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Risk managers at public entities face challenges in holding down workers compensation costs that many of their counterparts in private industry don't see.
Issues such as lack of funding, inadequate claims tracking and bureaucratic processes may cause flak at some private companies, but they can easily rattle a public entity.
That doesn't mean all public entities are unsuccessful in managing workers comp costs. Some are seeing results with innovative and dogged efforts.
The city of Pittsburgh, for example, is watching costs fall after structuring a unique arrangement that lets a local hospital manage the city's entire workers comp program. And Miami, which appeared to be sinking under a mountain of workers comp claims in recent years (BI, Dec. 23, 1996), is slowly digging out after a comprehensive campaign to educate workers and stop abuse of the system.
Public entity risk managers often find themselves tangled in government bureaucracy that snarls their efforts to contain workers comp costs.
While most corporate entities don't typically have to justify operating expenditures, such as those involved in managing workers comp, many public entities are hamstrung by political concerns.
"Some of the bureaucracy that you generally see in government administration and some of the local legal constraints very often get in the way" of effectively managing workers comp, said Beth Voorhees, director of claims and risk management consulting at Coopers & Lybrand L.L.P. in Chicago.
"Clearing some of the existing bureaucracy, in a perfect world, would be a good thing," she added.
For example, some city governments require that indemnity payments be made directly to the employee by the municipality, Ms. Voor-hees pointed out. Therefore, an outside claims administrator or insurer handling the claim has to pay the city, which in turn pays the injured worker.
"Most city governments don't have systems to do that efficiently," she remarked. "It's labor-intensive and causes delays."
"In a lot of entities, it can be tough to track a claim," said Susan M. Sauer, senior vp at J&H Marsh & McLennan Inc. in Chicago.
Budget constraints can mean public entities can't afford to buy the best systems or hire top-notch personnel to gather claims data, she added. Lacking that information, municipalities aren't able to tell how much they are spending and therefore can't implement cost containment programs.
Politics can disrupt management as well, Ms. Voorhees noted. "Very often a risk manager may serve at the pleasure of the current administration. It can be very difficult to get continuity in a program."
Public entities can run into budget problems, sometimes unexpectedly.
"I never thought it would be a problem, but it has been," said Craig S. Macdonald, director of risk management for the Bi-State Development Authority in St. Louis. "It's hard to explain that if you spend $100,000 you can save $500,000. Those kinds of issues are difficult to get through."
The Development Authority, which has about 1,900 workers, was encouraged to increase Mr. Macdonald's funding after workers comp costs dived to less than $2 million from about $3.5 million in the past two years.
Bringing claims handling in-house helped trim costs, and a medical bill review program resulted in more savings. Case management services and a strong emphasis on safety also have helped cut costs.
Mr. Macdonald is a strong believer in modified-duty programs that get workers back on the job as soon as possible. The Development Authority's program has cut lost days in half by instituting such a program, to fewer than 4,000 from about 8,000 in 1991.
A safety incentive program expected to be in place in July should lead to more savings, Mr. Macdonald suggested.
The reward and recognition program each month will honor teams of employees that complete the month with no workplace injuries. Budgeted at $200,000 per year, the program is expected to save $700,000 to $800,000 in its first year, with even greater savings in later years, Mr. Macdonald said.
While some entities can use traditional methods such as safety programs to good effect, others have to take more drastic steps.
The city government in Pittsburgh decided to give up its workers compensation program to control costs. In a unique deal, the city turned over management of its entire workers comp program to Allegheny General Hospital.
"The city of Pittsburgh has had a bad workers comp experience over the years," said Mark Beck, regional director of workers compensation at Allegheny General.
In fact, when the hospital took over the program a year ago, of a workforce of about 4,300, about 950 were receiving workers comp payments. "There are people who have been on comp for 25 years," Mr. Beck said.
In a move that has since sparked interest from other municipalities, the city put management of its workers comp program out to bid among health care providers. Allegheny General was the winner and is paid on a capitated basis to take care of the city's injured workers and management of the program.
By putting the program out to bid, the city immediately saved $1 million in medical expenses through the competitive process, Mr. Beck said.
Allegheny General uses a third-party administrator to handle claims and two area hospitals that could provide emergency room and acute care services to accommodate injured workers in other parts of the city. Workers needing ongoing care are referred back to Allegheny General.
Pittsburgh will see its biggest savings on the indemnity side, Mr. Beck noted, given the number of people receiving workers comp checks. Of the 950 not working, about 450 are over 65 and are unlikely to be back in the city's workforce, he said. They will continue receiving payments.
About 140 jobs are available for the remaining 500, Mr. Beck said, and proper medical treatment and modified duty are getting those employees back to work.
The city does not have enough money to create additional jobs for the others who could return to work, he said. And, the city is meeting resistance from organized labor groups that want all new jobs to be unionized, Mr. Beck said.
In Miami, there are indications that an aggressive effort is succeeding in driving down the number of workers comp claims filed by city employees.
"We've had a marked drop in the number of new claims," said Frank Rollason, director of the city's General Services Administration. "I can't attribute it to anything except a lot of intensity" on the behalf of the city to educate workers about safety and abuse of the workers comp system, he added.
The city's fiscal year begins in October, and for the period Oct. 1, 1996, through April 30, 1997, there were 295 new workers comp claims paid, totaling $350,174. That's a drop from the same period in fiscal 1996, when 422 new claims were logged at a payout of $1.5 million.
Miami is trying to rein in costs that reached $9.3 million during fiscal 1996, up from $7.7 million the year before.
A couple of other factors will help bring down the city's comp costs, Mr. Rollason said. Managed care for workers comp now is mandatory in Florida, and the city expects to have a program in place in January.
The city's four adjusters, who handle about 600 claims apiece, are getting some company. The city's budget includes funds for hiring four other adjusters as well as money to fill a supervisory post and pay an attorney to work on mediation in workers comp cases.
The savings expected from Miami's workers compensation efforts are a component of a five-year city solvency plan. The plan was approved May 12 by a fiscal oversight board that Florida Gov. Lawton Chiles created last year when he declared Miami in a state of financial emergency.
As shown in Miami's experience, the type of work performed by some city employees lends itself to workers comp claims. Of the $9.3 million in claims paid in 1996, Miami shelled out $6.6 million to police and firefighters. Collectors of solid waste were paid $1.4 million.
The nature of police work and firefighting makes injuries hard to prevent, said J&H Marsh & McLennan's Ms. Sauer.
"Stress and anxiety are tough on those individuals," which are additional concerns to the unpredictability of injuries to those workers, she said.
Some municipalities have workers spread across large areas, making it hard to monitor some employees. "It's difficult to find out if they're working or taking time off," Ms. Sauer noted.
Municipalities in that situation have to keep tabs on workers, she said.