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Perspectives

The Workers’ Compensation Challenge (Part 1 of a Three-Part Series)

2018-06-05


Medical costs are rising, and traditional strategies alone aren’t working. What are workers’ compensation insurers and claims administrators to do?

Workers’ compensation medical management. This clinical term sounds harmless, but it’s a challenge for everyone involved. For workers, it means illness or injury or some other disabling crisis in which going to work just isn’t possible. 

For employers, it means a valued human resource has been sidelined. Everyone feels badly for their co-worker’s misfortune, and some are affected directly when they have to take on extra work. 

For insurance companies and claims administrators in particular, it means providing the injured worker with quality medical care while simultaneously managing increasing costs. Workers’ compensation medical costs are rising faster than the medical consumer price index and have more than tripled over the past 25 years. As a result, medical costs today account for about 60% of total workers’ compensation benefits, up from 40% 20 years ago.

Why are these costs on an unsustainable upward trajectory? There are three primary reasons.

  • Today’s medical treatments are more effective than they used to be, but they’re also costlier and harder to control. Medical innovation is good for society – we all benefit. But making sure medical services are absolutely necessary and are not over-utilized is crucial for delivering a quality outcome to the patient and is critical to the insurer’s bottom line. 

  • Claimant and medical provider fraud are on the rise. Dishonest market players are taking advantage of everyone else in the system.

  • The American workforce is aging. That means a growing percentage of workers have long-term medical problems and pre-existing conditions. When these issues adversely impact an injured worker’s recovery, the workers’ compensation system must bear the burden.

Figure 1

Traditional Cost-containment Strategies Aren’t Working

Over time, the major carriers and third-party administrators have adopted clinical strategies to contain costs. But too often, these strategies don’t adequately address the problems caused by workers’ comp medical costs. For example, utilization review (UR) allows an insurance company to assess a request for medical treatment. But our clients generally report that UR is used on less than one percent of medical services and procedures. 

Another strategy, medical bill review, examines procedural issues, such as medical coding and pricing. It’s good for understanding absolute procedure costs, but this doesn’t provide a full picture of an injured worker’s condition and whether the provided services are aiding the injured worker’s recovery.

Companies also use nurse case managers, who take broad responsibility for a patient’s treatment. These case managers can be great at getting people back on their feet and back to work quickly. But this solution doesn’t “scale.” Companies can afford case managers for only a fraction of their cases.  

Making matters worse, insurance companies are often ill-equipped and unprepared to manage the workers’ comp medical issues. Claims representatives generally have limited medical knowledge and lack formal clinical training. Teams are further hampered by inefficient workflows and manual processes that can and should be automated.

Plus, companies may be undermining their own efforts. Many claims staff members are under pressure to do more with less, even as their workloads sag under the weight of too many administrative demands.

Identifying Claims Leakage

Is your company losing the battle against workers’ compensation medical costs? One way to check is by identifying “claims leakage,” which is the difference between what your organization pays in claims and what it should pay, according to industry best practices. 

The industry generally expects leakage of 5% but we often observe companies with claims leakage of up to 10%, more than double the industry target. Is your leakage level too high? If it is, it could be time to investigate and take a closer look at your underlying systems and processes. 

For many companies, it’s time to tackle workers’ compensation claims medical costs. 

Part 2 of this series recommends ways that companies can take control of their workers’ compensation processes.

To learn more visit Cognizant’s Optima MedWise site, or contact us at inquiry@cognizant.com.

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The Workers’ Compensation Challenge (Part 1 of a Three-Part Series)