Controlling Medical Costs in Workers’ Compensation

January 26, 2004

Rising healthcare costs are recognized as a key problem in the workers’ compensation industry. Medical costs once constituted 30 percent of the total workers’ comp claims expenses; today, however, they represent 50 to 60 percent of claims costs. State legislatures and regulators are trying to pass laws that alleviate the impact of healthcare costs on the workers’ comp industry. However, caring for an injured worker is typically more expensive than general medicine, and as a result, workers’ comp calls for innovative cost-saving strategies.

Due to the high frequency and severity of injuries, the number of medical bills processed has increased by 40 percent in the last three years. To keep up with this volume, organizations have asked staff to work overtime and are attempting to recruit additional bill review professionals. However, there is a shortage of qualified personnel with the right experience, and additional work hours alone will not get to the root of operational inefficiencies.

In this environment, insurers, third-party administrators (TPAs) and self-insured employers not only need to control the actual healthcare spend, but also the administrative costs associated with processing medical bills. Today, many of these organizations are turning to advanced technology to help them rein in healthcare costs, automate routine administrative functions and increase processing productivity as volumes grow.

A tradition of medical bill review
In workers’ comp, medical bills have traditionally been reviewed to determine if the medical costs were appropriate, if specific jurisdictional rules were applied, and if specific provider discounts were available for additional savings. However, medical bill review has typically been a manual and labor-intensive process that is both inefficient and inconsistent in quality and savings.

Recently, technological innovations have been introduced that can automate this process and make the best payment recommendations for maximum fiscal savings. These new systems provide improvements in three areas of the medical bill review process: front-end operations, healthcare savings on bills, and additional savings on complex injuries.

Automation of front-end operations
On the front-end of the medical review process, scanning technology, optical character recognition (OCR) and electronic data interchange (EDI) can enable organizations to significantly cut back on manual data entry and paper shuffling.

When reviewers receive medical bills, they typically determine whether the bills are linked to valid claims. They perform data entry for each and every bill, averaging 200 – 225 keystrokes per bill and 1,000 bills per month. By scanning bills, reviewers can omit inefficient, labor-intensive procedures that are prone to error and inefficiency. For example, an OCR auditor can clean up 11,000 scanned bills in a month, allowing clients to save money on data entry while also increasing productivity.

Scanning and OCR also offer the advantage of electronically viewing medical bill information, providing real-time access to information and additional opportunities to streamline processes.

Rules, decision engines to reduce costs
Today, sophisticated bill review and repricing technology can automate and improve the bill review process and provide significant cost-savings in the area of medical expenses. By integrating an extensive library of fee schedules and robust databases of national and regional preferred provider organizations (PPOs) into the software, these systems can automatically apply appropriate fees and PPO discounts to every bill, ensuring a consistent first layer of healthcare savings.

Decision management technology and business rules can further automate the bill review process for a second layer of savings. For example, bill review expertise that once existed only in the minds of top-performing staff members can now be incorporated into automated rules and edits. Today, these rules can be programmed by the bill review department instead of IT staff.

The rules are integrated and updated into the decision management engine as the conditions and policies change. The rules and decision engines then allow for the detection of bills that contain potentially excessive charges, over-utilization, unnecessary services or inappropriate care. Bills that might have been overlooked in the past are now automatically “red-flagged” for further investigation and routed to the right resources for further review.

Together, rules and decision management capabilities enable organizations to incorporate all guidelines and business practices consistently across every bill and with every staff member reviewing bills.

With this type of decision management support, organizations are able to achieve automated processing and payment of up to 70 to 90 percent of their medical bills. Combined with OCR and EDI capabilities, this intelligent automation allows organizations to effectively utilize their expert resources, cutting turnaround time on bills in half and virtually eliminating penalties on late payments. By deploying these systems, organizations have been able to double the productivity of their bill review staff, alleviating heavy workloads and the need for overtime.

From the bill reviewer’s perspective, this technology serves as a helpful tool to automate mundane administrative tasks and now allows them to redirect efforts toward analytic functions where their expertise can provide the greatest value.

Cost containment through bill review
Cost management is also impacted by effectively managing complex medical injuries. Without proper handling, a complex injury can easily lead to a six-figure claim with no guarantee that the claimant is even receiving appropriate medical care. Often, the case may not be discovered until it is too late to apply effective medical management.

Automated decisioning systems can provide an “early warning” of complex medical injuries. Utilizing this powerful tool, organizations can prevent excessive medical costs and improve the quality of care for injured employees. Early identification also ensures that an appropriate medical plan is designed and followed for optimal results. Decision management technology performs this task through rules that immediately route bills to the right “complex” bill review expert.

Addressing medical inflation in the future
As medical expenses continue to escalate, organizations need creative yet effective strategies to control these costs. The careful management and review of medical bills is a key component to help reduce workers’ comp medical expenses. Today, organizations are deploying automation and decision management systems to improve their medical bill review process, consistently apply business rules, obtain maximum cost savings, and manage complex medical injuries for quality of care and optimal results. This technology offers an effective means to achieve these objectives, contributing to an organization’s favorable lead in the workers’ comp industry.

Kelly Stephen is vice president of product development, Insurance and Bill Review, at Fair Isaac Corporation, headquartered in San Rafael, Calif. For more information, visit or call (949) 655-3300.

Was this article valuable?

Here are more articles you may enjoy.

From This Issue

Insurance Journal West January 26, 2004
January 26, 2004
Insurance Journal West Magazine

E&S Directory Vol. I