By JOE BOURES, president of Specialty Risk Services LLC, a leading third-party administrator providing claims administration and risk management services
In the wake of the financial crisis and volatility in the markets, I hear no shortage of speculation on just how our economy got here. Theories on root causes and blame abound, with some of the best minds in business unable to agree on just what caused this mess, or how best to minimize damage.
As the shock of events wears off, and the reality of the situation sinks in, there is an undeniable shift in the conversation. In addition to looking for lessons learned, forward-thinking leaders are also identifying how these events will change the business landscape, now and in the future.
While it is impossible to know for certain how this all will play out, there are certain changes building undeniable momentum--reduced liquidity, increased oversight and regulation and demands for increased transparency. While all of these changes will have an impact on our industry, the scope and depth of the impact is yet to be seen. Some changes will impact us sooner, others later, and the staying power of the changes will vary.
That said, once we've enjoyed the benefits of employer-benefiting changes like increased pricing transparency, it will be impossible to put the proverbial genie back in the bottle--there will be permanent changes to the industry. While there has been a move toward increased TPA pricing transparency for quite some time, the current fiscal crisis will only accelerate the adoption of this issue and the principles behind it.
As the president of a TPA, I've made no secret of my stance on transparency in pricing. As I see it, the issue is critical to the health of our industry and to the quality of our claim outcomes. My company, Specialty Risk Services, does not participate in any so-called wholesale-retail relationships with vendors that are paid using our own clients' money, nor does SRS request or accept administrative fee arrangements from them.
We made this commitment when we started our company and we are unwavering in our dedication to this issue. We are supported in this belief by a corporate culture of transparency that starts at the top, with our parent company, The Hartford Financial Services Group Inc.--selected as one of the "World's Most Ethical Companies" in 2008 by Ethisphere magazine.
I am happy to see that our stance is beginning to gain more vocal support and a higher profile in the industry with Peter Rousmaniere's column in the Sept. 15, 2008 issue of this magazine (and his column in the July 2007 issue). As the rest of the industry moves toward our stance, transparency and clarity in pricing will reap tremendous benefits for employers, as well as improved outcomes for all involved.
In a marketplace where marking up vendors' invoices and paying them with clients' money has been the norm and revenue sharing is expected, there is a certain leap of faith that companies make when selecting a TPA. While some claim administration prices can be compared as various TPAs are evaluated, the true cost of a claim is typically well beyond the initial price, and very difficult, if not impossible to pin down.
In the past this discrepancy was a cost of doing business, data was simply not offered, and employers simply accepted (if they were aware at all) that revenue sharing would occur behind the scenes. Most TPAs had good intentions in entering into these agreements, as price competition and soaring costs increased the appeal of alternative sources of revenue. However, due to the perfect storm of increased scrutiny and a competitive market where this information is now being disclosed--murky TPA pricing will become increasingly unacceptable to employers.
In an increasingly competitive world, no area can be overlooked in the quest for efficiency, improvement and better outcomes. Those who would say that employers don't see pricing transparency as critical do not fully appreciate the pervasiveness of the problem or the impact on claim outcomes. Nor do they appreciate the discrepancies that exist from company to company.
It is not unusual to have volume discounts on vendor charges that are not passed on to employers, and have the doubly adverse effect of dramatically increasing usage volume. Similarly, when the total number of claims referred for nurse case management is double that of the industry standard, there is a profound impact to the bottom line, without an impact on outcomes or quality of care. When, in addition to the number of cases, the total number of hours per case is several times that of the industry, the impact is staggering.
As a fiduciary of the employer's money, TPAs have a unique position of responsibility and a duty to the employer. Like any business partner, it is critical to be conceptually aligned with your TPA and have shared, not competing, interests. With an undisclosed revenue-sharing structure or wholesale-retail agreement, there is an unnecessary element of complexity to the interaction.
Suddenly, instead of both parties being on the same page making decisions relative to claim outcomes, there is a need to balance an extraneous revenue source that may or may not align with the interests of the employer.
The issue of pricing transparency is not meant in any way to challenge a TPA's need to generate a reasonable profit. Ultimately the issue is not one of profitability or even price, the issue comes down to clarity.
Full disclosure eliminates the possibility for undermining the quality of claims with competing financial interests. By fully understanding how your TPA makes money and by ensuring they share your interests, you will be in a position to focus on adding value and creating the best possible outcomes.
As the financial crisis increases the call for more transparency in business dealings, let's have our industry lead the way by demanding transparency in all TPA pricing. It is reasonable to expect disclosure of the current revenue sharing agreement that your TPA has with any of the vendors they engage on your behalf and pay using your money. Asking for this disclosure will shed light on the nature of your partnership with your TPA and provide insight into your total cost of risk.
As painful as the financial crisis is, we can take heart in the positive changes that will come out of it--full disclosure, transparent pricing and the ability to do the right thing for employers, employees and insurers.
November 1, 2008
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