An employer will benefit from a successful workers' comp claims program that operates smoothly and creates a return on investment, and who they choose as their third-party administrator
(TPA) plays a significant role--one that can influence their ultimate cost of risk. Although the quality of the TPA is the ultimate goal when beginning this process, price can be a determining yet often misleading factor when picking a TPA.
COST AND TRANSPARENCY
Transparency in pricing will benefit employers by helping them understand all services provided and knowing the cost of each. Price, of course, is a major selection factor and is given a great deal of analysis.
But employers should review more than just the TPA fee. It's easy to compare fees, but it is harder to quantify the savings an employer could expect from a TPA. The savings from a low-cost TPA can easily be wiped out with one mishandled claim, and the highest-priced TPA may not be the best fit nor does it guarantee quality.
Employers must understand all services the TPA would provide ... and the cost of each service. Does the TPA use ancillary service vendors for such things as case management, medical-bill review and utilization review? And, if so, how were the vendors chosen by the TPA?
TPAs who use ancillary services may charge employers higher amounts for the services than what the vendor is charging the TPA. The markup may seem unfair, but TPAs screen the vendors and provide ongoing vendor quality assurance, electronic interface development and product integration. A TPA may also be able to negotiate better vendor prices than what employers could do on their own.
The key is that employers must understand how much of their fees are marked up because of these services.
With adequate disclosure of vendor payments to TPAs, employers can better understand what impact the TPA fees are having on their overall cost of risk. Part of the disclosure should include specifying which markers represent the basis of percentage-of-savings plans.
Compensating TPAs using a percentage of savings for lowering a doctor's rates to those of a state's fee schedule is not in the employer's best interest because those are compulsory. A per-bill fee is more appropriate. Percentage of savings on in-network and out-of-network bills is a recognized method of reimbursement and rewards the bill reviewer for detailed review.
Employers should also have cost and performance metrics to monitor their TPA's compliance, such as those that focus on outcomes and how services and behaviors impact these outcomes. TPAs can tailor their service program to maximize cost reduction without limiting quality service to the injured employees and the employer.
Although comparisons can be misleading, cost transparency allows employers to better compare competing TPAs. As an example, a TPA could refuse to accept and actually credit the client with any discounts received from vendors. This may result in a higher fee being charged, yet the overall costs to the buyer could be less.
Employers should analyze TPA fees, including ancillary costs, to make sure they are consistent with current market rates. Without transparency, there is a potential for hidden markups that make a low claims administration fee futile. Full pricing disclosure by a TPA allows the employer to see which services have what cost, and can allow employers to be educated consumers who can correlate services and costs to outcomes.
THE BOTTOM LINE
Price should not be ignored, but an employer who understands how its TPA makes a profit will be in a better position of making a clear decision--one focused on creating the best possible outcomes. By choosing the right TPA, and having a solid working relationship with their TPA, an employer will maintain and assure continued success.
This success includes creating specified benchmarks in order to monitor and measure performance outcomes, so an employer will want to consider the risk management information system (RMIS) capabilities of the TPA. Our next article looks into TPA data analysis that will provide the employer with information to make sound decisions.
MARK NOONAN is a managing principal and the senior knowledge manager for workers' compensation for the Casualty Practice within Integro Insurance Brokers.
(If you haven't read part 1 of Mark's series on choosing a TPA, read it here.)
Read more at the WORKERSCOMP ForumTM homepage.
February 4, 2010
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