Risk Audit Solutions
Third
Party Administrator Audit for Self Insured Client
An aviation industry client engaged
us to audit their TPA (Third Party Administrator) to review an open case
load of 5,000 open and closed claims. A focused approach utilizing best
practice and results-based data was sought to identify key areas of claim
frequency, severity, reserve methodology, and allocated costs. It is our
firm belief that a “learning” approach is critical to reduce
frequency and severity of loss. That is to say, with each claim that is
presented, there will be a thorough analysis associated with the occurrence
to make sure that the root causes of the loss are understood, and
everything has been done to eliminate these root causes. Everyone in the
organization and associated outside support teams must
“learn” from the incident, and there should be a culture of
“Zero Tolerance” from the most senior official in the
organization to eliminate the causes in the future. The use of the TPA
incident investigative report is a critical link in risk mitigation as
well as ongoing claim management related to this administration.
In this case, we initially
worked with the client to understand their current risk tolerances, and
to establish their future standard approach to risk and claims
management. After completing an initial phase of interviews, we performed
our normal audit which aggressively challenged the current results with a
best practice methodology. In our study, we reviewed the initial
investigation including the root cause and origin analysis, the
administrative handling of the claims, and the financial reserves with a
“closure” mindset. Several areas of the claim were reviewed
and benchmarked for compliance and adequacy including Notification;
Coverage Analysis; Contract & Investigation; Injury & Damage for
Indemnity, Medical & Expenses; Reserving Practice; Cost Containment
Practice; Second Injury Analysis; Subrogation Practice; Litigation
Management Practices; Settlement Potential; and Supervision Capabilities.
Our executive summary report
identified whether or not the files met compliance standards, and the
present amount of “leakage” dollars (i.e. the differences in
the current total incurred costs versus the benchmarked best practice
costs), which had affected the overall workers compensation claims.
During the course of our audit, we found that 3,250 claims were satisfactory
meeting compliance and reserve standards. The remaining 1,750 claims did
not meet compliance or reserve standards, and resulted in severe leakage
dollars on each file which caused the total aggregate workers
compensation costs to be out of control. We utilized our aggregate file
quality scale defined as: “Exceeds”: >95% satisfactory;
“Achieves”: 85-95% satisfactory; “Does Not
Achieve”: <85% satisfactory. In this particular case, the
overall file quality grade for the TPA was 65%, which indicated severe
weaknesses in claim quality and associated financial risks. After our
initial study, our client asked us to develop solutions for the
organization including hazard risk (failure mode and effect) analysis,
operational strategies and controls, and claim management handling and
guidelines. We immediately changed the practice of claim investigation to
include a “Zero Tolerance” approach. This resulted in a 50%
decline in frequency within six months. From a claim handling
perspective, we immediately changed the mindset from
“administration” to “closure”, with strict
monitoring from our analysts. The client modified their return to work
program by eliminating any temporary employment where administrative
tasks were completed, and employed a mix of resources from the current
employment base with supplemental help from the injured worker force. A
positive culture was encouraged in all areas of employment with extremely
close follow-up from Human Resources and Supervisory Management.
The result of our best-practice
oriented Workers Compensation audit and solutions program yielded a net
reserve reduction of $5,145,296.28 for the client. They were extremely
pleased with the final results, and were able to build stronger education
and training programs for the targeted primary causes of loss than in the
past, while improving earnings dramatically during the first year.
Eventually, with our continued analysis and monitoring, we assisted our
client and TPA obtain an audit rating result of 92%, with a net reserve reduction
of $6,500,000.00 over a two year timeframe.
Preferred
Provider Organization Audits
Case 1
An employer, who was very
satisfied with their current plan configuration and the high level of service
delivered by their claims administrator, received a quotation from a
national broker representing a national carrier for their upcoming health
insurance renewal. The proposal recommended moving to the national
carrier option which showed considerable savings through improved network
contracts. With our assistance, they were able to focus on the estimated
savings presented by the carrier at the local hospitals. The carrier had
shown almost three times the current discount at the hospital where the plan
had the most expenditure.
Our analysts determined from
the hospital that there was not going to be any savings. The employer
then called the hospital and confirmed that they would be receiving the
same savings through the current plan as through the national carrier.
The broker and carrier then responded to the inaccurate information by
saying they had calculated a “regional average savings”, and
reported that for quotation of all hospitals that fell in that region.
The “national”
models often present significant confusion to local businesses, since
they rely heavily on “national” actuarial data with
significant variations between “actual” and
“modeled” results. In this case, the client was satisfied
that the current administrator was doing everything possible to execute
the desired cost strategies, while maintaining a very high level of
service quality. They were retained, and we were employed on a limited
annual basis to develop RFP’s and review bids.
Case 2
We assisted an employer who
was very concerned about the physician savings levels reported by a
national carrier. The physician savings levels for various networks
showed significant variances, with the carrier reporting savings levels
that the provider knew to be inaccurate. When we challenged the data, the
carrier responded by indicating they were reporting “targeted
savings” not actual savings. After our final analysis, the actual
savings amounted to several hundred thousand dollars more than reported.
Case 3
We were contacted by an
employer in a specific geographic area that was presented a
“national” report that showed that hospital discounts will
more than double if the employer moves to the carrier. The large, high
volume medical centers in the geographic area were contacted to confirm
the report. All of them disputed the level of savings in the report, and
indicated that the contracts are the same as the employer now employs.
The overstatement of savings amounted to several million dollars per
year, and the employer decided to remain with their current service team
with our continuous monitoring.
Blackburn Group, Inc.
23 Bremen Circle, Penfield, NY 14526
(585) 586-4530, Email: sales@blackburngroup.com
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