Tag Archives: misrepresentation

Predictive Analytics In Workers' Compensation Made Easy And Affordable

It's a safe bet that claims will not have a happy ending if the treating physician has a history of being associated with poor claim outcomes. In fact, physicians rated poorly in analytic studies based on past performance are 100% predictive of high costs and inferior outcomes in future claims where they are involved. The question is, how can those providers be identified so they can be avoided?

Applying Analytics
Whether the cause of poor performance is misunderstanding Workers' Compensation or deliberate fraud, the claim results will be dismal. Nevertheless, in order to analyze provider performance, one must know where to find the data, what to look for, and how to apply the knowledge gained from analysis to achieve improved results.

Data can offer a clear picture of actual provider performance. Evaluating physician and other provider performance is a matter of scrutinizing the data using industry research to learn what to look for. In fact, leveraging published industry research is the way to skip the laborious and expensive regression analyses and other predictive modeling methods.

Industry Research Reveals What To Look For
Exposing substandard providers is a matter of integrating and analyzing the data to understand the course of the claim and the providers who were involved. Selecting the data items to monitor can be guided in the first instance by industry research. Organizations such as the National Council on Compensation Insurance, the California Workers' Compensation Institute, and the Workers' Compensation Research Institute continually publish their research based on data they collect from members. These organizations offer research regarding medical issues causing cost escalation in the industry, and usually make results available from their individual websites.

Search
Academia and other organizations produce and publish research, as well. The best way to access other research is to use Google or other search engines to find research studies regarding specific issues and interest areas. For instance, if the concern is low back pain, simply use Google to find research and scholarly articles on the topic as it relates to Workers' Compensation.

Indicators Of Performance
When the indicators of performance are identified, they can be tagged in the data to analyze individual providers. Providers associated with a preponderance of negative indicators will fall into the lowest class category. On the other hand, those whose results are exemplary will rise to the top — best in class.

Where To Find The Data
Billing data tells the story of diagnoses, treatments and the billed amounts. However, billing data by itself is never broad enough in scope to evaluate providers because it tells only a part of the story. Claim adjudication level data tells another part of the story. It describes the actual paid amounts, return to work, the amount of indemnity paid, and whether legal was involved. But there is more.

Analyzing Pharmacy Benefit Management data is imperative. Overuse of prescribed narcotic pain relievers is now a major concern in Workers' Compensation medical management. Prescribing excessive opioids is unconscionable, but the guilty are often not identified and avoided as they could and should be.

Provider performance should be scored by claim outcome combined with costs and other factors. Unless the initial injury was catastrophic, return to work following a workplace injury is often a function of medical management that should be measured. Analyzing multiple data indicators from disparate data sources is powerful in describing physician performance. It is also objective and fair.

Integrating The Data For Analysis
Any one Workers' Compensation data source by itself is inadequate for the purpose of evaluating provider influence. Only the broad scope of data concerning a claim can provide a clear picture of the claim and provider culpability in outcome. Therefore, collecting the data from its various sources (billing or bill review, claim adjudication systems, and pharmacy data), then integrating current and historical data are crucial steps in provider performance analytics. The next steps are identifying, evaluating, and monitoring the data elements that are indicators of performance both from the medical and Workers' Compensation viewpoints using research as a guide.

Link Analytics To Operations
Analytics results of any variety that remain in graphic form, in a brochure, or pinned to a wall are useless in the effort of actually containing costs. The findings must be functionally applied to operations to make them actionable. Information regarding best (and worst) in class doctors identified through the methods discussed here must be made available to network managers and others in a usable form. Moreover, the information should be specific, current, dynamic, easily accessible, and contain objective supportive detail. The work of analytics is not complete until its results are operationalized and actionable.

To Rescind Or Not to Rescind?

Rescission of an insurance policy is serious business. Such action could result in serious financial difficulties to insureds, especially if it occurs after a major loss. Furthermore, costly and protracted litigation almost inevitably follows to contest the rescission.

Fortunately, insureds and their brokers can minimize the potential for rescission by simply exercising greater care to ascertain the accuracy of underwriting information, and by providing all material information to insurers. Also, rescission decisions are made by insurers only if they are convinced that they have adequate justification for them.

An insurer may rescind its policy in the event of material misrepresentation or concealment of a fact by the insured. Misrepresentation is the false statement of a fact by the insured. Concealment is the neglect to reveal a fact that the insured knows and ought to communicate to the insurer.

Misrepresentation or concealment is material if it affects the underwriting decision of the insurer. For example, the premium would have been higher had the insurer been aware of the true and complete facts.

Property-casualty policies typically include conditions pertaining to the subject of rescission, such as:

  • The policy is issued in reliance upon the truth of representations made by the insured.
  • The policy is void if the insured intentionally conceals or misrepresents a material fact.
  • The insured, by accepting the policy, agrees that the statements in the policy declarations are accurate and complete.

In most cases, rescission is based on materially misrepresented facts in the policy application, or in underwriting information provided by the insured or its broker. However, unless there is a satisfactory answer to each of the following questions, the rescission is not justifiable:

  • Is the fact known only to the insured? If the insurer possesses a fact that differs from what the insured had provided, then it must attempt to reconcile it before proceeding further with consideration of rescission.
  • Is it false? The insurer must have incontrovertible evidence to demonstrate that the fact obtained from the insured is false.
  • Is the falsity material? Materiality is determined within the context of probable and reasonable influence on the insurer by the false fact. Consequently, if the insurer’s underwriting decision is not affected, then the falsity cannot be deemed material.
  • Is it reasonable to rely on it? The insurer cannot reasonably rely on a fact received from the insured alone if it is aware of a conflicting fact.
  • Did the insurer rely on it? There must be clear evidence to demonstrate that the insurer did rely on materially false facts when making its underwriting decision.

State insurance codes and legal precedents also have an impact on the insurer’s decision-making process concerning rescission.

For example, the California Insurance Code allows policy rescission even in cases of unintentional misrepresentation or unintentional concealment, and it provides that materiality is to be determined solely by the probable and reasonable influence of the facts on the insurer.

Also, case law precedent prevents insurers from relying solely on representations contained in the policy application or underwriting information if an inspection of the insured’s property is conducted.

A policy may be rescinded even after a loss that would otherwise be covered by the policy. Since rescission could have severe negative financial impact on the insured, the insurer must be certain that the reasons for rescission are based on solid grounds and able to withstand potential legal challenge.

In a 2001 case, an insurer rescinded their policy following a major fire loss, alleging material misrepresentation and concealment by the insured, pertaining to several matters, including square footage of the premises.

The pre-trial discovery proceedings included examination of ambiguous questions contained in the insurer’s application form, and the accuracy of the inspection report provided by an independent inspection company retained by the insurer.

Major weaknesses emerged in the insurer’s justifications for its decision to rescind the policy, including:

  • The insurer previously issued policies for a previous owner, covering the same premises, and therefore it had prior knowledge of the underwriting information, including square footage, which differed from what the insured had provided.
  • Just because the square footage information provided by the insured differed from the prior information in the insurer’s underwriting files, it was not sufficient for the insurer to conclude that the insured’s statement is false, especially since its insurer failed to make any attempt to reconcile the difference.
  • The square footage figures provided by the insured and its broker in the application was lower than the figure in the inspection report that was ordered by the insurer after it issued the policy. In asserting materiality, the insurer disregarded another inspection report subsequently ordered by the insured, which confirmed the original figures in the application for the policy.

Based on the above points, it was not reasonable for the insurer to rely on the square footage information provided by the insured, and the insurer’s contention that it did rely on the square footage data provided by the insured was questionable.

Although this case was resolved and the insured received payment for its claim, the pre-trial discovery process took over a year, with detrimental financial consequences to the insured.

The lesson from cases like this is that all parties should take thorough measures to ensure the accuracy and completeness of underwriting information, and that conflicts or ambiguities are promptly resolved before coverage is bound.