How TPAs Can Win

Brian Klepper

Published August 1, 2013 in the Self-Insurer

BK 711One of health care’s deeper mysteries is why third party administration (TPA) firms remain minor health plan players and, to a large degree, have been all but uncompetitive with the major health plans. Yes, the big plans have paid brokers more handsomely and have offered broader services, simplifying purchasing. But they have also offered mediocre-to-poor products at increasingly exorbitant cost. Why have TPAs as a group not distinguished themselves with better performance?

Most TPAs emerged as employer advocates, promising to protect their clients from the financially conflicted practices embraced by the major plans. But over time, many have become, as the term implies, administrators rather than managers, processing transactions without much focus on changing the ways that care and cost are delivered. Certainly in recent years, the majority have not attacked the egregious excesses that have made American health care so costly. Or to say it more simply, even though it has been in their clients’ interests, most have not done the hard work required to make health care cost less with better health outcomes, and so gain a quality and price advantage over their competitors. After all, there’s a good living to be had just putting together the coverage machinery processing claims.

American health care’s overarching truth is its institutionalized excess and exploitation. Virtually all its players have become comfortable extracting significant funds from patients and purchasers that they are not legitimately entitled to. So we pay double (or more) what every other industrialized nation does for health care.

This is the root of the health care cost crisis that is sucking business’ and individuals’ economic vitality from our nation. US businesses competing in international markets must overcome a 9+ percent health care cost disadvantage just to be on a level playing field. A 2010 RAND analysis found that four-fifths of the last decade’s growth in household income has been absorbed by health care, crowding out other essential expenditures for education, energy, transportation and retail.

We’re all aware of the mechanisms involved. Health systems develop outreach centers, with instructions to clinicians to refer in early and often for key procedures – e.g., advanced imaging, ambulatory surgeries – with outrageous unit pricing. Health plans buy stakes in PBMs, then jack up the generic drug pricing by 200 percent and use the margin as a revenue stream, all the while telling clients that they’re managing their cost. In the name of “choice,” we offer yellow pages networks, never acknowledging that the right to go to a lousy doctor or hospital does no one any favors. We pay primary care poorly, which reduces office visit times and increases specialty referrals, diagnostics and procedures.

The good news is that, as health care reaches a breaking point, conditions become more favorable for a health care marketplace. There is an opportunity to exploit market vacuums, to play the players off against one another, to steer to the high performers and away from the poor ones, and to deliver measurably better quality care at lower cost. Doing these things well can result in far better performance and market share.

The game is afoot. Some TPAs now are aggressive managers, and many more niche health care organizations are showing up that have developed innovative solutions for analytics, empowered primary care, advanced imaging, dialysis, ambulatory surgeries, specialty drugs, management of high cost cases, data-driven narrow high performance networks, and on and on. An increasingly capable medical management sub-sector is emerging, focused on taking advantage of health care’s excesses.

The Affordable Care Act’s onerous provisions for employers will drive significant new self-funding business opportunities for TPAs, not only as market agents for employer purchasers but also as advocates for policies that can be a counterweight to the health care industry’s influence. It is as favorable a position as any industry sector could want.

TPAs can win by re-embracing the promise to safeguard their clients from excessive care and cost, by driving appropriateness. If they follow their natural incentives, they will strongly outperform the major health plans, and the market will change. The question is whether TPAs will squander this moment or demonstrate a cost and quality difference that can translate to market share and an strengthened voice in the national health care discussion. The opportunity is certainly here.

Brian Klepper PhD is a health care analyst, and Principal and Chief Development Officer of WeCare TLC, a worksite clinic and medical management firm based in Orlando.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s