By BOB ACOSTA, director of sales at Mitchell SmartAdvisor Solutions, an expert in medical claims cost containment for workers' compensation claims-payers
With medical costs expected to continue outstripping indemnity expenses as the leading cost component of the claims dollar in workers' compensation, finding ways to accurately and efficiently pay these losses is a top priority for all payers. Over the years, a number of point solutions have been introduced to increase efficiency in insurance
claims operations, like new software solutions, case management, specialty networks, internal and external PPOs, and many more.
Why, then, are medical expenses accelerating their growth rate, despite all of these well-intended point solutions?
For an answer, consider a familiar analogy. When our homes leak energy, we we take remedial actions like adding insulation, upgrading appliances, and physically plugging the holes and cracks. We change lighting systems, replace windows and examine vents to make sure that expensive energy dollars are not escaping into the environment.
The actions we take are driven by our desire to limit our cost of ownership. Some tactics result in incremental improvements, but the problem of energy leakage continues to work against our efforts and our budgets because we often act without considering a comprehensive strategy that finds and fixes all the potential, actual and future areas of leakage, and monitors the entire dwelling to make sure that the system is working as planned.
Similarly, leakage in payer claims operations has its own set of adverse effects, leading to inaccurately repriced bills; high labor expenses; unenforced medical utilization determinations; and in many cases fines, penalties, and their associated legal and administration fees--all of which contribute to increased costs. Applying a variety of point solutions is a patchwork approach to what is a very expensive problem. While some leaks might be identified and plugged, some go ignored and others get worse.
It's time to seal those leaks, all of them, at their source, with an integrated, systematic overhaul of our workers' compensation "homes."
The process starts with answering three questions: Where are your operations experiencing leakage? What's the damage and what are the costs of the leakage? How can you plug the holes and stop the outflow?
WHERE LEAKAGE OCCURS
Leaks occur primarily, but not exclusively, in three areas:
1. Suboptimized use of labor. Paying more than necessary in labor costs, or paying for labor to redo work, is like a slow energy leak. How we utilize and direct the work of our staff is a big contributor to leakage. An example of this type of leakage is the lack of an automated system that can route bills to the person who is the best qualified and most cost-effective resource to review a particular bill. Other examples include unauthorized manual payment overrides, manual workarounds, poor workflow design, and failure to adopt and follow best practices.
2. Poor data quality. Errant, missing or otherwise inaccessible data contribute to mistakes in payments, failure to heed utilization-review decisions that leads to payment for unauthorized services, missed adjustments from existing network and other external partner agreements, and costly rework.
3. Outdated technology. An example here is claims and bill-review software that is inflexible, lacks the efficiency controls that customers can adjust to refine their business processes, and fails to support consistent and optimum performance.
THE SCOPE OF THE POTENTIAL LOSSES
It should be no surprise that workers' compensation payers waste millions of dollars each year because of these leaks. What may be shocking are the figures that can be associated with just one scenario.
Here are two such examples of process leakage and their impact. In these examples, the financial assumptions for cost-savings are based on estimates from Mitchell internal data, which suggest that the total charge of bills submitted to payers in the workers' compensation market is approximately $59 billion per year (based on estimates of 79.1 million total annual bills multiplied by an average bill charge of $748).
Example 1: Specialty Review Leakage
Payers turn to specialty networks to manage the costs and quality of services such as high-end diagnostic radiology, one of the fastest rising medical costs. Yet, of those tests that are performed by network members, about 13 percent of them are sent directly to the payer for payment.Bypassing the network's process eliminates the payer's benefit of the network contract rates all together, according to an analysis of the flow of injured workers receiving these tests.
This missed opportunity for accurate adjustment of pricing from existing networks results in unnecessary additional expenses for payers.
What is the scope of these lost discounts? Assuming that 2 percent of workers' compensation medical spend is attributable to high-end diagnostic radiology it is estimated to equal $153 million in industrywide lost reductions per year.
By using this information and evaluating your current consumption and spend for these services (both in and out of network), you can estimate the financial impact these lost opportunities are having on your program.
Example 2: Missed PPO Opportunities Leakage
Capturing network discounts accurately and completely is essential in optimizing available reductions associated with existing contracts. Every 1 percent increase in PPO penetration yields an estimated $30 million in additional PPO contract reductions.
If these figures hold true and the amount of medical bills submitted to your firm for review are roughly 15,000 bills per month (with an average amount billed of $748 per bill) and your average fee schedule reductions are tracking at 42 percent, then every 1 percent of missed PPO penetration is costing your organization about $70,000 in lost network reductions per year.
Imagine if you are missing optimum application of network agreement rates by 6 percent, 10 percent or more?
PROVEN STRATEGIES TO PLUG THE LEAKS
To create an impenetrable barrier that keeps your resources from leaking into the ethers, apply these nine proven strategies for identifying and plugging the leaks in your claims operation:
1. Start with process performance audits and benchmarking, paying extra attention to point-solution performance.
2. Add configurable workflow tools and workflow improvement.
3. Adopt fully configurable business rules engines.
4. Incorporate automated transaction monitoring and processing.
5. Ensure that you have best-of-breed interface integration of internal and external systems.
6. Deploy adjuster approval, monitoring and accountability tools.
7. Bring in exception processing models to your operation.
8. Use data analytics to proactively identify patterns of injuries and lost recovery opportunities that can be addressed.
9. Take a holistic integrated view when monitoring your operation. Leaks don't occur because we plan on them. They happen because we fail to plan to address them
Continuing to add on new or revised point solutions without a holistic view of the entire operational infrastructure will simply result in the all too familiar "water-balloon" effect we have seen for years in our industry. Plug the leak in one area but amplify the leakage in another.
Instead, construct a "leakage-free" workers' compensation processing environment for a strong competitive advantage.
January 18, 2010
Copyright 2010© LRP Publications