Hidden Costs in Workers’ Compensation Claims

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Workers’ Compensation insurers will tout how they save policyholders money by catching superfluous and/or padded claims costs.  What they do not tout is how much they charge for providing this service.  In some cases, these costs can be significant, if not excessive.  One such service is Medical Bill Review, where the insurer ensures that what the medical professional invoiced conforms to a pre-agreed schedule.

For example, John Doe is injured while lifting a barrel during the course and scope of his employment.  He is sent to the occupational clinic for an urgent care appointment.  The doctor on staff refers Mr. Doe to a surgeon because he suspects Mr. Doe suffered a hernia and needs surgery.  The surgeon sees Mr. Doe one time and schedules the surgery.  The surgery takes place a week later.  Mr. Doe attends several follow-up visits with the surgeon and is released from care.

For the purposes of this example, Mr. Doe is seen by a medical professional about six times in addition to the surgery.  All medical professionals (the doctor, the surgery center, the anesthesiologist, etc.) send bills to the insurance company. It is not unusual for these billed amounts to exceed the scheduled rates previously agreed by these providers and the insurer.  Every insurance company has a system of reviewing the bills so that payments are made per the pre-agreed schedule.  In most cases, the insurer charges a percentage of the amount overcharged as their fee for this service.  Typically, the amount overbilled is 25% - 50% so this service is of material benefit. 

A percentage of savings realized from the medical bill review process is charged to the claim file.  A typical percentage is 25% to 35% of the savings.  In addition to the percentage of savings, there are other insurer charges as part of this service.  One is a per bill charge of between $9.00 and $20.00.  In addition, the per bill charge and percentage of savings charges may be different for in-network, or PPO, providers than out-of- network providers.  (The charge is usually less for PPO provider bills.)  Also, in California and Texas, the charges are sometimes higher than in other states.  The insurers and TPA’s also sometimes cap the savings charge per bill to around $5,000-$10,000. 

What is the Impact of Medical Bill Review Costs on the Overall Cost of a Claim? 

We completed an analysis for a client that purchases Workers’ Compensation insurance from a large, well established insurer.  The service our client receives on the claim handling is exemplary, and with the help of their internal safety and HR staff, loss control initiatives and Equity Risk Partners as their broker, they have achieved a decrease in the number of claims year-over-year by 48%.  Their total incurred values continue to trend down as well. 

Digging deeper into the data, we completed a comparison of how much this client pays for claim handling services (i.e. the adjuster’s time and expertise) versus medical bill review costs. (Claim handling services do not include nurse case management or defense attorney time and expenses—purely claim handling fees.)

Policy Year                Claim Handling Fees            Medical Bill Review Fees

2014                            $33,600                                   $119,000

2015                            $36,900                                   $60,000

One would argue that claim adjusters have a very tough job.  They have to facilitate communications with the medical providers, the injured workers, the attorneys, the client and the broker. They have a lot of folks to keep happy, and at the same time attempt to understand the ins-and-outs of Workers’ Compensation statutes, and finally, to guide a claim to closure.  

Meanwhile, the Medical Bill Review cost, an internal revenue source for the insurer, does not involve any communication with the insured, injured worker or broker.  It is a “backroom” function. 

How to Minimize the Medical Bill Review Costs 

We have found that relationships with an in-network medical providers is the best way to combat the high medical bills being charged.  There is no guarantee, but most in-network providers have a better understanding of the process and do not vastly over-charge for their services, hence a lower medical bill review charge.

 Also, we have attempted to explore unbundling the medical bill review services to outside firms that will complete the service at a much lower cost.  So far, we have run into many roadblocks in getting insurers to unbundle this service.

Understanding what you are paying in medical bill review costs is a great first step.  Asking questions of the underwriters to make sure they have an understanding of the process and how much the insurer is charging for the medical bill review service.  Negotiating a few details on the medical bill review services may make an impact, such as placing a maximum per bill medical bill review savings charge of $5,000 or less, ensuring the percentage of savings is 27% or lower, and removing the per bill charge completely (as stated above, some companies charge as much as $20.00 per bill just to have it reviewed).

Equity Risk Partners recommends including this and related issues into renewal negotiations prior to binding,   Some businesses may prefer to perpetuate this kind of approach under the theory that they expect loss experience to improve and they want to minimize up front cost.  Other businesses may prefer to reduce or eliminate these charges so as to eliminate a potential conflict of interest.  Either way, Equity Risk is positioned to help you through this process, and we welcome further dialogue with you on this subject.

MCMPatti Orbell - Senior Claims Consultant - Property & Casualty 

Patti Orbell has been a Senior Claims Consultant with Equity Risk Partners since 2004. She is passionate about helping clients prevent and manage their Workers' Compensation claims. She is also a member of the claims consulting team working with Equity Risk Partners' parent company, Hub International. 

Prior to joining Equity Risk Partners, Ms. Orbell was a corporate risk manager for an automotive supply company. She also worked for Marsh for eight years. She holds a bachelor's degree in risk management and insurance and marketing from the University of Wisconsin.

Ms. Orbell was named a 2016 Power Broker by Risk & Insurance magazine and has been in the risk management and insurance business for over 20 years. 

Contact Information:  porbell@equityrisk.com

Phone:  847.452.6774