N.J. Probes Workers Comp TPAs’ Side Deals With Vendors

The New Jersey comptroller’s office says some workers’ compensation third party administrators (TPAs) have undisclosed side agreements with their vendors which require payments back to the TPAs.

This “pervasive” practice often drives up workers’ comp costs for the public employers that hire these TPAs, according to the comptroller’s office. The Office of the State Comptroller published its findings in a new report, titled “Hidden Costs in Using Third Party Administrators to Administer Workers’ Compensation Programs.”

Workers’ comp TPAs oversee the workers’ comp claims administration process — which includes contracting with third party vendors for specific health care services.

Such third party vendors include managed care and bill repricing companies. Managed care companies use the services of a medical professional such as a nurse to ensure that appropriate and consistent medical care and treatment are being provided. And a bill repricer adjusts payments to healthcare providers based on usual, customary and reasonable rates or agreed upon network rates.

But the report argued that the side arrangements TPAs have with their third party vendors create perverse incentives. According to the report, TPAs are in a 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 such an agreement but may be better suited to perform the service in question. As a result, there arises a potential conflict between minimizing client costs and maximizing the TPA’s revenue, according to the comptroller’s office.

The comptrollers’ office said the public entities it examined did not obtain information during the TPA procurement process as to whether prospective TPAs were a party to any revenue share agreements with third party vendors.

Without such information, the report stated, public entities cannot accurately determine whether they are obtaining the most cost effective workers’ comp services, or whether another arrangement such as “unbundling” would be more cost effective. Unbundling refers to separately contracting for TPA and other third party services. The report described as an example one New Jersey county which reportedly experienced savings of some $15,000 per year after it unbundled its TPA and managed care services.