by Dave Lenckus of Business Insurance

While third-party administrators can deliver efficiencies for self-insured programs, risk managers should require protections and maintain vigilant oversight for instances when the claims process breaks down, risks managers say.

If “properly vetted,” a TPA can provide great service and “enhance metrics and decision making” said Wayne L. Salen, director of risk management for Labor Finders International Inc, In Palm Beach Gardens, Fla.

Still, “there are a lot of things a good risk manager can do” to prevent claims problems and protect their organizations when problems occur, said Scott B. Clark, risk and benefits officer for Miami-Dade Country Public Schools in Miami.

A lawsuit wending through California’s courts illustrates how badly a claim can go.

The case involves a 1999 workers compensation claim against the Bank Of America Corp., which at the time self-insured the first $250,000 of every claim.

A former employee claimed he needed back surgery to treat an injury he sustained while working for the bank during the 1980s. Although the bank’s TPA, Greenwich, Conn.-based Cambridge Integrated Services Group Inc., denied the claim based on an independent physician’s recommendation, the TPA’s outside attorneys inexplicably agreed in February 2000 to cover the procedure, court papers say.

The surgery, however, left the claimant a paraplegic, and his postsurgical medical costs totaled $1.5 million through March 2006. That is when the bank’s excess insurer, National Union Insurance Co. of Pittsburgh, Pa., a subsidiary of new York-based American International Group Inc., was alerted by the bank’s new defense counsel that Cambridge either concealed or negligently failed to disclose for six years that the TPA’s medical expert had advised against the surgery, according to court papers. National Union demanded reimbursement and sued Cambridge in March 2007.

Reversing a lower court’s decision, a California appellate court ruled Feb.11 that a provision in Cambridge’s contract with the bank does not preclude National Union from suing the TPA and remanded the case to a lower court.

The bank, National Union and Cambridge refused to comment. But risk managers say there are protections against inappropriately handled claims and other potentially serious problems.

Before engaging a TPA, risk managers should insist the service provider shields its clients with contractual hold-harmless provisions that incept if the TPA fails to follow legal advice, said Mr. Clark, who also is director and secretary for the New York-based Risk & Insurance Management Society Inc.

“They’re supposed to be experts in this. They are responsible” for covering a claim if it id mishandled, said Mr. Clark, who retains a TPA to administer the Miami-Dade School system’s various casualty claims.

A TPA also should provide proof that it has adequate professional liability insurance, Mr. Clark said.

Risk managers also should scrutinize whether service providers have adequate resources to deliver on their promises, said Terry Fleming, the Rockville, Md.-based risk manager for Montgomery County, Md. A TPA’s resources-such as its staffing, oversight, and size and functionally of its claims system-should be addressed in a risk manager’s request for proposals, he said.

Mr. Fleming also recommends requiring a TPA to provide a complete list of clients. The risk manager then should contact many of them. Members of a local RIMS chapter also can be valuable sources of information on a prospective TPA, he said.

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This entry was posted by Adam V. Russo on Monday, March 23rd, 2009 at 8:46 am and is filed under Third Party Administrators, Welfare Benefit Plans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.