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Outsourcing customer service – I don’t get it.

Yesterday my bride was attempting to book a hotel room at a specific Hilton Garden Inn near the Sacramento airport.  She got bounced to Hilton’s intergalactic call center, and then spent 15 minutes trying to get a person – likely in another country – to reserve a room at that specific property at a rate they’d advertised.

My wife is a very patient person (she’s still married to me after 26 years…) but even she had to finally end the call after it became abundantly clear that the customer service agent had no idea where the airport was, what the rate should be, or why we didn’t want to consider another less expensive property located somewhere within a fifty mile radius.

Hilton lost a guest, and all because they decided it is more “cost-effective” to outsource customer service.  At the same time, the chain is working diligently to monitor and improve guests’ experiences on-site; I get a survey request for pretty much every hotel stay these days.

This makes NO SENSE.

Customers are the core of any business.  Without them, you’ve got a big bag of nothing.  Yet many companies – including some in this space – outsource the absolutely-critical business of talking with customers to some outfit on the basis of how cheaply they can get calls answered, how many calls can get answered how fast and other “metrics’.

Where’s the metric for “pissed off customers”?

There are processes and workflows that are not core, or central to a managed care business – maybe telecommunications, real estate management, accounting/auditing (perhaps).  But talking to your customers? How is that not the most important thing your company does? And why would you not want to have absolute, complete, 100% control over that at all times?

My sense is the reason we see outsourcing of call centers in managed care services is the ops folks are focused on keeping costs down.  That’s fine, but it ignores the overall importance of customer interactions.  It is very, very hard to acquire new customers, and very expensive to boot.  Cost of sales is escalating in this business, making customer retention critically important.

I’m aware of a couple firms that went to outsourced call centers only to reverse that decision and internalize the function.  My guess is the cost per call went up, and customer satisfaction went waaaay up.  Kudos to those companies for recognizing a problem and fixing it quickly.

What does this mean for you?

Figure out what’s important, and do it yourself.

17 thoughts on “Outsourcing customer service – I don’t get it.”

  1. Joe, while I agree with you about the importance of customer service, it just isn’t a priority with most companies anymore. Yeah, they may give lip service to their commitment to service but as you “peal away the onion” most results are measured on short term profitability. Those things Tom Peters preached to us in the late 80’s were erroneous! Most of those service companies he touted are now gone! As a consumer, I will pay more for consistent, proven customer service but most likely I am in the minority!

  2. Joe you are so right. In the managed care space we spend big bucks for outcomes based networks but when it comes time to help the injured worker access care its slap dash at best.

  3. Spot on, Joe. Companies can clearly be their own worst enemy, both inside and outside of the comp space. What I can’t figure out is why the matriarch of the vast and extensive Paduda Empire would want to stay at a Hilton Garden Inn, near the Sacramento airport, no less.

    Although truth be told, my wife has stayed at a few, but my empire is not nearly as impressive……

  4. Do it yourself indeed! John you make a great point. At the risk of goring a few oxes, it is our position that much of the problem that Joe describes depends on who is considered the customer. To the UR vendors, bill reviewers, PPO/MPNs, PBMs, ancillary networks, case management companies, the IMR and IBR vendors….heck, all of the managed care services in comp…and even to some claims adjusters it seems…the customer is the payor, not the injured worker or the physician on the other end of the phone needing help or making an inquiry. In fact, in our experience, those calls are often treated as somewhat of a nuisance and distraction from getting “work” done. The Employer Fraud Task Force here in California produced a great video that illustrates this point. Joe, we would agree that much of the $6.45 Billion (38% of all claim costs according to the Commission on Health and Safety and Workers’ Compensation) spent here in California on cost containment services and other loss adjustment expenses would be better spent elsewhere – on benefits and lower premiums for example. We would also suggest that better, more direct communication between (better educated, more trusted and better paid) claims adjusters, the injured worker and the medical provider(s) involved in rendering care is a great place to begin.

    1. Steve – thanks for the comment.

      You aren’t seriously suggesting that “much of” the total expenditure in CA for cost containment AND claims adjusting expense would be better spent elsewhere?

      This is especially confusing as you then advocate for better paid and better educated claims adjusters.

      Cost containment expense, while too high in CA, is certainly not the major component of admin expense, and to infer otherwise is misleading at best.

      While it is abundantly clear that percentage-of-savings based network access fees help increase – not reduce – costs, I’d suggest that abusive practices by some providers – SOME – requires careful monitoring. See CWCI reports on opioids, overuse of spinal implants, self-referral, overuse of drug toxicology, physician dispensing and on and on ad nauseum.

      1. Joe, Thank you for making a good point. Let me clarify. It is well publicized that California’s Workers’ Compensation Insurance Rating Bureau (WCIRB) has identified the costs of cost containment services as the fastest growing category of claim expense for a number of years in a row. How much are those costs in actual dollars compared with what is paid to adjusters? I am not aware of a source for that comparison on a company by company basis. I’ll go out on a limb to say that it might be an interesting horse race between what is spent on vendor service fees and adjuster payroll. Regardless, “better spent elsewhere” often means reallocating the money to a more effective use within the category. For instance, it may be better to shift what is spent on an ineffective cost containment program, to better educate and better remunerate adjusters so they could exercise better, more direct, customer service.

        If each managed care vendor could accurately and without caveat, report its ROI – not compared to its competitors, but the ROI to the claim file – as with your experience with the hotel reservation service, many if not most, might not fare very well.

        However, I thought your point was that releasing responsibility for customer service needs to be rethought and customer service might be better off being handled in-house. For carriers and TPAs, claims administration is the service and the adjuster’s customer is the injured worker (and somewhat by extension the physician and others – behind the counter pharmacists for example – charged with his/her care and return to a productive lifestyle). With so many vendors between the adjuster, the injured worker and the care delivery system, it seems cost containment services would be a good place to begin looking at the cost effectiveness of their “customer service.” Where patient (customer) satisfaction and economic ROI are positive, that “customer service relationship” could be retained. Taken together or individually, if either factor is, as you pointed out in the hotel example, costing more than it is worth, then those services should be performed in-house…by the adjuster, not a surrogate.

        1. Steve – it is not possible for adjusters to do everything now demanded of the adjusting process.

          As a provider advocate I’m surprised you don’t understand this. Would your physician employers accept guidance from claims adjusters on how best to deliver care and what care to deliver? Many don’t, forcing payers to involve clinicians in medical management, and doctors for appeals.

          I’m sure you know that.

          The complexity of medical care, the creativity on the part of some in optimizing location, type, modality, and coding of care, the rapidly growing workers comp profiteering, all require unique expertise.

          That is why payers rely on experts in different areas, both internal and external. In many cases “cost containment” expense is “paid” to internal staff; medical directors, claims case managers and the like.

          Lastly, please don’t take my words out of context. I did NOT say patients are customers, or providers, or employers for that matter. Moreover, there is ample evidence that claimant satisfaction and appropriate conservative medical care are not always the same. Many patients want drugs or treatments they should not have – oxycontin being one prime example.

          1. Joe,

            Your statement that adjusters “can’t” should be expected. If they “could,” the industry wouldn’t need the huge infrastructure built to “help” them and the costs of cost containment wouldn’t be the fastest growing cost driver here in California. Why not train people and pay them so that they can do more than they do today? The complexity of which you speak is “self-made.” I believe it was the comic strip character Pogo who said, “We have met the enemy and it is us!”

            My initial comment included shifting money to better training. And, yes, if adjusters were properly trained and communication with them was set up more directly, I believe more providers would have the kind of relationship – either in person or as part of agreed upon protocols – that would streamline not only the communication, but the entire delivery of benefits. Often, but not always, the reason a provider may not take the adjuster’s guidance is that the adjuster doesn’t have enough training to know what they are talking about. Just as likely, they may be precluded from using their smarts by corporate protocols that take decision making away from them. The “early days” of utilization review in California come to mind. Fortunately or unfortunately, I am old enough to remember when adjusters did know what they were talking about and the relationships they had with the physician community were night and day above the present time.

            As to who receives the payment for the cost containment services – I agree, very often that money is paid to internal operating units whose costs are charged to the claim or they are “plain wrapped” vendor charges. Regardless of the business model, the services rendered are marked up, sometimes well above market simply because the costs are accounted for internally and not even the premium paying employer sees them. TPAs are a little more transparent than carriers, although not always. I am personally aware of one TPA that marked up telephonic case management fees nearly 100% above the vendor’s fees before charging the file.

            I apologize if you understood me to take your words out of context. The reference to injured workers being customers of the adjuster was mine and I still believe it to be so. At the risk of being repetitious, I will again suggest viewing the Employer Fraud Task Force video that compares a very good claim professional and a not so good one with predictable results. I guess the results are predictable until someone has to decide how much to pay and to train the professional adjuster enough to do the job well.

            Although I have not read the entire study, the California DWC has just issued their most recent medical care access study wherein it is claimed that something like 85% of injured workers reported satisfaction with their care. Your statement that patient satisfaction and conservative care are not always the same is a truism. Of course they can’t be the same 100% of the time, but 85% satisfaction (if it holds up) is pretty darn close.
            If I understand your point about those who try to cheat, over medicate, profiteer (including a few payors I am sure) and such, it is a shame that such a huge infrastructure has been allowed to grow around people who want things they shouldn’t have. How did this happen? It seems a little like a government wondering why its people have become dependent upon it.

            This discussion has gone full circle. At the beginning you rightly made the point that customer service (whoever you call the customer) might be better accomplished in-house and done right. However, after a couple of days, we’re now talking about justifying a huge cost containment infrastructure as being absolutely necessary because those who ought to be customer service experts can’t do the job in today’s environment.

            That’s what I don’t get………..

          2. Steve – thanks for the comments.

            Re training and the role of the adjuster, you miss my points.

            1. Medical care itself has evolved enormously since you first encountered an adjuster, making it impossible for any adjuster to stay abreast of or even become reasonably familiar with trends, much less have any idea if some new treatment is appropriate or necessary. Moreover, the tremendous financial power of the physician and medical service/drug/device industries are far more powerful and influential – see the daVinci campaigns, physician dispensing, the Purdues and Cephalons, Medtronics and H-Waves. There is so much money and profit in delivering more and more stuff to injured workers that it is impossible for medical directors to keep up, much less adjusters who have 150+ cases – or even those with 50.

            2. As I noted, your docs do NOT take kindly to adjusters questioning their medical management decisions. There is clear and compelling evidence that many doctors’ overprescribing of opioids, overuse of spinal implants, off-label prescribing of medications (Soma just one example, a drug that is BANNED in Europe), self-referral for PT, imaging, and other services is driving up costs and extending disability duration. Yet you ignore the reality that docs don’t respect nor even – in many cases – respond to adjusters. And please, don’t tell me that’s because the adjusters don’t have enough training. It is because many docs can’t fathom how anyone could question their judgment, however motivated.

            I’d note I have often questioned cost containment and the benefits thereof, taking the industry to task for outrageous costs for networks and TPAs’ self-dealing. If you want to be credible, you have to acknowledge the issues on the part of the treating community.

            If you’re willing to do so, I’m looking forward to it.

  5. It warms my heart to see that there are still a couple of us guys married over 25 years that refer to our spouse as our bride! Good for you, Joe! Give my best to your bride….

  6. Very good article with which I wholeheartedly agree (maybe because I have been married for 37 years now?). But I will mention a related concern that I have with the public health exchanges – the model under ACA will have ‘navigators’ and ‘assisters’ who are employed by a variety of separate employers; it will involve multiple federal and state agencies and groups of employees; and none of which are likely to have a consistent idea as to who is the ‘customer’ or what is the ‘service’. While I am not generally an opponent of the concepts in ACA (a/k/a Obamacare) my experience operating TPA services in the Taft Hartley world and as a corporate benefits manager with some exposure as well to workers comp (my bride worked for years with workers comp law firms) I just see an inevitable problem in the public exchanges with the rollout of communications and a high degree of dissatisfaction from those the law is intended to reach.
    And you are right about the metrics – having developed metrics for answering calls have had discussions with firms like Amazon about the metrics – and again the emphasis is always on ‘speed to answer’, call length, calls on hold, dropped calls, etc. Have yet to see a metric focused on customer satisfaction (or dissatisfaction) – and yet we have thousands of highly educated MBAs in high level executive positions (I plead guilty to having an MBA) who just do not get the idea of customer satisfaction.

  7. Agree —but let me ask everyone this pricing question. Do you shop and always pick THE lowest price for a hotel or airline ticket? If you do, you’re not paying up for good service and you’re feeding the cost cutting beast.

  8. it always amazes me that it is easier (and faster) to rent a car than to rent a hotel room. I can arrive at the auto rental company, get into the car, show my drivers license sign the sigh sheet and drive off in less time than it usually takes me to rent a hotel room for the night). It is not like am taking the room onto highway 5 and putting it at risk. Hotels still have not cought on to the fact that once I leave; the room will still be there.

  9. Joe,

    Yup, I agree. There are a few firms I will avoid or try to limit my exposure to => most PC products, HP products that use Microsoft Operating systems, Quicken, Air Canada due to their off shore call centers.


  10. From a well-traveled colleague…

    Been there, done that. (You’re bride isn’t patient– she’s a saint– but that’s another matter.)

    I put this phenomenon down to the Mother of Perverse Incentives– silos. Managers do stupid things when they are rewarded based on narrow metrics internal to their little slice of the organization but the costs– like pissed off customers– show up on someone else’s ledger. I had a magnificent example of this many years ago. (Redacted) (remember?) was doing a great job of hospital bill audit for (redacted). The real ROI was running 8 to 1. We were throwing free money at (redacted). Then they cancelled the program. I asked why. The managed care department was required to cut costs 10% immediately and they paid our piddly little bills. The recoveries went to Underwriting, so managed care had no offset to post against our service fee. So (redacted) went merrily forward paying many thousands of dollars more for hospitalizations thinking they were saving money– all due to the high walled silos that put costs one place and savings in another.

    The old (name redacted) healthcare organization did this one better back before (redacted) bought them. They had developed a very good, state of the art UR program that worked extremely well. But the Claims department needed to increase claim volume throughput, so they instructed the adjusters to ignore the UR results since this caused extra activity and slowed down throughput. Claims dumped all of the UR output (unbeknownst to the UR unit) to increase processing speed. The manager of Claims got a nice bonus for improving claims efficiency. Honest– I was there.

    I see this every day. It is a function of institutional bandwidth being woefully inadequate. No one sees the whole picture. No one is rewarded for seeing the whole picture– just a few pixels here and a few there.

    Narrow thinking kills (slowly).

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Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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