Use These 16 Tips To Plug Work Comp Claim Leakage

The failure by the self insured’s third party administrator (TPA) or in-house staff adjusters to comply with workers’ compensation claim handling Best Practices normally results in higher than necessary claim cost. Just like in any other business, the failure to manage the cost of doing business – known as leakage – places the self-insured employer at a disadvantage in the market place. To recover the excess cost of poor claims handling, the company must raise the amount they charge for their products or services to cover the additional cost.

Leakage in an insurance claim is any payment on the claim that is more than it should be. Leakage is normally defined as the difference between what the claims adjuster spent and the amount he/she should have spent. Leakage has also been defined as the lost opportunity to save money on the claim. In essence, leakage is excess and unnecessary claim costs.

16 Tips To Plug Work Comp Claim Leakage

There are about as many different types of leakage in workers’ compensation claims handling as there are workers’ compensation subjects to be discussed. Some common examples of the claims’ handling errors that cause leakage in workers’ compensation include:

1. A failure to properly investigate compensability resulting in paying claims that should be denied.
2. A failure to timely get a claimant to Maximum Medical Improvement (MMI) leads to leakage because at the point of MMI a claim should be settled. The failure to do so leads to increased indemnity benefit payments to the claimant.
3. A failure to adjust medical bills higher than the medical fee schedule down to the medical fee schedule amount.
4. A failure to utilize the employer’s return to work program leads to excess indemnity benefit payments to the claimant.
5. An improper denial of a claim leads to the claimant obtaining a lawyer which drives up the cost of a claim.
6. A failure to properly investigate and tie down the scope of a claimant’s injuries leads to increased claim costs because the claimant can add non-compensable injuries which drive up the cost of the claim.
7. A failure to run an ISO report or obtain medical records from prior injuries or pre-existing conditions can lead to excess claim costs being incurred for treating injuries which are not part of the claim.
8. A failure to establish the proper average weekly wage results in miscalculation of the temporary total disability (TTD) indemnity benefits to be paid the claimant, often with a corresponding overpayment of TTD.
9. A failure to determine that the injury claim was caused by a third-party which results in the cost of the claim not being recovery from the responsible party (loss of subrogation rights).
10. A failure to select the most qualified defense counsel.
11. A failure to timely pay medical bills or indemnity benefits results in fines and/or penalties.
12. A failure to properly manage utilization review opportunities
13. A failure to control the selection of the medical providers in those states where the employer selects the medical provider results in increased claim cost because the claimant and/or his/her attorney is free to choose a “claimant friendly” medical provider.
14. A failure to provide a nurse case manager on complex injury claims leads to higher and/or unnecessary medical costs because there is no professional oversight of medical costs.
15. A failure to read a claimant’s medical reports results in errors including payment for unrelated medical care, providing unnecessary medical care, unnecessary time off work, and various other claim handling mistakes.
16. A failure to maintain adequate payment records results in duplicate payment of bills

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Independent Claim Auditor Advantageous

When the self-insured employer sees the cost of their claims increasing greater than normal, the employer can do a detailed review and analysis of each claim. However, most self-insured employers find it advantageous to hire an independent claim file auditor to review the work comp files for compliance with Best Practices.

The claim file auditor will analyzed the claim handling errors in regard to the financial impact each error had on the claim. The claim file auditor will assist the TPA or the self-insured’s staff adjusters to identify areas where leakage is occurring and will provide guidance on how to prevent future leakage. Plus, when the independent auditor identifies leakage due to the failure to subrogate, or due to duplicate payments, the employer may be able to recover some of the money that has been lost.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center .

Contact: [email protected].

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.