My TPA Really Sucks! What Happened?
By Steve Rasnick
I really don’t mean to pick on TPA’s because the same statement could be made for all businesses and business relationships, including insurance agents. In fact, I began to think of this issue as I focused on the fact that on 2/1/10 my TPA celebrated its 13th year of business in Southwest Florida. Thirteen wonderful years serving customers, many of whom who have been with me for all thirteen of those years; but why not all of them? Aren’t long term business relationships supposed to be like fine wines, getting better with age? Why have some of mine, and I would imagine some of yours, turned to vinegar over the years? I think that the answer is intriguing, and it is the pursuit of this answer that caused me to write an article which is only tangentially related to health insurance.
I am from the old school. I believe that you do a good job and you earn the right to establish and sustain a business relationship. I believe in loyalty and that if you do a good job, your client will be loyal to you, much as I treat the staff who work for my organization. Do a good job and you will have a job for life, but do a bad job and you will no longer earn the right to keep your job. But that’s not the way it always works today, is it?
Notwithstanding the fact that we provide excellent service to our clients, (perhaps a somewhat biased statement) we have lost customers over the years and virtually all businesses experience similar loss. Why do we lose some business relationships and retain others? Why do some customers choose to retain your services and why do others choose to fire you? What is the difference between a good business relationship and one that is in jeopardy? Is it a lack of customer loyalty or is it malfeasance on your part? Perhaps all business relationships are in jeopardy from the beginning? Are there identifiable external and internal factors that influence this process? The answers are really easy. Yes, no, sometimes, maybe, never and perhaps, in no particular order!
Let’s first take an honest look at some of the more obvious reasons that business relationships end.
You may really suck at what you do and each time a customer fires you, they are sending you a message. Perhaps it’s time to find another career?
The economic downturn has caused many businesses to revisit their business relationships in an effort to reduce costs. It really does not matter how valuable your services may be, if a customer cannot afford you, or if they assign a greater value to other types of services, your services may no longer be necessary. Conversely, in an effort to reduce costs, perhaps your service levels have also been reduced and customers no longer appreciate your value proposition. Just drive around the area and look at all of the restaurants that have closed since the economy went into a downward spin, restaurants that you had to beg for a table two years ago. What happened?
Maybe your competition had adopted a superior business model and is simply moving forward more quickly than your organization?
Perhaps you associate with customers or vendors that simply see a business relationship differently than you.
Years ago, when I was with the Travelers Insurance Company, we hired a consultant to help us develop our Managed Care and Employee Benefits Sales Strategy and help define our value proposition in a marketplace that was exploding with many carriers offering exactly the same products, simply packaged differently. This was several years after we spent millions to acquire an existing HMO only to sell it back to the management two years later for a penny. Personally, I think they paid too much, but I digress. The consultant was Dr. Benson Shapiro, then a Professor at the Harvard Business School and an expert on developing and sustaining a business strategy and customer relationships. To this day, his core principals have guided me in building and operating my business.
In 1987, Dr. Shapiro joined with several of his peers and authored an article, “Manage Customers for Profits (Not Just Sales)”, which was published in the Harvard Business Review in October of 1987 and was the primary tool he utilized in helping us develop our business strategy. Although his article focused on small manufacturing companies, I believe that it has relevance to all customer relationships, irrespective of the industry, including the sale and purchase of health insurance and TPA services. The only time I have made mistakes is when I have strayed from his core principals. (OK, truth be told, I have made lots of mistakes on my own, but the worst have been when I have failed to heed Dr. Shapiro’s advice.)
According to Dr. Shapiro, customers, and all business relationships fall into one of the following four quadrants that are defined primarily by the cost to serve, as well as, a willingness and/or ability to pay a fair price to receive high quality services.
Over the years, I have attached different labels to the quadrants. However, any customer relationship which starts above the horizontal mid-point is generally characterized by willingness and/or an ability to pay more for services. Any relationship which falls to the right of the vertical axis is generally characterized by a higher cost to serve. Conversely, relationships which commence below the horizontal axis have a diminished willingness or capacity to pay for your services. Below the mid-point and to the right of the vertical axis combine low fees and a high cost to serve, a very undesirable combination that is doomed from the beginning. However, according to Dr. Shapiro as well as my own personal experience after charting years of my own business relationships, over time, there is always an inexorable downward movement to the right. If left unchecked, all of your customer relationships will ultimately have a high cost to serve and will be less willing to pay you adequately for your services.
To further explain, a customer in the Carriage Trade quadrant would demand and pay for high quality services whereas a customer falling in the Passive quadrant would be willing to pay more, but at the same time, would have a lower cost to serve. While this may seem like an enigma, there are many customers that fall in the Passive quadrant, paying more and demanding less. Perhaps they assign a low value to the service and do not value it enough to aggressively negotiate. However, whatever the reason, customers that fall in this quadrant are those that you are most likely to lose. What is your value proposition for them?
While I do not believe that any customer would be willing to admit that they are willing to forgo good service for a low price, the Bargain Basement quadrant, the fact does remain that this is a characteristic of many organizations, such as not for profits or governmental entities, which may have diminished funds to spend. Those with adequate size to demand higher levels of service may ultimately move into the Aggressive quadrant, but if your pricing for them was based upon Bargain Basement requirements, the relationship is doomed to fail due to pricing inadequacy or poor service.
The reason that there is almost always downward pressure to the right has to do with your value proposition. As a TPA, for example, when I establish a new customer relationship, my value proposition has never been higher. I have solved a problem for my new customer, perhaps by lowering their insurance costs, solving administrative issues or implementing new and more effective plan design solutions for their employees. However, if I do my job correctly, over time I will educate my customer and what may have been confusing or complex, I will have clarified and made less complex. At the same time, my competitors will also call on my customer saying that they can do it better and cheaper, and if I do not find a way to reestablish my value proposition, I will lose the relationship to the lower cost competitor. As Forrest Gump says, “it happens.”
I recently lost a small case I had had for almost ten years, over an amount which was less than 1% of their total plan costs. Looking back, when I first developed the relationship, they had serious problems. Small groups had few insurance alternatives, especially those with a high percentage of retirees. Plan costs were increasing rapidly and they were a perfect candidate for all of the new and creative ideas that I had. I changed their method of financing the cost of their health insurance program, counseled them on new and innovative consumer directed plan designs, implemented a chronic disease management program and successfully reduced their insurance plan costs to a rate far below normal inflation. However, I still lost them for less than 1% of their total plan costs, and they liked me. Why? Because my value proposition, which was still in the Carriage Trade quadrant, differed from theirs, which now was far more aggressive, due in part to the economy and partially because the value proposition of my contact at the company had changed to accommodate an aggressive Board, and I was not perceptive enough to notice it and react accordingly. Whether we recognize it or not, in business relationships, we are all more comfortable playing in a quadrant that is similar to our own quadrant. My value proposition is characterized by being creative, innovative and consultative, and I definitely feel more comfortable operating in the quadrants above and to the right of the mid-point. I will make a concerted effort to avoid those below and to the left of the mid-point. However, there is substantial room for error since most business relationships fall within the “gray area” close to the mid-points. Nevertheless, there will always be a tendency to move down and to the right, irrespective of where you start, but you can make a difference!
Whether you’re a buyer or seller of products or services, I suggest that you determine which of these four quadrants accurately describe where you are most comfortable. Then, surround yourself with business partners or vendors who share similar characteristics. In order to determine where you fall, examine historical failed business relationships, plotting where they started and where they ended. I feel certain that you will determine that the relationship moved down and to the right, over time. Then, take a similar look at relationships which have stood the test of time, and if one of them happens to have been your TPA, the next time you see them, give them a big hug for offering and sustaining a high value proposition!
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