By Randy Wheeler
Founder and CEO
Valley Oak Systems
Introduction: Problems in the Workers' Compensation Industry
For public entities, the main goal of workers’ compensation has always been to respond to workplace injuries with the best, most appropriate medical care at a reasonable cost, and to return employees back to work as soon as medically possible.
However, in the last three years, workers’ compensation costs have risen dramatically, driven in part by a 12 percent increase in medical costs and a 6.8 percent increase in indemnity (wage replacement) expenses.(1) To control this inflation, public risk managers and claims professionals are working together to support proven best practices, now utilizing Internet technology as a missing piece that can better enable cost-containment, efficiency, and improved outcomes.
Sophisticated Internet tools and online access to information can help organizations quickly respond to injuries and improve communication and collaboration between all parties involved in the workers’ comp process. This paper will outline specific workers’ comp challenges in the claims and risk management processes, and discuss how technology can help address these issues and achieve industry-wide business objectives and best practices.
Industry Problems: Claims Management Challenges
For many organizations, claims processing has changed little over the years, often involving manual data entry, inconsistent claims review, inefficient workflow, fragmented communication, and frequent mistakes. Thus, claims handlers may spend nearly half their day on routine administrative tasks that have little impact on the outcome. (2)
At the same time, claims professionals in the workers’ compensation industry have seen their jobs become increasingly complex. They face more laws and regulations, and must manage a larger number of open cases. The sheer volume of work makes it difficult for adjusters to properly manage claims for optimum cost-containment and outcomes.
Some departments have actually divided the claims process among various “specialists,” including experts in litigation, subrogation and recovery, liability, compensation, special investigations, and safety and loss prevention. This allows the most appropriate and experienced individual to handle specific claims activities. As a result, there is an increased need for communication and connectivity between the stakeholders, and it is essential to inform the right resources of potential problems and urgent claims activities that require their immediate attention.
For example, litigation has exacerbated the need for specialization. Organizations cannot rely on the courts to put a limit on awards, and juries have tended to side against employers. As a result, the best legal defense is obtaining highly qualified and experienced claims professionals, equipped with sophisticated tools to avoid litigation through up-front claims management. Litigation specialists ensure proper procedures are established to evaluate claims and identify problems early on, so appropriate preventive measures can be taken.
The demand for qualified insurance claims professionals has never been greater. In fact, the lack of experienced claims professionals could reach a crisis point, according to Conning & Company’s July 2001 study, “Property-Casualty Claims Management: Adjusting to New Realities.”
Although the profession continues to evolve, the core mission of the claims adjuster remains unchanged: to control claims costs and to ensure claimants receive appropriate medical care.
To achieve this mission, claims management must ensure a strict and consistent adherence to quality standards. With a high volume of claims activity, efficiency gains are also critical. The main challenge is automating and streamlining routine administrative tasks and labor-intensive manual functions, and focusing specialized resources where they’re needed most. Experienced adjusters and claims managers believe technology is an enabler of these objectives.
Risk Management Needs
From a risk management standpoint, the biggest problems in workers’ comp have been not knowing where losses are coming from and not being able to pinpoint problem areas that would benefit from loss-control programs. Risk managers cannot improve upon risk factors that are not measured.
Today, workers’ comp challenges have created more focus on benchmarking initiatives. Under tremendous pressure to control costs and improve results, risk managers are demanding a higher level of customization in their risk management reports. They must account for losses with varying degrees of detail, perform ad hoc reporting that enables analysis from different angles, and construct actuarial triangles in order to make more sophisticated projections.
With today’s technology, a broad array of risk management reports and notifications are available to help decision-makers improve performance in high-cost, high-risk areas. Going forward, these risk management reports and alerts will enable organizations to implement timely interventions that reduce costs and improve outcomes. Risk managers can also benchmark these metrics against industry averages, and thereby set a detailed company-wide plan to improve performance indicators in the future.
Primary Objectives: The Goals of Every Workers' Comp Program
For public entities, the objectives of their workers’ comp programs are clear, although the path to achieve these goals is a bit more elusive and requires collaboration and planning among all stakeholders. Many are realizing that if time and money are properly invested on the front end, they may be better positioned to achieve the following workers’ comp business objectives:
Reduce injuries. Reducing the frequency and severity of claims is the “holy grail” for most employers. Preventing injuries from occurring in the first place is an effective cost-saving initiative.
Increase the efficiency of the claims process. At any given point in time, a claims adjuster may handle as many as 250 claims, exceeding industry recommended averages of 150 claims per adjuster. As such, any efficiency gains would greatly assist in streamlining their work.
Reduce medical costs. Medical inflation is a key catalyst pushing workers’ comp costs higher. Healthcare in the United States rose 12 percent in 2002, more than triple the current rate of general inflation. (3)
Reduce indemnity costs. Indemnity costs have risen 6.8 percent. (4) The longer employees are out due to an injury, the higher indemnity costs will be. Returning injured employees back to work safely has always been the end-goal of workers’ compensation programs.
Reduce litigation. There is a growing revenue stream from workers’ comp going to lawyers. Not only is the number of litigated cases growing, but the average settlements are also increasing. In major states like Florida and Illinois, it is estimated that more than 50 percent of all indemnity claims are now litigated. (5) Generally, lawyer involvement drives up the cost of claims, and reduces the paid benefit to the injured worker. As a result, it is in the interest of all parties to reduce litigation and lawyer involvement.
Improve quality of care for injured workers. Workers’ comp programs are struggling to achieve all aspects of quality care to ensure patients receive the medical attention they need to return to work quickly and safely. In November 2001, the California Division of Workers’ Compensation published a study on “Improving the Quality of Care for Injured Workers in California.” (6) In this research report, they established that access to medical care and specialists, timeliness of care, adequate time spent with providers, good communication with doctors, and competency of providers were all necessary components to high quality healthcare in workers’ compensation. For instance, an initial treating physician should be familiar with occupational medicine, disability prevention, return-to-work issues, and the workers’ compensation system in order to provide optimum results. In order to make sure all these factors are in place, public entities must carefully scrutinize their provider networks and the return-to-work results these groups achieve.
Properly align technology to meet business objectives. Workers’ comp programs must also evaluate current technology and determine how new systems may better align time and resources with today’s primary objectives and best practices.To achieve the business objectives outlined above, many public entities today are returning to tried-and-true workers’ comp best practices, but with a slightly new twist – leveraging the Internet for its cost and efficiency benefits. In the next section, we will discuss how Internet technology can be a tool to achieve these primary objectives.
The Solution: Advantages of Internet Technology
The Internet represents the most dramatic change in the modern claims operation. As the popularity of the Internet has grown, individuals become more adept at leveraging the immediate delivery of online information and services.
As public risk managers see how the Internet has improved efficiency, workflow, and communication in other departments and industries, they have likewise begun to implement Internet tools in their own programs, allowing them to leverage connectivity, transparency, and real-time benefits:
Public entities have long been in search for convenient, cost-effective connectivity with individuals that need to communicate, including claims adjusters, claims specialists, risk managers, nurse case managers, supervisors, and excess carriers. As a result, connectivity is the main advantage of the Internet, allowing individuals to share information as it develops and to access it at anytime, from anywhere. Many public entities often have various team members distributed across a large region. With the Internet, they have instant connectivity and communication, as if team members were down the hall, not miles away. The cost savings achieved through Internet connectivity versus building a “private” network can be measured in the thousands of dollars per location. Even for entities with a private network already in place, utilizing an Internet-based solution for risk management and claims administration still pays for itself in a few months.
For busy claims and risk managers, transparency is the key to getting the most out of Internet technology, especially as the claims process becomes increasingly automated and paperless. Risk managers need easy access to information, without being bothered with where the information came from or how it was compiled. Transparent to the user, Internet technology is automatically updated and maintained. Instead of having to access multiple applications or Web sites, users simply retrieve what they need from one convenient location. At the same time, the transfer and management of this information remain transparent to the user. Instead of having to access multiple applications with different system requirements, user IDs, and passwords, users simply retrieve what they need from one site. This saves an incredible amount of time, money, and hassle.
Real-time Business Intelligence
Another major impact of the Internet is its ability to provide real-time business intelligence. The quality of the claims process depends almost entirely on individual stakeholders receiving the right information at the right time, so they can operate as “knowledge” workers, not paper-pushers. If all parties receive timely information, they can better perform their assigned tasks and manage claims for optimal costs and outcomes.
Types of Internet Systems
The workers’ compensation industry is likely to continue to be challenged on several fronts – the difficult economy, rising healthcare and indemnity costs, increased litigation, and heightened pressure to improve outcomes. Because of these issues, public entities need Internet technology to apply automation and cost-containment at critical junctures of the claims and risk management process.
Just as the nature of claims administration has grown more sophisticated so, too, must the tools that manage the process. Internet technology helps claims professionals focus on high-priority tasks that directly affect costs and outcomes – such as the three-points of contact, front-end claims investigations, and case management – rather than low-priority administrative functions.
Risk managers who utilize Internet technology leverage a new information infrastructure to exchange data and services in ways that were previously nonexistent. Traditional labor-intensive, manual processes are being revolutionized via the Internet, and organizations that do not utilize these systems will lose out on increased efficiency, cost-controls and data analysis capabilities.
Obviously, the Internet is a powerful tool, but many organizations don’t know what type of technology is right for them. They need to distinguish the hype from the benefits. Currently, there are several innovations at the forefront of Internet systems, which public entities should be aware of:
Application Service Providers (ASPs). With an application service provider (ASP), self-insured organizations gain access to state-of-the-art technology through remotely hosted applications. Instead of paying for software licenses, they can “subscribe” to an application often based on the volume of business or a set monthly fee. By utilizing an ASP model, self-insured entities reduce their IT costs, and as a result, ASPs have gained favor among many organizations.
Browser-based Software. Browser-based applications are specifically designed to run over the Internet, and as the name suggests, they require only a browser to run. Middleware products are not required, making it a more cost-effective, secure and an improved Internet application model. With J2EE architecture, these applications are platform-independent, meaning they run on Windows, UNIX, or any other operating system, and can be accessed from PCs, Macs, and personal digital assistants (PDAs).
Web Services. Web services are self-contained business functions that operate over the Internet. They are important because they will enable systems in different organizations to interact with each other more easily than they do today. Web services are still new, and as such, many of the potential benefits and business uses are yet to be realized. In the future, this technology will further enhance communication, the exchange of information, and the speed of transaction processing. There continues to be excitement over the Internet’s potential to transform the claims and risk management process. Now, with ASPs, browser-based technology, J2EE architecture, and Web services, this transformation is becoming a reality. Organizations should re-evaluate their current technology platform and determine how new systems might better serve their business objectives and best practices.
Systems Features that Support Business Objectives and Best Practices
As an organization selects an Internet technology system, it should consider the latest system features that can help facilitate today’s best practices:
An electronic claims process for increased efficiency
The workers’ compensation industry has begun to implement technology tools that break away from predominantly paper-based, labor-intensive and inefficient claims operations. It is the primary goal of today’s Internet systems to further enhance claims administration so it is an end-to-end automated and electronic process. Scanning and document imaging can increase the volume of claims handled without increasing overhead. “Paperless” claims management is moving closer to reality with many organizations utilizing scanning, optical character recognition (OCR) and photo images to not only increase efficiency, but to also properly document claims activity. With the increased number of claims specialists, an electronic process ensures that each stakeholder has access to the same claims information, and vital data is not lost in the traditional paper shuffle.
Web sites that enable prompt electronic reporting
Numerous studies have shown that if injuries are promptly reported, public entities can better focus early and appropriate interventions to control costs and improve outcomes. As a result, public entities should provide frontline mangers with an electronic means to report injuries. A Web page devoted to injury reporting can utilize basic forms that mirror corresponding paper documents, and can be accessed from the existing home page of a city, county or agency’s Web site. These sites can also utilize Web services to access personnel records and automatically populate fields with real-time information, such as current wages, upon which compensation will be based. Relying on users to remember a username and password can be problematic, but by utilizing a secure Web site, users are more easily able to report claims. Automatic edits occur as the claim is submitted. The incident report is electronically captured and saved directly into the claims system for future management and processing.
Integrated EDI to meet state-mandated electronic claims filing and reporting
In the next few years, nearly every state will have some form of electronic claims filing and reporting requirement. Internet technology provides the instant and electronic connectivity to comply with these mandates. By leveraging Internet systems that integrate EDI reporting, all the necessary claims information is collected when the claim is first submitted, and the need for problematic EDI interfaces or time-consuming data re-entry is eliminated.
Verifying claims information to reduce errors
Accurate information is critical to effective claims handling when a claim is first reported. By utilizing Web services, tasks such as coverage confirmation, employment verification, and other validations are performed in real-time. Even if the policy and employee information are external to the claims-handling organization, the connectivity and transparency of Internet technology allows real-time validation of information to occur seamlessly.
Avoid statutory penalties with business rules
Another best practice in workers’ compensation is adhering to statutory guidelines to avoid penalties. Almost everything in workers’ compensation has a statutory timeline attached to it. If these timelines are not met, an organization faces stiff penalties. There may be hundreds of statutory timelines depending on the nature of the claim and the jurisdiction. Browser-based business rules automatically tracks these timelines, and notifies adjusters and risk managers when deadlines are approaching and when specific actions must be taken. By utilizing browser-based technology, adherence to statutes becomes an efficient and streamlined process, allowing organizations to meet timelines and avoid penalties.
Utilize business rules for workflow management
Workflow management technology has come into the spotlight as a way to enable the exact and timely use of automated processes and expert resources. Business rules are the means by which many claims organizations determine how their claims operation will run. For the most part, these rules define workflow, which has traditionally been paper-based, and is often documented in an adjuster’s diary.
While diary-centric workflow is great for claims administrators, it does not work well for external stakeholders, who are increasingly critical to improve claims outcomes. Historically, these stakeholders have not had access to the claims system, or if they did, they had to pro-actively login to receive notifications of urgent claims activity.
Today’s leading-edge systems now provide integrated workflow management extending beyond diary-based task lists to a variety of new areas. For instance with scanning and document imaging, organizations can utilize a queue-based workflow, allowing remote and external users to receive timely information through a variety of means, such as email, pager or mobile phone. These notices can all be triggered by the business rules within an Internet claims system.
Business rules notify appropriate resources of urgent activity
In a claims system, once a case is saved electronically, automated business rules can take over. These rules automatically notify the appropriate resource to review the claim and automatically assign the case to the appropriate adjuster, who then performs the initial three-points of contact.
Critical to cost control is also notifying the return-to-work (RTW) coordinator and nurse case managers to begin their part of the claims management process. Because RTW coordinators and nurse case managers are typically external parties to the claims operation, notification of new claims activity can occur via email. Key claims information can either be inserted into the body, or attached as a PDF file. Notifications via email, pager, or mobile phone play a critical role in alerting key decision makers of large loss claims (death, multiple employees), where notifications should occur immediately to multiple entities.
Claims email integrates communication and documentation
Another important system feature is having integrated email as part of a single-solution claims management system. Today, if adjusters send email, it should automatically be documented within the claim file, along with any replies.
There are three major advantages to having integrated claims email: 1) The ability to send email from within a single system, so any information can be automatically attached and embedded rather than copying and pasting from an external email application; 2) The claim has its own address book, eliminating the need for specific and private claims information being added to an external program like MS Outlook; and 3) Each claim has its own “send” and “receive” folders, so documentation of all email correspondence happens automatically and is stored within the claim file.
Integrated email also reduces the potential for losing email correspondence when claims are transferred from adjuster to adjuster.
Collaboration with nurse case managers
In the past, efforts to include nurse case managers into the claims management process has been disproportionate compared to the dramatic benefits they provide in reducing overall claims costs and improving outcomes. In many states, the medical component of claims has accounted for the largest cost increases over the past few years.
Obtaining cost-savings can be fully realized with nurse case managers. The process begins with case managers being notified of urgent claims activity as it happens, so they can accompany the employee to the initial medical visit and begin communication to the employee about return-to-work expectations and transitional work assignments. They may help direct care to the extent allowed by the jurisdiction, and by actively participating in the initial visit.
Many nurse case managers are mobile, and may even work from home. As a result, a centralized Internet-based claims system can allow them to access vital claims information and to communicate and collaborate with other claims specialist involved in the process.
Managing return-to-work programs
One of the biggest factors that can impact claims costs is the establishment of a formalized return-to-work (RTW) program. An effective RTW program should be able to close cases at least 50 percent faster than an average claim. An effective way to analyze current RTW results is to look at the average disability duration, and compare it against national benchmarks. It is also effective to look at the percentage of lost-time claims against industry benchmarks. This allows organizations to determine if prompt action is being taken when injuries first occur.
Risk managers should also continually work to define modified duty assignments for injured employees. When an injured worker initially visits the doctor, claims adjusters or nurse case managers can arrange to send the job description, along with modified assignments to the provider in time for the first visit. Today, this information can be sent through Internet-based tools like claims mail, or browser-based business rules discussed earlier. In many cases, the immediate receipt of job descriptions can actually prevent lost-time, as the physician can more accurately assess what the employee can and cannot do on the job.
The successful outcome of a claim also depends to a large degree on how much the injured employee trusts claims staff. The injured worker must believe these professionals are working on his behalf. As a result, it is effective to have the system automatically remind staff members to make regular contact with injured workers, letting these employees know employers want them to come back to work.
Enterprise risk management reports: loss control and injury prevention
It is important to identify a program’s true cost drivers, so appropriate loss control and injury prevention programs can be designed to help reduce high-risk, high-cost areas.
Today, browser-based technology effectively captures the full range of workers’ comp claims data. Risk managers can design, run and view loss runs online, with a high degree of flexibility and customization. For instance, they can analyze workers’ comp losses by worksite, type of injury, department and job function. Internet technology makes this information easy to access, so risk managers don’t need to rely on their claims department or TPA to obtain the data.
Risk managers can also analyze claim-specific statistics and compare them to nationwide industry benchmarks, such as the number of workers’ comp claims, the number of lost workdays, and the average cost and duration of a claim. By benchmarking these statistics, risk managers begin to see where their organization stands in relation to industry averages, what improvements must be made, and which best practices and technology tools might benefit their programs.
Many public risk managers are tasked with also bringing about a culture of safety, and instituting programs to prevent injuries from occurring in the first place. To carry out this practice, risk managers can utilize browser-based technology to generate real-time reports that pinpoint high-injury areas. Risk managers then utilize this information to establish new policies, procedures, and training in an attempt to prevent and reduce injuries.
For example, if risk managers identify back strains as a common injury, they may ask employees to wear back braces on the job, and train these employees on how this behavior can help reduce injury rates. With training, risk managers can get more employees to understand why safety guidelines exist, and how injuries could potentially lead to severe, long-lasting, even permanent injuries if guidelines are not followed.
Better injury and loss prevention can also occur as organizations tighten the feedback loop from the claims department to risk management’s safety and loss control initiatives.
Hybrid partnership with TPAs
Recently, a new hybrid solution has emerged that combines the best aspects of self-administration and third-party claims administration. In this model, an organization licenses browser-based claims technology, and provides a TPA with remote access to the system in order to process its claims. Public entities that select this model retain significant control over the claims process. They can generate their own reports; they can program the system to monitor urgent claims activity, and institute claims handling practices that the TPA would then have to follow. This type of hybrid solution helps to make the claims process more consistent, and provides an organization with direct oversight, even though a TPA administers the claims.
Realized Objectives with Internet Technology
By using Internet technology, public agencies are able to realize the objectives previously established in this paper. The following statistics summarize the measurable benefits one organization reaped by aligning Internet technology to support workers’ comp objectives and best practices:
Reduced injuries: The organization decreased lost-time claims per 100 payroll full-time equivalent (PFTE) employees by 41 percent.
Reduced costs: Internet technology helped to drive upfront claims management, so the organization was able to:
- Decrease total disability costs per 100 PFTE by 31 percent.
- Reduce indemnity claims by 15 percent.
- Achieve hard dollar savings of $304,772 in seven months by working with nurse case managers.
Improve the efficiency of the claims process: Effective claims management can only be achieved with prompt reporting and effective communication. Internet systems helped this public entity to:
- Improve initial contact on claims from 60 to 92 percent of the time.
- Increase timely reporting of injuries from 40 to 86 percent of injuries reported within the first 5 days of an employer’s knowledge of the incident.The results from this agency and similar case studies show that Internet technology is an effective tool in not only supporting business objectives in workers’ compensation, but in actually achieving measurable improvements that over time justify the investment in these systems.
In addition to these hard dollar savings, there are also numerous other “soft” savings in the form of increased efficiency and more effective use of human resources. Obviously, high tech Internet solutions alone are not the answer. More than any other industry, workers’ comp must balance the efficiencies technology can bring to complement human intelligence and professional experience.
Internet technology can never replace the claims adjuster’s intuition and subjective analysis, which is an indispensable part of the claims process. However, individual expertise can be supported with technology tools to improve workflow, optimize claims management, and automate administrative tasks. In the end, public entities must ultimately provide their claims professionals with the technology tools to perform their jobs effectively.
The Future of Internet Technology
Today’s claims operations are challenged by many factors such as high claims volumes, processing inefficiencies, disjointed communication between various parties, a lack of useful information, a shortage of claims professionals, and many other frustrations. With Internet technology, however, claims managers reap the value of improved workflow and collaboration, increased cost-containment, effective claims management capabilities, and a continual feedback loop to improve prevention and safety programs.
There is constant change afoot on the Internet front to further streamline the claims and risk management process. Although the workers’ comp industry has traditionally taken a wait-and-see approach, early adopters have already gained competitive advantages in claims cost-savings and best practices via Internet technology. As these systems continue to change the risk management paradigm, public entities must leverage the maximum benefits from these capabilities.
- Dennis C. Mealy, “State of the Line: Analysis of Workers’ Compensation Results,” National Council on Compensation Insurance, Inc.
- Julie Gallagher, “Value in Claims Gained Through Tech,” Insurance & Technology, January 2002.
- Cathy Johnson, Andrea Lewis, “The Workers' Comp Crossroads,” Risk & Insurance, April 1, 2001.
- Dennis C. Mealy, “State of the Line: Analysis of Workers’ Compensation Results,” National Council on Compensation Insurance, Inc.
- Dennis C. Mealy, “State of the Line: Analysis of Workers’ Compensation Results,” National Council on Compensation Insurance, Inc.
- Linda Rudolph, Kathy Dervin, Joshua Lindford-Steinfeld, and Ruth Posselt, “Improving the Quality of Care for Injured Workers in California: Focus Group Discussions,” California Division of Workers’ Compensation, November 2001.
About the Author
Randy Wheeler is the founder and CEO of Valley Oak Systems and has over 20 years of experience in the technology industry. Valley Oak Systems is the fastest-growing national provider of claims and risk management solutions to the insurance industry. As the chief architect of the company's products, Wheeler oversees the development of the “next” generation claims management software solutions, leveraging the power of the Internet. He has delivered several presentations on Internet claims technology, most recently to the Public Agency Risk Managers Association, Public Risk Management Association, eFusion, and the National Workers’ Comp & Disability Show. He has also written about Internet technology for insurance trade publications, like National Underwriter, Self-Insurer, Claims and Public Risk magazines.
About the Symposium
Workers' Compensation: Containing Costs and Managing Outcomes is presented as a public service of the Public Entity Risk Institute (PERI), 11350 Random Hills Rd., Suite 210, Fairfax, VA 22030. Web: www.riskinstitute.org.
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