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Six ways to stop dollar leakage from Workers' Compensation programs

In Workers' Compensation, leakage refers to expenditures employers make that do not improve the outcomes injured workers achieve. In a recent Business Insurance article, "Sealing comp programs from dollar leakage requires multiple tools," Robert Ceniceros identified three categories of leakage:

Hard leakage - instances such as paying a claim that never should have been paid or paying out more benefits than required

Soft leakage - more subjective than hard leakages, such as paying too much for medical care when a doctor orders unnecessary tests

Vendor leakage - payment for services that are not necessary or do not resolve a claim faster

The possible sources of leakage in the Workers' Comp system are many. Unnecessary medical costs are the most obvious and often the most costly, but failure to subrogate, poor management of return-to-work programs, inadequate claims management, lag time in reporting, disability duration, fraud and a host of other issues can contribute to leakage. Marsh Risk Consulting notes that more than one-half of all leakage results from employers' processes, so a review of the internal processes is the best place to begin.

  1. Prompt reporting

    An often-cited study by The Hartford proved that a delay in reporting injuries is extremely costly to employers. A one-week delay leads to a 10 percent increase in claims costs; a month or more can increase the cost by 48 percent. Educating employees to understand the importance of quickly reporting all claims and training supervisors to file first report of injuries within 24 hours is key.

  2. Control unnecessary medical costs

    The costs of unnecessary medical care in the Workers' Comp system have been well documented by the Workers Compensation Research Institute (WCRI). Some of the key drivers of unnecessary care are:
    1. Prescription of opioids leading to longer term use and possibly addiction
    2. Physician dispensing of prescriptions leading to higher prices and more prescriptions dispensed
    3. Surgeon ownership of surgery centers resulting in more surgeries
    4. Revenue-retaining actions such as up coding office visits and miscoding MRIs

      While some employers believe medical costs are out of their control (and it's the state's responsibility to control with fee schedules and curbs on doctor dispensing and other detrimental medical practices), employers need to recognize that the health care system is rife with financial conflict of interests and can only be controlled with their active involvement. When states began placing limits on dispensing of drugs, physicians looked to offset the losses with other sources of income. Now, more physicians are conducting urine tests, primarily for opioids, in their offices rather than at accredited labs, driving volume and costs up, according to a 2012 study by the California Workers' Compensation Research Institute.

      It is not only major medical expenses that need to be monitored, but also minor ones can quickly add up to large claims, if not controlled. For example, physical therapy occurs in the acute phase of an injured workers' recovery and can account for up to 50% of comp costs in the first 90 to 120 days of a claim, according to the Willis Group Holdings.

      While the bills can be relatively inexpensive, they accumulate quickly and can include unnecessary treatments. It's not uncommon for a physician to write a script for physical therapy that simply says, "evaluate and treat," opening the door to treatments that are unrelated to the injury or unnecessary. Medical treatment guidelines can help but regular reviews are key to determine if continued treatment is needed.

      The key is not only to have a relationship with a physician or group trained in occupational medicine who follows evidence-based guidelines but also to communicate with them about your company's culture, expectations and Workers' Comp programs and demand transparency about their operation. Know how they work:
    • What are the return to work protocols?
    • Are there lags in the continuum of care when specialists are needed?
    • How timely are their reports?
    • What happens when progress is not on track with normal disability durations?
    • What is their practice related to Opioids? Surgery?
    • How knowledgeable are they about your industry?

  3. Measure Return-to-Work results

    While it is important to get injured workers back to work as soon as medically possible, it's also essential to monitor their progress in modified duty assignments. The Medical Disability Advisor, now in its 6th edition, is an accurate data source for predicting disability duration, and thus return to work time for many diseases and injuries. Moreover, encouraging feedback from injured employees can provide valuable information about the effectiveness of the program in terms of meaningful employment, support from supervisors and colleagues and fostering confidence and strength to return to full duty.

  4. Monitor claims

    Leakage in claims is huge-claims that should not be compensated because they are not work related, fraud, poor medical management, failure to employ measures that could reduce costs, extended disability durations, over billing and so on. Evaluating closed claims, looking for trends and patterns, is an extremely helpful way to identify weaknesses in processes and protocols. It can help identify what type of preventive programs will be most beneficial, if there are medical management problems, and if the compensation was appropriate for the claim. Working with an individual with significant claims experience can yield considerable results, even for employers with well-heeled programs.

    Combining a focus on cost control and outcomes will produce the best results for employers.

  5. Recognize the needs of the injured employee

    Legal expenses are another source of leakage. Most employees who are injured on the job have never been hurt at work previously. Holding their hand through the process and frequent reassurances that they are a valued part of the team can significantly reduce the likelihood that they will hire an attorney and lower recovery time. They may not understand how Workers' Compensation works and worry about their job, so it is critical to address these concerns from the outset.

  6. Identify subrogation possibilities early

    Subrogation comes into play when a negligent third party causes a Workers' Compensation injury. While the employer or insurance carrier has a right of recovery against the negligent party, the process is not simple and it is usually up to the insurance company to pursue the claim. But it's important for the employer to recognize third-party negligence and bring it to the attention of the agent and insurance company early in the process. Some common situations involving subrogation include motor vehicle accidents, slips and falls on property owned by a third-party and claims involving machinery or equipment that is owned or maintained by a third party.