An Effective Approach to Claims Management

Nov. 16, 2004
An active approach to managing workers' compensation claims pays handsome dividends for employer and employee alike.

Two very similar back injuries are covered by the same insurer, in similar companies, in the same state. In both cases, the companies worked hard to control costs. The final direct cost of one case was $12,000, while the other was $5,400. What caused the difference?

The difference was that one employer used a traditional approach, and the other employer had recently implemented a system for managing claims. The more successful employer's newly adopted philosophy was that actively managing claims through taking control of the process was the best approach to reducing the cost of accidents. It made sense and helped cut costs that would have affected the employer's bottom line.

The process we are describing changed the employer's attitude towards workers' compensation, improved service to employees and made positive contributions to morale. Every dollar saved on the claim meant real savings for the employer. The money saved on the direct costs lowered the insurance reserves; helped the loss ratio that would help determine next year's marketability in the insurance market; and favorably impacted the next year's premium and the National Council on Compensation Insurance experience modifier for the next 3 years. The employer's methods provided results quickly that would show up on the bottom line.

Conventional Claims

Before we can discuss it, we should talk about the "conventional" way claims are handled. In the usual model, when an employee is injured, the employee reports it to the supervisor and is asked to fill out an accident report. The supervisor reads and signs it, adds notes and passes it to the administrative person in charge of claims who passes it to the insurer. The insurer then takes over the handling chores. To stay up to date, the employer's claims person gets occasional calls and claims reviews.

The employee over the next weeks will visit various physicians, specialists and therapists. The supervisor might or might not accommodate the employee's restrictions with a light-duty job.

The employee, especially one who is at home on temporary disability, might decide to retain an attorney to resolve the claim. Once the insurer receives notice of the attorney's representation, payment of claims might be stopped. Sometimes the financial squeeze of not working and not getting a disability check means the employee's bills go unpaid for months at a time. The attorney pushes to expand the extent of the injury rating and ultimately asks for a large settlement. Eventually, the employee either gets better and returns to full duty, or quits the company.

This process, although executed by well-meaning people, results in unreliable outcomes.

The vast majority of claims start out as legitimate injuries. Some will result in minimal medical bills and a quick return to work. Some will "go bad." These latter cases turn into comp nightmares, treating a person who will get well eventually but entailing extended medical care, prolonged time off and often no return to work, at least not for the company paying all the bills. The employee will leave with hard feelings about the company's perceived skepticism and the difficulties encountered in getting compensated. The company's executives will bemoan the low quality of the local labor pool and tell the insurer to work harder to combat fraud.

Fran Flowers, senior vice president at Lockton Companies Inc. and manager of its Claims Cost Control Department, believes that a better way exists. Her mantra is: "Taking control of the process is the best way to control comp costs." Flowers' job is to help Lockton's clients develop their own programs to accomplish this control. She starts by explaining to new clients that they should not be content with their claims handling if they don't have an effective system to control costs. It is sometimes a surprise to find that the process is not already under control, especially for those whose job is controlling the process!

Employer-Centered, Employee-Oriented Management

Traditional processes center on the insurance adjuster. Although there are many great insurance adjusters out there, this means someone with little personal contact with the employee is in control. Lockton shifts the focus back to the employer by designating an injury counselor as the center of the new process. The injury counselor acts as the employee's advocate to speed recovery and facilitate transitional work. This means helping the employee in every way possible, and deferring any negative decisions to the insurer.

The injury counselor also works to optimize the important variables associated with handling the case until it is closed. The variable part of the cost is controllable waste: redundant or wasteful medical treatment, excessive reporting lag time, temporary disability payments and attorney representation are some of the components of that waste. Tackling each one of these wastes will drive down costs, and bring other benefits. We'll cover as many as space permits in this article.

Redundant or Wasteful Medical Treatment

The initial medical treatment of the injured employee can result in extra costs in several ways. Sometimes employees are sent to emergency rooms when a local clinic would have been hundreds of dollars cheaper. Some "family doctors," while often excellent in their own right, don't always understand the necessity of providing a useful return-to-work assessment, and instead merely state "off until further notice." Treatment can be started that the insurer wouldn't have recommended and that is hard to convince an employee to stop, such as chiropractic care for certain injuries for which it may not be particularly helpful.

This is wasteful when cheaper, more appropriate care is available. Using the best doctors and specialists available can cut costs, too. Sometimes, a lesser doctor's work needs to be corrected with a second or third surgery, and can lead to greater permanency of disability.

Every company needs to ensure that supervisors have a list of the right medical providers for various medical situations on all shifts. The supervisor should know that emergency room care is for true emergencies or during off-hours. If the state law allows the employer to direct treatment and choose doctors, this should begin at the first indication of the injury. A nurse case manager should get involved as soon as possible.

Excessive Reporting Lag Time

Slow reporting to the insurer adds significant costs. Statistics show that the average claim that takes 10 days to report costs about twice as much as a claim reported in 5 days or less. The extra costs come from many sources, such as increased chance of litigation and unmanaged medical care.

Late reporting means employees might receive medical bills at home, as the providers have no insurance information. Some of these bills are written in rather demanding language. Employees who feel that costs might be passed on to them can become anxious and might even retain attorneys. Anyone who handles compensation claims understands what happens to costs when an employee retains an attorney for a system that was not supposed to require one. Cutting the total time to less than 24 hours to report the claim to the insurer reduces the possibility of attorney involvement.

Case management by a qualified nurse case manager is a commonly accepted way to control medical expenses. In these times of medical hyper-inflation, this management is particularly important. It can't begin until the case manager, who is usually supplied by the carrier, knows about the claim.

It's easy for a report to take weeks to reach its destination when supervisors and administrative people are overworked and timeliness is not being tracked. Many employers have no idea that their claims are taking 1 to 2 weeks to reach the insurer, but once they find out, some good training, a tracking system and accountability gets the paperwork moving faster. Sometimes extra steps can be eliminated. This gets the claim off to a better start.

Flowers recommends implementing a process to promote the importance of prompt reporting for everyone who will be involved in claims. Versatile software known as Workers' Compensation Claims Management System (WCCMS) tracks lag times in reporting from the employee through the supervisor and to the injury counselor. Timeliness of each person in the chain is monitored and given attention where needed. WCCMS also produces useful reports and prepares the OSHA 300 log, among other capabilities.

Temporary Disability Payments

Temporary disability costs more than transitional duty. Any company that does not fully utilize transitional duty and allows workers with manageable restrictions to stay at home is wasting money.

Injured employees who languish at home without hearing from their supervisors won't feel like part of the team. They can feel depressed, abandoned and adopt a "poor me" attitude. Being home creates the perception they must be seriously hurt, because they are unable to work. This is reflected in statistics that show that employees who are off on temporary disability for more than a few weeks have only a 50 percent likelihood of ever returning to work. This raises the stakes, at least in workplaces in tight labor markets or those that invest in extensive employee training.

Some supervisors do little to arrange for transitional duties. They don't want to be bothered, or complain about their department being charged full wages for someone only able to do partial work. Taking control is difficult when supervisors won't cooperate. Supervisor involvement and accountability is an important element in reducing days away from work.

Lockton's Flowers helps companies improve their systems with creative alternatives. One way is to set up a special payroll account for employees on transitional duty. When the supervisor finds "light duty" work for the employee, the wages are paid from the fund, not the department's budget. If the supervisor doesn't find light duty for the employee, the department is charged for the wages and the employee is accommodated in another department. When supervisors compare having a "free" reduced-capacity worker with paying for one that isn't there, supervisors are motivated to find some light-duty work. Recovery is faster this way and you're less likely to lose the employee.

Another strong motivator is to make finding light duty part of the supervisor's safety accountability criteria. A training seminar on this subject can help with ideas for light duty assignments. For example, the transitional duty worker can help the safety director or other managers in auditing, inventory or other non-routine jobs.

Keeping employees who are on temporary total disability from feeling abandoned and worthless encourages them to recover and come back to work more quickly. The employers' injury counselor is expected to contact injured employees regularly, as often as weekly, and performance is tracked with the WCCMS software. The injury counselor should assure the employees that they are valued, missed and needed back at work. This quick call to show some concern helps remind the employee of the human relationships back at work.

Integrating transitional duty workers into daily operations is easier when everyone understands the rules surrounding transitional duty and medical providers are involved enough to give workable restrictions. Flowers believes medical providers should be made aware that transitional duty will be found for all restrictions. Doctors should be encouraged to visit the workplace and become familiar with the types of work available.

Attorney Representation

Getting attorneys involved naturally raises the cost of a claim. The choice to involve an attorney is usually the employee's decision, like so many other critical decisions that will be made throughout the life of the claim. Yet the employee is often kept out of the loop between insurer and employer, doesn't really understand the system, and might even be off work feeling isolated and abandoned. What about this scenario seemed intended to favorably affect the employee's decisions? If you said "not much," you are right.

The claims cost control-minded approach is to concentrate some effort on influencing and educating the employee to make decisions that will be more likely to bring a favorable outcome for everyone involved.

One way is to reassure employees that their bills will be paid and will not be their responsibility. This helps because employees who feel confident that their medical bills will be paid by insurance have fewer reasons to ask for outside legal help.

Another aid is to teach the injured employee about the comp system. This turns conventional logic on its ear. Lots of people think that an employee that learns how "the system" works will milk a claim for all it's worth. Possible, but it's the ones who know only the comp myths who think they can get rich from a claim. If injured employees receive clear explanations of what will happen and the provisions of workers' compensation in their state, they can rest a little easier without representation. A supervisor or the employee advocate can do the explaining, with a short, clear pamphlet as an aid.

Workers' compensation is a system that can provide better results when the process is better managed. Who better to manage the process than the employer paying all the bills? Actively taking charge of each claim using a logical approach that both enhances the service to employees and controls costs is the most effective approach to claims management.

William H. Kincaid, P.E., CSP, is a vice president and senior loss control consultant for Lockton Insurance Cos. in St. Louis. Before becoming a consultant, he was an OSHA safety engineer specializing in ergonomics, "significant cases" and fatality inspections. He earned his B.S. in mechanical engineering from Washington University in St. Louis and is a registered professional engineer with 12 years' experience as a production manager.

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