Management & Operations

How to Reduce the Pain of Workers' Comp Costs

Posted on June 1, 2004 by Steve Hirano, Editor

With all of the funding problems facing the transit industry, rising workers’ compensation costs have only added to the pain, literally and figuratively. Over the past few years, however, several transit systems have been implementing programs to control workers’ comp costs. The strategies have attacked the problem from different angles. Some agencies have enhanced their operator and manager training programs; others have hired third-party administrators; still others have implemented physical testing requirements during the hiring phase. What follows are some examples of how some transit agencies have been dealing with what has become a sore point for transit systems across the country. Capping the costs
At the Southeastern Pennsylvania Transportation Authority (SEPTA) in Philadelphia, workers’ comp costs have been cut drastically over the past decade, from $25.8 million in 1994 to $12.8 million in 2003 (see chart on pg. 39). “We’re like a phoenix rising out of the ashes,” says Yolanda Romero, SEPTA’s director of workers’ compensation. She credits these cuts to a series of initiatives, including the hiring of Comp Services Inc. as a third-party administrator and the introduction of a capitated managed-care program. “We’re basically paying a flat fee for medical and that has saved us millions of dollars over the last five years,” Romero says, adding that SEPTA has negotiated with Comp Services Inc. a three-year renewal with two option years. The capitated program has allowed SEPTA to predict what its costs will be over the contract years and be assured that its expenses will be capped. It also provides incentive to the third-party administrator to carefully manage health care because it will share in a refund if costs are less than the contracted amount. Romero adds, however, that there are many other factors in SEPTA’s cost reductions. “When they hired me [in 1998], one of the things they wanted me to do is get my arms around the old claims,” she says. “We’ve reduced the number of people collecting checks from well over 800 in 1994 down to about 308 as of the end of June. We’ve come a long way.” SEPTA also has been more aggressive in investigating claims and denying them. “When we can win it, we will deny it,” Romero says. In the past, SEPTA was often on the losing end of litigation because it denied far too many cases. “They denied so much stuff that the court would automatically say, ‘Oh, here comes SEPTA again,’” she says. “Now when they see us, they know we’re bringing stuff to the table.” Romero’s recommendation to other transit agencies is to set up an effective light-duty program. “So many of them don’t have it,” she says. “It weeds out the folks who just want to be off from work. We’ve been able to make it work because we work closely with the unions to negotiate jobs for specific workers’ comp and sick people. That’s a big piece of it.”

Metro targets managers
Metro in St. Louis has also been aggressive about cutting its workers’ comp costs. With 1,185 bus and rail operators and 377 maintenance workers, it saw its workers’ comp costs reach a high of $5.5 million in fiscal year 2002. A year later, the costs had been cut to $3.5 million. Last year, costs were down to $2.1 million. One of its key strategies has been to educate managers about workers’ comp and make them accountable for the costs. This strategy was promoted by Metro CEO Larry Salci, who joined the agency in 2002. Craig Macdonald, Metro’s director of risk management, claims and safety, says a series of seminars kicked off in September 2002, providing managers with an overview of the workers’ comp system that included reporting and documentation procedures, investigative techniques and detection of fraud and abuse. The PowerPoint-driven training program lasted 41/2 hours and turned out to be a great investment. “The impact showed up in early 2003,” says Macdonald. “We almost immediately saw a reduction in workers’ comp costs.” A few months after the management seminars were held, the agency rolled out a “real-time” case management program administered by Doctors On-Call Physician Case Management Services LLC. Under the program, a physician is on call 24 hours a day, seven days a week for immediate telephone consultations regarding work injuries and treatment. Supervisors are instructed to call the Doctors On-Call toll-free phone number when an injury occurs, allowing the physician to gather information and discuss the injury with the treating medical professional before actual treatment. The attending physician is then asked to call back with the diagnosis, recommended treatment and return-to-work status. This helps the agency control the point of entry and level of care of the injured employee. Macdonald says the program has helped to shorten return-to-work intervals, eliminate unnecessary medical visits and reduce workers’ comp costs. “Within three months, significant improvements were noted,” Macdonald says. Another strategy recently implemented by Metro is a transitional-duty program that allows employees to return to work for computer-based training. “Right now there are six classes, and we’re adding to them,” says Macdonald. Some of the topics are workplace stress, defensive driving, hazardous pathogens and fitness and wellness. Small investments, big returns
Gaining control of workers’ comp costs can be the result of a complex multidimensional strategy — or it can be as simple as wrapping fareboxes with padding. That’s what Long Beach Transit in suburban Los Angeles did to reduce the number of injuries to bus operators. “Our risk management department became aware that many employees were banging their knees on the farebox while getting out of the driver’s seat to exit the bus or assist passengers,” says Dana Lee, governmental relations representative. In some cases, the operators sustained severe injuries, forcing them to miss work. To solve the problem, the department developed a vinyl-covered foam pad that could be attached to the corner of the farebox on each bus. “Small things can end up having a big impact,” says Lee. “This inexpensive solution has been responsible for dramatically reducing the number of incidences and costs due to knee injuries.” Another relatively small investment that has helped to improve the safety culture at Long Beach Transit is the hiring of a chiropractor to hold regular office hours at both of the agency’s facilities. Lee says the chiropractor offers evaluations and performs adjustments or injury consultation at no cost to employees. She attributes a reduction in the number and severity of back injuries to the chiropractor’s presence. The annual cost of the chiropractor’s services is $30,000. “The benefits are well worth it,” says Lee. “We really want to let our employees know that we care about them and that they in turn need to take care of their safety in the workplace and at home.” In-sourcing pays off
In Denver, the Regional Transportation District (RTD) has also benefited from bringing on-site health care into the equation. Instead of a chiropractor, however, the RTD brought physical therapists aboard in February 2002 to help reduce its workers’ comp costs. “That allowed us to achieve control of the regimens that were going to be prescribed for injured workers in a controlled environment,” says Manuel Herrera, senior manager of human resources. Herrera says the upfront cost of in-sourcing physical therapy was approximately $125,000 — for hiring the physical therapist and for some renovations to the existing wellness facility. The strategy was to treat the in-sourcing project as an experiment. “There was nothing cast in stone that this would stay in place,” he says. In its inaugural year, 246 cases were treated at the in-house clinic at a savings of $126,000 over the outside clinics. In 2003, 299 cases were seen, with an equivalent savings of $218,000. In addition, since the RTD began in-sourcing physical therapy, time lost has decreased by more than 50%, Herrera says. Overall, the RTD has cut workers’ comp costs from $7.6 million in 2000 to $3.7 million in 2003, a nearly $4 million reduction. Obviously, not all of that cost savings was derived from in-sourcing physical therapy. The transit system also accrued savings from in-sourcing its fee scheduling, which prior to February 2002 was handled by a third-party administrator. Another piece of the larger strategy to cut costs was an initiative to improve the hiring process by screening out prospective employees who could not adequately perform the physical functions of jobs such as bus operator, mechanic and service and cleaning worker. These employees, Herrera says, are more likely to end up with workers’ comp claims. To address this issue, the RTD’s human resources and risk management departments collaborated on a plan to develop human performance evaluations that simulate the expectations of job performance. These physical tests, developed by contracted ergonomic and kinetic specialists, are given at the post-offer, pre-employment stage. This testing program, which has been in place since early 2003, has helped to prevent the hiring of the “walking wounded,” Herrera says. “What we’ve seen is a lowering of our injury rate.” Although a dollar figure can’t be pegged to the actual savings, Herrera says “it’s clear that RTD is mitigating, to some degree, its future workers’ comp liability.” Training dividends
Officials at Houston METRO have linked an enhanced operator training program with a reduction in workers’ comp claims. The agency employs 3,600 people. Tim Kriner, director of risk management, says new employees received more pre-service training than their more experienced counterparts and then were tracked over a couple of years. As you might expect, these employees were less likely to file claims than their counterparts. “It’s pretty simple,” says Kriner. “The more training you provide, the fewer claims are generated.” Houston’s training department started the enhanced training program with bus operators and will now transition the program to rail operators. Experienced employees will also share in the success as they go through two-year cycles of refresher training. Case management success
In the face of rising medical costs and insurance premiums, New York City Transit (NYCT) has managed to keeps its workers’ comp costs flat for the past decade through a well coordinated case management system. Gene Freidus, executive assistant general counsel for NYCT’s legal department, says the active workers’ comp case load is 12,000 to 13,000. That’s a huge number of current and former employees to track. But Freidus says the agency created a case management program in 1990 that has helped to keep tabs on thousands of cases and, more importantly, control costs. Getting an earlier start on case management is the one of the keys, Freidus says. This involves bringing the departments into the meeting process early and determining what to do with the file. In some cases, depending on the background of the claimant, the decision might be to ask the special investigations unit to run surveillance. “We run constant reports — daily, weekly, monthly, quarterly,” says Freidus. “Anecdotally, we are in touch with the departments all the time. Very often, they have information that we don’t have. It also enables us to strategize and let the employees know that we have a handle on their cases.” At NYCT, case management is critical because of the volume, but safety training is also high on the priority list because it helps to keep the volume down. “It’s a layered approach,” explains Wayne Galante, chief safety and security officer for NYCT’s Department of Buses. To create a greater focus on safety, Galante says the agency implemented in 1992 a safety training system based on DuPont’s highly regarded program. Since then, NYCT has successfully modified the program for its own purposes. “Over the years, we saw a reduction in the number of accidents,” Galante says. “At the end of the day, we are not expending resources on workers’ comp because of accidents that never occurred.” Essential to the success of the safety program is buy-in from top management. At NYCT, that starts with President Larry Reuter. “You have to look to your boss for leadership,” Galante says. “Someone at the top must be walking the walk.” The results are impressive. The lost-time accident rate in 1992 was 7.18 per 100 employees. At the end of 2003 it was 2.84. That translates into 3,143 accidents in 1992 and 1,397 in 2003. “The safety program has paid off in a huge return,” says Galante. The focus on safety has filtered down to the front lines, too. “The person who is repairing the bus or subway car has become aware of the need to seek safety solutions,” says Galante. Fighting political forces
In some cases, the costs associated with workers’ comp are greatly influenced by events outside the control of the transit agency, especially at the state level. Matt Mumford, director of human resources at the Metropolitan Tulsa (Okla.) Transit Authority, says political forces have made it difficult for the agency to make headway against spiraling costs. “Oklahoma is at the top of the list of states with workers’ comp problems,” he says. Mumford says political wrangling resulted in two of the state’s most conservative workers’ comp judges not to be reappointed. Despite these challenges, the agency has managed to control its workers’ comp costs through incentive programs. “We established an Outstanding Operator Program that seems to have helped to cut down on absenteeism and workers’ comp as well,” says Mumford. To qualify as an outstanding operator, drivers can’t have any lost days, workers’ comp claims or complaints in a month. Those who meet the criteria receive a polo shirt and get to wear jeans once a week. The agency also sponsors barbeques for drivers who go 90 days without any absenteeism or work-related injuries. “Workers’ comp is a problem, and we’re trying to get all employees involved in reducing costs,” Mumford says, adding that the agency has seen a significant decline in workers’ comp costs so far this year. “This focus on reducing costs comes from the top, and our general manager has made this a priority.”

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