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The Drive for Reduced Costs.

Workers' comp costs for auto parts manufacturer Genuine Parts were rising at a rate of 35 percent--that is, until company managers made a commitment to aggressive goals for reducing lost work days.

The medical and indemnity costs associated with workers' compensation can take a hefty bite out of any organization's bottom line. And while many managers have been content in recent years to achieve savings by seeking out lower premiums in a highly competitive workers' compensation insurance marketplace, some companies are taking a more aggressive approach. Undaunted by the complexities of changing a system that requires coordinating the efforts of employees, mid- and senior level managers, physicians, insurers and others, these organizations are working to change the culture that often leads to staggering workers' comp costs. One company proving the worth of making workers' comp much more than an afterthought is Atlanta-based Genuine Parts Corp.

Genuine Parts is a national organization involved in manufacturing automotive and other industrial parts, distributing auto parts, and running a sizable office products division. Perhaps the company's best known division is its national chain of NAPA auto parts stores. The diverse nature of the company's operations--from retail to manufacturing--and the far-flung geography of its many operating entities presented a host of challenges to effectively reining in workers' compensation costs. In 1996, Genuine Parts brought on workers' compensation specialist The Guilford Group to examine factors driving a 35 percent increase in workers' compensation at the company between 1992 and 1996.

This increase might seem alarming. But in actuality, many businesses today are carrying higher workers' comp costs than just a few years ago. One of the dangers that the past decade of competitive premiums has wrought is the tendency of businesses to consider workers' compensation only when selecting a carrier. Often a business' sole workers' comp concern is finding the lowest premium price, assuming that the carrier selected will manage the entire process. It's a potentially costly strategy. The medical, legal, and insurance communities are not aggressively managing your workers' compensation cases and costs. A system running unchecked can hide a multitude of sins.

When examining actual workers' comp payouts, most companies are shocked to discover where the money goes. Consider this statistic: only 45 cents of every workers' compensation dollar spent goes to providing care for injured employees. The other 55 cents goes to indemnity costs. Translation: the lion's share of workers' comp dollars pay for employees not to work.

Cost Drivers

Genuine Parts recognized the need to tackle workers' comp issues head on and partnered with The Guilford Group to assess and improve Genuine Parts' workers' compensation process.

The first task of this mission was to conduct a comprehensive study of Genuine Parts' workers' compensation process throughout the United States and identify the cost-drivers fueling the increase in costs. We visited 25 locations in nine states to examine their policies, procedures, and manuals. Extensive interviews with management and staff were conducted. Genuine Parts and its workers' compensation insurer supplied financial data for 1992 through 1995.

Examining that data, reviewing past cases--some with dates of injury as far back as 1981--and discussing specific experiences helped peg the areas in need of attention. Repeat claims, open cases, and lost work days were identified as the principal cost drivers.

Repeat claimants accounted for 37 percent of the company's workers' comp costs, even though the employees involved represented just 2 percent of the total work force. Open cases represented just 3.5 percent of claims but 51 percent of costs. Reporting delays as long as 100 days exacerbated open cases. In the three-year period studied, Genuine Parts paid employees for an estimated 30,000 days in which they did not to work.

Genuine Parts, with its multi-discipline operations and a nationwide string of plant, store, and office locations, needed an integrated and multi-phased approach to reorganizing the workers' compensation system to rein in both medical and indemnity costs. To effect the behavioral and cultural changes necessary for Genuine Parts to permanently reduce the frequency and cost of work injuries, senior as well as middle management commitment was essential.

Securing this commitment was designated as the most important priority, and all efforts were focused on creating a systematic, integrated, managed approach to workers' compensation. This was the only way to provide Genuine Parts with consistent, predictable costs, increased productivity, and an improved strategic business direction to sustain Genuine Parts' competitive position in the marketplace.

Goals and Challenges

To begin this change, we worked with Genuine Parts to create a management action plan (MAP) that set out a number of aggressive goals for Genuine Parts to reach by the year 2000. The first goal was to reduce direct workers' comp costs by 50 percent, based on 1996 exposure. Other goals included reducing outstanding liabilities by 45 percent, reducing repeat claimants from 37 percent to 5 percent of total costs, reducing the number of open cases by 92 percent, from 1,300 to 100, and reducing the number of lost work days by 60 percent.

Although we were committed to reaching such aggressive goals and enacting change, we found that it can be overwhelming for a company whose prior workers' comp management was maintenance oriented. To meet these goals, we settled on four priority actions to produce rapid and sustained cost savings:

* Clearly demonstrate an increased commitment to reducing workers' comp costs as a long-term management priority.

* Establish incentives both within and outside the organization to minimize future financial risk from existing and future open cases.

* Adopt a proactive management system for workers' compensation that includes a broad organization strategy as well as a focused injury management system.

* Implement an integrated managed care network that will provide quality care, goal oriented follow-up, and commitment to returning the injured worker to health, work, and productivity.

One of our largest challenges was to make the implementation of the plan a nonthreatening and comfortable process. Because Genuine Parts is a large national corporation with five wholly owned subsidiary companies, we agreed to first pilot this comprehensive approach in just one of its subsidiaries. Genuine Parts chose the Rayloc subsidiary, a remanufacturer of automotive parts, as the pilot company. Additionally, the Guilford Group took on management of open cases across all Genuine Parts divisions with a date of injury prior to 1996. Closing old cases would be one of the most efficient ways to quickly achieve the substantial cost savings goals that had been set.

For Rayloc, we created an individual management action plan to coordinate with the overall goals for Genuine Parts. The plan focused on three main goals: reducing costs from repeater cases by 50 percent, reducing open cases from 131 to 39, and cutting lost days by 75 percent.

Within the first six months, significant advances were made on all of the priority actions set forth in the management action plan. By the end of the first year the company implemented many of the key steps necessary for long-term success of the plan.

A written commitment statement was completed and a companywide accountability system is in development. The written statement and accountability system targets communication to senior and middle management to educate them on how workers' compensation costs are their direct responsibility and to gain their commitment to reaching the company's goals.

The Guilford Group worked with Genuine Parts' insurer, the corporate human resources department, and Rayloc's program coordinator and injury managers to establish an injury management system within the first year. This system realizes savings by providing appropriate medical care on the front end, with an emphasis on quickly returning injured employees to work.

Now Rayloc employees use designated networks to see a primary care physician within the first 20 minutes of their initial office visit and are referred to and seen by a specialist within 24 hours, if necessary. The program alms to report injuries within 24 hours, red flag problematic or repeatedly injured workers for special management attention, and keep in close contact with injured employees and their doctors to reduce lost days, control medical costs, and minimize the costs of open cases in the future.

All supervisors, providers and injury managers received intensive training on the management philosophy and system, teaching them how to use sophisticated information systems to track injuries, as well as how to implement a return-to-work plan for an injured worker.

When an employee is injured on the job, the injury manager, insurer, and The Guilford Group are immediately informed. Moreover, all members of the team receive same-day feedback from the treating physician on the extent of the injury, the recommended course of treatment, and a return-to-work plan.

A review system for open cases has been established to regularly monitor and discuss issues pertaining to those cases. Action plans are developed for difficult cases and closure/settlement issues are rapidly addressed with all parties involved.

The three main cost-driving problems of open cases, repeater costs, and lost days have been dramatically lowered. Of the 131 initially identified Rayloc open cases, only 16 remain-a reduction of more than 88 percent. Repeater costs were reduced by 64 percent. And Rayloc experienced 416 fewer lost work days than their prior yearly average.

Demonstrated Commitment

After the success at Rayloc, managers from Genuine Parts moved to expand this approach across all of Genuine Parts' subsidiary companies in the southern region of the United States and to continue to work aggressively to close open cases.

Currently, we are working on all open cases with an injury date before January 1998, which represents 63 percent of the company's outstanding liability. Managers with Genuine Parts report great improvements in its workers' compensation process, as well as significant savings. Richard Geiger, Genuine Parts vice president for insurance and audits, expressed great satisfaction with the improvements to the company's workers' compensation system.

Perhaps the program's biggest achievement is in the local plant operations where employees now know exactly where to go and who to see in the event of an injury. Supervisors report greater knowledge and ease with the workers' compensation process and the results of the program are positively affecting the company's bottom line. In addition to more effectively handling new worker injuries when they occur, of the 1,862 open cases targeted by Genuine Parts for focused closure efforts, only 542 remain. The increase in ultimate losses has slowed dramatically and represents projected savings to Genuine Parts of $53 million by the year 2001.

The results realized by Genuine Parts could be realized at almost any company. But it requires a commitment to move beyond the all-to-common practice of solely relying on an insurer to manage all elements of a workers' comp program. Cost-conscious businesses today are finding out that by acting on their own behalf instead of reacting, by writing good plans instead of only writing checks, and by treating workers' compensation costs like any other budget line-item, they can make dramatic, deep, and lasting cuts in their workers' compensation costs.

Betty Noble is chief operations officer and director of operations of The Guilford Group, a workers' compensation specialist in Baltimore, Md.
COPYRIGHT 1999 Axon Group
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Publication:Risk & Insurance
Geographic Code:1USA
Date:Jun 1, 1999
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