TPAs and transparency – the bigger issue

It just won’t stop.
Over the last few years, long-suffering TPAs, hammered by the soft insurance market, went from making a few bucks on managed care services to earning most if not all of their profits from commissions on same. Some TPAs provide managed care services themselves, others have preferred partners, and a few are willing to work with any vendor their employer customers bring to the table.
There are good reasons for each model, and I can argue in favor – or against – each of them. But from a broader perspective, there is a bigger issue, one that has been missed in most of the discussion about managed care fee-sharing.
That issue is simple – does the managed care program offered, or enabled, by the TPA actually work? Does it reduce total claims cost? Does it result in fewer extended disabilities?
That’s where the discussion needs to begin. If a TPA doesn’t have managed care expertise, if their executives can’t talk in detail about how their approach addresses total cost, their managed care business model is irrelevant. Unfortunately, there aren’t too many TPAs that have intelligent, effective managed care programs – the original objective has been sublimated to the demand for revenues and profits. Not all TPAs have lost their way (or were never on the right path to begin with); a few are innovating, breaking away from the same old same old discredited model as they search for a true long term solution.
There’s no question many TPAs have expertise in managed care. There’s also no question many risk managers think they know it all, and love to pontificate about their ‘ideal’ model – and force the TPA to implement their brain child, ignoring the TPA’s advice (and then blaming the TPA when the ‘can’t fail’ program fails). But that discussion should start, and end, with the overall goal of the program – lower total claims costs.
Yes it is critically important to know where your workers comp dollars are going. One way to do that is to require the TPA CEO to sign a document (after your attorneys polish the language) stating words to the effect that “We will fully disclose any and all financial transactions involving (TPA) and any and all managed care entities providing services to (employer) and employer’s claimants. This disclosure includes but is not limited to service fees, commissions, implementation fees, RFP and proposal assistance charges, transaction fees, connection fees, membership fees, and any and all other transfer of monies from managed care entities to (TPA).”
That’s a start, the initial requirement that must be met before any substantive discussions can begin. And once that attestation has been signed, step back and ask what the TPA is doing to attack total claims costs.
Because that’s where the big bucks are.

3 thoughts on “TPAs and transparency – the bigger issue

  1. Joe, you are so on point.
    As an owner of a case management firm, I am often put at a competitive advantage because of the various “side deals” mentioned in your model disclosure. If customers knew (and understood) the true costs of TPA services they were buying, they would pass out.
    I am certain that there are TPA’s out there that simply wouldn’t be profitable on the per case fees they charge the customer. It’s a crazy business model that allows a TPA to be profitable by NOT disclosing to the customer the behind the scenes charges. The customer really doesn’t know the total costs.
    Unfortunately I find that explaining this to customers causes many to go into information overload mode. TMI. It’s easier for them to take the (on the surface) cheapest price & not worry about the rest. After all, how many customers have the time and expertise to price services unbundled. It’s easier to buy on a price they and their managers can understand than go through the research required to reduce costs.
    I agree 100% with your point. I am also pretty certain that your post and those of the others on this topic are wasted electrons. Very few people are going to look behind the curtains of the Wizards of TPA.

  2. Thanks for addressing this Joe. Several years ago one of the TPAs that we worked with had and agreement with us where we reduced our fees by a percentage as a condition of obtaining business. We were labeled part of their PPO network. All was fine till one day they asked us to bill our normal rate and rebate to them by separate check the difference. I immediately asked for written verification that their clients, whose account were billed for our services, were aware of this arrangement and consented to it. Absent this, I regarded the request as a kickback, providing funds to the TPA over and above their agreed upon terms with their client. Needless to say, no such documentation was provided and no new arrangement took place.
    Such kickbacks for lack of a nicer term also have the perverse incentive of promoting utilization by claims managers since there is a positive financial incentive to spend their client’s money.
    Anybody buying the services of anyone else ought to understand clearly how their vendor really makes their money, and decide if their interests are served by the arrangement.