Peter Rousmaniere’s column this month in Risk and Insurance addresses the dirty not-really-secret practice of TPAs getting kickbacks from their managed care ‘partners.
This unseemly practice has been going on for years; perhaps the most notable example is the Broward County Public Schools scandal, where TPA Gallagher Bassett was allegedly paid by CorVel for referrals to case management and other services. This isn’t small potatoes; the scope of this debacle earned it a prominent place in an article in CFO magazine.
Peter notes that SRS (the Hartford’s TPA) is one that specifically rejects doing business this way; pledging “Specialty Risk Services, as a fiduciary of our clients’ money, does not participate in any so-called wholesale-retail relationships with our vendors nor do we request or accept administrative fee arrangements from them.”
Broadspire also doesn’t take kickbacks/commissions/admin fees. But the Florida-based TPA also sells an integrated medical and claims management service so customers don’t require much in the way of outside medical management support. According to a highly-placed source; “we do not do a lot of unbundled arrangements for managed care services…most of the services for managed care [are] provided by our own staff, priced and charged separately from the claim service. On the rare occasion that we are requested to go outside by a customer, we will consider it on a case by case basis but, do not make any requirements from the managed care vendor that they provide us any “commission” or anything else of that nature for the pleasure of working with us.”
I’d note that the TPA business has gotten hammered lately – the soft market has driven down loss costs, and with it admin fees. The reductions in frequency have resulted in fewer claims to adjust, and therefore fewer fees to charge. Employers have been able to get TPAs to bid against each other, thereby lowering admin costs by forcing TPAs to cut pricing.
It’s not entirely fair to blame TPAs for this; their customers share the guilt. While employers are saving admin costs over the near term, this is a short-sighted tactic at best. TPAs, like any other business, have to make a margin, and if they can’t make it thru admin expense they’ll have to make it up in other ways.
What does this mean for you?
Demand full disclosure of pricing and cash flows from your TPA and managed care vendors. And expect to pay a fair price.
Sep
17
Ironic.
I was just talking about hidden TPA revenue with a customer this morning. As the owner of a case management firm, I know where the “spiff” is when it comes time to talk fees. I always tell customers who tell me a competitor will perform a service cheaper than we will that as long as I can operate in the same way the competitor does, I will take the supposedly cheaper price, discount it 10%, and walk away far happier and richer than I would with my originally proposed price.
There are way too many buyers who buy solely on price without understanding what the hidden charges are.
Gallagher was singled out and burned (unfairly I might add) so that other players could join in the fun at BCSB.
But if the truth were told, very few TPA’s could withstand a serious inquiry into the tinsel behind the tinsel.
Those public officials who buy solely on price without understanding what they’re buying deserve to be overcharged. Honest pricing would only confuse them, and that’s why the TPA’s operate as they do. Simple pricing for simple minds.
Several years ago, a local TPA that has since been acquired by a national player, approached us with an expectation that we rebate to them the PPO adjustment that we had with them, rather than them billing the reduced fee to the client. I advised them that I would be happy to do so if they would provide written confirmation that the client was aware of this and accepted this condition. The TPA was non-responsive since it was clear that there had not been disclosure to the client. One can and should fault TPA’s to the degree that they would attempt to receive fees from providers that are not disclosed to clients. However we should also fault providers who would agree to such terms rather than saying no, or disclosing the arrangements to the actual paying employers.
We use to call it our PTE-84-24 form where we disclosed everything we made or could potentially make. Down to something along the lines of placing this business might indirectly lead to meals, trips, or other compensation awarded based on cumlaitve business which might be inclusive of this, or something. Didn’t really matter how legalesse it sounded whent he attorneys where done becuase no one ever bothered to read it. They would all sign it but I can’t think of once when anyone questioned or even asked about it. It was just another annoying peice of paper they had to sign.
Most employers aren’t even looking to higher TPAs, in the old since, anymore. With auto adjudication why should they be paying $15-20 PEPM, it’s nothing more then a transation which should only cost pennies. We still have adjusters approving every claim so I’m still begging for the $15. Impossible to get when your competitors don’t pay salaries or even worse are taking a cut of the PPO discount. Quoting a case now currently administered by a large insurer in Ohio, their total admin for M, D, V, Rx, STD is under $9 PEPM. I’m sure all the other fees are disclosed to this governmental entity but no one cares.