Like most industries, the workers' compensation industry has hurdles that challenge growth and operational effectiveness. Many of these hurdles for workers' comp are commonly the focus of research, with numerous studies published about the state of cost drivers, claim trends, workforce demographics, jurisdictional comparisons and the like. However, less is reported about how peers compare in terms of operational challenges, priorities, concerns, skills gaps and budgets.
In response to this need, the 2013 Workers' Compensation Benchmarking Study was developed, and Rising Medical Solutions published it. The study stems from a 60-question survey distributed to claims leaders from varying disciplines nationwide. The questions were designed to generate data that would help claims executives pinpoint operational outliers, advocate for resources in areas that need more support and validate existing strategies. The study report has compiled confidential responses from 258 claims leaders to support workers' compensation leaders with meaningful information for their important role.
The study results indicate that workers’ compensation claims leaders are facing critical challenges that are limiting their talent pool, technology potential and performance abilities.
1. Limited investment in current and future talent development.
Less than half of the survey participants provide training to senior-level claims staff, and a smaller percentage invest in training new hires.
2.Limited systems integration and use of technology to drive best practices.
A third of participants report that no integration exists between their core claims system and their ancillary systems (e.g. pharmacy benefit manager (PBM), utilization review (UR) and bill review), and many report a web-link or manual copy-paste of information as “integrated.” Study results also indicate room to advance the use of existing and emerging technologies to drive claims best practices.
3. Limited use of risk/reward strategies to propel top performance from internal staff, vendor partners and medical providers.
Just more than 50% of participants report using performance strategies with internal staff and considerably fewer use these strategies with medical providers and vendor partners. A significant competitive opportunity exists for claims organizations that implement risk/reward models, particularly with medical management vendors, given the prevalence of outsourcing these functions.
Study Context and Focus Areas
Compared with other lines of business, workers' compensation presents a number of unique operational challenges for claims organizations, including: complex compliance requirements, the long-tail nature of workers’ compensation claims and conditions leading to higher rates of fraud. These challenges have contributed to increasing loss adjustment expenses (LAE) and poor underwriting results, with loss costs in excess of premiums collected.
To better understand the daily experience of claims leaders operating in this environment, the study explores how the industry is advancing best practices, investing in talent, using technology and affecting medical outcomes. The study report provides an in-depth view of these four focus areas:
To request a free copy of the full study, click here.
Since its passage in 2010, the Affordable Care Act (ACA) — commonly referred to as healthcare reform — has been the subject of intense political debate and a source of anxiety for many employers. Although most employers have focused on the law’s health benefit requirements, the ACA is also expected to affect how they manage their workers’ compensation costs. Employers should understand how reform will affect the quality of care available to their employees, the calculation of workers’ compensation premiums and claims filings — and what employers can do to manage those effects.
Workers’ Health Proponents of the ACA say it will lead to a healthier society. Because more people will have access to healthcare, advocates say, there will be a reduction in comorbidities — additional diseases or disorders that individual patients often have along with a primary disease or conditions. For example, diabetes and hypertension are typical comorbid conditions of obesity. These comorbidities can frequently complicate workers’ compensation claims. Consider that a California Workers’ Compensation Institute analysis of claims from 2005 to 2010 found that average benefit payments on claims for employees with obesity as a comorbidity were 81% higher than those without. There is, however, no significant evidence to support the contention that an employee is less likely to file a workers’ compensation claim simply because the employee is insured. For example:
- A recent Assured Research study examining health insurance penetration rates and workers’ compensation loss ratios in individual states from 1999 to 2011 showed little correlation between the two measures.
- Data from the Centers for Disease Control and Prevention indicate that heart disease remains the leading cause of death in the U.S. and that the percentage of Americans with a high body mass index has steadily climbed over the last 50 years — two trends that are not confined to the uninsured population.
Cost Shifting Employers have long been concerned that injuries from non-work-related causes will be shifted to workers’ compensation. Doing so is tempting because of workers’ compensation’s combination of higher reimbursement rates for medical providers and lack of deductibles and copayments for employees. There is significant evidence to show that treatment for the same diagnosis costs more under workers’ compensation than under group health insurance because of higher reimbursement rates and greater utilization of services. A recent Workers’ Compensation Research Institute study of 16 large states, for example, showed that workers’ compensation payments for shoulder surgeries were often significantly higher than group health medical payments for the same procedure. Some have speculated that the greater access to health insurance promised by the ACA will reduce this shift to workers’ compensation. However, it has become clear that the law will not result in all Americans having health insurance coverage. With the ACA requiring that employers offer coverage to all employees working 30 or more hours per week starting in 2015, one in 10 large companies are planning to cut back on hours for at least a portion of their workforce, according to Mercer’s National Survey of Employer-Sponsored Health Plans 2013. Other employers are using higher copayments and deductibles to help offset cost increases. It appears, therefore, that the financial incentive for employees to shift treatment toward workers’ compensation will continue under the ACA.
Access to Care Probably the most predictable outcome of the ACA is that it will increase the number of individuals in the U.S. with health insurance coverage. Despite the potential benefits, this could put additional stress on a health are system that is already short on doctors. Among the 34 member nations of the Organisation for Economic Co-Operation and Development, the U.S. ranks 27th in physicians per capita (see Figure 1). And this problem does not appear to be going away: The Association of American Medical Colleges forecasts that physician demand will dramatically outpace supply over the next decade, leading to a shortage of more than 90,000 physicians in the U.S. in 2020. This is particularly troubling as it relates to specialists — for example, orthopedic surgeons — and the potential for delays in obtaining diagnostic tests and scheduling elective surgeries and other procedures. Longer periods of disability and complications as a result of such delays would ultimately drive workers’ compensation costs up. With this added pressure on a limited number of medical providers, it becomes more important than ever for employers to develop medical networks that focus on quality of care and outcomes — even if it means paying more on a fee-for-service basis. Employers that pay their medical providers fairly and quickly will have more timely access for their injured workers and should ultimately have lower workers’ compensation costs.
Standards of Care Traditionally, the healthcare industry’s focus has been on volume; more patient admissions, tests and procedures translated to higher revenues. Post-reform, however, the industry has shifted its focus to improving standards of care and achieving better patient outcomes. If this transition results in less emphasis on costly procedures, which often produce questionable results, workers’ compensation costs could be reduced. Although it remains to be seen whether the standards of care developed under the ACA for group healthcare would be enforced under workers’ compensation, this is a promising development for employers.
Premium Refunds The ACA provides for insurers to rebate premiums to employers that have better than expected performance with their healthcare programs. Employers can either refund such premiums back to their workers or use them to offset future premiums. The National Council on Compensation Insurance (NCCI) has indicated that if premium refunds are given to employees, this would be considered payroll under workers’ compensation premium calculations. In other words, having a good performance on its group health program could increase an employer’s workers’ compensation program costs because premium calculations are tied to payroll. Employers should keep this in mind when deciding what to do with healthcare premium rebates that may be received.
Managing the Effects of Healthcare Reform There is little doubt that healthcare reform will have an impact on workers’ compensation costs and claim trends. And while the extent will not be known until the ACA has been fully implemented, employers can take steps now to lessen any potential negative impacts, and increase the value of the positives. For example, employers should:
- Increase efforts to identify medical providers that can provide the best quality care for injured workers and take the necessary steps to ensure the workforce has access to these providers.
- Carefully manage the approach to healthcare premium rebates, which could affect how payroll is calculated under workers’ compensation.
- Closely monitor any shifts in injury claims to workers’ compensation. Despite the ACA’s promise of greater access to health insurance coverage, there remains a financial incentive for employees to seek treatment under workers’ compensation rather than group health.
- Remain committed to loss-control efforts. Don’t let concerns over the ACA cause a loss of focus on this key area.
Sifting through the claims and complaints of those involved in California’s complex workers’ compensation system could leave both the casual observer and the seasoned veteran wondering when, if ever, this multibillion-dollar program will ever get properly aligned. It would be fairly easy to say, “Not during our lifetime.” But that would be too cynical even when discussing a system that for the past several decades could easily invoke cynicism.
Every participant in workers’ compensation has two faces. Some employers provide benefits, have a compliant return to work program and enforce a culture of safety at the workplace, while other employers view employees as a necessary evil. These latter employers view adherence with the legion of local, state, and federal laws and regulations regarding the workplace as burdens that need only be acknowledged if employers are required to do so, generally in the form of a legal proceeding against them.
We have seen the abuses in the medical system from unnecessary surgeries, overuse of Schedule II medications, and downright fraud in billing insurers and other payers, and yet if there is one indispensable party in the workers’ compensation system beyond labor and management it is medical providers. As recent events have demonstrated, we have yet to figure out how to empower the noble practitioners of the healing arts while keeping the venal away from injured workers.
Claims administrators vary in expertise, motivation, and professionalism, as do the various service providers and the tactics they employ to provide services and collect fees. “Insurers” have borne an unfair brunt of criticism largely because it is an easier talking point to cast such a broad brush than to single out any one bad actor or group of them. Without the ability to transfer risk, however, the workers’ compensation system could never be sustainable.
Each system participant has a particular grudge against the others. We allow policyholders to sue insurers for claims handling practices, and, in far narrower circumstances, an injured worker may pierce exclusive remedy and sue a claims administrator when conduct is so egregious that it goes beyond the grand bargain that is at the core of workers’ compensation. Periodically, claims administrators and service providers resort to the civil courts with a variety of complaints over unfair business practices. And, of course, the Workers’ Compensation Appeals Board is the forum where all participants flock with even the slightest provocation.
The appellate courts weigh in on a wide range of benefit delivery challenges, as well. Their decisions in Guzman and Ogilvie were two of the main incidents inciting changes in permanent disability benefit determinations codified in Senate Bill 863 (De León). Even today, we are litigating issues over the apportionment changes brought about in Senate Bill 899 (Poochigian) enacted almost a decade ago. Litigation in federal court is rare, although not unprecedented, as the current challenge to the lien activation fee in SB 863 demonstrates. State-imposed fee schedules have periodically worked their way into federal court on the theory that reimbursement rates are so low that they are confiscatory – a challenge unlikely in California while the fee schedule is not mandatory, but still possible given the breadth of authority that the Division of Workers’ Compensation has been given to develop fee schedules for virtually all service providers.
“Well, that’s just California workers’ comp.” That may be the case, but such resignation does tend to take the focus away from core problems that magnify the multiple personality disorder that plagues this system. As we work our way through the implementation of SB 863, we must also recognize that not every solution to the high cost of comp, both in dollar and human terms, can be put down on paper in Sacramento or Oakland.
While compliance is part of best practices, it does not define them exclusively. To be sure, the new costs associated with complying with SB 863 are consequential. As is inevitably the case when new comprehensive workers’ compensation laws are enacted, there will be considerable friction moving from one set of rules to another. The threat of litigation will hang over the changes made in this legislation just as it has in prior iterations of reform. It will take years to sort this all out.
In the meantime, there is much work to be done to improve the system even if it is not in reaction to a new law or regulation or judicial decision. As has been the case all too often over the past two decades, laws are driven by anecdote. The adage “bad facts make bad law” applies equally to the legislative, regulatory, and judicial processes. Navigating California’s complex system is never easy. If claims administrators expect the process by which laws are made and interpreted to provide the necessary clarity and simplicity we crave to do our jobs, then we are all sadly mistaken.
Yet, when we commit to best practices both as employers and claims professionals, we can create better outcomes than Sacramento could ever hope to achieve. The challenge, therefore, is not what legislators or regulators or justices will do for us, but rather what will we do for ourselves?
I recently attended and spoke at the California Workers’ Compensation & Risk Conference in Dana Point, California, where, as expected, the major focus was SB 863. Just over one year ago, employers and labor came together at the end of the legislative term to pass a bill designed to improve benefits for workers and reduce costs for employers.
I moderated the opening session, which was a diverse panel featuring representatives from employers, carriers, injured workers, and medical providers. My first question to the panel set the tone for the rest of the session, and for the rest of the conference. That question was: “From your viewpoint, is the California workers’ compensation system better off now than it was a year ago?”
Before you can gauge the success of SB 863, you must remember where we started. Permanent disability (PD) benefits to injured workers had been cut significantly under prior reforms, so injured workers were unhappy with the system. Employers were equally unhappy, as workers’ compensation costs in California had been increasing steadily for years.
With a system that both injured workers and employers were very dissatisfied with, something had to be done.
SB 863 provided an immediate increase in permanent disability benefits for accidents occurring after 10/10/2013. PD is being increased by a total of 30%, phased in over two years. There is also a $120 million fund to compensate certain workers who are unable to return to their pre-injury job because of physical restrictions.
The savings for employers are to come over time. The largest of the savings under SB 863 are to come from changing the processes for liens and medical disputes. Thus far, these changes are receiving mixed reviews.
On the plus side, liens have fallen significantly since a fee for filing them was implemented Jan. 1. Some of the drop can be attributed to the fact that medical providers filed all the liens they could before the fee took effect. However, there clearly has been a significant drop in new liens filed.
The filing fee is being challenged, though, by a lawsuit that seeks to have it declared unconstitutional, and some of the anticipated savings from SB 863 are likely to be eroded if the courts don’t uphold the fee.
The bill also restructured the medical dispute resolution process, with the introduction of the Independent Medical Review (IMR). The IMR process was modeled after successful programs in states such as Texas. It is designed to have physicians, not judges, deciding disputed medical issues. It is also designed to expedite resolution so appropriate treatment is provided to injured workers in a timely manner. The IMR process clearly remains a work in progress. First, 10 months after implementation, the process is still operating under emergency rules. Until the final rules are in place, those participating in the process will face uncertainty. Second, it appears there is significant gaming of the IMR process. Approximately 16,000 requests were filed in both August and September of this year alone, significantly more than anticipated. In one month, there were more disputes filed than in an entire year for the same process under group health. Employers alone bear the costs of the IMR process, so those filing all these requests may be attempting to cripple the system at absolutely no cost to themselves.
The issues facing the IMR and lien processes illustrate what many see as the major impediment to delivering cost savings for employers in California: There are special interest groups that do not want the system to become more efficient and self-executing, because they make a great deal of money off the chaos.
In her speech at the conference, Christine Baker, director of the California Department of Industrial Relations, expressed concern about “significant gaming.” While this gaming is not unique to California, from my national viewpoint its impact on the workers’ compensation system is more profound in California than in other states.
The biggest challenge is that the workers’ comp system in California is flawed by design. No other state has issues with medical liens in workers’ compensation. Bills are reduced to fee schedule with no further disputes seeking additional payment. Treatment that is not authorized is subject to litigation over necessity. If the employer prevails, “no” means “no.” In California, “no” means “file a lien and litigate further.”
Another issue facing California employers is continuous trauma (CT) claims, which can be filed for a 1% aggravation of a pre-existing condition. The legislature recently fixed this problem for the National Football League by passing a bill specifically limiting CT claims by professional athletes, but CT claims in California continue to be a significant cost driver for other employers, and their frequency has more than doubled over the last 10 years. It is common in California for injured workers to file both CT and specific injury claims for the same body part. In no other state are CT claims as prevalent and embedded into the workers’ compensation system as they are in California.
In addition, allocated loss adjustment expenses (ALAE) covering items such as bill review, utilization review, and litigation costs are higher in California than other states, and these costs are increasing at an alarming rate.
The gaming of the system significantly increases the costs for employers and delays the delivery of benefits to injured workers. The main stakeholders in workers’ compensation, the employers and workers, need to work together so that benefits can be delivered faster and at lower cost. SB 863 was a step in this direction, but there is more work to be done. The people who worked together to make SB 863 a reality need to continue to work together to preserve the savings elements designed into the bill. If they can do this, perhaps California can finally achieve some stability in its workers’ compensation marketplace, which would benefit both employers and injured workers.