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Claim denials, not report lag, lead to rising comp costs

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Failing to file a workers compensation claim immediately following an injury is not causing claim costs to rise, but some experts warn employers and workers comp insurers to tread lightly when saying an employee’s injury is not compensable because of the additional expense if such determinations are later overturned.

A study released Thursday by Lockton Cos. L.L.C. found that “report lag” affects claims costs minimally as long as the time between the injury and the filing of a claim does not exceed 12 days. The findings fly in the face of a common myth in workers comp that failing to file a claim immediately post-injury can cause claim costs to skyrocket, said Mark Moitoso, Atlanta-based executive vice president and risk practice leader for Lockton and lead researcher for the study.

“What we did was debunk a myth that has been published over time,” he said. “Getting claims quickly reported is a fundamental part of workers comp … Report lag in and of itself is not the reason cost escalate.”

The study examined Lockton’s database between 2015 and 2017, zeroing in on lost-time claims that fell below $250,000. Of those, 90% were reported within the first two weeks of the injury with little variation in costs, according to the study.

However, claim denials actually do impact costs, according to a separate Lockton report issued in May. That study found that the number of claim denials for injured workers has inched up over the past five years, rising from 5.8% in 2013 to 6.9% in 2017. But 67% of those initial claim denials were eventually paid within 12 months.

“Companies need to take a close look at what they are denying and what’s the process, what is happening to make their (denial) rates higher,” said Kelly Flannery, a Kansas City, Missouri-based risk analyst with Lockton and the author of that study.

Of concern is that denied claims cost 55% more on average: $15,694 instead of $10,154 for an accepted claim, according to the study that examined claim activity for 150 Lockton clients between 2013 and 2017.

Companies need to consider whether the denials are internal decisions or made by their carriers, said Ms. Flannery. Investigating why claims are denied could help lower costs, she added.

The study revealed the top 10 reasons for claims denials: no medical evidence; no injury per statutory definition; reservation of rights; pre-existing condition; idiopathic condition; intoxication or drug-related violation; non-work-related stress; failure to report accident timely; doesn’t meet statutory definition of employee; and misrepresentation.

“There are a lot of things you can take away from this,” said Carin Burford, a Birmingham, Alabama-based shareholder with Ogletree, Deakins, Nash, Smoak & Stewart P.C. who also teaches workers compensation law at the University of Alabama School of Law in Tuscaloosa. “Are they suggesting that maybe we shouldn’t deny as many claims or look at them further?”

Ms. Burford said the latter is the better practice, as claims tend to get more expensive if claims are first denied, leaving the workers to seek medical care on their own, and then accepted eventually.

“It is more expensive if it gets converted to a workers comp claim,” she said. “Most states have negotiated a certain fee schedule with (workers comp) medical providers. When it is not covered under workers comp, those fee reductions don’t apply … Those payments are paid at the end. I can foresee that when you deny a claim that is questionable right out of the gate, you can experience an increase in medical costs down the road because you are not covered by a comp fee schedule (in the settlement).”

State laws providing enhanced guidelines for what constitutes an injury are a contributing factor to the rise in claim denials, as is the case in Tennessee where 2014 reforms called for injured workers to prove that work was at least 50% of the cause of their injury.

“Causation became finally an issue that could be potentially won,” said Kitty Boyle,

a partner in the Nashville, Tennessee, office of Constangy, Brooks, Smith & Prophete L.L.P. Before 2014, “if it happened at work or started hurting at work, then it was usually compensable. It was ‘I hurt at work, not I was hurt at work.’”

“That allowed us to deny a significant number of claims that would not have been denied before,” Ms. Boyle said.

But given the high paid-claim rate after litigation, it is evident that some denied claims should not be denied, said Ms. Flannery.

“It’s costly for the companies to deny more than what they should be denying,” she said.