November 16, 2017

Anne Kirby: Attacking ALAE – A Lean Strategy Road Map

By Anne Kirby, Chief Compliance Officer & Vice President of Care Management, Rising Medical Solutions

Anne KirbyThis year’s new lost-time compensable workers’ compensation claims will, according to past trends, generate roughly $16 billion in loss adjustment expense, and these expenses will impose great demands on adjusters’ time. In straight business talk, this is the “overhead cost” to deliver benefits which also clutters adjusting work. Some of these expenses are, without a doubt, unnecessary. In my previous Leaders Speak article, I described how a lean care management strategy cuts down on Allocated Loss Adjustment Expenses (ALAE) such as case management and litigation fees.

In this article, I illustrate how claims organizations can use a lean strategy to migrate away from this enormous overhead burden. In short, the approach streamlines monitoring and interventions from the outset of the claim to closure. Lean management – aided significantly by continuous use of analytics to gauge risk – means getting better end results with the fewest unnecessary inputs.

First, some context around the below Heat Map graphics. As described in the 2015 Workers’ Compensation Benchmarking Study, heat maps can help organizations “assess the financial opportunity associated with key claim activities offering the greatest potential return on investment to drive desired outcomes.” In these heat maps, we show the relative contribution of ALAE service activities to expedite recovery and claims closure for a typical population of claims. Specifically, we map the frequency (Y axis) and net financial impact (X axis) of 14 possible claim interventions. The redder the plotted point, the more net reduction in claim costs – including indemnity – an intervention can potentially generate. The “hottest” area of each heat map is in the upper right quadrant, representing the most overall value.

For instance, consider Catastrophic Case Management (plot point I). While the activity is performed infrequently on a small number of cases, its potential net financial impact is high. In comparison, Pharmacy Benefit Management (plot point B) is applied much more frequently, but the net impact is relatively less than Catastrophic Case Management.

How a lean strategy impacts claims and reduces ALAE
The following two Heat Maps illustrate a conventional care management approach (Heat Map 1); and then what happens when claims organizations utilize a lean strategy (Heat Map 2). These maps are based on applying this strategy with our clients to tens of thousands of workers’ compensation claims and closely tracking the outcomes for the past four years.

Anne Kirby LS Heatmap 1

Anne Kirby LS Heatmap2

Download Larger Heat Maps

NOTE: The heat maps are provided as conceptual models only, understanding that every organization’s experience with various intervention activities is different.

When evaluating the above illustrations, you’ll see that a Lean Care Management Model (plot point O) has been introduced in Heat Map 2. It is used with moderate-to-high frequency among all activities, on a majority of claims.

The introduction of O does two things. It eliminates plot points C, D, F and G, and decreases the ALAE associated with these four conventional interventions. This happens because an attentive monitoring and targeted intervention strategy on a high number of claims efficiently and cost-effectively absorbs Early Intervention / Nurse Triage, Return-to-Work Management, Drug Utilization Review, and Telephonic Case Management. This should come as no surprise, since in any business, when a new streamlined practice is utilized, some pre-existing practices should be used less or are simply absorbed.

The introduction of O also changes the placement of most remaining activities, usually by being used less frequently, and adding more overall value when they are used. For instance, by using early intervention protocols on high-risk cases, a lean approach decreases the need for Field Case Management (H); however, when it is used, it creates more net impact. Likewise, a lean approach decreases the overall number of medical services needed and therefore decreases the frequency of Medical Bill Reviews (A), but increases its overall financial impact. A couple of activities, such as Catastrophic Case Management, do not change their position as the small number of severe cases requires specialty services under any approach.

Historically, many of the interventions outlined here have grown or are new in the past 20 years and are driven by a volume of services model – leading to a skyrocketing of ALAE. But a lean strategy ultimately reduces the volume of services by efficiently applying interventions in a more coordinated manner.

Key adjuster impacts and results
Once a lean team is assembled – which can include analytics professionals, nurses, and physicians – and this strategy is implemented, look for three benefits that should become quickly apparent to claims organizations:

  • First, more useful medical and risk information will enter an adjuster’s claim records. A lean team’s medical resources are skilled at quickly obtaining information that enhances an adjuster’s decision-making and work prioritization, but is often elusive or hard to quantify, such as chronic medical conditions, drug use, obesity and smoking.
  • Second, there will be an increase in adjuster bandwidth and overall problem solving speed. Putting activities that can take adjusters several hours a day into the hands of medical resources frees them to perform other critical problem solving activities. Combined with the medical experts’ ability to quickly address clinical issues, claim resolutions will be improved.
  • Third, there will be a reduction in the number of interventions that could otherwise be ordered by an adjuster, and a decline in ALAE, settlement, and indemnity costs.

Each lean approach will be different, but our model’s outcomes include reductions in: field case management interventions in lost-time claims by roughly one third, medical management service billings by roughly the same rate, legally represented claimants by one fifth, settlement amounts by one fifth, and disability durations by over two months on all claims.

It is time to do more with less – to streamline interventions that have grown exponentially in frequency and variety to only what’s necessary and adds value. A lean strategy achieves this goal.

About Anne Kirby, RN
Anne Kirby is the chief compliance officer and vice president of care management at Rising Medical Solutions (Rising). She has 30-plus years of industry experience, spending most of her career developing and delivering managed care services, as well as creating technology platforms and data analytic tools to enhance program performance. At Rising, Anne leads the company’s medical care management operations, and its regulatory, legal and quality management initiatives. She has also been instrumental in developing the company’s analytics and risk scoring capabilities in order to drive optimal claim outcomes. Anne can be reached at anne.kirby@risingms.com.

About Rising Medical Solutions
Rising Medical Solutions (www.risingms.com) is a national medical-financial solutions firm that provides medical cost containment and medical care management services to the workers’ compensation, auto, liability, and group health markets.

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