The vision of a paperless claim process has evolved to mean different things to different organizations. In the rudimentary stages of converting to a paperless environment, many organizations simply scan documents into their claim systems, often retaining the paper to be copied, faxed, or filed, not considering how information can be more conveniently shared throughout the entire claim enterprise.

For Federated Department Stores, which operates more than 950 stores under the names Macy's, Bloomingdale's, and May, the vision of a paperless paradigm is much more sophisticated, with the ultimate goal being that a paper file is never generated in the first place. Since the early 1990s, Federated has covered its general liability and workers' compensation claims through a self-insured and self-administered program.

In the past, due to the nature of disparate systems, information often had to be keyed in multiple times, resulting in redundant data entry and the waste of valuable resources. In order to save time, costs, and labor, Federated strives toward a single-keystroke approach, meaning that information is entered only once. An individual might type in the date of injury or a claim number, but no one else would need to re-enter that data for the life of the claim.

To achieve this, Federated has invested in technology and infrastructure that enable the sending, viewing, and sharing of information in an electronic format. This allows online communication with adjusters, physicians, attorneys, nurse case managers, investigators, or state agencies.

The first step in building this infrastructure was to select a claim system that would act as a core location for housing information. After a review of potential vendors, Federated selected Valley Oak Systems for its claim management software. With this system as the hub, other applications could be plugged in using electronic data interchange. Federated selected EDI because many organizations in the insurance industry were accustomed to using this format, and most state agencies already required some form of EDI reporting.

Prompt Reporting

Recognizing that prompt reporting of injuries can lead to more immediate response, treatment, and management of claims, Federated requires that all injuries be reported within 24 hours, via its first-report-of-injury system. With the new system, reports often can be sent within 30 to 45 minutes of incidents.

Stores are equipped with digital cameras so that photos of accidents can be taken and attached to injury reports. Because the human-resource application is electronically connected to the first-report-of-injury system, claim fields automatically are filled in with employee demographic information. This ensures data accuracy, while also supporting the organization's single-keystroke policy.

As a company that operates across most of the 50 states, Federated must deal with workers' compensation regulations and reporting requirements that vary by jurisdiction. In an effort to simplify and streamline state reporting, mandated reports are automated for various stores in their respective states, and claim adjusters do very little in terms of special coding and handling.

One of the most labor-intensive functions in workers' compensation is the medical bill review process. Federated's goal was to significantly reduce mail-room operations and paper-based distribution of medical bills. To do this, the company integrated its claim system with its third-party bill review service.

Now, medical bills are scanned at a central document-imaging center. Adjusters receive bills via electronic in-boxes, where they review incoming medical bills on a daily basis. Faxed medical bills also are routed through this electronic in-box.

Explanations of review to physicians are generated automatically, and explanations of benefits are printed directly on physicians' check stubs. More and more, as they realize the benefits of quicker turnaround, medical service providers are beginning to file their bills electronically.

Federated believes that electronically receiving and paying bills will be the next step. Soon, the organization will be able to make medical bill and disability payments via electronic funds transfer. This will reduce the possibilities of checks' getting lost in the mail, as well as the costs of processing checks.

Looking Ahead

Currently, the company is developing four projects. The first will allow it to connect electronically with law firms in the hopes of improving communication and collaboration. Attorneys would be provided with access to electronic claim files, and law firms, likewise, could share information directly with adjusters.

The second initiative is an online pharmacy management program using a national drug formulary. Payments for certain types of prescriptions would be approved automatically online, while others, such as narcotics, would require further review and approval. The pharmacy management program would allow Federated to save money on pharmacy costs and to use EDI billing. Instead of being billed for each prescription, the pharmacy benefit manager would pay for individual pharmacy claims and consolidate transactions on one bill for Federated.

The third project would allow digitally recorded statements from witnesses, as well as claimants. Previously, recordings were made on cassette tapes, which were cumbersome to store and subject to a degradation of quality over time. In the future, individuals would be able to call an 800-number to record their statements, and the digital sound files will be attached electronically to claim files.

Automating Claims

Not only has Federated's new system moved the company toward less paper-based processes, it also has allowed adjusters to spend less time on routine administrative tasks, such as data entry and routing documents. As a result, they can turn their attention to more sophisticated functions, such as data analysis and designing loss-control initiatives. Overall, the claim software has generated operational efficiencies that have reduced clerical payroll by 25 percent.

Together with the productivity gains, the claim management software also improved the flow of work throughout the claim process. Because the claim hub contains all state-mandated forms and letter templates that generate state-mandated workers' compensation forms, resulting letters are documented automatically and saved as part of claim files.

The business rule engine is efficient and easy to configure. For instance, Federated monitors its workers' compensation system for lack of action. If an open claim has no active diaries, a business rule can be set up to notify the claim supervisor. Rather than requiring adjusters to remember all aspects of a claim, rules remind them when time-sensitive tasks must be performed.

One of the benefits in having an electronic infrastructure is that Federated now has oversight and loss-control capabilities. For example, in order to audit claim files, an organization usually hires a firm, which manually audits five to 10 percent of claims. This is considered an appropriate and standard audit level.

With its current system, Federated is able to perform audits independently on all of its claims. Using its claim hub, Federated can audit files to ensure timely contact with injured workers. Other audited factors include timely first reporting and contact levels, all of which ensures that consistent quality is being applied.

The audit can be configured to occur automatically on a routine basis, such as every month or every week, and to generate a report of the results to be distributed via e-mail. This allows Federated to monitor certain factors, and to immediately respond if audit results are unfavorable.

Another benefit to using a centralized claim repository is the convenient access to other types of risk management reports. The organization's risk management team regularly performs as-of reporting, taking snapshots of their financial data for analysis and actuarial projection. These ad hoc reports help to identify problem areas and trends that may need to be addressed with loss control initiatives.

Federated's success in implementing new technology can be attributed to thorough research. The company bases each investment on a sound business proposal, outlining specific reasons why the technology is needed, the anticipated benefits, and the expected savings.

Beyond this, Federated strives to maximize its infrastructure to meet its needs and objectives. The company regularly assesses any gaps in its current approach, and fosters close relationships with its vendors. The main hurdle has been the fact that many external entities often are at different stages of their own paperless conversions, creating issues beyond the company's control.

Despite this challenge, Federated has made the transition to an electronic work-flow process that allows the exchange of information throughout its claim community. In the end, electronic connectivity, work-flow management tools, auditing capabilities, and flexible risk management reports all are powerful technological tools that enable Federated to continually improve its operations.

Ann Schnure is the director of claims for general liability, auto liability, and workers' compensation at Federated Department Stores. She can be reached at ann.schnure@fds.com.

Special Reports /

Creating a Paperless Business

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