Flat Rate Pricing Increases Costs

March 31, 2017 – Michael Marsh

I've read much by Joe Paduda. While we diverge on opinions at times, I am in total agreement with a blog post by Joe Paduda from the perspective of a workers’ compensation Third Party Administrator.

Motivating and providing tangible incentives for excellent outcomes is far less expensive overall than negotiating individual encounter rates. Individual encounter price per service encourages additional volume of services by lowering each cost. There is usually little actual savings for the program. Contrary, what we have seen is an increase in overall program cost when cost per services are limited, or flat rated. See Mr. Paduda’s blog for excellent examples.

The interesting parallel between the medical cost per service pricing in the country is the same when the Purchasing Department, with no experience with workers' compensation claims nor any accountability for the overall cost of the program several years down the road, is tasked with handling the of acquisition of workers’ compensation TPA services. Flat rates have become the defacto standard. Seems as though without flat rates the Purchasing staff cannot do spreadsheet comparisons. They typically have no responsibility for the total cost of the program, they are only measured for the amount of 'savings' achieved through the RFP. This is driving claims services away from the adjuster / recovering worker relationship and towards ‘best practices’ which tend to serve as a lowest ‘measurable’ common denominator. When the bond between the adjuster/examiner and the recovering worker is broken, the total cost of the program rises significantly. I have seen this in every program that we have assumed at Midland Claims from other claims TPAs, and with many of my consulting clients' programs.

Read Mr. Paduda’s blog here….

Takeaway: Cost per service does not work effectively with medical care, and works even less effectively than alternative methods of charging for professional claims services. Buyers of workers' compensation claims services should investigate claim service costs in the context of the full cost of the program. Simply saving on the TPA flat rate cost may not be a savings at all.