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Wiring Up Workers' Comp Claims

April 1, 1996
Imagine a football game in which every offensive player must touch the ball before the team is in scoring position, instead of making a strong pass through the air. Imagine passing small buckets of water through a long line of people to quench a raging inferno, instead of hitting the flames head-on with a powerful hose. Now imagine passing important, time-sensitive information on workplace injuries from desk to desk, while the injured employee is away from work, instead of quickly addressing the situation in only a couple of steps. In a modern age, the first two scenarios seem ludicrous. Yet the third situation-until recently-was the standard process for dealing with workers' compensation claims, which cost approximately $70 billion annually in the United States.

The various players in the workers' compensation industry, including government, third-party administrators, employers and employees, all stand to benefit from emerging developments in electronic submission of claims, using Electronic Data Interchange (EDI). In a nutshell, EDI is an exchange of standardized electronic data between two or more organizations, with minimal human intervention. By implementing common standards for compensation claims, the industry can streamline a cumbersome process, adding speed, accuracy and consistency. "Putting it simply, EDI is about better customer service," explains Jeffrey Snow, chair of the IAIABC EDI Development Committee, a group initiated by the International Association of Industrial Accident Boards & Commissions. "Hand processing claims can take a lot of time. EDI improves communication between the state, carriers and medical providers, so claims can be handled more efficiently. All you need is a PC, modem, printer and access to a value added network (VAN). A VAN is a messaging service provider that transmits, receives and stores EDI and other electronic messages for trading partners, as well as providing a wide variety of other messaging related functions. Most major telecommunications and communications companies, such as IBM and AT&T offer VANs to which access can be arranged. So instead of having several workers manage paper flow, we can free up our staffs to deal with the important issues machines can't address."

Stare down the paper tiger.
In the recent past, the claims process for workers' compensation was very labor-intensive. Each claim required a variety of forms, each of which would pass through several hands before an action was taken. If an error or important omission was made at any stage, the process would be further delayed. Meanwhile, the injured employee would sit at home, becoming increasingly frustrated with the lack of action, and the company would continue to pay for an employee who wasn't working.

As Greg Smith, vice president of finance and treasurer for Dublin, Ohio-based Celerity Technologies, a provider of EDI technology solutions, explains, "While the employee is away from work, he or she sees television ads for labor lawyers and talks to friends who may have sought damages in the past. By the time the employee hears about the status of his or her case, he or she already may be taking legal action."

A study, conducted by the Bureau of National Affairs in 1993 of approximately 70,000 lost-time claims, revealed that if claims are reported within 10 days, the average cost is a bit more than $10,000. However, if the reporting lags beyond 30 days, the cost is nearly $16,000, and there's a better than 45% chance of litigation.

Adds Smith: "People often assume that medical costs are the biggest cost, when in fact our biggest losses are related to time off work. If we can get employees back to work quickly, we control costs; but we can't get them back to work if we don't yet know they're injured."

The workers' compensation industry is optimistic that EDI will significantly reduce the amount of time and related costs inherent in the traditional claims process. Smith projects that as the technology becomes more entrenched, employers' costs will drop by as much as one-third. And he expects the strong case from business supporting EDI will force a rapid evolution. "This will be a year of tremendous progress. The maturing of this industry over the balance of this year will be like night and day," says Smith.

EDI technology brings to workers' compensation administration many advantages that set it apart from paper-based transactions:

  • Speed: Instead of passing information through various levels, EDI transactions are largely direct, so wasted time is dramatically reduced. As a result, it typically takes less time to address claim issues and start the process of rehabilitating an employee.
  • Accuracy: Whereas traditional systems may require information to be re-keyed several times, most of the information is entered once, from one location. This helps to catch errors.
  • Reduced labor costs: Because fewer steps are involved, less people need to be involved in the process, therefore the administration of claims is more cost-efficient.
  • Reliability: EDI helps reduce uncertainty about whether necessary documentation was received and more clearly shows the status of a claim.
  • Employee welfare: By acting more quickly and by having the tools to track activity, an organization can set an employee at ease that action is being taken on his or her behalf.

To date, only Texas and Kentucky have mandated the use of EDI for reporting, although many other states have systems in place to support voluntary submissions. Snow feels that within the next two years, more than half of the states will accept first reports through EDI. Cost savings, he notes, may be the key driving factor in this development.

Learn from an early success story.
The state of Wisconsin has reported tremendous success from its EDI efforts, even though all EDI submissions are voluntary. The state leads the United States in this area, with approximately 39% of first-injury reports received electronically. This represents tremendous growth from the first quarter of 1995, when EDI submissions were an estimated 25%. Part of this success can be credited to a successful partnership between the government and many insurance carriers.

"Carriers that are reporting to the state governments recognize there are mutual benefits in terms of cost savings because the amount of time and materials is dramatically reduced with EDI," explains Snow. "Without EDI, a lot of money goes down the drain."

Clearly, better data means better communication. One benefit to employers is EDI improves the communication around the claims process. Within an EDI system, the employer isn't only the originator of data, but also is a receiver of valuable information. Feedback through the system allows personnel managers to track the progress of claims, so the company can better serve the injured employee. Moreover, the information acquired through the system can play a critical role in planning.

Says Snow: "If, as a personnel manager, I'm receiving good data on accidents, perhaps I can better understand the cause, and hopefully prevent future accidents."

Last year, The Limited Inc., a national clothing retailer based in Columbus, Ohio, implemented Celerity Technologies' Employer-Connect EDI system in its Express division, which includes stores in 48 states. The company had two objectives: to process employee injury reports more quickly and to reduce overall workers' compensation claims costs.

"We know that reducing the time it takes to submit injury reports reduces the claim amount," explains Phil Renaud, director of insurance for The Limited Inc. "We implemented our EDI system to reduce our reporting time to a day versus a week with our previous toll-free-number telephone reporting system." He adds that an additional benefit is that the employees feel much better their claims are being acted on with priority."

Set new standards.
One of the biggest challenges as the industry works toward broadening EDI technology's sphere of influence is developing standards that suit a diverse audience. The IAIABC's Electronic Data Interchange Project is taking the lead. The project was created to develop standards for communicating data electronically between providers, payers and state administrators through EDI.

To date, the project has developed common formats and data-reporting specifications for the first report of injury, subsequent reports of payment and medical information, and will add vocational rehabilitation and adjudication information in the future. State administrative agencies, insurance carriers, research organizations, self-insured employers, standards organizations and software vendors all are contributing their insights to the project. Snow points out that much of the information needed for claims is common to the various states, but the format in which it has been gathered has been quite different. "Our objective is to help solve problems by [standardizing] steps in the process, so we can solve problems in a more universal fashion," says Snow.

Compare today's EDI formats. Two of the common ones are flat file and ANSI-X12. The latter has emerged as the hands-on favorite as a common standard. With flat file, all fields are of a fixed length and in a defined order, with the transaction information contained in a continuous string of text characters. All fields must be filled in completely, or the remaining data will be out of position.

According to industry experts, ANSI-X12 is a more flexible and efficient means of submitting claims information. Such flexibility has made ANSI the standard for the health-care and retail business sectors. In fact, approximately 95% of all major retailers and manufacturers now use ANSI-X12 for EDI. Unlike flat files, an ANSI-X12 format doesn't require sending data elements you don't need-you can simply omit superfluous and irrelevant information. Also, any VAN can be used to submit files, while many flat file systems require you to use a proprietary network system. As Snow explains further, "ANSI transactions reduce multiple version management and reduce the amount of time needed for programming in-house."

Smith explains that using EDI to record and submit information helps ensure information is submitted correctly because the system can be configured to allow claims submission only if the claims are entered completely and accurately. As well, with EDI you can combine information that typically was submitted separately. For example, instead of waiting for eight to 10 medical bills to catch up with a first-injury report, the information can be entered directly into the system, providing up-to-date claims accounting. The objective is to sharply reduce and ultimately eliminate the role of paper-based transactions in the process.

Over time, EDI will play an increasingly vital role in the process of managing workers' compensation claims. More and more state governments, insurance carriers, employers and vendors will climb aboard, and the standards will become further refined. The industry will look at other efficient means of communicating information, including the Internet. Like a first-string quarterback launching a game-winning pass, or a potent blast of water dousing flames, EDI's efficiencies promise to take the HR world by storm.

Personnel Journal, April 1996, Vol. 75, No. 4, pp. 153-157.