ATLANTA RIMS Nov 2013 - Hazards of Best Practices and How to Avoid Them

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The Hazards of “Best Practices” and How to Overcome Them

Presented by:Gary Jennings, CPCU, ARM, ALCM, AIC, ARe, SCLA

PrincipalStrategic Claims Direction LLC

November 14, 2013

Strategic Claims Direction LLC

Atlanta RIMSMonthly Meeting and Luncheon

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TODAY’S TOPICSIntroductionDefine “Best Practices”Where are “Best Practices” applied?Professional observationsThe current quality of claims managementScoring “Best Practices” complianceAre Best Practices meaningless as quality measures?Additional metrics to measure performanceConclusion / Q & A

Atlanta RIMS11/14/13


What Is Most Important to You?

SIMPLE NEEDSResolve the claims

At a reasonable claims costAs quickly as possibleWhile reducing or limiting allocated loss adjustment expenses

(ALAE) to the extent possibleReserve the claims accurately

Inform me ofThe current status of the claimsChanges in the environment or industry that affect me

Help me quickly when I ask for itI assume you are going to use “Best Practices”

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What are the Possible Outcomes of Claims Processing or Management?



Low Claims Costs, High Fees

& Expenses, Slower Closure

Low Claims,

Low Fees, Expenses, Prompt Closure

High Claims Costs, Low Fees &

Expenses, Prompt Closure

$ ----------------------------------CLAIMS COSTS---------------------------$$$

$-FE

ES,

LA

E, S

PEE

D T

O C

LO

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$$

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“BEST PRACTICES”Wikipedia – “…a method or technique that has consistently shown

results superior to those achieved with other means and that is used as a benchmark. In addition, a “best” practice can evolve to become better as improvements are discovered.”

WhatIs.com – “A technique or methodology that, through experience and research, has proven to reliably lead to a desired result. A commitment to using the best practices in any field is a commitment to using all the knowledge and technology at one’s disposal to ensure success.”

Businessdictionary.com – “…a business buzzword used to describe the process of developing and following a standard way of doing things that multiple organizations can use. “



Where Are Claims “Best Practices” Applied?



Claims Management Components Workers’ Comp

Casualty

General Claims Program Documentation & Procedures

Claims System Capabilities & Functionality General Communication with Client, including Management & Stewardship Reports

Claims Staff Qualifications, Experience, & Training Adjuster and Supervisor Caseloads Intake, Set-up, & Assignment Initial 2- or 3-Point Contact & Continuing Contact with Client representatives, Claimants/Employees, Medical Providers, Claimants’ Attorneys, Witnesses

Investigation/Gathering Information Fraud/SIU investigation

Where Are Claims “Best Practices” Applied?




Casualty

Recoveries (e.g., Subrogation, Apportionment, Second Injury Fund)

Compensability Decision Medical/Cost Containment Disability Management/Return-to-Work Liability Decision Indemnity Payment Procedures Reserving Adequacy & Timing Damages Documentation (PD, BI) File Documentation, including Diaries, Action Plans, Supervision

Negotiation & Settlement Litigation Management Claims Resolution

Observations

Observations from:Independent claims audits of insurers, TPAs, and self-

administered programs Claims quality reviews Reserve reviews Claims Department efficiency and procedural reviews

TPA selection and implementation projects



Observations

What am I seeing?Most insurers and TPAs, especially the national or large

regional ones, have established their “Best Practices”, and share these with their clients.

Sometimes “Best Practices” are all that exist to measure the claims administrators’ performance (e.g., no Special Account Instructions were negotiated).

Many companies have developed “Best Practices”, but documentation varies widely due to concerns about subpoenas for claims documentation and claim files that might lead to unfair claims practices allegations.



Observations

What am I seeing?Claims handling is increasingly automated, with few

claims administrators keeping paper filesClaims systems are being developed with more triggers

and fields for adherence to “Best Practices”Adjusting is virtually 100% telephonicMeaningful supervision is decreasing



Findings

What am I seeing?Claims handling quality is slipping on the whole.Outcomes have not been as good as hoped.Mystery in some circles on why desired outcomes have not been

achieved given their adherence to “Best Practices.”

Remember one of our earlier definitions: “A technique or methodology that, through experience and research, has

proven to reliably lead to a desired result. “

HOW CAN CLAIMS QUALITY AND THE DESIRED RESULTS BE SLIPPING IF “BEST PRACTICES” ARE USED MORE THAN EVER?



Why is Claims Handling Quality Slipping?

Automation and telephonic adjusting can easily morph to Claims PROCESSING, not Claims MANAGEMENT

Activity-based measurement, rather than results-based measurement, motivates the claims staff toward activities.

The claims handling identified in claims audits often looks like sequential “check the box” claims handling.

The adjusters successfully complete many activities in the time required, but often inadequately use the information they gathered to set a strategy/plan to successfully resolve the claim.



Contact Investigate Pay TTD Refer to MBR / NCM

Negotiate PPD Settlement

Assign to Def. Atty.

Litigate / Settle

Close

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Typical WC Self-Reporting Scorecards



Typical Score

General Claims Program Documentation & Procedures Y

Claims System Capabilities & Functionality Y

General Communication with Client, including Management & Stewardship Reports

Y

Claims Staff Qualifications, Experience, & Training Y

Adjuster and Supervisor Caseloads – LT adjuster < XXX open claims, MO adjuster <XXX claims

Avg. w/in limits

Intake, Set-up, & Assignment – w/in 1 workday 100%

Initial 3-Point contact & continuing contact with client representatives, employees, medical providers, claimants’ attorneys, witnesses – w/in 1 workday

92%

Investigation/Gathering Information – Timely, complete, continues as needed

86%


Typical WC Self-Reporting / Scorecards




Typical Score

Recoveries (e.g., Subrogation, Apportionment, Second Injury Fund) – identified, investigated, pursued, recovered

100%

Compensability Decision - reasonable, timely 94%Medical/Cost Containment – Reduce bills, timely, PPO penetration

100%

Disability Management/Return-to-Work – use of modified duty, coordination with employer, medical provider, and employee

92%

Indemnity Payment Procedures -Timely, accurate 88%Reserving - Timely, adequate/appropriate 93%File Documentation – Thorough, timely diaries, regular action plans (not copy & paste), meaningful supervision and direction

90%

Typical WC Self-Reporting / Scorecards




Typical Score

Negotiation & Settlement – early/prompt, prepared, outcome vs. expected

86%

Litigation Management – Necessary?, handle by extension, timely assignment to defense, appropriate adjuster and defense attorney responsibilities, fee reviews

96%

Claims Resolution – Finalized, claim/features closed to reduce reserves to $0

90%

AVERAGE ALL FUNCTIONS 92.85%

Which of these activities are more important than some of the others?

This score should indicate that excellent results are being obtained. However, that is not always the case.

How Does the Claims Administrator Measure Performance?

System-driven metrics based on fields the adjusters completeTimeliness

Intake, Set-up, Assignment First Contact Investigation Reserves First indemnity payment Average turn-around for medical payments Date of assignment to defense attorney to date of attorney’s initial

analysis

Supervisor audits (sometimes)Quality Assurance (regular schedule, random, targeted)



How Does the Claims Administrator Measure Performance?

DollarsMedical bill reductions by method (e.g., fee schedule,

PPO)Subrogation, Second Injury Fund recoveriesExcess Insurance recoveriesALAE, especially legal fees

Other measuresAdjuster caseloads



Are “BEST PRACTICES” Meaningless?Absolutely NOT!

Continue to insist on your claims administrator’s adherence to industry “BEST PRACTICES”

Obtain reports on their compliance Create reports that measure what you want to measure Require corrective action if needed Review quarterly



Are “BEST PRACTICES” Meaningless?Absolutely NOT!

TRUST BUT VERIFYDon’t rely upon “Best Practices “ as your sole measure of claims

handling quality.Insist on more claims MANAGEMENT. Insist that your administrator:

Provide a higher quality of work - don’t just “check the box” but take meaningful steps

Create real action plans – Don’t just copy & paste from prior action plan – develop meaningful and time-measured goals to meet specific needs for closure

Provide real supervisory direction, not just “Reviewed file” Reach closure faster, but measure results at the same time Maintain better control over ALAE



How Do We Measure That?Develop benchmarks (“AS IS”) against which to measure

future performance and outcomesRequire periodic audits (supervisor audits, QA reviews,

scorecards, your audits, independent audits)Use claims administrators that demonstrate that they

can and do capture a large number of fields so outcomes can be measured against activities and early steps taken.Outcomes by date of first contactMedical costs by PPO penetrationMany others



Typical MeasurementsNumber of claims per FTE (by jurisdictions)Cost per FTE (by jurisdiction)Claims Frequency - # of claims per FTE or per 100 FTEsAverage paid claim (by jurisdictions)Average Incurred per claim (by jurisdictions)WC costs as % of payrollWC costs by location and/or product typeRatio of litigated cases to all cases (define litigation)Legal fees as % of total incurred costTime to “adequate” reserves (closed file analysis to show when

reserves were at/near ultimate value)



Other MeasurementsNumber of Modified Duty Days to First Contact Lag, Use of

PPO, Location using modified dutyRatio of Lost Time Claims to Total Number of ClaimsRatio of Medical Only Claims to Total Number of ClaimsRatio of Lost Time Incurred Cost to Total Incurred CostRatio of Medical Only Incurred Cost to Total Incurred CostTime lag between

Intake date and assignment date Assignment date and first contact Assignment date and date of initial TTD payment Date of intake to date of reassignment



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Compare Total Incurred by Regions or Locations to Lag Times

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 0

2

4

6

8

10

12

14

16 Total Incurred

Days from DOL to Intake

Date “ Lag Time”


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Average Disability Duration to Average First Contact Lag Time

0 10 20 30 40 50 60 70 80 900

5

10

15

20

25 Disability Duration by Average Intake

Average DisabilityDuration


Other MeasurementsDo NOT base performance on

Decreasing reserves without evidence of a long-term change (e.g., actuarial evaluation)

Faster closure without considering outcomes or reopened claims



SummaryRequire “Best Practices”Require more claims managementDevelop more meaningful metricsRequire additional meaningful reportsTrust, but verify



Questions?

CONTACT INFORMATION

Gary Jennings, CPCU, ARM, ALCM, AIC, ARe, SCLAPrincipalStrategic Claims Direction LLCPhone: (678) 520-3739Email: [email protected]

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ATLANTA RIMS Nov 2013 - Hazards of Best Practices and How to Avoid Them

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