Hospital benchmarking can be a valuable tool for reducing workers’ compensation losses, Kevin Gabhart, managing director of Beecher Carlson, reports on the findings of the company’s 2014 Hospital Workers’ Compensation Benchmark Study.
W hile patient safety has always been at the forefront of the healthcare community’s focus, continued increases in workers’ compensation costs are pushing hospital operators to work together to reduce workplace injuries. Regardless of their organizational structure or mission, hospitals are using benchmark data to identify best practices and key performance indicators to control and reduce losses involving employees.
In February, Beecher Carlson, a large account risk management broker that delivers expertise by industry focus and product specialization, released the fifth edition of its Hospital Workers’ Compensation Benchmark Study. Data reporting and comparing the frequency and severity of workers’ compensation losses in hospitals across the US supports the industry’s desire to make proactive risk management decisions, thus reducing the overall costs associated with workers’ compensation claims.
The study includes a 2014 valuation of historical claims data occurring through January 1, 2009 to December 31, 2013. Contributors to the study represent more than 500 hospitals in 36 states employing nearly 600,000 people.
The data analyzed included more than 131,000 claims with either a dollar paid or reserved over the five-year period with just under 20,000 of those files having some form of payment or reserved amount for time lost from work. Those same files impacted the participants’ operating costs, with $856 million in incurred and $643 million in paid workers’ compensation losses.
While a variety of factors, causes, injuries and jurisdictions can contribute to the cost or outcomes associated with claims, the key areas of focus relate to the frequency of which claims occur, the severity of claims and the frequency of severe claims—generally those involving lost time from work or litigation. In addition to those basic components, certain correlations can be drawn from data in the body of claims.
Highlights of the study include:
Based on the findings of the 2014 study, hospitals are reducing the frequency of workers’ compensation claims. The fewer claims that occur, the less likely a severe case will happen. Therefore, prevention and safety efforts to prevent the claim or loss from ever occurring are paramount.
The study illustrates positive trends in the hospital space, finding a 28.5 percent reduction in frequency in losses per $1 million payroll between 2009 and 2013. Due to the variability between reserving philosophies, reporting requirements and the numerous methods for handling ‘medical only’ losses, it is important to look at claims resulting in time lost from work. Over the same five-year period, the frequency of lost time claims is down 42 percent when measured against payroll, moving from 0.19 lost time claims for every $1 million in payroll to 0.11 claims.
In order to lessen the impact of increased pay over the five-year period, frequency was also evaluated relative to 100,000 manhours worked. Using manhours as the exposure basis eliminates the impact of the inflation of employee compensation and considers an exposure associated with providing hospital services. This measurement shows a 21 percent reduction in the frequency of all claims and a 36.7 percent reduction for those resulting in time lost from work.
There are many factors that make it difficult for employers to reduce the cost of workers’ compensation claims. Medical inflation, an aging workforce and pharmaceutical costs are just a few of the challenges. While the ultimate goal is to prevent the claims from ever happening, there is still an emphasis to reduce or control the costs of individual claims when they do occur.
With mitigating those costs in mind, the study further considers the severity of losses. This factor matters since the severity of some claims can cause an organization to experience an unexpected increase in the average cost per claim even when their overall costs are going down due to decreased frequency.
The inverse is just as concerning. While frequency could be reduced to only one claim per year, if that single incident is catastrophic, the overall costs could still be higher for the organization.
In measuring severity, it was found that the average value for all claims is $6,499. Claims resulting in time lost from work averaged nearly six times that amount, illustrating the importance of prevention and safety, as well as an effective ‘stay at work’ or ‘return to work’ program.
Typically, in analyzing five years of data, the most recent year is also the lowest in value as the figure is an undeveloped cost. To counteract the ‘recency effect’, we developed the losses using country-wide loss development factors as provided by the National Council on Compensation Insurance (NCCI). While developing the losses provides more of an ‘apples to apples’ comparison, it illustrated a slight reduction in average severity in 2012 and 2013 from high points in 2010 and 2011.
More important, when developed losses were compared to the exposures of payroll and manhours, both were down significantly. This supports the overall cost trend being down as both severity and frequency for hospitals have reduced.
Frequency of severe claims
When identifying the overall cost for risk as a target for reductions, entities must identify the claims that are contributing the most to the overall costs. The Beecher Carlson study found that more than 94 percent of all claims have incurred values of less than $25,000 each.
The remaining six percent of all claims, with incurred values greater than $25,000, account for more than 73 percent of the costs. Hospitals can now evaluate and reduce the smaller population of claims to drive the greatest impact on the losses.
Key performance indicators
While there are a variety of strategies to reduce costs, specific factors can impact and reduce the severity of the body of claims. These factors, or key performance indicators, allow for a quick assessment of savings opportunities and potential efforts to reduce claims and mitigate costs.
There is a clear trend over the course of the studies that shows the importance of prompt claims reporting. Usually, the most catastrophic claims are known and reported as soon as they happen. Even with that, there is a 19 percent or more average higher incurred cost for claims reported after the first week than those reported in the first seven days. This illustrates the importance of prompt reporting of the claim by the employee to his or her supervisor and, just as important, the employer reporting it to the carrier or claims administrator.
Hospitals in the study stated that 81 percent of all claims were reported within the first seven days after the date of loss. For the remaining 19 percent, average costs per claim increase exponentially in value the longer that delay in reporting extends.
While rather intuitive, claims that don’t result in time lost from work are less costly. However, the data magnifies this point when you recognize that the hospitals have only 15 percent of all claims resulting in lost time from work. That group of claims, however, accounts for 83 percent of workers’ compensation costs. Organizations that focus on reducing and preventing lost time claims can greatly reduce their overall spend on losses.
Causation, jurisdiction, population, job description and a variety of other elements contribute to the specific trends and patterns in the hospital loss data. Through the ongoing efforts of industry leaders, open forums and projects such as the Hospital Workers’ Compensation Benchmark Study, hospital operators continue to explore and assess opportunities for improvement.
Beecher Carlson has announced it will proceed with the sixth edition of the Hospital Workers’ Compensation Benchmark Study with the ongoing support of key hospital operators. Data requests will be distributed in April 2015.
To find out more about the study, visit beechercarlson.com or call Beecher Carlson at 800-657-0243.
Kevin Gabhart, US, Beecher Carlson, Risk Management, IT and Data Security