Projecting Large-Dollar WC Claim Costs Helps Insurers Get Handle On Escalation

Catastrophic workers' compensation claims are very rare and hugely expensive–typically more than $1 million in costs–yet financial projections made in the first year are often way off the final amount.

Luckily, there are a number of strategies used by sophisticated insurers to make more reliable projections from the outset of the claim.

In addition to increasing the reliability of the projections, these strategies can also decrease the total cost of the claims by as much as one-third through controlling the drivers of cost escalation.

As all who work with claims are aware, catastrophic cases experience a very wide range of medical and financial volatility. This volatility is due to three primary factors:

o The fragile condition of the injured worker.

o Missed handoffs, and medical errors resulting from the involvement of numerous providers.

o The potential for ongoing complications that can last throughout the injured worker's lifetime.

With such wide variability, it is little wonder adjusters and managed care staffs resort to a lot of guessing about outcomes, as the complexities involved in these injuries are enormous.

The key to more reliable projections is to very aggressively manage these claims to better functional outcomes.

Informing these management strategies is our experience from managing more than 10,000 catastrophic cases since 1991, along with data from a large set of comparable cases and predictive modeling algorithms.

The ultimate expense of catastrophic claims is divided into initial medical/rehab costs until maximum functional recovery, ongoing medical costs and indemnity payments.

Initial medical/rehab costs include acute care and in- and outpatient rehabilitation. For a spinal cord injury resulting in quadriplegia, for instance, medical/rehab costs for the first year might be $700,000.

With complications in outbound years, the costs can escalate, adding another $1.2 million during the lifetime of the claim. With indemnity of $400,000 or more during the lifetime, the entire case can approach $3.3 million in lifetime expenses.

A claims staff typically places a preliminary reserve on a catastrophic claim very early, and then waits for upward of six months to make first adjustment.

Being able confidentially to set reserves on at least the first 18-to-24 months of medical costs within 30-to-45 days post-injury helps. Heading off the enormous trailing expenses is even more financially meaningful.

To contain ultimate costs and also to render these costs more predictable, it is important to get a very high level of functional improvement within the first 24 months. To achieve this end, there are five medical management strategies that really matter:

o Strategy 1: Develop a comprehensive plan for recovery right away.

Right from the beginning of a case it is critical to draft a comprehensive recovery plan. It is also important to make sure the authors of the plan are expert physicians in all phases of recovery for the particular condition.

The planning cost is trivial compared to the savings that can result.

The plan, which can run dozens of pages, is the foundation for realistic reserving. Without this plan, there is simply too much guesswork in reserving.

The plan needs to describe the injured worker's current status, identify likely problems and risks, assess the complexity of the case, and describe the anticipated care continuum through maximum functional improvement and return to work, if feasible.

o Strategy 2: Set recovery targets high.

End outcome targets for catastrophically injured workers are often too modest. Treatment teams may have top-notch clinical credentials but might not give total attention to return-to-work goals.

With nearly 65 percent of the total claims costs resulting from ongoing medical expenses (post-24 months from date of injury), the best insurance policy an insurer has for lowering costs is to return an injured worker to work.

A large body of research exists demonstrating the value of introducing return-to-work goals and interventions early in the recovery process. Therefore, the plan needs to include specific, measurable targets for return to work–right from the start.

The person who sets these goals needs to be clinically very knowledgeable about the condition at hand and about best medical practices.

o Strategy 3: Get involved in selecting treatment teams.

Catastrophic care involves the science and art of arranging for a succession of treatment teams from acute care to rehab and, if needed, continuing care.

Left to themselves, each successive rehab team will set its own, sometimes overly modest recovery goals. They may miss some of the subtle clues about the patient's recovery potential and lingering complication risks.

The combination of great treatment teams and continuity of oversight helps ensure that recovery is kept on track without the downside of missed handoffs or redundancies that drive belated recoveries and higher costs.

o Strategy 4: Create a peer-to-peer relationship with the treatment teams.

For the claims executive to truly understand what is happening in treatment and recovery potential for these claims, a peer-to-peer physician relationship between the insurer and the treatment team is extremely valuable.

The insurer is better off using physicians who know the national territory for treatment of the condition in question–the national centers of excellence, the leading innovators in treatment, the state of best practice.

o Strategy 5: Control for medical complications.

Medical and psychosocial complications can slow recovery and cause costs to skyrocket. The following are a few of the more common complications with catastrophic injuries. These are the types of complications a strong plan will address:

o Infections, such as pneumonia and urinary tract cases, are among the leading causes of readmission to the acute hospital in spinal cord-injured patients and need to be continually monitored.

o Skin breakdown can be a recurrent problem through rehabilitation. Frequency and severity of these episodes are often underestimated.

o Spasticity/contractures, in addition to being expensive and avoidable, increase the risks of skin breakdown and additional surgery.

o Ventilator dependence prompts medical costs related to long-term care placement and home skilled care nursing that can be astronomical.

It is of critical importance to identify these early and to manage the risks throughout.

These five strategies involve expert-level engagement in the claim from the start. Not only will reserves be more stable, but ultimate cost will likely be lower.

Kevin Fleming is president of Paradigm Management Services in Concord, Calif., a provider of catastrophic and complex medical management that works on behalf of workers' comp insurers. He may be reached at Kevin.Fleming@paradigmcorp.com.