Why Do Workers’ Compensation Fee Schedules Vary So Significantly?

Fee schedules are generally designed to control costs, ensure fair pricing, and prevent excessive medical bills for both employers and injured workers. Despite common goals, the payment rates for fee schedules can vary significantly between different states.

“No single standard exists for fee schedules, which increases the challenge,” said Karen Clifton, Director of Cost Containment at Safety National. “Employers should lean on their TPA and carrier partners to monitor claim outcomes, adjust budgeting and reserving where necessary, and anticipate potential cost shifts.”

The lack of consistent approaches to fee schedules in workers’ compensation across states stems from a variety of legal, political, economic, and healthcare system differences. Here’s a breakdown of the main reasons:

1. State-Specific Regulations

Workers’ compensation is regulated at the state level in the U.S., not federally. This means each state legislature and workers’ compensation board defines its own rules. Additionally, states decide whether to have a fee schedule at all, what services it covers, like medical, pharmaceutical, hospital, or durable medical equipment (DME), and how it is calculated. For example, California has detailed, service-specific fee schedules, but New Jersey does not currently have a formal fee schedule and instead relies on usual and customary charges.

2. Economic and Healthcare Cost Variances

The cost of care and provider availability vary widely across states, influencing how fee schedules are structured. States with higher healthcare costs may adopt more aggressive controls, while others may reimburse at market rates to maintain provider participation.

3. Political and Stakeholder Influence

A wide array of stakeholders with competing interests and motivations seek to influence how fee schedules are designed. Medical associations and hospitals may want higher reimbursement. Insurers and employers are looking for cost control, but want to ensure that access to quality medical care for injured workers is not lost in the process. State legislators are trying to balance between rates that are too low, which could jeopardize access to care, and those that are too high, which could cause excessive costs that drive up insurance premiums. This leads to compromises and politically-driven variability in design.

4. Different Methodologies

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, Relative Value Units (RVUs) or market surveys, while others use flat fees, percentages, or hybrid models.

5. Evolution and Reform Timing

States have reformed or updated fee schedules at different times. Some are based on decades-old systems, while others are more modernized. Reforms often reflect recent court decisions, healthcare trends, or cost containment crises unique to that state.