Monthly Archives: February 2010

Thinking Outside The Box: Litigation management program initiatives can substantially lower costs

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There is money to be saved by managing the litigation puzzle

Managing litigation is an easy way to save extra expense costs on claims files. A strong litigation management program designed to help foster improved communication, and streamline defense of insureds, benefits all parties involved. As I wrote about the cost savings benefits of out-of-the-box claims handling, using new and forward thinking strategies for litigation management is an excellent way to save money as well. This is even more important in complex litigation found in the areas of product liability, class actions and D&O claims where defense budgets can often trump the loss side of the claim.

A different perspective on how you can manage the larger litigation process

I was recently reading about cost reduction in the Sophisticated Litigation Support blog by Kevin Brooks, Managing Partner of Teris, a litigation support company. These types of companies provide eDiscovery and document management services that can significantly reduce expenses in litigation. Managing eDiscovery and other large document productions is a critical step to control defense budgets.

In his article, Is your outside counsel costing you time, money and case results?, Kevin explains why this vendor–provided service can be particularly beneficial:

You may believe that litigation support management is better left to your outside counsel. And in some situations, this may be true. However, in many cases your law firm could be costing you time and money, as well as affecting case outcome. Law firms are experts in the law, but very few have the resources and data expertise to manage your litigation life cycle properly.

If you take a more active approach by utilizing different types of vendors that compliment each other, you can considerably reduce spending while also having confidence that your operation is both efficient and effective. You as a claims person can proactively manage those services by leveraging specialized vendors instead, at a much lower net expense.

Kevin’s article continues with a list of ten important reasons for why your organization should hire a Litigation Support vendor directly. Four of the ten stand out as significant cost reduction opportunities:

Cost and Expense Forecast – Consult directly with data experts to more accurately identify costs for each project and keep expenses down. Vendors can also help cut future costs by proactively consulting on your data.

Budget Management – Identify points of savings by being able to initiate volume discounts. The service provider can extend volume discounts as they build long-term relationships directly with corporations. You can also avoid the markup from some law firms which could increase your costs for services from 25 percent to as much as 100 percent.

Streamlined Litigation Management – Reduce the number of vendors your corporation works with. This is especially relevant if your company works with several outside counsels and all have their own separate lit support vendors.

Resources – Access the most cutting-edge technology for handling data. Small and medium-sized law firms may not have an in-house IT department to manage large numbers of electronic documents.

I have been involved in a number of litigation projects that would have significantly benefited from support services provided by companies such as Teris, Xerox Litigation Support , Trial Solutions and others (as a side note, I have not worked with any of these vendors and cannot specifically endorse their services here). Litigation costs can get out of hand on large cases in a hurry so paying close attention to them is essential. The largest part of those costs can often be the handling and management of documents and eDiscovery, and not all attorney’s have the skill and technical capabilities to handle the types of services supported by these vendors.

In addition to those mentioned above and in Kevin’s article, there are many different kinds of vendors available to help lawyers streamline the litigation process. These include medical records retrieval companies, litigation graphics and video reenactments to name a few. Claims managers can and should suggest using additional resources to assist law firms which will also help lower litigation costs.

Evaluating your total litigation management process to streamline the procedures, understand the costs in advance, and ensure resources are effectively allocated, will allow for proper expense reserves to be set, and in the end reduce the amount of money spent.

A note on expense reserves

Expense reserves are often the forgotten stepchild of the reserve process. Many time claims handlers will adjust the expense reserve in the beginning of the claim and then increase it over time as expense bills come in. Good claim handlers will establish litigation budgets and evaluate expense reserves in a similar manner as a loss reserves. Regardless, ensuring expense reserves are accurate will help you manage costs across the board and enable you to truly understand the true expense exposure to your organization.

3 Essential Report Types That Insurance Executives Should Use To Analyze Their Claims

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Metrics, Numbers, Charts, Graphs, Reports – Where do you start?

Today’s modern claims systems have a wealth of knowledge about every aspect of claims operations. With the right reports it should be easy to get a basic snapshot of how effective your claims are being managed, and how well your business is doing. With all that information where is one to start?  What are the key metrics that should be reviewed by claims and business executives to better understand their operations?

While every company will want to look at specific claims metrics around their lines of business, there are three essential report types that executives should be looking at. These include:

Claims counts

Change reports

Claims summaries

Let’s break these down further:

1. Claims Counts

Counts are simple monthly  (or weekly, depending on volume) reports showing the current state of claims in the organization. It will include claim volumes as well as financial numbers. With these reports you will have a basic snapshot of the state of your claims operation as a whole.

Examples of clams count reports:

New claims for the month

Total open claims

Closed claims for the month

Averages

Reserves on all open matters (Indemnity, expenses, medical etc.)

Total paid on all open and closed matters (Indemnity, expenses, medical etc.)

2. Change Reports

Net changes from one period to another are critical reports in any claims organization. They are essential planning tools that can help understand what areas of the organization are doing well and which areas are problematic. Spikes in a particular area could mean a shift in trends that if caught early enough could assist in making better underwriting choices. These types of numbers can also be used to ensure staffing is appropriate and identify areas for improvement.

Examples of delta reports include:

Reserve changes

Claims count changes

Total paid difference

3. Claims Summaries

Claims summaries are a more detailed report of specific losses. They include basic claims information as well as summaries of facts, damages and assessments. Knowing the specifics of a loss can help underwriters and executives truly understand the business they have written. Whether information on a coverage concern, an extreme loss, a pattern of losses, the information is critical to educating others beyond the numbers to actual losses. With this information better strategic decisions can be made regarding future underwriting.

Examples of two summary reports are:

Top 5-10 paid claims for month

Top 5-10 reserve changes for month

Bottom Line:

Check to see if these reports can be produced and if they can’t, ask why. Claims systems should be able to produce these types of reports. If they can’t then maybe it’s time to take a look at your systems again.

Regular reviews of basic claims metrics will give you a competitive advantage and allow you make informed strategic decisions. You can stay ahead of the curve, be nimble, react to changing conditions, and stand out in the marketplace.

Important Update: Medicare Secondary Payer changes production date to January 1, 2011

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The Centers for Medicare/Medicaid Services (CMS) have announced the following:

CMS advises all NGHP RREs that the date for first production NGHP Input Files is changed from April 1, 2010 to January 1, 2011, effective immediately.

Read the complete announcement at the CMS website in “What’s New.”

This is clearly a welcome change and one that has been been sought by various industry organizations including the American Insurance Association. As Peter Foley, AIA’s VP for claims stated in a Business Insurance article released February 17, 2010 – “Pushing back the deadline is the right move, and I commend CMS for making this decision,”

The Medicare Advocacy Recovery Coalition (MARC) also applauded the decision to defer the reporting deadline for Section 111 as reported by the PR Newswire.

“The industry has been working diligently to build in infrastructure to supply data to CMS, investing millions of dollars to ensure compliance with the data share regulation.” said Roy Franco, co-chairperson of MARC and director of risk management services for Safeway Inc.  “Unfortunately, there have been unforeseen difficulties and unanswered questions regarding the reporting process, and everyone’s ability to get the job done by April 1.”

While there is still much to do, and questions to be answered, the additional time will hopefully allow those entities to get their processes in place.

This is by no means a reason to delay action as the fines for non-compliance are great.

(see my prior post: Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance).

Absence of procedures to notify reinsurance is a basis for bad faith

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Recently I was discussing bad faith and notice procedures with attorney Phil Loree Jr., an expert on reinsurance and arbitration issues and author of the the Loree Reinsurance and Arbitration Forum blog.  I thought this was a timely conversation as it reinforced the concepts regarding procedures and the potential risks when they are not in place. As with my recent post regarding the breakdown of procedures in a insurance agent’s office, the cost of failing to have proper policies in place was at issue (see my article Failing to document files can be costly).

Phil reminded me of the seminal case of  Unigard Security Insurance Company Inc v. North River Insurance Company 4 F3d 1049 (1993). The case established the rule that an insurance company can be held to have committed bad faith for lack of notice to a reinsurer if there was a showing of recklessness or gross negligence. The court found that the failure to implement a policy to notify reinsurers could be an example of a willful disregard of the risk to the reinsurer and would be considered gross negligence.

Unigard and the proposition of bad faith

A high level of good faith is owed to reinsurers

The Court in Unigard first began by defining the level of good faith owed by an insurer to their reinsurer:

“…the duty of good faith requires the ceding insurer to place the reinsurer ” ‘in the same [situation] as himself [and] to give to him the same means and opportunity of judging … the value of the risks.’ ” [citation omitted] …Nevertheless, because information concerning the underlying risk lies virtually in the exclusive possession of the ceding insurer, a very high level of good faith–whether or not designated “utmost”–is required to ensure prompt and full disclosure of material information without causing reinsurers to engage in duplicative monitoring. [citation omitted]. The question, then, is what good faith requires of a ceding insurer in the notice context.”

The establishment of the bad faith standard

The court continued to establish a standard for bad faith that is differentiated from simple negligence:

“… we do not think simple negligence in not disclosing a material fact constitutes bad faith. … Virtually every material non-disclosure will be the result of at least negligence, and, if bad faith and negligence are equated, no showing of prejudice would ever be required.

We thus think that the proper minimum standard for bad faith should be gross negligence or recklessness. If a ceding insurer deliberately deceives a reinsurer, that deception is of course bad faith.”

Lack of procedures alone can be deemed reckless

With the standard established as gross negligence or recklessness, the court discussed how the failure of implementing proper notification procedures was essentially a reckless act:

“However, if a ceding insurer has implemented routine practices and controls to ensure notification to reinsurers but inadvertence causes a lapse, the insurer has not acted in bad faith. But if a ceding insurer does not implement such practices and controls, then it has willfully disregarded the risk to reinsurers and is guilty of gross negligence. A reinsurer, dependent on its ceding insurer for information, should be able to expect at least this level of protection, and, if a ceding insurer fails to provide it, the reinsurer’s late loss notice defense should succeed.”

To have procedures or not, that is the question

There is an ongoing debate in the insurance industry about maintaining claim policy manuals as a potential risk in a bad faith action. The view is that if you have specific written procedures, and your claims staff does not follow them, then that could be used against them in a bad faith action. Here a court specifically states that failing to have procedures could be considered bad faith in the reinsurance notice situation. Recently, Claims Magazine discussed the very topic in an article by Kevin Quinley, Putting Procedures In Writing (Claims Magazine, 1/5/2010).  I agree with the general proposition from the article:

In terms of bad-faith worries and claim manuals, it is often better to explain one miscue than to tell a judge or jury that the insurer has nothing in writing for claim personnel to use as their guide, and that there are no minimum performance requirements.

Whether in the Unigard example above, or in the recent award against the agent I previously commented on, failing to have procedures or follow them can have a costly outcome. Claim handlers need some kind of guidelines to understand expectations, and to establish a baseline to measure performance. When handlers are trained on good practices, and are measured on those practices for compliance through and internal review or audit program, risks are diminished.

Focusing on good claims practices will not only lower exposure to bad faith, but will help reduce leakage, lower expenses and improve customer service.

5 Claims issues cited for non-compliance on market conduct exams & 3 tools to avoid them

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Insurance Market Conduct examinations are a regular part of the insurance business. Besides the stress of the exam itself, being cited for violations can result in costly fines. Regardless, many citations can be avoided.

Every year, insurance compliance solutions provider Walters Kluwer releases its annual study of top ten reasons insurance companies are found to be out of compliance in state market conduct examinations. In the most recent 2008 study, five of the ten issues of non-compliance were claims related.

If you look at the Walters Kluwer studies performed in 2007 and 2006, you will see similar results around claims. As in the past, documentation and customer service issues are the primary culprit for claims non-compliance.

5 Claims issues found as non-compliant

  1. Failure to acknowledge, pay or deny claims within specified time frames
  2. Failure to pay claims properly (sales, tax, loss of use)
  3. Improper documentation of claim files
  4. Failure to communicate a delay in the settlement of claims in writing
  5. Use of unlicensed claims adjusters or appraisers

All of these findings could have been avoided with enforcement of best practices and an internal review process. With some basic actions, a company can  minimize or eliminate their risk of being out of compliance.

3 Simple tools to avoid costly fines

There are very simple tools that should be employed to help prevent negative claims findings on market conduct reviews. Here are some basic preventative steps to eliminate or mitigate against being cited in a review:

  1. Manage to best practices – Establish and manage claims departments to meet industry best practice standards. Set guidelines and educate staff as to the importance of proper file documentation and notification requirements.
  2. Self audit –  Regularly reinforce good handling practices and customer service expectations through internal audits. A self-audit program should be designed to look for deficiencies and establish plans of action to correct any issues promptly. These compliance audits of staff should be done at least annually.
  3. Vendor management program – Set up a standard vetting process to make sure vendors are appropriately licensed and will comply with company guidelines. Where appropriate, audit these vendors as well to ensure information originally supplied during the application process remains current.

So many of the 5 issues cited above are avoidable. Setting standards and monitoring for compliance will minimize your risks in a market conduct examination. As an added benefit your files will be in better shape and your customers will be happier for it.

Blizzard Warning in the East! Can your claims department keep running if the office closes?

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The snow storm hitting the East Coast is a great reminder to be prepared

Today much of the East Coast is under a blizzard warning. Yesterday, in anticipation of the storm many cities took preemptive measures to be prepared by closing schools, readying plows and salt trucks, and changing parking regulations. Airlines and other business took similar measures to ensure the safety of workers.  All of this activity reminded me about something that is often overlooked – claims departments also need to be able to handle their own offices being closed due to natural or other events.

Major disasters are not always the reason why you need a disaster recovery plan. The claims department should have a plan to manage situations where their office is unexpectedly closed, unavailable, or no longer usable. Whether it’s a snow storm or a burst pipe that floods the office, being prepared for the predictable or unpredictable events is important. And, like changing your batteries in smoke detectors when the clocks change, disaster plans should be reviewed regularly.

Is your office ready for the unexpected?

In my career disaster plans had to be initiated on 2 occasions (9-11 and the East Coast blackout of 2002) and I was also heavily involved in pandemic planning for the Avian flu scare. In all of these situations our claims department was ready. We were prepared because of planning and our technology. Our claims system and claims files were all electronic, off-site and accessible an remotely. Remote access was a key component to managing any kind of contingency where an office has to be closed.  This ability to continue to manage claims when others have to close is a competitive advantage in the marketplace.

Are you ready for the next incident that shuts down your office? Ask yourself these questions:

  • Do we have a disaster and recovery plan in place?
  • When was the last time we reviewed our plan?
  • If we had to close for more than one day could we still manage claims? What about a week or more?
  • How many of our claims staff can access the system from home?
  • How much information is available electronically?
  • De we have paper claim files or do we store them electronically?
  • Do we store our files locally or off-site?
  • Do we have back-up data? Do we store our back-up data off-site?

Being prepared for the larger disaster, and having the technology in place, means that closing an office for a snow storm or other event won’t affect the regular management of claims.

Improve bottom-line outcomes on claims by thinking outside-the-box!

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Claim handling is just as much an art as it is a science. Synthesizing facts and investigating losses requires, not only following process and procedures, but also the ability to look at new ways of solving established problems.

Following best practices is of course an effective way to achieve consistently good claims results. Regardless, the best claim handlers always look at different ways to examine even the most ordinary file. Thinking outside the box is an essential element to innovative claims handling. This type of thinking can lead to lower indemnity payments and reduced expenses.

Below are two examples of situations where the claims adjuster’s innovative approaches lowered the overall exposure.

Using Chinese numerology allowed for earlier resolution in a wrongful death claim

In a case involving a Chinese immigrant, the decedent’s family sought damages for wrongful death as a result of a construction accident. Prior to the mediation, the Claims Adjuster had heard that certain numbers in the Chinese culture were considered bad luck and superstitious. In fact the number four, and certain combinations of numbers, are particularly insulting (see Artcile on Chinese Numerology).

As a method to resolve the case at the best possible value, the adjuster made the first offer to claimants utilizing a series of numbers that were considered prosperous in Chinese culture. The plaintiff’s responded in kind with similar combinations of numbers that made it clear that the gesture did not go unnoticed. With this measure of good faith presented to the other party, the case was resolved sooner than anticipated saving the carrier additional legal and investigative costs.

Using excel to graph heart rate changes in a Malpractice suit helped to reduce the ultimate settlement

In a medical malpractice case involving a brain damaged infant, the liability turned on the baby’s heart rate changes during the delivery period. The plaintiff alleged that the doctor should have performed a cesarean section earlier than had occurred. The allegations against the nursing staff were that they failed to appreciate a significant drop in the baby’s heart rate, and should have then alerted the doctor sooner.

The adjuster used excel to graph the heart rates of the mother and the infant over the critical period. With the graph, they were able to show that fetal heart monitoring strips were actually recording the mother’s heart rate rather than the infants (maternal heart rates are significantly lower than fetal heart rates).  The information helped the defense to surmise that the mother’s monitoring belt had slipped out of position. The period of time where the mother’s heart rate was being recorded coincided with the alleged decrease in the fetal heart beat, thus providing an explanation for the precipitous drop. Using this argument, the claims handler was able to mitigate the settlement at trial below the original value.

Think differently and try new approaches when looking at that same old claim file

The above examples are situations where the adjuster’s thinking “outside-the-box” produced better results. It’s not always about proving an absolute defense, but can be about mitigating an already significant loss. Claim handlers should make an effort to look at the normal in a different way. Even using common available tools differently can result in large savings in indemnity or expense dollars. Some other examples of existing tools that can be used to help think outside-the-box would be:

  • Get SIU involved earlier. Sometimes, even though there may not be fraud present, your SIU investigator can help explore different approaches to finding new information about the claimant  or the events at issue. Even minor issues can lead to information that can be used to reduce the loss exposure.
  • Social media is free so use it. Twitter, Facebook and other social media outlets can be a valuable source of information about a claim or claimant.
  • Use reconstruction animations. In the right case animations are a valuable tool that can create a new understanding of the claim. The sophistication of these short videos allow the claims handler to look at events from different perspectives and open new avenues to the defense not previously seen (i.e. ability to look at a crash from different angles and different drivers viewpoints).

Have you saved money by looking at a claim file outside-the-box? Tell me your story and spread the word to help others save significant money on indemnity and expense payouts.

Med Mal Update: Reasons for decrease in frequency and recent Illinois court decision to strike down damage caps

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In response to my post, medical malpractice report shows increased severity despite lower frequency, I received a number of LinkedIn comments that I felt offered an interesting perspective on this topic. I have included some of that discussion below.

Additionally below, I review the news that the Illinois Supreme Court has struck down that state’s damage caps. The overturning of limits on non-economic loss will most certainly have repercussions for anyone involved in malpractice claims.

Tort reform and high cost to bring medical malpractice actions are seen as main reasons for lower frequency

An interesting discussion on the LinkedIn Medical Professional Group discussion board developed in response to my post on the increase in severity, but decrease in frequency, in medical malpractice suits. Generally, many in the industry commented that the high cost to bring a medical malpractice actions has swayed the plaintiff’s bar to file fewer claims. With other types of cases easier to prosecute, and cheaper to file, plaintiff’s attorneys can get a higher return on their investment by taking on other types of claims. Michael Snyder, a medical malpractice defense attorney in California, noted that “the cap on general damages has not increased [in California] since MICRA was enacted in the seventies. At the same time the cost for both prosecuting and defending these cases increased, so that most plaintiff’s attorney  “will only take cases where there are substantial special damage.”

Pat Tazzara, Litigation Attorney in Washington D.C., has seen a shift in jury attitudes against plaintiff’s attorneys bringing actions. “Once the prevailing theme was hostility [and] skepticism towards health care providers generally. Now, the focus is much more on skepticism towards plaintiffs bringing a law suit [or] suing their doctor.” Pat also feels that there there is a “shift in societal attitudes about those who sue.” This statement was also echoed by malpractice insurance expert, Peter Reilly, who added that “the plaintiff’s bar is wiser about what action it will bring against a medical provider.”

Consulting Actuary, Christopher Tait, points to Tort Reform in Pennsylvania as a main reason for lower frequency and severity. Pennsylvania adopted a Certificate of Merit procedure requiring plaintiff’s attorneys to secure a written statement of malpractice from a qualified expert prior to bringing suit. In addition, the state eliminated “venue shopping” which decreased the number of claims being brought in “bad” forums such a Philadelphia. Again, this created a value proposition for the plaintiff who had to ask themselves if it is worth having to spend money to bring an action where verdicts could be lower.

The costs to defend these claims is also rising as was again made clear in the Ohio Insurance Department’s annual report Medical Professional Liability Closed Claim Report. In this study it was shown that the average defense costs almost doubled from 2005 to 2008 from $24,443 to $42,249. Bottom line: These are expensive cases for everyone and costs for bringing or defending these claims continue to rise. Clearly, this is having some impact on the plaintiff’s bar.

Illinois strikes down damage caps on Medical Malpractice claims

In upholding a Cook County decision from 2007, the Illinois high court ruled that limits on pain and suffering and non-economic damages are unconstitutional. Based upon the State Constitution’s separation of powers clause, the judges struck the caps by holding that lawmakers were interfering the rights of juries to determine damages. (see ruling in Lebron, a Minor v. Gottlieb Memorial Hospital)

The Illinois Hospital Association said it best in their statement:

The hospital community is deeply concerned that this decision will renew the malpractice lawsuit crisis and make it more difficult for Illinoisans to access or afford health care as liability costs for physicians and hospitals are driven to unsustainable levels. Hospitals across the state will again face even greater challenges recruiting and retaining physicians, especially specialists such as neurosurgeons and obstetricians, who were leaving Illinois during the height of the crisis.

The Illinois Supreme Court has faced this decision before and has struck down similar laws in both 1976 and 1997.  Whether the legislature will try again is unknown at this time.

What do you think? Join in the conversation. Post your comments, questions, observations, thoughts, suggestions, musings, ideas for future topics, or other feedback. Or email me directly.

Warning – Medicare Secondary Payer (MSP): Government sends strong message and goes after non-compliance

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The Feds get serious about seeking Medicare recoveries

If you are an insurance company or self-insured, and make payments on liability or workers’ compensation claims, be aware that the Federal Government has filed a lawsuit signaling their intent to be aggressive in seeking reimbursement. As reported in Business Insurance, this “case breaks new ground because CMS simultaneously named insurers, settlement beneficiaries and plaintiffs attorneys all in one lawsuit.”  This case should alert all that if you make a payment on an injury claim, and fail to let the Government know about money they should be collecting, they will come after you.

Implications abound for attorneys and insurance companies in this first of its kind lawsuit

The lawsuit, brought in U.S. District Court for the Northern District of Alabama (U.S. v. Stricker, et al), seeks money and injunctive relief as result of a $300 million 2003 settlement of case involving injuries caused by PCB exposure (Abernathy v. Monsanto Co., et al.). The complaint names the defendants in the underlying case, the insurance companies (Travelers and AIG), the actual plaintiffs who received the settlement, and their various attorneys. The government alleged that over 900 of the plaintiffs that received compensation for medical expenses were also Medicare beneficiaries that had received medical payments. As part of the damages, the Government is seeking double the amount of Medicare payments plus interest (see Medicare Lien and Set-Aside Blog).

The crux of the government’s damage claim is to seek double the amount of payments made by Medicare as well as an injunction to force the defendants to reimburse Medicare prior to making any future settlement dollars to the claimants. As required by the Medicare Secondary Payer Act, the government’s complaint also alleges that the insurance providers failed to determine whether any of the settling plaintiffs were Medicare beneficiaries nor did they reimburse Medicare for payments that had been made to those beneficiaries. In addition to the insurance companies, the suit alleges plaintiff’s attorneys received $129 million of the settlement funds for claimants that they knew or should have known were Medicare eligible.

Implications and issues to be concerned about

  • Attorneys (and their Professional E&O Carriers) beware: By naming the attorneys, the Government is clearly signaling that they will be seeking recovery and fines from those that fail to follow the law. A plaintiff’s attorney that fails to make payments to Medicare on behalf of their clients, or fails to properly provide information to the defense, could be significantly exposed.
  • Costs to insurers will go up: The process to establish and update the reporting information will be costly. Those carriers with good claims systems will be ahead of the game and can lower their expenses, however, resources will need to be allocated to maintain the requirements.
  • Older cases may need to be revisited: While many believed that Medicare would only be going after future liability settlements, this case involves a claim that was settled in 2003. It is not clear how this aspect of the case will be resolved, however, it could be exceptionally expensive if carriers or self-insureds have to review closed matters from 7 years back.
  • Indemnity reserves may need to be adjusted: It is possible that plaintiff’s attorneys will be seeking higher amounts in cases where Medicare liens would significantly impact settlement amounts. If this trend takes hold then reserves on existing claims involving bodily injury may need to be adjusted to deal with increased claim exposures.
  • It’s time to get those systems in order: Given the potential risks, it is important to fully understand the rules and requirements established by the recent SCHIP Extension Act of 2007. There has been a push by insurance companies to ensure they are in compliance with these new notification rules, including new procedures and claims system modifications.  Failing to comply could be a costly mistake.

Clearly this case is a warning of things to come!

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Some background on the Medicare Secondary Payer Act and New Reporting Requirements

The Medicare Secondary Payer Act has been in place since the early 1980’s. The act allowed Medicare to seek reimbursement for money an insurance company or self insured pays on behalf of a Medicare beneficiary. MSP covers all carriers, self-insureds, no fault insurance, and workers’ compensation insurance.  In the past, Medicare’s ability to track and enforce these claims was limited. With the passage of the SCHIP Extension Act of 2007, Medicare was given new tools to track payments. The passage alone marked the start of new steps to increase enforcement by the Federal Government to collect on the Secondary Payer provisions. As part of the Act, the Responsible Reporting Entity (carrier or self-insured) must advise Medicare when a claim is received involving a Medicare beneficiary recipient. Responsible Reporting Entities now have an ongoing requirement to determine from time to time whether a claimant is a Medicare eligible recipient.

For more extensive information about the Medicare Secondary Payer Act and the new reporting requirements, please look to these valuable links:

What do you think? Join in the conversation. Post your comments, questions, observations, thoughts, suggestions, musings, ideas for future topics, or other feedback. Or email me directly.

Failing to properly document files can be costly – It cost one insurance agency $5.83 Million

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Put procedures back in place before the pieces come apart

Whether it’s a claim file, an underwriting file, or in this case, an agent’s file, the lesson is the same. Proper documentation is going be more persuasive evidence that something took place. A recent example of that has just been reported in National Underwriter. A California insurance agent failed to document the absence of Workers’ Compensation coverage pursuant to state law. The agency had guidelines in place to ensure files were properly documented, but court papers indicated that they failed to follow their own procedures. This small mistake cost this agency over $5 million. Yet another example of what happens when the file fails to speak for itself.

Sometimes cliches are the best way to state the obvious: If it wasn’t in writing, it didn’t exist.

A few additional lessons learned:

  • Evaluate procedures regularly, and make sure they are effective
  • Audit and review your files for procedural compliance
  • Files should tell a story that documents what transpired
  • Even good procedures are useless if you fail to follow them