STATEMENT OF SHELBY HALLMARK, DEPUTY DIRECTOR THE OFFICE OF WORKERS' COMPENSATION PROGRAMS EMPLOYMENT STANDARDS ADMINISTRATION U.S. DEPARTMENT OF LABOR BEFORE THE SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS HOUSE VETERANS AFFAIRS COMMITTEE March 25, 1999 Mr. Chairman and Members of the Subcommittee: I am pleased to be here today and appreciate this opportunity to discuss the administration of the Federal Employees' Compensation Act (FECA) by the Department of Labor's Office of Workers' Compensation Programs (OWCP), for employees of the Department of Veterans Affairs and other Federal agencies. The Federal Employees' compensation program covers nearly three million Federal employees in 72 different agencies, providing benefits to any of them who sustains an injury in the performance of duty anywhere in the world. Because of the extreme importance of these benefits to Federal workers, OWCP strives to provide due benefits as quickly as possible. OWCP offers the full range of medical and rehabilitation services to return injured employees to productive work at the earliest date possible. For the 170,000 injury notices filed annually, we maintain high standards of decision timeliness, prompt payment of wage loss claims and medical bills, and are especially proud of the high number of workers successfully returned to work. At the same time we recognize our fiduciary responsibility to employers and taxpayers. Since 1993 our periodic roll management project and other cost containment efforts have saved hundreds of millions of dollars and reduced the overall cost of the program measured in constant dollars. OWCP's record of timely adjudication, well-controlled inventories, and timely payment has been consistent since the mid-eighties. After an intensive effort, including ongoing automation initiatives, the program has gained control of a dramatically increased workload, which overwhelmed our administrative resources in the late 1970's. Beginning in 1992, and well before the Government Performance and Results Act made strategic planning a requirement, OWCP had already turned its attention to achieving positive outcomes for employers and employees through targeted redeployment of its resources. OWCP’s administrative expenditures have remained extremely low compared to most comparable state compensation programs, about 4% of total costs. Yet in the last several years we have been able to focus on better outcomes for employees in the form of early and safe return to work, and for employers in terms of better control of disability and medical costs. I would like to discuss our overall approach to these issues, our interactions with the VA and other agencies, and where we think that our mutual energies and resources will bring about the best results. Today, medical costs are better monitored and controlled than at any previous time. FECA has been utilizing a fee schedule for medical and hospital outpatient services since 1993, with annual savings of $100 million against billings. By regulations effective January 4 of this year, we instituted pharmacy and hospital inpatient fee limitations, which are expected to save about 15-20% compared to amounts billed for prescription drugs and inpatient stays. With expanded automation, we are now able to separate out costs unrelated to the claimant’s work injury and this allows us to make sure we are paying only for services directly related to the work injury. Overall medical benefit outlays declined by 9% from chargeback year 1994 through 1997, but rose again somewhat in 1998, consistent with a trend seen in Medicare and the private sector. This year, Congress has supplied funding for a significant escalation in our monitoring of medical costs. We will begin to use software which detects "unbundling" (where a provider bills services as individual components instead of a comprehensive code, to increase revenue) and other improper coding and billing practices. In addition, we will add "quality assurance" staff in every district office to audit bills and monitor payment reports, identify inappropriate billing patterns, review the output of the software and provide expert assistance to our staff in handling medical billings. Of course, long term disability benefits are the largest item in a Federal agency's benefit outlays. The FECA periodic roll -- individuals drawing benefits monthly on an ongoing basis -- continued to grow at an average of 3% per year during the late 80's and early 90's, even after the growth in the new claims had leveled off. Although this trend had multiple causes, it was partly due to the change in procedures in the mid-80's which placed people on the long-term roll earlier to reduce case-handling, as well as a growth in the number of occupational disease claims which, if approved, are more likely to entail long-term disability. It is clear, however, that during the seventies and eighties, OWCP focused its limited staff resources on ensuring that new cases were reviewed and, when approved, paid; and that the time-consuming tasks of managing long-term disability were given a lower priority. Payments for claims on the periodic roll account for about 72% of the $1.9 billion dollars paid out in FY 1998. We believe that the key cost driver in this program has been the lack of sufficient funds to carry out the careful review and case management activities that are needed to address these long-term cases. While outright criminal fraud and abuse does occur in this type of program, its incidence is relatively low (estimated at less than 3% in most of the studies and samples we are aware of). The major issue is the inertia of disability -- injured workers who become marginalized when their employers forget about them, their doctors treat them only as patients, and they come to identify themselves as victims of injury and incapacity. Overcoming that inertia requires very proactive -- and therefore expensive -- efforts to work with the injured worker, his or her physician and other medical providers, the manager at the worksite, and sometimes rehabilitation service providers, to move individuals who are no longer disabled or only partially disabled back into the workplace.
The good news is that we now have a very effective program to address this issue. Our Periodic Roll Management project, which began in 1992 when 50 FTE were approved by Congress for this purpose, has netted more than $320 million in benefit savings to date through careful and fair evaluation of long-term cases. These results have been achieved even though we have not had the level of staffing needed to fully pursue this effort in all our offices. We project that more than an additional $500 million in benefits will be saved through FY 2004, because starting in FY 1999 Congress has provided funds for the full staffing of this project -- 120 FTE -- and to integrate its activities into the program. This review process has now become a permanent aspect of the FECA program rather than a one-time initiative. All cases now on the periodic roll which have not previously been reviewed in this manner, as well as cases which evolve to this status in the future, will receive this attention as a result of the expanded resources approved beginning this year. The teams arrange medical evaluations and appropriate medical and vocational rehabilitation, and terminate or adjust benefits for which the employee is not eligible. For the Department of Veterans' Affairs this has already meant a considerable savings. In 1992 when the project began, 5,217 VA cases were on the periodic roll, and 4,288 were in a total disability status. As of 1998, VA has 4,664 cases on the periodic roll, with 3,528 receiving total disability -- an overall decrease of 10.5% in cases, and a reduction of 17.7% in cases paid at the total disability rate. Although we accommodate agencies that wish to review older periodic roll cases in our district offices, we believe that our newly expanded Periodic Roll Management effort is the best way to address the costs of older cases. PRM staff is specifically trained to identify the best strategy with these cases. Nevertheless, a suitable job offer by the agency can be the key to eliminating the compensation cost for a case at any stage, as well as providing the most constructive outcome for the injured worker and his or her family. To ensure that the periodic roll would not increase again, FECA developed a comprehensive approach to new injury cases. In 1992, we began contracting with registered nurses to visit our claimants, talk with their doctors, and work with agencies to identify light duty that was safe for them to do. Even if the agency does not communicate with the employee in the critical early period following an injury, OWCP now does. The Quality Case Management program, a comprehensive program which includes nurse intervention, has redirected the program’s focus towards returning employees to work in the early months following their injury. The nurses intervene in more than 10,000 cases per year, helping in the early days of disability to facilitate communications, ensure effective medical treatment, and aid the employer in finding ways to bring the injured person back to the workplace before the worker loses his or her sense of connection to the job. If the agency is unable or unwilling to reemploy, the case receives an independent medical evaluation and/or vocational rehabilitation services, in most cases within a year of being referred to the nurse and placed under case management procedures. Largely as a result, rehabilitations -- injured workers returning to their original employer or a new employer through OWCP assistance -- have increased tenfold from the 1986 level and fourfold since 1992, and now approach 7,000 per year, and the average cost per rehabilitation has plummeted.
Our field nurses work with employees of VA hospitals and other facilities around the country. In several facilities, we have seen distinct improvements in the responsiveness of VA personnel in returning employees to duty. Quality Case Management performance is measured in terms of a reduction in "days lost to production" which translates into productivity gains and cost decreases for agencies. During FY 1998, the average duration within the first year of disability for QCM cases dropped from 195 days in the fourth quarter of Fiscal 1996 to 183 days in the first quarter, 1999. This 12-day reduction yields approximate savings of $1.6 million in first year compensation payments avoided for the cases measured in the first quarter of this year alone. We believe these immediate savings will be dwarfed by the long-term impact of individuals returning to work whose disability might otherwise have lingered and become a life-long condition. OWCP strategic planning calls for continuing and expanding this very positive trend. OWCP has a multi-faceted program to work with agencies to manage their overall compensation program, implemented through discussions at the program head level with agency heads, national and local technical assistance meetings, seminars and workshops, and our various publications. In FY 1999 OWCP and OSHA will jointly pursue a government-wide "Federal Worker 2000" program that will require agencies to:
VA's recent success in reducing its injury rates should serve the agency well in addressing these goals, including the effort to reduce overall lost production days, since the best way to avoid lost days is by averting the injury in the first place. The rollout of this program will call for OWCP to measure all lost time, including the Continuation of Pay (COP) days paid by each agency in traumatic injuries, not merely wage loss periods, in counting lost production days. For the last two years, OWCP has focused on the timeliness with which agencies submit injury notices and claim forms, using whatever bully pulpit is available to tell agencies that good case management and program management begin with the simple step of filing a notice of injury with OWCP. Once OWCP has the notice of injury, it can address medical treatment and testing, medical management, and return to work issues immediately. If the wage loss claim is received right away when wage loss begins, OWCP can assign a nurse who works to achieve recovery and return to work. Overall agency performance in this area has improved since we have been emphasizing it, but we have a long way to go. While VA's overall performance in this area is not the highest, some VA facilities are performing above the national average, showing that improvements are possible. OWCP has been working with VA to establish an electronic link to speed their submission of claim forms, and we hope that innovation can be implemented this fiscal year. Most interestingly, data for six VA Medical centers which had the lowest Lost Production Days in 1997 show that they are also centers which submit claim forms (CA-7s) more promptly than the VA overall. The timeliness of submission of claims for wage loss for those facilities with low production days averaged 16% better than the rest of the VA in the fourth quarter of 1997 and again in the 4th quarter of 1998. This relationship between timely submission of claim forms and lowering of days lost to disability has been noted for other agencies, and suggests that our emphasis on timeliness is well-placed. In pursuing our own strategic planning and GPRA goal-setting, OWCP has become increasingly aware of the interdependence of our efforts and those of the Federal employing agencies, as well as the external impact of medical providers' behavior. Injured Federal workers view the FECA program as a single entity, and service must be well coordinated between the agencies and OWCP if it is to be successful. This is why we have included increasing agency timeliness of injury claim submission as one of our GPRA goals. We have redoubled our effort to encourage agencies to keep in touch with employees who are injured, obtain their restrictions from their physician, offer light duty as soon as the employee is recovered sufficiently to return to work, and make suitable reemployment offers to more severely disabled employees. Agencies can now keep track of their cases and give advice to injured workers through OWCP's on-line Agency Query System, a secure internet site which gives essentially real-time information on cases such as medical bills paid, denied and suspended, wage loss claims awaiting decision, compensation payments made, case status, and accepted medical condition. Guidance has been available in publications such as the FECA handbook for agencies (CA-810) and the training manuals for the advanced injury compensation specialist course we deliver to agency staff responsible for internal management of this program. We are working to expand and update these resources, because we believe that close cooperation between agencies and OWCP is the key to case management and an effective benefit program. We are urging all Federal agencies to particularly focus their attention on the early stages following an injury, since that is when they have the greatest capacity to effect the course of the case. By promptly and accurately transmitting the notice of injury and any wage-loss claim to OWCP, by ensuring that supervisors keep in touch with the injured worker during the COP period, and by emphasizing the need to facilitate return to work during the crucial first six months, agencies can most dramatically impact on the success of the program and its long-term costs. I've tried to outline some of the things we're able to do to manage the benefit program, and several ways in which we can work fruitfully with Federal agencies. Again, I appreciate the opportunity to be here and share the OWCP perspective with you. Back to News From Hearing on
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