The passage of the Affordable Care Act in 2010 continues to redefine the employer-sponsored healthcare market. Increased regulatory and fiduciary responsibilities, employer mandates and rising medical premiums have forced employers to evaluate all cost-effective strategies for providing health benefits to employees. One strategy, self-funding, remains an attractive alternative to the traditional fully insured and association-style health plans.
In a self-funded environment, the employer will assume the role of the insurer and agree to pay the medical claims incurred by the plan’s members and dependents. A good percentage of self-funded plans will also use reinsurance and captive risk tools to provide protection from both large individual claims and the plan’s collective utilization.
While self-funding has gained momentum as a result of healthcare reform, it is not a new concept. In 1999, a Kaiser Family Foundation (KFF) study reported that 44% of employer-sponsored healthcare was self-funded. That number has now reportedly grown to 61% in 2014.
Why Is Everyone So Interested?
Health benefits continue to be one of the greatest expenses for employers. This fact, compounded with the continual rate increases (with little to no justification), leaves employers feeling stuck in an endless cycle. Some also may feel that their employees are a generally healthy group that is a good candidate to self-fund.
Many turn to self-funding because of:
Lower fixed costs-The majority of the expense is incurred in the payment of actual medical claims, increasing the margin for savings when the plan performs well.
Improved transparency-An increase in premiums is easier to swallow if the employer can get an accurate understanding of its claims experience. Self-funded health plans provide employers with a tremendous amount of data. Accurate claims data strengthens the group’s ability to effectively control spending on claims.
Control of the plan design-Self-funded health plans are in a better position to adjust benefits and control increased provider costs. Unlike fully insured products, a self-funded plan design can be structured to meet the specific needs of the group and not an insurer’s overall population.
Tax savings-Fully insured premiums continue to jump to accommodate new provisions as a result of the ACA. Self-funded plan sponsors avoid items like the new Health Insurance Industry Tax, which will increase from 2% to 5% in coming years.
With the increased interest comes new strategies and opportunities as the self-funding marketplace evolves. Self-funded plan sponsors are reaping the benefits of evolving provider network and cost containment strategies. Meanwhile, employers that have yet to make the transition see obstacles lessen because of changes in the reinsurance and captive markets.
What Does This Mean for Employer Groups?
Self-Funded Feasibility Studies Are a Must
There is a strong likelihood that every corporation or public entity with 1,000 employees or more has at least heard about self-funding. However, depending on the number of employees on your health plan, it is quite possible that you have not evaluated self-funding, at least in a thorough way.
A deeper look into the composition of employers participating shows us that group size typically has a direct correlation on whether a self-funded strategy is being used. According to the 2014 KFF study, the breakdown of corporations self-funding is:
Historically, size has mattered. While all groups with more than 200 employees have a responsibility to evaluate the method as an alternative, those employer groups in the less-than-200 range are seeing more opportunity to make the transition. Lessening participation thresholds to lease competitive provider networks and new reinsurance and captive products are creating total-cost scenarios where the right employer can realize the advantages of self-funding. It can still be a challenge when certain market dynamics are present (i.e., lack of claims data, available provider network options, pending legislative actions, etc.), but more and more companies are finding success.
One More Step
The large insurance companies have noticed the changing market, as well, of course, and have introduced a number of bundled plans that look like self-funding. These products are typically entirely owned by one entity, like an insurance company or trust, and allow the employer to participate in a pre-determined portion of any surplus when the group experiences lower-than-expected claims. These products are attractive because they pull together under one brand all the component vendors of a self-funded health plan (i.e., claims administrator, network, reinsurance, etc.). These products can be a great first step for employers weary of self-funding through their own independent health plan. The products will allow them to gain insight into their claims performance while alleviating some of the additional work associated with the wholly owned approach.
For those groups already in these products, it may be time to evaluate taking that next step and realizing the benefits of a wholly owned approach. Reinsurance policies with specific advance and monthly aggregate accommodation can give these employers the ability to still limit their maximum exposure, lower their plan’s fixed costs and keep all of the savings when the plan performs well.
With the tools available today, any employer group in a packaged, shared funded or full ASO model plan is a candidate to complete the transition to a self-funded plan. While the packaged, branded approaches employed by some of the major insurance companies may work for a season, deconstructing the bundled product may be the next step in the employer’s long-term strategy.
Fine-Tuning Your Self-Funded Plan
There are many companies that have been enjoying the benefits of self-funding for years. As a result of the ACA, however, these employers have had to react to escalating medical costs, expensive specialty drugs and increased regulatory and fiduciary responsibilities.
For instance, self-funded health plans typically “lease” provider networks from a large insurance company. But, in 2010, the ACA removed lifetime and annual maximums from health plans, and the number of high-dollar claims has increased substantially. The networks provide discounts on fees, but the question is how important they are given the increasingly large charges they are being applied toward.
Self-funded health plans are adept in using different types of analytics both to measure historical data and to predict outcomes. This has empowered these health plans to fine tune their plans and integrate various cost-containment strategies.
Transparency, The New Buzzword In Healthcare
Healthcare price and quality have been nearly impossible to determine. Consumers can compare prices and quality of nearly everything they purchased, except healthcare — which truly has life and death implications.
Today, there is a new demand for healthcare transparency driven by:
Employers’ efforts to contain escalating costs
High-performing providers distinguishing their efficiency (price) and proficiency (quality)
Consumers seeking better value
Accomplishing this requires unearthing true and independently determined value — not just “secret” negotiated insurance rates, artificial fee schedules and quality metrics of questionable relevance.
Unknowingly purchasing healthcare with large price variations is a major cause of healthcare inflation and is estimated to cost Americans with employer-sponsored insurance as much as $36 billion a year.1 A recent study published in the Archives of Internal Medicine revealed prices ranging from a low of $1,529 to a whopping high of $182,955 for an appendectomy!2
The mystery of healthcare pricing contributes significantly to the escalating cost of healthcare burdening consumers, employers and taxpayers. Introducing transparency to the healthcare market will shrink price and quality disparities — saving employers and employees money while they receive better quality care.
Quality is as important a factor as price, yet most consumers do not incorporate it into their healthcare decisions, largely because that information is not readily available. Online opinions of physicians and hospitals generally focus on wait times or communication skills rather than clinical qualifications and outcomes. The former makes you comfortable or uncomfortable; the latter can be costly, even deadly.
So quality does matter. In fact, more than one quarter of inpatient stays experience a medical error: 13.5 percent of Medicare/Medicaid hospital patients experienced an adverse event (a serious event, including death and disability) and another 13.5 percent experienced some other temporary harm that required intervention, according to the Department of Health and Human Services.
Transparency — The Good, The Bad And The Ugly
The Good: Consumers want full transparency and with the convergence of technology, data availability and better analytics, it’s increasingly available and affordable.
The Bad: With more companies entering the transparency market, each one defines transparency as they see it, causing confusion and making comparison difficult. Worse, some parties actively impede transparency by claiming data ownership and censoring data for their own benefit.
The Ugly: Many companies touting transparency merely slap the transparency tag on products having little or nothing to do with transparency. Or worse, advertise it but then suggest a plan to develop it; in another word, vaporware. Perhaps most disturbing are companies selling their version of transparency while failing to disclose conflicts of interest.
Optimal transparency solutions should, at the least, meet criteria in four categories: unbiased, credible, meaningful and measurable. This article examines findings from a comparative summary of “transparency” companies in these four important categories.
Monocle Health Data conducted a study of seven companies alleging to provide either price and/or quality transparency of some sort. We developed and applied 25 criteria in the four categories named above. We did our best to verify accuracy and graded each company by these criteria using a simple three-tiered grade.
Plus — the capability was confirmed
Unknown — capability could not be determined
Minus — the capability did not exist or there was a clear deficiency
This study includes 200 footnotes documenting the findings. If you are interested in using our proprietary transparency comparison format or want more info, you may request it through firstname.lastname@example.org. There is no charge. The following is a summary of significant findings.
1. Three of the seven were founded, owned or controlled by insurance companies or healthcare providers. This creates an inherent conflict of interest. What is most disturbing about these three is their lack of, well, transparency. They don’t reveal their potential conflicts. With a little research we found the conflicts, but no customer should have to work that hard — especially for a service that purports to give customers the full truth. These three companies’ conflicts were numerous and included:
Being founded by a consortium of state hospital associations;
Partially owned by a well-known hospital system;
Owned by a company marketing U.S. provider networks;
Publicly stated plans to offer its own provider network; and finally,
Owned by a global medical tourism company representing its own network.
2. Two of the seven promoted a provider network from which they receive compensation. Any time a seller claims to sell a “truth” product such as transparency, other sources of compensation from influential parties in the transaction should be divulged. In fact, for many industries it’s the law (think auto dealer rebates and real estate agencies). The conflict isn’t just the unseemly hidden compensation. In order to make networks attractive, their reps sell on access first and foremost, not quality or price. And there’s the rub. When networks include 90 percent of providers in the market, in the best case scenario, the network includes the best 50 percent and worst 40 percent of providers. And we all know about the wide disparities in healthcare price and quality. Broad network access — by definition — engenders disparities.
If a transparency company is selling access to a preferred network, it no longer has an incentive to reveal disparities (aka deficiencies) within its network. They’re paid to sell their network — not reveal provider-specific performance. And if they can get you to pay an access fee for the privilege of ignorance, well, they see that as an even more profitable sale — at your expense.
3. Three of the seven accept advertising revenues from providers as a primary source of revenue. Any transparency solution accepting ad revenues from those it’s supposed to evaluate without bias should be taken off the list of legitimate transparency solutions; they’re just one level away from “pay-to-play.”
1. Pay to play — Two companies use third-party sources that charge providers to participate in their “quality” assessment or to be more prominently displayed. And if the provider doesn’t pay the participation fee, it receives a “no score” which translates to a failing score. You can’t buy credibility. Worse yet, much of the data used in these companies’ “transparency” tools are from their own databases — not independent, recognized organizations.
2. Most companies did not use independently verified, fact-based information that has been cross-referenced from nationally recognized organizations. In fact, two of them used opinion surveys as their primary transparency tool, emphasizing the patient experience while ignoring independently verified, fact-based information. Opinion surveys are nice but patients want the best care possible, not just a pleasant experience, despite the trendy (and misleading) exclamation, “It’s all about the customer experience!”
3. Healthcare price and quality transparency is not the primary business for four of these companies. Those four companies’ primary businesses range from hospital consulting to selling networks to medical tourism to selling mobile apps. If a company’s primary business isn’t transparency, you know the business has other priorities that can change quickly — unbeknownst to the customer. If you want dedicated transparency services, free of conflicts, you’re most likely to receive that from a company dedicated to it as a primary business and core competency.
4. Use of appropriate comparative data — amazingly, six of the seven transparency companies failed this test. Most incorrectly compare Medicare data to commercial populations, use generic UCR fee schedules instead of the average cash payment, use market ranges instead of provider-specific data, or use an overall quality score that isn’t disease or procedure specific. Consumers have a right to know more than just whether a hospital earned a superior overall score — they have a right to know the score for treating their specific illness, and to know where each provider ranks for treating that illness.
5. Verifiable information from multiple credible sources and not just a company’s own database. Proprietary algorithms are one thing, but referencing a company’s own database as a valid source is intellectually dishonest. If the transparency company won’t or can’t provide auditable detail to support its findings, it lacks credibility. Keep in mind that data from at least two credible organizations is needed to validate conclusions. Only one transparency company met this standard.
1. Only one of the seven transparency companies used severity adjustments of appropriate data populations using at least two recognized severity-adjustment methodologies. Four of the seven didn’t demonstrate any severity adjustment capability. Severity adjustments allow for valid comparisons on a disease-specific, provider-specific basis so individuals can find providers who treat similar patients proficiently and efficiently.
2. Provider price rankings and quality ratings for both chronic illnesses and episodic care for hospitals and doctors on the same platform was offered by only one of the seven companies. The standard approach was to provide a price for each procedure, office visit, prescription, lab test, imaging procedure, etc. and let the user compile the total cost — if they can. With chronic illnesses comprising two-thirds of all benefit costs, it is critically important to rank and rate providers based on price and quality on a severity-adjusted basis for managing a chronic illness, including all costs for treatment, over an entire year.
3. In- and out-of-network provider comparisons were offered by only three of the seven companies (see Unbiased above). A meaningful transparency solution should provide consumers with ratings and rankings on providers who are both in- and out-of-network. Any “transparency” solution that excludes out-of-network providers isn’t transparency, it’s self-serving censorship detrimental to the consumer.
This is particularly important with high-deductible plans. I’ll give my personal experience: Pfizer sent me a Lipitor $4 copay card. I took it to CVS Pharmacy and was told that under my health plan, I would have to pay $250 for using a brand medication instead of generic — but they’d gladly reduce this by $4. I thought this surely was a mistake so I called CIGNA and was told its in-network pharmacy’s interpretation (CVS) was correct. CIGNA doesn’t tell consumers that it’s cheaper to fill prescriptions at out-of-network providers.
Excluding out-of-network providers isn’t transparency — it’s charging users for the privilege of buying high-cost services from in-network providers. Perhaps it’s time to question the value of networks — and any transparency solution that ignores out-of-network providers.
4. Robust analytic report package updated monthly. Six of the seven companies don’t offer monthly analytic reports. Another transparency requirement should be timely reports generated from robust analytics and the ability to “drill down” into the data to see exactly why and how each provider earned their ranking and rating. You deserve to know the supporting facts — after all this is transparency. True transparency is driven by analytics and subject matter expertise, not just a provider directory lacking supporting analytics.
1. Only one solution ranks by price and rates quality by quartile. Almost all of the transparency companies use a three-, four- or five-star rating system. Unfortunately, since half of the transparency companies in this study also sell networks, the rankings and ratings are largely meaningless — they only rate in-network providers and almost all of the providers are rated as average or better. This is unrealistic. In fact, the biggest disparities between provider price and quality performance are in the bottom 50 percent. Consumers deserve to know true rankings and ratings so they can avoid the bottom 50 percent of doctors and find a doctor in the top 50 percent who best meets their needs. Ranking doctors and hospitals by quartile gives consumers a short list of the best doctors, for specific diseases, to choose from — not just an endorsement of another network.
2. Only one solution offers an on-line, interactive data cube to support users requiring sophisticated analytics. This enables a robust, flexible, user-friendly reporting package that’s population-specific to each employer and allows employers to establish dashboards and benchmarks for health plan performance and their vendors (e.g. network performance, disease/medical/case management). Five companies did not offer any reporting package.
3. Only two companies offer a savings measurement tool. One company provides an ROI worksheet using employer-specific assumptions to calculate savings. An important transparency feature is the ability to project accurate ROI and savings using employers’ own assumptions — before and after engaging the transparency company. Savings projection tools, along with the analytic reports, give the employer actionable intelligence to identify areas of improvement and measure vendor performance.
The rise of healthcare transparency is inevitable — it epitomizes the old saying, “How do you keep them down on the farm once they’ve seen the big city?” Consumers are slowly realizing that not only should they be able to see price and quality information on healthcare providers — they have the right to see accurate, meaningful information.
The healthcare industry is on the cusp of tremendous change brought about by the adoption of healthcare IT solutions. The ability to extract data which can then be shared with consumers will forever change the way healthcare quality is measured, and create new pricing metrics that extend far beyond in-network and out-of-network.
1 Save $36 Billion in U.S. Healthcare Spending Through Price Transparency (White paper), Thompson Reuters, February 2012.
2 Renee Y. Hsia, MD, MSc; Abbas H. Kothari, BA; Tanja Srebotnjak, PhD; Judy Maselli, MSPH. Health Care as a “Market Good”? Appendicitis as a Case Study; Arch Intern Med. 2012;172(10):818-819.
The Second District Court of Appeal recently issued their decision on this case which involves in part, the admissibility of non-Medical Provider Network doctor’s reports. This is an unpublished decision and therefore has no precedential value. In other words, it cannot be cited in other cases with the same or similar issues. In summary, it says in part that employee-requested visits to his/her own physician under L/C 4605, i.e. non-Medical Provider Network diagnosis, treatment and attendant reports which are paid for by the employee are admissible.
While the applicant’s attorney will ask the court to publish it, the probability seems very low in that the case was remanded to the trial court to deal with the admissibility issue as well as other issues left unsettled by the Workers Compensation Judge at the time of trial.
Labor Code (L/C) 4605 was first enacted in 1917 under the Insurance and Safety Act. Sec. 9(a) is most interesting in that it reads:
“Such medical, surgical and hospital treatment, including nursing, medicines, medical and surgical supplies, crutches and apparatus, including artificial members, as may reasonably be required to cure and relieve from the effects of the injury, the same to be provided by the employer, and in case of his neglect or refusal seasonably to do so, the employer to be liable for the reasonable expense incurred by or on behalf of the employee in providing the same: provided, that if the employee so requests, the employer shall tender him one change of physicians and shall nominate at least three additional practicing physicians competent to treat the particular case, or as many as may be available if three cannot reasonably be named, from whom the employee may choose: the employee shall also be entitled, in any serious case, upon request, to the services of a consulting physician to be provided by the employer: all of said treatment to be at the expense of the employer. If the employee so requests, the employer must procure certification by the commission or the commissioner of the competency for the particular case of the consulting or additional physicians; provided, further, that the foregoing provisions regarding a change of physicians shall not apply to those cases where the employer maintains, for his own employees, a hospital and hospital staff, the adequacy and competency of which have been approved by the commission. Nothing contained in this section shall be construed to limit the right of the employee to provide, in any case, at his own expense, a consulting physician or any attending physicians whom he may desire (my emphasis). The same general language as to responsibilities will now be found in L/C 4600(a); 4601 and 4605.
The reason this section is important is that Section 9(a) pre-dates L/C 4616, the Medical Provider Network statute. As such, any attempt to harmonize the rights of the employee to seek their own doctor at their own expense against the later enacted Medical Provider Network statute will have to give precedent to the later enacted labor code section. I therefore offer the following as one strategy to retain medical control under the Medical Provider Network while at the same time avoiding lengthy litigation over the admissibility of the employee’s non-Medical Provider Network doctor’s report.
Strategy for Medical Provider Networks Going Forward
On all new claims, employers and their claims administrators (carrier or TPA) should continue to assert medical control under their Medical Provider Network. Employers will need to make sure that the notice process to the employee is complete and well documented. That is one of the issues currently facing the trial judge on remand, i.e. was there a valid Medical Provider Network in place. Had there been better documentation on the employer’s notification process presented at trial, the issue of applicant attorneys’ attempt to seize medical control may have been avoided.
However, the real question deals with the use by applicant attorney of L/C 4605 as a means to get his non-Medical Provider Network doctors reports admitted and relied upon. What is most interesting is the caption for that section:
“Consulting or attending physicians provided at employee’s expense.”
“Nothing contained in this chapter shall limit the right of the employee to provide, at his own expense, a consulting or any attending physicians whom he desires.”
It must again be noted that this language was in the Labor Code long before L/C 4616, i.e. the Medical Provider Network enabling statute which became effective in 2004. As noted above, under the rules of statutory construction, the later enacted takes precedent over the former when seeking to harmonize the two as to current legislative intent.
I therefore recommend that the injured employee be informed, as part of the employer’s or carrier’s acknowledgment of the claim, that a valid Medical Provider Network is in place and that the employee’s cooperation is expected. Next, it should state “that they are free under L/C 4605 to seek their own consulting or attending physician, at their own expense. They will be told at that time that if they do avail themselves of this option under L/C 4605, their consulting or attending physicians medical reports will be tendered to the Primary Treating Physician for this injury who, under the Medical Provider Network statute is the controlling doctor (L/C 4061.5) This way, the consulting physician’s report will have been admitted for use by the Primary Treating Physician as he/she deems appropriate.
At the same time, the normal Medical Provider Network process will be enforced as is current policy. Demand will be made that the employee continues to be seen for diagnosis and treatment by a Medical Provider Network doctor. If there is a dispute as to diagnosis or treatment by either the applicant’s attorney or the L/C 4605 obtained consulting report, that dispute over the diagnosis and/or treatment will be handled under the Medical Provider Network’s 2nd, 3rd and if necessary, the Independent Medical Review process.
We will also be requesting from the employee an acknowledgement, under penalty of perjury that the employee has already paid or understands that he/she is the ultimate responsible party for paying their L/C 4605 obtained physicians as well as any other related bills for testing and other costs. We will object to the fronting of said costs by the applicant’s attorney or any liens from the consulting physician unless it is clear that they understand the applicant’s obligation to pay their costs.
Under this scenario, employers and their carriers or Third Party Administrators will be able to use the full weight of the Medical Provider Network process while at the same time, dealing with non-Medical Provider Network procured medical diagnosis and treatment. This will help keep the employee within the Medical Provider Network and, if handled in a swift and judicious manner, help hasten a timely closure of the claim.
Using Data To Define Quality Performance Based Networks
People in Workers’ Compensation are beginning to power up their data to gain insight and objective decision support to structure their provider networks. To do that, physician and other provider performance is evaluated based on actual performance evidenced in the data. That seems simple enough on the surface, but it is fraught with challenges. A few are described here, along with a case description of fraud by data proliferation.
Evaluating the data to determine provider performance quality is tricky. For instance, who among those treating a claimant should be held most responsible for claim outcome? Which provider is the so-called primary provider? Is it the first provider to see the claimant, the provider who has charged the most money, or the one who saw the claimant most frequently? There is no specific indicator in the data denoting primary provider, nor do providers generally self-identify in that way unless they are involved in a formal gatekeeper arrangement. Consequently, for analytic purposes a decision must be made regarding provider influence in the claim, aka, primary provider.
Distinguishing Individual Providers
Another common problem is that individual providers are often not differentiated in the data. Many payers accept bills “as is,” meaning they do not require the billing entities to specify individuals. Typically, individual physicians and other providers are camouflaged under the organization’s Tax ID. In the past, that was adequate because the purpose of the bill was to pay and record the transaction. But that is no longer good enough because of the demand for analytics.
Bills are now a significant piece of the data required for provider performance analytics. Therefore, for individual treating providers, the National Provider Identification number (NPI) or state license number is needed to recognize single medical doctors or other professionals treating claimants. Unfortunately these identifiers are usually not included in the data. Withholding payment is the most powerful method of generating compliance and payers have that power.
Moreover, among data issues, deliberate identity proliferation is even more damaging to accurate provider performance analytics.
Medical fraud surfaces in many forms. Duplicate billing, up-charging, and optimizing charge codes and diagnostic codes (up-coding) are among the most common, but now newly creative methods are being employed by a few. Perpetrators are obfuscating the data to conceal their poor performance by proliferating their identities in the data.
By altering names or addresses slightly, thereby adding to their number, providers are able to cause the system to recognize each variation as a separate entity. That way, multiple provider records are created in the data, even though they are really all the same individual. Proliferating provider records in a data set effectively skews the results of performance analytics.
A Case Of Data Proliferation
Provider identify proliferation was discovered recently when a monthly billing report for an organization was analyzed. Fifty (50!) different name and address iterations for the same medical provider Tax ID were discovered. This had been attempted previously, but this time, the effort was extreme.
Is this provider representing themselves carelessly? Probably not. The provider knows computer systems consider data literally, so each submission would generate a new record, the hoped-for result. Without investigation, the provider’s billing will not be questioned, yet when the provider’s performance is analyzed, the results will be distorted and inaccurate.
The provider vendor will be paid because all 50 iterations have an acceptable Tax ID. However, the problem surfaces when executing provider performance analytics. Different claims are attached to the 50 different records for the provider rather than consolidated in one record for the provider. Performance indicators are distributed across the faux entities rather than consolidated for the single provider, thereby distorting performance results, a new-age form of medical fraud.
As with many forms of fraud, the solution is to discover and subvert the effort early. Evidence-based quality networks composed of quality individual providers cannot be created using such distorted data. Payers should monitor their data to discover and expose such behavior as it occurs.
Payer systems are culpable, as well. Systems should be designed or updated so that multiple record entry is thwarted, either through administrative procedures for data entry or simple technical methods. Including individual identifiers such as National Provider Identification and state license numbers will add to the solution, forcing accuracy in provider records.
For the case described here, an additional solution was implemented. The multiple provider identities were merged electronically by the analytics company, thereby integrating the occurrences for this perpetrating provider. As a result, the provider’s performance can be analyzed as a whole rather than in fragments.
Because claims actually associated with this provider are distributed across the multiple artificial provider records in the data, analysis of performance is inaccurate. Not surprisingly, when this provider’s data was merged and re-analyzed, the provider ranked in the lowest performance quartile. Gotcha.
Workers’ compensation has become increasingly vulnerable to claimant fraud. In today’s stagnant economy, employers, insurance companies, and claim organizations face significant financial pressures, and the last thing they want is to lose additional funds to those aimed at cheating the system — either through outright fraud or opportunistic maligning.
Claimant fraud places additional strain on a benefit program that strives to provide injured employees with the medical care and compensation they need to recover from work-related injuries, so they may return to work quickly and safely.
Claims departments are on the lookout for new and more effective ways to detect and prevent fraud — and with good reason. Financial incentives typically increase during tough times for both “hard” and “soft” fraud. Hard fraud is a deliberate attempt to stage an accident or invent an injury, while soft fraud or opportunity fraud, occurs when a claimant exaggerates the severity of an injury to take additional time off from work or to continue to receive benefits.
Scope Of The Problem
The Federal Bureau of Investigation estimates that the total cost of insurance fraud (excluding healthcare) exceeds $40 billion per year.1 On average, insurance fraud costs the average U.S. family between $400 and $700 annually in the form of increased premiums.2
No doubt figures will continue to rise, since many consumers view fraud as a victimless crime. Nearly one of every four Americans says it’s all right to defraud insurers — with eight percent saying it’s “quite acceptable” and 16% saying it’s “somewhat acceptable” (Accenture Ltd. 2003).3
According to the National Insurance Crime Bureau (NICB), the number of questionable claims increased to 48,887 in the first half of 2011 from 46,766 in the first half of 2010 and 41,309 in the first half of 2009 — representing an increase of 18.3% over a two-year period.4
Specifically in regards to workers’ compensation, the National Insurance Crime Bureau estimates that up to 10 percent of claims are fraudulent, costing the industry as much as $5 billion a year.5 In the past, workers’ compensation fraud was singled out as the fastest growing area for insurance scams.
In fact, one of every three Americans say it’s all right for employees to stay off work and continue to receive benefits if they still feel pain, even if physicians say these employees are fully capable of returning to their jobs (Insurance Research Council, 1999).6
Solutions & Strategies
To snuff out fraud, claims organizations need an integrated approach that includes Human Resources policies, systematic procedures, timely reporting of injuries, advanced fraud detection technology, and expert claims professionals who document injury information from the onset of a claim and continue to tightly manage cases so there is no room for fraud and abuse to sneak into the system.
Providing A Personal Touch
Despite technological advances, human intervention remains a key component in an organization’s ability to detect and prevent fraud. To some extent, the proliferation of self-service options and the increased de-personalization of the claims process may actually have compounded the fraud problem.
For example, with electronic and online injury reporting, many claimants can report an injury without speaking to an actual person. With little to no human interaction, a suspicious injury can enter the system undetected and the case can progress to result in significant losses.
This is why organizations need the right blend of people, processes, and technology to combat fraud — with each element applied at the right time in the claims process to ensure the most success.
Timely Reporting Of Injuries
Fraud prevention must begin with the first report of injury. When injuries are reported late, lag times leave the door open for inconsistent accounts of the nature and severity of an injury to occur. Without a systematic and reliable process to ensure timely reporting, gaps in injury management create opportunities to bilk the system.
For example, a claimant may find that it’s easy to exaggerate the nature and severity of an injury to take additional time off from work, or they may attempt to visit their own physician — rather than a designated occupational clinic — believing their personal doctor will be more inclined to provide time off.
Instead, claims organizations must shore up injury reporting to ensure an almost failsafe prompt process. This process must be reinforced with written Human Resources policies that employees are required to sign. For example, many organizations use an injury hotline, train employees on the call-in injury reporting process, and mandate that employees sign agreements that they understand and will adhere to this procedure.
From there, the call center is so simple and easy to use that many organizations achieve virtually 100% compliance with same-day injury reporting.
Many injury hotlines actually employ triage nurses, who ask thorough, in-depth questions about the nature and severity of the injury and accident. These nurses carefully document and capture injury information upfront, and make notes if anything suspicious comes up during the intake process. Later in the life of the claim, this carefully documented record helps claims staff to monitor for inconsistencies with the original injury report — often an indicator of fraud or abuse.
Although an injury hotline was initially designed to improve service and response to injured employees, it has provided an added benefit of fraud prevention.
Another important aspect to prompt reporting is the fact that when dubious cases are identified early, organizations can actually take effective steps to discourage further escalation. For example, the sooner injuries are reported, the sooner organizations can begin the process of investigation, collecting information, and documenting cases. If suspicious cases are identified within one or two weeks of the claim being filed, then with diligent and rigorous inquiry, claimants will realize someone is watching, they’ll be held accountable to their stories, and further abuse of the system is immediately deterred.
Adhering To Medical Best Practices
Claimant fraud comes in many different forms. There are gray areas especially in terms of overutilization of medical services. Injured employees may seek unnecessary care to justify additional time off, but the use of triage nurses and medical treatment standards at the frontend of a claim can ensure quality care for injured employees — care that is simultaneously appropriate and cost-effective.
Based on jurisdictional rules and regulations, employers may be allowed to develop and utilize a provider network — and have their nurse injury hotline refer injured workers to facilities and clinics within this network. If a particular jurisdiction does not allow employers to utilize networks to direct care, they may still designate preferred providers.
Working in conjunction with the injury hotline and triage nurses, organizations can provide an injured employee with this recommended list of qualified occupational providers, conveniently located to the employee’s worksite or home. Even without a mandated network, most employees will follow a triage nurse’s referral to a suggested provider or recommendations for simple first aid or self care.
Spotting The Warning Signs
In the past, claims adjusters served as the first line of defense for fraud, bearing the burden of having to identify irregular activity, spot red flags, and alert special investigative units of questionable activity. Today, however, successful fraud prevention requires a commitment across the claims continuum — with all parties keeping a wary eye out for the warning signs.
There are no sure-fire indicators of fraud, but there are common markers that help staff to spot dubious cases. For example, many injuries — unrelated to work — are reported on Monday morning, directly following the weekend. Disgruntled workers — with a long history of personnel issues — may file false claims as a way to get back at their employers. Other signs include claimants with several prior injuries, individuals who avoid speaking with claims adjusters, and injuries that have no witnesses or have varying accounts of the accident.
Leveraging The Latest Technology
To quickly pay legitimate claims and avoid suspicious ones, many claims organizations leverage technology to capture, access, and analyze claims data. With billions of dollars at stake, some have invested in advanced fraud detection tools, such as predictive analytics to root out potentially fraudulent patterns in the data.
In addition, with the prevalence of social media, many investigators receive direct tips from claimants. For example, investigators often read Facebook postings from injured workers, who boast of a second source of income, while collecting disability payments for a work-related injury.
Training & Education
Probably the most important factor in combating fraud is education. Employers will have valuable insight on injured workers and the related accidents. As a result, claims organizations need to partner closely with employers in anti-fraud efforts, teaching them effective techniques to investigate worksite injuries. Many claims organizations will provide employers with a list of questions to ask injured employees, explaining how such inquiries can help alert them to potential fraud.
There are many opportunities for fraud to sneak in later in the life of a claim. A worker may begin to feel better, but continue to fake or exaggerate the nature or severity of an injury. As a result, it’s important that managers and supervisors continue to play an active role in communicating with injured employees. This personal communication lets injured workers know they’re missed at work and are expected to adhere to treatment, recovery, and return-to-work (RTW) plans.
Closing Gaps In The Return-To-Work Process
If injured employers have work restrictions, employers should be able to accommodate them with modified duty assignments and workers must understand that they are expected to return in this capacity — reinforced with training and signed Human Resources policies.
However, when visiting treating physicians, many employees exaggerate the nature of their jobs, so they may be granted time off from work. This is another form of opportunity fraud.
Claims organizations can partner with employers to build an online database of essential job descriptions and pre-defined modified duty assignments. In this way, treating physicians will have “ready” access to accurate job descriptions, so they can make more informed decisions on whether to release employees to full duty or modified duty assignments. This type of database tightens up return-to-work coordination and reduces the ability for opportunity fraud to enter at this juncture of the workers’ compensation process.
Conclusion: Shutting The Door On Fraud & Abuse
Today, human intuition, intervention, and intelligence remain critical to fraud prevention. The industry needs to rely on experienced claims, nurse, and investigative professionals to collect and assess injury information and effectively communicate with claimants — and to read between the lines in order to root out potential fraud and abuse.
Technology can help to detect fraudulent patterns, but organizations must continue to rely on human discernment at critical points of the claims process — especially at the front end of an injury to make sure a claim is set down the right path from the start. Systematic processes and procedures such as the use of injury hotlines, triage nurses, treatment protocols, and preferred providers can help to shore up opportunities for fraud and abuse to sneak into the system.
In addition, training, education, and signed Human Resources policies help to ensure employers and employees understand the expectations regarding their respective roles in the claim and return-to-work process. All of these components contribute to a comprehensive and integrated approach that helps to prevent fraud and abuse from ever entering the workers’ compensation system.
1 Madsen, Kirk, Claims Magazine, “Fraud Triage Programs: Strategic Decisions for Better Detection,” February 2010.
2 Madsen, Kirk, Claims Magazine, “Fraud Triage Programs: Strategic Decisions for Better Detection,” February 2010.
4 Violino, Bob, Insurance Networking News, “Fighting Fraud One SIU at a Time: Special investigative units are increasing the use of analytic technologies to identify suspicious claims,” November 2, 2011.
5 Vowinkel, Patricia, Risk & Insurance, “Flagging fraud: spate of deals, partnerships shows how serious carriers are about fighting fraud,” June 1, 2010.