The Power of Incumbency During A Pandemic

By Molly Mulebriar

Third party administrators (TPAs)  have always enjoyed the power of incumbency and it has never been greater than now.

With the advent of the Chinese Flu pandemic there has arisen a widespread fear of looming death with passage to the other side gripping the American psyche into hibernated withdrawal. Incumbency and hibernation are twins.

Adversity to change presents opportunities for TPAs to an extent they never had before.

Smart TPAs recognize there is a silver lining to the Chinese Flu pandemic. They have concluded there are opportunities to increase their revenues through the power of incumbency.

Plan sponsors are paralyzed with fear. Inaction rules the day. Changing TPAs is not something they want to mess with these days. They have more important things to do like struggling to survive, making payroll, paying the bills.

TPAs understand hibernated inactivity presents a golden opportunity to finally get paid what they are worth without having to resort to revenue sharing with associated vendors.

In the good days of old, to make up for their traditionally low fees, TPAs historically made damn sure they gain revenue from everything they touch, from PBM to Managed Care networks and to just about everything else.

But with recently enacted transparency laws, some third party intermediaries fear the sunshine effect will be turned towards them and will be so intense that not even the designer sunglasses will help hide the glare of egregious skimming practices common within the insurance industry.

One Texas TPA we’ve investigated in the past has taken that strategy to amazing lengths by adding a per-claim check writing fee, inflating aggregate factors and calling the difference an “aggregate accommodation factor”, skimming off PPO discounts, PBM add-on fees per Rx dispensed, bonus on inflated stop loss premium numbers, and padding of subcontractor’s invoices all of which are on top of their TPA PEPM fee. We have seen these fees add up to $75-$100 PEPM equivalent and more whereas a typical TPA admin fee averages $18 – $25 PEPM.

According to insurance veteran Homer Farnsworth, going all the way back to the 80’s and 90’s, TPAs have undercharged plan sponsors on their fees because they could afford to do so with all the back end and mostly undisclosed revenue streams paid to them by willing partners. A $12 PEPM TPA admin fee back then now averages $18 – $25 in today’s market but backend fees can amount to three, four or five times more.

“In our opinion, with all the work TPA’s must now do to satisfy strict government mandates plus all the other work they must do, a $50 PEPM TPA fee may be appropriate to the exclusion of all back end revenue sharing schemes” said Farnsworth in a recent interview with CNN.

“Plan sponsors may find that paying a $50 TPA admin fee will actually save money as long as they insist on fee transparency and removal of all revenue skimming schemes” Farnsworth continued.

During these times of face masks, sanitizers and home confinement a few if not most TPA’s will take advantage of their power of incumbency as never before. Plan sponsors are adverse to changing TPAs in the first place and now that the Chinese Flu pandemic has sown the seed of inaction towards change TPAs can increase their fees at will to what they should be without the necessity of moving the invisible multiplying bean through slight of hand to bulging back pockets.

Plan sponsors will be hard put to not accept these increases.  The tradeoff is ending the common industry practice of skimming plan assets through third party intermediaries.

Before making a decision to accept a higher admin fee a plan sponsor would be wise to check back pockets.

Molly Mulebriar is an investigative reporterette and an infrequent contributor to this blog. She resides in Waring, Texas with her dog Jack.