How do companies keep score in workers' compensation?
Typically, insurance carriers provide basic or “top-of-the-line measurements,” such as annual totals of claim expenditures, average claim costs for medical-only claims and average claim costs for lost-time claims to employers. They even might break down some injury costs by department.
Not surprisingly, these metrics drive decisions and often become the basis for goals and measures of success. In fact, metrics on claim costs have become so predominant that companies often reward their employees based on them. If injury costs go down in a department, it's a good thing and supervisors and employees are rewarded. If they go up, it's a bad thing and corrective actions are needed.
Unfortunately, the focus on total claim costs from one year to the next is incomplete and shortsighted. It fails to recognize or measure what's driving the claim costs. If the average medical cost per claim increases, is it simply a matter of medical inflation, or is it related to something that the employer can control? Likewise, if annual costs go down, is it luck or a result of the employer’s actions?
Tangible Metrics Are Needed
Tangible, measurable metrics of factors driving claim costs are needed to help employers focus on specific interventions that they can implement to reduce workers’ compensation expenditures. A long-term view enables employers to understand the underlying circumstances and conditions that are driving up work-related injury costs and helps them to measure the value of their actions or interventions. Such information also may lead to significant changes in an organization's management of workers’ compensation.
There are four key measurements that companies should track to help drive down workers' compensation costs.
1. Claim Lag Times
A well-known study by The Hartford has demonstrated that “time is money” for workers' compensation claims. A week's delay in reporting an injury can increase claim costs by 10 percent. The study also found that claims filed a month or more after an injury cost 48 percent more to settle than those reported in the first week.
However, it’s not only the lag time in reporting that is important to measure. Along the continuum of care, there are many points at which a claim can become snagged, slowed down or stopped dead in its tracks.
For example, lag times to initial doctor visits, in receipt of doctors reports and in seeing appropriate specialists all have negative effects on claim costs. Employers can set their own baseline for improvement by examining injury records, writing down dates and identifying excessive time lags. Reducing delays in care, accelerating continuity in care and communication among employers and key third-party providers also can drive down claims costs and improve productivity.
2. Disability Duration, Treatment
Excellent sources of disability duration guidelines and benchmarking data on time away from work are available to employers for a subscription fee. For example, “The Medical Disability Advisor” by Presley Reed, M.D. – which is available as a book and online subscription at http://www.rgl.net/services/mdaGuidelines.aspx – can help companies more efficiently manage and measure the time employees are away from work by providing evidence-based disability duration guidelines for more than 6,700 of the most common injuries and illnesses of working-age people.
A good source for effective occupational medical practice comes from the American College of Occupational and Environmental Medicine (ACOEM), which publishes “Occupational Medicine Practice Guidelines: Evaluation and Management of Common Health Problems and Functional Recovery in Workers,” 2nd Edition, 2004. This publication provides evidenced-based treatment guidelines for all types of injuries. These guidelines are the foundation for the state of California's Medical Treatment Utilization Schedule that requires doctors to use these treatment protocols for injured workers.
ACOEM created the guidelines to improve the efficiency and specificity of medical diagnosis of workplace-related injuries and diseases, enhance the effectiveness of treatment and help occupational and environmental physicians manage growing caseloads. According to ACOEM, these guidelines for the care of workers are the most rigorous and multidisciplinary in scope currently produced in the United States. Presently, they are undergoing a 3-year rotating update with an enhanced methodology.
“The new methodology ensures that ACOEM’s guidelines are maintained at the highest achievable scientific standards for evidence-based literature,” said ACOEM Immediate Past President Tee Guidotti, M.D., MPH, FACOEM. “Improving or restoring the health of workers with occupationally related illnesses or injuries is a fundamental principle of occupational and environmental medicine and ACOEM’s new methodology ensures that our practice guidelines fulfill that mission.”
With these benchmarks, employers can measure the actual versus the expected disability duration for an employee based on their injury and determine whether or not the treatment matched the treatment protocols. The approach has met with success in California, which made it state law that doctors follow ACOEM guidelines for workers’ compensation injuries. As a result, loss ratios have plummeted from 142 percent in 1999 to 34 percent in 2005, according to the Workers Compensation Insurance Rating Bureau of California.
Drilling down even further, there are predictive modeling programs that can identify claims that are likely to spiral out of control. “Delayed recovery” occurs when the duration and financial outcome of a disability are out of proportion with the severity of the injury or illness. Predictive modeling identifies which are most likely to experience “delayed recovery.”
While relatively new to the field of work-related injury management, predictive modeling has a long-standing proven record in other industries. With the right data, in the same way that lenders predict who will be a good credit risk, employers can predict who will return to full productivity in the expected time period and who may be out for much longer periods of time.
Flagging these claims and monitoring vigilantly is another way that evidenced-based guidelines can reduce costs.
3. Modified-Duty Days
A smooth, safe and expedited return to work is the mark of a well-run loss control program. The longer employees stay at home, the more difficult it is to bring them back to the work environment.
Return-to-work programs with modified work assignments are a crucial component in reducing workers’ comp costs. Modified-duty work assignments are designed to help transition workers back to full duty at their original job. Injured workers should not be mired in modified duty for extended periods of time. Benchmarks such as those set forth in the “The Medical Disability Advisor” are available to evaluate the employee's progress, and reductions in modified-duty days will improve productivity.
With benchmarks, employers can measure the actual versus the expected duration of modified duty based on the employee’s injury. The guidelines help identify early return-to-work opportunities. They also aid in the effective management of return to work by providing a common medical treatment framework based on medical evidence.
4. Physician Quality
The best way to measure the quality of a physician’s care is by the evidence-based treatment guidelines, but not all doctors follow those guidelines. Under such circumstances, reviewing the cases treated by the same physician can reveal disconcerting trends (e.g., every worker is referred for physical therapy).
While state statutes differ with respect to the extent to which employers can direct injured workers to certain medical providers, the medical management of a workers' comp claim is essential to reducing costs. Holding physicians accountable to established standards is key. CompScore metrics will lead to different insights and strategic decisions as these measure the effectiveness and efficiencies of the claims process.
For example, if it takes on average 7 to 10 days to report an injury, there most likely are employee training and communication issues. To alleviate these issues, employers can put a training and/or communication initiative in place and measure the results over a 3- or 6-month period.
For example, supervisors need to know that delays in reporting adversely affect the bottom line and slow the return-to-work process, while creating stress for co-workers. A simple technique would be to analyze how long it has taken to report past injuries over a 6-month period. Setting the goal of a 24-hour injury response process, the reporting time can be monitored for the next 6 months. Early intervention is a key to preventing disability, and a Hartford research study found that a week’s delay in reporting can increase claim costs by 10 percent.
If there are delays in the continuity of care, there is a problem with the physician and it must be communicated that it is unacceptable. Oftentimes, delays can be resolved by using alternative specialists, improving communication or simply being more aggressive on the telephone.
In the same way that measuring results is key to productivity improvement, measuring the factors that affect workers’ compensation costs becomes the basis by which employers can reduce these expenses and, at the same time, better-serve injured employees. Since insurance companies may not always provide this critical data, the responsibility for tracking the system’s shortcomings and ensuring that they are addressed falls to employers. After all, it is the company’s own employees and bottom line that are at risk.
Frank Pennachio, CWCA, is a co-founder and director of curriculum at the Institute of WorkComp Professionals, an organization that tests and certifies insurance professionals with the skills and knowledge necessary to alert employers about the hidden costs and overcharges in the workers’ compensation insurance system. He can be contacted at [email protected].