A Team Tackles Absence Costs

November 1, 2004

While pregnant with her first child in 1997, Tricia Chambers was diagnosed with breast cancer. "My six-week maternity leave turned into a yearlong absence," she says. But as manager of occupational health and risk for Osram Sylvania, the $2 billion lighting manufacturing company based in Danvers, Massachusetts, she couldn’t stay away that long. To minimize the impact, Chambers, now cancer-free, telecommuted and went to an abbreviated schedule before returning full-time.

    The year before, her colleague Christine Sheedy, Osram Sylvania’s risk manager, had complications after childbirth and was out for 12 weeks instead of 6. Then, in 2003, her youngest son was hit by a car. He’s fine now, but Sheedy used up a week of family medical leave to help care for him.

    The duo’s personal experiences with disability, while difficult, have made them more efficient, insightful and empathetic as the brains behind Osram Sylvania’s new integrated disability-management program. These days, they are often asked to speak at industry conferences, and their program is being held up as a model.

    And for good reasons. In one year’s time, the company shrank $5 million in annual short-term disability costs to $4.2 million for its 9,000 U.S. employees. The program has saved 25 percent in direct costs in the first year and is projected to cut costs by up to half in its first three years.

    "In the first year, the average time off went from 48 days to 38," Chambers says. "We estimate that for our company, for every day we can reduce duration, it’s $100,000 in savings."

    The personal experiences of Chambers and Sheedy lend credibility to their efforts. When employees who are running out of medical leave or are in some other crisis mode complain that no one understands, they can say, "Oh yes, we do." Their empathy partially explains the success, they contend. "When employees are using this program, they are usually in some stage of crisis," Chambers says. "We try to keep this in mind."

The trend
    "Integrated disability management" is a term that’s been infiltrating business for the past decade, and in the process it is changing operations and bottom lines, says Karen Trumbull English, a partner at Spring Consulting Group, a Boston-based firm that provides consulting services and helped Osram Sylvania with its new program.

    While there are different terms to describe the new approach--integrated disability management, total absence management, health and productivity management--the concept is the same. Companies are managing occupational and off-the-job absences under a single umbrella and focusing on the fact that non-occupational absences are manageable, no matter what conventional wisdom says.

    The larger the company, the more likely it is to have an integrated disability-management program, says Shelly Wolff, national practice leader for health and productivity for Watson Wyatt Worldwide in Stamford, Connecticut. Among the 120 employers with more than 5,000 workers surveyed last year by Watson Wyatt, about half have integrated programs, Wolff says.

In the beginning
    The story of Osram Sylvania’s new integrated disability-management program began almost two years ago, when the company faced a costly, complex problem shared by many U.S. companies. Disability claims were increasing, and the impact of these costs was becoming more dramatic. The company’s processes for managing them were becoming inadequate, say Chambers and Sheedy.

    The other problem: the disability-management and workers’ compensation systems were not linked, and that resulted in inconsistent policies and procedures as well as duplicated costs and inefficiency. As a result of the disjointed systems, an employee injured on the job was treated differently from a worker injured on personal time, even if the illness or injury was identical.

    The challenges that Sheedy and Chambers faced are familiar to many of their colleagues. Says Sheedy: "Disability management is one of the most problematic areas for companies today, made even more glaring by pressures to hold down costs, boost productivity and provide opportunity for disabled employees to return to work." And losses are even greater at companies that don’t have integrated disability-management systems in place.

    Their goal, in the face of that challenge, was to make the handling of all leaves effective, equitable and efficient, whether they were granted for workers’ compensation, disability or FMLA. As a model, they looked to their recently completed overhaul of Osram Sylvania’s workers’ compensation program. "In an eight-year period," says Chambers, "we reduced claims by 35 percent and shaved $10 million in losses from the program." The success of that program, they say, resulted from their focus on three challenges: keeping workers productive and at work, returning them promptly to the job and coordinating multiple vendors, payment processes and claims-payment strategies.

    They instituted a medical-case-management program that encourages workers to quickly report injuries, works with them to develop treatment plans and refers them to health-care providers that can aid in early return to work. They hired a legal specialist at headquarters to oversee claims at each of the company’s 22 manufacturing locations and placed occupational-health-risk nurse specialists at 18 of the biggest locations. They put in a new allocation system that charged each location for losses and reduced medical costs by establishing a managed-care arrangement, which was the more economical option, whenever possible.

    "When we saw success there, on the occupational side," says Chambers, "we asked management to manage the non-occupational [cases], including short-term and long-term disability and the Family and Medical Leave Act." It is unusual for the human resources and risk management departments to team up, Chambers and Sheedy acknowledge. "The HR side is more used to dealing face-to-face with an employee," Chambers says. "On the risk side, there is less of that and more number-crunching."

    Their first step was to quantify the direct costs of absences, which meant pulling data from payroll, vendor-claims databases and other sources, and then verifying it. They added in indirect costs, an elusive and sometimes unattainable number. They investigated, for instance, whether temporary employees are hired to cover for absent ones, whether benefits continue to be paid during the absence and whether overtime increases to make up for the absent employee. They looked at factors driving up the direct costs of absences, such as increased litigation or insufficient return-to-work accommodations, which would include a shorter work schedule and telecommuting options.

    They also found that some conventional wisdom about non-occupational costs was incorrect.

    "Everyone assumes that worker’s comp costs are more than non-occupational [disability] costs," Chambers says. But she and Sheedy had a gut feeling that this isn’t always the case, and they were right. At Osram, the non-occupational costs, at $5 million annually, were two times higher than the occupational costs.

    Once they had identified the potential cost-savings, the two launched a program that focuses on timely reporting of illness and injury, aggressive medical and case management, consistent tracking of leaves, timely return to work and accommodation, so the job can be modified to ease a worker’s return.

    The primary goal was to have absences managed consistently, whether they were due to on-the-job or off-the-job injuries or ailments. "What wasn’t right was that absences were handled inconsistently," Sheedy says. "We were working to manage workers’ comp in a certain way, and for non-occupational work or injury, the process was different."

    The medical approaches were very different as well, adds Chambers. "On the non-occupational side, we had less control over primary health-care providers."

    So treating absences the same, whatever their cause, was the primary goal. But along the way, a number of other goals emerged. For instance, they integrated the occupational-absence system’s best practices into the non-occupational-absence system, which includes short- and long-term disability and family medical leave.

    Calling the program "integrated" isn’t quite correct, says Chambers. "Coordinated" is a better description. "Under integrated, all data systems are funneled through one vendor," she says. But that’s often not feasible. "We coordinate multiple vendors on one project or overall philosophy."

Dealing with resistance
    The overhaul of non-occupational absence required an attitude shift among employees and supervisors, Chambers and Sheedy found. It meant that workers had to move from feeling entitled to absences to understanding that it was their responsibility to manage them. They had to shift from a focus on disability to a focus on returning to work. The company would have to make them feel accountable for their time away from work as well. For its part, the company had to change its fragmented view of disability.

    "Historically, most companies saw the occupational injuries and illnesses as their responsibility and something to financially manage," Chambers says. "And the non-occupational side of disability benefits was non-manageable." But given rising health-care costs, "we are looking at disability as a whole, not just looking at whose liability it is."

    "We need to focus on the disability and what the employee can do, not what he or she can’t do," Chambers says. "It’s a mental shift and an extreme culture change. We had resistance in the beginning. Employees felt we have no right to meddle."

    To overcome the grumbling about that involvement, "we focused on fairness to all employees," Chambers says. In many meetings, she and Sheedy explained the new concept from that fairness perspective. They issued general corporate announcements to let workers know they were changing the way absences were managed.

    They also relied on teams at individual locations. In addition to its 22 manufacturing sites, Osram Sylvania maintains a customer-service center, a headquarters operation, three distribution centers and Sylvania Lighting Services, which has 30 branch offices nationwide with 5 to 20 on-the-road employees servicing retail and industry customers.

    At each location, Chambers and Sheedy set up regional training sessions to educate the managers on the new programs. Then managers spelled out the program to workers and offered guidance on how to use it. The process was handled in stages because it was a lot to absorb, the two say.

    Sheedy and Chambers aren’t basking in their short-term success. Year one focused on "stopping the hemorrhage." Year two, they say, will focus on assessing absence and discipline policies, trying to simplify things and make the process uniform.

Workforce Management, November 2004, pp. 78-81 -- Subscribe Now!