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Pay to Play – Just because you haven’t seen it doesn’t mean it isn’t real

Friend and colleague Bob Wilson has penned a piece essentially dismissing my claim that pay-to-play exists in the work comp services world.  Responding to my series and a great column from WorkCompCentral’s Dave DePaolo, Bob said:

my impression is that major, blatant “payola” in workers’ compensation is rare. At least it has not existed within my personal experience.

In fact, my impression has been completely the opposite.

Bob’s a lucky man, fortunate indeed to not have encountered this sleaze.

I do know of several instances where it has occurred, and Dave described one in detail. And I am convinced there’s a lot more of this than the few instances Dave and I have heard of.

The fact that someone doesn’t know about them isn’t a surprise; by their nature they are entirely secret. If and when these transgressions are discovered by the payor, there is no reason for the payor to publicize the finding and every reason to cover it up. Such is the nature of white collar crime.

I’ve had several conversations with vendors after my series of posts where they described veiled and not-so-veiled requests for services, trips, and other consideration from buyers. It’s real, it exists, and the examples I cited are from conversations with individuals with direct knowledge of these events.

Some have asked why I don’t name names.  It is NOT my responsibility to do so. The entities paying these bribes are well aware of the practice yet choose to pay. I am not going to pit my meager resources against those of corporations with hundreds of millions in revenue and legions of lawyers at their beck and call.

That’s part of my disagreement with Bob’s column.  The other is that his piece doesn’t address the far more common practice of corporate pay-to-play.

Bob didn’t address the TPA industry’s common practice of charging fees to service companies to do business. That is ubiquitous, and was the subject of a rather contentious debate between Sedgwick CEO Dave North and I at the NWCDC several years ago. At the end of that debate, Mr North a) said Sedgwick doesn’t take much in the way of fees from vendors and b) agreed to share all his vendor contracts with his customers.

I lauded Mr North from the stage and in a blog post for his willingness to publicly offer to share those contracts with customers.  I don’t know that any contracts have been shared or any fee-sharing arrangements acknowledged.  I certainly haven’t heard about any such disclosure.

To be clear, I’d reiterate a key point made in one of my pay-to-play posts:

What’s not fine is not disclosing the fee-splitting arrangements between the TPA and service providers.  Actually, let me refine that – what’s not fine is telling employers no such splitting occurs when it does.  Some TPAs tell their customers that they get paid by vendors, and aren’t going to disclose those payments.  Again, that’s OK – employers know they are paying “extra” to the TPA for claims and related services, and they know they won’t find out how much “extra” that is.  Caveat emptor.

Based on his experience, Bob notes “Are we rife with corruption, with executives on the take and intentional efforts to defraud millions?
Of course not. ”

I suppose it depends on how you define “corruption” and “intentional efforts”.

What does this mean for you?

Employers, are you absolutely, positively, 100 percent certain you know what you are paying for claim-related services?

7 thoughts on “Pay to Play – Just because you haven’t seen it doesn’t mean it isn’t real”

  1. Joe,

    Having been on both sides of the transaction over my career I can tell you that there are often financial arrangements between TPAs and vendors. It happens because TPA customers refuse to pay for the full cost of claim handling along with a reasonable profit margin. So, TPAs are forced to seek out revenue from other sources. Ironically, TPA customers end up paying more for their “claim handling” with these back door arrangements than they would if they just paid the for the full cost of claim handling up front in their claim handling fees. In addition, not only are they paying more with the current arrangements but the TPA and customer goals (reducing loss costs and closing/settleing claims) are completely misaligned with TPAs making more money the longer they keep claims open and use their vendors.

      1. In Michigan, ‘rare’ is a term only used when ordering your steak or burger. PT Providers are contracted at a ‘max’ rate of $70.00 per visit by one major national ‘network’. Secondly, Michigan’s state WC fee schedule is generally not reimbursed either due to repricing exclusivity to another in-state PPO taking precedent and defaulting too.

        Providers are told $70.00 or your out of network and we can not refer to you. Medicaid reimburses better. Seriously. At least the in-state network reimbursed at $95.00 per visit.

  2. Dennis and Joe,

    I and likely others have a real problem with the concept that the “cheap client made me cheat” if I properly interpret the comment that TPA’s unwilling to pay a reasonable fee are somehow forcing their vendors to engage in subterfuge and if not break the law, at least behave unethically.

    Nobody forces someone to do business with a particular company and a vendor is free to decline an engagement. We are in service businesses based upon results overall, and not only price. Commoditizing something as complex as managed care services is a bad strategy and those who agree to unviable terms have nobody but themselves to blame, and certainly can not claim any moral high ground when they would obtain undisclosed payments from vendors.

    And let’s not let the vendors off the hook. Last time I checked, a vendor is paid by their client, not vice versa. The next time a vendor is asked to reverse the cash flow, a simple question to the requesting party along the lines of: “I am sure that your own clients are aware of this arrangement and you would not mind me verifying it with them..” should be quite instructive in terms of the response.

    Years ago I was asked by a TPA to be part of their ‘preferred network’ which would mean that in exchange for preferential referrals I would be asked to rebate 10% of our payments to them by way of a separate check. In other words, their corporate clients paid for us via a check in full, written on a corporate account managed by the TPA. The TPA would get an undisclosed 10% profit on our services. Had they asked for a discount which would be transparently passed on to their client, the client’s own checks would be smaller and likely thrilled with their vendor’s ability to negotiate with a vendor and reward accordingly. But there was no such intent of transparency. This would also create an added an incentive to order our services of a financial nature, rather than actual need.

    When I asked if their clients were aware of this and that I would need reassurances that they were before considering it, the conversation ended. By the way, the client did not stop working with us. Unfortunately as long as there are businesses willing to pay to play, those who are not may enjoy a moral high ground, but lower profits. So it goes.

  3. Just a simple clarification, if I may: I really had no intent, and in fact did not dismiss your claim that pay-to-play exists in the work comp services world – merely that I had never encountered something being portrayed as fairly prevalent. Secondly, I really was referring to the “employee based bribery” scenario, and not addressing overall fee structures of TPA/vendor relationships. On that point I am wholly unqualified to comment (that doesn’t always stop me, however).

    Finally, these transactions may indeed be secret, but my company sells services to these same entities you refer to. TPA’s and carriers are our biggest source of business. No one has ever tried to shake me down or demand “off the books” compensation.

    It is true that our products are a bit more unique, and are not “resold”, if you will, to employers via those companies, so I have no experience or direct knowledge in the payment structures you discuss.

  4. There is little need to argue over semantics. Even if the truth is less than ‘rampant,’ it is also certainly more than ‘none.’

    It is no surprise that Mr. Wilson and others haven’t been exposed to this side of the industry. The people and companies who do this aren’t dumb. The last thing that they would want is for Bob to write about them and/or their firms if they told him that he would have to pay-to-play. Can you imagine what that post would look like? It would take his already entertaining prose to a whole new level.

    People don’t come forward publicly on this stuff because they risk their careers to do so. It is unfortunate that some are quick to dismiss the concerns raised by Joe and David simply because they haven’t personally seen or experienced it.

    Nobody is disparaging the thousands of ethical and well-meaning people who work in this business. Quite frankly, most of them aren’t aware of this stuff…this is C-suite level among certain people and firms…tracks are covered and paper evidence is nearly impossible to get without a warrant. Who is going to name people under such circumstances?

    The best that can be done is to highlight the stories so that the industry can better police itself. To ignore the importance of bringing much-needed attention to bad behavior and misconduct is to be part of the problem too.

    We should at least agree that such arrangements (whether “rampant” or not) should be stopped and/or fully disclosed to employers who pay into the system. Vendors shouldn’t offer and payers (or execs) shouldn’t demand. The end…

    1. “Anne”,
      First, thank you for the comment regarding my “entertaining prose”. Very much appreciated.

      I certainly agree that today bad actors would want to keep their malevolent deeds away from me for the exact reason you cited – they could make excellent blog fodder. However, my company was in existence and selling services for a decade or more before I started my new “career” as a blogger. For many years someone could have easily attempted a shake down or payback without the fear of public retribution. But they didn’t.

      Nor was I dismissing the concerns of Joe and David. I was merely trying to provide another view, and put the issue into a bit broader perspective. The amount of feedback I am getting tells me I have struck a nerve on this, as many people were feeling as I did.

      We are in complete agreement, however, that where it does exist we should not tolerate it. All these anonymous people who keep calling Joe and Dave need to start speaking out, and refusing to participate. Otherwise it will continue unabated.

      After all, demanding a bribe for business is appalling. So is paying it.

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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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