How Inflation and Fee Schedules Are Shaping Workers’ Compensation Medical Costs

A recent study by the Workers Compensation Research Institute (WCRI) reveals how states’ approaches to fee schedule updates have influenced medical price growth in workers’ compensation during a volatile inflationary period. Between 2021 and 2023, the U.S. experienced significant inflation, with consumer prices peaking at 9.1% in mid-2022. Although general inflation has slowed since then, the impact on workers’ compensation medical costs varied by state, largely depending on whether fee schedules were indexed to general inflation or to medical-specific indices.

From 2021 to 2024, states that adjusted their workers’ compensation fee schedules using general economic inflation saw faster growth in medical costs compared to those that used a medical price index. Interestingly, while inflation affected the broader economy, the report notes that general health care inflation remained relatively steady—averaging about 3% annually—and did not mirror the spikes seen in other sectors.

The report further differentiates between the behavior of hospital and physician payments, noting that hospital outpatient payments increased at a faster pace (3–4% annually) compared to physician services, which saw only modest growth of 1–2%. These findings suggest that while overall medical inflation remained moderate, sector-specific trends—particularly in hospital pricing—have played a key role in workers’ compensation medical cost increases.

Ultimately, the WCRI study underscores the importance of understanding how fee schedule methodologies respond to inflation and how these policy choices shape the cost dynamics within workers’ compensation systems, especially during periods of economic disruption.