Report of Market Regulation Examination

 

Gallagher Bassett Services Inc.

 

2 Pierce PL FL 8
Itasca, IL 60143-1203

 

Examination Number: ME008-M29

Examination Period:
January 1, 2007 through December 31, 2007

 

Federal ID # 36-3365500

License # TAF32160

 

Pursuant to Title 24-A, M.R.S.A. § 221, a Targeted Market Conduct Examination was conducted of Gallagher Bassett Services Inc. I hereby accept this Report of Examination and make it an official record of the Bureau of Insurance.

 

____________________________ Eric A. Cioppa Acting Superintendent of Insurance Maine Bureau of Insurance

___________________ Date

 

 

TABLE OF CONTENTS

EXECUTIVE SUMMARY ........................................................................................................................... 1

HISTORY OF ENGAGEMENT.................................................................................................................... 2

DESCRIPTION OF COMPANY ................................................................................................................. 2

SCOPE OF ENGAGEMENT........................................................................................................................ 3

METHODOLOGY...................................................................................................................................... 3

FINDINGS ............................................................................................................................................... 3

ACKNOWLEDGMENT ............................................................................................................................... 6

 

 

August 24, 2011

The Honorable Eric A. Cioppa
Acting Superintendent of Insurance
Bureau of Insurance
34 State House Station
Augusta, ME 04333-0034

Dear Acting Superintendent Cioppa:

Pursuant to the certification of findings in accordance with Title 39-A M.R.S.A § 359(2) from the State of Maine Workers’ Compensation Board (“WCB”) and under the authority of 24-A M.R.S.A. § 221 and in conformity with your instructions, a targeted market conduct examination has been made of:

Gallagher Bassett Services Inc.

hereinafter referred to as the “Company”.

The examination period covered indemnity claims, with dates of injury occurring on or after January 1, 1993, that were open between January 1, 2007 and December 31, 2007, for employees residing in Maine or claimants involved in losses in Maine. The Bureau of Insurance examiners conducted the on-site phase of the examination at the Company’s branch office located at:

100 Grandview Road, Suite 406
Braintree, MA 02184

The examination was by test and all tests applied during the examination are reported. The material findings and violations contained in this report are summarized below.

The following report is respectfully submitted.

EXECUTIVE SUMMARY

The Maine Bureau of Insurance examined a statistical sample of all open indemnity workers’ compensation claims, during the examination period, for Maine employees handled by the Company. Various noncompliant practices were identified, some of which may extend to other jurisdictions. It is suggested that the Company take corrective action to demonstrate its ability and intention to conduct business according to the Maine Workers’ Compensation Act of 1992, and WCB Rules and Regulations. When applicable, corrective action for other jurisdictions should be addressed.

The Bureau considers a substantive issue as one in which corrective action on part of the company is deemed advisable, or one in which a “finding” or violation of Maine insurance laws, regulations or bulletins were found to have occurred. Any Maine laws, regulations and bulletins cited in this report may be viewed on the Bureau’s website at www.maine.gov/pfr/insurance.

Significant Findings:

• The Company exceeded the WCB’s specific compliance benchmarks for timely initial indemnity payments and timely filing of memoranda of payment.
• The Company’s overall compliance ratios for the timeliness of form filings and for timely medical payments were acceptable.
• The Company did not meet acceptable compliance levels for timeliness of the wage statement form filings.
• The Company did not meet acceptable compliance levels for timeliness of waiting period payments.
• The Company did not meet acceptable compliance levels for accuracy of indemnity payments.

HISTORY OF ENGAGEMENT

Pursuant to 39-A M.R.S.A. § 153(9), the WCB established a Monitoring, Audit & Enforcement (“MAE”) program. The functions of the MAE program include but are not limited to audits of payment timeliness and claims-handling practices of insurers in accordance with 39-A M.R.S.A. § 359. The WCB audited selected claims of the Company with dates of injury between January 1, 2005 and June 30, 2006, in part to determine whether the Company had violated the questionable claims-handling provision of 39-A M.R.S.A. § 359(2). The results of this audit are reported in a Compliance Audit Report dated January 17, 2007. The report’s findings relevant to Title 39-A M.R.S.A. § 359(2) included:

• Failure to file or timely file forms with the WCB
• Failure to report accurate information in Box 24 of WCB-3 forms filed with the WCB
• Failure to pay benefits timely
• Failure to pay claims accurately
• Improperly-recovered benefits

The WCB determined that the pervasiveness and magnitude of the findings constituted a “pattern of questionable claims-handling techniques”. In 2007, the WCB and the Company entered into 23 Consent Decrees, one of which established the patterns of questionable claims-handling techniques, and assessed fines therefor.

In accordance with 39-A M.R.S.A. § 359(2), the WCB certified the audit findings to the Superintendent of Insurance. Title 39-A M.R.S.A. § 359(2) requires the Superintendent of Insurance to take appropriate action to bring such practices to a halt.

DESCRIPTION OF COMPANY

The Company has been in business since 1962 and is a multi-line property/casualty third-party administrator (TPA), providing claims management, information management, medical cost containment, and consultation services. The Company serves more than 3,600 clients worldwide through more than 125 branch locations.

The Company’s branch location in Braintree, Massachusetts handles the Maine Worker’s Compensation Claims for clients with employees working in Maine. This branch office holds a Maine License as a Branch Adjusting Firm, # BAN 167826, and each adjuster handling claims holds a separate Maine Adjuster Nonresident License.

SCOPE OF EXAMINATION

In order to meet the responsibilities set forth in § 359(2), the Superintendent of Insurance had to determine whether or not the patterns of questionable claims-handling techniques found by the WCB still existed; therefore, an examination was planned in accordance with the National Association of Insurance Commissioners’ Market Regulation Handbook (“Handbook”). The Bureau of Insurance examiners developed compliance verification procedures based on the Handbook to measure whether the Company filed all required WCB forms in a timely manner, accurately calculated indemnity benefits and timely distributed benefit payments as required by the Workers’ Compensation Act, Title 39-A M.R.S.A., and WCB Rules and Regulations issued thereunder.

METHODOLOGY

Company records indicated a population of 1,509 open claims during the examination period. These claims consisted of 639 lost-time claims and 870 medical-only claims. Samples were selected using the Audit Command Language, (“ACL”) software based on a 95 percent confidence level. ACL was used to select a random sample of 50 files from the lost-time population of claims. Of these, 46 also had medical payments and therefore were selected to test timely payments to health care providers. In order to test 50 claim files for timely payment of medical bills, Bureau staff selected four additional claims from the medical-only claims population.

Additional sampling and testing were conducted specifically to review the accuracy of indemnity payments as reflected in Test 3. Using ACL, Bureau staff selected a random sample of 50 claims from the lost time claims population to test the accuracy of these payments.

Failure to identify or criticize improper or noncompliant business practices in this state or other jurisdictions does not constitute acceptance of such practices.

FINDINGS

The following Handbook standards were the basis for developing the examination procedure. All references are to either Title 39-A M.R.S.A., WCB Rules and Regulations or WCB Protocols of the MAE program.

(1) Standard G-3
Claims are resolved in a timely manner.

TEST 1:

• Verify if initial and subsequent indemnity payments were made in accordance with 39-A M.R.S.A. § 205(2) and § 205(3) which allows for penalty of nonpayment over 30 days after becoming due.
• Verify if the waiting period payment is paid when incapacity continues after a 14 day period in accordance with 39-A M.R.S.A. § 204 and § 205(3) which allows for penalty of nonpayment over 30 days after becoming due.
• Verify if payments to health care providers are in accordance with Rule 5.7(2) and § 205(4) which allows for penalty of nonpayment after notice from provider by certified mail.

	Testing	Paid Timely	Not Paid Timely	N/A	WCB Benchmark	% In Compliance
Initial Payment	Paid within 14 days of employer notice	9	2	39	80%	82%
	Paid beyond 44 days	10	1	39	NA	91%
Waiting Period Payment	Due and payable 15th day	6	5	39	NA	55%
	Paid beyond 30 days	9	2	39	NA	82%
Subsequent Payments	Paid weekly within 7 days	422	23	0	NA	95%
	Paid beyond 37 days	445	0	0	NA	100%
Health Care Provider Payments	Paid within 30 days of receipt of bill	609	161	NA	NA	79%
	Paid beyond 30 days of certified mail	NA	NA	NA	NA	NA

 

FINDINGS #1:

• The Company met the WCB benchmark for initial payments at 82%. The WCB benchmark was 80%.
• It was determined that the pattern of questionable claims-handling techniques relating to timeliness of initial and subsequent payments no longer exists.
• Under 39-A M.R.S.A. § 205(3) Penalty for delay, there was one initial payment paid beyond 30 days after becoming due and payable. The penalty payment has been issued to the claimant.
• The compliance ratio for waiting period payments was not at an acceptable compliance level.
• Under 39-A M.R.S.A. § 205(3) Penalty for delay, there were two waiting period payments paid beyond 30 days after becoming due and payable. The penalty payments have been issued to the claimants.
• The compliance ratio for medical services payment was at an acceptable compliance level.
• Bureau examiners could not test for penalties under 39-A M.R.S.A. § 205(4) because bills from health care providers were not mailed certified to the Company.
• The Company requires that medical bills be sent to its facility in Arizona for entry into the claim system. This requirement delays payment processing by the Company’s adjuster in Massachusetts.
• Out of 770 medical bills tested, fifty-eight (58) bills were paid between one and seven days late and a hundred and three (103) bills were paid between twelve and fifty-one days late because the company was waiting for documentation to substantiate the bills. The company must resolve the medical bill due or file a Notice of Controversy within 30 days.

(2) Standard G-4
The Company responds to claim correspondence in a timely manner.

TEST 2:

Verify the timely filing of the following forms with the WCB in accordance with 39-A M.R.S.A. § 360(1)(A) or (B) and WCB Rules and Regulations.

Form Type	Testing	Filed Timely	Not Filed Timely	Not Filed	N/A	WCB Benchmarks	% In Compliance
WCB-1	Within 7 days of employer notice	16	4	0	30	NA	80%
WCB-2	Within 30 days of employer notice	9	5	2	34	NA	56%
WCB-2A	Within 30 days of employer notice	14	2	0	34	NA	88%
WCB-3	Within 14 days of employer notice	8	2	0	40	75%	80%
WCB-9	Within 14 days of employer notice	6	1	0	43	NA	86%
WCB-11 First Filing	195 days from injury date	8	1	0	41	NA	89%
WCB-11 Annual/Final	15 days of anniversary date	12	2	2	34	NA	75%

 

FINDINGS #2:

• The “WCB-2” filing was not at an acceptable compliance level. Otherwise, the Company’s compliance ratios for the timeliness of form filings were acceptable.
• The Company met the WCB benchmark for the memorandum of payment (“WCB-3”) form filing at 80%. The WCB benchmark was 75%.

(3) Standard G-5
Claim files are adequately documented.

TEST 3:

Verify that payments are calculated accurately in accordance with 39-A M.R.S.A. § 212, § 213 and § 215.

	Paid Accurately	Not Paid Accurately	% In Compliance
Indemnity Paid	25	25	50%

 

The chart above represents the number of claims rather than each specific calculation or payment. “Not Paid Accurately” represents 25 claim files where one or more payments were not made accurately. These files included 19 overpayments totaling $7,079.00 and 6 underpayments totaling $6,272.00. The circumstances relating to the under and overpayments varied, and no pattern of causes was noted. The Company paid the amounts due on the underpaid claims after Bureau examiners brought them to the Company’s attention. The Workers’ Compensation Act does not provide for recovering overpayments.

FINDINGS # 3:

• The Company did not calculate indemnity payments at an acceptable level of accuracy, and this pattern of questionable claims-handling techniques therefore continues.

 

ACKNOWLEDGMENT

The courtesy, hospitality and cooperation extended by the officers and employees of Gallagher Bassett Services, Inc. during the course of the Examination are gratefully acknowledged. The Examination was conducted and is respectfully submitted by the undersigned.

STATE OF MAINE

 

COUNTY OF KENNEBEC, SS

Mary Masi, being duly sworn according to law, deposes and says that in accordance with the authority vested in her by Mila Kofman, Superintendent of Insurance, pursuant to the Insurance Laws of the State of Maine, she has made an examination on the condition and affairs of the

Gallagher Bassett Services Inc.

of Itasca, IL for the period January 1, 2007 through December 31, 2007, and that the foregoing report of examination, subscribed to by her, is true to the best of her knowledge and belief.

The following examiners from the Bureau of Insurance assisted:

Van E. Sullivan
Carolee Bisson
Mary Masi
Linette Gamache

 

________________________________
Mary Masi, MCM
Senior Market Conduct Examiner

Subscribed and sworn to before me

This 24 day of August 2011

 

________________________________ Karma Lombard, Notary Public

My commission expires:

 

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