By Jim Arnold CEO & Founder of finHealth
Negotiating that contract with your third-party administrator (TPA) can be tricky. The big carriers literally have an army of lawyers who are fanatical about protecting these pseudo-monopolies from being held accountable for weak performance. Here’s a few suggestions on your end to safeguard your organization & enable you to properly oversee your self-funded plan unencumbered by tricky legal jargon & unfair, onerous restrictions.
Be clear about who is the OWNER of the claims data for YOUR self-funded plan
First & foremost, you must establish that the healthcare claims data belongs to YOU! As a self-insured plan, you are the fiduciary for your health plan and ultimately responsible for compliance with all applicable rules & regulations. That can’t happen when the TPA refuses to send you your own data, or as we found out one time, tried to charge our client $30,000 to gain access to their own data. Further, don’t let the TPA confuse things & somehow try to commingle your healthcare data with their “business practices” or “confidential information” to give them ownership rights over it.
Many of their internal control practices would not withstand public scrutiny & they’d like to keep those facts hidden. Even if you’re not ready to analyze or audit your healthcare claims records, we recommend setting up a periodic data feed back to you (weekly/monthly/quarterly). These are YOUR critical financial records & you will serve as a far more conscientious custodian of the data than your TPA. On a recent audit, we requested historical coverage records for a client’s employees, spouses & dependents, & were told by the TPA that the records were inadvertently “lost” & couldn’t be retrieved.
ALWAYS Protect your audit rights
Your audit rights are absolutely CRITICAL, as you are “on point” as fiduciary for your self-funded plan. These audit rights are there not only to ensure compliance with applicable rules and plan regulations, but to ensure that the TPA is acting as an effective steward with your money. After all, you are essentially handing over your healthcare checkbook to the TPA, and asking them to be the ultimate decision maker around what healthcare expenses you will pay and not pay, what price is considered a “reasonable” one, and exactly how your employees and their families medical expenses are going to be reimbursed.
Check to make sure that the TPA hasn’t inserted language in the audit clause that enables them to “veto” the use of your chosen audit firm. They’d much prefer to offer one of their own “captive” audit firms, a benefits consultant who only tests compliance versus financial performance, or a CPA that knows very little about medical billing. None of these players pose a threat to the TPA’s reputation, as they are unlikely to find significant overbillings. Many of these players only take a statistical sample, but are precluded from extrapolating the results to the population. In this day and age of automation, why would anyone want to sample when you can test 100% of the transactions processed?
In the case of the “captive” audit firms, they don’t work for you the client. They operate under the whims of the TPA, and tend to be too financially beholden to the TPA to call out weak or ineffective performance. Other restrictions that need to be stricken from the agreement include:
Go for FULL DISCLOSURE of all fees!
Additionally, we strongly endorse the need for “full disclosure” of fees. Many folks mistakenly believe that the “per head” charge quoted in the contract represents the primary compensation that the TPA is receiving for their services. We have identified at least 6 other “revenue streams” that your TPA stands to profit from directly, or indirectly through one of their affiliates / subsidiaries. These include:
We strongly recommend an itemized listing of ALL compensation streams, delivered on a monthly basis. Additionally, if you’re one of those companies who doesn’t pay your broker/consultant directly, we recommend that you reconsider that practice. While there may be budgetary advantages for you to operate in this manner, we believe it represents a potential “conflict of interest”. Do you really want your TPA to be the party compensating your broker/consultant when they are supposed to be working for you? We recently had a very frank discussion with one broker who told us that they were “independent” because they received the same cost per head for both Blue Cross Blue Shield and UnitedHealthcare. When we asked them the next logical question which is “Which TPA do you prefer to work with?”, they responded, “we like UnitedHealthcare because they send me and my family on nicer trips”. There goes their objectivity right out the door.
Clarify Who’s on Point at your TPA for Measuring & Enforcing Performance Guarantees
Let’s talk performance guarantees. They sound like an awesome idea, right? But question number one is, who is defining what is “effective performance”? Just as importantly, which party is measuring these results to verify performance? If the TPA is filling out their own report card, don’t be surprised if they never fall short of the target, and if they do, you can be quite sure they will NEVER report sub-par performance on any measure that has financial penalties associated with it. We recently worked with one firm that had a guaranteed 94% accuracy. The TPA processed upwards of about $100 million in claims annually, & this essentially provided them a “get out of jail free” card so long as our client couldn’t find at least $6 million in errors. And how could they possibly find $6 million in errors with no access to their data, only 5 days to audit & a limitation to pull no more than 250 claims?
Any performance guarantee that you embed within the contract needs to be clearly enforceable by you & have significant “financial teeth” in it. That is, sufficient financial teeth to make sure that the TPA will dedicate the needed resources to achieve or surpass the guaranteed performance, or suffer significant financial consequences if they miss the mark.
Make them treat it like it’s THEIR money!
At the end of the day, you as a client want the TPA to treat YOUR money as if it’s their own. In order to create this level of financial alignment, the TPA needs clear guidelines as to responsiveness to client requests. Additionally, when they do drag their feet in complying with straightforward requests for answers and/or supporting documentation, the financial penalties should be painful enough to minimize the risk of them falling short in the future. Here’s a few items we like to see addressed in the contract:
There you go! Five recommendations from finhealth for you and just in time for your renewal. Good luck in negotiating a fair and even-handed agreement with your TPA, and give us a call when you’re ready to make sure that they are living up to their end of the bargain!