A return to RTW: workers' comp providers--as well as employers and injured workers--would be better served were they to focus on sustainable return to work, not premium price increases. (Strategies).

It's abundantly clear that the workers' compensation industry has had a tough 2001, and that the final figures for 2002 will not be much better. Consider that the Workers Compensation Insurance Rating Bureau now estimates the ultimate combined ratio for accident year 2001 at 134 percent, while Fitch Ratings says the workers' comp line lost about $500 million pretax and after investment gain in 2001, compared with a $2.4 billion gain in 2000.

Meanwhile, the industry's insurers appear to be excited about the substantial premium rate increases of 2001 and 2002, viewing "rate adequacy" as the means to get the industry back on track. In line with this outlook, insurance stocks have typically fared better than most.

Yet, as we dig deeper into the industry problems and explore the cost trends, we are forced to ask ourselves some questions:

* Will premium rate increases be able keep up with increasing loss severity?

* Even if rate increases help, how long can we count on this hard market?

* Wouldn't overall industry profitability improve dramatically if we became more focused - and thus successful -- at returning injured workers to the workplace?

The Insurance Services Office addressed the first two questions recently, noting, "There will eventually be downward pressure on premiums. It's not easy to predict when this will happen, when the pendulum will swing ... but cost-based pricing (charging enough premium to cover loss estimates) will be hard to achieve." A.T. Kearney agrees: "Improvement in underwriting alone will not close the performance gap. Cost performance must be addressed."

Clearly we would all agree that, while profitable pricing is important in any market or business, competitive pressures are always at work. Companies can create a sustainable competitive advantage by delivering greater benefits or outcomes to customers and/or by achieving a lower total cost position relative to competitors. Does this business paradigm provide our industry with opportunities for solutions that go beyond the cyclical unreliability of premium price increases?

Certainly we can identify where our premium dollars go -- to medical, indemnity and administrative claim costs.

Let's look at the major costs one by one.

Controlling Medical Costs

Does control of the unit cost (through fee schedule or usual and customary medical bill review) or control of the appropriateness, setting or intensity of treatment (through utilization review) really lower the overall medical claim costs? Recent data from the Workers Compensation Research Institute in Cambridge, Mass., demonstrate that even those states with strong jurisdictional support for utilization review and fee schedules at or below the median (e.g. Florida, Texas and California) don't necessarily have the lowest medical costs. Our traditional tools clearly are not working.

On the other hand, there is strong sentiment in our industry that the quality of the treating provider makes a significant difference in the outcome of a claim. This sentiment is based on the feeling that the "right provider" will provide the "right" treatment at the "right" time and be best able to keep the injured employee at work, resulting in faster recovery and fewer lost workdays.

The "right" provider is often defined as one with:

* Experience in occupational health or sports medicine and disability management:

* The skills and abilities to treat injuries aggressively and involve the employee and employer throughout the process;

* The know-how to evaluate and communicate physical capacities/restrictions to support transitional work assignments.

As Tom Parry and William Molmen of the San Francisco-based Integrated Benefits Institute noted in a recent article, Return to Productivity, "In the sports medicine approach, injured employees are strongly encouraged to be active participants throughout the entire diagnostic and therapeutic processes, progressively increasing their level of activity while they heal. Employees can thus get back 'in the game' quicker, just like an athlete, and results obtained using a sports medicine approach are significantly better."

The Hartford insurance organization shared its experience in a recent workplace survey demonstrating that RTW itself can positively impact medical claim severity, noting, "We've found that workers who return to work faster -- even in a job that is different from the one they usually do -- tend to recover more quickly and more fully than those that stay at home to recover. Workers often feel isolated at home, and typically the longer they remain out of the workplace, the harder it is for them to return at all."

And a midsize workers' comp payer actively using an occupational health program reports the following statistics attributable to getting the injured worker to the right provider:

* Reduction in medical expenses of 29 percent;

* 14 percent fewer long-term claims;

* Reduction in indemnity costs of 49 percent;

* Average medical case closure, 14 days.

The logic is obvious. Channeling the injured worker to the right provider possessing the right skills with a focus on returning the employee to work as expeditiously as possible is apparently the best way to reduce medical claim costs.

Indemnity Claim Costs

We would be hard pressed to come up with a better solution to rising indemnity claim costs than "sustainable RTW." But even if we ensure that the right providers with demonstrated experience in disability management and RTW treat injured workers, they cannot successfully or expeditiously return an injured employee to work without having an appropriate job in which to place them.

A Gallup survey of injured workers commissioned by Intracorp in 2001 demonstrated that only 40 percent of workers surveyed reported their employers had some type of special return-to-work program. Given the increasing indemnity claim severity, how can we be satisfied with only 40 percent?

The data alone in support of structured RTW programs ought to convince us that we need to do more:

* A study by the Kalamazoo, Mich.-based W.E. Upjohn Institute for Employment Research of 220 Michigan employers demonstrated a direct relationship between proactive return-to-work programs and reduction in lost workdays. What emerged was that a 10 percent increase in RTW programs resulted in a reduction of 7.3 percent in lost workdays.

* The Washington Business Group on Health reports that organizations can expect to save three to 10 dollars for every dollar invested in the return-to-work strategy.

* The East Bay Regional Park District, in Oakland, Calif., implemented a structured return-to-work program in November 2001. Anna Fong, administrative analyst for the Park District, notes, "To date we have placed 17 employees in transitional duty positions, ranging from 10 days to 163 days. We have calculated the indemnity savings at $57,000 or $3,350 per claim."

Apparently, channeling the injured worker to the right provider possessing the right skills, with a focus on returning the employee to work as expeditiously as possible, is also the best way to reduce indemnity claim costs--so long as we work together to move the needle closer to 100 percent as it relates to employers having structured RTW or transitional duty programs.

Reducing Administrative Costs 

An industry study in January 2002 demonstrated that, "More than 40 percent of the time spent in the claim handling process is associated with routine overhead functions that have little or no impact on the outcome of the claim." With losses consuming almost 78 percent of the premium dollar, can we afford to have claim staff focused on routine overhead functions 40 percent of the time?

How can we free up the claims staff to focus on the right things, such as channeling to the right provider and assisting the employer with RTW?

In our everyday world, technology has had a significant impact on every aspect of our lives. Can we create those same impacts in the world of workers' comp claim handling?

The workers' comp industry has been slow to leverage technology to realize loss cost benefits. In the third and fourth annual Surveys of Managed Care Performance, we have been able to demonstrate this technology lag.

There is clearly a benefit to be realized. Imagine if claims staff could have online access to:

* All claim-related documents, pictures, videos, etc.;

* Daily dashboard-like reporting;

* Best practice alerts and expert tools;

* Resource information through Web-based links;

* Immediate trend and predictive reporting tools;

* Electronic communication with all stakeholders;

The result would be more time to focus on RTW.

Imagine if all the stakeholders were electronically connected, enabling instant messaging-like communication for:

* Referral and scheduling of same-day appointments;

* Sharing of regular and transitional duty job descriptions at the time of provider referral;

* Same-day receipt of the release to RTW and sign off approval of transitional work assignments;

The result would be greater efficiency and velocity in the RTW process.

Would our administrative costs trend down? Could these same efficiencies have positive impact on loss costs? Would our profitability improve?

A.T. Kearney puts a value on the efficiencies that would be gained by leveraging technology, noting, "Our experience with P&C insurance clients shows that transforming the claims process, for instance, could generate cost efficiencies from 12 percent to 25 percent--which would shave 10 points off the U.S. P&C sector's projected combined ratio."

The financial case for refocusing the industry on RTW and enhancing the velocity of the RTW process is equally convincing.

* The Bureau of Labor Statistics reported in April 2002 that, "The median lost workdays for all WC cases was six days in 2000 with over a fourth of the cases resulting in 21 days or more away from work."

* In June 2002, the Work Loss Data Institute in Corpus Christi, Tex., added to the case, stating, "With the AWW [average weekly wage] for 2000 at $539 and 1.7 million injuries and illnesses requiring lost time. ...The costs are enormous ... and this is only the direct costs of a long-term claim."

* The Employee Benefits Journal puts the final touches on the case, noting, "The associated costs spread far beyond the direct costs of health care and wage replacement. According to industry estimates, the indirect costs can be up to three times higher than the direct costs."

With this data, it is not difficult to put high value on the simple but challenging concept of the reduced lost workday.

Workers' Compensation Medical Claims


1991    +6.8%
1992    +1.3%
1993    -2.1%
1994    +4.8%
1995    +5.2%
1996    +6.6%
1997    +5.9%
1998    +8.4%
1999    +4.9%
2000    +8.1%
2001p  +11.0%

SOURCE: NCCI STATE OF THE LINE, 2002

Note: Table made from bar graph

Maddy Bowling is president of Maddy Bowling Consulting & Associates in Chicago. She can be reached at [e-mail].