Successfully administering a workers' compensation program can be challenging. At one time or another, many risk managers have to deal with a carrier, third-party administrator (TPA) or other provider that isn't performing up to expectations. And although improving the administrator's performance is vital to ensuring a successful workers' compensation program, achieving these improvements requires an organized, well-planned approach.
One of the best methods for improving the services provided by administrators is through the use of performance guarantees. By implementing guarantees, risk managers can increase their satisfaction with vendors, reduce administrative errors, improve service quality and continue long-term relationships with proficient vendors. And, most importantly, performance guarantees will enable risk managers to contain their workers' compensation costs.
Performance guarantees enable risk managers to work with providers and staff to establish benchmark service standards for rewarding good performance and penalizing poor performance. The risk manager uses the guarantees to improve a process such as claims handling by providing financial incentives for performance that exceeds the standard and exacting financial penalties if the service does not meet the standard.
Although performance guarantees provide numerous ways to improve administrative effectiveness and efficiency, their use in workers' compensation is still in its infancy. However, performance guarantees are widely used - and successfully - on the employee benefits side. According to the Foster Higgins Health Care Benefits Survey of 1991, some 38 percent of employers surveyed indicated they negotiate performance standards with group health administrators. Most often, they negotiated guarantees that involved increased turnaround time of claims, improved financial and administrative error rates, and a reduction in the percentage of benefits paid in error. Consequently, risk managers who work with their organization's human resources manager or employee benefits expert should talk to them about how they have used performance guarantees to improve the administration of benefits.
The Claims Audit
In the workers' compensation arena, the risk manager may consider a claims audit as a tool to help determine what to pursue for performance guarantees. Typically, these audits include a performance assessment of areas such as case reserving, claims resolution, litigation management, accident investigation, subrogation, fee schedules, medical and disability management, claim payment accuracy and adjuster case loads. On the benefits side, human resources executives might perform an employee benefits audit of group health claims that would include checks on whether claims are paid on time, are accurate, and provide the appropriate type of benefits listed under the plan.
However, in the employee benefits arena, some human resources executives supplement claim audits with employee surveys. These surveys ask workers if they believe that the health care coverage they receive from the employer is of high quality. The surveys have been used to help employers evaluate the performance of their providers, establish realistic performance standards, monitor the administrator's performance, identify problems and demonstrate management's commitment to provide quality service for employees.
Employee surveys offer many opportunities for improving administrator's services in employee benefits. For example, many group health audits assess the timeliness of payments to take advantage of prompt-payment discounts and to find out how quickly employees are reimbursed. They also evaluate the accuracy of payments, not only because employers pay administrative fees to readjust incorrect payments, but also because errors affect service providers as well as employees. In addition, employers use the surveys to ensure that benefit payments aren't exceeding the amounts providers under their plans.
Although worker surveys are currently used exclusively in group health audits, they can also be utilized to evaluate a workers' compensation provider's service. However, many companies don't solicit any feedback from their employees regarding their workers' compensation coverage. Some employers are reluctant to communicate with employees about workers' compensation because they believe it will lead to abuses of the system and its allowable benefits. Furthermore, even when employers do provide information about the workers' compensation program, they rarely ask their employees how their claim is being handled, if they are receiving accurate and timely benefits from the administrator, or if the adjuster or case manager is courteous to them.
However, the usefulness of worker surveys in group benefits demonstrates that they can be of use in a workers' compensation audit. By supplementing the audit with an employee survey, the risk manager can evaluate the administrative (i.e., accuracy and timeliness) and interpersonal skills (courteousness) of the provider. The claims audit can also be used to determine the employee's understanding of workers' compensation, including issues such as how it works and who pays the claims, while identifying problems the employees may perceive about the program. The risk manager can then assess, confirm or clarify these issues during a claims audit or a discussion with the administrator. Asking employees what they think about their workers' compensation program administration also creates goodwill between the employer and employees; such a goodwill measure may decrease the likehood that employees will seek legal counsel for a work-related injury.
The survey can also be used to evaluate items that may be suitable for incorporating in performance standards and a performance guarantee, and to demonstrate that management is committed to providing all employees with quality service by outside providers. Employee surveys also help risk managers identify opportunities for their workers' compensation administrator or other providers to improve, and can be used as a re-measurement tool to determine if process changes the administrator has implemented have been successful.
How Performance Guarantees Work
Here is an example of how a performance guarantee works. Most carriers or TPAs provide a standard for when case managers become involved in a workers' compensation case. An example of such a standard may be in situations where case managers are assigned to any claim that results in lost work days. Case managers will contact the employee, employer and physician within 48 hours of their knowledge of the claim to ascertain more information about the injury and determine the course of medical treatment and approximate return-to-work date.
Risk managers may want to determine if their carriers or TPAs actually are complying with their standard for case management intervention. For example, if a carrier's standard is 48 hours, but its case manager actually intervenes after 72 hours on average, is the risk manager likely to be satisfied with that level of performance?
Think about how workers' compensation performance - and results - might improve if the provider attained a 48-hour-or-less case management intervention. Such a shortened intervention time would provide employees with a better understanding of how the provider will help them through the rehabilitation process, while allowing the provider to more aggressively manage the medical aspects of the case. This will give the employer a more accurate estimate of when the employee can return to work.
Furthermore, performance guarantees are likely to help contain the cost of the workers' compensation program. Any method that allows the employer to act more quickly to ensure that an injured worker receives the necessary quality medical care is moving in the right direction. And whenever there is the opportunity to accelerate an employee's return to work - which can be accomplished through case management - the risk manager is bound to reduce his or her company's workers' compensation costs. This process may sound easy, but the risk manager needs to look carefully at areas that need improvement, as well as those over which the carrier, TPA or provider has control.
Using an Audit
One way to start the process is to conduct an audit of the company's claims administrator or other service providers in an effort to help identify problem areas. Alternatively, the risk manager can begin by asking others at the company involved in the workers' compensation program about any existing problems.
However, many risk managers are quite cognizant of the specific problems with their administrators. In these cases, the risk manager should compile a list of problems, then determine whether a performance guarantee for a specific area is capable of accomplishing three objectives: 1) improving a process; 2) allowing the improvement to be measurable; and 3) achieving savings with the improvement.
If the risk manager determines that a performance guarantee will result in these three objectives, then the guarantees are well worth pursuing. Some of the guarantees to consider implementing include improving the accuracy of location codes entered into a computer system, and ensuring the accuracy of indemnity, medical and other forms of payments. Other possible objectives to pursue through performance guarantees include improving the time it takes from the carrier's or TPA's receipt of the injury to their filing the first report of injury with the state, and ensuring that settlement authority is requested before a claim is settled. Service-related issues can also be dealt with through performance guarantees that result in improving the timeliness of claims reporting to the excess carrier, ensuring the prompt return of phone calls, and making sure that accident investigations take place within a certain time frame after the incident. Finally, consider establishing reliable methods for improving the accuracy of all information entered into the carrier's or TPA's data base.
After determining where to implement performance guarantees, the next step is for the risk manager to sit down with the administrator and discuss these items in detail. During this discussion process, the risk manager and the administrator will both need to consider these issues with an open mind, particularly because some of the items the risk manager suggests may be difficult to measure or may not provide the best opportunity to improve a process.
While the initial list may contain anywhere from five to as many as 25 items, the risk manager should try to negotiate about three to five items for the first year's guarantee. It is wise to initially focus on a small number of improvements because attempting to institute a large number of guarantees at one time may prove to be overwhelming. With performance guarantees, the aim is to improve processes; however, since this is a new way of bringing about change in workers' compensation, go slowly the first year. Risk managers may also want to consider using their brokers or other consultants to assist them in negotiating guarantees with providers, especially in the first year.
Once the risk manager meets with the administrator to narrow down the items, the next step is to determine what the baseline will be, how and when the performance will be measured, who will measure performance (i.e., the risk manager, the administrator, the broker or another third party), the length of the guarantee (one year is often the most appropriate time frame), and all financial risks involved.
Returning to the example on case management, an actual performance guarantee may be expanded to include a number of points that the administrator will agree to meet. These could be worded as follows:
* Every claim that results in lost work days will have a case manager assigned to it.
* Case managers will contact the employee, employer and physician within 48 hours of their knowledge of the claim.
* The baseline will be a standard of performance of 95 percent, which means that in 95 percent of all lost time cases, the case manager will have made the necessary contacts within 48 hours.
* If the case manager completes contact with all three parties so that the level of performance exceeds 95 percent, the company will reward the administrator by paying them $500 for every 1 percent of improvement above 95 percent.
* However, if the level of performance is below 95 percent, the administrator will be penalized and owe the client $500 for every 1 percent below 95 percent that performance drops.
* Performance will be measured every six months, and incentives or penalties will be assessed after each six-month measure.
* The measurement will be done by having the broker audit 75 percent of all new lost-time cases every six months. * The auditor will determine, by reviewing file documentation, if the case manager completed contact with all parties within the 48 hours. * This guarantee will be put into effect from May 1, 1994 to May 1, 1995.
What's at risk? In this case, a maximum of $2,500 every six months, or $5,000 for the year, to the client. The risk to the administrator stems from the possibility that its level of performance could drop precipitously. But if the guarantee is structured so the baseline is agreed to by all, the administrator's risk should be about the same as its client's.
After the guarantee has been reached, the risk manager should prepare a formal letter or contract, to be signed by both parties, defining each item to be included in the performance guarantee, sign the guarantee and begin the process. During the year, the risk manager should start to put together a list of areas to target for improvement during the next year. Remember, the guarantee can be structured so that it focuses on one office of the administrator or on a global issue. When structured carefully, guarantees can create a win-win situation for the risk manager, his or her company and the administrator.…