March 18, 2018

Tom Herndon: Getting to the 20%

By: Tom Herndon, COO, Medata

Tom HerndonMedical expenses in workers’ compensation continue to climb even as the claims frequency falls. NCCI’s 2011 State of the Line report showed that medical losses grew at average annual rates of 8.9% between 1994 and 2001 and 6.7% between 2002 and 2009. Conversely, claim frequency declined by 4% in 2008 after a 2.7% drop in 2007, continuing a trend started in the 1990s, according to NCCI’s 2009 Research Brief on claim frequency.

This reverse cost-to-claim trend means that fewer and fewer claims have greater and greater medical expenses. Without close management, each new claim could be costlier than the last. However, you cannot afford to closely manage every claim. The 80/20 rule applies here. A relatively small number of claims, around 20%, represent most of the costs. The trick is identifying those claims.

Most managed care tools focus on the price of medical services, pharmaceuticals and durable medical goods, that is, the price per pill or price for doctor’s office visit. Fee schedules, Usual Customary and Reasonable (UCR) databases, preferred provider organizations (PPO) networks, automated duplicate bill detectors and automated quality assurance checks target price. Pre- and post-fee negotiations, complex bill review and “reasonableness” databases derived from actual provider costs or Medicare’s resource based relative value scale (RBRVS) Physician Fee Schedule are other common cost-containment tools.

However, utilization, not price, is the real cost driver in medical expenses. NCCI’s “The Relationship between Medical Utilization and Indemnity Claim Severity Comparing Factors Driving Medical and Indemnity Severity,” published in July 2011, shows that primary driver of medical expense was an increase in the number of treatments per claims.

And with more-and-more data being made available to adjusters, nurses, and case managers at faster-and-faster rates, the complexity of quickly and succinctly handing the claim for the best outcome for the injured worker has become exceptionally challenging. For example, the Work Loss Data Institute documents that the potential calculations of co-morbidities alone in a claim total over 100 million different combinations of ICD-9 diagnosis codes that would require over one million printed pages to review – something that would be impossible for even the best an adjuster to individually calculate.

Curbing unnecessary consumption is where utilization review (UR) comes into play. UR evaluates the medical necessity, appropriateness and the efficiency of treatment and the most effective UR is grounded in evidence-based medicine (EBM). EBM combines the latest medical research with available clinical outcomes and current best practices to evaluate and improve patient care. When done correctly, UR relying on EBM enables the payer and medical provider to work together to determine the most appropriate medical treatment over the entire course of the claim.

Claims managers and medical providers need instant access to good data about best practices, in other words, evidenced-based medicine. EBM guidelines remove the guess work from the decision-making process and provide consistency. Using these guidelines reduces wasted time, drives down costs, improves communication and outcomes, and provides a higher level of care for the injured employee and his/her family.

EBM guidelines also promote consistency in claims management across multiple units and multiple adjusters. Depending on the seniority and background of the claims processor, identical diagnoses and injured worker demographics can sometimes receive fundamentally different types of treatment and have very different disability durations. When EBM is applied, the treatment and length of recovery can be managed in a more consistent manner across your organization.

If EBM guidelines are so great, why don’t all payers use them?

The short answer is that using guidelines is difficult and expensive. Payers need to purchase the guidelines either in print form or database subscriptions. When working on a claim, users have to exit the bill review or claims system, find the right guidelines source, search for the particular guideline, and make sure it’s applicable. Finally, the guideline data has to either be input or copied-and -pasted into the payer’s claim system.

It is also important to keep in mind that each individual state can or does require the use of a specified national or state-specific guideline sources, such as Reed Group’s MDGuidelines©, the American College of Occupational and Environmental Medicine’s (ACOEM’s) Practice Guidelines, and the Work Loss Data Institute’s Official Disability Guidelines (ODG).

Integrated EBM guidelines will allow payers to see where their cases stand against a series of guidelines that contain a volume of proficiency that even the best payer does not have internally. Payers will know which files require review and intervention long before duration deadlines are met.

Integrated EBM guidelines are the next generation of cost-containment. True cost-containment programs incorporate good medicine, pay accurate amounts for appropriate medical care and make available statistical data needed to manage the utilization and consistency of a claim. Finally, there is a way to identify the 20%.

About Tom Herndon
Tom Herndon, the Chief Operating Officer of Medata, directs the company’s operations and plays an instrumental role in its growth and profitability. During his 15-year career in insurance, healthcare and technology, Herndon has held several executive positions, overseeing compliance, research, product development and product support. Medata is the originator of medical bill review software and since 1975 has been on the forefront of issues facing the workers’ compensation industry. Medata has taken an active role in monitoring and analyzing cost, consumption, and consistency trends. From the beginning, Medata’s focus has been on improving the delivery of crucial services and data necessary to control the rising costs of medical services. Herndon can be reached at

About Medata
MedataEstablished in 1975, Medata, Inc. is the originator of automated medical bill review solutions in the workers’ compensation and auto liability payer industries. Building on the foundation of its CORE Bill Review engine, the company has continually pioneered a powerful suite of cost containment products to address every stage of the bill review process. Each product has been developed to complement a paperless workflow, making everyday tasks more efficient and cost effective. Medata’s mission is to preserve the quality of care delivered to patients by assuring that providers of medical services are paid a reasonable amount for services that are medically necessary. Based in Tustin, Calif., Medata can be reached at (800) 854-7591 or

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