Achieving Linkage, Not Leakage
BY: MITCHELL WORKERS’ COMPENSATION SOLUTIONS
Who should read this document?
Workers’ Compensation insurance executives in key insurance operational positions (Chief Executive Officer,
Chief Technology Officer, Chief Operations Officer, Chief Financial Officer, Chief Claims Officer), claims
management and claims adjusters, utilization review managers, and bill review managers who:
- Desire to gain a competitive advantage by significantly reducing their claims loss costs
- Wish to stop the leakage that occurs because of the inability to match utilization review decisions with provider bills during the bill review process
- Are committed to ensuring that injured workers receive the most appropriate treatment
- Understand the value of improving worker productivity and lowering labor costs
- Want to realize the value of their investment in utilization review
This paper is designed to accomplish three major goals:
- Communicate the reasons for and scope of financial and resource “leakage” due to the inability to match UR decisions with provider bills.
- Present a new solution that stops this leakage and replaces it with automated matching of UR determinations and provider bills, application of client-directed rules for handling situations in which UR decisions and submitted bills don’t match, and automated straight-through bill review.
- Quantify the savings and productivity gains that can be achieved with this automated solution.
Key facts to keep in mind while reading this paper:
- Medical costs for workers’ compensation continue to increase, with the ratio of indemnity costs to medical costs expected to be 30/70 by 2018.
- Medical costs are the major challenge facing the workers’ compensation industry today.
- Reducing the leakage that occurs in claims management is a major opportunity to achieve more costeffective operations and improve overall profitability.
Managing spiraling medical costs is the most significant problem facing the workers’ compensation industry
today. Despite the initiatives of workers’ compensation payers, significant sources of “leakage” still exist in
the management of workers’ compensation claims. One of the most costly types of leaks occurs when the
decisions made during the utilization review process cannot be matched to the bills for those services. This
problem creates three types of loss for payers:
- Financial losses – dollars are paid out unnecessarily for services that were not authorized in utilization review
- Productivity losses – to try to match UR with incoming bills, reviewers must engage in a cumbersome, time-consuming manual matching process that lowers their productivity and increases labor costs
- Failure to realize the benefit from the investment in UR – UR is an expensive process; when UR decisions are not observed, the financial and human capital investment that firms make in UR, is wasted.
Fortunately, new technology solutions are now available that replace the lengthy and sometimes inaccurate
manual comparison process with automated matching of UR decisions with bills. The system works by grouping
related procedures and codes together so that the bills can be easily and automatically matched with the UR
decisions that were made. If the codes match, the bill is paid automatically. If there is not a match, the bill is
appended as an exception.
As a result, workers’ compensation firms can:
- Stop the losses that occur when services are paid that were not approved in UR
- Increase worker productivity and lower labor costs
- Better manage the process by which injured workers receive the most appropriate treatment
- Ensure that their own client-directed protocol for handling situations in which services were provided that exceeded UR determinations, are applied.
Breakthrough in Managing Medical Costs
For workers’ compensation payers and self-insured employers, the challenge of the last decade—and the
future—comes down to three words: managing medical costs.
From 1999 to 2007, workers’ compensation medical costs nearly doubled, from $13.5 billion to over $25 billion.
These costs are rising at a rate that is 50% to 100% higher than the rate of medical cost inflation. Estimates
are that these medical expenditures now total $30 billion a year. And, these increases have transpired despite
various state reform initiatives that have occurred during the same time period.
The “flip” of the indemnity/medical cost ratio further illustrates the magnitude of the problem for payers.
Indemnity costs associated with replacing a portion of the workers’ pre-injury income or earnings have
traditionally been the greater part of the workers’ comp cost equation, with the indemnity/medical cost
ratio running on average 60 percent indemnity costs to 40 percent medical costs. However, today that ratio
is reversed. Projected 2009 indemnity costs are 42 percent, and medical costs are 58 percent , and, the gap is
expected to widen to 30/70 by 2018.
Payers have fought back with dedicated efforts to improve their medical cost management systems and
to accomplish two goals: ensure that resources are used wisely, and provide injured workers with the most
appropriate medical care so they can return to work. Yet, despite these efforts, cracks in the system remain,
“leaking” valuable dollars, time and resource expertise.
This white paper examines solutions to a major area of “leakage” in workers’ compensation claims management,
a leakage that occurs because of the inability to match decisions that are made in the utilization review (UR)
process with decisions made in the medical bill review process. It also explores the new solutions available to
reduce financial leakage in claims operations that will give payers improved efficiency and lower medical costs.
The Role of Utilization Review
Utilization review is the process of reviewing proposed medical treatment plans to determine if they are
medically necessary and appropriate to the condition of the injured worker. UR reviews the medical provider’s
proposed treatment plan, the duration of care and the scope of services given the specific injury and other
claim and patient factors. UR may be done prior to the service being performed (prospective review), during the
course of treatment or hospital stay (concurrent review), or after the service has been provided (retrospective
Most managed care programs incorporate moderate-to-robust UR programs, customized for their needs and
the needs of their client’s companies. While UR programs are customized to the payer’s requirements, workers’
compensation laws add a level of complexity to the process based on mandated state specific requirements
to which utilization review programs must adhere. For example, states may mandate that UR, if conducted, be
performed by a licensed and/or certified UR vendor or payer, or a company that has filed a utilization review
plan. States with this requirement include Alabama, Arkansas, California, Illinois, Kentucky, Mississippi, North
Carolina, Tennessee, and Texas. Some states require prior authorization for some or all treatment requests on
a state-created list, such as Mississippi and Texas. States such as California and Illinois allow UR at the discretion
of the payer prior to, during, or after the service has been provided to the injured worker. California mandates
utilization review be conducted for specific requests, such as spinal surgery.
Utilization Review “trigger” lists can be created on a state-by-state basis to identify the services that can
typically benefit from UR. Such services may include non-emergency hospitalizations, surgeries, and ancillary
and physical medicine services.
Currently, utilization review is on the rise for services that are increasing in frequency and cost, and lacking
evidence of progress in the course of rehabilitation, such as pain management programs, use of opioids,
addiction and the over utilization of injections.
Payers take differing approaches in dealing with UR infractions by health care providers, hospitals, and
facilities. For example, if a specific number of PT visits are authorized in UR, one payer may start disallowing
all services beyond the actual approved number. Another payer may allow up to 10% more visits (and issue
warning messages to the provider), before disallowing all services in excess of 110% of the approved number.
Payers may also want to issue warning messages to the provider indicating that the number of billed services
is approaching the number of services approved in UR. Therefore, great flexibility is needed in order to allow
the payers to do bill review “their way.”
The Role of Bill Review
Bill review is another accepted practice to better manage costs by ensuring that payers pay the appropriate
fees for healthcare provider services. Traditional bill review services ensure that each bill is paid in accordance
with the proper fee/UCR schedule and that the bill is subjected to the proper PPO networks or negotiation
processes to ensure the payer pays a fair or market rate for the medical services. Bill review vendors estimate
that savings from reviewing bills for workers’ compensation-related procedures may average as much as 45
percent to 53 percent of the initial billed charges.
The Disconnect Between UR and Bill Review
The disconnect between UR and bill review has historically been a source of significant financial and operational
leakage, because of the inability to consistently match the UR decision with what is recommended for payment
in the bill review process.
For example, UR may refer to a “therapy” being approved. To map this decision to the bill when it arrives
and is under review, a system or individual would have to know the type of therapy and all procedure codes
that apply to the specific type of therapy approved, and then be able to make the match between what was
approved in the UR decision and what corresponding treatment exists in history and on the current bill for that
specific provider and claim.
The barrier to making the connection has been the lack of a robust, integrated platform that can serve as
a “best of breed” solution, bringing the intelligence to read and configure all the data for proper matching
between the UR approved treatment and the treatment that exists in the bill review system, including the
current bill being reviewed and the bill history for the claim. Even a robust UR system and a robust bill review
system may still be unable to be integrated - or to be integrated well enough - to fully automate this matching
process accurately and consistently.
Without an effective technology solution linking utilization review to the bill review platform, payers often pay
for billed procedures that were denied (or not approved) during the UR process. Consequently, bill review fails
to address the charges for unapproved services that would be possible by effectively integrating utilization
review data during the bill review process. In addition, the millions of dollars that payers spend on utilization
review— evaluating the medical necessity of procedures, inpatient hospitalizations, and other treatments—is
Survey Results Confirm the Problem
A survey conducted in 2009 by Connecticut-based Health Strategy Associations (HSA), the first Annual Survey
of Workers’ Compensation Bill Review, found that this lack of connectivity between firms performing workers’
compensation bill review and medical management processes results in non-approved medical treatments
often being improperly reimbursed. This waste of resources occurs simply because it is not possible for IT
systems to make the connection between the bill, the provider, the claimant, and the UR decision consistently.
According to the survey, there are very few bill review systems that are fully and seamlessly connected with
medical management systems and processes, such as utilization review, pre-certification, case management or
A significant problem identified in the survey is that most systems capture their UR information in a narrative
form, in text or free-form fields. However, computers cannot make use of this file format, and consequently
cannot match the bill review and UR data.
Furthermore, because payer UR systems are customized and highly diverse, and state regulations are so
variable, the challenge of integrating bill review and UR is made even more difficult.
As a result, the costly, meticulous process of obtaining UR decisions fails to achieve its objective because the
decisions were not applied in the bill review process. Instead, payers lose efficiency and dollars:
- Medical bill review and claims operational costs use extra processing time and create higher labor costs due to the manual processes required to identify UR decisions and match them to the correct bills, and
- Unnecessary medical payments are made because the bill review process often fails to apply the nonapproved UR decision (resulting in higher medical costs per claim. The payer would in this case end up paying for both a UR decision and the medical treatment that was non-approved.
Three Areas of Leakage
The inability to match UR decisions with bill review creates leakage in the area of financial losses, potentially
inappropriate treatment, and impaired efficiency.
The largest source of leakage involves both service and cost. It occurs when services that were not approved
in UR are paid to providers, and the injured worker undergoes procedures which are not improving the status
of his industrial injury, reducing his medication, or increasing his ability to go back to work. This situation can
have the most significant impact on the payer, injured worker and employer. It is the most significant source of
financial loss of the three forms of leakage.
The second source of leakage occurs because productivity—and therefore labor costs— are impacted by the
time it takes for a bill reviewer to manually verify utilization review decisions against the bills and history in the
bill review process. For example, a reviewer may be able to process only nine bills per hour as opposed to 16
bills per hour due to the manual review being so time-consuming. As a result, productivity is almost cut in half
when this UR manual review component is added to the bill review process.
The third form of leakage is the waste of the investment made in UR. Implementing a UR program requires
highly skilled employees and the development of customized processes and standards for the program.
Setting up the UR infrastructure is, in itself, a significant investment. The resources to run the program are also
expensive, including compliance with state and/or national regulatory requirements and contracting with or
hiring clinical staff, including physicians. If a firm uses an outside resource for its UR, the fee it pays averages
about $85 to $105 per case, plus the cost of physician reviewer fees. If the assessment is done internally, the
cost of the nurse reviewer’s compensation is in the range of $45 to $65 per hour with physician reviewer costs
considerably more expensive.
The potential to lose money takes place when the recommendations made by these highly skilled professionals
are not followed.
Stopping the Leakage: The Traditional Approach
Payers have made valiant efforts to plug this leakage and to match the medical codes accurately so that
UR decisions are upheld in the bill review process. Unfortunately, most methodologies are inefficient
and inconsistent manual processes that fail to leverage the power of technology to apply those decisions
automatically and accurately during the bill review process.
In these manual procedures, it is up to the bill reviewer to apply the UR decisions against the specific bill they
are reviewing and all of the other bills in history for that claim.
To understand just how time-intensive and frustrating this process is, consider the steps of the manual process:
- First, a UR decision is made to allow, for example, physical therapy three times per week for four weeks. The injured worker begins this course of therapy.
- A bill for physical therapy services arrives in bill review. The bill reviewer wonders “Has this treatment been approved by UR? And if so, how many visits and for what duration?” To find out, the reviewer must:
- First, search for a possible UR decision in the IT system and if found, write down the date range on
the UR note.
- Write down and figure out the actual procedure code ranges that are referenced in the UR note.
- Count the number of visits on the current bill that fall into the range that match the codes and then
write down the date of service and the number of codes (modalities) on the current bill that meet
the criteria for date of service.
- Repeat step 3 for every bill in history for the same claim.
- Total this information by date of service and put in date order.
- Review the totaled information from step 5 and determine which bills are approved in the URprocess.
It’s no surprise that this manual procedure slows down the entire bill review process, and wreaks havoc with
the productivity of the reviewer who has to do it. Not only is the process laborious, but the accuracy of the
decisions is questionable. Unfortunately, in many claims operations, reviewers don’t even attempt it, letting
the bills go through without verifying UR approval.
If the review shows that the bill was for a service that underwent UR and was not approved or if the duration
or scope is different from what was approved, this discovery necessitates a back-and-forth communication
between the reviewer and the adjuster, especially if the bill already processed is changed after the fact to deny
payment for a service.
Some firms have attempted to shorten the process and improve accuracy and efficiency by arranging for UR
notes to be delivered to a bill reviewer on a screen. While having the notes available for review is a convenience,
the process of matching these notes to specific bills and services must still be done by a cumbersome manual
New Automated Options
A new approach has introduced true automation into the UR/bill review matching problem. In this solution, the
software obtains an automated feed of UR decisions. This feed of data is then analyzed by a rules engine that
aggregates procedure codes into treatment families. For example, bills for physical therapy treatment which
was approved during utilization review, may contain line items such as ice packs, exercise, and the application
of electrical stimulation. These entities are all grouped together because they are modalities implemented
within a physical therapy session, giving the bill reviewer the ability to expedite recommendation for payment
for all services as a result of the UR feed.
The UR decisions are imported into the bill review application database and are stored with all the detail
related to the approved treatment including the DOS (date of service) range, code range, category of
treatment, the number of approved/denied visits and service/visit metrics. By grouping procedures codes into
a treatment group according to a specific type of treatment, the codes can be automatically compared and
matched. Instead of one to one or individual bill line items, the software does the “thinking” that determines
if the procedure billed fits with what was approved in UR. Consequently, the laborious line-by-line manual
comparison is replaced with straight-through processing, delivering significant productivity increase.
With the automated feed of utilization review decisions and the automated matching process, payers can
auto-adjudicate bills and individual services that up until now had to be handled manually. The system also
has the flexibility to incorporate client-based directives into the business rules. Examples of these client-based
directives might be instructions on handling a claim in litigation, specific providers who over-utilization services,
or the allowance of an extension beyond dates of service in certain situations.
The mind-numbing repetition of the six-step manual procedure that was described previously is now replaced
by an automated process that looks like this:
- Technology sorts services into treatment groups
- Technology matches the services authorized by UR with the services submitted for payment
- If there is a match, the bill is paid automatically. If there is not a match, the bill is appended as an exception.
In order for this automated system to work, two conditions must be in place:
- The UR decision passed into the bill review system must be numerically formatted rather than in text delivery.
- While the bill reviewer will be provided with set groups for automation, payers and bill reviewers must have the flexibility to take the entire code set and define what the specific subgroups will be for all services, those specific for clients, and all state jurisdictions.
The key to making this enhancement work—the ‘secret sauce’ if you will—is the overall flexibility and capability of the platform to break information down by service and state, and then to match the codes correctly.
This flexibility extends to being able to:
- Focus on trouble spots clients may have, such as rehabilitation services, or outpatient surgery.
- Identify “soft” code matches – i.e., codes that may be a close relationship to the common CPT® code, and
which might be used to extend payment for services in the same family of services approved.
- Adjust the base calculation according to the customized rules and policies of the payer. For example, the
UR nurse may have authorized eight treatments of chiropractic care, but when the bill arrives, 12 have
been delivered. Payers have different approaches as to how to handle this situation. One may choose to
allow a “grace” period, permitting an overage within a specified range. Another may deny the overage.
These customized decisions should be part of the business rules for that payer.
Quantifying the Benefits of Automation
What are the quantifiable savings when UR decisions can be matched with bill review? Let’s take the following
- Percentage of claims with UR activity.........................................25%
- Percentage of bills with UR activity.............................................50%
- Percentage of UR straight through processing.......................50%
- Cost of manual UR (minutes/bill).................................................10
- Hourly rate of UR/BR staff..............................................................$20
- UR savings per bill reviewed..........................................................$ 3.33
- Average number of bills/claim with UR activity......................8
First, let’s look at the efficiency savings. In this scenario, suppose that the average number of bills processed
monthly is 50,000. Therefore, the total claims with UR are 1,563, and the total bills with UR are 6,250. Personnel
savings through improved efficiency totals $10,417 per month, the equivalent of 3.1 FTEs a year or $125,000.
Next, let’s estimate the savings from recaptured missed UR/bill review matching. Again, the average number
of claims with UR activity in this example is 1,563. The percentage of UR mismatches not captured manually
but caught by the automated matching process is 15 percent. The average percentage fo UR captured claims
subjected to denial or outside approved treatment is 20 percent. The typical cost of a treatment is $2,500.
Consequently, the total recaptured savings due to the automated UR/bill review matching is $117,188.
Combining the two savings figures yields savings of $127,604 per month, and an impressive $1,531,250 per year.
Payers that take advantage of this automation will benefit from a significantly more efficient claims process,
straight-through utilization review decision matching, reduced staffing requirements and perhaps most
important, the assurance that only approved treatments are paid. By plugging this leakage between bill review
and utilization review, payers realize the investment they have made in UR. When there is no match between
UR and the bill under review, the payers’ own customized policies covering how they want to deal with this
situation are automatically applied.
Again, flexibility is the key to this new tool in improving medical cost management. Payers should expect to have
the rules written and applied “their way,” so that they are reaping the maximum benefit from this powerful
tool. They should also seek partners who not only have sophisticated integrated technology resources, but
who also have the necessary experience in workers’ compensation medical cost management.
With this automated matching in place between bill review and utilization review, payers can finally begin to
plug one of the most significant causes of financial and resource leakage, taking a major step forward in their
efforts to better manage rising medical costs.
The availability of automated matching of utilization review determinations with provider bills submitted
for payment opens up a tremendous opportunity for workers’ compensation companies. With this new
capability, they can reduce the losses that occur when treatments are paid for that were not authorized by
UR, improve bill review productivity by eliminating the time-consuming and labor-intensive manual matching
process that occurs today, and fully realize the investment that they make in setting up UR programs and
deploying expensive personnel resources to perform this function. This automated matching capability also
allows for client-directed rules for handling discrepancies between UR decisions and treatment delivered by
providers, and increased the number of bills that can be paid automatically with no manual review required.
This automated capability is a significant breakthrough in companies’ quest to improve the management of
rising medical costs, the number one challenge facing the industry today.
- 1. “Increasing Workers Comp Medical Costs Are Major Concern, Insurers Say,” www.RiskandInsurance.com, December 2, 2008.
- 2 “NCCI Conference – The Rousmaniere Report,” www.JoePaduda.com, May 9, 2008.
- 3. Dennis Mealy, FCAS, MAAA, NCCI Chief Actuary, State of the Line, State of the Line, May 6, 2010. (https://ncci.com/documents/ais-2010-SOLpresentation.pdf)
- 4. Dr. Robert P. Hartwig, “The Road Ahead: P-C Insurance in the Post-Crisis World,” Insurance Information Institute, July 15, 2010. (http://www.iii.org/assets/docs/pdf/ICT-071510.pdf)
- 5. “Controlling Workers’ Compensation Medical Costs,” Financial Executives International, 2007.
- 6. Joe Paduda, “Workers Comp’s Missing Link – Tying Bill review to Utilization Review,” www.JoePaduda.com, April 23, 2010.
- 7. “Comp Claims Billing Review Flaws May Cost Firms Millions, Says Study,” National Underwriter, June 10, 2009.
About Mitchell Workers’ Compensation Solution
Mitchell Workers’ Compensation Solutions (WCS), a division of Mitchell International, is a leading provider of
workers’ compensation cost containment technologies and services. Insurance payers and other clients rely on
Mitchell WCS’s best-of-breed medical bill review platform, the SmartAdvisor Software Suite, to improve their
medical cost savings results. For more information, please visit www.mitchell.com/workerscomp.
About Mitchell International, Inc.
Mitchell International (www.mitchell.com) is a leading provider of information and workflow solutions to
the Property and Casualty claims and Automotive Collision Repair industries. The company’s comprehensive
solution portfolio streamlines the entire auto physical damage, bodily injury and worker’s compensation claims
processes. Mitchell enables millions of electronic transaction between more than 30,000 business partners
each month to enhance partner productivity, profitability, and customer satisfaction.
Copyright © 2011 Mitchell International, Inc. All rights reserved.
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