1 December 12, 2012 Ms. Elizabeth Atilano Pool Administrator Ventura County Schools Self-Funding Authority 5189A Verdugo Way Camarillo, CA by Dear Ms. Atilano: Workers Compensation Claims Audit 2012 Enclosed is the report of the recent audit of workers compensation claims for the Ventura County Schools Self-Funding Authority (VCSSFA). I have implemented some minor changes discussed at the recent Executive Committee meeting. Thank you for the opportunity to assist VCSSFA with this important project. Sincerely, Timothy P. Farley, CPCU President Encl. P.O. Box 5928 Oceanside, CA Ph: Fax: An Independent Claims Management Consulting Firm
2 Workers Compensation Claims Audit 2012 for Ventura County Schools Self-Funding Authority D e c e m b e r 1 2, F ARLEY C ONSULTING SERVICES P.O. Box 5928 Oceanside, CA Phone: Fax: An Independent Claims Management Consulting Firm
3 December 12, 2012 Ms. Elizabeth Atilano Pool Administrator Ventura County Schools Self-Funding Authority 5189A Verdugo Way Camarillo, CA Workers Compensation Claims Audit This report summarizes the results of an audit of workers compensation claims for the Ventura County Schools Self-Funding Authority (VCSSFA). FCS reviewed 110 claim files administered by York Insurance Services Group (York), VCSSFA s third-party administrator in Oxnard via remote access to York s Claims Connect information system. The audit was conducted over the period 11/12/12-/11/21/12. The project includes: 1. The review of 110 workers compensation claim files broken down as follows: 100 open indemnity claim files 10 closed indemnity claim files 2. A submission to York of a list of claims to be reviewed prior to the audit. That list was chosen by FCS. 3. Access to York s information system from which the following data was obtained: Current financial information (e.g., outstanding reserves and amounts paid to date for temporary disability, permanent disability, expense, and vocational rehabilitation). Daily adjustor activity notes. Key dates of claim receipt Claimant information and injury description P.O. Box 5928 Oceanside, CA Ph: Fax: An Independent Claims Management Consulting Firm
4 ii 4. Consideration of the various coverage arrangements and periods. 5. Consideration of the VCSSFA workers compensation procedural standards. 6. Interviews and discussions with Mr. Winston McCathan of York throughout the audit process. 7. An exit discussion of audit findings with Mr. McCathan, Ms. Atilano (VCSSFA Pool Administrator) and Mr. Russ Olsen (VCSSFA Director of Risk Management). This discussion was conducted on 11/30/ Review of a rebuttal to audit findings provided by York. 9. Presentation of a draft report that was discussed at the 12/11/12 Executive Committee meeting. Minor changes were made to that draft report to create this final edition. FCS appreciates the opportunity to complete this important project for VCSSFA. Respectfully submitted, by Timothy P. Farley, CPCU President
5 Ventura County Schools Self-Funding Authority iii Contents I. Executive Summary... 1 II. Audit Results... 3 A. Background... 3 B. Claims Handling Analysis Staffing/Caseloads Accuracy of Case Reserves Quality of Investigation Expense Control/Cost Containment Payments/Settlements Litigation Management Documentation Diary/Case Closure Supervision Excess Reporting Exhibits Exhibit 1 Claims Handling Organizational Chart... 4 Exhibit 2 VCSSFA Workers Compensation Case Reserve Analysis... 6 Exhibit 3 VCSSFA Documentation Analysis Appendix Audit File Lists
6 Ventura County Schools Self-Funding Authority 1 I. Executive Summary The audit of 110 workers compensation claim files for VCSSFA reveals that York is generally providing effective claims administration for VCSSFA. None of the categories of analysis reveal significant non-compliance with required claims administration standards. Minor deficiencies are evident in the key claims administration areas of case reserve accuracy and documentation clarity. FCS makes the following observations and recommendations based on the audit: 1. York is adequately staffed to handle VCSSFA claims. Exhibit 1 on page 4 displays the personnel assigned to the VCSSFA account and their caseloads. York is required to maintain indemnity caseloads no higher than 150. One of the examiners slightly exceeds this threshold, but the audit finds no negative effects. 2. Case reserves are accurate. Only two claims require reserve adjustment. Those claims are discussed in Exhibit 2 on page York is conducting thorough investigation on VCSSFA claims. No field investigation deficiencies are identified. Initial contact of the employee is timely in all instances. 4. WellComp medical bill review services resulted in net savings of 77.7% of the original amount of medical bills received for the one-year period 11/1/11-10/31/12. Other similar pooling entities for which FCS has conducted similar studies average 64%. 5. The files exhibit consistent use of utilization review (UR) and nurse case manager (NCM) involvement to mitigate treatment and medical expense. Return-to-work efforts are aggressive. These services are performed by WellComp, a York affiliate. 6. The audit identified no miscalculation of disability (temporary or permanent) rates. Several claims generated permanent disability PD) advances that exceeded the ultimate PD award, but this is common. York identified the overpayment and communicated the VCSSFA member s right to reimbursement. 7. All 18 litigated claims reviewed exhibit timely status updates from defense counsel. No litigation management deficiencies are identified. 8. All information reviewed to conduct this audit was obtained via access to York s Claims Connect information system. FCS concludes that the Claims Connect system is accurately capturing routine claims handling activity. Still, three claims exhibit deficiencies. Those claims are discussed in Exhibit 3 on page 10.
7 Ventura County Schools Self-Funding Authority 2 9. All but one of the files reviewed comply with accepted standards for diary review. That deficient claim is discussed on page Four of the claims reviewed qualified for reporting to excess insurance providers. All four claims were reported timely. Follow-up status reports are also timely. These and other elements of this study are discussed in more detail in the remainder of this report.
8 Ventura County Schools Self-Funding Authority 3 II. Audit Results A. Background The objective of this audit is to assess the efficiency with which York is performing various elements of workers compensation claims handling for VCSSFA. This report provides findings in key areas of claims handling that will inform VCSSFA whether York is performing at or above industry standards and whether York s claims handling compares favorably with other administrators handling similar educational pooling entities in California. B. Claims Handling Analysis This section of the report discusses specific elements of workers compensation claims handling. Recommendations for improvement are incorporated into the discussion of each element of claims handling, if applicable. Where possible, the report compares York performance with audit findings of other similar entities and VCSSFA established procedures. 1. Staffing/Caseloads This analysis seeks to confirm that caseloads are within industry averages and that the technical competence of staff assigned to the VCSSFA account is acceptable. VCSSFA allows a maximum caseload of 150 indemnity claims. Exhibit 1 displays the organizational make-up of York claims handling personnel assigned to VCSSFA claims. All of the claims handling personnel are dedicated to the VCSSFA program. Caseloads of claims handling personnel appear below each name. Exhibit 1 reflects that all but one of the claims examiners have caseloads below the allowable maximum. No negative fiscal impact is apparent due to this slightly elevated caseload. York is adequately staffed to administer VCSSFA claims.
10 Ventura County Schools Self-Funding Authority 5 2. Accuracy of Case Reserves VCSSFA claim reserves should anticipate the most probable outcome and should be based on: Information contained in Form 5020 (Employer s Report of Occupational Injury or Illness) Information contained in Form 5021 (Physician s First Report of Injury or Illness) Anticipated temporary disability (TD) benefits Anticipated medical costs Incorporation of utilization review (UR) and ACOEM guidelines Employee s wage information Anticipated vocational rehabilitation (VR) supplemental job displacement benefits (SJDB) Anticipated permanent disability (PD) benefits Life expectancy and three-year average annual medical expense history (lifetime medical) Anticipated legal expense Injury history information obtained through The Index System Other related injuries (apportionment) York is consistently considering these factors when establishing reserves. FCS identified two claims that require reserve adjustment. Those claims are discussed in Exhibit 2.
11 Ventura County Schools Self-Funding Authority 6 Exhibit 2 VCSSFA Workers Compensation Case Reserve Analysis Claim No. Current Outstanding Reserve VCSA $3,088 (medical) VCSD $11,615 (permanent disability) Recommended Outstanding Reserve $15,000 (medical) $5,000 (permanent disability) Comments This claim was settled by stipulated award in May The only remaining exposure is future medical care. Medical activity is fairly active and the employee has an extended life expectancy. File notes indicate no PD anticipated. A PD delay letter has been issued to the employee. Reserve recommendations are based on FCS s review of files for similar educational pooling entities in California.
12 Ventura County Schools Self-Funding Authority 7 3. Quality of Investigation Proper investigation for workers compensation claims includes: Timely file set up after claim notification. Industry standards require the administrator to set up the claim within 24 hours of receipt of the claim. Making prompt contact with the injured employee, the treating physician, and the employee s direct supervisor. Industry standards require this three-point contact within 48 hours of York s receipt of the claim. Verifying that the injury is work related. Researching injury history to determine potential for apportionment. Canvassing for possible witnesses to the industrial accident. Obtaining recorded or written statements regarding the incident from injured employees or witnesses when possible. Follow-up contact with medical providers to gain a clear understanding of the severity of the injury and the anticipated duration of disability. Obtaining police accident reports when the industrial injury is the result of a traffic accident. Obtaining updated wage information to accurately calculate benefits. Identifying claims with rehabilitation potential and effectively monitoring rehabilitation progress. Timely assignment of field investigation to independent contractors when necessary. Identification and aggressive pursuit of other parties responsible for the injury (subrogation). York is complying with industry standards on all claims reviewed. No investigation deficiencies are identified. 4. Expense Control/Cost Containment Thorough scrutiny of all medical bills to identify charges not in compliance with California s fee schedule and charges or treatments that are not work related is a vital element of a fiscally responsible workers compensation program. A complacent cost containment policy can result in thousands of dollars in unnecessary payments on a single claim. Multiplied by a substantial claim volume, this faulty policy can change a cost-effective program into a matter of great fiscal concern. York is effectively containing medical costs on VCSSFA claims.
13 Ventura County Schools Self-Funding Authority 8 York utilizes WellComp for medical bill review and California fee schedule compliance. York cost containment efforts resulted in a net savings of 77.7% of the original amount billed for the one-year period 11/1/11-10/31/12. This compares favorably to the 64% average cost containment savings experienced by similar entities in California. The table below displays the results of York s cost containment activity. VCSSFA Medical Bill Review Savings (11/1/11-10/31/12) A Number of bills received 14,829 B Original amount of those bills $17,695,887 C Amount paid $3,464,541 D Savings $14,231,346 B C E Bill review fees $264,940 F Net savings D E $13,966,406 (or 77.7% of original amount billed (B)) York is incorporating these medical management guidelines consistently in the files reviewed. This includes: Incorporating utilization review activity to ensure that only applicable treatment is compensated. The mitigating application of permanent disability awards in terms of the use of ACOEM guidelines and the revised standard for evaluating permanent disability, which is now based on the diminished future earning capacity of the employee. The establishment of a maximum number of chiropractic and/or physical therapy treatments. Many of the claims reviewed document medical authorization for the employee to return to work with specific restrictions. York consistently identified these restrictions and attempted to arrange the accommodation of them with the VCSSFA member. NCM and UR vendor assignments are acceptable. 5. Payments/Settlements This category evaluates the timeliness of temporary disability and permanent disability benefits, and attempts to confirm that York is accurately calculating benefit rates. None of the files reviewed exhibit inaccurate temporary disability or permanent disability calculations.
14 Ventura County Schools Self-Funding Authority 9 Six of the files exhibit permanent disability advances (PDA) that ultimately exceeded the actual permanent disability award. This is not uncommon. York is required to provide permanent disability payments within 14 days of the last payment of temporary disability benefits. Those PDAs are often an estimate. In all instances, York took a credit for any overpayment against subsequent benefits. One of the claims reviewed generated questions: VCSA ; Ventura Unified School District File notes refer multiple times to a $690 PD overpayment, yet the financial screen records $90 paid for PD with $100 still in reserve. York claims that the employee is paying off the overpayment in installments and that the financial screen shows the current amount received under the paid category. This is inaccurate. The amount paid should be $690, and a separate category reflecting recovery should record the installment payments received. 6. Litigation Management This category confirms that: Defense attorneys and the employee s attorney are responded to timely. Defense counsel fees are within industry averages. Claim examiners are performing routine activities and not assigning defense counsel to perform tasks that the examiner should be performing. Eighteen (16.4%) of the 110 claim files reviewed involve some degree of litigation. This rate may not be reflective of the entire VCSSFA population. The files selected were intended to be primarily those claims presenting the most exposure to VCSSFA. All of the litigated files reviewed exhibit timely status report updates from defense counsel. No litigation status deficiencies are identified 7. Documentation All claims administration activity observed for this project was observed via access to York s Claims Connect information system. FCS is familiar with Claims Connect and concludes it is an effective management tool. York s use of claim management review (CMR) documents assisted FCS s understanding of claim status and anticipated plans of action. Three claims generated documentation/information system questions. Exhibit 3 discusses those claims.
15 Ventura County Schools Self-Funding Authority 10 Exhibit 3 VCSSFA Documentation Analysis Claim Number VCSA VCSB VCSB Discussion An advisory note on the claim summary screen indicates Claim in Suit. File notes indicate this claim is not litigated. File notes refer to taking a credit for a permanent disability advance (PDA), yet the financial screen records no permanent disability payments. The employee s work status is unclear. The most current claims management review (CMR) does not discuss this.
16 Ventura County Schools Self-Funding Authority Diary/Case Closure VCSSFA procedures require that open active indemnity claims should be reviewed at least every 45 days by the handling examiner. Lifetime medical claims warrant an extended diary (six months is common). York is consistently complying with industry diary standards. Only one claim exhibits deficiency: VCSB ; Moorpark Unified School District A note to the file indicates that the claim would close pending the results of a 9/18/12 primary treating physician (PTP) exam. No further discussion of the exam or the claim is apparent as of the day the claim was reviewed (11/20/12). 9. Supervision This category seeks to confirm that Mr. McCathan is conducting periodic reviews of open case files to confirm: Adequacy of case reserves. Reasonableness of future investigation and the extent of compliance with initial required investigation. Files that could potentially be closed are acted upon. FCS concludes that supervision is effective. No supervisory deficiencies are identified. 10. Excess Reporting Four of the claims reviewed generated an exposure that warrants the reporting of the claim to excess providers. York notified the excess provider timely in all cases.
17 Ventura County Schools Self-Funding Authority 12 Appendix Audit File List
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