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Workers' Compensation Report: What is the problem with the way this industry traditionally approaches the claims-handling process?

Maddy Bowling: As an industry, we do not yet agree on what it means to have excellent claims handling. Many of the quality programs within the payer community are still generally very process-focused, and very few of the programs define quality in terms of claim outcomes.

WCR: In particular, one burden that you have mentioned is the common reliance on the strategy of three-point contact within 24 hours, which you identified as one of the "sacred cows" of the workers' comp world? Why is it more valuable for an adjuster to not focus simply on the 24-hour time frame, but to make actual, meaningful contact with stakeholders?

MB: The most common best practice in our industry is completion of the three-point contact (employer, employee and provider) within 24 hours of the first notice of loss. The quality scores on this best practice are black and white and easily quantifiable. Did the claims handler complete these contacts in 24 hours or not? If yes, it is typically considered quality work; if not, then the claims handler is penalized.

It is clear that contact with these three vital stakeholders early in the process is critical to the success of the claim, but it is not clear whether it is the 24-hour timing of the contacts that drives the outcome or whether it is the actual "content" of the contact instead.

Several years ago, a major third-party administrator actually investigated this "sacred cow" and studied the outcomes of 72,000 claims with three-point contacts. What they learned was that the lowest average paid claim cost occurred on claims where the three-point contacts were completed in two to three days, not 24 hours. The second-lowest average claim cost was on claims with three-point contacts in four to eight days. The third lowest were claims with contacts completed within 24 hours.

Although neither the content of these contacts nor the rapport between the injured employee and the claims handler were studied in this particular research, basing performance standards for administrators on the ability of that organization to complete the three-point contact in 24 hours may not be in the client's best interest.

This "best practice" doesn't appear to lead to the best outcome. Creating an artificial time frame for contacts may in fact be driving the wrong behaviors. Claims handlers may strive for the fastest contacts and hence better "quality scores," rather than more informative or substantial contacts that may drive the claim to a positive resolution more quickly.

In our pursuit of "excellence," it is time to analyze all of our industry best practices to ensure they still have the impact for which they were originally designed so we can improve the outcomes for injured employees and the profitability of the industry.

WCR: How can new technology eliminate some of the administrative burdens that have bogged down claims handlers in the past?

MB: There are two primary areas where I believe new technologies have the potential to make big impacts on adjusters' daily lives: 1) automating the routine but important parts of the claim workflow; and 2) using predictive analytics to identify the critical claims the adjusters should be focusing their time and attention on.

The growth of workflow automation capabilities in claims software means that not only can claims payers now automate the hundreds of routine procedures that are required in day-to-day claims handling (state filings, claimant/employer/provider letters, timely payment of routine medical bills and potentially indemnity benefits, etc.), but it also allows organizations to "institutionalize" the practices of their best/most experienced adjusters and implement them uniformly across their entire universe of open claims.

Given the growing shortage of experienced adjusters, it is critical that the system provide a helping hand in mapping out the best claims-handling strategies while also reducing variability from one adjuster to the next.

With average caseloads that range anywhere from 100 to 300 or more claims, adjusters clearly have too many claims to focus on each individually. As systems begin to help automate the routine tasks that consume many adjusters today, at least a portion of their time will be freed up to focus on managing the minority of claims that drive the majority of an employer's losses.

Whereas historically, adjusters have largely targeted these claims as a firefighting exercise--waiting for something to blow up on a claim so that claim bubbles up to the top of the adjuster to-do list--predictive analytics together with the workflow automation capabilities of modern claims systems are helping adjusters target these claims more proactively.

Once a claims payer has analyzed a particular employer's claims to identify the factors that are driving the majority of their costs, the claims system can be programmed to identify those claims automatically and then route them to the appropriate resources (e.g., higher level adjuster, nurse case manager, defense attorney, SIU) before the full-blown fire has started.

WCR: Another area that you have discussed is the impact of preferred provider organizations. Why is there such a focus on PPO savings?

MB: The current traditional model is primarily built on the premise of large broad-based discount networks where each medical transaction is discounted below the state-regulated fee schedule or the location's usual and customary rate.

Discount networks have existed for 20 years, accompanied by penetration reports (the medical transactions or charges from a PPO-contracted provider that receive a discount) and savings reports (the dollars "saved" due to the PPO discounts-per-procedure code).

PPO savings are in addition to the bill-review savings that result from repricing the medical bills to the state fee schedule or the usual and customary amounts, which typically generate savings of at least 35 percent to 40 percent off originally billed charges. While savings of 38 percent to 45 percent sound impressive, the industry reports indicate medical costs are still not abating, begging some important questions:

-- Although they are easy to measure, are savings from bill review and PPO discounts truly meaningful measures of how we are doing?

-- Are the unit cost discounts from PPOs saving us medical dollars, or have the system players become adept at manipulating our perceptions of medical savings?

-- Can participating PPO medical providers offset their agreed unit cost discounts, and therefore not really produce real-dollar savings, by increasing medical utilization (more visits and/or more services per visit)?

-- By definition, broad-based discount networks seek to include as many providers as possible for higher charge penetration and savings results, but are these the providers who deliver the best workers' comp outcomes?

-- Are the PPO medical providers' financial incentives aligned with the claims outcomes we seek: lower loss costs and quicker, sustainable return-to-work rates?

WCR: You have said that part of the excitement of emerging technology is the ability to warehouse data--bill, treatment, provider, etc.--and combine it with claims data to determine what factors are diving up costs. What does this mean?

MB: Data Integration allows you to perform many analyses we in the industry do not commonly perform. The two most valuable data sources are claims data and medical bill data. These two sources of data are rarely compared. Claims data is the information about when, where, why and how workers were injured, when they returned to work and their overall claims costs.

Clinical encounter data is contained in the medical bill-review process and details who treated the patient, their medical specialty, what the medical treatment entailed, duration of treatment and how much the various types of procedures cost.

Since my comments above indicate that PPO penetration and medical bill review and PPO savings reports do not really tell the whole story, if you integrate your data you answer the following outcome-oriented questions:

-- What is the average medical cost for claims treated in network compared to claims treated out of network?

-- What are the medical utilization trends (number of visits, number of services per visit) for claims treated in network compared to claims treated out of network?

-- What percent of all claims lose time and what is the average duration of lost time for claims treated in network versus those treated out of network?

-- How do these comparisons differ jurisdiction to jurisdiction? Should I be asking my PPO questions about the network doctors in particular jurisdictions?

With integrated data you can also identify your loss cost drivers. It is important to be able to identify what in particular is driving your medical costs by employer, by occupation, by jurisdiction, by diagnosis, etc. so you can apply your managed care tools appropriately and in a more targeted manner than we have been in the past.

It is no longer acceptable to apply case management or utilization review similarly across an entire book of business. It is costly, and it is not targeted enough to drive down our medical costs as evidenced by our double-digit medical cost increases over the last several years.

Integrated data allows you to pinpoint the particular medical treatments, procedures, and pharmaceuticals that are driving costs in a particular class of claims.

WCR: Using the new focus on analyzing data, rather than bill review and PPO discounts, how could it help identify the best providers of occupational medicine?

MB: Integrated information can be utilized to develop a sophisticated network of the right medical providers who speak workers' comp fluently and achieve quick and sustainable return-to-work rates, and to eliminate those medical providers who are not delivering the best outcomes.

Such a network has the best shot at significantly reducing the cost of health care delivery over the short and long term. Although you can design your own version of best outcomes, the following high-level metrics, available when one integrates their data, offer a good starting point to measure each provider (as identified in your medical bill review data):

-- Average medical cost per claim (found in your claims database).

-- Average lost workdays per claim (found in your claims database).

-- Percentage of claims with litigation (found in your claims database).

-- Percentage of referrals to specialists or physical therapy (found in your claims payment database).

-- Lag time to referral to specialists (found in the claim payment or medical bill review database).

This piece originally appeared in the Apr. 8, 2008, edition of Workers' Compensation Report. Maddy Bowling is president of Chicago-based Maddy Bowling & Associates Consulting Inc. With more than 29 years of experience, she is a frequent speaker and journal contributor.

JOSHUA CLIFTON lives in Chicago and is editor of Workers' Compensation Report.

June 1, 2008

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