California’s Division of Workers’ Compensation (DWC) increased reimbursement rates under the Physician and Non-Physician Practitioner portion of the Official Medical Fee Schedule (OMFS), effective February 15, 2024.

But as we continue to remind readers, increasing OMFS rates has limited impact on the financial sustainability of treating injured workers — because Preferred Provider Organizations (PPOs), not the DWC, effectively control real-world reimbursement rates through the Pay-To-Treat schemes enabled by Medical Provider Networks (MPNs).

Our data show that in 2023, California medical providers in daisyBill’s database were collectively paid at just 83% of OMFS rates for treating injured workers.

Under the threat of exclusion from MPNs, too many California providers become locked into PPO discount reimbursement contracts. PPOs lease or sell these provider contractual discounts to claims administrators, bill reviews, and other payer-side vendors that subsequently belly up to the trough for a helping of the provider’s revenue.  

Treating injured workers is an incredible hassle with extraordinary administrative expenses, which is why many providers avoid it — and why setting reimbursement rates commensurate with the work involved makes sense.

Of course, there’s one glaring problem with California’s strategy of setting higher OMFS reimbursement rates: too many claims administrators pay far less than OMFS rates far too often.

CA Providers Lose $39M in 2023

The table below reflects reimbursement 2023 data for 892,366 bills submitted by over 1,783 providers to hundreds of claims administrators in 2023.

The headline: in 2023, claims administrators owed providers over $234 million per the OMFS — but paid just over $195 million instead, at a collective loss of over $39 million to practices statewide.

Providers were reimbursed at 83% of OMFS rates — just 116% of Medicare rates. For context:

• 2023 Physician Fee Schedule reimbursement rates were set at 139% of Medicare rates
• 2024 Physician Fee Schedule reimbursement rates effective February 15 are 146% of Medicare rates

With OMFS rates set so high, how are claims administrators paying so little? The answer often comes down to the three ugliest letters in workers’ comp: P, P, and O.

Participation in PPO agreements is often a condition of participation in MPNs. Because so many employers and insurers restrict injured workers’ care to MPNs, providers fear they will lose eligibility to treat injured workers if they don’t sign PPO discount contracts (a state of affairs we call “Pay-to-Treat”).

Once the PPO has the provider’s signature on a discount reimbursement agreement, those discounts are peddled to countless other entities, slashing practice revenue across the board.

PPO contracts generally stipulate that the provider receives “the lesser of” several reimbursement options, usually including:

• A percentage of OMFS rates
• A percentage of Medicare rates
• A rate dictated by a proprietary alternative fee schedule

Raising OMFS rates, therefore, has a negligible impact on providers subject to these PPO contracts. The higher the fee schedule rate, the less likely the fee schedule rate will be “the lesser of” the contractual options.

OMFS: Rationale Behind Higher Reimbursement Rates

Setting OMFS rates significantly higher than Medicare rates has a purpose: to account for the extraordinary expenses providers incur when treating injured workers.

Due to strictly enforced regulations for provider billing, extensive administrative requirements, and the unfortunate necessity of battling claims administrators for appropriate reimbursement (thanks to barely enforced regulations for claims administrator payment), providers sink significant resources into workers’ comp.

California workers’ comp’s drains on practice time and resources include:

1. Determining the applicable Medical Provider Network (MPN), and the provider’s participation therein.
2. Complete either the 3-page Form 5021 (for new patients) or the PR-2.
3. For new patients, mail two copies of Form 5021 to the employer.
4. If additional treatment is required, complete DWC Form RFA and fax to the claims administrator.
5. Receive and process the (often lengthy and confusing) Utilization Review (UR) decisions.
6. If necessary, refer the injured worker to treatment by a specialist (within the MPN).
7. For payment, include all forms and supporting documentation with the bill.
8. For payment, include a narrative report of the services rendered with the bill.
9. If billing electronically, send the bill with the mandated forms and reports to the correct clearinghouse.
10. When the claims administrator improperly denies or adjusts the bill (a rampant practice), complete Form SBR-1 to appeal.
11. When the claims administrator denies the Second Review appeal, complete Form IBR and assemble a massive, itemized IBR request packet and pay $180 for the IBR.

The above expenses are the reason fee schedule rates are so much higher than Medicare rates.

But thanks to PPOs, when California increases fee schedule rates, it doesn’t make treating injured workers much more financially tenable. The increase simply feeds the middle-person entities that have made a cottage industry of siphoning revenue from providers.

Know (and get) exactly what you’re owed for treating injured workers. Get instant, accurate fee schedule calculations with daisyWizard’s OMFS Calculator.

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