The question was recently asked, “When is the best time to have an independent claims auditor do a claim file review?” The best way to answer the question is to make a determination of the reason the question is being asked. The question is usually related to an underlying concern about the handling of the work comp files….e.g. there is a problem, a perceived problem, or for some reason there is a question about the integrity of the claims handling. As the employer, you should feel confident that your claims are being handled well. If you aren’t, it’s a good time for a file review.
Workers’ compensation claims can be handled by your insurance company’s claim department or, if you are self-insured, the work comp claims can be handled by the third party administrator hired to handle the claims or by your own in-house claim staff. Regardless of who is handling your claims, you should have them audited when you have a concern about your claim files.
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When You Need a Claim File Review – Now
The best time to have a claim file review or a claim audit is when you determine there is a need for the file review/audit. There are some telltale signs that indicate the need for a claim file review. They include:
- You are not comfortable with the way your claims are being handled.
- You wonder whether your claims are being handled in accordance with your claim service contract.
- Your reserves shoot up at the time of settlement.
- Your claim cost exceeds the average for your industry.
- Your claims stay open longer than the industry average.
- Your office is receiving complaints calls or inquiries from the Workers’ Compensation Board.
- Your excess carrier is expressing concerns over your reserving or reporting.
- Your reserves are consistently under the reserve-advisory levels set by your actuaries.
- Your subrogation recoveries are declining or below industry average.
- Your employees are dissatisfied with how they are treated when they are injured.
- Employees are out of work for longer than necessary.
- Your adjusters don’t return your phone calls or emails….
Claim Quality Audits
If you are unhappy about the quality of the claim services you are receiving from your claims adjusters, a claims file quality audit, also known as a best practices audit, should be undertaken promptly. The longer file quality issues go unaddressed, the higher the amount you will pay on the work comp claims due to poor quality claim service.
The professional claims auditor compares your claim handling service standards against a statistically valid random sampling of your open and recently closed claim files. The claims auditor should review your service standards and create a customized audit to reflect fully the quality of claim handling you expect.
The claims quality audit will review coverage verification, contacts with the employer and employee and medical provider, the details of the claim investigation, the determination of compensability, the medical management, the medical cost control, the litigation management, the file documentation, the reserving, the involvement of the adjuster’s supervisor, compliance with reporting procedures, subrogation and all other aspects of claim handling covered in your service standards.
If you do not have agreed upon service standards with your claims office, the professional claims auditor can compare the claims handling against generally accepted best practices in the insurance industry or against the claims administrators best practices. The claims auditor can also provide your company with a set of service standards that follow the best practices in the claims field.
The claims auditor should review and analyze how the various aspects of the claim file interrelate to give you a total picture of how each file has been handled. The files of each adjuster should be combined to give you an understanding of the claim handling quality of each adjuster. The files of the adjusters should be combined to give you the overall performance level of the claims office.
Reserve Audits
If you are concerned about the reserves and their accuracy, a reserve audit should be undertaken immediately because of the impact on the financial health of your company. Whether you are concerned about reserves that may be too low, which will overstate your company’s available assets and eventually will result in unanticipated shortfalls, or whether you are concerned about reserves that may be too high which will impact your company’s ability to get financing, the professional claims auditor can be invaluable.
Accurate reserves are one of the most difficult aspects of the adjuster’s job. Reserving needs to be accurate and timely on all claim files. The reserve audit will evaluate the accuracy of the reserves on each individual file review and provide you an evaluation of the accuracy of the reserves on your entire claim inventory.
Claim Organizational Reviews
If your third party administrator’s claim office or your own self-handling claims office does not seem to have its act together, the professional claims auditor/consultant can perform an organizational and operational review. A high-level claims management review of the service standards, policies, guidelines and operating procedures will provide insight into the strengths and weaknesses of your claim handlers. The professional claims consultant can make creative suggestions and innovative recommendations on how to improve your current claims office. A claim organizational review should be undertaken soon if your claim office is not operating effectively and efficiently.
Subrogation Audits
Every subrogation file that is not properly pursued is money lost by your company. The work comp adjuster will normally recognize the subrogation potential of automobile related work comp claims, but often miss the subrogation on claims that involve general liability, products liability and various other forms of liability. Your professional claims auditor should be equally well versed in liability claims as workers compensation claims in order to identify all potential subrogation.
If you have not had a subrogation audit in the past year, you should schedule one. The subrogation audit should review not only your open work comp claims, but also the closed claim files that are still within the statute of limitations for liability claims in your jurisdiction.
A subrogation audit can be structured to pay the auditor a percentage of the dollar amount uncovered in claims that had not been previously identified as a subrogation opportunity. This makes the subrogation audit a win-win situation for both your company and the claims auditor.
Include an MD and GET A SCORE — have the auditor score the file handling performance and make sure the injury has been validated by your M.D. Only an M.D. will know whether key medical information is missing.
Note: In my 25 years in this industry, I have NEVER done a file review without an MD by my side reviewing the medicals. The average cost reduction is 20-50% of total incurred loss costs year over year. It’s great that all claim standards have been met, but if the adjuster missed a key medical issue and the claim was not work-related, then what difference does it matter than all the adminstrative markers have been achieved?!
Summary
When you have any concern about how your claims handlers are processing your work comp claims, it is time to have a claims file review. The professional claims auditor will save your company money by collaborating with you to improve the outcome of your claims. Please contact us and we will be glad to provide you with a consultant and M.D. to audit your claim files.
Author Rebecca Shafer, J.D., President, Amaxx Risks Solutions, Inc. is a writer, speaker and publisher of workers’ compensation issues on a national level. She has worked successfully for 25 years with many industries to reduce workers’ compensation costs, including airlines, healthcare, printing/publishing, pharmaceuticals, retail, transportation, hospitality and manufacturing. Contact: RShafer@ReduceYourWorkersComp.com or 860-553-6604.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers’ comp issues.
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