Choosing a TPA (Pt. 1)
Because of the current economy and after years of rising costs, employers are searching for ways to reduce expenses while producing better outcomes--a hard thing to do with the medical costs of workers' compensation at almost 60 percent of total losses.
In unbundled programs, carefully choosing a third-party administrator (TPA) is one step in reducing an employer's total cost of risk, and how that TPA manages an employer's rising medical costs should be a top priority.
When selecting a TPA, there are many factors that you, the employer, will need to examine.
Over the next three columns, I will answer questions and cover areas that employers should understand about their TPA--from claims management, cost and transparency, to data and networks. By choosing the right TPA, you will benefit from a successful claims program that operates smoothly and creates a return on investment.
Workers' compensation costs are primarily driven by the cost of claims. An employer will not gain control over medical costs unless it first evaluates it TPA's ability to manage and process claims.
When accidents do occur, you need to keep a careful eye on the medical component of claims through such strategies as bill review, medical case management and pharmacy benefit management (PBM).
A solid TPA will have an impact on the processes and manage the ensuing claims wisely.
An employer should know what resources the TPA has available to help injured employees quickly recover and safely return to work. Question how the TPA trains its adjusters. The knowledge and skill a claims adjuster has, and whether or not he understands medical conditions and treatment options, will impact the cost of each claim. Compensability decisions must be timely and correct; each claim must meet the guidelines.
How well does the TPA know the jurisdictional laws of each state, and how do they investigate validity of claims? Compensability is a fact-based issue. Early intervention and control in claims produces better outcomes.
Aggressive claims-handling should include timeliness, thorough investigations, quick reporting, proper reserving and negotiated settlements. Having several levels of claims expertise should be included in the best practices as it allows for immediate referral of complex or problematic issues to someone with the appropriate expertise. Overall, having access to claims expertise with experience in challenging issues provides superior results.
Another question to ask is whether or not the TPA has recovery and subrogation capabilities, litigation management and special investigation capabilities. A TPA should be ready and capable to investigate and pursue insurance fraud. An aggressive use of investigations will likely reduce claims in the long run. An important measure of a TPA is their sustained-denial rate--the percentage of claims that the TPA denies that stay denied as opposed to how many of the decisions are overturned by the workers' comp judge/hearing officer.
A utilization management program should also be part of the employer's best practices. It safeguards against unnecessary and inappropriate medical care rendered to employees and involves such services as preauthorization and case management. A TPA should facilitate a review of medical services and records for medical necessity and quality of care and provide a gatekeeper for highly utilized and costly procedures.
RISING PHARMACY COSTS
Prescriptions are a large driver of workers' compensation medical costs. How does the TPA or their PBM approach and manage pharmacy expenses? Pharmacy cost growth continues to escalate higher than overall medical expense, with utilization being a bigger cost driver than price increases. The process a TPA uses to handle prescriptions will have a large impact on an employer.
How are prescriptions authorized: by a master list of approved medications or by reviewing each injury type? If each prescription is reviewed based on the injury type and body part, even the time elapsed since the injury, it will help keep an employer's workers' compensation program from paying for prescriptions that are not appropriate for the condition.
A TPA that approaches pharmacy claims in this manner not only helps cut costs, but could also catch harmful drug interactions that could slow down an employee's return to work.
THE BOTTOM LINE
Since workers' compensation costs are primarily driven by the cost of claims, understanding how a TPA manages claims is critical to a company's financial success, especially during the current economy. As medical severity continues to grow faster than the medical component of the U.S. Consumer Price Index, a TPA that consistently executes best practices and successfully manages claim costs will help an employer reduce their total cost of risk.
Continuing with this focus on reducing employer's costs, my column next month will cover the need for transparency and clarity in TPA costs so that quality of service is not sacrificed for price.
MARK NOONAN is a managing principal and the senior knowledge manager for workers' compensation for the Casualty Practice within Integro Insurance Brokers.
(In part 2, Mark tackles the issue of transparency when picking a TPA. Read it here.)
Read more at the WORKERSCOMP ForumTM homepage.
January 14, 2010
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