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Claims Management

Best Practices a Moving Target

The best claims-handling practices depend on hiring good people.
By: | September 15, 2014 • 10 min read
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Although modern claims management technology can capture all manner of information to identify where employers and carriers spend — and misspend — their insurance money, a third-party administrator’s (TPA) success in managing an insurance program depends on the underlying human intelligence and a disciplined application of its own best practices.

However, universally applicable “best practices” resist codification because too many variables contribute to how a claim should be handled, including local laws, industry, line of insurance, and the size of the client company, said Randy Jouben, risk manager, Five Guys Enterprises, LLC in Virginia and a member of the Risk Management & Insurance Society (RIMS) Standards & Practices Committee.

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Instead, companies develop internal best practices based on their own closely observed and analyzed experience, and some share their findings with each other, said Janet Warren, managing director, Beecher Carlson.

These best practices are customized to the client’s sophistication, needs, industry and internal staffing.

The principles underlying all modern best practices emerged from the financial stewardship and speedy communications principles codified in the Unfair Claims Settlement Practices Act of 1997, Jouben said. Created by the National Association of Insurance Commissioners, the act provides guidance to states wishing to protect consumers and regulate insurance carriers. These best practices include timely communications, responsible stewardship of the client’s money, and fair and speedy settlement.

Philosophies Must Align

Jouben regards openness and honesty as qualitative best practices. “Things go wrong in claims. Don’t cover up those mistakes.” Instead, he said, “work together to seek resolution instead of crucifying the person who made the error.”

The relationship breaks down when the TPA and client don’t have equal expectations. “You need specific, realistic expectations on both sides for it to work,” he said.

Consistent engagement in and monitoring of a TPA is a client’s chief best practice, said Frank Ramsay, Towers Watson senior consultant and head of its claims management practice.

He recalled a client with a bafflingly high legal spend. “We visited the TPA, and within a few minutes of walking in the door, we learned that this TPA’s claims philosophy was to litigate everything.”

His client hadn’t been aware of this approach, which differed sharply from its own.

“First, there was a basic breakdown in communication,” Ramsay said, “and second, nobody at the client’s organization monitored and oversaw the TPA.”

Critical Judgment is Vital

Settlement authority requires complete accord between TPA and client. The threshold depends on the level of trust in the relationship, Warren said. “After the TPA establishes credibility, the client raises settlement authority as the relationship matures.”

Even then, appropriate authority is nuanced, subject to the types of claim and other factors. A TPA administering product liability claims might have lower settlement authority than, say, workers’ compensation, because the client’s brand is at stake, Warren said. In workers’ compensation claims, where the jurisdiction defines rules and regulations more clearly, the TPA might have higher settlement authority.

And still the claims adjuster makes judgment calls. “Administering the claims properly requires critical thinking skills and all the knowledge and experience the adjuster brings to the relationship,” Warren said. “One little piece of fact can change the complexion of the case and the adjuster’s decision about its disposition.”

Rob Blasio, president and chief executive officer of Western Litigation Inc., a professional liability claims and risk management company, agreed that appropriate settlement authority practices depend on the TPA’s relationship with the client and especially their line of business.

In workers’ compensation cases, he said, a TPA’s settlement authority is “prudent” for the sake of expedience, but his company generally has no settlement authority at all, which is appropriate for the health care professional liability claims he handles. Instead, he recommends settlement amounts to his sophisticated, high-end clients, who give settlement authority accordingly. In the final reckoning, he said, “collaboration and communication are the best practices.”

Tom Doney, president, Cypress Benefit Administrators, said his role as TPA shifted from the traditional claims payment to medical risk management as health care costs soared.

“When it’s our job to pay a claim, we ask, ‘Does this claim make sense? Is the billing appropriate?’ There’s a lot of fraud out there.” — Tom Doney, president, Cypress Benefit Administrators

His assignment is clear: Save money for the self-funded benefit plans his company administers. “As the cost of doing nothing continues to rise,” he said, he focuses on cost savings such as employee wellness programs that reduce total health care expenses, and identifying claims that shouldn’t be paid.

“If the inevitable happens and employees need care, we give them tools to make decisions about who they see, what type of procedures they may undergo and why,” Doney said. “When it’s our job to pay a claim, we ask, ‘Does this claim make sense? Is the billing appropriate?’ There’s a lot of fraud out there.”

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Doney credits the industry’s attention to cost controls with the success of the TPA business and the reason self-funding is now the dominant method of administering employee benefits. The Henry J. Kaiser Family Foundation study, “2013 Employer Health Benefits Survey,” reported 16 percent of covered workers at small firms and 83 percent at larger firms are enrolled in plans that are either partially or completely self-funded.

Cost savings is not always her clients’ primary goal, said Michele Tucker, vice president, claims, for CorVel, a national risk management provider for workers’ comp, health care liability and auto claims. One client’s goal could be service-related results, while another may focus on something completely different.

For example, best practices for a transportation company’s claims-management program would look very different from that of a retailer.

The transportation company has staff in the field, not in shopping malls, and it needs immediate access to a claims -eporting mechanism in its unpredictable, fluid work environments.

“That means a mobile application from which they can call in a claim and get access to immediate care,” Tucker said.

After an accident, the TPA would arrange immediate medical care to address the injury component and the liability insurance claims team to take care of property damage and any subrogation or recovery.

In the retail environment, on the other hand, injuries are fewer and less severe, but customer-related claims — which back into product and general liability cases, which themselves may by derived from chain-of-production issues — are more frequent.

Both involve multi-line claims management, which blurs both insurance and responsibility lines. These blurred lines demand informed, experienced humans.

“At implementation, the client and TPA need to decide how they’ll partner when workers’ compensation and liability lines run into each other,” Tucker said. “You need subject experts in these completely different subjects to get the best results.”

Analyze That!

Analytics are not just a powerful reporting tool, said Tucker, but a powerful diagnostic and prescriptive tool as well. Her company has a simple best practice regarding analytics: Use them.

09152014_04_indepth_jouben_headshot“Things go wrong in claims. Don’t cover up those mistakes. … Work together to seek resolution instead of crucifying the person who made the error.”
— Randy Jouben, risk manager, Five Guys Enterprises LLC

When CorVel saw a spike in claims for one of its retail clients, Tucker said, it analyzed data and found that the claims originated with employees who had been injured while handling a new clothing rack. The client phased out the rack. CorVel also uses analytics as a predictor of “creeping catastrophic” claims — the kinds that can go nuclear unless managed swiftly — with its pharma clients.

“TPAs and their clients can gain insights from data and predictive modeling to drive better decisions and actions,” said Kirsten Hernan, director, Deloitte Consulting LLP. “For example, when you see a potentially troublesome claim, you can escalate it to a more experienced adjuster,” who may be able to snuff out the fire before it starts.

TPAs can capture and report all kinds of data, said Kevin Grady, managing director of Beecher Carlson’s “ZOOM,” a data disaggregation process that allows a company to focus on strategies to reduce costs.

But data alone doesn’t solve problems, he said. “How you use it creates value.”

Grady described the process of turning a practical problem into a statistical problem, then turning a statistical solution — a goal — into a practical solution.

For example, he said, say the TPA traces a cost increase to injured workers bringing suit, which are expensive because of attorney and court costs. “That’s the practical problem,” he said.

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Next, he’d convert the data to a rate. If 30 percent of claims were litigated last year, say, the company would target only 20 percent this year. “That’s the statistical solution.”

To achieve that, he’d ask, Where were the lawsuits coming from? The Northeast? Southeast? Midwest? “The location becomes the statistical problem.”

Then Grady sets the goal — the statistical solution. “If suits were clustered in the Southeast, we’d ask, ‘How effective is our response to claims in the Southeast? Are we reporting late?’ ”

When claims are reported late, injured workers get nervous, he said. “They worry about how they’ll feed their kids, so they get attorneys,” whereas they tend not to if the company approaches them promptly with a robust injury response process that responds in a timely manner, informs workers of their rights, establishes a path to recovery and maintains communications.

Thus armed with information, the TPA can help the client reduce injuries, claims and litigation. But not every problem is equally worth solving, Grady said. By analyzing claims data, employers and TPAs can prioritize the problems. “You know which to go after first.” The same applies to claims. “You go after the 20 percent of conditions that drive 80 percent of claims.”

Aim for Avoidance

Avoiding litigation is the best practice to manage litigation, said Beecher Carlson’s Warren. “Better yet, avoid the claim in the first place and you avoid the litigation too.”

In fact, said CorVel’s Tucker, workplaces are becoming safer, thanks in part to analytics that inform employers where to apply fixes.

When accidents occur anyway, Warren said, the decision whether or not to litigate depends on the facts of case, and every case must adhere to the Fair Claims Practice Act.

Closing cases proactively is the best policy for cost control, said Blasio of Western Litigation.

“Evaluate cases quickly, make decisions about whether they need to be resolved and close them expeditiously to reduce allocated losses and adjustment expenses on your files.”

Short of that, have vetted litigation guidelines that outline and control relationships with outside attorneys and experts called in to defend cases.

“It’s about managing expectations at the outset,” said Blasio. This could mean demanding a budget from attorneys and “holding their feet to the fire” about sticking to it.

Cyber security breaches among retailers, health care companies and governments have become the stuff of tabloids and courtrooms. To a large extent, they’re also avoidable.

“The organizations that succeed are those that take cyber security seriously.” — Marty Frappolli, senior director of knowledge resources, The Institutes

“There are plenty of practitioners companies can hire or consult with to make data available to those who need it and unavailable to everyone else,” said Marty Frappolli, senior director of knowledge resources for The Institutes, a nonprofit provider of insurance education.

“The organizations that succeed are those that take cyber security seriously. The value of the data far exceeds the cost of protecting it, so take preventive steps first and buy cyber security insurance as a backup plan.”

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Clients and TPAs also should be willing to bring in outside help, especially on complex, high-exposure cases, Blasio said. These could include jury consultants and structured settlement specialists. “If there are other experts in the industry who can help strategize how to get the case in the best position for resolution, an existing relationship with a TPA or counsel shouldn’t preclude another.”

This best practice applies most to self-administered plans. “They spend hundreds of thousands of dollars retaining medical experts, but they rarely think about calling an expert who might have resolved 20 cases with the plaintiff’s attorney and can cut through the noise.”

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Susannah Levine writes about health care, education and technology. She can be reached at riskletters@lrp.com.
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Affordable Care Act

ACA Forcing Changes for Brokers

Employers are seeking more consultations and advice in response to confusion over health care reform.
By: | September 10, 2014 • 3 min read
Brokers as consultants

Brokers are increasingly being asked to act as consultants in addition to negotiating price and insurance policy packages.

The Affordable Care Act has increased that trend.

Kelly Hagan, director of operations, employee benefits at Assured Neace Lukens in Louisville, Ky., said her firm’s clients are increasingly asking for more consultative services, especially after the passage of health care reform.

Before the ACA passed, employers cared more about price negotiations, she said, but now the brokerage hears more requests related to guidance and advice about ACA compliance, as well as compliance with other regulatory acts such as the Employment Retirement Income Security Act.

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Hagan said that clients shouldn’t have to ask for certain services; consultation should be a part of a broker’s service package.

To meet that demand, Assured Neace Lukens has two wellness managers on staff to help clients develop customized wellness programs, and has hired a corporate compliance officer to provide guidance to clients.

In addition to one-on-one conversations with clients on priorities, coverages and services, the firm sends out quarterly newsletters and email alerts on compliance issues and presents monthly webinars on topics, such as how to track variable hour employees to determine whether they should be offered health care coverage under the ACA.

The broker “transaction” is becoming less important in terms of the way clients actually see the value provided by their agent or broker. — Tom Fitzgerald, CEO, Aon Risk Solutions’ U.S. retail operations

Tom Fitzgerald, CEO of Aon Risk Solutions’ U.S. retail operations in Chicago, said that the broker “transaction” is becoming less important in terms of the way clients actually see the value provided by their agent or broker.

As such, brokers need to help clients “understand what is possible” — from benefit plan construction, to engaging communications with employees, to risk financing alternatives such as self-funding or using private exchanges for employee health care.

“We engage our clients through our account executives or account managers, but we have over 500 products and services, so it gets pretty complicated and can be difficult for them to always have a clear understanding of everything we have to offer,” Fitzgerald said.

“It then becomes the responsibility of leadership to educate, inform and train our client-facing colleagues,” he said.

Denise Ashford, vice president at Sweet & Baker Insurance Brokers in San Francisco, said a recent survey of select clients that asked for their top priorities, “really brought to light the disconnect between what I thought they wanted, and what they said they needed, and now with this knowledge I can better service them.”

Sweet & Baker caters mainly to midsized companies, as well as Silicon Valley tech startups, and most have thinly staffed human resource departments that need the broker’s consulting services.

These days, clients routinely ask Ashford and others on her team to interpret the ACA’s regulations, such as changes in the probationary period for employee eligibility for health care insurance.

Many smaller brokerages don’t have enough revenue to provide a lot of the additional services that larger firms can, as the additional services come out of commissions paid by carriers, she said, noting that her firm provides a number of additional services to clients “for little to no cost.”

Laymon Group Benefit Consulting LLC in Wilmington, N.C., a small agency with five employees, is able to compete with some of its larger competitors by outsourcing some services to vendors that specialize in different fields, said CEO Chad Laymon.

“This allows us to bring a multitude of different services to the table under one umbrella,” Laymon said. “At the same time, on the service end, we are steering a much smaller boat. This allows us to be more flexible with our client’s needs.”

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Laymon has had to increase its value-added services due to “tremendous changes” within the industry because of health care reform, he said.

“Most small brokerage firms were started years ago, and today, the principal is getting older and doesn’t want to involve themselves with all of the changes going on, and even if they do, the technology curve can be a steep hill to climb,” Laymon said.

“As a result, many brokers are selling their book of business to the larger consulting firms. Times have changed. Smaller brokers must adjust to show their strength or they will be left behind.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at riskletters@lrp.com.
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Sponsored: Lexington Insurance

The Re-Invention of American Healthcare

Healthcare industry changes bring risks and opportunities.
By: | September 15, 2014 • 5 min read
SponsoredContent_Lex

Consolidation among healthcare providers continues at a torrid pace.

A multitude of factors are driving this consolidation, including the Affordable Care Act compliance, growing costs and the ever-greater complexity of health insurance reimbursements. After several years of purchasing individual practices and regional hospital systems, the emergence of the mega-hospital system is now clear.

“Every month, one of our clients is either being bought or buying someone — and the M&A activity shows no signs of slowing down,” said Brenda Osborne, executive vice president at Lexington Insurance Co.

This dramatic change in the landscape of healthcare providers is soon to be matched by equally significant changes in patient behavior. Motivated by growing out-of-pocket costs and empowered with new sources of information, the emergence of a “healthcare consumer” is on the horizon.

Price, service, reputation and, ultimately, value are soon to be important factors for patients making healthcare decisions.

Such significant changes bring with them new and challenging risks.

Physician integration

Although physicians traditionally started their own practices or joined medical groups, the current climate is quite the opposite. Doctors are now seeking out employment by health systems. Wages are guaranteed, hours are more stable, vacations are easier to take, and the burdens of running a business are gone.

“It’s a lot more of a desirable lifestyle, particularly for the younger generation,” said Osborne.

Brenda Osborne discusses the changing healthcare environment and the risks and opportunities to come.

Given the strategic importance of successfully integrating acquired practices into a larger healthcare system, hospitals are rightfully focused on how best to keep doctors happy, motivated and focused on patient safety.

A key issue that many hospitals struggle with is how to provide effective liability insurance for their doctors. Physicians who previously owned their practice are accustomed to a certain type of coverage and they expect that coverage to continue.

Even when operators find comparable liability insurance solutions for their doctors, getting buy-in from their staff is often an additional hurdle to overcome.

“Physicians listen to two things — physician leaders and data,” said Osborne. “That’s why Lexington provides assessments that utilize deep data analysis, combined with providing insights from leading doctors to help explain trends and best practices.

“In addition, utilizing benchmarks against peers helps to identify gaps in best practices. It’s a very powerful approach that speaks to doctors in a way that will help them improve their risk.”

Focusing on the “continuum of care”

There’s been a fundamental shift in how healthcare providers care for patients: Treatment is becoming more focused on a patient’s overall health status and related needs.

SponsoredContent_LexA cancer patient, for example, should have doctors in a number of specialties communicating and working together toward a positive patient outcome. But that means a change in thinking: Physicians need to work collaboratively with one another — not easy for individuals or groups that are used to being independent. Healthcare is a team sport.

“If there isn’t strong communication, strong leadership, and the recognition of proper treatment procedures between physicians, healthcare providers can increase the risk of error,” said Osborne. “The provider has got to treat the whole patient rather than each individual condition.”

That coordination must extend from inpatient to outpatient, especially since the ACA has led to a rapid increase in patients being treated at outpatient clinics, or via home health or telehealth to reduce the cost of inpatient care

“Home health is going be a growing area in the future,” Osborne continued. “Telehealth will become an effective and efficient way of managing and treating patients in their home. A patient might have a nurse come in and help the healthcare provider communicate with a physician through an iPad or computer. The nurse can also convey assessment findings to the physician.”

Metrics matter more than ever

Patients have not always thought of themselves as healthcare consumers, but that’s changing dramatically as they pay more out of pocket for their own healthcare. At the same time, there’s an increase in metrics and data available to the public — and healthcare consumers are drawing upon those metrics more and more when making choices that affect their health.

SponsoredContent_Lexington“Consumers are going to start measuring physicians against physicians, healthcare systems against healthcare systems. That competition will force everyone to improve the quality of care.”
– Brenda Osborne, Executive Vice President, Lexington Insurance

Think about all the research a consumer does before buying a car. Which dealership has the best price? Who provides the best service? Who’s offering the best financing deal?

“Do patients do that with physicians? No,” said Osborne. “Patients choose physicians through referrals from friends or health plans with minimal information. Patients may be putting their lives in the physicians’ hands and not know their track record.

That’s all going to change as patients’ use of data becomes more widespread. There are many web based resources to find information on physicians.

“Consumers are going to start measuring physicians against physicians, healthcare systems against healthcare systems,” said Osborne. “That competition will force everyone to improve the quality of care.”

Effective solutions are driven by expertise and vision

The rapidly evolving healthcare space requires all healthcare providers to find ways to cut costs and focus on patient safety. Lexington Insurance, long known as the leading innovative and nimble specialty insurer, is at the forefront in providing clients cutting-edge tools to help reduce costs and healthcare exposures.

These tools include:

  • Office Practice Risk Assessment: To support clients as they acquire physician practices, Lexington developed an office practice assessment tool which provides a broad, comprehensive evaluation of operational practices that may impact risk. The resulting report, complete with charts, graphs and insights, includes recommendations that can help physicians reduce risk related to such issues as telephone triage, lab results follow-up and medication management. .
  • Best Practice Assessments: High risk clinical areas such as emergency departments (ED) and obstetrics (OB) can benefit significantly from external, objective, evidence-based assessments to identify gaps and assure compliance with best practices. In addition to ED and OB, Lexington can provide a BPA for peri-operative care, prevention of healthcare-acquired infections, and nursing homes. All assessments result in a comprehensive report with recommendations for improvement and resources along with consultative assistance and support. .
  • Continuing Education: In an effort to improve knowledge, decrease potential risk and support healthcare providers in the use the most current tools and techniques, Lexington provides Continuing Medical Education credits at no cost to hospitals or their physicians.
  • Targeting the Healthcare Consumer: With Medicare reimbursement impacted by patient-satisfaction surveys, assuring a positive patient experience is more critical than ever. Lexington helps hospitals understand and improve the patient experience so they can continue to earn the trust of healthcare consumers while preserving their good reputation. .

To learn more about Lexington Insurance’s scope and depth of the patient safety consulting products and services healthcare solutions, interested brokers may visit their website.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Lexington Insurance Company, an AIG Company, is the leading U.S.-based surplus lines insurer.
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