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Game-Changing Strategies to Transform Workers' Compensation

The workers' compensation system continues to face three major challenges: reducing the spiral of rising costs for claims, improving outcomes for medical care, and streamlining efficiencies which impacts both care and costs.

Each year, workers' compensation medical costs continue to escalate — they now constitute 60% of total claims costs according to the National Council on Compensation Insurance. The average medical cost of lost-time claims has more than tripled during the last 20 years. The Workers Compensation Research Institute recently reported that outpatient hospital average payments per claim were up 31% from 2006 to 2010, while inpatient hospital payments per episode jumped 36% during the same time.

Unfortunately, the inter-related nature of components in workers' compensation makes it difficult to achieve long-term, consistent progress in cost containment. While medical expenses are recognized as an increasingly powerful cost driver, the total cost picture is impacted by more than just charges for and volume of medical services. Quality medical care is behind the speed and ability of the injured worker's ability to return to work, which influences indemnity and lost time costs. Litigation by dissatisfied claimants adds to the expense picture. However, the fact is that medical costs and care are the 800-pound gorillas that are the real challenge to better management and superior outcomes. A new approach that can break through this log jam will be a truly game-changing solution.

Such a solution must be able to remedy the primary drivers of increasing costs and sub-par medical outcomes in workers compensation, which include:

  • The growing epidemic of opioids for the treatment of pain, which can — when used inappropriately — lead to long-term disability, negative health outcomes, and fraud and abuse. A study by Accident Fund Holdings and Johns Hopkins University found that the presence of long-acting opioids resulted in claims almost 3.9 times more likely to cost more than $100,000 than a claim without any prescriptions; claims with short-acting opioids were 1.76 times more likely to have an ultimate claims costs of more than $100,000.
  • Co-morbidities and obesity that raise the cost and complexity of care. The October 2012 National Council on Compensation Insurance Research Brief, “Co-morbidities in Workers' Compensation” found that claims with a co-morbidity diagnosis have about twice the medical costs of other comparable claims.
  • An older workforce is another cost driver. According to the National Council on Compensation Insurance's Research Brief, “Workers' Compensation and the Aging Workforce,” claim severity and costs for older workers (45 – 64) is more than 50% higher than for younger employees for both indemnity and medical.
  • Significant variations in care by provider and by state negatively impact outcomes. For example, the Workers Compensation Research Institute's “Prescription Benchmarks, 2nd Edition: Trends and Interstate Comparisons,” July 2011, reports that the average prescription payment in Louisiana was $1,182 for claims that had more than seven days of lost time and at least one prescription, as compared to $330 – $350 in states with the lowest prescription costs.
  • The fragmentation of care management creates waste and poor outcomes. It takes a multitude of different types of medical and service providers to successfully treat an injured worker. Within this maze, the traffic cop is the busy claims adjuster who today may manage an average of 150 claims. This heavy workload makes it hard for the beleaguered adjuster to find the right providers, manage all the connections, and to give claims — especially complex ones — the constant, in-depth oversight needed.
  • The impact of providers can vary widely. Many providers are not experienced in workers' compensation cases — they do not understand the assertive “sports medicine” type of approach that deploys and manages treatment from the inception of the case in order to help achieve a rapid recovery and return to work.

Within this scenario, it's easy for a case to become unnecessarily complicated, dragging on for months and years, ratcheting up not only medical but also indemnity costs.

The Solution
Leaders in workers' compensation recognize that finding and using superior practitioners is the key to getting the best care for injured workers and reducing overall costs. Results in outcomes-based networks have indicated that superior providers can reduce total claims costs by 20%-40%.

If an injured worker sees an experienced and high-performing physician from the beginning, and their treatment plan moves rapidly through an integrated network of outstanding providers who understand workers' compensation objectives, there is a much better chance of an efficient and fast resolution of the injury, return to work, and closure of the claim.

Rapid interventions with the right therapies from the beginning of the case means the injured worker is more likely to recover faster and have a better overall outcome. For example, a recent study published in the medical journal “Spine” found that early physical therapy treatment for low back pain was associated with reduced likelihood of subsequent surgery injections, physician visits, opioid use, and advanced imaging along with a corresponding reduction in related medical costs.

Yet, until now, there has been no solution that enables claims professionals to know which providers deliver the best care, and to consistently connect these providers to injured workers for timely, efficient delivery of superior care for best outcomes.

Now, due to three developments in the industry, that solution is becoming a reality. When this model is deployed throughout a claims management enterprise, payers can experience unparalleled improvements in medical outcomes, reduced overall costs, and increased efficiency.

The three capabilities present in today's marketplace that enable this change are:

  • The ability to develop strong networks of specialty “best-in-class” providers who contribute to all elements of care in workers' compensation, and who receive scrupulous credentialing and consistent quality oversight to ensure an aggressive focus on evidenced-based medicine and fast return-to-work.
  • Advanced analytics of claims data that can now determine which providers generate the best outcomes.
  • Easy-to-use technology that connects this broad range of providers with claims professionals, expediting fast referrals and treatment, overall care coordination and prompt reporting of test and care results. This technology connects these once fragmented players into a virtually integrated care team focused on the injured worker and a common set of objectives.

When these three capabilities are integrated, for the first time in workers' compensation there is a system that brings together the best providers in both primary treatment and ancillary services who are delivering care with aligned goals and shared information to bring about better outcomes with streamlined efficiencies and reduced frictional cost in the system.

The value of this integrated approach to care delivery has been recognized in healthcare for 10 years. At The Cleveland Clinic and the Mayo Clinic, care for Medicare patients cost less than the national median, indicating that this approach is successful in not only delivering better outcomes but lower overall costs.

The 2011 Health International McKinsey report, “What It Takes to Make Integrated Care Work,” found that an integrated care model can be implemented in virtually any health system, provided the three elements of multidisciplinary care, a focus on patient segments most likely to have high health care spending, and the ability to create strong virtual partnerships, are present.

How The Integrated Model Works In Workers' Compensation
The following examples illustrate how the integrated model workers within workers' compensation:

  1. A worker with a complex injury to his right leg is immediately referred to an occupational health physician who is experienced in workers' compensation and connected to networks of specialty providers. Based on the nature of the injury, the physician's office is instantly connected to a resource for crutches, transportation for getting back and forth to appointments, and a best-in-class diagnostics provider to provide fast, accurate diagnostic tests. Instead of having to figure out what is needed and arrange for each piece individually, all the components are in place from the beginning of the treatment plan.
  2. As the injured worker receives treatment from an integrated network of specialty providers, not only is the care provided by best-in-class providers but cost savings are maximized by consistently taking advantage of network discounts and preventing leakage.
  3. A patient who has an injury that may be associated with chronic pain is managed aggressively from the beginning of the case, to alleviate pain and optimize recovery with physical therapy and other pain-reducing modalities. Pharmacy management is also aggressive — if an opioid is prescribed it is for a finite period of time and constantly reviewed to ensure that it is still required and that addiction or misuse is not developing. Consequently, the slippery slope to long-term addiction and disability is avoided.
  4. When cases are complex and the injury is serious, all the treatment components that the patient may need are linked together and available when needed. The adjuster no longer wastes time trying to find specialists who are not in the network and who understand workers' compensation objectives, waiting for equipment that doesn't show up or work, or finding experienced clinicians who can coordinate care for challenges, ranging from infusion medical management to home modifications. The injured worker is managed for the duration of the injury, ensuring that their health is protected and that costs do not creep up through benign neglect or lack of oversight.

The best-in-class clinical team does far more than just deliver services — it takes on the role of care coordinator for the entire case: working with the hospital team before the injured workers is discharged to put in place a continuous care plan, ensuring that the right equipment is actually ordered and working and that it's there when needed and removed when it's no longer useful, and keeping continuous oversight of complex and long-term claims years after the injury so that these long-tail claims stay on track.

Interconnectivity between the physician, the specialty providers, and ancillary services like equipment, transportation, and translation keeps the team informed and linked so that reporting, communication and referrals are seamless, smooth and timely. For example, if a patient needs a knee brace to return to work that can only be fitted in the doctor's office, the transportation to the physician's office is arranged through the home care provider and the correct brace is waiting in the doctor's office when he arrives.

Enterprise-Wide Deployment Delivers Highest Value
The greatest value of the integrated medical model will be in its applications throughout a claims management enterprise when:

  • High performing physicians drive each case.
  • Best-in-class specialists are immediately available at the onset of each case, and with every development in the injured worker's condition.
  • Aggressive and appropriate care moves the injured worker toward recovery, avoiding pitfalls such as prescription drug dependence, long-term disability, and unnecessary treatments and costs that result in no improvement.
  • Providers are linked and connected with technology to know exactly what the injured worker needs and to make sure that all connections are met and made.

When this scenario is multiplied for every claimant that a payer has, the results in improved outcomes, reduced overall costs, and improved efficiencies are truly transformational. The integrated care management model in workers' compensation will be a game-changing phenomenon that will exponentially improve results throughout the entire system.

Insurance And Manufacturing: Lessons In Software, Systems, And Supply Chains

Recently, my boss Steve and I were talking about his early career days with one of those Big 8, then Big 6, then Big 5, then Big 4 intergalactic consulting firms. Steve came out of college with an engineering degree, so it was natural to start in the manufacturing industry. Learning about bills of material, routings, design engineering, CAD/CAM … “Ah yes,” he recalled, “Those were heady days.” And all those vendor-packaged manufacturing ERP systems that were starting to take the market by storm.

Eventually Steve found his way into the insurance industry, and thus began our discussion. One of the first things that struck Steve was the lack of standard software packages in the insurance industry. I don’t mean the lack of software vendors — there are plenty of those. Seemingly, though, each software solution was a one-off. Or custom. Or some hybrid combination. “Why?” we wondered.

The reasons, as we now know, were primarily reflected in an overall industry mindset:

  • A “but we are unique!” attitude was pervasive. Companies were convinced that if they all used the same software, there would be little to differentiate themselves from one another.
  • There was also an accepted industrywide, one-off approach. Conversations went something like this: “XYZ is our vendor. We really don’t like them. Taking new versions just about kills us. We don’t know why we even pay for maintenance, but we do.”

But the chief reason for a lack of standard software was the inability to separate product from process. What does this mean?

Well, you can certainly envision that your auto product in Minnesota is handled differently than your homeowners’ product in California. I’m not referring to just the obvious elements (limits, deductibles, rating attributes), but also the steps required for underwriting, renewal, and cancellation. Separation of product from process must go beyond the obvious rate/rule/form variations to also encompass internal business and external compliance process variations.

But there’s still plenty of processing — the heavy lifting of transaction processing — that’s the same and does not vary. For example, out-of-sequence endorsement processing is not something that makes a company unique and therefore would not require a custom solution.

Where the rubber meets the road, and where vendor packages have really improved their architecture over the last several years, is by providing the capability in their policy admin systems for companies to “drop” very specific product information, along with associated variations, into a very generic transaction system.

Once product “components” (digitized) are separated from the insurance processing engine, and once companies have a formal way to define them (standard language), they can truly start making their products “unique” with reuse and mass customization. Much like those manufacturing bills of material and routings looked to Steve way back when.

This separation of policy from product has been a key breakthrough in insurance software. So what is an insurance product, at least in respect to systems automation?

From Muddled To Modeled
The typical scenario to avoid goes something like this:

  • The business people pore over their filings and manuals and say, “This is the product we sell and issue.”
  • The IT people pore over program code and say, “That’s the product we have automated.”
  • The business people write a lot of text in their word processing documents. They find a business analyst to translate it into something more structured, but still text.
  • The business analyst finds a designer to make the leap from business text to IT data structures and object diagrams.
  • The designer then finds a programmer to turn that into code.

One version of the truth? More like two ships passing, and it’s more common than you may think. How can organizations expect success when the product development process is not aligned? Without alignment, how can organizations expect market and compliance responsiveness?

What’s the alternative? It revolves around an insurance “product model.” Much like general, industry-standard data models and object models, a product model uses a precise set of symbols and language to define insurance product rates, rules, and forms — the static or structural parts of an insurance product. In addition, the product model must also define the actions that are allowed to be taken with the policy during the life of the contract — the dynamic or behavioral aspect of the product model. So for example, on a commercial auto product in California, the model will direct the user to attach a particular form (structure) for new business issuance only (actions).

Anyone familiar with object and data modeling knows there are well-defined standards for these all-purpose models. For insurance product modeling, at least currently, such standards are more proprietary, such as IBM’s and Camilion’s models, and of course there are others. It is interesting to note that ACORD now has under its auspices the Product Schema as the result of IBM’s donation of aspects of IAA. Might this lead to more industry standardization?

With product modeling as an enabler, there’s yet another key element to address. Yes, that would be the product modelers — the people responsible for making it work. Product modeling gives us the lexicon or taxonomy to do product development work, but who should perform that work? IT designers with sound business knowledge? Business people with analytical skills? Yes and yes. We must finally drop the history of disconnects where one side of the house fails to understand the other.

With a foundation of product modeling and product modelers in place, we can move to a more agile or lean product life cycle management approach — cross-functional teams versus narrow, specialized skills; ongoing team continuity versus ad hoc departmental members; frequent, incremental product improvements versus slow, infrequent, big product replacements.

It all sounds good, but what about the product source supplier — the bureaus?

Supply Chain: The Kinks In Your Links
Here is where the comparison between insurance and manufacturing takes a sharp turn. In their pursuit of quality and just-in-time delivery, manufacturers can make demands on their supply chain vendors. Insurance companies, on the other hand, are at the mercy of the bureaus. ISO, NCCI, and AAIS all develop rates, rules, and forms, of course. They then deliver these updates to their member subscribers via paper manuals or electronically via text.

From there the fun really begins. Insurance companies must log the info, determine which of their products and territories are impacted, compare the updates to what they already have implemented and filed, conduct marketing and business reviews, and hopefully and eventually, implement at least some of those updates.

Recent studies by Novarica and SMA indicate there are approximately 3,000 to 4,000 changes per year in commercial lines alone. The labor cost to implement just one ISO circular with a form change and a rate change is estimated to be $135,000, with the majority of costs in the analysis and system update steps.

There has got to be a better way …

ISO at least has taken a step in right direction with the availability of its Electronic Rating Content. In either Excel or XML format, ISO interprets its own content to specify such constructs as premium calculations (e.g., defined order of calculation, rounding rules), form attachment logic (for conditional forms), and stat code assignment logic (to support the full plan).

A step in the right direction, no doubt. But what if ISO used a standard mechanism and format to do this? ACORD now has under its control the ACORD Product Schema. This is part of IBM’s fairly recent IAA donation. It provides us a standard way to represent the insurance product and a standard way to integrate with policy admin systems. What if ISO and the other key providers in the product supply chain started it all off this way?

Dream on, you say? While you may not have the clout to demand that the bureaus change today, you do pay membership fees, and collectively the members have a voice in encouraging ongoing improvements in the insurance “supply chain.”

In the meantime, the goal to be lean and agile with product life cycle management continues. We must respond quickly and cost-effectively to market opportunities, policyholder feedback, and regulatory requirements. That all starts at the product source … but it doesn’t end there. So while the supply chain improves its quality and delivery, insurance companies will need to gain efficiencies throughout every corner of their organizations in order to achieve those lean goals.

In writing this article, David collaborated with his boss Steve Kronsnoble. Steve is a senior manager at Wipfli and an expert in the development, integration, and management of information technology. He has more than 25 years of systems implementation experience with both custom-developed and packaged software using a variety of underlying technologies. Prior to Wipfli, Steve worked for a major insurance company and leverages that experience to better serve his clients.