TPA Management

A Marriage of Compatibility

Employers must select the TPA best equipped to manage employees' health and well-being.
By: | September 2, 2014 • 9 min read

For all that modern client and third-party administrator (TPA) interaction depends on technology, compliance expertise, analytics and efficient claims administration, the most important factor in its success is still the partners’ compatibility, industry experts agree.

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“It comes back to the relationship,” said Fred Hunt, active past president, Society of Professional Benefits Administrators (SPBA), a national association of TPA firms.

Since the client and TPA can interact daily on government compliance and such delicate issues as fluctuating reserves and claims escalation, “you have to like and trust your TPA,” Hunt said. “It’s like getting married.”

Scott P. Rogers, executive vice president, casualty operations, Sedgwick Claims Management Services Inc., agreed, since in many cases the self-insured employer, insurance collective, union or insurance carrier is entrusting the health of employees to a third party.

Scott P. Rogers, executive vice president, casualty operations, Sedgwick Claims Management Services Inc.,

Scott P. Rogers, executive vice president, casualty operations, Sedgwick Claims Management Services Inc.

“Companies hire TPAs when they believe the right partner can do a better job dealing with their most important assets, their employees, and their most important constituents, their customers,” he said.

Other than the bread-and-butter claims payment services, Hunt said, clients depend on “ERISA nerds” like his organization’s members to stay in compliance with complex, shape-shifting state and federal laws and regulations. “The TPA will call to say, ‘The IRS just issued this new reg, and we’re going to have to do this or that.’ ”

Companies may delegate because they don’t have in-house expertise, Hunt said, and penalties for violations can be devastating.

Size Matters

The right fit depends on a program customized to the company’s appetite for risk, cost threshold and company culture, said Rogers.

Size and scope matter also, said Richard Messick, specialist leader, Deloitte Consulting. “Larger companies may need a larger TPA with national or even global providers and regulatory experts. Smaller companies with only one or two local locations may do perfectly well with a regional TPA that doesn’t have the broad geographical reach of the larger companies.”

But Rogers said smaller clients, especially those who enhance their buying power by joining captive and affinity groups, such as public university insurance collectives, can benefit from the resources and expertise large TPAs may offer.

workinjury“The smaller clients get the same customization as the big companies,” he said, including access to a broad base of claims expertise, legislative updates and technology advancements. “It goes back to how the client and TPA partner together.”

Large or small, said Karen Stankevitz, managing director of consulting and analytics, Aptus Risk Solutions, all TPAs have strengths and weaknesses apart from the basic claims-payment services all provide.

“When you assemble your list of requirements in your request for proposals, don’t put down the basics,” she said. Instead, clients should figure out what they need beyond the basics, such as expertise and presence in all 50 jurisdictions or deep and broad contacts within the managed care community.

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“Look at their differences,” Stankevitz said. Aptus, a consultant specializing in medical cost containment, claims and litigation management, sees prospective vendors’ strengths and differentiators emerge in sales presentations.

“The more a client asks a TPA to do outside their standard services, the harder it is for the TPA to perform optimally, and the more it will cost to get those services.”

When comparing sales presentations, Aptus suggests that clients may see desirable services one vendor provides that the client may not even have thought about requesting.

Regardless of their size and specialty, prospective clients and TPAs should meet and get to know each other rather than depend on a broker to vet candidates, SPBA’s Hunt said. If possible, clients should pay site visits to their prospective partners’ locations.

Fred Hunt, active past-president, Society of Professional Benefits Administrators

Fred Hunt, active past-president, Society of Professional Benefits Administrators

Brokers, however, can and do play an important role in partnering clients with the right TPA, said Srivatsan Sridharan, senior vice president, product development, Gallagher Bassett Services. The broker compares the client’s exposure data (such as industry, state and job type) against outcomes from various TPAs to find those with the best track record.

For example, if a client wants to contain medical management costs, the broker could collect data on its exposure in a given state for a given type of claim, then superimpose it on a TPA’s discounts, outcomes and penetration for those bill types in the states where the client operates.

When vetting candidates, said Ivan Dolowich, managing partner, Kaufman Dolowich & Voluck, which specializes in professional lines of business, “it’s good to look at claims systems,” some of which are highly automated and specialized. The industry was slow to invest in technology, he said, and TPAs’ systems are sometimes better than insurers’ legacy systems that they developed on their own and adapted to the type of claims they’re handling.

“At the end of the day, actions speak louder than words. Employers quickly recognize genuine performance.” — Scott P. Rogers, executive vice president, casualty operations, Sedgwick Claims Services Inc.

Not all due diligence is so high tech. In the course of a bidder’s conference, said Rogers, the prospective client and TPA may compare core values and decide their shared cultures bode well for the partnership.

“At the end of the day,” Rogers said, “actions speak louder than words. Employers quickly recognize genuine performance.”

To Bundle or Not to Bundle?

There are pros and cons to bundling and unbundling, said Stankevitz. A client has more buying power if it uses one TPA for multiple lines of business, and it may lose some negotiation leverage if it splits up the concentration. Reporting and analytics may also be better and easier with a single TPA.

“With all data in one system, running reports will be less complicated and more standardized,” she said.

But TPAs have different areas of expertise. “If you’re heavy in products claims,” she said, “you might want to assign that part of your business to a TPA that specializes in that line of business.” And if a client assigns different TPAs to different lines, it has a broader knowledge base, she said.

“If you have two TPAs, you have more resources to ask your questions. It opens up the networking,” she said.

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A pilot program may be an option. “You can pilot a TPA in a state or a different line of business to get a sense of how they operate and manage your requests. It will give you a better sense of marketplace.”

Clients should be prepared to invest time and money in the process of unbundling a program, although with good planning the investment should provide returns. Transport operator FirstGroup America unbundled its bill review, pharmacy benefits management, field and case management, independent medical examinations, and occupational and physical therapy services in its self-insured program.

Two and a half years later, Frank Lott, the company’s corporate claims director, reported cost savings, and greater control and flexibility in the providers it chooses for its employees, and far greater transparency in its bill review.

During a Risk & Insurance® webinar, “Succeeding with an Unbundled Claims Management Approach,” Lott said that before unbundling, “We could never get a true understanding of our managed care costs.” After unbundling, the company found “a higher level of expertise in these areas, and they’ve become an extension of our team.”

However, these gains didn’t come without effort. “There’s an implementation phase,” Lott said, to allow each TPA on the team to “talk” to each other electronically.

“You have to look at connectivity. You have to look at how much time and money it will cost to build systems and interfaces. Can all the partners access the different systems?” There was also a training element that involved both the vendors and the TPA. “The goal was to not put additional work on the adjuster’s plate,” he said.

“A company needs to ask itself, ‘Do we have the internal resources to drive an effective program?’ ”

If a company decides to take on this process, said Suzanne Flynn, a webinar participant and senior vice president and risk management consultant for Wells Fargo Insurance Services, it should coincide with the initial execution or renewal of a TPA contract, some of which prohibit unbundling or impose punitive costs or fees, such as an exorbitant $9 per check writing fee.

“A company needs to ask itself, ‘Do we have the internal resources to drive an effective program?’”  —Frank Lott, corporate claims director, FirstGroup America

The contractual definition of “managed care” can also catch companies off guard, Flynn said, and may restrict programs without their administrators’ knowledge.
“Is it the traditional definition of fee schedule audit, preferred provider organization and utilization review? Or has the definition been expanded to include things like telephonic case management, field case management, pharmacies and/or durable medical equipment, thus becoming an even greater source of revenue for the entity?”

While some TPA contracts forbid unbundling, in other cases, clients are obliged to unbundle if their TPAs don’t service all their insurance lines, said Deloitte’s Messick. This is especially true for specialty liability lines, such as medical malpractice and directors’ and officers’ insurance.

Watertight Contract

After prospective clients and TPAs perform due diligence and decide they can work well together, they negotiate a contract that assigns their respective roles and responsibilities. The language in the contract should exceed the boilerplate contractual language of most service agreements, and include as much detail as possible, including the performance standards that define the parties’ respective roles, said Michael T. Griffin, partner, Edwards Wildman Palmer LLP in Hartford, Conn., who specializes in insurance law.

For example, he said, if the TPA will maintain a call center, the contract should detail the service standards the TPA must maintain. How many hours will it be open? How many people will staff it? How quickly will the staff answer phone calls? How quickly must claims be paid, or carriers and employees notified of their progress?

“If I’m a national carrier, the TPAs that represent me directly impact my reputation. I want their performance to reflect well on my brand,” he said.

Dolowich, of Kaufman Dolowich & Voluck, said he prefers contract language that defines authority lines and avoids the gray areas that can presage litigation. At what point does the TPA need the client’s approval to expand or clarify its reserve or settlement authority? Are the reserves adequate?

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Those service level standards are often addressed in exhibits to the agreement, Griffin said, so if the parties want to tweak the details, they can modify the exhibit rather than amend the body of the agreement.

The contract should also provide for the eventual termination of the relationship, Griffin said, almost like a pre-nup.

“If you’re a carrier at the end of the relationship, the TPA is left with your information. How do you get it back?”

He encourages parties to think up-front about termination and transfer of data. How will information be presented? In hard copy? Pursuant to some system requirement? If costs will be incurred in the transfer of the information to its owner, who incurs those costs?

_______________________________________________________________

Read our three-part claims management series, which focuses on third-party administrators:

09012014_04_inDepth150x150Part I: A Marriage of Compatibility

Employers must select the TPA best equipped to manage employees’ health and well-being.

 

09152014_04_indepth 150x150Part II: Best Practices a Moving Target

The best claims-handling practices depend on hiring good people.

 

10012014_04_indepth 150x150Part III: Measuring the Unmeasurable

Often it’s the intangibles that can make or break the payer-TPA relationship.

 

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]