Medical management creeping into bad-faith cases in California

The escalating medical costs in the workers' comp system of late may be driving a change in some bad-faith claims, experts say. Increasingly, medical management issues are being named in these cases.

"Our firm has been defending insurance carriers in bad-faith workers' comp actions for 10 years," said Michael Donegan, principal at the Risk Navigation Group. "Typically, they involve policyholders suing insurance carriers alleging they mismanaged the claims . . . almost all the issues have centered on claims aspects."

That would include accusations that the carrier erroneously denied a claim, settled too high, or failed to fully investigate a loss. But several recent cases in California have included medical management issues.

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"A few law firms that specialize in bad-faith litigation now include allegations that the charges for medical cost containment are excessive," Donegan said. "They say insurance carriers are charging too much to re-price bills, assign nurse case managers, and conduct utilization review."

The focus, he says, is not only on cost containment but acceptance of specific body parts and whether insurers are properly denying body parts. "The emphasis of proper treatment and diagnosis as to the cause has become part of bad-faith allegation."

While medical cost inflation in workers' comp is likely a reason, Donegan says it may also have to do with the fact that cost containment has become a revenue source for insurers. "They're making some money on the savings that are generated. Law firms are seeing that as a way to say, 'Wait. You shouldn't be making money from a policyholder off cost containment efforts.' As medical costs continue to escalate and account for a larger percentage of overall workers' compensation costs, it has also become a more important aspect of bad-faith cases as well."

While these cases are primarily seen in California, Donegan expects it will spread to other jurisdictions. He says the best way to guard against such lawsuits is by improving claims management effectiveness.

"Such things as training/development, internal audit/compliance, and enhanced oversight governance -- both at the field and home office level -- can certainly help prevent the frequency of bad-faith litigation," he said. "It is clear to us that those carriers/TPAs that employ these practices on a consistent basis have less exposure to bad-faith litigation than those that do not."

Read more at the WorkersComp Forum homepage.

December 23, 2010

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