Synopsis: Interesting WC Report from New Jersey—How Many TPA’s have Undisclosed Fee-Sharing Agreements with Vendors? Does Yours?
Editor’s comment: Third-party administrators and some insurers may be quietly generating revenue through undisclosed “side agreements” that drive up public and private employers' workers compensation costs, a report by the New Jersey Office of the State Comptroller cautioned recently. These side agreements, or “undisclosed revenue-share agreements,” involve money paid to TPAs by companies they contract with, such as managed care providers and medical bill repricing services.
The money paid to the TPA is not generally disclosed to employers that contract with the TPA for claims management services. New Jersey's comptroller's office investigated the practice after a public entity reported the workers’ comp TPA it contracts with received undisclosed money back from a managed care and bill repricing vendor.
“Upon reviewing this TPA's contracts with other public entities, the Office of the State Comptroller or OSC found other examples of these undisclosed revenue-share agreements,” the OSC's Aug. 29 report states. “In fact, industry experts claim that this practice is pervasive among TPAs, indicating that numerous other public entities in New Jersey may have incurred these hidden costs.”
Workers’ Comp Claims Programs' cost-effectiveness may be masked or hidden in this fashion
Industry experts have criticized such undisclosed arrangements for compromising the ability of employers to determine whether their workers comp claims program is administered in a cost-effective manner, according to the OSC report. In our view, it is also possible for a TPA to greatly undercut other competitors if they are able to get all their “favored vendors” to kick back thousands of dollars. While the claims cost piece might be low, the unknowing employers later find out lots of WC costs may be wildly high.
“As these experts have pointed out, such arrangements create perverse incentives in that TPAs are in the precarious position of deciding whether to refer a case to a vendor with which the TPA has a revenue share agreement or to another vendor that has not entered into any such agreement but may be better suited to perform the service in question,” the report states. “As a result, there arises a potential conflict between minimizing client costs and maximizing the TPA's revenue.”
The OSC recommends employers should require disclosure any financial arrangements in contracts with their TPAs. They also should periodically review their programs and consider unbundling services received through TPAs.
We are aware some IME providers may charge additional amounts to locate the medical specialist and set the appointment—when such services are provided the company may not always openly disclose all costs when they invoice the exam.
We have also heard many rumors over the years about nurse case management firms and law firms that have fee-sharing agreements with TPA’s. In our view, this sort of arrangement is questionable for NCM companies and specifically unethical for lawyers. The problem is how to “catch” the company or firm that might engage in such a practice. It is hard to imagine either side will openly admit to it.
We appreciate your thoughts and comments. Please feel free to post them on our award-winning blog.