A report on TPA transparency from the New Jersey Office of the State Comptroller (OSC) on transparency “found that workers’ compensation third party administrators (“TPAs”) may be utilizing undisclosed side agreements with third party vendors which require payments back to the TPA, resulting in hidden (and potentially increased) costs to public entities.” [emphasis added]
The report, issued in August, 2012, should be required reading for any risk manager, especially those working for governmental entities. An extensive quote from the report reveals why.
A government entity informed OSC that it had discovered that its workers’ compensation TPA was receiving money back from the managed care and bill repricing vendors to which the TPA had referred claims, pursuant to undisclosed side agreements (referred to as “revenue share agreements”). The government entity informed OSC that it settled this and other potential legal claims against the TPA in return for a substantial payment, after informing the TPA that it was planning to commence legal action against it based in part upon the existence of this undisclosed, shared revenue. (The TPA noted to us that it disputed the claims and that the settlement of the matter was without any admission of liability or wrongdoing.)
OSC’s Review
Upon reviewing this TPA’s contracts with other public entities, OSC found other examples of these undisclosed revenue share agreements. In fact, industry experts claim that this practice is pervasive among TPAs, indicating that numerous other public entities in New Jersey may have incurred these hidden costs.
Our review found that the public entities we examined did not obtain information during the TPA procurement process as to whether prospective TPAs were a party to any revenue share agreements with third party vendors.
This certainly isn’t new news. However, the fact that this is 2012 and employers are still unaware of their TPAs’ side deals is troubling indeed, especially in these days of brutally tight budgets. Here’s what to do.
1. require full disclosure of any and all side deals, marketing agreements, commissions, administrative fees, etc involving any and all claims.
2. require reporting of funds transfers between and among parties working on or involved in your claims.
3. understand that these deals often generate a lot of dollars for the TPA; that is NOT necessarily a bad thing, as long as you know about it. Many employers have squeezed their TPAs so hard on claims fees that the TPAs have had to go elsewhere to generate enough cash to keep functioning. Therefore don’t be surprised if your TPA agrees to eliminating their side deals in exchange for higher admin fees.
What does this mean for you?
Better for you to find out what’s up before your Comptroller does.
Thanks for highlighting this “practice”. One way, and effective too, is for the client to tell the TPA that it (the client) will handle negotiations with other vendors needed by the plan. It would also be wise to put the “other vendors” on notice that they will need to disclose if they have any “revenue sharing” relationship with the TPA.
It would be interesting to see the actual figures on how much revenue is generated this way and how much of the ‘cost of doing business’ is charged to the client.
get rid of the middle man.