How About a Flat Fee?
More employers wanting predictability in the fees they pay workers’ comp third-party administrators are negotiating to pay a single, flat fee for bill-review services, sources tell me. The arrangements follow from criticisms some employers, their brokers and consultants have heaped on TPAs, saying traditional TPA charges for bill-review services obscure the ultimate cost of those services.
Under traditional arrangements, a TPA might charge an employer on a per-bill basis for each medical-provider bill reviewed. Or, they might charge on a per-line basis, tallying a fee for each expense line on a bill. They can also charge the employer according to the percentage of savings produced by the bill-review process.
The inconsistency in billing methods has fueled suspicion that some TPAs — operating in a highly competitive environment — win business by bidding to provide basic claim-handling and administration at a low cost, and then boost their revenue with additional charges.
TPA executives have countered that their billing measures are transparent, at times even arguing that brokers stir the controversy to attract consulting business. But questions remain.
TPAs also differ from one to the next in their billing formats for the broad range of other claims management services they offer. So employers with the resources to do so often pay their brokers or consultants additional sums to analyze their bills and to help them select the best TPA agreement for them.
Srivatsan Sridharan, senior vice president, product development for TPA Gallagher Bassett Services Inc., said more large employers are negotiating to pay a consistent flat, per-bill fee for all bill-review-related services for each claim. The employer then pays additional amounts for claims handling and all of the other TPA services required to resolve a claim, although the charges for those other services have tended to be more predictable than the bill-review fees.
Data collection has made it possible for TPAs to model an employer’s expected claims-management expenses and accommodate flat-fee deals, Sridharan said. Such arrangements won’t reduce the cost of managing a claim, but they can make bill review costs more predictable, he added.
In a similar vein, brokers meeting privately with TPA executives during the National Workers’ Compensation and Disability Conference® & Expo, held in late November, asked TPAs about their willingness to charge one, all-inclusive fee for an employer’s entire book of claims business, said Joe Picone, chief claim officer for Willis of North America.
Ultimately, employers want to know the “true cost” of managing their claims and this “could be the next evolution of TPA pricing,” Picone said. “Why don’t we just say, ‘Instead of paying $1,500 per claim, my whole contract is worth $1 million or $500,000.’ ”
The mountain of workers’ comp claims data that TPAs collect could help make the broader flat-fee arrangement possible, at least theoretically, because TPAs could mine the data to predict the claims management costs an employer will generate when operating in a specific region and industry, with certain employee demographics and exposure differences.
We will have to wait and see whether innovative employers and TPAs go down that path.
But additional employer options for paying workers’ comp expenses would be a good thing. And with data increasingly available to help TPAs and employers understand claims-management costs, the time is right for employers wanting pricing predictability to seek change.
In Search of a Great Peer Review
Have you noticed the increasing importance of peer review services? With medical and narcotic utilization on the rise, peer reviewers can have a tremendous impact on the outcome of a claim. So, how can you ensure that your search for great peer review services is successful?
Consider this: peer review companies have two customers: the peer reviewer and the payer and your search must ensure that they have appropriately focused on both.
The Peer Reviewer Customer
For the peer reviewer the company that has recruited them must provide the tools necessary to facilitate their work processes so that, as one Peer Review company told me: “Physicians can just be physicians.”
If you want the best medical professionals reviewing your treatment requests or having conversations with the treating provider on your behalf on your most difficult claims, then they must have access to their work anywhere, anytime. “Great” peer reviewers are most often “great” practicing physicians who are very busy and might want to be able to perform their peer review at odd hours of the day or night. The technology must be reliably available more than 99 percent of the time in order to ensure that jurisdictional timeframes are met.
Peer reviewers need easy, well-organized access to all of the relevant information on a case including:
- Prior medical records,
- Actual diagnostic images
- Prior utilization reviews and recommendations
- Automated and integrated guidelines relevant to each diagnosis
- State specific regulations.
Peer review companies should have technical, regulatory and clerical support readily available to the peer reviewers. To ensure that their time is used wisely, assisting reviewers with the scheduling of appointments with the treating physicians for peer-to-peer discussions can be very important.
Making the right decision on medical care requires time and energy. Often there is a great deal of medical history to slog through to ensure peer reviewers have the right clinical understanding of a case. If the reimbursement to the provider is a flat rate that does not take into consideration the amount of material there is to review on a particular case, the reviewer will skim the material to get an idea and then make a decision. But previous medical history is a critical component to a peer reviewer’s medical necessity/appropriateness decision.
A “great” peer reviewer will be able to effectively engage with the treating physician and have a fruitful, productive conversation.
Consider the example of an injured worker with a knee injury. The MRI shows the tear and the treatment request meets all the guidelines. However a review of the very extensive medicals demonstrates that this same injured worker has had this surgery several times previously without any benefit. A “great” peer reviewer would have read all the medicals and would have known that, on an MRI, a meniscus tear looks just like a scar from previous surgery. Without any benefit from the previous surgeries, more surgical intervention is not indicated.
The Payer Customer
For the payer customer, the peer review company must make certain that reviews are completed with the highest quality for a reasonable cost. This means that they have to provide all of the support services noted above and have clinical integrity as a core value. What should you be looking for?
The peer review company must demonstrate a thorough and extensive recruitment and credentialing process for peer reviewers. This process should not only include the usual primary source verification but assurance that peer reviewers have demonstrated clinical insight: the ability to find a balance between their clinical experience and evidence-based guidelines.
Two of the most important skills in the art of peer review are communication and interpersonal skills. A “great” peer reviewer will be able to effectively engage with the treating physician and have a fruitful, productive conversation. This is especially true when you are using peer review on your legacy/complex claims where the peer reviewer is attempting to obtain agreement to a significant change in treatment or prescribing plans.
One peer review company explained it to me this way: “When you are doing jurisdictionally mandated UR, the treating provider is expecting your call; when you are doing a retrospective review on a complex claim, you are surprising the provider and ‘great’ communication skills are critical.” Because these skills do not necessarily go hand-in-hand with clinical skills, your peer review company must have a method to measure the level of skill for each of their peer reviewers and be willing to train when necessary.
The peer review company needs to have a formal quality assurance process that ensures that another clinical professional reviews each peer review letter or report. You want the company to ensure that the review has sound clinical reasoning that is appropriate and consistent from a diagnosis, guideline and medical records standpoint, has appropriate spelling and grammar, has answered all the questions posed by the adjuster, has the treating provider’s perspective/agreement when appropriate and has met all jurisdictional requirements.
In order for you to be certain such a program is in effect, the peer review company needs to be able to demonstrate that it is tracking the QA statistics/issues/complaints for each of their contracted reviewers in order to assist or retrain those with frequent issues or replace those unable to perform at the expected level.
And last but certainly not least, the peer review company should be providing meaningful outcome reports that identify the impact of the peer review Program on your WC Program. You need to decide what goals you are setting for this program. Is it all about the number or percentage of treatment denials or the reduction in the number of pharmaceuticals an injured worker is taking? Or are you more interested in overall program impact, e.g., reductions in average cost per claim or overall medical spend? Whatever goals you set for this program, your peer review company should be able to assist you to understand their impact on those goals.
Ask yourself: What can I do to bring my organization’s peer reviews from good to “great”?
A Renaissance In U.S. Energy
America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.
Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.
“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.
Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.
Aging Infrastructure, Aging Personnel
The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.
“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”
In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.
Increasing Frequency of Severity
Current financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.
Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.
“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.
“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”
On its own, the domestic energy bonanza presents complex risk management challenges.
However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.
A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.
In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.
Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.
“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.
Back to Basics
Has the time come for a reset?
Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.
He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.
It’s something the industry used to do and got away from, but needs to get back to.
“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”
As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.
According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.
After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.
Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.