Of all the factors self-insured organizations can explore when selecting the third-party administrator best equipped to reduce their total cost of risk, one stands out as the best predictor–how a TPA manages a client's medical costs.

Since more than 90 percent of all public entities manage risk through self-insurance, risk managers at federal, state and local agencies in particular will benefit from understanding this single predictor.

Why is a TPA's ability to manage medical costs so important? Because medical spending drives total workers' compensation costs.

While the number of people injured at work has fallen steadily over the past five years, the cost of treating those injured workers has soared due to medical inflation.

Today, in fact, 59 cents of every dollar spent on workers' comp pays for medical care, while the remaining 41 cents covers lost-wage payments.

In judging a TPA's ability to manage your medical costs, look at three factors–how it uses data, manages claims and oversees prescriptions.

DATA MATTERS

All TPAs have data on past claims–everything from how specific injuries were treated to the cost of those treatments. But not all TPAs analyze the data looking for ways of better managing their clients' current claims. Those that do, however, are in a better position to impact medical costs–and therefore total risk costs–today and in the future.

Take networks, for example. Not all providers are the same. How a TPA selects providers to include in its networks directly impacts its ability to manage medical costs.

In building networks, we've found it helpful to drill through the data and identify caregivers that deliver timely and appropriate medical care to help injured workers quickly and safely return to work.

Similarly, understand if and how a TPA uses data to spot the small number of workers' comp claims likely to drive total claims costs, with fewer than 10 percent of workers' comp claims probably sparking more than 80 percent of expenses.

Identifying the most costly claims early and quickly getting the right resources helps manage their total impact.

PROCESS MATTERS

This brings us to the second predictor of a TPA's ability to control medical costs–its claims management process.

Not every claim needs all the resources a TPA might offer. So understand how a TPA brings the resources to each claim that will best help the injured worker quickly recover and return to work.

For example, look at how and when the TPA involves one of its doctors in a claim. While treating physicians respond when a peer calls to discuss proposed treatments or return to work options, this is not appropriate for every single case.

An often overlooked window into the claims management process is training. The impact a front-line claims adjuster has on a claim reflects their knowledge and skill.

For example, an adjuster who understands anatomy and physiology can more quickly review proposed treatment plans and know when to involve the TPA's medical staff and other specialized resources. So learn how a TPA helps its adjusters understand medical terms, conditions and treatment options.

Finally, when evaluating how a TPA manages claims, make sure the TPA doesn't focus on the fees of the resources it selects, whether doctors, physical therapists or other specialists. Fees are important, but they're only part of the equation. The TPA also needs to look at the outcomes produced and the number of visits required.

DRUG MANAGEMENT

The third clue of how well a TPA will manage total cost of risk involves its approach to pharmacy expenses.

Prescriptions are one of the largest drivers of workers' comp medical costs, comprising about 10 percent of all outpatient medical payments. So how a TPA manages prescriptions has a big impact. Understand how the TPA approves each prescription.

For example, does it have one master list of medications allowed for all workers' comp claims, or does it approve only those medications that make sense given the type of injury, body part and point in the recovery process? The latter approach helps keep the workers' comp program from paying for prescriptions for non-work-related injures.

Someone who hurt an arm at work might mistakenly try to fill a prescription for non-work-related asthma while picking up medication for the arm. A TPA with a single master list of appropriate workers' comp prescriptions would likely allow the asthma inhaler, since it is appropriate for some work-related injuries–therefore on the master list.

But a TPA reviewing medication based on injury type, body part and time elapsed since the injury would not approve the inhaler, since it has no connection to the injured arm.

And while a TPA's pharmacy program needs to protect the client's bottom line, it also should save injured workers from potentially dangerous drug interactions that can slow their return to work.

How well a TPA manages medical costs through data, claims management and pharmacy oversight is the best way to judge a TPA's potential impact on a risk manager's total cost of risk–and that also happens to be the best way to protect your organization and its employees.

Peter Clas (peter.clas@libertymutual.com) heads Helmsman Management Services, the third-party administrator of Liberty Mutual Group. Melissa Leroy (melissa.leroy@libertymutual.com) is a managing director with Liberty Mutual.

Special Reports /

TPA Medical Cost Control Capabilities Called Critical For Self-Insured WC Plans

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