An Audit Report on Workers' Compensation at the State Office of Risk Management
December 2010
Report Number 11-013
Overall Conclusion
The State Office of Risk Management (Office) consistently paid valid workers' compensation indemnity and medical benefits within the required time lines and in accordance with state statute and rules from September 2008 through February 2010. However, it did not consistently pay the correct amount or fully recover overpayments of indemnity benefits.
The Office pays two types of workers' compensation benefits:
- Indemnity Benefits - These are primarily payments to compensate state employees, or their beneficiaries, for lost earning capacity resulting from a work-related injury.
- Medical Benefits - These are payments for reasonable and necessary medical services related to a work-related injury.
Indemnity Benefits
All 37 indemnity benefit claims (claims) that auditors tested were valid. In addition, 36 (90 percent) of the 40 individual payments tested were made in a timely manner and in compliance with Texas Administrative Code requirements.
From September 1, 2008, through February 28, 2010, the Office made incorrect indemnity payments on 26 of the 37 claims auditors tested. These errors resulted in overpayments of $33,191 (2.8 percent) and underpayments of $10,520 (0.9 percent) of the $1,166,165 total payments made on these claims during this time period.
The Office has processes in place to review indemnity payments for accuracy, and it generally ensured that it paid injured employees for all identified underpayments, including interest. However, these reviews did not sufficiently identify errors in a timely manner to facilitate the full recovery of overpayments. Identifying errors early in the life cycle of a claim is important because the Texas Administrative Code places limitations on the recovery of workers' compensation overpayments. Specifically, the Texas Administrative Code limits recoveries of certain types of indemnity benefit overpayments to only 25 percent of future benefit payments. The Office's current processes limit its efforts to recover overpayments. The Office identified $731,643 in overpayments made on 835 claims it reviewed from September 1, 2008, through February 28, 2010. Of this amount, the Office determined that $318,519 (43 percent) was unrecoverable.
Medical Benefits
The Office made 98 percent of the 128,886 medical payments from September 1, 2008, through February 28, 2010, within the time lines required by the Texas Labor Code and the Texas Administrative Code. Additionally, all 30 medical bills tested by auditors were for valid claims, and the Office generally paid the correct amounts.
Tracking Overpayments
The Office did not efficiently track overpayments. While the Office maintained information related to indemnity and medical overpayments in spreadsheets, it did not use its Claims Management System (CMS) to capture this information in an efficient manner. More efficient tracking could help the Office better manage the amounts due to it.
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