Outsourcing Claims Could Be Risky Business
TPAs may streamline work, cut costs short term, but poor vendor could ruin plan
Many risk managers believe they can reduce most of their claims management responsibilities by outsourcing their self-insured or captive program claims operations.
While there is some merit to this the daily activities of supervising employees, reviewing files and payment schedules are almost eliminated there is still much to consider. What really happens with outsourcing is that a new management responsibility is created that of the overseer.
What's more, a new vendor now must be dealt with, one which may or may not be familiar with the risk manager's industry. The outsourced company's procedures also may conflict with the risk manager's ideas of proper claims handling.
These are just a few reasons why a risk manager should carefully review an outsourcing operation in terms of management, staff and technical capabilities.
Stiff competition exists between TPAs for clients, which means risk managers can take the upper hand in making sure they are receiving the highest value for dollars spent.
In many instances, for example, the outsourced third-party administrator will have several other clients, often with different requirements. The individual adjuster's available time may vary depending on the type and severity of claims filed against each client.
Initially, the risk manager should interview several TPAs, and price alone should not be the determining factor. The old saying, "you get what you pay for," is very applicable here.
A few things to consider:
- If your company has claims across the country, you may need a TPA with nationwide offices.
- If your claims are specialized in nature, try to find a TPA with compatible experience.
- Inquire as to the various other clients the TPA serves. (In fact, it may be prudent to contact several of these clients for their opinion of the services provided.)
- In group-pooling agreements where a TPA represents the group, be careful.
Some companies may have large losses and many claims. If your company has limited losses, you may want to work on an arrangement where your company only pays a reduced percentage of the TPA costs. This figure could be based on an average of previous losses over the years, which include both defense and indemnity amounts or some type of retroactive accounting.
Other figures could be based on product distribution or product litigation industry data. These types of arrangements are worth considering as a cost saving measure.
- TPA firms vary in size and the type of services available. A TPA that is good for a large company may not be right for your company.
- Upfront you should expect quality service, and a knowledgeable staff. You should expect the TPA to provide your excess carriers with prompt notice of the claims that may reach their layers. You also should expect your TPA to work with and provide information to the excess carriers when requested. (Lack of notice of claims can in some states be grounds for a denial of coverage by the excess carrier.)
When I worked as an adjuster for an excess carrier, I repeatedly requested information from some of the underlying TPAs, yet never received it. You do not want an otherwise covered claim denied for lack of cooperation or notice.
Other areas to consider when selecting a TPA include, but are not limited to, the following:
The workload and turnover of the TPA?s adjusters.
Workloads will vary based upon the experience of the adjuster, type of claims, severity, and the complexity of the files. Workloads in excess of 200-plus files per adjuster can be detrimental to a well-run claims operation. Cases which involve high severity and complexity should be handled by seasoned adjusters. Their workloads should be significantly less to reflect the increased amount of time involved to handle these types of claims.
High turnover may be a sign of poor management, and/or and excessive workloads. The last thing you need is high turnover and new personnel always handling your files. Rest assured that with high turnover, your claims will not be receiving the attention they deserve.
Training and supervisory review of claims adjusters.
With changes in the law the adjuster needs to be updated. Supervisory review is needed to make sure the file is being handled in a professional manor.
TPA measures to prevent fraud.
Are checks required to be co-signed? How are new vendors set up in the system, and are they investigated by management? How are payments allocated across multiple claim numbers? How are the files stored? What type of file check-out system is in place?
How are workers' compensation claims handled, and how does the TPA review medical billings? Is an in-house team used, or do they use an outsourced firm? Either way someone with medical skills should be reviewing the medical billings.
What guidelines are in place for vendors? If there are no guidelines in place for attorneys, investigators and medical review, work with the TPA or hire a consultant to draw up guidelines.
How are subrogation issues handled? Does the file adjuster handle this, or is there a special subrogation unit? What is their recovery rate? You may want to consider an incentive program to induce the TPA to place more emphasis on recovery.
Ideally, you may want to establish file management and claim guidelines that you expect the TPA to follow. Be reasonable in your guidelines. However, be sure that you have a measurable way to determine if your claims are being handled according to your specifications.
To accomplish this task, I would recommend a bi-annual audit of random and selected claim files. Review both open and closed files to achieve a better understanding of the claims handling and settling process.
Knowing that an audit is going to be performed will necessitate the review of your files if the TPA wants to keep your business. It is also a good opportunity to meet and evaluate the adjusters and management assigned to your account.
The risk manager should insist on monthly or quarterly meetings with the TPA management to discuss any complex cases. This presents an excellent opportunity to see where the case may be going, and discuss recommendations made by the TPA.
Conference calls should be conducted on files where authority limits are close to being exhausted. Set a reasonable authority limit. Remember these adjusters are professionals, and most likely have handled hundred's of claims. It?s not necessary to require them to call every time they need to settle a small matter.
Additionally, the risk manager may want the ability to review the claim and file notes online. Inquire if your TPA has this ability. When in doubt on claim procedures contact a qualified consultant to assist you.
Today's risk manager needs a hands-on approach to managing an organization's liabilities. Selecting the right TPA is an important step in protecting a company's assets.
Kevin R. Gallagher, ARM, CPCU, is a vice president of Chiltington International Inc. in Holmdel, N.J. He may be reached at kgallagher@nj.chiltingtonusa.com.
Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 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.
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