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In The Public Eye: Common Mistakes When Considering a Third-Party Administrator (TPA)

By Alliant

For many public entities, the largest total cost of risk (TCOR) driver is claims costs. Implementing ways to control those costs not only reduces claims spend, but impacts renewal premiums as well. Carleen Patterson and Keith Brown, Alliant Public Entity, discuss ways to control costs, starting with how you choose your third-party administrator (TPA).

Intro (00:00):
Welcome to the Alliant In The Public Eye podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here is your host, Carleen Patterson.

Carleen Patterson (00:18):
Welcome back everyone. To another episode of In The Public Eye. We have been tackling many of the issues facing public entity, risk managers, and a lot of these issues are things that you have very little control over - weather events, global warming, the difficult insurance market. So, what we want to do for the next few months is do several podcasts, talking an area of risk management, where you, as risk managers, do have more control. And that is on the workers compensation area. Whether it's implementing risk control measures to prevent a claim or managing a claim after it's incurred, these are ways you can direct and impact your total cost of risk. For most entities. The largest piece of your total cost of risk are the claims costs - what you're paying within your retention. There's about three different ways that you can manage worker's comp claims. You can either have a carrier managing these claims within a deductible or guaranteed cost program.

We have clients who are self-administered, where their employees are managing the claims, or they outsourced the claims management to a third-party administrator or TPA. Our first workers comp focus podcast is focusing on the third-party administrator and the common mistakes that are made when hiring a TPA. Other podcasts we will do on workers comp will focus on program decision making and whether or not to hire a TPA and what the future claims work environment looks like with the new normal that is our virtual working environment to tackle our first subject on the common mistakes made when considering your TPA. I've invited Keith Brown to join me. Thanks so much for being here. Keith,

Keith Brown (01:58):
Thanks, Carleen. Glad to be here.

Carleen Patterson (02:00):
So, Keith recently joined Alliant in our Public Entity Education and Pooling Team, and we are excited to have him. Before we dive into the issues with the TPA, do you want to talk a little bit about yourself and your history with the TPA world?

Keith Brown (02:16):
Oh sure. So, I've been in the insurance industry for about 30 years prior to joining Alliant. I've worked for a TPA for about 10 years as a senior account executive. I also have extensive background as a claims adjuster for private and public entities, as well as TPA and the carrier side.

Carleen Patterson (02:35):
Well then, I invited the right person to talk about TPAs, that's for sure. So, I have a little bit of a claims background myself and have worked with many of the national TPA firms, as well as some of the smaller regional firms. And I have found that there's a lot of inconsistencies when it comes to the kinds of services, the kinds of pricing that the different TPAs charge. And so, I kind of have my own opinions on what some of the biggest mistakes are. But what do you think, based on your experience working with your TPA background, that clients make when they're selecting your TPA partner?

Keith Brown (03:13):
Well, you know, there's quite a few things that can hit that list. Just simply choosing the lowest fee on a bid is not a great idea. So, it's really important to know in that RFP, what is the bill review going to look like? How is it being priced? What's the difference between the flat fee versus the proclaim rates and then there's the cradle to grave? So how are we going to know, do you want these claims handled until they're closed out or just until the contract runs out?

Carleen Patterson (03:44):
OK. So let me dive into a couple of these examples. So, cradle the grave, explain that to me.

Keith Brown (03:51):
So, there's two main differences here. When we have life of contract, when you ask for a life of contract pricing where the adjuster and the two TPA will only handle those claims up until the time that your contract expires with them, generally that cost for the claims are going to be less. Now, if you're looking for cradle to grave and you want to have that TPA continue to handle that until it is closed, resolved, and settled, even if you're not working with them anymore, under a contract, that pricing will be higher. So, you've got to make a decision - what's important to you? And one thing to consider there is if you're not happy with your TPA service and you're looking to leave them because of that, you probably don't want cradle to grave.

Carleen Patterson (04:36):
Well, that's really interesting because if it's in the solicitation and you entered this contract hoping that you're going to have a long relationship with that TPA, it's a little awkward to say, well, I just want life of contract versus cradle to grave. So, I don't know. It's a little awkward. So, what do you see most time?

Keith Brown (04:57):
I usually see the life of contract in the public entity side. Typically, I'll see that now, if they decide there is that potential a TPA could, you could negotiate with them towards the end of a contract. If you wanted them to keep those claims, then they may charge you at that time. But they're not obligated to if you chose life of contract only.

Carleen Patterson (05:17):
All right. So, if you have a five-year contract and it goes out for RFP and the TPA win again, so they have another five-year contract, how is it, how are those claims that were on the first contract contemplated in the second contract?

Keith Brown (05:30):
Well, those claims should have already been paid for, okay. The ones that are open.

Carleen Patterson (05:35):
All right. So, if they're open and you paid the life of contract, even if that contract gets extended, those claims keep the getting handled. Even if they're not closed.

Keith Brown (05:44):
Yes. Let's say if you're on a proclaim basis, then you should only be paying for the new claims that have occurred after the new effective date.

Carleen Patterson (05:52):
OK. See, there's a lot of nuances to a TPA contract and I think that's where it really gets confusing because at the end of the day, we really do want, when we're reviewing responses, to make sure that the TPAs are being based on, or compared based on apples to apples. And so, it's really interesting how you put that out there.

Keith Brown (06:14):
Yeah, that's true, Carleen. And you know, as a guideline, when we talk about TPA, I like to use this acronym for third party administration to describe some of the most important things to expect from your TPA, especially when you're doing an RFP and looking for a new TPA. So, we'll start with T -transparency. So important. Your TPA is expected to be a good steward of your funds. And so, their price and fees, they should be clearly defined as well as the ancillary fees being charged from vendor partners, et cetera. The P, I say is for proactive approach. You're hiring a TPA to assist you with your total cost of risk, which in turn will reduce your overall cost of your program. So, you know, this starts with the TPA team being P when a claim occurs, to be timely with initial contact follow through as promised. So, this will help to avoid any unwanted legal representation. If, for example, an injured worker, they don't feel like they're being responded to, they're going to seek an attorney's help. It's going to potentially delay your claim process, and it's certainly going to increase the cost of your claim and for accountability. So, nobody's perfect. No TPA is perfect either, but there needs to be a great amount of trust on both sides. And when your TPA makes a mistake, they need to recognize it, remedy the situation, and have a plan in place to avoid similar future events, as well as pay any penalties that have been issued for their mistake. Now, for example, if they didn't file a certain worker's comp form with the work comp commission, the timely fashion, and there's a penalty, they should pay that.

Carleen Patterson (07:50):
Yeah, I totally agree that every TPA needs to be held accountable. And that's again, why the contract, the scope of work is so important that kind of information needs to be memorialized. So, when you go back and look at how a TPA managed your contract, did they manage it according to industry best practices? Did they manage the claims in accordance with what they agreed in the terms of the contract? So, it's really important. And so, I like that acronym and it works really well. I'm going to throw something at you, Keith, and ask you, you mentioned under transparency, what the ancillary fees are that are being charged. So, we talk about bundling versus unbundling of services. So, what are some of those services that are included in the bundling or unbundling? And what do you think the right answer is?

Keith Brown (08:42):
That is a good question because every TPA is a little bit different. When we talk about medical bill reviewing and managed care, some TPAs have, they own their own medical review system, and things can be tweaked different ways. Those that have vendors, they have a contract, and there's a certain fee that is charged and not as much wiggle room, if you will. So that, that can be tough. I know some folks like to have the TPA unbundle their managed care services, which a TPA typically doesn't want to have that done, because that's where they do make, rightfully so, if they have a good system and they're saving you money, if they can save you money on a large medical bill and they ask for a certain fee and its reasonable fee, and I don't see why they shouldn't get paid for that, they have a system in place. If the public entity doesn't have that, then they'd be paying the full fare of that bill.

Carleen Patterson (09:37):
All right. So, I guess it's another good conversation to have either before you put your RFP out or to have it during the RFP process to find out how that those little ancillary services are being charged and how they're being contemplated by the different respondents. So, there's just so many aspects that we could talk all day, Keith, and so I'm looking forward to some of the other chapters, but before we close up today, is there any closing thoughts you have before we wrap up?

Keith Brown (10:09):
Well, you know, Carleen, I think the biggest takeaway that I want people to have today that are listening is that in order to really have a great partnership with your TPA, you need to treat them as part of the team and to really get to know the TPAs culture and the folks that you work with on a daily basis. I mean, a mutual respect for one another is so important to build the best team possible. I mean, after all, you're all working towards the same goal.

Carleen Patterson (10:32):
That is true and driving total cost of risk, having a TPA partner with you to understand what you are doing from a claims management perspective and trying to reduce claims and reduce incidents is really critical. So, I totally agree with you. Well, my thanks to you, Keith, for joining today, we recognize its challenging time to be in public entity risk management. And as always, we focused on providing continued information and resources as we navigate 2022 and beyond.

Outro (11:04):
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Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.