Tag Archives: third-party administrator

Workers’ Comp Issues to Watch in 2015

Tis the season for reflections on the past and predictions for the future. As we kick off 2015, here are my thoughts on the workers’ compensation issues to watch this year.

What Does TRIA’s Non-Renewal Mean for Workers’ Compensation?

Thanks to congressional inaction, a last-minute rewrite added this subject to the issues for this year. I’m not about to predict what Congress will do with TRIA legislation in 2015, as there are no sure things in the legislative process. We have already seen the reaction from the marketplace. Back in February 2014, carriers started issuing policies that contemplated coverage without the TRIA backstops. We saw some carriers pull back from certain geographic locations, and we also saw some carriers change the terms of their policies and only bind coverage through the end of the year, giving themselves the flexibility to renegotiate terms or terminate coverage if TRIA wasn’t renewed. But while some carriers pulled back in certain locations, others stepped up to take their place. While some carriers tied their policy expiration to the expiration of TRIA, other carriers did not.  Going forward, some employers may see fewer carrier choices and higher prices without the TRIA backstop, but ultimately most employers will still be able to obtain workers’ compensation coverage in the private marketplace. Those that cannot will have to turn to the State Fund or assigned risk pool.

Rising Generic Drug Prices

The opioid epidemic, physician dispensing and the increased use of compound drugs are issues the industry has faced for years. While these issues continue to be a problem, I want to focus on something that is getting less attention. Have you noticed that the costs for generic prescription drugs are increasing, sometimes significantly? In the past, the focus was on substituting generic drugs for brand names, which provided the same therapeutic benefit at a fraction of the costs.  But now the rising costs of these generic medications will drive costs in 2015. These price increases are being investigated by the Federal Drug Administration (FDA) and Congress, but I do not expect this trend to change soon.

Medical Treatment Guidelines

Another issue to watch on the medical side is the continued development of medical treatment guidelines and drug formularies in states around the country. This is a very positive trend and one that our industry should be pushing for. There is no reason that the same diagnosis under workers’ comp should result in more treatment and longer disability than the same condition under group health. One troubling issue that I see here is the politics that come into play. Sorry, but I do not accept that human anatomy is different in California or Florida than in other states. I feel the focus should be on adopting universally accepted treatment guidelines, such as Official Disability Guidelines, or “ODG,” rather than trying to develop state-specific guides. The ODG have been developed by leading experts and are updated frequently. State-based guidelines often are influenced by politics instead of evidence-based medicine, and they are usually not updated in a timely manner.

How Advances in Medical Treatment Can Increase Workers’ Comp Costs

There is one area in which advances in medicine are actually having an adverse impact on workers’ compensation costs, and that is in the area of catastrophic injury claims. Specifically, I’m referring to things such as brain injuries, spinal cord injuries and severe burns. Back in 1995, Christopher Reeve suffered a spinal cord injury that left him a quadriplegic. He received the best care money could buy from experts around the world, and he died less than 10 years after his injury.  But as medicine advances, we are now seeing that a quadriplegic can live close to normal life expectancy if complications can be avoided. Injuries that used to be fatal are now survivable. That’s great news. The downside for those paying the bills is that surviving these injuries is very costly. The cost of catastrophic medical claims used to top off around $5 million, with a $10 million claim being a rarity. Now, that $10 million price tag is becoming more the norm.

The Evolving Healthcare Model

For years, workers’ comp medical networks focused on two things: discount and penetration.  Sign up as many physicians as you can as long as they will agree to accept a discount below fee schedule for their services. I’m happy to say that we are slowly, finally, evolving away from that model. Payers are realizing that a better medical outcome for the injured worker results in lower overall workers’ compensation costs, even if that means paying a little more on a per-visit basis. We are now seeing larger employers developing outcome-based networks, not only for workers’ compensation, but for their group health, as well. Employers are also starting to embrace less traditional approaches such as telemedicine. Finally, more and more employers are recognizing the importance that mental health plays in the overall wellness of their workforce. In the end, we are slowly starting to see is a wellness revolution.

The Need for Integrated Disability Management

The evolving healthcare model is tied directly to an evolving viewpoint on disability management. More employers are realizing the importance of managing all disability, not just that associated with workers’ compensation claims. Employees are a valued asset to the company, and their absence, for any reason, decreases productivity and increases costs. I feel this integrated disability management model is the future of claims administration. Employers who retain risk on the workers’ comp side usually do the same thing with non-occupational disability. These employers are looking for third-party administrators (TPAs) that can manage their integrated disability management programs. And make no mistake: Having an integrated disability management program is essential for employers. Human resource issues such as the Americans With Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA) cross over into the workers’ compensation realm. The same interactive process required on non-occupational disability is required in workers’ compensation. Employers must be consistent with how they handle any type of disability management, regardless of whether the cause is a workers’ compensation injury or non-occupational.

Will We See a Push for ‘Opt Out’ in Other States?

Most people know that non-subscription, or opt out, has been allowed in Texas for many years. The Oklahoma Option that started last year is viewed as a much more exportable version of opt out. Under this system, employers can opt out of workers’ compensation, but they must replace it with a benefit plan that provides the same (or better) benefits available under traditional workers’ compensation. While some view the Oklahoma Option as the start of an opt-out revolution, it is just too early to tell what impact it will ultimately have. But, make no mistake, discussions about opting out are spreading to other states. A group called the Association for Responsible Alternatives to Workers’ Compensation is currently investigating the possibility of bringing opt out to other states. I expect to see opt-out legislation in a handful of other states in the next three to five years.

Marijuana

Marijuana legislation is a very hot topic these days.  In national polls, the majority of Americans favors legalization of marijuana in some form.  Recreational use of marijuana is now legal in four states (Colorado, Washington, Oregon and Alaska), and 23 states allow medical marijuana. When it comes to workers’ compensation, much of the attention has been focused on medical marijuana as a treatment option for workers’ comp because a judge in New Mexico allowed this last year. My concern is around employment practices. Employment policies around marijuana have been centered on the fact that it is illegal, so any trace in the system is unacceptable. That is going to change. I fully expect the government to reclassify marijuana from Schedule I to Schedule II in the next few years. When that happens, zero-tolerance policies in the workplace will no longer be valid. Instead, the focus will have to be like it currently is with alcohol: whether the person is impaired.

The Next Pandemic

Another hot topic these days is Ebola. While the threat from this particular disease seems to be subsiding, the concerns about Ebola last year showed we are not ready for that next pandemic. People who were exposed to the disease were allowed to interact with the general population and even use commercial travel. Government agencies debated whether travel to certain countries should be limited. The problem is, diseases don’t wait for a bureaucracy to make decisions. While this threat didn’t materialize, you can see how easily it could have. With work forces that travel around the globe, the threat of a global pandemic is very real. You know where you send your workers as part of their job, but do you know where they go on vacation? As an employer, are you allowed to ask about what employees do during their personal time? Are you allowed to quarantine an employee who traveled to an infected country during vacation? These are very complex legal questions that I cannot answer, but these are discussions we need to be having. How do we protect our employees from the next pandemic?

Rates and Market Cycle

You cannot have a discussion around issues to watch without talking about insurance premium rates in workers’ compensation. After several years of increasing rates around the country, the National Council on Compensation Insurance (NCCI) is projecting that, in 2014, workers’ compensation combined ratios were below 100% for the first time since 2006. This means that, as an industry, writing workers’ compensation is profitable again. So what should buyers expect in 2015? Well, it depends. California continues to be a very challenging state for workers’ compensation costs. New York is challenging, as well. Given the percentage of the U.S. workforce in those two states, they have significant influence on the entire industry. Some employers will see rate reductions this year, and some will not. In the end, your individual loss experiences will determine what happens with your premiums. That seems to be the one constant when it comes to pricing. Employers with favorable loss experiences get lower rates, so it pays to stay diligent in the areas of loss prevention and claims management.

Will We See More Constitutional Challenges Similar to Padgett in Florida?

While I don’t think the Padgett case will be upheld on appeal, I am concerned that the case is the first of many similar ones we could see around the country. Look at the main arguments in Padgett: The workers’ compensation system is a grand bargain between injured workers and employers. Workers gave up their constitutional right to sue in civil courts in exchange for statutorily guaranteed, no-fault benefits. Over the last 20 years, many workers’ comp reform efforts around the country have focused on lowering employer costs. Standards of compensability have been tightened. Caps have been put on benefits. The judge in Padgett looked at these law changes and ruled that workers’ compensation benefits in Florida had been eroded to the point where it was no longer a grand bargain for injured workers. He ruled that the workers’ compensation statutes were unconstitutional on their merits because the benefits provided are no longer an adequate replacement for the right to sue in civil court that that the workers gave up. Attorneys tend to mimic what succeeds in other courts, so I expect we are going to be seeing more constitutional arguments in the future.

Impact of the Evolving Workforce

One of the biggest issues I see affecting workers’ compensation in 2015 and beyond is the evolving workforce. This takes many forms. First, we are seeing technology replace workers more and more. When was the last time you went to a bank instead of an ATM? I have seen both fast food and sit-down restaurants using ordering kiosks. Also, we are seeing more use of part-time vs. full-time workers. Some of this is driven by concerns around the Affordable Care Act. But part-time workers also have fewer human resource issues, and their use allows employers to easily vary their workforce based on business needs. Unfortunately, part-time workers are also less-trained, which could lead to higher injury frequency. Finally, the mobile work force is also creating concerns around workers’ compensation. Where is the line between work and personal life when you are using a company cell phone, tablet or computer to check e-mails any place, any time? Where do you draw the line for someone who works from home regularly? There have been numerous court cases around the nation trying to determine where that line is. This is a very complex and evolving issue.

To view a webinar that goes into these topics in more detail, click here: https://www.safetynational.com/webinars.html

Yes, OSHA Is Now a Friend to Insurers

The HR/safety director at a large national construction company, who was the first to use OSHA-sanctioned medical exams conducted outside the workers’ comp system, said the program is “extremely successful” and may have saved the company as much as $1 million in workers’ comp expenses over the past few years.

The company, which has asked not to be named, has had employees sign contracts agreeing to diagnostic tests based on OSHA medical exam regulations. But when the company wanted to us a test result in front of the New York State Workers’ Comp Commission, the company’s insurance lawyer strongly advised against doing so — the insurance lawyer told the company lawyer she might go to jail!

The company contacted Ted Ronca, a leading workers’ comp and disability attorney and author based in New York. Ronca said a section in OSHA record keeping regulations (attached below) allowed an employer to schedule a contemporaneous exam with a medical provider of its choice, at the same time a worker was being examined as part of the workers’ comp process. The employer could then request a release of HIPAA-protected medical records from the worker. Ronca made a written request to OSHA and received an official letter of clarification and refinement, which was noted in my ITL article in October, Has OSHA Become a Friend to Insurers?

Both Ronca (reachable at medsearch7@optonline.net) and I were very surprised to learn of these regulations, which can help an employer push back against any overstatement of the injury done to the worker. But as anyone who has worked in the HR/disability world knows, there is a whole alphabet soup of federal regulations involving both occupational and non-occupational disability programs, including ERISA, SSDI, ADA, FMLA, EEOC, OSHA, DOT and both federal and state workers’ comp laws, not to mention scores of management/union-negotiated disability benefit programs. None of these programs are actually aligned with one another. Most are run independently from each other by different federal agencies. And most large employers have different internal staffs and outside vendors or insurance companies that administer these various disability/paid-time-off programs.

A retired New York workers’ compensation judge said that uncovering the OSHA regulations was “brilliant” and that state courts wouldn’t override them. He said the first thing judges are trained to do is “not touch” any other laws in workers’ comp cases. A workers’ comp judge would have no authority whatsoever on federal OSHA regulations.

An employer has an unequivocal right to schedule a contemporaneous exam under OSHA record keeping regulations, outside of state workers’ comp systems. How and when to use these exams is a whole other matter. Their use is not based on any case law. Case law does not exist here. Usage is based on what Ronca has done with the major construction company and other clients. In fact, OSHA exams are now formerly a part of the construction company’s employee contract protocol as a union contractor.

The new employment contract includes all the typical rules and regulations but also contains a provision on how to report all work-related injuries and the requirement that the injured worker must go to a company-provided medical/diagnostic exam, paid for 100% by the employer. In addition, new employees or contractors must undergo a confidential post-hire baseline range-of-motion medical exam, which is not read but kept in a private file and used only if there is a subsequent, work-related injury reported.

Ronca and the company have headed off potentially difficult or fraudulent claims, often without ever going to court, since implementing their program in late 2011. It would typically take as long as 18 months to schedule a hearing or independent medical exam (IME) through the state work comp system. Now, the company can take a very active role from the time of injury.

Among the first test cases was a classic type involving an employee who filed a work comp claim, after being fired, for aggravation of a pre-existing back condition. The OSHA-sanctioned medical exam confirmed there was no aggravation of a pre-existing condition. Furthermore, it was discovered that the employee was working a second job “under the table.”  No claim was filed.

Ronca says that, depending on results of the OSHA-sanctioned exams, he may be able to tell the employee’s work comp attorney, “Your client is a liar.” The client and attorney will not show up for a hearing.

In another case, the HR/safety director at the construction company said an attorney at her work comp carrier read the OSHA medical exam report and said, “I have never been so prepared for a hearing.”  This was another complicated claim involving aggravation of a pre-existing shoulder and neck condition. The carrier was going to settle for $80,000. Instead, the case was settled for $12,000 when it was determined there was no aggravation of the shoulder injury, only of the neck.

Another case in California involved aggravation of a pre-existing condition, where the claimant claimed total disability as a result. The medical exam found a slight aggravation, but the employee refused to return to work. The company went as far to arrange a modified-duty job with the nonprofit Habitat for Humanity, at full pay and benefits, but the employee refused. The company pointed out the situation to the company union. After a 5 1/2-month stand- off, the employee returned to full duty and dropped his work comp claim.

Ronca feels the strongest tool offered by the OSHA regulation is the ability to obtain prior medical records. He also stressed that the whole goal is to get the employer involved in workers’ comp claims from the moment of injury.  Early intervention is a well-known standard and best practice in workers’ comp. An OSHA exam is tool employers may use in selected cases.

The construction company is trying to do the right thing — that is, get the injured worker an early exam to help determine the correct diagnosis and treatment, which is in the best interest of both the employee and the employer. The OSHA exam should also be used if the employer suspects fraud or abuse, pre-existing conditions, employees working second jobs, etc.

Bob “Red” Hollingsworth, CEO of CompMinder in Salt Lake City, is now using this approach and has updated the CompMinder injury reporting tool he offers to employers. There is now a section that asks the employer if it wants to schedule an OSHA exam? If yes, Hollingsworth (reachable at Bob@buckner.com) has arrangements with a highly qualified occupational medical director to set-up a pre-planned program. It is critical that the employer do this directly with medical providers. The work comp carrier or TPA cannot pay for or schedule such an exam.

The work comp folks can’t be involved, so non-believers need not apply. But the employer can!

ADDENDUM — OSHA REGULATIONS UNDER SECTION 1904

“OSHA record keeping regulations permit an employer to request a prompt medical exam and release of HIPPA protected prior medical records outside the workers’ compensation system in order to help understand the link between workplace factors and injuries and illnesses in particular cases.”

Key Points

The medical exam must be paid 100% by the employer with the provider of its choice outside the workers’ compensation system.

An insurance company or third party administrator cannot schedule or pay for such exams because they cannot act outside the state workers’ comp system.

The costs of such medical exams are not included in a company’s workers’ comp costs nor experience modification calculation.

The employer can choose what medical provider’s opinion they consider to be the most authoritative for record keeping purposes.

Employee must submit to a prompt medical exam when requested by the employer and release of HIPAA-protected medical records.

Medical information and records obtained through this process can be discoverable with proper procedure and subpoena in workers’ comp cases.

OSHA 300 LOG Recordable Rules-1904

Key Language

In certain circumstances, OSHA record keeping requirements permit an employer to choose between two conflicting medical opinions. When an employer receives contemporaneous recommendations from two or more physicians or licensed health care professionals about the need for medical treatment, the employer may decide which recommendation is the most authoritative and record case based on that recommendation.

1904 Frequently Asked Questions

If a physician or licensed health care professional recommends medical treatment, days away from work or restricted activity as a result of a work-related injury or illness, can the employer decline to record the case based on a contemporaneous second provider’s opinion that the recommended medical treatment, days away from work or work restrictions are unnecessary, if the employer believes the second opinion is more authoritative?

OSHA ANSWER IS YES

HOWEVER,  

Once medical treatment is provided for a work-related injury or illness, or days away from work or restricted work activity has taken place, the case is recordable.

“If there are conflicting contemporaneous recommendations regarding medical treatment or the need for days away from work or restricted work activity but the medical treatment is not actually provided and no days away from work or work restrictions have occurred, then the employer may determine which recommendation is the most authoritative and record on that basis.”

OSHA considers that medical treatment is provided once a prescription is issued.

Key Definitions

Lost-Time: Work day (other than day of injury) when the worker is unable to return to their job.

Contemporaneous: Medical recommendations provided with no change in condition.

Most Authoritative: Best documented, best reasoned and most persuasive

Section 1904.5

Wide variety of issues do not need to be reported on OSHA log 300 but require a medical exam with prior medical records.

Employer can schedule a prompt exam and request HIPAA release for prior medical records.

A carrier or TPA would NOT be permitted to schedule such an exam, because they cannot act outside the workers’ comp system.

Note the Department of Transportation (DOT) also has additional exams for drivers such as ability to load, drive etc.

These are known as intermediary exams.

In both cases, exam records and results are not part of the comp record.

Medical exam costs must be paid by employer and are not added in comp claims or the experience modifier. However, with proper procedure and use of subpoena, records may be released and used in the comp claim.

Who Makes the Determination?

OSHA agrees that medical opinions are a burden and impractical and not required in the majority of cases. “This does not mean that employers may not, if they choose, seek advice of a physician or other licensed health care professional to help understand the link between workplace factors and injuries and illness in particular cases. It simply means OSHA does not believe that most employers will need to avail themselves of such professional services in most cases.”

Accordingly, OSHA concluded in the final rule that the determination of work-relatedness is “best made by the employer.”

How to Pick a TPA for Work Comp Claims

Many self-insured employers choose to outsource their workers’ compensation claims handling to a third-party administrator (TPA) instead of creating their own internal operation. Choosing the right TPA is crucial because TPAs will be coordinating essential functions like managing loss reserves, facilitating claims investigations, issuing claims payments and settlements, coordinating medical management and organizing transitional work.

When picking a TPA, it is important for companies to first determine what they are looking for. There are several effective fact-finding questions that can help.

Capabilities

First and foremost, employers must find a TPA that can meet their company’s individual needs, which can vary by type of business and location. Many states are complicated, so the insured must confirm that the TPA has the appropriate expertise by state. Questions that can help uncover the TPA’s ability to handle the employer’s specific business include:

  • Do you have the appropriate resources to handle all jurisdictions applicable to my company?
  • Can you provide references within my jurisdiction to support your capabilities?
  • Do you have the capabilities to handle my company’s various business operations?
  • Can you handle all of my company’s claims so that I do not need to enlist multiple TPAs?
  • Are you approved by my insurance carriers?
  • Are you following best-practices procedures, and can you provide claims handling results to prove it?
  • What quality assurance processes do you have in place to guarantee consistent results between offices and adjusters?

Claims System

A TPA’s system is very important to the entire process. Effective claims management requires a system that is easy to access, with enough information readily available when the employer asks for it. Poor and inaccurate data can cause major headaches if it ends up in the employer’s financial reports. Questions that can help evaluate claims systems include:

  • How can you ensure that your claims system will provide clear, accurate data?
  • Does your claims system meet my company’s financial data reporting requirements?
  • Does your claims system meet my company’s analytic needs for benchmarking, stewardship reports, etc.?
  • What measures do you have in place to help prevent data breach?

Personnel

Personnel issues often affect the claims outcomes that an employer receives from its TPA. The employer will want to ensure that it is working with an experienced adjuster who can make informed decisions, as opposed to an adjuster using automated responses based on decision trees. Caseloads at the TPA, employee turnover rate, supervision and other personnel issues can also factor in. Questions that can help identify troublesome factors include:

  • Would my company be issued a dedicated account manager or team?
  • Who would be my key contact and provide information and answer questions?
  • How do your adjusters make decisions on their cases? Are they educated and capable of making flexible decisions based on circumstances, or do you use an automated response process?

During the RFP process, most TPAs will insist that they have the staff to meet the employer’s needs. It is best to ask for validation.

Thinking Beyond the Fee

Although employers regularly make TPA fees the deciding factor, estimates show that fees only represent 8% of total claim costs. What many fail to realize is that paying higher fees for a TPA whose adjusters have lower caseloads and are more experienced can significantly reduce overall risk costs.

Rather than focusing on the 8%, insureds should focus on the remaining 92% — the other aspects of the claim that come into effect. This includes evaluating if the TPA can ensure:

  • Effective medical management
  • Timely disposition of claim issues
  • Return-to-work or settlement success
  • Transparency of third-party vendor use in the claims process
  • Ability to minimize leakage and avoid excessive expenditures because of mistakes, errors in judgment, ineffective litigation management, penalties and fines
  • Measures in place to prevent fraud
  • Transparency of managed care capabilities, including bill review and preferred provider organization (PPO) and case management

Choosing the right TPA takes time and due diligence, but it is worth the effort to find the best fit for an employer’s industry and jurisdiction and meet risk-management needs. It is important to look beyond fees and consider all variables, including staffing, adjuster education, claims systems, reporting capabilities and the TPA’s ability to apply a teamwork approach to supporting your organization’s claims efforts.

Considering that a TPA plays a large role in an employer’s workers’ compensation claims outcomes and costs, finding the right one is one of the most important decisions that an employer can make.

The Many Dangers of ‘Invisible Men’

I was wandering around my yard after dinner the other night, half-heartedly taking inventory of the garden chores I had been dodging, when I noticed some kids playing kickball across the street. There were six of them, three per team, and they were pretty good kickers, so they were doing a lot of base running. I chuckled when the tall kid standing on third base yelled, “Invisible man on third!” He then jogged to home plate to kick, while teammates stayed on first and second bases. Bases loaded, invisible man on third! I hadn’t heard that proclamation for a long time, but if you have ever played kickball, stickball, baseball or softball with teams of three or fewer, you know all about the invisible man.

That kickball game got me thinking about invisibility as an attribute in planning and operations and personal behavior.

Invisibility is the goal of many corporate security protocols, to protect sensitive information, to preserve privacy and confidentiality and to shield intellectual property from attack or discovery. The hope is to camouflage activities by providing cover or anonymity. Sometimes, an individual hopes to act behind the scenes or otherwise conceal activities.

Other times, invisibility is an incidental factor, because of negligence or inadvertence. Folks aren’t paying attention, and ownership, accountability and decision rights don’t get clearly established.

My first encounter with a corporate version of the invisible man came decades ago while I was working as a claims supervisor for a large insurer in Massachusetts. The job was tough, largely because the supervisor was responsible for monitoring and directing a hefty and constantly shifting portfolio of claims toward timely and appropriate resolution. Theoretically, the supervisor assigned the claims to handlers who moved them through the phases — investigation, evaluation and resolution — but sometimes there just weren’t enough available to handle all the claims. Turnover, training, vacations, hiring freezes, an increasing volume of new claims — any one of these things could create a situation where there were too many claims and not enough claim handlers. The solution? At that particular company, the solution was Mr. X.

Mr. X had a diary number and carried a large caseload of slow-moving claims reassigned from other claim handlers. Every claims supervisor had a Mr. X on staff. He was imaginary and invisible, so he wasn’t able to accomplish anything on the claims, but reassigning work to Mr. X let real claims handlers take on more new claims. Mr.X was an operating imperative.

Years later, I bumped into Mr. X’s cousins at a third party claims administrator in New Jersey. The TPA had guaranteed its clients that claims workloads would not exceed a certain number per claim handler. As the end of the month approached, if workloads were higher than promised, the TPA claims supervisors would reassign claims to themselves or to their office managers to reduce the claim handlers’ workloads to the agreed number.

Of course, the supervisors and manager weren’t imaginary or invisible, but they may as well have been because they did not actually work on the claims assigned to them. They were simply placeholders until after month end, at which point the claims would be reassigned to the claims handlers.

Invisible men also show up — or, rather, don’t show up — on committees.

Radio and TV journalist Richard Harkness is credited with drafting this definition of a committee: “A group of the unwilling, picked from the unfit, to do the unnecessary.” While I think that characterization is a bit severe, I have probably been on too many committees, so I believe it is fair to say that most committees have at least one member who fails to attend meetings and contributes little or nothing to the committee’s work. That’s awkward enough, but when the invisible committee member also happens to be the committee chair, it is even more awkward. I remember working on a committee in New York where the chair would schedule a meeting, then miss the meeting at the last minute because of a vague, recurring malady he described only as “man flu.” The committee would meet without him, cover the agenda and provide him with the minutes, then he would schedule another meeting and at the last minute. . . ,well, you have probably lived this dream yourself. The chair took credit for the committee’s work, yet he never contributed anything.

I have seen the same type of incidental invisibility in large-scale technology development and implementation projects, where it is frequently difficult to determine who, if anyone, actually “owns” the project. I always ask two questions: 1) Has any one person actually been told to set direction, manage obstacles and make decisions on the project? 2) Is there a real person who knows and understands she will be held accountable if things don’t work out as expected?

It is usually easy to identify the project sponsor and the steering committee and the subject matter experts and the IT folks who are managing the project, but the project owner is often not visible. Why? Either project ownership responsibility was never specifically assigned or, more likely, ownership was assigned to a committee. Psychologist Will Schutz was no doubt thinking of something else when he wrote this, but he did a good job of describing the inevitable, unfortunate outcome when an owner-less or committee-owned project fails to meet expectations: “Everyone is responsible, but no one is to blame.”

It is even worse when the wrong person or department is identified as the owner. I think it is crazy for human resources executives to own an employee engagement project, for example, or for IT executives to own a technology development or implementation project. These are business projects, and they should be owned by the business leader who convinced the organization that he had a problem or an opportunity, and that the project was the solution. Sure, HR and IT are there to assist, to provide expertise, structure, oversight and maybe even project management, but the business person owner needs to remain visible and accountable.

Controlling Workers' Compensation Claim Costs: 3 Things Every Self-Insured Should Know

The observed increase in workers' compensation claim liabilities and ultimate losses is partially attributable to external factors — those outside the control of risk management, such as medical inflation. Elizabeth Bart's article, Ever-Increasing Unpaid Claim Liabilities: When Does The Growth Stop? explores such external factors.

This article also explores the topic of increasing workers' compensation claim costs, with a focus on how claims practices can influence claims costs and contribute to the increasing liabilities, and discusses what self-insureds can do to better manage practices in an effort to control costs.

The management of a workers' compensation claim incorporates several key areas, all of which interact and combine to influence the claim's outcome (e.g., initial handling, investigation, reserving, medical management, etc.). It can be challenging to understand whether a workers' compensation claim is well-managed and whether optimal outcomes are being achieved. This is particularly true for self-insured entities, which often delegate claims management responsibilities to an outside third-party claims administrator (TPA).

The result of using TPAs for claims administration is that the self-insured entity itself maintains little if any expertise in the area of sound claims management practices. Moreover, the TPA will often delegate certain functions to other vendors such as case management and medical and legal bill review, further removing the oversight of these services from the self-insured's reach. Finally, many self-insured/TPA contracts focus on the quick resolution of a large volume of smaller dollar claims, with little consideration for the efforts and resources needed to resolve large claims. Therefore, the management of larger claims may not be well understood or outlined in these arrangements.

Improving three often misunderstood or underestimated claims handling areas could result in a significant improvement in claims outcomes and have a material impact on liabilities:

  • Initial activities
  • Information and data collection
  • Change in case reserving practices

Basic knowledge of these essential claims handling activities will enable the self-insured to effectively work with its TPA to avoid common pitfalls and to proactively manage the TPA. This, in turn, will mitigate or avoid unnecessary cost increases.

Initial Activities
Activities undertaken by the claims handler immediately after a claim is reported are often thought of as administrative tasks — no more than an intake exercise whereby the handler runs through a checklist of scripted questions. These activities include assessing immediate medical management needs, making three-point contact (i.e., contact with the employer, the injured worker, and the medical provider), assigning to the appropriate adjuster, taking statements, and gathering documents (e.g., medical authorizations, photos, police reports, and wage statements).

And in truth, activities that occur in the early stages of a claim may not be terribly significant for the large number of reported workers' compensation claims that resolve quickly. However, for that small percentage of claims upon which the majority of the costs are ultimately expended, proper claims management from the outset is crucial to achieving optimal claims outcomes.

For example, a claimant who has had previous injuries or prior surgeries, or who otherwise presents with certain characteristics such as chronic pain, is more likely to require medical management from the outset to ensure optimal medical outcomes, which in turn reduces costs. For a small number of high-severity claims, if the medical aspects are not understood and well controlled at the outset, the claimant often does not improve and the claim can adversely develop into a larger-than-anticipated and larger-than-necessary claim — a lifetime pain management claim perhaps involving multiple surgeries, and costing hundreds of thousands or even millions of dollars without optimal medical outcome or endpoint for the claimant.

Thus, it is important upon receipt of a claim to investigate all prior injuries, surgeries, prescriptions, and comorbidities (i.e., health issues that are not work-related but nonetheless could impact the treatment of the injury). In many cases, the best practice of making three-point contact has devolved in practice into two-point contact (the employer and the injured worker) and in some cases even one-point contact (the employer). This can leave basic medical questions unanswered for weeks or months. For a small percentage of claims that have the potential for developing into the highest-severity losses, these delays could be critical.

Another key initial activity is adjuster assignment. Assignment to the appropriate adjuster can be particularly important for some claims — for example, those where the claimant reports injuries to nonspecific or multiple body parts, such as “neck, shoulder, arm.” These claims present an element of subjectivity, uncertainty, and potential complexity. It is important that the adjuster thoroughly investigate precisely how the injury occurred and communicate with the medical providers about the types of injuries that can result from that activity.

This means that the adjuster needs to have the proper background and expertise to ask the right questions. If injuries or body parts are reported that are not medically connected to the work-related injury, the adjuster may only have a short period of time within which to deny those unrelated claims. An inexperienced adjuster may not identify or attempt the valid denial, in which case that injury and all subsequent treatment may be deemed accepted for the duration (perhaps for the life of the claimant), with no further opportunity to deny. In a large number of cases, this missed opportunity will not have a significant impact on the outcome, but for that small population of high-severity claims, such an error will be costly.

As a final example, the initial investigation is important to assess the claimant's ability or motivation to return to work based on one or more subtle aspects of the claim, such as educational level, child support status, disability status of the claimant's spouse, ability of the employer to accommodate the claimant's limitations, proximity of claimant's home to job opportunities, or other factors.

It is important for the handler at the outset of the claim to immediately contact the employer, the injured claimant, witnesses, and medical providers to ask pertinent questions. Equally important is the need for the handler to listen carefully to the answers and follow up on unusual or inconsistent information. Inexperienced claim handlers often appear to be following a list of predetermined questions and may hesitate to go “off script.” Many times, the claims that adversely develop are those that, in retrospect, could have been controlled had certain information been collected and had the investigation been thoroughly completed and thoughtfully assessed early in the life of the claim.

Information And Data Collection
Increasing claim costs are also associated with the inability to easily locate and evaluate the information gathered on the file. A claim may be assigned to an adjuster with the appropriate level of expertise, and that adjuster may undertake a prompt and thorough investigation. However, the pertinent information emanating from that investigation is not captured in discrete data fields in one location in the file system. Rather, that information is buried throughout the “notes” section of the claim system — along with numerous immaterial or administrative entries. This impedes the ability of the self-insured to easily identify claims that have the potential to be large and work with the TPA to effectively control costs.

For example, a large volume of the “notes” section of a claim file may include entries such as the date of a reserve review, an adjuster's failed attempt to contact a party, the payment of a bill, the date a processing decision was made, the scanning of a document into the file, or the receipt of a police report with no substantive commentary. Even entries related to the status of a claim — one that on its face would appear to be highly relevant and current — are often simply “copy/pasted” from prior status entries.

Thus, including in the claim notes pertinent information vital to making prompt and reasonable strategic decisions can lead to inefficiencies and suboptimal outcomes. The amount of stale, outdated, repetitive, and sometimes misleading information makes it exceedingly difficult to identify and assess the pertinent facts, issues, and activities in the file, and impedes the adjuster's (and supervisor's) ability to make informed decisions. In many claim operations, reviewing the file is so time-consuming and difficult that the supervisor is only able to randomly select a small sample to audit at regular intervals. If that supervisor does not by chance select the “right” files, important issues might not be identified and key strategic opportunities might be missed.

The problem is compounded when information is entered incorrectly. Common errors can lead to costly repercussions. For example, assume that the medical records all clearly identify a right shoulder injury. If the handler inadvertently references the “left shoulder” injury in the claim notes, all subsequent actions might be based upon that. A supervisor or newly assigned adjuster may not have the time, or may believe it is unnecessary, to confirm that information by checking the original medical records. Body parts and treatments could be implicitly accepted and additional costs expended for injuries that are not work-related.

Similar types of errors can be made with wage information or rate calculations, and can go unnoticed for long periods of time, resulting in costlier claims. Finally, as more and more claims departments are outsourcing medical bill review functions to third-party vendors, some of that key medical information is not captured in the claim system at all, which can also distort the true picture of the potential exposure.

Thus, it is important that the self-insured verify that the TPA, or other claims-handling entity, develops a system of meaningful data capture, whereby key pieces of information are systematically downloaded or manually entered into consistent discrete fields in as few screens as possible. Many claims systems already have these capabilities, but handlers are not required to enter the data and the fields remain blank. Such a data capture would allow representatives at the self-insured entity the ability to obtain a current and comprehensive snapshot of the development on the claim. Discrete data fields also ensure consistency, facilitate fact-checking, and support the creation of meaningful metrics and management information reports. Self-insureds should ensure that they have full access to the claims system and that they understand all the features of that system.

Change In Case Reserving Practices
The onset of conservative case reserving practices can lead to unnecessary increases in ultimate losses. This may not be intuitive. Many people may think that inadequate case reserves lead to increasing ultimate losses, because over time the case reserve (which was initially set “too low”) needs to increase to cover actual payments. While this is true, the ultimate losses may not be affected by the development of inadequate case reserves, because the actuary may have taken the case reserve practices into account in estimating the actuarial reserve.

Thus, even if the case reserves were “too low,” the actuarially estimated additional reserves would have compensated, resulting in a total reserve (case plus actuarial), or “ultimate,” of “just right.” As case reserves increase, actuarial reserves may decrease (all else being equal), and the ultimate will not change. In that way, inadequate case reserves do not necessarily result in increasing ultimate losses.

An important aside: We must remember that inadequate case reserves are not necessarily the result of poor claims handling or intentionally suppressing case reserves. When we say that case reserves are inadequate, we mean that, despite best efforts to set a case reserve that reflects the ultimate value of the claim at any given point in time, there are a few claims that will develop adversely in unanticipated ways (i.e., in ways that could not be foreseen by the claims handler when the prior case reserve was established). That is in part what the actuarial reserve is intended to estimate — the unanticipated development — and is outside the purview of the claims handler.

Changing case reserving practices by making them “higher” or “more conservative,” however, can result in increasing ultimate losses. Consider, hypothetically, a TPA that decides to institute a new practice of establishing a case reserve reflecting the worst case scenario, or adding an arbitrary amount (e.g., 25%) on top of the best estimate of case reserves. That change could result in higher ultimate losses, for two reasons:

  • First, if the actuary is unaware of this change, it will not be incorporated into the actuarial estimates. This could result in higher actuarial estimates. When added to the already increased case reserves, the ultimate losses increase substantially.
  • Second, raising case reserves on a claim can lead to overpayments by the adjuster, a phenomenon commonly referred to as “leakage.” In this case, the additional case reserves are believed, either explicitly or subconsciously, to be available to make payments. Efforts to reduce costs and manage the claim to its optimal result may be tempered by the knowledge that there is “extra” money with which to negotiate. This change in case reserving practices can lead to overpayments and rising claims costs.

Conclusion
In this article, we explored a concept mentioned but not developed in Elizabeth Bart's article, Ever-Increasing Unpaid Claim Liabilities: When Does The Growth Stop? Specifically, we discussed three basic claims practices that could result in increasing workers' compensation costs. Understanding and recognizing the importance of these practices will enable the self-insured to effectively manage the TPA to control increasing costs.