Third-party administrators (TPAs) promise to manage workers' comp costs for employers through vigilant review and through discounts on medical care that they can provide because of their access to preferred provider organizations (PPOs), but consider the experience of a Fortune 25 client of mine. My analysis found that, despite the discounts, after all the TPA charges for medical bill review the company was paying $1.10 for every $1.00 in workers comp medical bills submitted for payment.My report showed my client could get a 10% savings on its workers' comp program by not having a bill review program with its TPA and just paying all bills at 100%!

To avoid similar problems and to find maximum savings, employers should, at minimum, conduct an annual review of their claims handling. TPAs and insurers do their own reviews, but when is the last time such a report concluded, "We need to do a better job"? Although long-term relationships with TPAs or insurers are generally a good thing, employers should adopt the President Reagan admonition to "trust, but verify."

The need for claims audits is especially great in times like the present, because a weak economy has historically correlated with increased potential for fraud and abuse. In a report released last year by the National Insurance Crime Bureau, the number of questionable claims was up 28% in 2012. The three major reasons were: workers filing claims based on prior injuries not related to the workplace; malingering; and just plain old fraud.

The annual reviews should employ four standards. The first should be verification that the TPAs/insurers performance measurements and contractual obligations are being met. An outside independent claim audit should identify all the things that the claims administrator is doing well, along with identifying areas for improvement.

The audit should actually help TPAs and insurers that have performance bonuses built into their contracts. I have also found that an independent analysis often discovers that the employer causes many of the problems by reporting claims late, by communicating poorly or by lacking a return-to-work program. Such barriers are difficult for even the best claim administrators to overcome. Claim administrators often find it difficult to tell the employer that the emperor has no clothes. A good consultant can, through an independent audit.

The second standard of review should be to determine if the claim administrator is meeting its own internal standards, policies and procedures, such as caseloads per adjuster, quality controls, activity checks and timeliness of benefit payments.

The third level of review should be to compare the claim administrator's standards, policies and procedures to widely accepted industry best practices, such as: initial claim investigation, three-point contact, return-to-work action plans, referral to medical case management and use of independent medical examiners.

The fourth level of review should be comparison to an ideal vision of a workers' comp program. If you could play Santa Claus and had an unlimited budget, what changes, resources and areas of improvement would you like to see? You would be surprised what great ideas spring from that question, that actually don't cost a lot of money to implement.

My experience in the workers' compensation industry began with learning the business from the treating provider's viewpoint. To this day, that occupational medical practice's 24-hour medical triage program to local employers is the best model I have ever seen: Get the injured worker to the best provider and facility from the moment of injury based on the nature and severity of the injury. All claimants by definition are patients who have a work-related injury or illness before they become claimants, or at least say they do. (Excuse me for being cynical, but I grew up in tough industrial town in New Jersey where committing workers' comp fraud was apparently easy and was considered a badge of honor at the neighborhood tavern.)

Virtually every expert agrees that the most effective cost-containment activities should take place within the first 24 hours of a worker's seeking medical treatment, yet this is rarely the focus of the multibillion-dollar managed care industry. Instead, that focus has been on generating huge profits by selling "percentage of saving" arrangements based on PPO "discounts." Audits can help return the focus to where it should be.

Audits can also provide the setting for spotting lots of other problems. For instance, a large, self-insured and self-administered trucking company went through every group health medical claim with a fine tooth comb, but all workers' comp medical bills were stamped to be paid at 100%. When I asked why, the risk manager replied, "Because workers' comp requires us to pay 100% of medical." I pointed out the golden rule, that his statement only applied for reasonable and necessary care related to the injury or illness up to the point of maximum medical improvement (MMI). I felt like Thomas Edison when I saw the light bulb go on above his head. That was the beginning of the end of the policy to pay all workers' comp medical bills at 100% of billed charges.

One of my favorite career moments stems from an interview with a senior executive at a TPA, on behalf of its largest client. I asked him about his quality-assurance program. His answer was, "As you know, we are historically weak in this area." Weeks later, the client asked why I gave their quality-assurance program such a poor grade. My written response was: "Because they are historically weak in this area."

I begin consulting engagements with corporate clients by asking, "It is 9:00 a.m.; what will happen if you have a work-related injury at 10 a.m.?" Two of my favorite responses were: "That's a good question. I have no idea"; and, "We send everyone to the emergency room." I replied to the second answer with, "And then what?" The silence was deafening. That type of response is always dynamite for my claim-audit/cost-containment reports.

First three things I want to know are: Who is the treating provider? Where are the medical reports and documentation? What was done with them?

I have always told my clients that the first time they see a doctor and a lawyer on the same claim file, it is a coincidence. The second time, it is a conspiracy.

Why conduct a workers' comp claim audit? Because it is where the rubber meets the road.

Potentially one of the easiest ways to set more appointments and generate more sales is through referrals. Notice I said "potentially." If you are asking a friend, family member or an established customer to suggest the names of your next prospects, the whole process is somewhat easier. You already have built the rapport that you need to acquire the names you want. If your relationship is still being formed, asking for referrals is a little more uncomfortable. People want to make sure that their friends and associates will be treated well before they refer you. Whether a prospect or client gives you a referral depends on how they relate to you and what they think of you, as a business professional as well as a person. How you present yourself and your products or services can either lead to more referrals or more dead ends. The choice is truly yours. Many don't even ask for referrals because they fear rejection. The simple question, "Do you know of anyone who would be interested in hearing more about our investment opportunities…retirement community…or printing services?” can be so daunting that 89% of insurance professionals don't even ask for referrals. Even if we find the courage, inexperience can cause us to approach the whole process incorrectly, forgetting an important step. To get the process right, you must first believe in your product, your message and the value that you can bring to your clients and prospects. You must then present and deliver your solution in the best light possible. There are a select who can improvise and succeed. For the rest of us, it takes detailed preparation to get to the point where we know enough to be comfortable to present our solution with a reassured smile. One of the easiest ways for the sales person to gain increased confidence is to be prepared and, if needed, script the calls or at least create an agenda or outline to follow. Scripting is used by a number of different professionals to get their message across. Movie actors and directors follow a script, and an off-Broadway play isn’t very enjoyable without the script. A well-written, well-organized script will provide your prospects and clients with the right information and reassure them that you know what you are talking about. When you sound like you know your product or service, you can give others confidence in both yourself and in the product you offer. In the end, though, we have to earn the right to ask for a referral. A recommendation is a direct result of how effective you have been at gaining someone's trust, often by delivering a product that fits her needs. People must know, like and trust you. Think for a moment. If you had a friend or a family member, someone you wanted the best for, would you refer that person to someone like you? If you are paying attention, you should know when to ask for a referral. Often, if someone provides a referral, he feels that the actions of that sales person will reflect on him, for good or bad. For example, a client of mine asked if I knew of an individual or organization that worked with sales people on their image, or how they should interact with a prospective customer. I provided one of my contacts, knowing full well that she was more than capable. I called my contact to prepare her for this client, who was not one for flash and showy materials. I felt good about connecting these two people. About a week later, I got a call from my client asking me what in world I was thinking. Despite my warning, she had shown him a number of risqué ideas and suggested liberal techniques. It was as if my words fell on deaf ears. From that experience I learned to be much more careful about making referrals. The dynamics of human interactions are often complex, and it is important to understand and honor our customers' reluctance to share information. Being patient can create respect that can help strengthen the relationship with those we serve. It’s easy to ask for a referral. Let me share with you a simple, five-step process.

• Step 1: Somewhere in a conversation, I ask, "Can you do me a favor?" A majority of the time, the person will respond with something like: "Well, that depends. What do you need?"
• Step 2: I simply ask, "Who do you know whom I should be talking with about the type of work I do?" Expect the response, "I can't think of anyone."
• Step 3: Identify the type of person you are looking for. Say, "I am looking for someone very similar to you." Then describe what that means.
• Step 4: "If we were at a social gathering right now, having a conversation like we are now, and a friend of yours walked up, would you introduce us?" Expect this response, "Well, of course I would."
• Step 5: "That's all I am asking for today, an introduction to someone you know, a nice person who may be in a similar situation. You can be confident that I will treat them with the same respect that I have always shown you. Is that fair enough?"

If the person still doesn't want to refer you to anyone, let it go. You want to always leave the person you are talking to better than you found him. The question we all need to ask ourselves is, ‘Am I referrable?"

• Do I show up on time?
• Do I follow up on the things I say I’m going to follow up on?
• Am I prepared for each call?
• Am I confident?
• Are my prospects and clients confident in me?

I haven't personally made a cold call in more than 15 years. Over that time, my business has prospered on a steady stream of referrals. If you’ve done the work of effective relationship building, gaining referrals is very simple. Are you asking for referrals? How can you apply these simple steps to your process and begin getting more referrals today?

Many of you are well-versed in the importance of medical-only claims to the experience modification rating process. In the vast majority of states, these claims, also known as injury or IJ code type 6 losses, are reduced by 70% for the purposes of the mod calculation. This reduction is known as the experience rating adjustment (ERA).The ERA was first implemented in many states in the late '90s to encourage employers to report all losses, not just those involving lost-time claims. At that time, it was common for companies to pay, rather than report, their small claims to avoid having those claims count against the mod. NCCI and other stakeholders were interested in collecting all possible data for statistical actuarial purposes, so the ERA was introduced. More than 15 years later, a reduction of medical-only losses now applies in 38 states, but within the industry I still hear a fair amount of talk about employers self-paying small workers’ compensation claims -- even in ERA states. The many responses to the March 9, 2014, question “Do Employers Have to Report First Aid Claims?” on the Work Comp Analysis Group on LinkedIn illustrate how complex this issue can be. (Claims designated as “first aid” often have a different connotation from “small medical-only claims” in some states and to some carriers, but the discussion definitely overlaps with this article.) All of this talk raises the question of whether we can analytically show that it saves-- or costs -- the employer to pay small med-only claims “out of pocket.” With the help of ModMaster, that’s what I examine in this article. Before we look at some scenarios, let’s not forget the following points. Key factors to keep in mind

• Self-payment of small claims is not legal in all states, or may be subject to fines or penalties. Specific rules are determined by state workers’ compensation statutes. For example, the Missouri Department of Insurance specifically suggests taking advantage of the state’s Employers Paid Medical Program to reduce the cost of work comp coverage. Clearly, it’s important to know the rules in your state.
• Self-payment of claims also has implications at the federal level if injured employees are eligible for Medicare.
• Employer access to state or “reasonable and customary” fee schedules is an important consideration in the cost of self-paid claims.
• Perhaps most important, employers paying small claims out of pocket may risk liability if those claims should develop into something more costly.

A sample scenario in states where ERA is approved For this analysis, I’ve imagined a relatively small business, Mike’s Machine Shop, operating in Missouri and Indiana (both ERA states) with these attributes:

• An effective date of 1/1/2014
• Approximately $1.7 million to $1.8 million in payroll each year, in codes 3632 and 8810, generating a minimum mod of 0.73
• Three itemized losses, all type 5: $8,000, $12,000 and $45,000
• The assumption that the shop had one $1,000 med-only claim per month in 2012, for a total of $12,000 in type 6 losses. (I chose $1,000 as a value that’s clearly med-only and yet above what might be considered a first-aid-only claim in some states.)

The good news is that self-paying creates a lower mod and therefore a lower premium. In 2014, Mike will save three points on his mod and $1,500 on his premium if he doesn’t report those 12 small claims. And, because those claims aren’t hanging around on his mod for two more years, he’ll save about $1,500 in 2015 and 2016, too. But we’re not done with the story! The bad news is that the self-paid claims costs add considerably – in this case $12,000 – to Mike’s Year 1 total cost of risk. Let’s look at Year 2 of this scenario and imagine that Mike has instituted some safety improvements so that the shop has had just one small claim per quarter in 2013, for a total of $4,000 in type 6 losses. Let’s also imagine, for the sake of this analysis, that payroll and the other itemized losses have stayed exactly the same, as have rating values. If Mike is not reporting small losses, then his mod and premium are the same as in 2014. If he is reporting the small claims, then the new claims in 2013 drive his mod to 0.99 -- one more point than the 2014 mod. Cumulatively, the 2012 and 2013 small reported claims are responsible for four points, or approximately $2,000 in premium. Because Mike’s self-paid claims costs are considerably lower this year -- $4,000 -- then the Year 2 total cost of risk differs only by $2,000 between reporting and not reporting losses. Still, though, Mike has a financial advantage to report claims, especially when considered over the cumulative two-year total cost of risk. The same scenario in a non-ERA state If Mike were operating in a state that has not approved the ERA reduction, then the impact on the mod of small med-only claims is certainly more significant, and it’s easier to see how the scales could tip in favor of not reporting. However, in this example, using all the same assumptions as above, the overall cumulative cost savings still favors reporting of claims. In states that have not implemented the ERA reduction, the total cost impact of paying work comp claims out of pocket requires especially close analysis. Summary These, of course, are just a couple of scenarios, and there are myriad reasons that ultimate costs could vary from these simple examples. However, in all the scenarios that I’ve constructed (many more than discussed here), paying small claims out of pocket seems hard to justify in ERA states. Even in non-ERA states, deciding whether to pay small claims out of pocket demands a detailed analysis that accounts for all associated costs, such as any fines and applicable medical fee schedules. In all cases, knowing your state rules is imperative. Refer to your state’s Department of Insurance or to the NCCI’s Unit Statistical Reporting Guidebook for more information. As an analytics enthusiast, I tend to believe that claiming all losses results in better data -- not just for the bureaus or insurance carriers but also for employers. And better data, of course, leads to more meaningful analysis opportunities. If an employer is working with an agent, broker or other risk management professional to analyze and act on their mod data, then why not have the complete picture and reveal all trends and drive the most appropriate operational initiatives toward improvement?