KEY ELEMENTS OF AN EFFECTIVE WORKERS COMPENSATION CLAIM AUDIT
by George Kingston
During a recent review of a large corporation's insured Workers Compensation program, we interviewed the insurance broker to determine services provided. The broker was proud to tell us that they regularly performed audits of the insurer's claim files. We were told that the broker's claim consultant recently audited 40 claims in approximately four hours.
Our experience in conducting hundreds of workers' compensation claim audits leads us to conclude that it is not possible to thoroughly audit 40 claims in four hours. This raises the question, What constitutes a thorough claims audit?
Based on many years of exposure to good and bad claim-handling practices, we have identified 17 key claim functions that must be managed properly to achieve good results. All of these areas of performance must be evaluated if a claim auditor is to be effective in identifying areas of weakness and making recommendations to reduce the employer's costs. Any audit that claims to be comprehensive and thorough must include a review of the following areas of claim handling and administration:
1. Staffing. The auditor must evaluate adjuster/examiner training, experience, overall competence, and the appropriateness of supervision.
2. Reporting. The audit should determine whether reports are made promptly and not delayed for any reason.
3. Caseloads. Regardless of the competence of claim adjusting personnel, their performance will suffer if caseloads are too high. Cases assigned to each examiner should be limited to a number that will permit the examiner to effectively perform the functions listed below. The level of support and the make-up of the caseload must be considered when evaluating the caseload.
4. Claimant Contact. Within 24 hours of claim receipt, the examiner should contact the injured worker to explain benefits, establish rapport and ensure proper medical care.
5. Investigation. Although not needed on every claim, an outside investigation should be required when there are questions about compensability, subrogation or possible fraud.
6. Diary Systems. An effective diary system should be mandatory. It is the only way examiners, adjusters and supervisors can be sure to periodically review every open case, maintain claimant control, ensure reserve adequacy, and close the case at the earliest possible opportunity.
7. Temporary Disability (TD) Payments. Initial payments must start promptly.
To avoid overpayments, it also is important to know when the employee can return to work.
8. Permanent Disability (PD) Payments. There should be a supplemental or final medical report to be sure that the claimant's condition is permanent and stationary before closing a file or settling.
9. Medical Payments. Medical bills should be paid within 25 days of receipt to avoid duplicate payments, which often occur when bills enter the second billing cycle. Consistent delays also can jeopardize essential good relationships with medical providers.
10. Medical Management. Employers often can influence the choice of physicians, and thereby obtain better control of medical costs. The auditor should look for programs designed to accomplish this and should evaluate their effectiveness.
11. Denials. Premature denials force the claimant to go to an attorney, so careful investigation is needed to determine whether a claim will be denied or accepted.
12. Litigation. Effective workers' compensation programs aim at reducing and controlling the number of litigated cases. To control litigation costs, cases should not be abandoned to defense counsel.
13. Rehabilitation. Practical rehabilitation plans can reduce ultimate claim costs and return the employee to productive work. A light-work program for employees still under medical restrictions sometimes is an effective way to reduce temporary disability benefits.
14. Subrogation. When claims are caused by negligent third parties, subrogation should be investigated and pursued. Substantial portions of all costs of some claims can be recovered from third parties.
15. Reserves. Case reserves should be posted accurately and reviewed at regular intervals until the claim is closed. An experienced claim examiner should set case reserves based on his/her best estimate of the ultimate probable cost of each case.
16. Return to Work. When the treating or examining physician releases an employee to return to modified work, the employer should be contacted and provided with a description of the light duty the employee can perform. If a position conforming to the restrictions is found, the employee should be contacted and advised to return to work.
17. Medical Cost Containment. All medical bills should be subjected to review for compliance with state-mandated medical fees to ensure that physicians are not overcharging. When allowed by the local jurisdiction, preferred-provider organizations should be used to reduce medical costs.
The audit described at the beginning of this article allowed only six minutes per file to review all areas of claim-handling performance. We find it difficult to thoroughly audit more than 20 files in eight hours, or 24 minutes per claim file.
If you are in the market for claim-auditing services, require the prospective auditor to submit a detailed description of the areas of performance to be audited. Then ask how much time will actually be spent reviewing claims. If the answer is less than 24 minutes per file, look for a different auditor.
If you are spending the time and money to have an audit conducted, make sure the auditor is spending his time and your money in an effective manner. A properly conducted audit will reveal areas of claim handling that can be improved and result in lower workers' compensation costs. A cursory audit will cost little and produce even less in results.
This article originally appeared in The Risk Management Letter. George Kingston, Senior Consultant with Warren, McVeigh & Griffin, Inc., (714) 752-1058, specializes in the evaluation and auditing of workers' compensation, liability, and employee benefits claim administration programs. No reproduction without permission.