Introduction

Claim benchmarking is a strategic process employed by claim organizations to measure their performance against industry standards. In workers' compensation, medical benchmarking is pivotal, as it not only provides a clear perspective on where an organization stands but also offers insights on areas for targeted improvement. By embracing an effective benchmarking strategy, organizations can optimize cost management, enhance accountability, and ensure overall better claim outcomes for both injured workers and the organization.

Why benchmark workers’ comp claims?

• Cost management: Identifying cost discrepancies above the claim benchmark empowers employers and insurers to implement strategies to reduce the cost of claims.
• Identify best practices: Analyzing well-managed claims allows stakeholders to identify and adopt strategies that yield the best results.
• Promote accountability: Benchmarking performance metrics against industry standards or best practices fosters a culture of accountability, helping claim organizations identify areas for improvements and set clear goals.
• Assess stakeholder effectiveness: Evaluate participants in the claim process, such as providers, adjusters, and defense partners, to enhance overall performance and reward high performers.
• Explore alternative payment models (APMs): Leveraging APMs in workers’ compensation can reduce costs and align incentives with providers, offering a transformative opportunity for the workers’ comp industry to move away from fee-for-service transactions.

Steps for effective claim benchmarking

1. Data collection: Begin by collecting data from your historical claims. Determine whether you want to include both open and closed claims. Closed claims provide a complete picture of the claim life cycle, although potentially a lagging indicator, while open claims can offer real-time insights but may lack final resolution data. To benchmark your workers’ comp claim data, you will likely need demographic information, transactions, medical bills, and unstructured text data (such as adjuster notes, accident reports, etc.). There is a wealth of claim data held in notes data that is not captured elsewhere).
2. Choose the right data source: The source of data should be tailored to your objectives:
1. Internal data: Ideal for its familiarity, but even large carriers and third-party administrators (TPAs) may find their sample size limited when benchmarking claim outcomes at granular levels.
2. External workers’ comp data: Provides a larger sample, offering insights into peers in the workers’ comp industry. The disadvantage of this data is that it can reinforce poor practices in workers’ compensation. Detailed external workers’ comp data is often difficult for organizations to acquire. The National Council on Compensation Insurance (NCCI), along with other rating bureaus and research organizations like the Workers Compensation Research Institute (WCRI), do gather much of this data, except for unstructured text. However, granular, de-identified claim data remains inaccessible to the industry.
3. External group health data: This can be utilized to gain insights from a better-managed system, offering a fresh perspective on efficiency and care. Historically, the workers' compensation industry found group health claim data to be largely both inaccessible and expensive. However, this is changing, as Milliman now enables access to such data by utilizing our exclusive group health claim database, which includes claim data from over a third of U.S. adults.
3. Determine a risk adjustment strategy: It’s essential to normalize for risk factors that aren’t part of the evaluation. The objective of risk adjustment is to ensure a fair comparison. For instance, when comparing the performance of two providers, adjustments should be made based on the variety of injuries each has treated. This ensures that a provider isn’t unfairly judged for handling more severe cases.
4. Detailed analysis: With your claim benchmarks in place, assess the results to identify trends, anomalies, and areas of concern.
5. Implement changes: Based on the results from your analysis, implement proactive measures to improve claim outcomes.
6. Review and iterate: Benchmarking is an ongoing process, not a one-off task. Regularly revisiting claim benchmarks, or even automating claim benchmarks ensures that insights remain relevant and drive consistent improvement.

Key metrics in claim benchmarking

• Claim costs: In workers' compensation claim benchmarking, this would include medical payments, indemnity payments, and other associated claim-handling expenses.
• Claim duration: Measure the time to close a claim. This metric provides insight into the efficiency of the claim resolution process. A related measure is return-to-work lag, which is the amount of time until the injured worker returns to modified or full duty. Many claim departments struggle to accurately measure return-to-work.
• Attorney involvement/litigation rate: The percentage of claims that have attorney involvement or go into litigation. A higher rate may indicate issues in claim handling or communication.

Challenges in claim benchmarking

• Data privacy: Ensuring that data remains confidential while benchmarking claims can be a challenge, especially when comparing with other organizations. Proper encryption and de-identification procedures should be in place to protect privacy.
• Data quality: The value of claim benchmarking depends on the completeness and accuracy of the underlying data. If data is inaccurate or incomplete, it can lead to misleading conclusions. For example, the body part and nature of injury in claim systems are often inaccurate, as this is the data often entered at First Report of Injury (FROI) and never updated once the true diagnosis is known.
• Interpreting complex data: Some risk factors are often hidden in claim notes, requiring technology to enable deeper analysis. Additionally, deciphering medical coding data can be daunting, requiring specialized expertise and dictionaries to properly leverage for claim benchmarking.
• Avoiding the echo chamber effect: Solely benchmarking claims against workers’ compensation data might perpetuate inefficient practices across the industry. External data, such as group health data, can provide transparency into best practices in a more tightly managed industry.
• Risk adjustment: An oversimplified risk adjustment strategy, such as categorizing solely based on body part and nature of injury, might not be comprehensive enough. This can lead to skewed insights and potentially unfair comparisons. It’s essential to employ a more nuanced risk adjustment methodology to capture a broader range of variables to yield accurate insights in benchmarking claim outcomes.

Conclusion

Claim benchmarking in workers' compensation is more than just a comparative exercise. It's an opportunity to delve deep into an organization's processes, evaluate its effectiveness, and implement changes that lead to tangible improvements. While the journey comes with challenges, the rewards in terms of cost savings, enhanced accountability, and overall operational excellence make it an indispensable tool. In an industry that's constantly evolving, dedication to continuous benchmarking is key in keeping claim departments at the forefront.