Get Eyeball-to-Eyeball For TPA Hunt

David A. North, president and chief executive officer of Sedgwick Claims Management Services Inc., the Memphis, Tenn.-based TPA, gave similar advice.

"Kicking the tires is more beneficial than getting references," said Mr. North, who is co-author of a book on selection criteria for TPAs. "If you walk around and go through the promotional material, you can see whats really going on," he added.

Mr. North gave that advice in spite of the fact that his own firm has been engaged by companies that did not perform in-person inspections. Site visits are time-consuming, so they will often try and make an assessment by other means, he noted.

Roger Wade, a senior manager for KPMG in their New York office, said employers should require the TPA to service them with a dedicated unit that provides "a small set of claims adjusters working on your claims," rather than having claims services sprinkled over a large workforce.

Mr. Wade noted that having a dedicated group familiar with your companys philosophy of claims handling can provide much better service.

The dedicated unit, he said, "can sometimes be set up at a clients location, rather than the offices of the TPA. An on-site location is preferred because, in effect, they then become more of an extension of your own staff."

Mr. Wade warned that, if the claims function is outsourced with no real ownership by the client company, "over time the relationship will not be as ideal as it could be." The more active a companys employees are in maintaining a relationship and guiding a TPA, "the more likely that the relationship will be positive," he counseled.

He also suggested that it is best to have an arrangement that calls for a payment per claim that carries through to closing of a claim, rather than "pay-as-you-go." By setting a fixed dollar amount per claim, he said, the adjuster has more incentive to settle.

Faster claim settlement, he noted, generally means lower costs because the claims that remain open longer are more likely to wind up in a more expensive litigation process.

A key element of any TPAs operation that needs examination is the state of their technology, according to David P. Duden, director and national Risk Management Information Systems practice leader for Deloitte & Touche in Hartford Conn.

Mr. Duden said that, as organizations move toward outsourcing risk management data, they should look into the security of the data. "Some of the small risk management system providers havent gone through scrutiny on the controls and security of the data," he cautioned.

Mr. Duden explained that many firms "have different clients using the same servers and dont have security and firewalls in place," adding that "sometimes there are five clients using the same server. Theres a response time issue."

Another consideration, he said, is making sure that outsourcing of data does not interrupt the integration of internal data–material concerning workers compensation claims and human resources, for example.

John F. Ryan, a senior vice president at ACEs TPA subsidiary, ESIS, said it is important that the new firm be found to have a strong financial position that enables it to make a good investment in infrastructure and technology.

A key point to look for when evaluating the firms technology, he said, is a good Web portal that makes it easy to obtain information and access reports.

A TPAs system, Mr. Ryan added, must be accurate, reliable and timely, so that statutory reporting deadlines are met. Additionally, TPAs should interact with a company so "there are no surprises, there are early warnings on claim settlements, and continuous communication on the status of claims."

"Those are the types of things that make for an effective TPA-client relationship," he pointed out.

Mr. Ryan advised going with companies that can provide a large volume of services, and suggested examining the TPAs record in comparison with benchmarks for the industry, as well as checking on their track record for subrogation of claims. Take note of their ability to manage a speedy return-to-work for workers compensation claimants as well, he said.

A common mistake in engaging a new firm, Mr. Ryan said, is to over-emphasize cost in making a choice. "We all want to get the right price, but most of the costs are in the loss dollars. So focus on total cost of risk and what that means to the company, and can you achieve a lower cost of risk."

Mr. Salen of Home Quality Management said that he finds there can be a wide variance in TPA firms' ability to communicate well and educate. TPAs should be available for training and education without there being a service charge, he noted.

He also warned that the abilities of TPA staff vary within a company and "a lot depends on a particular local office." National companies, Mr. Salen said, profess to have staff everywhere that operate at the same level, but "the reality is, thats not the case. Its a people business."

Mr. North at Sedgwick, in a similar vein, said that "any number of TPAs have the desire to do the job well, but the question is, can they actually do what they say they will?"

Look for firms that have the infrastructure to train their staff well and keep them, he advised.

Mr. North said that it is important when changing TPAs not to underestimate the timeframe to make the transition from one firm to another.

Mr. Salen, making the same point, said that given the lag time that can be involved with items such as workers compensation claims, at least three months are needed for a transfer.

Finally Mr. North said that firms engaging in a TPA search "should go into the selection process with the high expectation of being able to preserve the best practices theyve developed over the years and to improve those areas that need improvements."

Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.