Reduce Workers’ Compensation Costs

With CompScoreTM Metrics

By

David R Leng

How do we keep score in Workers’ Compensation? Typically insurance carriers provide “top of the line measurements,” such as total number of claim dollars spent in a given year, average claims costs for medical only claims and average claims costs for lost time claims to employers. They may even break down some injury costs by department.

Not surprisingly, these metrics drive decisions. They become goals and measures of success. In fact, metrics on claims costs have become so predominant that companies often reward their employees based on them. If injury costs go down in a department, it’s a good thing and supervisors and employees are rewarded. If they go up, it’s a bad thing and corrective actions are needed.

Unfortunately, this focus on total claims cost from one year to the next is incomplete and shortsighted. It fails to recognize or measure what’s driving the claim costs. If the average medical cost per claim increased, was it simply a matter of medical inflation or did it have anything to do with something the employer could control? If it went down was it luck or a result of the employer’s actions?

What is needed are tangible and measurable metrics of factors driving claims costs. This focus has several advantages. First, it inherently takes a long-term view enabling employers to understand the underlying circumstances and conditions that are driving up work-related injury costs. Secondly, it isolates measures of the value of the employer’s actions. This approach is much more than a difference in semantics; it not only will drive decisions in a different direction but it may also entail significant changes in an organization’s management of Workers’ Compensation.

CompScoreTM Metric, the five most important measurements for driving down Workers’ Compensation costs, are:

  1. Time lag

A well-known study by The Hartford has demonstrated that “time is money” for workers’ compensation claims. A week’s delay in reporting an injury can increase claim cost by 10%; claims filed a month or more after an injury cost 48% more to settle than those reported in the first week. Yet it is not only the lag time in reporting that is important to measure; along the continuum of care there are many points at which a claim can become snagged, slowed down or stopped dead in its tracks. Lag time to first doctor’s visit; lag time to get report from doctor; lag time to see a specialist; and so on., all have negative effects on claims costs.

An employer can set their own baseline for improvement by examining injury records, writing down dates, and identifying excessive time lag. Reducing delays in care, and accelerating continuity in care and communication with the employer will drive down claims costs and improve productivity.

  1. Disability duration and treatment

Excellent sources of disability duration guidelines and benchmarking data on time away from work are available.The Medical Disability Advisor, by Presley Reed, MD, helps companies more efficiently manage and measure the time employees are away from work by providing evidence-based disability duration guidelines for over 6,700 of the most common injuries and illnesses of working age people.

The gold standard for effective occupational medical practice from the AmericanCollege of Occupational and Environmental Medicine (ACOEM), Occupational Medicine Practice Guidelines: Evaluation and Management of Common Health Problems and Functional Recovery in Workers, 2nd Edition, provides evidenced-based treatment guidelines for all types of injuries. These guidelines are the foundation for the State of California’s Medical Treatment Utilization Schedule that requires doctors to use these treatment protocols for injured workers.

The evidenced-based guidelines offer the best standards of medical diagnosis,

evaluation, and medical management in the workplace. With these benchmarks employers can measure the actual versus the expected disability duration for an employee based on their injury and determine whether or not the treatment matched the treatment protocols. The approach has met with success in California and warrants consideration as a national model.

Drilling down even further, there are predictive modeling programs that can identify claims that are likely to spiral out of control. Flagging these claims and monitoring vigilantly is another way that evidenced-based guidelines can reduce costs.

  1. Modified Duty Days

A smooth, safe and expedited return-to-work is the mark of a well-run loss control program. The longer an employee stays at home, the more difficult it is to bring him or her back to the work environment. Return-to-work programs with modified work assignments are a crucial component in reducing Workers’ Comp costs. Yet, modified duty work assignments are transitional, designed to reach the primary goal of returning workers to full duty at their original job. Injured workers should not be mired in modified duty for extended periods of time. Benchmarks are available to evaluate the employee’s progress and reductions in modified duty days will improve productivity.

  1. Physicians

The best way to measure a physician is by the evidence-based treatment guidelines. Yet, not all doctors follow them. Reviewing the cases treated by the same physician can reveal disconcerting trends – i.e. every one is referred for physical therapy. While state statutes differ with respect to the extent to which employers can direct injured workers to certain medical providers, the medical management of a workers’ comp claim is essential to reducing costs. Holding physicians accountable to established standards is key.

  1. Safety Culture

The most effective way to reduce your workers’ compensations costs is not to have employee injuries to begin with. Without any medical bills and wage reimbursements, the previous four measurements are not very important. Are you OSHA compliant? Being OSHA compliant is not enough. 80% of OSHA regulation is geared at physical exposures of employees, but those physical exposures statistically account for less than 20% of employee injuries annually. Statistically according to the Bureau of Labor Statistics, 81% of employee injuries come from unsafe actions of employees. Significant dollars are being spent by businesses that have a false sense of security by focusing mainly on being OSHA compliant, but yet are still having significant workers’ compensation costs.

One important statistic seems to either be not realized by many businesses, or not believed, but less than 1% of injuries are from an unavoidable accident.

The Pennsylvania Safety Committee Program, in which a qualifying company receives a 5% workers ’ compensation premium reduction, is a good start towards having a safety culture, but it is not the end-all solution. According to the Pennsylvania Department of Labor,the workers’ compensation cost reduction results of those companies with an approved Safety Committee Program are less than 5% better than those without the program in place. For this reason, the Pennsylvania Department of Labor is auditing companies with the program credit to determine “compliance”.

In the end, it is all about the safety culture in its entirety. Is ownership’s concern about safety driven down to the employees through their supervisors, or is the concern solely about production results. Do employees truly believe in a Zero Accident Safety Culture? Or do they believe, as many business owners have said to me over the years that “accidents happen” and employee injuries are just the cost of doing business.

Things to ask yourself: How many injuries is my company having? How does my company compare to industry’s average injury case rate? Do we truly have a great safety culture? The reason I say this is that I have seen, for example, a 100 employee precision machine shops average less than 1 injury a year over a 5 year period, and I have toured another 100 employee precision machine shop operating similar equipment and size of material, and was averaging over 15 injuries a year.

I have seen many companies over the past dozen or so years that believe that they are a safe company, that they are OSHA compliant, that they are doing what the insurance companies ask them to do, and that have the Pennsylvania Safety Committee Program Credit, but yet have significant workers’ compensation costs each yearbecause they are having way too many injuries – because their safety culture is not as good as it could be. The one question you should always ask yourself, even if your company’s number of injuries is better than your peers, is how do we reduce the number of injuries even further?

Using CompScoreTM metrics will lead to different insights and strategic decisions than the current claims-cost approach. They act as a mirror into the current processes. If it takes on average seven to ten days to report an injury, there is a training and communication issue. The employer can put a training initiative in place and measure the results over a three or six month period. If there are delays in the continuity of care, there is a problem with the physician and it must be communicated that it is unacceptable. Often times, delays can be resolved by using alternative specialists, improving communication, or simply being more aggressive on the telephone.

In the same way that measuring results is key to productivity improvement, measuring the factors that affect Workers’ Compensation costs becomes the basis by which employers can reduce these expenses and, at the same, better serve injured employees.

Since insurance companies are not providing this critical data, it falls to employers, along with their insurance agents, to take action on their own since it’s their bottom line and employees that are at risk.

David R. Leng, CPCU, CIC, CBWA, CRM, CWCA, is author of Stop Being Frustrated & Overcharged and vice president of the Duncan Financial Group in Irwin, Pa. He is also an instructor for the Institute of WorkComp Professionals (IWCP) and can be contacted at . For more information, visit