A third party administrator’s (TPA) office in a large city was consistently performing poorly on the workers compensation claims for the Fortune 500 self-insured employer. The TPA office had the highest overall average claim cost, the claims stayed open longer and the self-insured employer received more complaints from their local management staff than they did from other local management staffs dealing with any of the other claims offices for the same TPA. The adjusters routinely missed seven best practices. It wasn’t a good situation.
The self-insured employer decided he had to figure out what was wrong and what could be done to correct whatever was wrong. An actuarial study reflected the problem: the TPA office had a higher percentage of indemnity claims than other offices. The actuarial study also reflected the subrogation recoveries were less than one percent of total paid, while a second TPA office in the same state had subrogation recoveries over three percent of total paid. (The other TPA office in the same state was used for comparisons to avoid open-ended accounting for variances in work comp laws in different states.) The actuarial study also reflected the average medical claim cost was higher for both medical-only claims and lost-time claims. The average legal fees were higher; the average expenses other than legal were higher, but the average cost of medical case management was lower. (WCxKit)
While the actuarial study confirmed what the employer already knew, it did not explain why this particular claims office was performing poorly. The risk manager for the employer did not have the time to spend in the problem claims office, so she decided to bring in an independent claims file quality auditor to see what a review of the actual claim files could provide in the way of information.
The claims auditor requested a list of the open workers compensation files and a list of the claim files closed in the last 90 days. The claims auditor made a random selection of 100 claim files, and scheduled a week long audit. The claims auditor obtained a copy of the TPA’s claim file handling standards (“Best Practices”) and revised the claim file audit sheet to reflect the TPA’s own Best Practices.
After reviewing the 100 workers compensation files, the claims auditor compiled the statistics for all 100 files. Several trends were apparent. The TPA’s claims office never bothered to verify coverage on any work comp file, figuring if the employer had reported the claim, their must be coverage. The TPA’s stated Best Practices included three-point contact – the employer, the employee and the medical provider would all be contacted within 24 hours of receipt of the claim. Based on the averages from the 100 files, three-point contact was happening on less than 50 percent of the claims.
Most of the work comp files reflected very little initial investigation by the adjusters. The adjusters would contact the employer and verify the employee had reported the claim, and ask if the employer “questioned” the claim. If the employer did not dispute the claim, no further investigation was being done. Often the employee was not contacted at all.
When medical bills and medical reports were received in the claims office, they were not delivered to the adjuster. The medical records were scanned and added to the electronic claim file. The adjuster would be unaware of the new medical information until the file came up on the adjuster’s monthly, bi-monthly, or quarterly diary. Unfortunately, the diary is examined regularly in less than 60 percent of claims.
When the claims auditor tallied up the overall TPA claims office score, the overall Best Practices audit score reflected the claims office was complying with their own Best Practices only about 55 percent of the time. In a significant portion of the 55 percent of the time the TPA was in compliance with the Best Practices, it was because of events that occurred on the claim files, not because of efforts by the adjusters.
In the wrap-up meeting with claims office managers and work comp supervisors, the auditor (with the employer’s permission) questioned the office management about non-compliance with their own Best Practices. The claim office manager stated they were “way too busy for all that Best Practice stuff.” She said Best Practices look good in sales material, but are not realistic with a typical office workload.
The claims auditor reported these audit results to the risk manager. The claims auditor explained to the risk manager there are consequences to non-compliance with Best Practices. The failure to follow the TPA’s own Best Practices resulted in:
- Payment of a claim without coverage – the employee had quit work two weeks before the date of the injury and the employee had sent in the First Report of Injury. The claims office never contacted anybody, and paid indemnity benefits off of the average weekly wage shown on the First Report of Injury.
- Over $100,000 had been paid in medical and indemnity benefits on a non-compensable claim.
- Adjusters’ failure to contact the employees initially and on a regular follow-up basis, resulted in many of the employees hiring attorneys, which increased the overall settlement cost.
- The failure of the adjusters to investigate the claims caused the adjusters to miss several claims that had “red flags” (fraud indicators). Not a single claim had been denied.
- The adjusters did not refer severe injury claims to medical case management unless the employee or the employee’s attorney requested it. Many of the claims needed a nurse case manager assigned to them, but had none.
- The adjusters never asked about light-duty work or modified-duty work for the employee when they made their initial contact with the employer (if they made contact with the employer’s local office). Many employees, who could have been returned to work light duty, continued to draw temporary total disability benefits until they reached maximum medical improvement.
- The adjusters did not recognize the subrogation potential of claims that arose out of products liability, general liability and other third-party caused injuries. The only subrogation they knew to pursue was automobile accidents where another party was at fault.
What the claims auditor recognized and explained to the risk manager was the failure to comply with the Best Practices was creating a lot of extra work for the claims office staff. While compliance with the Best Practices would entail more time on the part of the adjuster at the start of the claim, the decrease in the amount of time worked on the claim over the life of the claim would more than off set the extra time invested in the claim file at the beginning.
The risk manager discussed the claim office failures with the senior management of the TPA. The TPA’s senior management convinced the claim office manager to enforce compliance with their own Best Practices (which the claims office manager did reluctantly).
A follow-up Best Practices audit was completed six months later. The claims office scored significantly higher on those files that had been opened in the interim. As a results of the claims office complying with their own Best Practices, the employer saw:
- A sharp decrease in the number of new indemnity claims, as the employer and the adjusters were working to put all employee’s with minor injuries back to work on light duty.
- A decline in the number of employee who were hiring attorneys.
- Coverage was being confirmed on every accident.
- The adjusters were obtaining wage loss statements from the employer, instead of calculating indemnity rates off the information on the employer’s First Report of Injury form, which results in more accurate calculations of indemnity benefits.
- In the first four month since the prior audit, several files had been denied for compensability (the employees at the employer’s location had previously known they could make bogus claims and get away with it, as the claims were not investigated). In the last two months prior to the follow-up claims audit no questionable claims had been received.
- An increase in the number of claims with nurse case managers assisting the employee (which would eventually result in lower medical cost and lower indemnity cost).
- Subrogation had improved only marginally as the work comp adjusters still did not understand the liability issues that could give rise to subrogation. The claims auditor recommended a subrogation specialist review each file and provide guidance to the work comp adjusters.(WCxKit)
Compliance with Best Practices in claims handling improves not only the claim file quality, it improves the financial cost of claims. Any time an employer is uncertain of the quality of the claims handling, or believes the quality of the claim handling needs improvement, an independent claims file auditor should be hired. By insuring compliance with the claims handling Best Practices, the employer saves money.
Author: Rebecca Shafer President of Amaxx Risks Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker and website publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. See www.LowerWC.com for more information. Contact: RShafer@ReduceYourWorkersComp.com or 860-553-6604.
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