The New Crisis in WC

Once again, workers' comp is at a turning point. Excess capacity is driving competition and limiting returns on surplus. Managed care seems to have created some sustainable solutions in the mid-90s; Is it reasonable to expect it to do in ore?

In this new millennium, workers' compensation is facing a serious crisis. The $80 billion industry made a significant turnaround in the mid-90s. Recent statistics from the National Council on Compensation Insurance (NCCI), however, indicate deterioration in the key barometers used to gauge the health of workers' compensation. Preliminary NCCI figures show a combined ratio of 130 percent in 1999.

Quite simply, there have not been enough premium dollars taken in to offset losses. According to Bill Schrempf, NCCI's president and chief executive officer, "we are likely to face a long, grinding battle for survival."

The Workers Compensation Research Institute (WCRI) recently completed the first phase of CompScope, a multistate benchmarking study that examined 4.5 million claims. According to WCRI, this landmark study is the most meaningful multistate comparison to date concerning the performance of eight major workers' compensation systems. States included in CompScope are: California, Connecticut, Florida, Georgia, Massachusetts, Minnesota, Pennsylvania, and Texas. These states represent 40 percent of our nation's workers' compensation benefit expenditures. Study results should help industry stakeholders focus on ways to improve overall results.

Perhaps a good place to start is by reviewing some of the seemingly age-old problems that continue to plague us when implementing managed workers' compensation solutions for both claims and managed care practices. These include:

* Lack of effective communication. With multiple parties involved in claim management (i.e., employers, payers, providers, injured workers, and more), our inability to communicate clearly and effectively to keep everyone on the same page and working toward the same goal drives costs up.

* Litigation. Yes, litigation continues to plague the system and is more prevalent in some jurisdictions. Recently released statistics from WCRI's CompScope reveal that Florida claims had more litigation than other states in the study--23 percent versus an average of 17 percent. And, at $2,504, the average defense fee was nearly one third higher than average.

* Steeply discounted, fee-for-service PPOs. These PPOs tend to increase utilization and drive "good" physicians from the system. When managed care was introduced in workers' compensation over a decade ago, provider networks were designed based on steep discounts (in the range of 25 percent to 30 percent) from fee schedules that were already outdated in many states. This practice created two problems: experienced physicians leave the system and the potential for overtreatment increases.

* Adversarial approach in claims administration. For all of the talk about "best claim practices," many frontline adjusters are still taking a "let's fight the employee" approach. Even the advent of the adjuster/nurse "partnership" in recent years has not solved this adversarial problem. In many cases, nurses gather information for the adjuster to "fight" the claim, rather than focus on what could be done to manage the claim toward a less costly and more effective resolution.

* Ineffective/inefficient case management. The lack of proactive and well-managed case management drives up costs. A nonresults approach will increase medical and indemnity costs through use of more medical care and payment of extended indemnity benefits.

* Late notice of claim. In the past 10 years, there have been many studies done by insurers on the advantages of prompt claim submission by employers. A recent report from The Hartford Financial Services Group found that claims filed five or more days after an injury cost an average of 15 percent more than claims filed promptly. Yet, too many employers continue to wait to file claims. Consequently, they miss the window of opportunity to effectively and proactively manage the claim.

* Lack of modified-duty programs. Employers who do not have the mechanisms in place for returning workers to employment at modified duty experience loss-cost increases through indemnity and medical payments. When employees cannot return to work, they are likely to seek more medical attention, driving up medical and indemnity costs even more.

Blocking and Tackling

Understanding these problem areas brings out a certain "blocking and tackling instinct." Clearly, we have some good solutions; but, we have not learned how to successfully pull the various participants involved in those solutions together to achieve best outcomes. When we learn to do this, we should find that, yes, managed care can do more.

As simple as it sounds, effective communication, if implemented consistently, would solve the majority of problems.

Gene Roberts, president and chief executive officer of Protegrity Services Inc., a workers' compensation services company, strongly believes that "we are in the communication business. Our ability to effectively communicate through improved processes such as Internet applications will deliver the results that we all want."

Independent industry consultant, Jeff Krieder, also believes that "a lack of free flow collaboration between all persons trying to create a positive effect on the claim outcome and cost" is seriously damaging the system.

Cynde Bunch, chairman of Bunch & Associates, a privately held, Florida-based integrated claims and disability management firm, has implemented real-time, online communications with large employer clients and servicing payers.

"All parties see the same claim update, at the same time," states Bunch. "This real-time communication helps us avoid the problems that typically arise when traditional fax and mail communication is in play."

Effective communication is certainly integral to reducing litigation. More often than not, an injured worker who seeks the services of an attorney has not received prompt and easy-to-understand information from the payer and employer.

Bruce Carlin, president and chief executive officer of California-based Comp-Partners Inc., a privately held health care organization, says that clients that use his services are experiencing a 70 percent decrease in litigation.

According to Carlin, savings come from decreased doctor shopping and reduced medical/legal expenses. Carlin reports that one of his clients, Credit General Insurance, has experienced a significant reduction in its loss ratios: 124 percent in a six-month period from 1997 to 1998 to 65 percent in the same period for 1998 to 1999.

Managing Utilization

Overutilization usually occurs when provider services are discounted from state-imposed fee schedules. The problem can be compounded if utilization management is ineffective because excessive and inappropriate medical care is not questioned and causes further increases in both medical and indemnity costs.

Network Synergy Inc., a privately held Florida-based physical and occupational therapy network, has contracted with providers that have agreed to be reimbursed on a condition rate. This rate is based on the body part injured and the severity of injury instead of on a typical fee-for-service arrangement.

Company president, Ron Araujo, states that savings result from preventing the overutilization typically associated with discounted fee-for-service arrangements. "We have successfully assisted our clients in reducing their physical and occupational therapy costs by 20 percent to 25 percent, based on audits performed by carriers, brokers, and employers," Araujo states.

These savings include lower per-claim rates due to the condition-based reimbursement program as well as savings from costs associated from case management, utilization management, peer review, and percentage of savings.

Choice Managed Networks, a privately held Florida-based firm, has developed a comprehensive provider network that does not typically discount provider fees. This approach has resulted in a network that consists of experienced, knowledgeable physicians who understand workers' compensation and have a prompt return-to-work focus.

According to company president, Sondra Seay, communication improvements have been the cornerstone for return-to-work success.

"When our clients send a description of the job to the provider in time for the employee's first visit, we actually prevent many lost-time claims," she says. "The job description allows the provider to more accurately assess what the employee can do and, many times, that information will keep the employee on the job. We have assisted Unisource, a Florida-based third-party administrator, in reducing the incidence of their lost-time claims from a national average of 25 percent to 30 percent down to 18 percent."

Additionally, the process of utilization management and the clinical criteria used to support that key managed care function are critical.

Karen Walsh, product developer for InterQual, a division of McKessonHBOC based in Marlborough, Mass., and developer of IWC clinical criteria guidelines, says: "In addition to providing an objective and consistent basis for cost-effective, clinically sound medical care, decision-support criteria must foster speedier return to work for employees and improved communication between the many dissimilar participants in the claim management process."

A Mind-set Change

A change in mind-set, along with some additional claims management training, are fundamental keys to reducing that adversarial urge to fight a claim. According to Jeff Krieder, who has worked in the managed care and claims industry since 1968, nonmedically trained adjusters typically are not enthusiastic users of managed care and disability management intervention tools.

"There is a tendency to be more comfortable with, and consequently to fall back on, the more adversarial tools such as: independent medical exams, dueling doctors, and surveillanc," states Krieder. "These only serve to drive up litigation and overall costs. Training that really educates claim personnel concerning the complex nature of the managed care and disability process would certainly help to eliminate adversarial attitudes."

Managing the use of case management will help decrease costs. A well-managed and balanced approach to case management will effectively use either telephonic and/or field case management, depending on the needs presented in the claim. Taking this approach will help to curtail unnecessary spending. Case management protocols are and will continue to be significant tools for deciding which files need case management intervention.

Bunch & Associates prefers to look at the employer's bottom line workers' compensation payout and partner with them to reduce their loss costs through effective case management, including strong return-to-work initiatives. "We are looking at their total program costs and how we can work with them to reduce those costs. With excellent return-to-work results, the average length of time open for lost-time claims is less than three months," Bunch says.

The Internet will someday replace mail and telephone modes of communication for first notice of injury. Today, however, use of e-technology is just emerging in the workers' compensation industry. We have known for some time now that earlier intervention and management of injury claims results in better outcomes.

WCRI's CompScope study shows that Florida has the best record for early notice of injury. Fifty percent of all claims were reported in three days or less; this was 17 percent better than the average of 33 percent for all other states in the survey. But, even with a good first notice record, timing for initial benefit payments remained average with 59 percent of indemnity payments sent within two weeks from date of injury.

Though not without its problems, modified duty is a well-known approach to cost reduction. Yet, employers often find it difficult to create modified duty work opportunities. According to Lief Goodson, Bunch & Associates' president and chief operating officer, employers tend to be afraid of modified duty programs. Employers worry about creating more liability in modified-duty scenarios. "We help them understand the benefits that modified duty positions offer them in productivity, as well as in medical and indemnity savings," states Goodson. "Their comfort level increases once they have learned to identify job positions with applicable modifications."

Bunch & Associates reports savings for one large, national retailer, where over a three-year period, incidence of lost-time claims dropped 40 percent. Currently, only 12 percent of its injuries become lost time. This reduction was due in large part to an aggressive return-to-work program that Bunch helped the employer develop.

Managed care has the potential to help the workers' compensation industry out of its current crisis. But the problems arising from the ineffective use of managed care must be addressed. Managed care must work in concert with other interventions (i.e. loss prevention, fraud detection, and overall claim best practices) to bring about optimum solutions. Incorporating managed care practices into a more holistic managed workers' compensation system does have the potential to help curb the crisis and put the industry back on the road to health-again.

Catherine Johnson is president of HJH Group Inc., a management consulting and marketing communications firm in Tampa, Fla.

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