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For almost 10 years now, the story in the workers' compensation marketplace has been the ongoing decline in the frequency of claims and the accompanying increase in workers' compensation medical costs. Fewer claims cost more, and medical costs account for most of the increases.

Although claims frequency has declined among all sizes of claims, medical costs, according to the National Council on Compensation Insurance, now account for nearly 60 percent of all workers' comp claims costs.

Nor is this trend expected to change any time soon--instead, it might accelerate further as the baby-boomer generation remains in the work force. Older workers usually need longer to recover from a workplace injury and older workers often incur higher medical costs.

Reducing workers' comp costs now really hinges on the ability of an employer to reduce those "high severity" medical claims. NCCI, in its study of high-severity claims, attributed the rapidly rising costs to an increase in relatively more severe injuries and the "markedly higher number of treatments with each diagnosis."

NCCI also noted that, in the most recent data, the mix of treatment had shifted from lower-cost treatments to more expensive treatments. Medical prices for treatment also increased during this period.

Fundamentally, there are two types of workers' comp claims involving an injury that requires medical attention. Most injuries can be treated at the site or in the doctor's office. These result in little, if any, lost time from work. More severe injuries often go to the emergency room, but even there most workers can recover within a few weeks.

The toughest claims are those high-severity claims--catastrophic injuries that can result in death or in permanent or long-term disability of the worker.The medical costs can be astronomical--as high as seven figures. Thankfully, catastrophic claims are unusual especially if the employer invests in safety and prevention. But even the most vigilant employer can still have its workers suffer a disabling workplace injury.

Some catastrophic claims are obvious from the outset: the work injury, for example, that results in the worker becoming a paraplegic. Clearly, the ongoing medical costs could be huge with these kinds of injuries.

But there is an increasingly common kind of catastrophic medical claim that isn't easy to immediately identify at the time the workplace accident occurs. This injury develops slowly, over time, and initially might not look like it will develop into a high-severity claim. In some cases, the high-severity claim could develop out of the treatment of the initial injury itself. Typically, these claims involve complicating mental health or behavioral risk factors; often it's pain management, depression and abuse of medicine.

"You get a lot of claims that come in looking about the same," explains Mark Sidney, who heads up claims for Boston-based Liberty Mutual Insurance Co. The challenge, he said, is to identify the claim that may go downhill, "but it's not that easy." If Liberty Mutual can identify the potential catastrophic claim early enough, Liberty Mutual can investigate and intervene and possibly head off a developing catastrophe thereby saving huge medical expenses and returning the worker back to work quicker.

Sidney says that Liberty Mutual set up what it calls "high exposure medical teams" that examine any claim with an expectation of more than $100,000 in medical expenses.The teams include a doctor, nurse, mental-health specialist, vocational expert, an experienced claims case manager and an adjuster. The team also evaluates any claim involving certain specific mental-heath factors.

The insurer hired an outside expert who specialized in predictive modeling to help it determine when its medical teams should intervene. Initially, Liberty Mutual identified factors that it hypothesized might contribute to the development of a high-severity medical claim.

Then it had the predictive modeling company analyze claims data to see whether those factors were predictive of a claim evolving into a high-severity medical claim. "We wanted to be able to act on those claims before it became a problem," Sidney says. In its analysis, the modeling consultant looked at claims no more than 18-months old. "It's a matter of getting intervention from the high exposure medical team on the claim early," he says.

LOOKING AT NEW FACTORS

Sidney says that, in conjunction with the predictive modeling consultant, Liberty Mutual has been looking at additional claims data and adding new factors to see how they affected the outcomes throughout the research process. "We have actually built some simple tools," he says.

For example, the process looks for claims that are predicted to generate a threshold of pharmacy spending. It looks at the anticipated expenses for physical therapy. If these factors are expected to be exceeded, then the claim will be referred to the special high exposure medical team. "Now we are fine-tuning the process," he adds.

"Our goal is to develop a process where we better manage existing claims and can apply the right resources to a claim early enough to avoid having it blow up in the future." The benefits, he said, accrue to the employer, the employee and Liberty Mutual. "It can get people healthy faster, back to work faster and avoid having workers go down the spiral," he says

As its research continues, Liberty Mutual expects to identify additional factors. Some current factors are:

* Was there a change in the diagnosis of the injury?

* Did the injured worker miss a doctor's appointment?

* Was there a change in the treating doctor?

* Are there multiple prescriptions for the same drug?

* Does the drug prescribed match the treatment regimen for the injury?

* Have the number of physical therapy visits been extended?

Earlier this year, Liberty Mutual conducted a pilot project to test the initial results of the effort to identify and intervene in developing high-severity claims. The pilot project worked with an employer with a work force of about 60,000 employees. The employer had seen its high-severity medical claims increasing at a rate between 10 percent and 15 percent per year. High-severity medical claims, Sidney says, were being filed at a rate of about 100 per month. The test went on for three months.

By the end of the test, the number of high-severity claims had dropped from 100 to 10 claims per month. The savings was more than $600,000, and the company saw lost-time claims reduced by an average of 5.5 days.

"The secret to this success is the effort we put in up front. It involves medical, legal, and it gives us better information to make the decision about how to agree to a settlement of a claim," Sidney says.

With fewer claims, he says, success has shifted to claims management and how to get the right resources on the right claim at the right time. And he adds, "It's difficult to find someone who's not happy with this process--us, the employer or the worker."

JACK ROBERTS is editor in chief of Risk & Insurance®.

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July 1, 2007

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