review of Issues and Possible Next Steps. Santa Monica, CA: RAND Corporation, 2023. https://www.rand.org/pubs/research_reports/RRA2481-1.html.
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This report describes research funded by the California Department of Industrial Relations (DIR), Division of Workers' Compensation, through the Workers' Compensation Administration Revolving Fund and DIR that was carried out jointly within the Payment, Cost, and Coverage Program in RAND Health Care and the Justice Policy Program in RAND Social and Economic Well-Being.

This publication is part of the RAND research report series. Research reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND research reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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