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Down the Drain.

Spiraling costs are forcing public sector employers to rethink their workers' comp initiatives.

Employees who use a workplace injury to prolong disability and collect benefits meant to compensate truly disabled workers are generally disliked by coworkers and management.

But public risk management practitioners say workers' compensation abuse that allows malingerers to drain benefit and tax dollars is rarely a criminal case of fraud. Instead, these managers believe a combination of sloppy claims investigation, poor medical case management, and a lack of incentive for rehabilitation is responsible.

Aggressive investigation, medical education, and return-to-work programs are more valuable than surveillance and prosecution at reducing workers' comp costs and should be an organization's first line of defense against abuse.

"Fraud is a reality. We've all seen cases where an employee off on workers' comp disability isn't really disabled--or isn't so disabled that he or she can't return to work," says Bruno Clark, director of personnel for the town of Smyrna, Tenn. "But more often than not, what we are really seeing is abuse of the workers' comp system, not a criminal act. And the abuse isn't all on the side of the employee. Some abuse is the result of management disinterest in getting injured workers back to work or a lack of understanding by medical practitioners."

In Smyrna, management takes workers' comp claims extremely seriously. Treatment for injured workers is monitored carefully; temporarily disabled workers are offered lighter transitional duty until they are recovered enough to return to their previous assignment.

Most injured workers aren't trying to extend their periods of disability and few are falsifying their claim, Clark says. Transitional work--often routine office tasks--seems to motivate disabled workers to quickly recover and return to more challenging assignments.

Getting injured the job is a risk every employee takes. While workplace injuries can be permanently disabling, most are not. Public sector risk management practitioners can no longer ignore the costs of workplace injuries--both the monetary costs of workers' comp and the emotional costs of returning people to their jobs.

Instead, they must find innovative ways to contain and control their workers' comp costs while helping get their employees back to work as quickly and injury-free as possible.

Three Abuses

Ironically, numerous public sector workers' comp programs are unintentionally designed to discourage an employee's return to work, experts say. For instance, federal employees are not covered by state laws but rather by the Federal Employees Compensation Act. Since the benefits are federally funded, several federal agency risk management practitioners said they do not monitor loss control or investigation. In those cases, the federal agencies offer no incentive for employees to return to their jobs nor are there controls in place to eliminate abuse.

Jim Mochel, executive vice president of the public entity practice group at Arthur J. Gallagher Risk Management Services Inc. in Itasca, Ill., points to three kinds of workers' comp abuse problems:

* Legitimate injuries that are exaggerated into extended time off--often back or knee problems.

* Legitimate injuries that occurred off the job, but were faked to appear as occupational injuries.

* Phony injuries from fake events.

Exaggerations are the most common problem as employees with real aches and pains attempt to extend their recovery time. These employees often aren't trying to cheat the system, but are just unsure about their own recovery and ability to return to their jobs, Mochel says.

Workers with nonoccupational injuries sometimes fake workplace accidents to improve their medical benefits payments. Medical treatments for nonoccupational injuries are subject to deductibles and copayments; workers' comp medical claims are not. Time off for workplace injuries does not take a toll against sick leave or vacation, but injuries at home do.

"Often these kinds of abuse problems are motivation and discipline issues, not fraud," Mochel says. "They can be resolved with programs that encourage return to work and light duty that does not demand a full recovery."

More serious cases of phony injury or disability may require limited use of surveillance or more aggressive investigation, but those instances are rare, Mochel says.

Return-to-work programs can be particularly important for public entities, says Mark Noonan, managing director in the Boston office of J&H Marsh & McLennan Inc., an insurance brokerage and consulting company.

Noonan, former general counsel of the Massachusetts Bay Transportation Authority, says public entities are particularly vulnerable to exaggerated claims and confusion over recovery levels. "Public safety employees are at a high risk for workers' comp claims," he says. "Not only are they subject to more dangerous situations in the course of employment, but they are also required to be at nearly full recovery before returning to work. Police, fire, and other safety employees usually need to operate at 90 percent or more of their physical capacity to perform their duties or risk further injury to themselves or coworkers."

As a result, managers maybe cautious in suggesting an early return to work or disputing claims of a prolonged disability. They may even prefer to hire a replacement rather than risk putting a recovering employee back on the job. Medical practitioners may be reluctant to authorize return to work if an employee shows even mild signs of continued pain or disability.

Get Back to Work

In the state of Georgia, early return to work has become the cornerstone of a workers' comp cost reduction program. Since June 1997, about 70 percent of state agencies have agreed to participate in a program.

The Georgia program attempts to encourage state agencies to develop transitional duty programs for disabled workers and remove disincentives for early return, according to Diane Stephens, assistant director of risk management at the Georgia Department of Administrative Services in Atlanta.

"In the past, the state policy on disability was that if you could not function at 100 percent of work capacity, you stay home," she says. "After a year, an agency could hire a replacement and disability would become permanent."

As a result, agencies had little incentive to encourage injured workers back to the job and disabled employees had few options. Agencies were usually anxious to get injured workers off departmental expenses and onto the disability rolls.

The new program allows agencies financial budgetary credit for creating transitional duty assignments that do not require full work capacity, Stephens says. The risk management department also provided education to agency management about the workers' comp system and how costs were allocated back to agencies.

Early results are impressive, she says. Agency managers are more focused on continuing employment for injured workers and the steady flow of employees to permanent disability has been slowed.

Fraudulent Practices

"Workers' comp abuse isn't all about employee fraud," says Richard Pimentel, a workers' comp consultant with Milt Wright & Associates in Chatsworth, Calif. "Abuse can be on both sides of the employment line or built into the employment policies. Many public entities have disincentives for return to work built into their systems--and few incentives."

Pimentel says his company hears stories about employees abusing the system, but adds that "there are as many cases in which managers have no financial or operational incentive to encourage early return. And there are plenty of cases in which managers use workers' comp to pass off workers they want to replace or remove from their payrolls."

Pimentel recommends organizations review their systems for handling workers' comp claims to make early return to work a priority with both agency managers and employees.

Leadership from the top executive is critical, he says, and public sector entities should encourage policy statements that support reform programs from their senior officials.

In Georgia, Stephens is planning a report on the results of the return-to-work program to be delivered later this year to the governor's office. She hopes the results can be used to encourage a stronger policy of participation among state agencies.

Smaller local governments may not have big budgets for comprehensive workers' comp management programs or the employment structure that can generate alternative duty programs. But due diligence and incentives can help curb workers' comp abuse, says Jerry Nolen, human resource director for the City of Pelham, Ala.

In 1995, the municipality was spending more than $165,000 per year on workers' comp costs and experiencing more than 30 lost time events each year. The municipality was not effectively monitoring such claims and employees viewed their benefits as an entitlement--a reward for a workplace injury.

Nolen instituted a safety incentive program to award prizes to city departments that reduced lost time accidents. The cost of the program was negligible compared with the cost of claims, he says, and the response was dramatic.

In 1998, the city paid less than $100,000 on workers' comp costs and had reduced lost time events to a single workplace accident.

"Fraud wasn't our problem. I can't say that we had even a single case of outright workers' comp fraud. But what we did have was a pattern of behavior that needed to be modified. Safety wasn't a departmental priority, and there wasn't a focus on efficient rehabilitation," Nolen says.

The incentive program raised the profile of workplace safety and created a spirit of healthy competition, Nolen says.

"People are naturally competitive," he says. "The incentive program gives them a reason to work safely and return to work as quickly as they can. They don't want to miss their award or make a colleague miss an incentive for no accidents."

The improvements grew slowly but steadily. "Each year we're getting better," Nolen says. "Employees want to work and want to be recognized for their productivity."

Nolen also focused on improving the way the city handled workers' comp claims and rehabilitation. Departments that quickly replaced temporarily disabled workers were encouraged to develop light duty programs. The city contacted medical practitioners and developed medical protocols that yielded consistent treatment and procedures.

The next step, he says, is to promote wellness as a bridge between health benefits and the medical component of workers' comp.

"Health and welfare and safety are all linked," he says. "Healthy employees have fewer accidents and recover faster from injuries. If we can encourage safety with incentives, we also can encourage wellness and reduce both workers' comp and health benefit costs."

Legitimate workers' comp costs will continue to be part of an organization's budget. But in an era of increasing accountability, organizations that can reduce bottom line expenditures will keep both taxpayers and employees happy.
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Publication:Risk & Insurance
Geographic Code:1USA
Date:Jun 1, 1999
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