Firms Unbundle TPA Services – Uncomfortable With Markups Charged By TPA’s

“……..A few years ago, however, he changed TPAs to eliminate hidden charges and gain direct interaction with the managed care company with which his undisclosed TPA contracts.”……………”For example, he now pays a flat amount per bill for fee schedule bill reviews, rather than paying on a percentage-of-savings basis.

“The fees per bill were just outrageous compared to what I am paying today,” Mr. Tilley said……………….”

More risk managers at large companies are scrutinizing the value of workers compensation managed care services and opting to “unbundle” those products rather than purchase them from third-party administrators, several sources said.

Rising claims expenses and a desire for optimal medical management are fueling the trend. So is growing concern that charges for workers comp managed care services—such as utilization review, case management and bill review—often are obscure, especially when a TPA adds its markup for “brokering” the services, they added.

The medical and indemnity expense portions of a claim are easy to dissect, said Michael J. Tilley, vp of workers compensation for Kelly Services Inc. in Troy, Mich. In contrast, loss adjusting expenses for managed care services can be difficult to unravel, he said. “It’s like a Pandora’s box,” Mr. Tilley said. “That lack of transparency says, “What am I buying and what am I getting?’”

Mr. Tilley purchases workers comp managed care services through a TPA. A few years ago, however, he changed TPAs to eliminate hidden charges and gain direct interaction with the managed care company with which his undisclosed TPA contracts.

For example, he now pays a flat amount per bill for fee schedule bill reviews, rather than paying on a percentage-of-savings basis. “The fees per bill were just outrageous compared to what I am paying today,” Mr. Tilley said.

Most large self-insured companies procure their managed care services through a TPA, said David Donn, president of David Donn Consulting Inc. in San Francisco. But more large employers are looking to purchase directly from managed care companies rather than buying the services through a TPA, Mr. Donn said.

That trend still is developing today because some employers are uncomfortable with markups charged by TPAs, although Mr. Donn said he began noticing more companies taking interest in the strategy two to three years ago.

More large, self-insured employers are seeking to eliminate costs by unbundling managed care services, such as preferred provider networks, said Mike Farrand, workers comp medical cost containment director of the strategic outcomes practice for Willis Group Holdings P.L.C. in Radnor, Pa. “I have seen a lot more (unbundling) activity in the last three years and it’s going to continue as people become more educated about those costs and how they can control them,” Mr. Farrand said.

In addition to cost concerns, employers demanding better medical management and return-to-work outcomes are driving the trend, Mr. Farrand said. While very large corporations have unbundled, or purchased directly from managed care vendors rather than a TPA, regional companies also have applied the approach.

St. Joseph Health System in Orange, Calif., which employs 24,000 workers in three states, unbundles case management, bill review and utilization review, rather than buy the services through its TPA, said Judie Tsanopoulos, the health system’s director of workers comp and loss control. “It gives me a far better opportunity to manage the relationship, set the expectations and get the things I want rather than getting an off-the-shelf product,” Ms. Tsanopoulos said.

While some dollar-driven employers unbundle mainly to “pull apart” and scrutinize managed care expenses, most employers do so to achieve optimal medical management and improve return-to-work outcomes, said Paul Glover, chairman and CEO of ISG Holdings Inc., which owns Lakeland, Fla.-based Bunch & Associates, a workers comp managed care company. “That is what some of the largest employers are doing now,” Mr. Glover said. “They want to make sure it’s done appropriately.”

Those employers are pressing his company to prove the value of specific managed care interventions, such as utilization review and case management, Mr. Glover said. In some cases, employers delving into the value and return on dollars spent on utilization review and case management are moving to providers willing to help them understand at what point in the life of a claim that those services may be most effective, Mr. Farrand said.

In general, employers are asking more questions about the cost and effectiveness of their managed care services because allocated expenses are on the rise, said Paul Braun, managing director of casualty claims for Aon Global Risk Consulting in Los Angeles. Additionally, the application of managed care techniques to address workers comp claims costs has matured, Mr. Braun said.

While employers previously may have simply accepted that they needed an array of managed care services to drive down costs, today’s “clients are saying, “I really need to understand it and is it saving me money, because it’s a big driver of allocated expenses?’” Mr. Braun said. Purchasers also are scrutinizing managed care costs more closely out of fear that as growing unemployment reduced the volume of claims, TPAs and managed care companies generated revenue by driving up allocated expenses charged to employers, several sources agreed. “Everyone is looking for revenue,” Mr. Braun said.

Questionable charges, however, can occur whether purchasing services directly from a managed care company or through a TPA, Mr. Donn said. The providers, for example, might log multiple utilization review charges to determine whether a claimant needs certain pharmaceuticals and surgery—even though both determinations can be accomplished in a single review, Mr. Donn said. But inappropriate charges—including “overutilization of utilization review”—are more difficult to uncover when “you have an organization separating you from the managed care company,” Mr. Donn said.

Editor’s Note: It makes sense to unbundle services and directly contract with each entity. To do otherwise usually costs much more, is less effective, and lacks transparency.

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