Measuring the Unmeasurable
Risk managers and third-party administrators (TPAs) use massive amounts of claims data to reduce, predict and manage risk, but the quality of the TPA-client and TPA-claimant relationships are the single most important measure of an insurance program’s success, risk managers and TPAs agree.
“The qualitative factors make the relationship,” said Marty Frappolli, senior director of knowledge resources, The Institutes, a risk management and insurance education organization.
“They’re harder to measure than the quantitative factors” such as claim resolution costs, timeframes, loss expense and legal costs, “but they’re at least as important.”
Qualitative vs. Quantitative Measurements
Every company has its own spin on what metrics are important to them, said David Smith, vice president of risk management for Family Dollar, whose TPA delivers a monthly scorecard with top-line metrics. They include “simple things” like closing ratios and stick rates — are claims staying closed? — average claim costs and reserve development on its book of business, which it compares from month to month and year to year.
To coax the best outcome from an undesired event, as all claims represent, Grace Crickette, senior vice president and chief risk officer, American Automobile Association for Northern California, Nevada and Utah, recommends employers define upfront the data fields they want the TPA to collect and resist the impulse to collect numerous but useless data just because they can.
“Excess fields create unnecessary work and distract TPAs from making sound decisions on the claimant’s behalf,” she said. Ambiguous fields such as “other” and “miscellaneous” create poor data integrity.
Smith said he looks for the story behind the metrics. “If the average claim payment spikes by 5 or 10 percent, that doesn’t necessarily mean the TPA is at fault.”
Instead, the spike could be driven by the company’s strategic decision to pay more to settle claims quickly, betting against the chance of longer-term reserve developments if they remain open.
Metrics raise the flags that prompt the questions, Smith said.
“If the average claim payment spikes by 5 or 10 percent, that doesn’t necessarily mean the TPA is at fault.” — David Smith, Vice President of Risk Management, Family Dollar
“If the average claim payment rose last year, we’d ask, ‘Is there a problem? How should we deal with it?’ ” The monthly scorecard reflects the total book of business, down to the TPA’s regional office, and down even further to the individual adjuster.
“Maybe an adjuster’s asleep on the job,” said Smith. “Then we’d sit down with our TPA to figure out what to do about it.”
Susan LaBar, risk manager for Coach USA, a transportation company, looks through weekly reports at reserve changes and new claims.
“I send the reports to my people in our locations and say, ‘This week you had two slips and falls on your bus. What’s going on?’ ”
“The qualitative factors make the relationship.” — Marty Frappolli, senior director of knowledge resources, The Institutes
At yearly TPA meetings, Coach compares its insurance program over the past three years with industry numbers.
“Are we paying more for claims? Are they closing faster?” said LaBar.
When shoulder injuries upticked last year, for example, Coach traced the problem to more stops where the driver lifted luggage.
“We ask our TPA what do we do about it. If they don’t come up with solutions, they’re not a good TPA.”
The big-picture post-loss metrics, said Joel Raedeke, vice president of consultative analytics, Broadspire, are average cost and closure rate. He cautions against the “skewed perspective” that an overconcentration on one metric can produce, especially in the presence of new safety or return-to-work (RTW) initiatives.
For example, he said, an employer’s concerted RTW program could reduce or eliminate lost time days and indemnity exposure on a small claim, which would reduce average costs in total. “But if you have your eye only on average cost per indemnity claim, you might see the average cost per indemnity claim rise because you’re pulling the lower-cost claims out of the mix. You think it’s getting worse when actually getting better.”
Metrics for Satisfaction
“There’s no need to measure customer satisfaction,” said David Zaback, executive vice president, National Health Plan.
“Excess fields create unnecessary work and distract TPAs from making sound decisions on the claimant’s behalf.” — Grace Crickette, senior vice president and chief risk officer, American Automobile Association for Northern California, Nevada and Utah
“If there’s a problem, your client tells you about it — quickly — but if you’re still together after five years, something’s going right.”
If a client’s not satisfied, “you start getting calls from the boss. People start asking, ‘Why is it costing me so much? Why did it take 65 days to pay that claim? A lot of other vendors will make it easy for your client to jump ship, so if they’re still with you, they’re obviously satisfied.”
A TPA that depends on negative feedback from its client isn’t using metrics well, said Smith. “You want your TPA to be proactive, not reactive,” he said.
Analytics are proof for CFOs, LaBar said, but not for people who handle claims every day. She gets instant feedback from the 19 safety managers at far-flung locations who report to her.
“They’ll call me in two seconds with a complaint,” she said, but she notes those complaints come from colleagues, not claimants.
“Before I go into yearly meetings with my TPA, I know exactly what will happen.”
LaBar values a TPA’s sense of urgency.
“Every injured person wants to think you’re as concerned about their injury as they are.”
This attribute is foremost on her radar screen when she interviews adjusters.
“I can tell if they care by the way they answer questions. When they respond immediately and with passion, that’s good. Waffling and making excuses are signs they won’t be aggressive in their claims handling.”
Barbara Ritz, manager of workers’ compensation, Temple University Health System, looks for a fully engaged partner. The measurable qualities she seeks are keeping her program in legal compliance and reducing costs, but “managing an insurance program takes more than just knowing the law.”
A TPA could be hitting the marks at 100 percent — timely communications with claimants and providers, timely processing claims, holding the line on reserves, issuing notifications in accordance with ACA filings with the state — but that’s not enough. Ritz said the TPA must also be actively listening to the client and adapting to each client’s unique challenges.
“If they propose programs that won’t work in my union shop, fail to represent our organization appropriately or can’t bring creative solutions, the relationship isn’t working.”
Crickette looks at caseloads. Overloading adjusters might suppress administrative costs, she said, but outcomes suffer when they lack time to think through decisions or refine their data. Good adjusters can be innovative, far exceeding the mere competence of meeting deadlines, heading off runaway claims and understanding regulations.
“Extraordinary adjusters navigate relationships,” she said.
They know the client’s business, such as what light duty is available for an injured worker. They know the assigned clinicians and the medical landscape where the injured worker will be treated. They have good communication with the clinicians and know what calls can open the doors to the worker’s return to work.
When the relationship appears to be failing, employers should do a little soul searching, said Michael Stack, principal, Amaxx Workers Comp Solutions Inc.
“We want them to look in the mirror and ask, ‘What am I not doing? Do I have a return to work program? A fraud prevention program?’ ”
Switching TPAs should be the last resort, he said, if only because of the insuperable costs and the headaches of switching, such as issuing new location codes, breaking in new adjusters and marrying up new systems.
“It’s eye-opening for a risk manager who never adjusted a claim to see where the problems come up. For example, they may see the value a nurse case manager is adding to their claim file. The TPA might be doing an excellent job.”
Managing the Data
Anticipating the time when client and TPA part ways, who manages the data? Both are best, said Smith.
“If you’re big enough to have the resources, keep your own analytics data while TPA keeps it also. If you’re not, trust your TPA to keep the data points that are important to you.”
Absent a system to store data independent of its TPA, said LaBar, a company becomes captive in a bad situation.
“You absolutely need your own data. If you ever leave your TPA, the data piece is a nightmare when all your data’s in their format.”
For example, she said, her former TPA’s system referred to the date of an incident as the “date of occurrence,” and her new one calls it the “date of loss.” LaBar worked with the new TPA for a year to reconfigure the code differences before Coach’s existing data matched up with the new system.
But Crickette recommends the TPA’s system as the “single source of truth.”
“I don’t know of a company that can afford redundant systems, so go with the TPA’s,” she said.
However, the client company should take pains to provide accurate data feeds and proper mapping from other systems into the TPA’s system. This harkens back to the client’s responsibility for high-quality data.
“Make sure the data quality is good enough that you can analyze it and put it to good use,” Crickette said.
Unbundled risk management information systems (RMIS) are an option, where technology companies manage a company’s data but don’t manage claims. Broadspire offers a hybrid: a native RMIS that can be contractually unbundled from its claims management service.
“If a client left Broadspire, it wouldn’t have to recode or rethink its data,” said Raedeke.
Read our three-part claims management series, which focuses on third-party administrators:
Part I: A Marriage of Compatibility
Employers must select the TPA best equipped to manage employees’ health and well-being.
Part II: Best Practices a Moving Target
The best claims-handling practices depend on hiring good people.
Part III: Measuring the Unmeasurable
Often it’s the intangibles that can make or break the payer-TPA relationship.