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Careful Integration and Management of Disabilities Helps Hospital Save Millions

In 2002 alone, when Baystate paid $2.5 million in workers comp costs on its $350 million payroll, its costs were $2.8 million less than the industry average.

November 26, 2003
Related Topics: Compensation, Benefits
Baystate Health System Inc. has saved millions of dollars in workers compensation costs during the past decade as it implemented programs to integrate its handling of disability management.

    Attaining those rewards took time, though, because the health care company had to first tackle a variety of challenges, including a lack of manager involvement and a fragmented modified duty program, said Gary S. Mackey, director of disability management services for Springfield, Mass.-based Baystate.

    But Baystate’s transition to an integrated disability management system also enabled it to explore new opportunities to minimize risk and control losses.

    Throughout the process, Mr. Mackey said the strategic question has remained the same: "How do we balance the needs of the employee with the operational business needs of the organization?"

    Baystate is the parent corporation of a hospital-based health care delivery system that serves western Massachusetts. It includes an academic medical center and two community-based hospitals, which together have more than 700 beds.

    Among its various operations and programs, Baystate also provides outpatient facilities and programs, home care and hospice services.

    Baystate, which had $1.2 billion in gross revenues last year, employs about 9,200 workers, including about 6,500 full-time equivalent employees. Most employees are not affiliated with unions.

    Baystate self-insures and self-administers many of its insurance-related programs with assistance from BHS Insurance Co. Ltd., its Cayman Islands-domiciled captive. BHS insures Baystate’s long-term disability, primary workers comp and other property/casualty coverages, said Pamela K. Burger, Baystate’s corporate director of risk management and chief compliance officer.

    Baystate began the transformation of its programs in 1990 by integrating and bringing in-house the administration of workers comp, long-term disability and health benefits. In addition, several services were brought in-house, including claims and medical case management, and utilization review.

    Baystate employees also received ergonomics assessments, vocational rehabilitation services and "a proactive safety and wellness program," which included management of diseases such as hypertension, Mr. Mackey said.

Initial challenges
    One challenge Baystate faced in implementing its program was that managers previously lacked clear roles regarding the management of workers compensation claims, and no one felt truly accountable for them, he said.

    Under the new plan, workers comp costs are allocated to each department in which they occur, so managers are now much more aware of costs, he said.

    In addition, previously "cryptic" reports that were difficult to interpret have been replaced by data in a more useable format, Mr. Mackey said.

    Among the challenges Baystate faced in integrating its disability management program was the health system’s "fragmented modified duty program," he said.

    Previously, the company was motivated to bring employees back to work "at almost any cost," though that might create a situation in which a nursing unit had so many staff members working with medical restrictions that it was hard to get some work done, such as lifting patients, Mr. Mackey said.

    In addition, employees on modified duty were not centrally managed, and reviews of their progress in returning to full duty were conducted too infrequently, he said.

    Baystate now views modified duty as "a bridge" that seeks to guide a disabled worker back to work within a specified time period, usually no more than six months, he said.

    The case files of workers on modified duty are now reviewed frequently, though Baystate is very careful to abide by Family and Medical Leave Act requirements that mandate that a person’s job be kept open for 12 weeks, he said.

    Helping to implement this new approach is a new advocate on staff, who helps a worker unable to return to his or her regular duties find appropriate work within Baystate. If the worker’s new job pays less than his or her previous one, the worker typically receives 60 percent of the difference in pay as a temporary partial workers comp payment for five years, he said.

Preferred providers
    The integrated disability program provided Baystate with the opportunity to formalize a preferred provider arrangement to ensure that its injured workers received prompt and appropriate care, Mr. Mackey said. While the arrangement includes about 600 physicians in its area, Baystate primarily uses about 20 to 30 of them, he added.

    Massachusetts’ law helps an employer such as Baystate by allowing an employer to refer a workers comp claimant for his or her first visit, excluding emergency room treatment, Mr. Mackey said. Employee satisfaction with medical care is "high," and fewer than 10 percent of them subsequently seek care elsewhere, he said.

    Physicians are encouraged to participate in the program because Baystate reduced the administrative complexity of handling workers comp claims and pays them higher fees than those required by the state’s low fee schedule, Mr. Mackey said. In addition, it reimburses providers within 10 days, which is faster than the norm, he said.

    In return, though, Baystate requires that the physicians see patients within 72 hours, be committed to returning patients to work and share their office notes with the employer, to the extent possible under privacy laws.

Rewarding new ideas
    Another approach Baystate introduced in 1991 to help control losses was to establish an in-house grant program that gives money to test the viability of employees’ ideas for loss control and quality programs.

    Baystate’s captive budgets about $100,000 annually for such grants, which must survive a rigorous screening process. Grant awards have ranged from less than $2,000 to the full annual amount, although there is no requirement that the entire sum be allocated each year, Ms. Burger said.

    About one-third of the grants are awarded to programs that are related to reducing or controlling disability costs, Ms. Burger said. For example, $15,000 was allocated to a hospital with limited security to train staff members in nonviolent crisis intervention so they could cope with difficult patients.

    In addition, some grant projects--such as a "lift team" of persons specially trained to move bedridden patients--are so successful that the concept eventually becomes part of the hospital’s regular staffing plan, she said.

    "The primary motivation is loss control and quality," Ms. Burger said. The general consensus is that the money is well spent, she added.

Lower comp costs
    The success of Baystate’s overall integration program is seen in the company’s ability to reduce its workers comp costs as a percentage of payrolls, Mr. Mackey said.

    It reduced that figure from 2.6 percent in 1993 to 0.7 percent in 2002, which, Mr. Mackey noted, is less than half the industry average of 1.5 percent during that period. In 2002 alone, when Baystate paid $2.5 million in workers comp costs on its $350 million payroll, its costs were $2.8 million less than the industry average.

    Other measures of improvement include a decrease in the incurred costs of workers comp claims from $3.7 million in 1990 to $1.4 million in 2002, while the number of open claims more than one year old dropped from 320 in 1991 to 132 in 2002.

    "We are an example of a successfully integrated company," Mr. Mackey said, though he acknowledged that he would like to do more about addressing the indirect costs of workers comp claims and absences.

Source: Business Insurance magazine.

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