Third-party administrators (TPAs) promise to manage workers' comp costs for employers through vigilant review and through discounts on medical care that they can provide because of their access to preferred provider organizations (PPOs), but consider the experience of a Fortune 25 client of mine. My analysis found that, despite the discounts, after all the TPA charges for medical bill review the company was paying $1.10 for every $1.00 in workers comp medical bills submitted for payment.My report showed my client could get a 10% savings on its workers' comp program by not having a bill review program with its TPA and just paying all bills at 100%!
To avoid similar problems and to find maximum savings, employers should, at minimum, conduct an annual review of their claims handling. TPAs and insurers do their own reviews, but when is the last time such a report concluded, "We need to do a better job"? Although long-term relationships with TPAs or insurers are generally a good thing, employers should adopt the President Reagan admonition to "trust, but verify."
The need for claims audits is especially great in times like the present, because a weak economy has historically correlated with increased potential for fraud and abuse. In a report released last year by the National Insurance Crime Bureau, the number of questionable claims was up 28% in 2012. The three major reasons were: workers filing claims based on prior injuries not related to the workplace; malingering; and just plain old fraud.
The annual reviews should employ four standards. The first should be verification that the TPAs/insurers performance measurements and contractual obligations are being met. An outside independent claim audit should identify all the things that the claims administrator is doing well, along with identifying areas for improvement.
The audit should actually help TPAs and insurers that have performance bonuses built into their contracts. I have also found that an independent analysis often discovers that the employer causes many of the problems by reporting claims late, by communicating poorly or by lacking a return-to-work program. Such barriers are difficult for even the best claim administrators to overcome. Claim administrators often find it difficult to tell the employer that the emperor has no clothes. A good consultant can, through an independent audit.
The second standard of review should be to determine if the claim administrator is meeting its own internal standards, policies and procedures, such as caseloads per adjuster, quality controls, activity checks and timeliness of benefit payments.
The third level of review should be to compare the claim administrator's standards, policies and procedures to widely accepted industry best practices, such as: initial claim investigation, three-point contact, return-to-work action plans, referral to medical case management and use of independent medical examiners.
The fourth level of review should be comparison to an ideal vision of a workers' comp program. If you could play Santa Claus and had an unlimited budget, what changes, resources and areas of improvement would you like to see? You would be surprised what great ideas spring from that question, that actually don't cost a lot of money to implement.
My experience in the workers' compensation industry began with learning the business from the treating provider's viewpoint. To this day, that occupational medical practice's 24-hour medical triage program to local employers is the best model I have ever seen: Get the injured worker to the best provider and facility from the moment of injury based on the nature and severity of the injury. All claimants by definition are patients who have a work-related injury or illness before they become claimants, or at least say they do. (Excuse me for being cynical, but I grew up in tough industrial town in New Jersey where committing workers' comp fraud was apparently easy and was considered a badge of honor at the neighborhood tavern.)
Virtually every expert agrees that the most effective cost-containment activities should take place within the first 24 hours of a worker's seeking medical treatment, yet this is rarely the focus of the multibillion-dollar managed care industry. Instead, that focus has been on generating huge profits by selling "percentage of saving" arrangements based on PPO "discounts." Audits can help return the focus to where it should be.
Audits can also provide the setting for spotting lots of other problems. For instance, a large, self-insured and self-administered trucking company went through every group health medical claim with a fine tooth comb, but all workers' comp medical bills were stamped to be paid at 100%. When I asked why, the risk manager replied, "Because workers' comp requires us to pay 100% of medical." I pointed out the golden rule, that his statement only applied for reasonable and necessary care related to the injury or illness up to the point of maximum medical improvement (MMI). I felt like Thomas Edison when I saw the light bulb go on above his head. That was the beginning of the end of the policy to pay all workers' comp medical bills at 100% of billed charges.
One of my favorite career moments stems from an interview with a senior executive at a TPA, on behalf of its largest client. I asked him about his quality-assurance program. His answer was, "As you know, we are historically weak in this area." Weeks later, the client asked why I gave their quality-assurance program such a poor grade. My written response was: "Because they are historically weak in this area."
I begin consulting engagements with corporate clients by asking, "It is 9:00 a.m.; what will happen if you have a work-related injury at 10 a.m.?" Two of my favorite responses were: "That's a good question. I have no idea"; and, "We send everyone to the emergency room." I replied to the second answer with, "And then what?" The silence was deafening. That type of response is always dynamite for my claim-audit/cost-containment reports.
First three things I want to know are: Who is the treating provider? Where are the medical reports and documentation? What was done with them?
I have always told my clients that the first time they see a doctor and a lawyer on the same claim file, it is a coincidence. The second time, it is a conspiracy.
Why conduct a workers' comp claim audit? Because it is where the rubber meets the road.
