There are plenty of candidates – work comp TPAs who solicit fees from service vendors, vendors who offer to pay fees to get on a “preferred” vendor list, individual buyers with their hands out.
But when you get right down to it, the folks that are most at fault are also the ones most affected – employers.
Employers are the ones who demand ever-lower per-claim fees from TPAs, and TPAs who want their business have to play that game. Truth is, it is impossible for any claims organization to deliver professional, solid, responsible claims handling for $1200 per lost time claim. They have to make their money somewhere, and that “somewhere” is with more fungible, less visible, claim-specific services.
Case management, utilization review, bill review/network access are just a few of the categories that escape close scrutiny yet add up quickly. Many of these services are categorized as medical services and thus hit the file as non-administrative. That category is almost always all but ignored during audits or file reviews, and thus is ripe for…margin making.
Before you start yelling about the dastardly TPAs and their evil ways, stop and consider why they do this. It’s pretty simple; if your core service is commoditized and you’re constantly under rate pressur, you’ve got to do something to stay in business. So, you find other ways to generate the dollars needed to deliver the level of service your customers demand.
I place the blame squarely at the feet of employers and their brokers and consultants. There’s just not enough effort to really understand how TPAs differ, why one costs more and what their value propositions are. It’s too easy to plug all the numbers into the spreadsheet and not try to figure out why TPA A does things this way, and TPA B does it this other way.
Nope, claims is claims.
There’s another reason employers have to accept a big chunk of the blame. Many know fee splitting occurs, but don’t have the energy/motivation/ability/professionalism to pursue it.
What does this mean for you?
Is this acceptable?
Note – I heard from more than one colleague who wants me to “name names”. It is NOT my responsibility to do that. I’m not harmed by nor do I benefit from the practice of fee splitting. Moreover, don’t act like this is “new news”; this is hardly a revelation. It has been going on for years, and everyone knows it.
I will admit to being quite frustrated with stakeholders who somehow feel I – and others – need to try to fix problems with the work comp world, problems neither of our making nor solvable by anyone other than those affected by them.
As our son’s high school lacrosse coach often said – you’re either a finger or a thumb. The finger assigns blame to someone else, while the thumb points back to you.
Are you a finger, or are you a thumb?
Not workers comp only happens on Group also a great deal. Blue Cross before PPO became the norm had groups with negative admin Fees. In other words they paid the account to process their claims. What does that tell you!
You are right on about this issue. The fees that TPAs charge are insignificant compared to the losses that are paid.
One way for the risk managers to get to a meaningful number is to come up with some metric for success. There are many that are used such as “percent of discount” or “penetration”, but they are pretty meaningless.
To measure the success of the medical management, look at the average medical cost per claim. That transcends all other measures, and it usually develops to the “ultimate” quickly. You can do the same for indemnity, but it takes longer to mature. Additionally, I see very little emphasis on subrogation. Often this is done for “free”. Which is to say there is little incentive to pursue it.
I agree with Joe. Squeezing the per claims fee typically leads to a reduction in service (higher claim loads per adjuster) or an increase in the less visible costs (bill review, case management or other service fees). In the end, there are ways to measure and benchmark the various vendor costs that are paid as part of loss or expense while understanding some of the ways that claims administrators charge for claims if you take the time to understand the data.
I agree with Joe that this TPA business model is not a new development and not many people can honestly say, “I’m shocked to find gambling going on here.” If the task of holding TPAs and medical management vendors to a more transparent pricing model seems too daunting or overwhelming, may I suggest a first good step is to put in your vendor contracts appopriate, impactful, specific service level agreements. Followed of course by insistence on auditing to them and not accepting answers that are not data based.
from Jim Kremer at E&Y…
Amen. Much of this is driven by buyers of these services that either are not able to or do not take the time to make the necessary effort and justify why it is important to hire vendors to provide claim services that are not commoditized. It’s easier to price buy, then complain when their “standards” are not being met. It’s critical that buyers wise up and become a “client of choice”. Otherwise, they get what they deserve through average or below-average adjusters and supervisors being assigned to their account, and providing less than stellar service to their injured employees.
This will not change until buyers of claim services change their approach (and this stands for most brokers as well). You can’t expect Cadillac service at Chevy prices.