FEATURE STORIES | MARCH 2008

Five Characteristics of Effective Claim Administration Program Management

By Bruce Vanner, JD

A California court recently ruled in favor of a school district joint powers authority that brought a multi-million-dollar suit against a national third-party administrator for mishandling workers' compensation claims for a period of nearly 15 years.

This case, and many others like it, raises the question of how to ensure effective management of a contracted claim administration program so that problems can be quickly identified and resolved without litigation.

Although there is no single benchmarking standard, there are five characteristics of successful third-party claim administration management.

1. Management is in charge of the program.

While many claim administration programs involve millions of dollars and can have a financial impact on all departments, many organizations leave the claim administration program oversight to a low-level technician or claim specialist. Successful claim administration programs, however, have a clear line of responsibility and accountability at a high management level, with authority officially reflected on the organizational chart and emphasized in employee orientation meetings. The manager in charge reports the status of these programs in the organization's annual-review process and budget discussions, and operating departments are held accountable for their claim results.

2. Management is actively involved in major program decisions.

Because claim administration programs are subject to frequent legislative and judicial changes, such programs should be able to be easily changed or updated as needed. Programs for utilization review, return to work, reasonable job accommodation, and specialized provider networks, for example, have not only blossomed, but have become mandatory in some states, requiring major program changes in their wake. Failure to properly administer such programs can result not only in increased claim costs, but also potential high-cost litigation (ADA, FEHA, wrongful termination, etc.) and large regulatory fines and penalties. Management also must implement and oversee contracts with various claim vendors and claim administrators, with their prime financial consideration being the overall cost of the program, not just the claim administrator's fee.

3. Management tracks performance of the claim administrator and internal staff.

Claim administration contracts should (but not all do) set out objective performance standards that the administrator agrees to meet. Too often, however, no one follows up to objectively measure if the standards are being met. The claim administrator should be required to report performance to client management on an objective-by-objective basis. These results can then be subjected to internal and external audit to confirm compliance. Some contracts use positive/negative incentives to meet objectives, but such contracts require sophisticated measurements to draft and track performance and should only be considered if there are resources to accurately measure results.

It is insufficient for management to just have a "feel" for what is happening with claim administration. Technology has made a major impact in this area; today's Internet-based software systems allow user access on an as-needed basis. Users can tailor information and format reports to their needs and give client management access to the information and reports they want. New reports can be easily formatted as needed.

Most new claims systems allow direct access to the vendor's e-mail system so that client management can ask questions or request more information. Using e-mail instead of telephone calls documents the effectiveness and timeliness of responses by the administrator's internal staff to management's inquiries.

If management does not have system access, the administrator should be required to provide periodic computer reports on claim reporting, payments, reserves, trending, accident factors, and the status of significant claims. The administrator should inform management of newly reported claims, proposed claim settlements, and reserve increases of a significant amount. (The definition of "significant amount" needs to be agreed to with the claim administrator and made part of the contract. The amount will depend upon the size of the organization and its ability to handle risk exposure.)

The claim administrator should produce a detailed written report on the status of the program every six months, outlining results and an action plan to resolve any open issues. Management should ensure that internal staff periodically audit claim files and that an audit is performed at least every two years by an independent and experienced auditor. If auditing uncovers serious problems, consider performing follow-up audits until all problems are resolved. The claims administrator should be required to provide a written response to any recommendations from the auditor and document in the claim files all actions taken.

Management assigned to oversee the claim program should be required to review all reports from the administrator and add their comments. The administrator should be managed according to a formal plan of specific objectives and measured against those objectives. Management should not be surprised by problems that have been pending for a period of time. This is another area that should be reviewed by an independent auditor at each claims audit.

4. Management attends periodic review meetings.

Periodic review meetings should be held so that the claim administrator can submit its program status report to management and review outstanding claims needing decisions and to review other claims of special interest. The status report should update the results of the action plan from the prior report. Both the claim administrator and management should leave the meeting with a written list of action items with assigned responsibilities and due dates for completion and follow-up reporting.

Review meetings should not be held so frequently that the claim administrator spends more of its time and resources preparing for meetings than handling claims. If appropriate system access and oversight is available to both parties, important claim decisions can be made as needed and not postponed until the next review meeting.

5. Management resolves program disputes.

A manager's job is to fix problems and resolve disputes. If a problem arises that is outside the scope and understanding of management, consider using professional consultants to provide advice and guidance. Most major claim administration problems result from inaction. Poor decisions can be changed, but inaction is a festering disease. Timely and open communication is the key. Any problems in this area are a symptom of deeper claim administration issues.

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Management should remember that the vast majority of claim administrators want to do a good job. Like their clients, administrators don't want problems and do want to resolve disputes quickly. Claim administrators live in a very competitive marketplace, and they realize that if they don't know how -- or don't want -- to do the job right, clients will take their business elsewhere. They also understand that information is the key to making sound claim decisions.

A close working partnership between third-party claims administrators and savvy, involved client management is the best way to achieve a successful claim administration program.

ABOUT THE AUTHOR

Bruce Vanner, JD, is a senior claim management consultant and auditor with Warren, McVeigh & Griffin, Inc. Bruce has more than 30 years' experience in the insurance claims industry, including extensive experience in managing, designing, and implementing claim programs for various California and national TPAs. A former California workers' compensation defense attorney, Bruce is a state-certified workers' compensation claim administrator and has been a full-time claim management consultant for the last seven years. He also designs and implements computer claim software and medical management systems. Bruce can be reached at 949-752-1058.

riskVue | The webzine for risk management professionals
March 2008