How It Got Started
In 1999, the manager of the casualty claims supervisory office of a large national third-party administrator (TPA) was dismayed at the poor quality of claim file handling in the field branches. In 1995 the same manager was a part of the team who established the Best Practices for the TPA to use nationally. While the Best Practices were provided to the branch offices, most of the branches were still doing it their own way.
The manager made a recommendation to senior management in the Home Office for an on-site file inspection at some of the worst performing offices. The idea was simple, identify and correct the claim handling errors before the clients saw them. The recommendation was declined. The senior management attempted to correct the branch offices quality problems by sending memos out to the branches to do better.
By early 2000 several large self-insureds, Fortune 500 companies, complained to the TPA’s senior management about the poor quality claim service and threatened to take their claims elsewhere. Several of the Fortune 500 companies plus two major insurance companies hired independent claim auditors or sent their own staff auditors, who all confirmed the poor quality of claim handling.
After a multi-million dollar account walked out the door, senior management sent more memos to the branches marked “urgent.” After a second Fortune 500 company left, the Senior Vice President of Claims finally realized memos, no matter how urgent, were not going to correct the problems. The Senior VP contacted the manager who had the idea of doing internal file inspections to identify the problems in the field. The manager was promoted to Quality Assurance Manager and given the responsibility of performing internal file audits.
How To Do Internal File Audits
The new Quality Assurance Manager spent a week in each of the three offices expected to have the worst file quality. The initial report on each office reflected coverage was not being verified, initial contacts were not being made, file investigations were incomplete or even nonexistent, and claim settlements were usually initiated by the claimants.
While the already known poor quality was confirmed, a way of quantifying the results was needed.
Using samples from the external auditors audit sheets, the Quality Assurance Manager created his own audit sheet.
Using the Best Practices created five years earlier, an audit score sheet was designed to reflect whether or not the Best Practices were being used for coverage verification, initial contacts, investigation, data accuracy, indexing, settlement evaluation, etc. A number of points were given to each category with the total points for all categories equaling 100 points or 100 percent. A computer program was created to compile the scores from each claim file audit sheet into an overall score in each category, and an overall score for the entire audit.
The First Internal File Audits
The Quality Assurance Manager quickly realized one auditor was not going to be enough to audit all the branch offices on an annual basis. The Quality Assurance Department quickly grew from the one Quality Assurance Manager in 2000 to six auditors in early 2001.
The auditors, individually and as teams, performed claim quality audits on each of the branches. As the word got around that the Home Office was now serious about improving file quality, some of the branch managers started working with their claim staffs to improve claim-handling quality. Some of the branch managers continued to ignore claim-handling quality.
Each audit gave a percentage score and the score was given to the branch, the regional claims management and to the senior staff. After the first round of branch audits, there were a few branches scoring in the 95+ percentile, and there were several branches scoring in the 50+ percentiles. A score in the 50+ percentile reflects only about half of the work that should have been done on the claim files was actually done.
Who Needs Quality?
Due to the poor quality of claim file handling by the branch offices, by 2001 national and regional accounts were abandoning theTPA almost every day. Revenue for the corporation was declining rapidly and the stock market price for the corporation declined even faster.
With clients leaving due to the poor quality service, the number of new claim files coming in also sharply declined. Instead of working to improve the file quality on the new claims being received, the company took a different approach. In a very short-sighted effort to improve the financial bottom line, the TPA started laying off staff. In April, May and June, 2001, over 250 employees including branch managers, adjusters and clerical were terminated.
The Quality Assurance Manager and the entire Quality Assurance Department was terminated.
Turmoil Sets In
One of the large offices for the TPA promoted a woman from financial clerk, where she issued clients checks in payment of medical bills and claim settlements, to the position of adjuster trainee. The manager left the new adjuster trainee with the ability to continue to issues checks so she could be a back-up to the new financial clerk.
An adjuster able to request the issuance of a check and issue the check was a clear breach of the TPA’s check handling guidelines. Sure enough, the new adjuster was soon issuing client’s checks to her family and friends. It did not take long before a national account noticed the unauthorized payment of a phony claim.
The Quality Assurance Manager who was terminated on a Friday in June, 2001 received a call from his former employer’s Legal Department, the following Tuesday. The Legal Department hired the former QA Manager as an outside consultant to audit the office of the adjuster issuing the unauthorized checks. Two months and two thousand files later, the TPA was able to identify all unauthorized payments made by the former adjuster and reimburse the clients’ accounts. This incident reinforced the need within the TPA for an internal file auditing system.
The Second Round of Internal File Audits
The former QA Manager worked as a consultant for his former employer until January of 2002 when the TPA realized they still needed to deal with the issue of poor claim file quality. He was then rehired and the internal auditing of the branch files was reestablished.
The internal file audits of 2002 reflected the same poor quality of claim handling as the internal audits of 2000 and 2001. The same adjusters (those surviving the mass layoff) producing poor quality in 2000/2001 were still producing poor quality in 2002. The same offices that were poor performers in 2000/2001 were still poor performers in 2002.
The Toothless Tiger
From the audits done in 2002 it became clear to the auditors that just doing an annual file quality audit was not going to change the behavior of poor performing adjusters and poor performing branches. It was now up to the senior management of the TPA to take actions as internal file audits without consequences were not changing the behavior of the poor performers — the file quality was still poor. The TPA’s internal file audits had become “a toothless tiger”. . . a lot of roar but no bite.
The Tiger Gets Teeth
In 2004, the TPA’s senior management questioned the need to continue to do the internal audits if nothing was improving. The Quality Assurance Department convinced senior management to incorporate the internal file audit scores into the performance evaluations of the branch managers, branch supervisors and adjusters. This entailed an expansion of the number of internal auditors, but every branch and every adjuster was now being audited and graded on their work product by the Quality Assurance Department.
As soon as the quality of the work product was the largest part of the performance evaluations and tied to pay raises (and bonuses earned by management), the quality of the claim handling started improving. The improvements in quality were so dramatic that in 2005 only two branch offices out of over 300 offices had a performance grade under 80%.
The quest for superior quality continues at the TPAs of the world. The internal file audit process is firmly established. While the internal file audit process is not a cure-all for all the problems facing any large claim organization, it has made a tremendous difference in the claim handling file quality at the TPA discussed above.
Author Rebecca Shafer, J.D., Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers’ Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. She can be contacted at: RShafer@ReduceYourWorkersComp.com or 860-553-6604.
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