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Behind the scenes of the workers' comp crisis.

David S. Iskowe is executive vice president and chief operating officer and Stryker Warren Jr. is president and chief executive officer for FOCUS Healthcare Management Inc. in Brentwood, TN. Jeffrey S. Harris, M.D., president of Harris Associates in Nashville, is a consultant to FOCUS. This article is adapted from a recent issue of the National Council on Compensation Insurance Digest.

Due to factors beyond insurers' control, the long-term economic stability of workers' compensation is being seriously threatened. In 1988 workers' compensation premiums represented only 13 percent of the property/casualty industry's written premium, but a staggering 45 percent of its losses, according to Conning & Co. Combined loss and expense ratios have averaged 115 percent to 120 percent of premium income for several years. Incurred losses have increased an average of 17 percent per year for the past five years, with a growing incidence of direct or incurred losses exceeding 100 percent. The compound effect of social and economic interests affecting the workers' compensation system has stressed the financial capacity of insurers to fund rising benefit costs.

These unanticipated loss trends experienced by insurers can be attributed to nearly two decades of legislatively mandated dollar increases in wage replacement benefits, rising costs for goods and services within the health care delivery system, changes in medical technology and differences in the nature of conditions being treated. Cost-shifting from group health to workers' compensation coverages, uncertain costs of cases under the control of attending physicians and increased litigation emphasizing financial recovery rather than physical recovery for illness or injury are other factors contributing to unanticipated loss trends. In addition, steadily broadening interpretation of compensability and how workplace events and occupational exposures may aggravate some underlying chronic physical or mental disorder and lengthening loss development tail coverage are regarded as trend factors.

Adverse loss ratios have also been aggravated by regulatory authorities' refusal to recognize the need for adequate rate adjustments. These are needed to compensate for statutory mandated increases in disability benefits and/or the continued escalation in charges from every sector of the health care delivery system, to defray losses from the involuntary assigned risk market and to offset losses generated by changing attitudes about the linkage of non-specific physical complaints to events in the workplace.

The inescapable conclusion borne out by these trends is that as long as prolonged treatment by providers continues to extend disability benefit periods, more injury claims will be represented by litigators, the denial of adequate premium rates will continue, medical costs will rise and large policyholders will move toward self-insurance. Workers' compensation insurers must adopt the medical management techniques now common among health insurers, but with adaptations to satisfy requirements of the compensation market.

Medical Care Driving Costs

U.S. workers' compensation laws were at the outset intended to reimburse workers for lost wages and pay for medical care arising out of work-related accidental injuries. The obvious intent was to eliminate the expense and uncertainty of employers' liability suits. Benefits included defined amounts for loss of specific body parts because new industrial machines frequently caused amputations. While machine guarding and other safety measures have reduced the frequency of identifiable accidental injuries, litigation has brought decisions stretching the definition of accidental injury to include claims for illnesses and injuries based on subjective complaints. These claims are typically categorized as non-scheduled disabilities, with benefit determination often based on the degree of medical impairment.

The rise in the number of claims due to subjective complaints is important to the physician's role in benefits delivery. The doctor's opinion may determine the diagnosis, treatment plan and selection of the facility and may dictate the length of lost time. In addition, such an opinion could determine when maximum medical improvement has been achieved and could evaluate residual medical impairment. Each factor becomes an element in the final cost of the case. Regrettably, in some cases the quality of such judgments is questionable. Studies of workers' compensation provider practices demonstrate that patients treated without medical case management frequently demonstrate less optimal results.

Among the factors contributing to escalating workers' compensation costs is the emergence of non-specific complaints. Illnesses and injuries currently receiving compensation benefits differ from acute traumatic injuries for which the system was originally designed. Data from the National Council on Compensation Insurance, the National Safety Council and the Occupational Health and Safety Administration show that non-specific diagnoses account for the few long-term, higher-than-average cost cases that seriously affect the total system. These claims are mostly back injury cases, although chronic pain, cumulative trauma, stress and other occupational disease cases are becoming common. The frequent absence of clearly defined accidental onset greatly increases the need for accurate professional opinions by the attending physician to determine the insurer's or employer's benefits liability.

It is difficult to determine whether subjective complaints are work-related. Many are due to degenerative change aggravated by work or simply first noticed on the job. Some observers question whether degenerative joint disease is work-related because it occurs with equal frequency as people age regardless of occupation. However, because an employer must accept a worker at face value, the compensation system forces the employer to pay for conditions that could have aggravated a pre-existing condition.

The number of non-specific complaints continues to grow as the average age of the labor force increases, bringing with it a host of chronic conditions aggravated by work. Such claims are largely dependent on physicians establishing causal relationship to work, treatment design and ultimate impairment ratings. For every 10-year increase in the average age of workers, the cost of medical care rises by 15 percent, according to the National Council on Compensation Insurance. The frequency of vocational rehabilitation increases by about 30 percent for claimants over age 40.

Non-specific injury claims, particularly for stress-related disorders, are more common in the service sector and among women. Because most of today's employment growth is limited to the service sector, the trend toward more claims involving stress and similar disorders may be reinforced. President Reagan's plant closing bill may also increase the incidence of non-specific injury claims. When one considers the advance notice of a closing and the potential wage-loss provisions of compensation benefits, there is significant opportunity for abuse.

Although occupational disease claims represented only 2 percent of claims in 1987, their cost was twice as high as those for acute injuries. Because of the long latency period, there is reason to believe that the volume of such claims will increase. Cumulative trauma disorders, which can result from the use of keyboards as well as repetitive light manufacturing activities, are rising as the number of such jobs increases. These and stress disorders are being classified as occupational diseases because of the absence of a single identifiable traumatic onset. In these cases physician judgment is critical to a proper decision even though most of them lack the necessary training in occupational medicine and disability determination to accurately address causality. In several studies certified examiners could not find anything objectively wrong in the majority of workers' compensation orthopedic cases involving years of absence from work; the treating physicians simply did not release the patients.

A FOCUS study of orthopedic disorders, which accounted for 85 percent of cases reviewed, demonstrated that practice patterns when treating workers' compensation patients were significantly different than when paid for under health insurance programs. The average length of hospital stay for back procedures, for example, was often 10 percent to 50 percent longer for workers' compensation patients than for patients enrolled in health insurance programs. The reasons for requested surgery on workers' compensation patients were often marginal. Indeed, 16 percent of back and 23 percent of neck surgeries were denied certification by FOCUS physician advisers and review nurses on the grounds that they were medically unnecessary. Even with careful screening, the likelihood that a workers' compensation patient would be operated on was nearly twice as high as for a patient covered by health insurance, with no difference in outcome.

More and More Tests

Physicians have at their disposal a growing and increasingly expensive number of diagnostic tests and therapies, many of which have not been carefully tested for accuracy or effectiveness. One would think that new technology would clarify or reduce the cost of these cases, but the opposite is true. For example, magnetic resonance imaging (MRI) was supposed to replace myelography and CAT scans in the diagnosis of herniated disks-many physicians now order all three. What is more, ordering unnecessary tests increases the chance of a false positive result, which may lead to unnecessary surgery. In fact, almost as many people without symptoms have abnormal lumbar spine films, CAT scans, myelograms and MRIs as those with complaints. Some doctors may have forgotten that these tests were designed to confirm, not substitute for, a clinical diagnosis.

Many new, expensive programs have recently been introduced to deal with frustrating long-term cases, such as back pain complaints, rehabilitation and substance abuse. There are at least three potential problems with these programs. First, many do not individualize each patient. Second, they have yet to be proven in controlled trials. Third, they confirm the patient's idea that something must be wrong, decreasing the motivation to return to work. Also, many of the centers are owned by physicians or hospitals which have the financial incentive to use them, as well as the many captive physical therapy and rehabilitation programs. Careful medical judgment must be used to ensure that there is true value to a packaged program for each patient.

Workers' compensation adjudicators seem to have abandoned the distinction between impairment and disability. Physicians can only document objective impairment, or the inability to use a body part or perform certain tasks under certain conditions. In fact, medical education rarely includes training in determination of impairment, let alone disability. The American Medical Association recently produced and disseminated the "Guides to the Evaluation of Permanent Impairment" to address this problem. Even so, this skill is not prevalent in the medical community.

Disability benefits, as originally contemplated under most workers' compensation statutes, should compensate for wage loss due to the inability to do a job, not the inability to use a body part. The determination that someone cannot be at work or cannot perform a modified work-related task can only be made by the employer and the claims manager in tandem with the attending physician. By equating impairment with disability, payers have ceded control of workers' compensation losses to the treating physician, often allowing the medically prescribed impairment rating to drive total disability benefits.

Observations of physician behavior lead to the conclusion that there is a wide cultural gap between doctors and employers/insurers. Physicians are accustomed to treating defined illness or palliating symptoms. They may not look at the whole patient in his or her work and home environments, a critical factor in workers' compensation.

Naturally, a physician's first allegiance is to the patient, which may lead to unquestioning acceptance of symptoms or the desire to avoid work. However, it creates a problem for employers and may ultimately hurt the patient. Physicians may tolerate cases that linger or have no definite diagnosis, ascribing them to nature's course. Conversely, they may try to limit ambiguity through increased testing. This does little to encourage a timely return to work. Also, because there is little occupational medical training in medical schools, most physicians are unaware of the interaction between work and the worker, which is central to the existence and duration of compensation cases.

Effects of Litigation

The proportion of cases being litigated against several major employers and in some key states has increased from about 6 percent in 1975 to 13 percent in 1984. The estimates for 1989 approach 25 percent, according to Dan Spengler, professor and chairman of the department of orthopedics and rehabilitation at the Vanderbilt University School of Medicine in Nashville, TN. In California's supposedly no-fault system, 17 percent of total workers' compensation costs, or approximately $1 billion, went for legal expense in 1986, according to Phillip Polakoff and Paul O'Rourke of Integrated Health Management Associates in Oakland, CA. For no clinically supportable reason, medical recovery is significantly longer when claimants hire an attorney; indeed, many claimants never return to work. The probability of return to work has been shown in many studies to be directly related to the length of time away from work. Rehabilitation outcome is negatively impacted by litigation as well.

Based on claims analysis managed by FOCUS, most testing and many physician visits in litigated cases were frequent, unnecessary and repetitious, with poor to non-existent documentation. The probability of surgery was higher, and the indications for it unclear. In fact, in many cases medical management was relaxed or terminated when an attorney was involved, allowing medically unnecessary testing, with probable false positive results, and surgery recommended by the attorney to take place. The claimant could then point to the scar as proof that a problem must have existed.

The most-cited reasons for seeking legal assistance are dissatisfaction with work and with the conduct of the case, including lack of symptom resolution, failure to respect the claimant and conflicting messages from providers and payers. There is mounting evidence that early involvement by a medical case manager, acting as a patient advocate, can substantially reduce the rate and cost of litigation.

Medical Cost-Shifting

In the health insurance sector, one method of dealing with cost increases is to increase the employee contribution to medical care through higher deductibles and co-insurance. This shifts some costs from employer to employee and makes the employee a more cost-sensitive and responsible consumer. By law, that option is unavailable to compensation insurers. Therefore, the absence of cost-sharing in workers' compensation creates an incentive for employees to blame the workplace as the cause of an injury or illness.

Benefit plans that do not coordinate workers' compensation and other disability benefits are common. If wage loss benefits from both systems are combined, the worker may receive more than his or her pre-injury wage. Since these benefits are generally tax free, the effective level of the payment is further increased, creating a disincentive to return to work. Such considerations create incentives for an employee to assign cause of an injury or illness to the workplace. For this reason, there is growing interest in integrating medical claim payments between an employee's health insurance and workers' compensation programs.

Workers' compensation payers are in danger of becoming casualties in the war to stem medical inflation. All other payers have taken action to manage costs, but many compensation payers, including self-insured and fully insured employers, have not introduced managed care due to real or perceived statutory limitations.

In 1984 the federal government was among the first large payer groups to comprehensively manage medical costs by adopting the Diagnostic Related Group (DRG) system for Medicare patients. Commercial health insurers, to combat rising costs, have contracted with physicians and hospitals for group discounts through preferred provider and health maintenance organizations. Most insurers employ utilization review and case management programs to assure medical necessity as well. This has dramatically reduced hospitalization and unneeded treatment.

Hospitals adjust their charges to recoup for discounts, uncompensated care and losses from private payers and compensation funds. Physicians often adjust their charges, the number of return visits and treatment intensity to reach a target level of income, accounting for discounts, DRGS, fee schedules and uncompensated care. Since, in many states, workers' compensation still pays all charges, payments are substantially higher than those for other payers. In Florida, for example, one study showed that while hospitals collected 74 percent of charges from all payers, they collected 91 percent from workers' compensation carriers.

Physicians, HMOs and, perhaps, hospitals search diligently for a work connection to a given injury or illness. One study of federal employees demonstrated a direct relationship between the number of HMOs in an area and the workers' compensation cost per employee, suggesting systematic cost-shifting. In many cases reviewed by FOCUS, providers have billed workers' compensation for coexistent medical problems such as diabetes and high blood pressure that are not work-related. Finally, many providers have attempted to compensate for lost volume by aggressively marketing new services, which are often not medically necessary.

The broad response promulgated by legislators has been fee schedules. Unfortunately, evidence suggests that the units of service delivered are being increased to offset the decreased unit price. Furthermore, schedules are increasing the incidence of quality providers who choose not to treat compensation cases.

A Practical Solution

State and federal statutes governing workers' compensation hold that compensation will be provided for necessary care and income replacement, not all care and disability, and not at whatever price someone deigns to charge. However, workers' compensation care is not just routine medical care. The combination of an acute or precipitating event, pre-existing degenerative disease, job attitude, workplace and safety issues, potential litigation and financial incentives for the claimant and provider make these complex cases. It takes health care professionals with extensive experience to manage these cases effectively and work synergistically with treating physicians and claims managers.

Because the medical care system does not have well-defined standards, the quality of care received in any given case is often a matter of chance. The organization of a true network of selectively contracted quality providers can greatly benefit workers, employers and insurers. Clearly, workers' compensation payers should not be denied the discounts and preferential arrangements offered to other payers.

The first step in controlling workers' compensation benefits is to introduce medical review programs, now commonplace in the health insurance arena, for managing hospitalizations and surgeries. Because practice patterns and the patient's quality of care can vary, the foundation of any program is a set of clinical criteria on which review decisions are based. Criteria should be developed from an extensive review of scientific literature and expert consensus panels of practicing physicians. Such criteria should first confirm the accuracy of the diagnosis, then screen for the medical necessity of the proposed testing or treatment, as well as the most appropriate facility for care. Statistical standards, used for length of stay certification in health insurance, are inadequate to identify medically unnecessary testing and treatment.

Experienced, specially trained registered nurses should manage each case, collecting information and applying criteria. Board certified physicians with orthopedic, occupational and other specialty medical training should back up the nurse reviewers and interact on a collegial basis with treating physicians. At least 30 percent of cases will typically involve a physician adviser. Medical reviewers should also confirm or question the causal relationship to work of the illness or injury and exclude unrelated chronic diseases. Reviewers with occupational medicine or orthopedics training must determine if the likely effect of trauma or a minor movement supposedly resulted in a disk herniation or other condition that is due to a chronic condition.

An effective utilization management organization will use the criteria to certify procedures and tests, as well as hospital admission. It should be noted that in workers' compensation care most proposed hospitalizations are orthopedic and for major diagnostic testing or surgery. The reviewers should negotiate the use of more appropriate tests or procedures if those suggested by the treating physician are not the best medical practice. Once admission is approved, there should be frequent review of the need for further hospitalization and any additional tests or procedures. Programs giving a statistical length of stay and recontacting the provider the day before proposed discharge may allow excessive length of stay if the patient recovers more rapidly, as well as permit non-causally related procedures.

All medical review programs should have a structured quality assurance and improvement program that monitors record keeping, as well as the clinical quality of decisions made by nurse reviewers, physician advisers and network physicians. Regular training sessions should be held to assure that nurse reviewers have the latest, most accurate information on which to base their actions. A data base should be maintained and statistically analyzed to monitor the practice patterns of review personnel and treating physicians, thus improving the quality of review and care. Reviewers should periodically and selectively contact patients after hospital discharge to determine whether they have improved as a result of their treatment. In addition, random chart audits and work performance checks provide meaningful outcome assessment opportunities and should be integrated into the data base.

"In many cases medical management was relaxed or terminated when an attorney was involved

While review of hospital treatment is key to workers' compensation medical management, it is only one part of the course of a compensation case. Claimants often see many providers over long periods of time. Each provider has a different professional and personal perspective. They may not be aware of the entire scope of the case, particularly the disability rating aspects, or understand the dynamics of the claimant. Engaging an experienced medical case management firm at an early stage of the case and incorporating specialty-trained physician advisers and review nurses are often the most effective means of controlling these claims.

An effective system includes prospective and retrospective review and management of workers' compensation cases. The system should coordinate the treatment provided by medical and surgical physicians, osteopaths, chiropractors, mental health care professionals, physical therapists, rehabilitation specialists and specialized facilities such as pain clinics and work hardening centers, which are for patients who cannot return to work due to physical or psychological reasons. A total view of the case assures the most cost-effective and clinically beneficial outcome in the shortest time.

Contrary to some industry practices, medical case managers must do more than just follow care and assure that claimants get to appointments. They should obtain the best available information to determine causal relationship, medical necessity, maximum medical improvement, release for return to work and impairment rating, if any. This usually can be accomplished over the telephone by trained medical reviewers with an attending physician. Total medical management systems are particularly effective with claimants who do not improve with treatment, claimants with a significant psychological or social component to their disability, claimants who cannot resume their previous occupation, claimants receiving unproven or experimental therapy and long or complex cases. The earlier total management is initiated, the greater the potential benefit to the claimant and cost savings to the payer.

Disability and work absence standards should also be applied. Disability management, while it must be customized according to the employee's medical condition and physical requirements of the job, can double the effectiveness of the management program. Most compensation cases are three to four weeks. By using conservative providers who adhere to agreed-upon standards, employers can benefit from significantly reduced disability and replacement costs.

To avoid being the victim of cost-shifting, workers' compensation payers must obtain the same discounts as other payers. They can do this through provider networks or PPOS. The other advantage of well-constructed networks is that the providers' credentials have been reviewed by medical management physicians. They should all be board certified and participate in local quality assurance activities. They should also be under contract with the management organization, providing leverage for quality improvement. Finally, when combined with utilization review and case management, the treatment patterns of network providers can be monitored and assured for appropriateness.

The medical environment in which workers' compensation operates has changed drastically over the years. Additional management techniques are mandatory if the increase in cost and rising number of unresolved cases are to be contained. Comprehensive medical management of these cases, coupled with consideration of the unique indemnity factors in workers' compensation cases, is the only practical way to contain medical and indemnity costs while
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
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Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Iskowe, David S.; Warren, Stryker, Jr.; Harris, Jeffrey S.
Publication:Risk Management
Date:Nov 1, 1990
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