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Employers need multiple tools to stop workers comp program money leakage

Tech solutions can help efforts

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Employers need multiple tools to stop workers comp program money leakage

Although technology can help employers plug the “leakage” of dollars lost from their workers compensation programs, it's not a replacement for older, proven measures, experts say.

Leakage refers to money needlessly flowing from a workers compensation program when unnecessary services are applied or, conversely, when claims managers fail to effectively employ measures that would have reduced costs by resolving a case sooner.

An adjuster, for example, may assign a nurse case manager when one is not necessary, or may call in one later than is optimal. But leakage can flow from any number of workers comp practices and services, including failure to subrogate, paying claims that are not compensable, failure to reprice medical care, paying ineffective doctors, managing return-to-work efforts poorly and so on.

Employer practices and provider services, including those obtained from insurers and third-party administrators, all can contribute to the problem. Yet reducing sources of leakage is important today because of rising claims and insurance costs, sources said.

To help stop the drain, service providers have employed various types of technology.

Atlanta-based Broadspire Services Inc., for example, applies predictive modeling technology relying on information gleaned from adjuster interviews with claimants. While that information helps the third-party administrator determine what resources may benefit an individual claimant, it is also mined to find patterns among an employer's entire claims history or among claims at many employers.

That could reveal, for instance, that claimants from a specific employer would benefit from a particular pain management program, said Joel T. Raedeke, Chicago-based vice president of consultative analytics for Broadspire.

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“That is a way of using diagnostics to do an investigation and build a solution,” Mr. Raedeke said.

As another example of available technology, Marsh Inc. offers clients a leakage assessment tool called Workers' Compensation Past Performer, said Charles F. Martin, U.S. casualty operations consulting practice leader for Marsh Risk Consulting in Norwalk, Conn. It evaluates a batch of closed claims files looking for leakage trends in four areas including appropriate claims compensability, disability duration, medical management, and claims management and recovery.

The process is statistically valid, so the findings can be extrapolated to a client's entire claims portfolio and used to assess the client's processes and protocols, Mr. Martin said. Marsh has found that slightly more than half of all leakage typically results from the employer's processes rather than from the third-party administrator's practices, Mr. Martin said.

Because the tool quantifies the amount of dollar savings that will result from system improvements, “it's really the next-generation claims audit,” Mr. Martin said.

Technological tools provide a good blueprint, guiding employers to appropriate system improvements in general, said Fred Pachón, a risk management consultant and president of Risk-Minds in Ventura, Calif.

But they should be used as a starting point only, and not a substitute for a deep-dive review and analysis conducted by individuals with significant claims experience, said Mr. Pachón, who was Business Insurance's 2009 Risk Manager of the Year®.

“They are just one more tool” Mr. Pachón said.

“There is simply no replacement for having an experienced auditor” reviewing claim files to uncover certain leakages, said Rebecca Shafer, a workers compensation consultant and president of Amaxx Risk Solutions Inc. in Hartford, Conn.

It remains difficult to automate some practices, such as medical record reviews, Ms. Shafer added.

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She cited the case of a bus company employee who developed pain in the coccyx that was not reported in the worker's initial medical report. A medical file review conducted by a doctor working with Ms. Shafer uncovered notations in an earlier medical report indicating that Paget's disease caused the claimant's pain, not a workplace injury, she said.

“This type of example is not uncommon” Ms. Shafer said.

An “old fashioned” pre- and post-injury program review, without automation, still reveals much about an employer's protocols, or lack of them, and their TPA's practices, added Robin Hendrickson, senior vice president of claims and risk control practice leader at broker ABD Insurance & Financial Services in San Mateo, Calif.

Although leakage evaluations can be formalized, many facets to a workers comp program remain, particularly on the post-injury side, Ms. Hendrickson said. Therefore, a “live conversation” with the employer remains essential.

“I think the best way is still sitting down with the employer and just saying "Walk me through the process,'” Ms. Hendrickson said. “I ask (the employer's TPA or insurer) the same thing: "Walk me through your process.'”