By REBECCA A. SHAFER - February 2009
Published in the February 9, 2009 issue of Business Insurance

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A guy is looking for a lost nickel under a streetlight. When quizzed, he says he lost it elsewhere, but he's looking there "because the light is better here."

That old joke is relevant to workers' compensation. Managers and executives often misidentify the cause of their organization's excessive comp costs.

Without a systematic assessment of your program, you may end up trying to implement solutions that are as misguided as looking for a nickel where you didn't drop it.

Workers' Comp Control Problems: Simple or Complex, They Cost You Money

Sometimes the causes are complex; sometimes, it's as simple as hiring the wrong people. For example, one company with $30 million in annual comp costs believed its medical screening program for new hires was complete because a local clinic was performing the pre-placement medical examinations. However, its physicians were unfamiliar with the job requirements. They did standardized exams that didn't weed out candidates who were poorly suited for the job.

Assessment is the place to start, and it must be based on careful analysis of internal practices, loss data, and claim files.

1. Reviewing internal practices identifies whether best practices are currently in place.
2. Loss data verifies whether internal practices are working effectively, and it can be used to benchmark how your company compares to other companies in your industry.
3. Claim-file reviews identify reasons why employees are not coming back to work sooner.

To start your assessment, review all documentation, including workers' compensation policies, procedures, forms, employee brochures, pamphlets and newsletters. That way, you'll know what policies are in place.

Both narrative and automated approaches to assessing a company's workers' comp program can be used. Assessing a multi-state, multi-site company is time-consuming when done by personal interviews; thus, many companies outsource this or use an automated approach, where managers fill out a questionnaire on a Web site. Assessments done by company staff often are less objective, and handicapped by less time and fewer resources. An outside consultant can be more objective and has a broader knowledge of cost-control practices used by other companies. Experience with many companies is helpful when trying to identify key cost drivers that are sources of high costs.

Assess Workers' Comp Program to Identify Underperforming Units

Each operating unit will likely have different operating practices. Thus, each should be evaluated separately and receive a separate numerical score on its comp program. The score is based on identification of practices that are in place at each unit and the unit workers' comp manager's knowledge of cost containment techniques. Units' performance can then be ranked from best to worst for allocating resources. Operations with the lowest evaluation scores get highest priority.

Written self-evaluation questionnaires are a great assessment tool for operating units. After they're completed, telephone interviews can be conducted as follow-up. Onsite interviews can be done by brokers' staff or independent consultants. Once the findings are compiled after interviews, you can draw conclusions.

Automated, web-based systems are faster and provide more uniform numbers than manual interviews. This approach is best for companies with many widely dispersed business units. Fast, numerical scorecard-type assessments allow companies to identify the biggest problems and pick the "lowhanging fruit" for immediate results. With every assessment, recommendations much be prioritized.

Data benchmarks should be developed from loss data. The cost per employee, or full-time equivalent (FTE), equalizes costs between companies or business units with part-time and full-time employees since it is based on personhours, not the number of employees. The return-to-work ratio is the percentage of employees who return to work within the first four days after an injury. A reasonable goal is that 95% of injured workers should return to work within four days. If all best practices are implemented, yet only 50% of injured employees are returning to work within one to four days, it is an indication practices are not being implemented effectively, and you need to find out what's going wrong.

Reviewing a selection of claim files, both open and closed, will reveal the quality of claim handling. When both a physician and an experienced claim professional review files, they can determine the quality and coordination of medical care, whether strategies for claim closure have been developed and followed, and whether time out of work is proportionate to the degree of disability. The reviewers can determine whether file handling is proactive or reactive, and if it is properly focused on rapid return to work and claim closure. A physician should determine whether all existing medical conditions, including non-work-related conditions, were recognized, whether independent medical examinations were used effectively, and whether all possible causes of the condition or illness have been explored and properly ruled out.

Improvements to your program must be based on best practices. Look to the practices of companies in your industry with the best experience mods and lowest workers' comp costs. But don't change a thing until you've gathered and evaluated all the facts and found out just where your problems truly lie. If you rely on assumptions and anecdotes, you'll have little chance at succeeding.

Used with permission of Business Insurance Copyright© 2009. All rights reserved.

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