Paula Woolworth, senior vice president of account management and managed care for third-party administrator GAB Robins, and a former risk manager for a major
apparel manufacturer, spoke with Managing Editor Cyril Tuohy about how risk managers can know when they need a TPA to handle their claims. The following is a transcript of Woolworth's responses.
For 15 years I was in an employer's setting for a large apparel manufacturing company, so I have extensive experience in both purchasing the services of and measuring the performance of a TPA.
When companies try to process their own claims, it's the same notion as attorneys who represent themselves--they have a fool as a client. If you're trying to manage your own claims, it may be one of the most foolhardy things to do.
Why should you not self-administer your claims?
-- It's going to cost you more. We live in an age of outsourcing, and many people are not going to carry the expense of having a risk management department with their own claims people since you have to manage the cost of salaries and the benefit load. In today's workers' comp world, it's very complex to manage and report data, including some enhanced collection of medical data, to the states and to the National Council on Compensation Insurance Inc. (NCCI).
-- Beginning on Jan. 1, 2010, data reporting will be even more complex with the advent of Medicare's MMSEA Sec. 111 compliance data reporting. Medicare seems to be very intent on being the secondary payor when there is a bonafide "primary" underlying carrier, or payor entity, that should be responsible for some future medical payments.
-- Medicare's 100+ new data fields, impacting all lines of business where there is bodily injury, requires extensive training for adjusters.Any errors in reporting have the potential for stiff daily, per claim fines. Thus, a self-administering entity must be diligent regarding data detail and have access to a superbly designed claims system--usually meaning more expense outlay than pre-MMSEA compliance.
-- So, if I were back in my risk management department, I would think once, twice, thrice about self-administering. I would want someone to administer my claims just for data compliance.
-- Having a TPA administer your claims is a great risk-transfer technique and brings in the subject matter experts upon whom you can transfer that risk.Claims administration has an E&O risk to it, with respect to the duty of good faith and fair dealings in claims.There is so much enterprise risk that cannot be transferred fully, so the strategically thinking risk manager is going to contract with GAB Robins or any of our competitors to avoid as much as possible any bad faith exposures.
-- Don't forget that then you have a third-party administrator, you still have the insurer/carrier in the equation, as well as the third-party administrator. Now there's a lot more back and forth because there's another stakeholder involved. It's more work in terms of communication, and it will take more work on the part of the risk manager when you put in a third-party administrator for the first time or when you change third-party administrator. It will take lots of communicating from the risk manager to the supervisors, the line managers or the labor union chiefs. The risk manager better do all that work up front.
-- In MedInsights, our managed care division, we've also got a number of Fortune 1000 accounts for whom we're managing their workers' comp risks through deployment of various managed care products.
-- There is extensive medical-data reporting now to states and carriers, and I cannot see employers achieving optimal savings afforded them statutorily and managing this extensive reporting obligation through self-administration for workers' comp. However, they may have been self-administering their commercial auto or general liability, for example, where there could be an incident involving bodily injury.
With the new Medicare Secondary Payor act requirements for data on these claims, a self-administering client is faced with all the federal government data submissions and compliance activities, and most of our accounts are now asking MedInsights to manage all this compliance/data reporting for them with CMS.
TPA VS. CARRIER
Another kind of tangential part of question is the TPA versus carrier issue. As a risk manager, after making the decision to outsource, do I outsource to aTPA or to a carrier?
How am I going to finance the risk? Through a large deductible or a self-insured program?Am I going to retain a portion?
Once that risk financing decision is made, if an insured option is selected by the risk manager, the next question is, "Will my carrier let me unbundle my claims administration to the third-party administrator? And if so, are there any carrier requirements impacting my selection of a TPA?
If carrier requirements are objectionable, the risk manager may consider a different risk financing option or carrier.So, deciding to unbundle to a TPA is partly riding on how much control does a risk manager want to retain for TPA selection and quality control.
For many of our risk managers, TPAs are historically known and are still capable of offering risk managers more flexibility and customization options to meet their needs. With TPAs, it's usually not a one size fits all scenario.
We have many clients who choose a TPA option, regardless of the risk-financing decisions they've made, just so that they can customize things like attorney selection, vendors such as SIU and subrogation, managed care, etc.
For example, risk managers want to manage "category loss" reporting for specific injuries or circumstance beyond what is normally required by carriers and have a lot of customized reports sent to them for a variety of claims metrics. With a third-party administrator, you can customize and be a lot more flexible for the client. Frequently, carriers have tight controls on vendors and claims reporting metrics.
(Our conversation with Woolworth will be continued online in March. Stay tuned.)
February 1, 2010
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