New Jersey advises public entities to demand full disclosure from TPAs

Public entities in New Jersey may be paying hidden costs due to undisclosed side agreements between third-party administrators and other vendors, according to a report.

The Office of the State Comptroller said it has found evidence of "undisclosed revenue share agreements" between TPAs and third-party vendors.

The OSC "has found that workers' compensation TPAs may be utilizing undisclosed side agreements with third party vendors which require payments back to the TPA, resulting in hidden (and potentially increased) costs to public entities," the OSC said in a new report. In reviewing contracts between a TPA and three public entities, the OSC found that "none of the reviewed contracts disclosed that the TPA was receiving funds back from some of these vendors and none of the three government entities had been made aware that their TPA had in fact been receiving such compensation."

Legal experts review latest Medicare legislation (06/18/12)
Physician-owned surgery centers come under researchers' scrutiny (06/18/12)
Coalition disputes contentions in think tank's report on N.Y. assessments (04/19/12)
Insurance group points to 49 percent drop in premiums in Texas (11/01/12)
California: Frequency for private self-insureds drops a hair (09/10/12)

The OSC said industry experts pointed out the arrangements create "perverse incentives in that TPAs are in the precarious position of deciding whether to refer a case to a vendor with which the TPA has a revenue share agreement or to another vendor that has not entered into any such agreement but may be better suited to perform the service in question. As a result, there arises a potential conflict between minimizing client costs and maximizing the TPA's revenue."

The OSC's examination began after a government entity revealed that an unnamed TPA was receiving money back from the managed care and bill repricing vendors to which the TPA had referred claims. The entity said it settled the dispute against the TPA "in return for a substantial payment after informing the TPA that it was planning to commence legal action against it." The TPA said the settlement was "without any admission of liability or wrongdoing."

In studying the contracts between the TPA and the public entities -- including a municipality, a county, and a school district -- the OSC said none of the entities obtained information during the TPA procurement process about whether prospective TPAs were a party to any revenue share agreements with third-party vendors. "Without such information, public entities are not in a position to accurately determine whether they are obtaining the most cost effective workers' compensation services," the OSC said.

The TPA later amended its standard contract language with public entities in New Jersey to indicate it may have business agreements with vendor service providers which may include financial considerations such as cost sharing.

The OSC said while the revised contract language may help, it is "somewhat opaque," and it made the following recommendations for public entities:

Require disclosure of any financial arrangements a TPA has made with third-party vendors and require full disclosure of such agreements and compensation.
Periodically review whether the entities are obtaining the most cost effective TPA services and consider unbundling the services.

The report noted that one New Jersey county saved $15,000 annually after it unbundled its TPA and manager care services.

Read more at the WorkersComp Forum homepage.

October 4, 2012

Newsletter Sign-up