By JOE BOURES, president of Hartford, Conn.-based Specialty Risk Services, one of the nation's largest TPAs
Frequency of claims is down dramatically, primarily due to work force reductions, exacerbating average medical costs per claim in three major ways.
Our experience has shown that claimants without a job to return to typically have longer claim duration. Longer claim durations will typically lead to increased medical costs.
The average age of employees is projected to increase as younger workers are furloughed by companies. Data tells us that while older workers have lower injury rates, they are slower to heal when they are injured, providing another driver for longer durations, again leading to higher medical costs.
Now for the elephant in the room--most vendors employed by companies to manage these costs are compensated primarily through frequency of claims and frequency of treatments. These business models don't encourage the control of utilization of treatments. As the frequency of claims decrease, one way to offset this revenue decline is through increased utilization of medical treatments on existing claims.
What can risk managers do to reduce medical costs in these turbulent times?
First, identify those claims where claimants don't have a job to return to and develop alternative strategies to bring these claims to closure. You may end up paying more now but statistics say you will save in the long term.
Second, compare average medical costs year over year. This comparison will require a deeper analysis to differentiate the increase in cost that is the result of an older workforce versus the increase that is due to an unsubstantiated increase in utilization of medical treatments. If you notice an unsubstantiated rise in frequency of treatments, stem the tide by increasing oversight of vendors and performing audits to verify utilization of treatments that are reasonable and within guidelines.
Finally, understand the business models of your selected vendors and demand the transparency to insure your interests are protected. This is especially true in situations where the vendor's business model and the customer's interest are not aligned.
Risk managers today must not only understand how this economy is impacting their programs but they also have the added challenge of understanding how this economy is effecting their vendors' actions. The majority of current business models on the medical side of the house are simply not aligned with protecting the customer's interests. We can only hope that this situation changes in the future.
April 15, 2009
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