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CWCI Assesses the Impact of the New Geographic Adjustment Factors in the OMFS

Oakland – Switching from statewide to locality-specific geographic adjustment factors (GAFs) in the calculation of California workers’ comp physician and non-physician service fees has not resulted in a major shift in where the dollars go, and despite concerns, the switch does not appear to have generated inappropriate shifting of billing to higher reimbursed areas, or caused rural providers to leave the system.

A new California Workers’ Compensation Institute (CWCI) study examines the initial impact of replacing the statewide average GAF in the workers’ comp Official Medical Fee Schedule (OMFS) with a system that uses smaller Metropolitan Statistical Area (MSA) localities when applying regional cost adjustments as part of the fee schedule formula. The state adopted the GAF change for services rendered to injured workers on or after 1/1/19 to improve payment accuracy and align OMFS allowable fees with those allowed by Medicare and other systems. Under the new structure developed by Medicare in 2017, there are 32 payment localities in California.

Comparing the utilization of and payments for 10 Evaluation and Management (E&M) office visit services provided to injured workers in 2018 (the last year prior to the switch to the MSA-based GAFs), and 2019 (the first year following their adoption) the study found that both before and after the switch, medical providers in Los Angeles County accounted for a much larger share of the office visit services and payments than providers in any other locality, though their proportion of services and payments did decrease by about 5 percentage points in the first year after the locality specific GAFs were adopted. Those decreases, however, were offset by 5 percentage point increases in the proportion of E&M visits and payments to providers in nearby San Bernardino/Riverside Counties, a shift that occurred after a large occupational medicine group expanded into the Inland Empire.  Other than that, the study found no significant changes in the proportion of E&M services or payments among the geographic localities, and no indication of a shift in services or payments to providers in either urban or rural areas of the state

The study also showed that the switch to the new GAF had little effect on the types of E&M services used, as follow-up visits by established patients remained the most prevalent type of office visits, accounting for 86.5% of the E&M services in 2018 and 80.5% in 2019.  The 6-percentage point increase in the new patient office visits was spread across five new visit codes (CPT codes 99201 - 99205).  Comparing the weighted average amounts paid in 2018 and 2019 for all E&M office visit codes across all MSA-assigned counties the study showed that the changes in payments following the switch to locality-specific GAFs ranged from an 11.3% decrease in Kings County (where the OMFS called for an average reduction of 13.0% in allowable fees) to a 12.1% increase in Marin County (where the OMFS called for a 10% increase in allowable fees).  Average increases in E&M payments were relatively small in San Bernardino/Riverside (2.6%), Los Angeles County (2.9%), and Orange County (3.2%), but because these three localities accounted for about half of all E&M visits in the state, they had the greatest impact on the change in the total payments for these services last year.

A key factor influencing the average payments in each locality was the use of discount contracts, such as those paid to providers within an employer’s medical provider network, which allow payments below the fee schedule amounts.  Between 2018 and 2019 the percentage of  E&M services in the study sample that were paid at a discounted rate fell from 78.3% to 76.6%, but the average discount increased from 15.5% to 17.1%, so thus far the use of these contracts has helped mitigate the impact that the change to the fee schedule’s geographic adjustment factor has had on the average amounts paid for E&M services.

CWCI has issued its study in a Spotlight Report, “The Impact of the California Workers’ Compensation Official Medical Fee Schedule’s New Geographic Adjustment Factor.”  Institute members and subscribers can log in to access the report in the Research section at www.cwci.org, while others can purchase a copy for $12 at www.cwci.org/store.html.