This session at RIMS 2016 illustrated how to methodically examine and review the right activities in claims audits to improve the bottom line.
Speakers in this session were:
- Jenny Novoa, Senior Director of Risk Management, Gap Inc.
- Joe Picone, Claim Consulting Practice Leader, Willis Towers Watson
An audit is a “methodical examination and review.” In a claims management context, it assesses compliance with the carrier and industry best practices and special handling instructions. A “typical” claim audit determines if the TPA/carrier’s performance is meeting their obligations in the service agreement. It also determines adequacy of reserves, benchmarks the TPA/carrier and adjuster performance, measures against best practices, provides constructive observations and recommendations and identifies areas for improvement.
A group came together from some major companies including Gap, Foot Locker, Saks/Lord & Taylor, Corvel and Willis Towers Watson to study the claim auditing process. This study explored different areas of the process and was conducted over the course of about a year.
The mission of the study was to determine several things, some of them:
- Does the claim audit fairly measure the outcome of the claim?
- Is there’s a better way to audit the claim?
- How is “outcome” defined?
- What factors are important in defining claims outcome?
- Does a best practice score really equate to a good outcome?
The study group came up with categories of what matters most in the claims process, including quality of the adjuster, overall health of employee, quality of medical care and several others. They looked at various audit criteria for retail business with the basis for “outcome” being days out of work. They also had a set of specific audit rules.
The group used a large sample of questions by category and compared the Best Practice Audit (BPA) with the Outcomes-Based Audit (OBA). Results were very different.
A few observations from the study:
- BP audit scores did not identify any of the 28 claims with poor outcomes.
- OBA identified just 10 of the 28 claims with poor outcomes
- The average OBA audit score was 91 and the average BP score was 97.
- The OBA overall audit score is much more in line with the overall outcome of the universe of claims audited.
- The team proved that audits must be designed to really affect not just performance of the adjuster but all elements of the claims process.
- Review your questions. For example – each question should be individually reviewed with regression analysis to determine correlation levels. Questions should be eliminated that have no correlation and those added that do show correlation.
- Know that BPA can score 100 but the claim can still have a bad outcome.
- OBA is a better predictor of outcomes.
The group determined that the correlation between a best practice compliance audit score and outcomes may be lost if the wrong activities are audited. Critical activities that are never audited may cause poor outcomes in a claim. Again, only when you methodically examine and review the right activities do you improve the bottom line.