Loss Prevention, Auditing & Safety Conference 2009 Title Sponsor:

Claims Management 101

Robert M. Sklar, BS, CRCP, ARM

So Why and I here at 8:15?

What is involved with a Workplace Injury Claim How does the claim evolve – good vs. bad What does Safety have to do with these claims

Why should I care? What are the financial drivers What impact can I have on claims What can I learn from claims data What priorities should I have based on my claims

data

But Wait!

I am just the Safety Person. Does this really matter?

If you are just the “Safety Guy”, No!

If you are a Safety Professional, Than Yes!

A Safety Professional is a part of the organizations Risk Management team, like it or not!

Regulations on the Increase

HIPPACOBRAIRATRFARAFMLAADAFSLAFRAOSHAHMOMSHAERISAEEOFDAEPAFUTAADEAMSSALMRAIRSFLSAFICACase LawCommon Law

FRAOSHAHMOMSHAERISAEEOFDAEPAFUTAADEAMSSALMRAIRSFLSAFICACase LawCommon Law

EEOFDAEPAFUTAADEAMSSALMRAIRSFLSAFICACase LawCommon Law

LMRAIRSFLSAFICACase LawCommon Law

Case LawCommon LawCommon Law

1900

2009

Safety

Identifying hazardous working conditions develops strategies to eliminate or mitigate the

identified hazard.  Provides accident injury and illness profiles and data Identify accident trends, sources, and factors that

contribute to occupational injuries and illnesses Safety training programs:

Workplace violence Driving Ergonomics Lifting & Moving LOTO HazCom/HazWopper

What does Safety have to do with Claims?

Everything!

Claims are the result of failure. Management of Claims is managing failure!

Failure to act in a Safe Manner Failure to maintain Proper Housekeeping Failure to use proper PPE Failure to Drive or Work Safely. Failure to adhere to Safety Policies

Workers’ Compensation - Defined

A law in each U.S. state that requires employers to assume obligation for employee injuries and some occupational illnesses, as defined, that “arise out of and in the course of employment.”

Such obligation applies regardless of fault. The obligation can be satisfied by an insurance policy or by an approved self-insurance plan. 

Workers’ Compensation

Medical Treatment Payment of lost wages Payment for medical expenses Return to Work Program Vocational / Occupational Rehab Legal Expenses Psych Expenses Permanent Disabilities Claim Settlement Lifetime claims

Let’s talk about Claims

Where does a claim start?

Employer Knowledge Personally Reported Verbal or Written Evidence of Medical Treatment

“Oh yeah, he did say he got hurt, but never told me it was work related….” “So I never reported it.”

Sometimes your first notice is a Petition or legal action.

Definitions DOL = Date of Loss (Date of Injury) LT = Lost Time - When more than x days off work TTD = Temporary Total Disability

The temporary wages paid during time off (66 2/3) PLUS any medical bills (statutory coverage)

TPD – Temporary Partial Disability Can work limited duty but not full time Partial Benefits are paid to supplement wages

MMI = Maximum Medical Improvement The doctor deems your as well as your going to get No further improvement is ever expected

Definitions

RTW = Return to work The employer can accommodate the

employee’s restrictions and provide some form of job to the employee (can be temporary or permanent)

AWW = 13/26/52 Week Average Weekly Wage The employee’s gross salary for 52 weeks

prior to the injury is added and then divided by 52 to derive the average weekly wage.

Definitions

IW – Injured Worker, Claimant, Applicant EE – Employee ER – Employer

DC – Defense Counsel AA – Applicants Counsel

How does a claim start?

You've done it a thousand times. It comes naturally to you. You know what you're doing. I don’t need to worry about that. I can take care of myself. Etc. Etc. Etc.

NOTHING CAN GO WRONG, RIGHT?

Think Again.

Injuries can be Acute or Cumulative

What is a Acute Injury / Traumatic Injury?

1. A traumatic injury is a wound or other condition of the body caused by external force, including stress or strain. 

2. The injury must occur at a specific time and place, and it must affect a specific part(s) or function(s) of the body

3. Must be caused by a specific event or incident, or a series of events or incidents, within a single day or work shift

+ =

Cumulative Injury or Occupational Disease?

1. An Occupational Disease is a condition produced by the work environment over a period longer than one work day or shift. 

2. The length of exposure, not the cause of the injury or the medical condition which results, determines whether an injury is traumatic or occupational. 

Examples: The condition may result from infection, repeated stress or strain, or repeated exposure to toxins, poisons, fumes or other continuing conditions of the work environment, carpal tunnel from daily use of computer keyboard, etc.

How does a claim start?

Employer Knowledge. Once the employer has knowledge than a

claims MUST be filed with your insurance carrier / TPA. Even if you think it is False / Fraudulent Employer may be aware of accident

Local Manager or Supervisor Some States – Treating Physician can initiate a

claim by filing a treatment form. Late reports can result in penalties against

the employer

Benefits of early claim notice

Provides baseline / time line for claim investigation

Documents incident facts while they are fresh Witnesses Symptomology Recovery potential Identification of Red Flags Direct Care

Investigation of Claim

Employer and Insurance Carrier investigate claim Contact Employee, Supervisor, Witnesses,

review medical reports, policies, etc. Adjuster from Insurance Carrier/TPA may call and

take recorded statements (Not all States) Determine if RED Flags exist? Make a decision to Accept, Delay, Deny or take

other action. Often anything other than accept

Litigation.

Claim Process – Red Flags

Horseplay Unauthorized activities Assaults Timing Delayed reporting Conflicting evidence Outside activities Nature of injury Treatment

Suspect Fraud?

Refer to SIU Refer to State Insurance Commission

Usually want to deny the claim and let the Applicant prove their claim in court.

Prepare for Litigation – you need to defend your denial

Directing Care

Established relationship with Occupational Medicine Clinics

Some states you can tell the worker where to treat Medical Management

PPO MCO MPN

Workers will try to treat with friendly doctors Keep out of work Delay medical reports

Directing Care

Options against malingerers Independent Medical Exam (IME) Nurse Case Management Compensability review

Current condition denial Partial denial Do not authorize further treatment

Legal review

The Workers Comp Claims Process Three point contact by adjuster:

Contacts employer Usually the reporting Manager (Investigation)

Contacts “Gate Keeper” Doctor Confirms the injuries (Any Red Flags)

Contacts employee Statement / Recorded Statement

Adjuster starts running diary Administration of claim

Medical payments, drug payments, rehab etc Case Management, Litigation, Claim

Determination

Compensability Decision

Injury vs. Occupational Disease AOE/COE

Pre-existing, Major Contributing Cause Presumptions Operational / Employment issues – WC is not a

dumping ground for bad employees HR Issues LP Issues

Make sure to

SHARE information

Make sure to

SHARE information

Claim Decision – Time Critical

Your Carrier / TPA reviews the claim and determines what benefits the employee should receive. TPA notifies the employee by mail and by phone whether claim is accepted, delayed, or denied.

If the injury is delayed or denied, employee can file for disability benefits (STD) or State Benefits from EDI or Similar Programs.

If the injury is approved as work related and the employee receives a temporary disability check from the Carrier / TPA if the employee remains out of work.

If the injury is approved and the employees remains at work, medical care is continued.

Accept Claim

You pay for everything Benefits are issued based on State Specific

criteria Loss Time Payments are generally 66 2/3% for

Average pre-injury wages Light duty needs to pay at their pre-injury

wages Provide treatment, move case toward closure

Deny the Claim

Litigation Go Away

Some claims can be denied even after initial treatment May still have some payments on the claim

Litigation adds 30-40% to the value of the claim

Improper Denials – Recent RICO Case

Retaliation Claims

Workers will get hurt Workers will get terminated Workers will hire attorneys Workers will allege that their termination was a

result of filing a Work Comp Claim.

THE BURDON OF PROOF WILL NOW BE ON THE COMPANY TO PROVE OTHERWISE

The Workers Comp Process (Timeline of Events)

DOL – Employee is injured or claims Occupational Inj.

L.T. – Employee is injured badly enough to remain out of work for more than x days. Now considered

a lost time claim.

Dr. determines employee to be T.T.D., P.P.D., or allows the employee to return to work with

modified work restrictions.

The Workers Comp Process (Timeline of Events)

Employee reaches M.M.I. - If employee can R.T.W.

Dr. gives employee an impairment rating.

If employee cannot return to work (due to employer’s inability to accommodate or Dr.’s

determination) Dr. gives employee a vocational disability rating.

The Workers Comp Process

Doctor’s Physical Impairment Rating (RTW)

The doctor’s impairment rating is a percentage of impairment to the body as a whole. This percentage indicates the amount of the body that is not functional after the injury.

Example: The employee has a back injury that requires surgery. He

reaches maximum medical improvement (MMI) and the doctor gives him an impairment rating of 5% to the body as a whole which means that the employee has lost 5% functional capacity of his body as a result of this particular injury.

The Workers Comp Process

A Vocational Rating – This is a percentage of all jobs available in America that the employee can no longer perform after his injury. It is based on: Loss of access to jobs Loss of earnings potential It also takes into account such factors as age and

education THIS IS A VERY SUBJECTIVE PROCESS Lump sum payment is calculated using:Value = AWW x 66 2/3 x Voc Rating x n weeks (State

Dependant)AWW – average weekly wage prior to injuryn – statutory coverage in number of weeks

The Workers Comp Process (Timeline of Events)

Claim Settlement Value:

Return to Work (RTW) – The employer can provide the employee with a job. The Claim Settlement Value is based upon a formula that includes the doctor’s physical impairment rating only – Low Settlement Value

No Return to Work – The employer cannot provide the employee with a job. The claim settlement value is based upon a formula that utilizes a vocational disability rating i.e. not the doctor’s impairment rating – High Settlement Value

Return to Work

Goal of early and safe Return-to-Work Return the worker to suitable employment with

little or no loss of earnings Employer’s Responsibilities

Contact worker ASAP after accident Maintain the communication Attempt to provide suitable work Provide all information to Adjuster

Benefits can be terminated if you Offer and employee refuses work

Return to Work

Suitable employment Productive Available Medically approved / appropriate

Within worker’s physical ability Within worker’s skill set Will not slow recovery

Not demeaning Restores pre-injury earnings close as possible Temporary or Permanent (ADA)

Safety Violations

Some states allow for the reduction of claim benefits or even denial if the Injured Worker violated safety policies: Must have known about them (training) Employer makes reasonable efforts to enforce Employee or Employer intentionally violated

rule Injury is proximate cause to violation

Safety Violations

CA +/- up to 50% GA up to 100% reduction (denial) FL up to 25% reduction OH Penalties against Employer up to 50% + $ 50K NC +/- 10% MO 25-50% reduction

These are examples, each state is different. There is nothing that prevents you from taking corrective action with the employee.

What does the claim data tell us?

What is driving the costs of claims?

Frequency?

Medical Costs?

Severity?

Why is Looking at the Most Expensive Claims Important?

Traditional approaches to workplace loss prevention and safety focused on decreasing the number (frequency) of accidents to reduce the costs of WC. (OSHA Likes This)

Data from Insurers and Company Management indicates that more effective prevention and cost control might come from identifying and preventing those factors (costs) that turn an average claim into one of the most costly.

Why is Looking at the Most Expensive Claims Important?National Data

Least Costly85%

Most Costly15%

All WC Claims Least Costly15%

Most Costly85%

Claims Costs

Insurer data indicates that 15% of WC Claims make up 85% of the total Comp. Costs

Most Costly Claim Trends

Most of the 15% had noted Surgery Issues:

Multiple Surgeries Failed Surgeries Predominance of Back

Surgery

Many noted Psychological Elements:

Stress Anxiety Suicide Chronic Pain

Syndrome Insomnia Psych ED

Most Costly Claim Trends (Age

Distribution)

30%

20%

4%

11%

35%

Under 30 30-39 40-49 50-59 60+

Age range is 24-63 Average age is 41 Median age is 40

The age group of 30 - 39 represents over 1/3 of the costliest cases.

Gender Comparison Frequency (Fx) and Cost ($)

66%

78%

22%

34%37%

63%

All Claims Fx

All Claims $

Most CostlyFx & $

FemaleMale

When comparing cost to frequency, why do men make up a greater proportion of the most expensive claims?

Can research on this trend tell us how to reduce costs?

Fx = Frequency Analysis $ = Cost Analysis

Most Costly Cost Distribution by % of Cases

17

46

18

10

Under 300K

300K-399K

400K-499K

500K+

Case cost ranged from $284K to $1044K Average cost was $388K Median cost was $343K Why do over half of the most expensive claims range between $300K and $400K??

Typical Claim Financials

Paid Reserve Total IncMedical 155,000 276,000 431,000 Indemnity 81,256 124,777 206,033 Expenses 26,210 21,080 47,290 Recovery - Other 8 8

Total 262,474 421,857 684,331

Where does the $$ Go?Cost Data

Most Costly The Role of Surgery

2 Sx26%(14)

1 Sx51%(27)

5 Sx4%(2)

4 Sx8%(4)

3 Sx11%(6)

Most Costly and Surgery

Extremities12%

Back62%

Internal6%

Carpal Tunnel

6%

Head4%

Amputation10%

Most Costly: Psychological Elements

46% claims had some “psych” issues alleged.

Post Traumatic Stress Anxiety Insomnia Depression Low Self-Esteem Suicidal Thoughts Hopelessness

What role do psychological issues play in high cost claims?

Is there any way to predict which claims will have psychological elements and those that will not?

Can research into the psychology of Workers’ Comp help us find ways to reduce costs?

Most Costly and Dispute Activity

60% of the claimants had some kind of dispute between themselves and the insurer/employer.

The NOC (Notice of Controversy) serves as notice that either benefits or other elements of the claim are in disputed pending WCB resolution.. There are many things that can be disputed: Causation - Service- Mileage Treatment - Doctor’s Services Supplies Diagnosis - Etc.

Most Costly and Dispute Activity

How do disputes and denials impact Workers’ Comp. Costs?

What happens to the Employee/Employer relationship once a dispute or denial occurs?

Can research into this issue tell us how to reduce costs that are attributed to this process?

The Workers Comp Costs (Severe Disabilities)

Permanent Partial Disability (PPD) is a major cost driver and litigated condition:

PPD is the doctor’s rating given to an employee that is utilized to determine a settlement value

In most states PPDs represent the largest share of losses

Severe Disabilities Cont.

PPD costs account for 60% of all benefit costs according to national industry standards

On average each case costs approx $49,000 according to national industry standards

P.P.D. settlement values based on Dr. impairment ratings

The Workers Comp Costs

Ten Reasons Why Attorneys are retained:1. Claim denial

Claimant profiling2. Little or no contact by employer or insurance

company (Lack of Internal Customer Service)3. Overbearing or intrusive contact by employer

Positive contact is important4. Unpaid bills and unreimbursed prescription fees5. Attorney advertising and solicitation6. Outside influences or third party advice

Friends, family, med providers and attorneys

The Workers Comp Costs

7. Lack of modified duty Employee feels harassed upon RTW

8. Employee / Employer dissatisfaction Low morale / low morals

9. Loss of health insurance or other benefits10.Accidents that should have not occurred in

the first place Employers must take an active role in

preventing accidents

The Workers Comp Costs – Medical Care

“Medically driven” - med info guides all the key decisions

All reasonable and necessary med care is covered

Four elements of med cost inflation:– Doctors delivering more units of treatment or

more expensive treatment– Injured workers more resistant to RTW– Employers maybe procrastinating at RTW– Plaintiff attorneys attempting to obtain more

favorable impairment ratings through more Doctors visits

The Workers Comp Costs - Medical

Prescription drug cost increases: Costs of drugs are rising nationally

1997 – 6.5% of total WC costs nationally 2005 – 9.6% of total WC costs nationally 2009 expected to be almost 14% nationally

Utilization rising1. Greater availability2. Aggressive marketing3. Aging workforce4. Increased access through insurance

The Workers Comp Costs

Prescription drug cost increases: Availability of newer high priced drugs

Vioxx and Celebrex, Viagra Drugs without generic equivalent account for

56% of WC pharmaceutical costs In 2008 brand name drugs cost 107% more

than generics

The Workers Comp Containing Costs

How do we contain these costs? Using negotiation to control costs (MPN,

Designated Providers, Specific Vendors) Fee schedules (Most States have a Fee

Schedule)

Implementing safety controls Prevent the claim of happening

Why Accidents Happen

0%10%20%30%40%50%60%70%80%

UnsafeActs

UnsafeConditions

Unsafe Behaviors/Acts = 80% of accidents

Unsafe Conditions = 20%

Inspections (Self & OSHA) Usually are overly

focused on conditions Include safe and unsafe

behaviors in your checklist

Watch People Work!

Underlying Causes of Most Workplace Injuries

#1 - Management Behavior - nearly every unsafe action and condition can be traced back to a lack of adequate safety management / Supervision (enforcement)

#2 - Employee Behavior - is often a reflection of safety training and enforcement

Dupont Chemicals, Congress 1994, Jeff Wilson, manager, says when an injury occurs, instead of the typical reaction: “What could that

person have been thinking?”

the better response is:

“Where did we (the company) fail?”

Other Prevention Techniques“Before the Accident”

Hiring Practices- Drug screening- Prior employers- MVR’s- Competency tests- Criminal records- Prior Claims

Authority to STOP if danger is imminent - Employees need this

to work safely

Health - Helps keep employees alert and focused- Eat well balanced meals- Avoid alcohol, drugs & tobacco

Exercise - Body reacts better- Reduces stress- Less likely to be injured

Loss Control: Claims Mitigation

Communication with Employees This is where most employers fall short

Put yourself in the injured employee’s position: Injured on the job Alone, in pain, disabled, at hospital/home No flowers, no get well cards, no calls of concern from

employer Resentment builds TV attorneys care more than you!

Employees less likely to seek a lawyer with a concerned employer

Loss Control: Claims Mitigation

Communicate with Medical Provider Learn of they were told about the

accident/injury Compare notes!

Return to Work/Light Duty Program Message to injured employee that you care Screens out fraud cases Message to other employees Reduces Indemnity pay (for time off)

Reduces overall claim payment Insurance carrier can stop payments if employee refuses

to return to work

Old School

“as in many workplaces, safety issues — like environmental issues — were seen as a nuisance, a drain on profits and a drag on production. Safety was delegated to safety inspectors, who were routinely ignored.”

The larger problem is in the executive suite. The CEO is not going to fall off the staging or have a forklift mash him into the wall. He’s got a safety guy to take care of all that stuff, and mostly what he wants to hear from the safety guy is nothing. Don’t bother me, buddy, I’m working on cost containment, quality control, financing, CEO stuff, stuff that makes us money. Safety? Not my job.

http://thechronicleherald.ca/NovaScotian/1113824.html

10-K: DOLLAR GENERAL CORP, 3/24/09

“Our increased sales levels favorably impacted SG&A, as a percentage of sales, in addition to a reduction in workers' compensation expense, resulting from safety initiatives implemented over the last several years,...”

“Our third priority is leveraging process improvements…”

“Examples of cost reduction initiatives in 2008 include… reduction of workers compensation expense through a focus on safety,…”

10-K: QUALITY DISTRIBUTION INC. 3/13/09

“We have made safety the main focus of our organization. We implemented several comprehensive process improvement programs to further identify and implement opportunities for sustainable safety improvement. Tangible results of this focus have already manifested themselves in a substantial decrease in preventable events and claim frequency.”

Safety and What it means to Sr. Mgmt.

Becoming ever more important Increase in Sr. Management Awareness

They are now starting to realize that Safety translates to decrease in expenses which means they can add to the bottom line.

What’s the ROI?

Let’s make it evident! Safety Pays

Pay for your Safety Programs with Saved Dollars Back Claims:

$ 33,000 average expense Store with 12% Profit Margin

$ 275,000 In Sales just for the claim + Overtime + Lost Productivity + Hiring and Training Costs $ 577,500 savings by preventing 1 back

claim!

Cost of Claim Matrix

Cost of Claim 2% 4% 5% 8% 10% 12% 15%

2,500

125,000

62,500

50,000

31,250

25,000

20,833

16,667

5,000

250,000

125,000

100,000

62,500

50,000

41,667

33,333

10,000

500,000

250,000

200,000

125,000

100,000

83,333

66,667

25,000

1,250,000

625,000

500,000

312,500

250,000

208,333

166,667

50,000

2,500,000

1,250,000

1,000,000

625,000

500,000

416,667

333,333

75,000

3,750,000

1,875,000

1,500,000

937,500

750,000

625,000

500,000

100,000

5,000,000

2,500,000

2,000,000

1,250,000

1,000,000

833,333

666,667

250,000

12,500,000

6,250,000

5,000,000

3,125,000

2,500,000

2,083,333

1,666,667

Indirect Costs

Recruitment Expenses Increased Training Overtime Lost Productivity Customer Service Decline Moral / Increased Stress Property / Equipment Dmg.

OSHA Estimates the Indirect costsof a Workers’ Comp Injury to be4.5 x the direct costs.

Liberty Mutual Study:

5-6% indirect costs

Indirect Cost Calculation

If Direct Cost Is

Use ThisMultiplier

$0 - $2,999 4.5

$3,000 - $4,999 1.6

$5,000 - $9,999 1.2

$10,000 or more 1.1

2,500 * 4.5 = 11,250 + 2,500 = 13,750 / 8% = $ 171,875

75,000 * 1.1 = 82,500 + 75,000 = 157,500 / 8% = $ 2M

Cost of Claim Matrix + Indirect

Cost of Claim 2% 4% 5% 8% 10% 12% 15%

2,500

125,000

687,500 62,500

50,000

31,250

25,000

20,833

16,667

5,000

250,000

125,000

100,000

62,500

50,000

41,667

33,333

10,000

500,000

250,000

200,000

125,000

100,000

83,333

66,667

25,000

1,250,000

625,000

500,00

0 1,050,

000

312,500

250,000

208,333

166,667

50,000

2,500,000

1,250,000

1,000,000

625,000

500,000

416,667

333,333

75,000

3,750,000

1,875,000

1,500,000

937,500

750,000

625,000

500,000

100,000

5,000,000

2,500,000

2,000,000

1,250,000

1,000,000

2,100,000

833,333

666,667

250,000

12,500,000

6,250,000

5,000,000

3,125,000

2,500,000

2,083,333

1,666,667

Questions?