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Traditional methods reduce workers' comp claims costs.

Traditional Methods Reduce Workers' Comp Claims Costs

Since 1981, workers' compensation costs have risen by 56.8 percent, 31.8 percent more than the increase in the Consumer Price Index. Increases in hospital room charges, physician fees, wage losses and legal expenses are all directly responsible for these costs. For the risk manager, examining ways to control these increasing medical and indemnity costs is vital to managing workers' compensation claims effectively.

Programs designed to control employee benefit health care costs, such as Medicare DRGs, appear to provide physicians and hospitals with incentives that encourage shifting medical claims from employee benefits to workers' compensation whenever possible. Because workers' compensation is 100 percent free-for-service reimbursable and is paid entirely by the employer, medical providers may see more opportunity for reimbursement under workers' compensation than under employee benefit plans.

The shifting of the American economy from manual labor intensive manufacturing to mental labor intensive service industries, combined with the increased awareness by employees of the compensability of stress claims, has resulted in a 500 percent increase in stress-related claims over the last five years. According to the California Workers' Compensation Institute, the number of states allowing claims for mental health stress has increased from less than five in 1978 to currently more than 25. In those states, mental health claims are now the leading occupational illness. Payout for stress-related claims ranges from $10,000 to $15,000, compared with $7,500 for more typical workers' compensation claims.

More than 40 percent of all workers' compensation payments are made up of hospital charges and physician fees. Increases in these costs have played a major role in the growth of the residual market. Originally formed to provide a last resort for employers, the residual market has now grown to become the single largest provider of workers' compensation coverage. It has become more attractive to insurers because they can enjoy, without incurring a penalty, the same rates, rating plans and discounts as voluntary market insurers.

Inpatient hospital charges rose 19 percent in 1986, while outpatient charges increased 38 percent. In 1986, physician fees increased mainly as a result of overcharging through unbundled billing and upcoding. These trends are expected to continue into the 1990s as physicians and hospitals seek additional revenue to attract registered nurses into an evaporating nursing market and to keep up with the escalating costs of advanced medical technology.

Potential Solutions

Workers' compensation is probably the last remaining medical care system that has not adopted full-scale cost management provisions. For a time, outpatient services served as an effective cost-saving alternative, but now are becoming almost as costly as inpatient services, as hospitals raise fees to make up for revenue lost as the average length of inpatient service declines.

Legislation calling for an employee deductible would violate the basic principle behind workers' compensation, and rate increases large enough to cover insurer's costs are extremely difficult to obtain. In spite of this, there is some good news for risk managers. Several strategies, such as preferred provider organizations (PPOs) and a variety of medical cost management services, designed to control rising workers' compensation medical costs have demonstrated good results over the last few years.

In certain states with favorable workers' compensation laws, negotiation for preferred prices with hospitals and physicians have made great strides in reducing health care costs. However, compliance with state laws must be maintained, and both employers and insurers must be wary when dealing with new providers to guard against possible attempts to boost receipts through over-utilization. Employers and insurers should also make efforts to be sure that allowances are made for emergency care. PPOs, as in the case of more traditional approaches, are currently being tested in a variety of methods and combinations.

Most of the services that fall under the heading of medical cost management, including utilization review, chiropractic case review, medical care coordination and physician and hospital bill audit, are often misunderstood. Many hold unparalleled savings opportunities for risk managers who take the time to learn about their individual benefits. If properly administered, cost management services will not jeopardize the quality of care, instead they will assist patients in receiving better quality care and offer savings incentives to employers and insurers alike.

Hospital utilization review is one of the most effective mechanisms available for making providers accountable for their fees and services. Because utilization review can greatly reduce the number of unnecessary treatments and hospitalizations, it is a formidable tool for closing the cost containment gap, yielding significant savings when employed at the first notification of hospitalization.

Utilization review services for workers' compensation involves training nurses who, at the request of the carrier, review an inpatient's care plan with the attending physician. If appropriate, the nurse will suggest an alternate care plan, such as outpatient treatment or home health care. It must be remembered that the plan negotiated by the nurse is only a suggestion, since in the end all final decisions on care of a workers' compensation case remain with the doctor and patient.

Chiropractic case review works to develop a treatment plan with definite goals for optimum patient improvement. Unfortunately, if left unchecked, some chiropractic treatment plans will continue to treat injured workers indefinitely.

One method that has worked effectively is a chiropractor-to-chiropractor review service. In this case, the medical cost management vendor uses its own consulting chiropractors who meet with the attending chiropractor to discuss patient care. Together, they evaluate the patient's appropriate chiropractic needs and agree upon a course of care.

A relative newcomer to the area of medical cost management, medical care coordination is beginning to show savings trends in the area of no-fault. Because no-fault claims personnel typically have no formal medical training, they are usually less able to determine what medical care is appropriate and necessary. Medical care coordination requires the use of registered nurses to help train claims personnel to detect discrepancies in medical care for accident victims.

Bill Auditing

Physician and hospital bill auditing are the risk manager's first line of defense in combatting the rising costs of workers' compensation medical payments. Physician bill review involves the computerized screening of physician bills for fee schedule compliance, overcharging, unbundling, upcoding and duplication of charges.

Hospital bill auditing should include an on-site review of all hospital bills by a registered nurse who screens for duplicate charges, over-charges and fees for unrendered and/or non-compensable services. Audit resolution should include the acquisition of a financial agreement to the revised bill signed by a hospital representative. Hospital bill auditing can yield substantial savings of as much as 8 percent on a per bill basis.

Today's workers' compensation professionals face a difficult task in reducing medical claims costs. To remain viable, insurers must look for ways to manage medical expenses without reducing the present standard of care. In a similar manner, risk managers must find ways to cut medical costs without reducing the amount of affordable, quality health care available to their employees.

Catherine D. Johnson is vice president of marketing for ConServCo, a provider of disability management and medical cost management services.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Johnson, Catherine D.
Publication:Risk Management
Date:Dec 1, 1989
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