3 Key Findings from WCRI’s Report on Post-Inflation Trends in Medical Payments

General inflation may have slowed since its peak in 2022, but medical price growth has continued to increase at a rate of roughly 3% each year since 2020, according to a recent report from the Workers’ Compensation Research Institute (WCRI). Medical inflation pacing has varied, typically lagging behind overall inflation trends, so what is driving the increasing costs of healthcare services, particularly in professional and facility services like ambulatory surgery centers and hospitals?

“Workers’ compensation medical payments per claim are based on both price per service and utilization of those services,” said Jennifer Gallagher, Medical Manager at Safety National. “Costs per claim will continue to rise with statistically larger increases in advanced care service prices due to delayed care, increasing comorbidities, and rising injury severity. Additionally, in states that are less aggressive with their fee schedules, the incurred costs on a claim can be significantly higher.”

Here, we review three notable takeaways from WCRI’s recent report on Post-Inflation Trends in Medical Payments Through 2025.

1. Hospital payments increased much faster than professional prices, driving medical price changes.

In contrast to a 2% annual increase in previous years, hospital outpatient service payments rose by 3-4% annually between 2020 and 2024. Hospital inpatient payments grew even more substantially, at a rate of 4-5% per year. Both professional and facility service price increases contributed to the overall rise in workers’ compensation medical payments over the past two years, despite a decrease during the early stages of the COVID-19 pandemic.

The study further suggests that changes in claim composition, increasing incidences of comorbidities and mental health conditions, and hospital consolidations are contributing factors to the growth in hospital payments. As employee age and tenure shift, so do claim patterns, significantly impacting injury frequency and severity. Additionally, degenerative conditions and comorbidities place increased stress on recovery timelines, often delaying return to work. The report also noted more frequent acquisitions of private practices by hospital systems, enabling hospitals to hold greater market influence. This consolidation was associated with an 8-10% increase in medical payments.

2. Non-hospital professional service costs increased faster due to lagged effects of high inflation and variances in state fee schedules.

Of the 30 states included in WCRI’s study, 20 experienced cumulative price increases of over 5% between 2021 and 2024, including nine states with double-digit increases. Fee schedules vary significantly across the U.S., and many states use different inflationary approaches when adjusting these schedules. While workers’ compensation healthcare is highly regulated, reimbursement regulations differ depending on the type of medical services being provided.

States may use various benchmarks to guide adjustments, including the Medicare conversion factor, the Medicare Economic Index, or the Consumer Price Index for All Urban Consumers (CPI-U). Some states use state-specific conversion factors or average weekly wage growth. These differing inflation metrics can vary dramatically. For instance, in 2021–2022:

• Medicare conversion factor – 0.8% decrease
• Medicare Economic Index – 2.1% increase
• CPI-U for all items – 8% increase
• CPI-U for medical care – 4.1% increase

3. Fee schedules are a major contributing factor to mitigating price growth.

Fee schedules are critical for claims professionals to predict more accurate treatment costs, reserve appropriately, and improve loss ratios. However, some states either forgo a fee schedule or rely on usual and customary charges. Between 2012 and 2021, states without fee schedules experienced a 2.1% average annual growth rate in medical professional prices, compared to just 0.6% in states with fee schedules. More recently, non-fee schedule states have experienced double the price growth rate of those with established fee schedules.

Fee schedules also have a significant impact on the costs of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), all of which influence the overall cost of workers’ compensation medical payments. These items can be among the most expensive components of a claim. For example, Medicare’s DMEPOS fee schedules increased by 8.7% in 2023, a rate substantially higher than in prior years.