Using a third-party administrator for workers

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2 INTRODUCTION Using a third-party administrator for workers compensation programs doesn t mean handing off claims and case management work to someone else and moving on to other risk management duties. Workers comp and risk managers with successful self-insured programs know that a TPA relationship involves tough decisions and a lot of mutual effort. Those managers see the relationship as a partnership in which an employer is responsible for clearly spelling out its needs and goals, and the TPA is accountable for meeting them. Taking a hands-on approach to the TPA relationship, say those overseeing them, usually results in better care for injured employees and lower costs for the employer. Working effectively with a TPA requires effort on several fronts. Among them: making an informed decision about the costs and benefits of buying bundled claims and managed care services vs. unbundling those services; staying in touch with TPA adjusters to spot adverse claim trends and to keep an eye on overuse of legal, utilization review or other services; and deciding whether to pay extra for certain services such as additional adjusters to lighten workload or nurse case managers to improve worker medical treatment that might save money in the long run. In this white paper, Business Insurance looks at some of the factors that go into maintaining a successful TPA partnership, along with some of the challenges risk managers face in keeping their programs running smoothly. CONTENTS SOLID PARTNERSHIPS START WITH A STRONG HIRE 1 ESTABLISH ACCOUNTABILITY WITH FORMAL REVIEWS 3 KEEP ADJUSTERS CASELOADS AT A REASONABLE LEVEL 5 NURSE CASE MANAGERS CAN IMPROVE OUTCOMES 6 EMPLOYERS SEEK GREATER CONTROL THROUGH UNBUNDLED SERVICES 8 CONSOLIDATION LIMITS EMPLOYERS CHOICES 10 TPAs SUM UP WHAT MAKES PARTNERSHIPS WORK 11 Entire contents copyright 2012 Crain Communications Inc. All rights reserved.

3 CHAPTER 1 Solid partnerships start with a strong hire TPA SELECTION WARRANTS CONSIDERATION OF COMPLEX FACTORS One of the most important decisions a workers compensation self-insurer makes is the choice of a third-party administrator. Relatively few self-insurers also self-administer their comp claims. Instead, they rely on TPAs not only for claims administration but often for a range of other services, from safety and loss control programs and risk management information systems to utilization and bill review, medical case management and pharmacy benefit management. Selecting a TPA is or should be a rigorous process that examines the capabilities and quality of an administrator. And once a decision is made, employers have equally important ongoing tasks: supervising the TPA s work, forging relationships with TPA personnel and communicating effectively with them. If an employer has picked the right TPA partner, it shouldn t have to second-guess everything the TPA does. But monitoring its work is still key to holding down costs and improving return-to-work outcomes, experts agree. A growing number of large self-insurers are unbundling their comp programs, using a TPA for claims management but contracting directly with managed care companies for clinical services. Most employers, though, continue to opt for bundled programs in which the TPA oversees the full range of claims and medical work, typically subcontracting clinical services to third-party providers. Employers need to consider a variety of factors in picking a TPA, including its familiarity with local workers comp jurisdictions, hospitals, physicians and attorneys; how well the TPA understands the employer s business; the depth of its staff of adjusters and the typical caseload for each adjuster; and the quality of its managed care provider network if the employer is buying a bundled program. DETAILED CONTRACTS Buyers should be clear about what they expect from a TPA, even putting some of those expectations in writing. TPA contracts, for instance, should spell out things such as whether adjusters will be dedicated to servicing only the buyer s LARGEST WORKERS COMPENSATION TPAs Ranked by workers compensation claims paid in 2010 Company account, the amount of claims experience adjusters will be required to have and the maximum caseload of adjusters assigned to the account. A heavy adjuster caseload can turn into a problem for an employer, because the adjuster won t be able to devote enough time to individual cases and outcomes will suffer, experts say. Contract language also should outline claims handling protocols, specifying, for example, when a claim should be brought to the employer s attention or when other players, such as nurse case managers or attorneys, should be brought into the process. PUT IT IN WRITING Contracts with TPAs should include: Adjuster resources committed to the account Claims experience required Maximum caseloads defined Claims-handling protocols Claims paid Sedgwick Claims Management Services Inc. 1 $6,441,885,865 Gallagher Bassett Services Inc. $3,567,000,000 ESIS Inc. $1,753,000,000 Broadspire Services Inc., a Crawford Co. $1,600,000,000 TRISTAR Risk Management $693,000,000 Cannon Cochran Management Services Inc., dba CCMSI $610,784,121 Helmsman Management Services L.L.C. $594,000,000 York Risk Services Group Inc. 2 $490,000,000 Avizent $470,697,293 Pinnacle Risk Management Services $450,000,000 1 Includes Specialty Risk Services L.L.C., purchased in December Formerly York Insurance Services Group Inc. Source: BI survey 1

4 MANAGEMENT AND MONITORING Once expectations are set and protocols are in place, the challenge then becomes managing the relationship. Companies vary widely in their levels of day-today involvement with the handling of workers comp claims, differences that reflect the company s philosophy, its past experience with providers and the extent of its in-house resources. Some employers take a results-oriented approach, putting less effort into directing the TPA s specific claims-handling steps but monitoring to make sure the TPA meets contractual goals such as improving return-to-work outcomes or reducing the average cost of claims by a given percentage. Companies have found it easier to set these goals and monitor results because of increasingly sophisticated managed care practices and data analytics, experts say. Veteran risk managers advise against giving TPAs a completely free hand, though. Claim-closing results usually are better when risk managers pay attention to what a TPA is doing and stay engaged with the TPA s employees, they say. For example, an employer should have its own claim litigation protocols rather than relying on the TPA s protocols and should track each adjuster s management of attorneys and the litigation expense and settlement records of the lawyers used. Without prompting from risk managers, adjusters may not question legal expenses that may be unnecessary, some suggest. Claim litigation rates can vary widely among selfinsured employers, from rates in the low single digits as a percentage of all claims to rates surpassing 80%. A high rate of case assignments to defense lawyers can be a red flag for TPA performance: Even when a claimant has legal representation, it may not be necessary for the employer to respond in kind and may make more economic sense to use alternatives such as a hearing representatives. 1 COMMUNICATION Frequent communication with adjusters is key to controlling costs. Unless adjusters are encouraged to discuss their cases with employers regularly, they may not share their observations about things such as adverse claims trends. Many large employers have their own workers comp claims people sharing office space with TPA employees to allow for better communication and supervision of the TPA s activities. Some of these companies have TPA claims adjusters working in the companies own offices alongside its in-house claims staff; others place their own people in the TPAs offices to encourage cost-control efforts and deal quickly with any emerging problems. TPAs aren t always happy about these arrangements, sometimes preferring to manage the work themselves. And risk managers acknowledge that supervising too closely creating an oppressive, Big Brother atmosphere can hamper a TPA s performance. Nevertheless, claims costs and returnto-work outcomes are generally better when an employer and its TPA work as a team, following a common set of directions and goals, they say. Managed care services that TPAs arrange under bundled programs are another issue that has drawn risk managers attention. Some have had a difficult time getting TPAs to disclose details of charges from third-party managed care providers or the TPAs revenue arrangements with those providers, making it difficult for employers to weight the cost and benefits of various services. Several large TPAs say they fully disclose their provider financial relationships. PERFORMANCE EVALUATION AND INCENTIVES A final oversight step is judging the TPA s performance. Employers should survey their business unit operations supervisors to find out if a TPA is providing the level of service that home office workers comp managers expect. If claims-handling protocols and performance goals are set out clearly at the beginning, a performance assessment is that much easier, experts say. Internal claims reviews in which the employer and TPA go over open claims and the steps the TPA has taken to deal with them should be a regular form of TPA evaluation, experts advise. Companies may also hire an outside consultant to perform an external audit of the TPA s performance. To encourage top-flight service, some employers offer incentives to their TPA adjusters. These can range from a lunch to pay-for-performance contract provisions under which a portion of the TPA s bonus goes directly to the adjusters who meet defined goals. In the end, incentives are just one of many ways employers can build the kind of team ether with TPAs that is crucial to effective claims management. 1 Jeff Pettegrew, Self-Insured Workers Comp Third-Party Administrator Contract Issues, Insurance Thought Leadership, December Mr. Pettegrew is executive director of the California Self-Insurers Security Fund. 2

5 CHAPTER 2 Establish accountability with formal reviews EXTERNAL AUDITS CAN SUPPLEMENT INTERNAL PROCEDURES An employer s relationship with a thirdparty administrator should not be based only on trust. It also should be based on accountability. Companies that have given their TPAs clear claims-handling protocols and performance goals need to be able to assess how well they are following through. A TPA s failures and mistakes such as not notifying excess insurers in a timely fashion to trigger coverage, or failure to object to unreasonable medical or legal expenses cost employers money and may not even be apparent without a formal review. Employers can evaluate TPA performance in several ways, including claims reviews, which are generally conducted internally, or independent audits, a more intensive type of evaluation carried out by a third-party consultant. Claims reviews, often conducted annually, involve company and TPA officials meeting to go over open claims. The parties assess the TPA s response time and accuracy in paying bills and communicating with insurers, look at the adequacy of claim reserves and measure the performance of adjusters to see if they are following the TPA s best practices. Reviews shouldn t just be a rehash of claim files history, but should also be strategy sessions aimed at coming up with collective plans to resolve claims. The sessions have the IN-DEPTH ANALYSIS Outside audits can measure: Calculations of benefits Financial due diligence Regulatory compliance Cost-containment effectiveness Appropriate level of resources best chance of success if all of the people involved in a claim participate, including senior management. A review session could include, for example, an executive in charge of an injured worker s unit as well as the adjusters, nurses and lawyers working on the case. One basis of the review should be compliance with the road map that an employer has given the TPA in the form of claims-handling instructions or protocols. If the employer has made it clear that it wants to be notified of any claim reserve that exceeds $25,000 or wants a coverage opinion on any injury involving long-term exposure to chemicals, the TPA should be able to show that it has followed those instructions. For more in-depth analysis of claims and to address such larger issues as regulatory compliance, employers are increasingly going to outside consultants to conduct performance audits. Outside audits can measure objective elements of a program, such as calculations of benefit payments, financial due diligence and regulatory compliance. They can also look at more subjective factors, such as the costcontainment effectiveness of a TPA s medical management programs, which could include its network of approved doctors, pharmacies and laboratories. Not every claim requires a TPA s full range of services, so an outside audit could thus look at whether the TPA is applying the appropriate level of resources to a given claim, focusing its clinical resources on the more complicated claims. If a TPA s responsibility includes both workers compensation and disability claims, an audit could look at whether it has fully integrated its handling of the two. Audits have sometimes found that TPAs handle the two functions on separate systems with little communication. In the disability claims area, audits have frequently found TPAs to be ineffective or slow WORKERS COMP INDEMNITY CLAIM COSTS DECLINE IN Year Indemnity % claim Increase cost (decrease) 1991 $ % 1992 $9.7 (3.1%) 1993 $9.5 (2.8%) Annual change : (1.7%) 1994 $ % 1995 $ % 1996 $ % 1997 $ % 1998 $ % 1999 $ % 2000 $ % 2001 $ % Annual change : 7.3% 2002 $ % 2003 $ % 2004 $ % 2005 $ % 2006 $ % 2007 $ % 2008 $ % 2009 $ % Annual change : 4.1% $22.3 (3.0%) 1 Based on the states where NCCI provides ratemaking services, including state funds. 2 In thousands. 3 Preliminary based on data valued as of 12/31/2010, excludes high-deductible policies. Source: NCCI Holdings Inc. 3

6 in securing an injured worker s Social Security disability benefits to offset the benefits paid out by the employer. A claims review or outside audit may uncover service issues, in which case an employer should expect its TPA to present a performance improvement plan to remedy the problems. If the issues are serious and the employer isn t satisfied with a TPA s response, it may terminate the relationship and look for a new service provider. Containing workers comp costs and getting injured employees back to work requires a team effort, and team members have to be accountable, work comp experts say. 4

7 CHAPTER 3 Keep adjusters caseloads reasonable OVERWORKING TPA STAFF THWARTS COST-CONTAINMENT EFFORTS Overburdening claims adjusters is a sure formula for creating unnecessarily high workers compensation program costs. An adjuster with too many cases to track can t give individual cases the time and thought that might improve care for injured workers and speed their return to work. That situation translates into more open claims and rising expenses, veteran risk managers agree. Yet, the poor economy has led many companies, under pressure to cut budgets, to try to reduce third-party administrators compensation. Savings in upfront TPA costs, though, can be more than offset by the higher indemnity and medical expenses that come from piling 150 or 200 case files on an adjuster s desk, experts say. Instead, it makes more sense to pay for additional manpower to limit caseloads. Determining the right caseload depends on a gamut of factors, from the extent of the documentation an employer requires of the TPA, to the mix and complexity of the employer s claims. In addition, the more hands-on a company is in managing its comp claims, the more time it will ask of adjusters to review and discuss strategy. The decision also can depend on the state in which the employer operates. In California, for instance, where an unusually high percentage of cases are litigated, an employer might want to limit an adjuster s caseload to 90 or 100 files, experts say. In other less litigious states, the number could rise to around 120 files. PUT CASELOADS IN THE CONTRACT The question of adjuster caseload is one that WORKERS COMP REVENUE Revenue from workers compensation claims for self-insured clients for the top 10 third-party administrators Year Revenues 2006 $1,087,403, $1,320,581, $1,138,201, $1,023,866, $1,138,757,298 Source: BI survey should be addressed in the TPA s contract. Employers can specify a certain number of adjusters, require adjusters to work exclusively on their accounts and state that their caseloads will be limited to a defined number of claim files. Adding adjusters to an account also should mean adding supervisory and support personnel. 1 Paying extra for added help often is worth the expense, risk managers say. Along with adjuster caseload, workers comp and risk managers also should look at adjuster experience. Cases involving claim denials or serious medical issues, such as back surgeries, require senior adjusters with at least five years of experience. Employers may not get the seasoned adjusters they need if they are pushing TPA compensation to a minimum. As with the caseload issue, adjuster experience is something employers can specify in their TPA contracts. 1 Jeff Pettegrew, Self-Insured Workers Comp Third-Party Administrator Contract Issues, Insurance Thought Leadership, December Mr. Pettegrew is executive director of the California Self-Insurers Security Fund. 5

8 CHAPTER 4 Nurse case managers can improve outcomes PROTOCOLS AND MONITORING HELP USE RESOURCES WISELY Nurse case management services can be expensive, but they can also significantly cut the duration and cost of injured workers medical treatment. Nurse case managers act as advisers on injured employees medical needs and facilitate communications among medical care providers, claims adjusters, the worker and the employer. In some cases, they serve a triage function, stepping in immediately after an injury to ensure an employee gets appropriate care that is most likely to lead to a quick return to work. A nurse case manager might, for instance, review claims as they come into a third party administrator s call center, applying set criteria to decide whether the claim should be referred for case management. In other cases, they work in the field, accompanying patients to doctor visits, visiting them at home to be sure they are managing their recovery properly, or meeting with supervisors to arrange modified duty or worksite changes that would allow a claimant to return to work. Most are registered nurses, though medical case management may be taken over by a doctor if an injury is complex or catastrophic. TPAs may have their own staff of nurse case managers or may outsource the function to thirdparty providers specializing in case management services. Overall, only about 10% of U.S. workers comp cases use nurse claims managers, although the number has been expanding with the growth of nurse triage programs. CONTRACT PROVISIONS For employers, the key to using the service effectively is having clear protocols about when and how nurse case managers may be used and monitoring their activities to make sure they are not billing more hours than necessary, experts say. Employers can save many times the cost of the service if it s used intelligently. A worker who injures a knee but is otherwise healthy and has no impediments to recovery would have no need for a MEDIAN DAYS AWAY FROM WORK FOR NONFATAL OCCUPATIONAL INJURIES AND ILLNESS, BY INDUSTRY IN 2010 Type Median days Number Incidence away of injuries rate per from work 10,000 workers Total private industry 8 933, Total goods-producing firms , Natural resources and mining 12 20, Construction 12 74, Manufacturing 9 127, Total service-providing firms 7 710, Trade, transportation and utilities , Information 11 19, Financial activities 9 27, Professional and business services 7 75, Education and health services 6 186, Leisure and hospitality 6 88, Other services 7 27, Source: U.S. Bureau of Labor Statistics nurse case manager and could be treated within normal medical guidelines. If the injured worker is overweight and has other complicating conditions, though, a nurse case manager s attention could greatly improve the treatment outcome, closing the claim faster and cutting the employer s costs. Early intervention following an injury usually is a key to the successful use of nurse case managers, though in some cases they may also be used after initial diagnosis and treatment if a patient is showing few or no signs of improvement. And while insurers and TPAs usually decide when it makes sense to use nurse case management, employers also may assume that role, setting their own criteria for use of the service and then directing it themselves. 6

9 Along with hastening worker recovery, nurse case management holds out another advantage: curtailing litigation. The care injured workers get from a program s nurses can reduce the likelihood that workers will seek help from lawyers, and some companies have reported substantial drops in their litigation rates after initiating nurse case management. The service can be expensive, though, and can lose its cost-containment advantages if not monitored properly, particularly if nurses come into a case too late or do not use evidence-based medical protocols for managing injuries and disabilities. Nurse case managers typically bill by the hour, with rates sometimes exceeding $100 an hour. They generally charge a flat rate per call for triage services or for such task assignments as accompanying an employee to the doctor or evaluating the employee s worksite conditions. Case managers have an incentive to bill as many hours as possible, and it is up to workers comp and risk managers and their TPAs to keep a close eye on those expenses, experts warn. Some TPAs use claims adjusters as a backstop on case management services, requiring nurses handling initial triage on claims to report back to an adjuster with recommendations. If a recommendation makes sense, the adjuster then approves the expense. 7

10 CHAPTER 5 Employers seek greater control through unbundled services ISSUES OF COST, QUALITY AND CONSISTENCY PROMPT MOVE When it comes to third-party administration services, one-stop shopping may not always be the best way to go. More and more large employers are unbundling managed care services from their TPAs workers compensation claims-handling duties. In part, this is a result of employers trying to hold down rising costs by getting a clearer picture of what they are paying for specific services and whether those services are worth it. Companies are also interested, though, in improving medical outcomes for employees and speeding their return to work. Some employers have concluded that they are better able to tailor managed care programs to their own needs and provide more personalized service to injured workers by dealing with managed care providers directly. PROS AND CONS OF BUNDLING Unbundled services are not for everybody, though. Some risk managers have found that they save money by bundling services through a single TPA, avoiding the problems of managing multiple contracts and weighing the performance of separate claims management and managed care providers. Employers have long been split on the value of unbundling, with decisions influenced by a company s size, the nature of its workers comp caseload and the extent of its medical care needs, among other factors. Gaining a clear understanding of managed care charges is a key cost-control step, and this can be surprisingly difficult in a traditional bundled program. TPAs often function as brokers of services they offer, handling claims management themselves but subcontracting other services to outside providers. These services can include medical case management, utilization review, physical therapy, radiology, doctor networks, legal advice, investigation services as well as durable medical equipment and pharmaceutical prescription services. LACK OF TRANSPARENCY TPAs charge clients for these provider services, typically as allocated expenses in claims files, but often with few specifics about charges and no disclosure of the revenue arrangements a TPA has with outside providers, according to complaints from many risk managers. This lack of transparency has raised concerns among risk managers about possible undisclosed profits, markups and add-ons in TPAs bills. For example, a TPA may have an undisclosed revenuesharing agreement with a provider, markup fees it charges to clients for interfacing its information systems with a provider s or obtain business-volume discounts from providers that aren t transmitted to clients. Typical hideouts for such charges have included subrogation, utilization review, medical case management, investigative services and bill review expenses, employers have said. With the economy still struggling and unemployment still high, employers also report concerns that a drop in workers comp claims volume could push TPAs to generate revenue by driving up allocated expenses charged to employers. Several large TPAs have said they avoid any perceived conflicts of interest by fully disclosing their financial arrangements with third-party providers. Undisclosed fees and provider arrangements don t reflect dishonesty or malfeasance on the part of TPAs, but merely the business pressures of the lagging economy and employer efforts to push down the cost of TPA services, some industry observers have said. Still, the issue has led employers to demand greater transparency in bundled programs. Some companies and their brokers, for example, are adding fee disclosure provisions to requests for proposals they make to prospective TPAs. Some have also switched TPAs after finding new providers willing not only to detail allocated costs but to allow direct communication with third-party managed care providers. 8

11 ULTIMATE MEDICAL SERVICE LOSS DISTRIBUTION FOR LOST-TIME CLAIMS, BY SERVICE CATEGORY Emergency services 1.0% Prescription drugs 19.5% Other services 12.8% Supplies 10.1% Office visit 5.3% Surgery & anesthesia 19.3% Hospital services 14.0% Physical therapy 11.9% Diagnostic testing 6.2% Source: NCCI Holdings Inc. And while most large, self-insured companies continue to buy managed care services through TPAs, growing numbers are unbundling the services. ANALYZING EXPENSES A desire among companies to pull apart their managed care expenses to find out how much each service costs and whether it produces a net savings is partly responsible for the trend. These companies want to know, for example, whether specific managed care interventions such as utilization review or case management provide value for the money spent, and at what point in the life of a claim such services are most effective. Unnecessary costs and questionable charges, of course, can occur whether an employer is dealing directly with a managed care company or through a TPA. A provider, for instance, could record multiple utilization review charges to determine whether a claimant needs certain medications or surgery when this could be accomplished in a single review. Still, employers may have an easier time spotting inappropriate charges when bills do not have to go through a TPA, some have concluded. Along with controlling costs, employers are also looking at unbundling as a way of getting better medical management and return-to-work outcomes. Unbundling can allow them to customize managed care programs, setting goals and expectations and managing provider relationships more effectively than they could with an off-theshelf program through a TPA, some say. A large employer could, for example, decide that it wants its managed care company to place occupational health counselors in the employer s own workplaces to advise injured workers and consult with their doctors and local rehabilitation facilities. This kind of customization and the ability to judge its costs and effectiveness is easier when employers deal directly with providers. INCONSISTENT QUALITY The quality of a bundled program s various components, meanwhile, can be inconsistent. While such a program might provide a strong preferred provider network and bill review services, for example, it might fall short in pharmacy management. Overseeing those pieces separately can produce consistently higher quality service, some employers have concluded. While risk managers whose companies have gone the unbundling route are happy with its advantages, they also concede that the choice brings administrative challenges. Instead of dealing with a single TPA, they are managing relationships, dealing with problems such as data management and assessing the performance of multiple providers. Employers that have opted to stay with bundled programs often point to these administrative hurdles as a factor in their decisions. Some say unbundled services would actually cost them more and aren t worth the headaches of managing multiple contracts. For these companies, a TPA that has clinical capabilities and that can deliver similar medical cost containment results is a better fit. As with most risk management decisions, the choice depends on the buyer s own capabilities and needs. 9

12 CHAPTER 6 Consolidation limits employers choices BUT TPA EXECUTIVES SAY BETTER AND BROADER SERVICES RESULT Third-party administrators have been disappearing, but it s no mystery where they ve gone. Consolidation has been thinning their ranks for years and is likely to continue, reducing the choices for workers compensation self-insurers. Since late 2010, Gallagher Bassett Services Inc. has acquired the TPA business of GAB Robins North America Inc.; Sedgwick Claims Management Services Inc. has scooped up Cambridge Integrated Services Group Inc. and Specialty Risk Services L.L.C.; and Avizent has bought out F.A. Richard & Associates Inc. For large TPAs, acquisitions have been a way to boost revenue in a period when raising prices has been difficult. They also may be looking to expand into a specialty line of business: in Avizent s case, adding FARA s strength in U.S. Longshore and Harbor Workers Compensation Act business. Smaller firms, meanwhile, may be finding that they lack the resources to compete with larger rivals. While workers comp and risk managers have alternatives for TPA services for most types of business, the choices are narrowing. Smaller, regional employers have a greater array of choices, because regional TPAs can handle their claims without the large-tpa resources needed to manage national accounts. Several insurers also have shown an interest in providing stand-alone TPA services without requiring companies to by coverage. These insurers have not been especially aggressive in pursuing the stand-alone business, though, and LARGEST MULTILINE TPAs Third-party administrators that offer both employee benefits and property/casualty claims administration Company generally have not been as competitive in their pricing as independent TPAs, according to brokers. This has left some large employers with complex needs concerned about the effects of dwindling competition, including possible erosion in the quality of TPA services. TPA officials, meanwhile, have maintained that consolidation should improve the breadth and quality of TPA services and lower their costs because stronger management creates more effective providers revenue from self-insured clients Sedgwick Claims Management Services Inc. $808,152,678 Wells Fargo Third Party Administrators $74,512,426 and Wells Fargo Disability Management TRISTAR Risk Management $55,794,000 Keenan & Associates $40,000,000 Loomis Co. $31,941,000 Xchanging Claims Services $30,000,000 CAS-Claims Administrative Services Inc. $14,232,326 Underwriters Safety & Claims Inc. $11,300,000 Source: BI survey 10

13 CHAPTER 7 TPAs sum up what makes partnerships work STRIVE TO UNDERSTAND CHALLENGES EACH PARTY FACES Most third-party administrators are just as eager to provide top quality service as employers are to get it. Most also agree that controlling costs and improving return-to-work outcomes require teamwork and give-and-take between an employer and its TPA. From a TPA s point of view, a good working relationship with a client involves several factors 1 : PARTNERSHIP: A company and its TPA should develop a long-term relationship in which the employer understands and communicates it needs and program goals, and recognizes that the partnership is a learning process. Accept that early on, mistakes may be made. PROGRAM GOALS: An employer should have clear objectives for its workers comp program that are easily measured and that can be monitored throughout the partnership. Progress on those objectives should be gauged at least quarterly and changes made if necessary. ROLES AND RESPONSIBILITIES: While a TPA is focused on its client s needs, it also is answerable to state regulators and auditors for the state, excess insurers and the TPA management. Clearly defined roles and client understanding of the TPA s inner workings help ensure a successful relationship. COMMUNICATION: Communication breakdowns often contribute to the failure of business partnerships. Employers should make sure they maintain lines of communication with their TPAs at the claims administration, regional manager and corporate levels so that problems can be worked out before they reach a critical level. ANCILLARY SERVICES: Managed care, utilization review and bill review services all represent large costs in a workers comp program, and employers should take the time to understand how they work within the program and what impact different TPA pricing variations from a percentage of savings to a charge per bill will have. They also should know that if a TPA s claim fees seem unusually low, it may be because the TPA is making its money on managed care and other fees instead. 1 Joe McLaughlin, What a Third-Party Administrator Needs from its Customers, Mr. McLaughlin is senior vp of sales and marketing for Tristar Risk Management, a TPA unit of Tristar Insurance Group Inc. 11