A new area of risk for HMOs - Managed Care

Should a patients' bill of rights eventually pass, health plans could face huge payouts, which is familiar territory for the property and casualty industry. Can what works for the P&C industry--collaboration with attorneys to better manage litigation--work for managed care?

Passage of The Patients' Bill of Rights will throw HMOs onto a playing field of tort litigation for which they may be acutely unprepared. At the time of this writing, Congress has yet to pass a bill into law, but it is considered inevitable. When policyholders can sue HMOs for damages beyond the value of benefits denied, HMOs need to be ready for the effects of sizeable payouts.

It's a familiar world to property and casualty insurers. Over the years, property and casualty insurers have had to adapt to the increasingly complex and expensive U.S. tort litigation system. To appreciate the impact of tort litigation, one need only look to the crisis doctors are facing with skyrocketing medical malpractice awards. The payouts have forced some medical liability insurers out of the market, leaving thousands of doctors without coverage.

The P&C industry has been battered by a variety of other economic slings and arrows, and is under intense pressure to improve the bottom line. In the property and casualty industry, raising premiums alone are not the answer; the clear need is to create cost-efficiencies. To that end, one of the most viable areas for process improvement has been in the expense of claims litigation. Insurers are learning that the means to attack this target is improved litigation management. The following details a process that is paying off for the P&C industry. The timing could not be better for HMOs to follow the lead of P&C insurers and take control of the litigation process.

P&C Industry a Model?

In their relatively new effort to control the cost of lawsuits, P&C insurers are forging collaborative relationships with their legal counsel to plan and manage lawsuits. This approach to litigation is in part fueled by studies that have quantified the cost of non-collaboration. According to the National Law Journal, the inefficiencies of a non-cooperative relationship between client and counsel can result in 15 percent to 20 percent of legal expenses being wasted.

In addition, P&C carriers found that a failure to establish a strategic plan between insurer and counsel resulted in substantial loss overpayments. That's the big picture. Behind it are many grim details. Without upfront collaboration, every step of the litigation process is subject to contentious, time-consuming negotiation. As a result, the litigation process can evolve haphazardly, with perceptions of "run-away" legal costs ultimately shaping decisions on legal strategy. The resulting numerous billing disputes can strain professional relationships and require an inordinate amount of the insurer's personnel time.

Deciding a better process is needed, the P&C industry is working to build a culture of cooperation with outside counsel. A recent joint effort of defense lawyers and insurance company representatives produced case-handling guidelines designed to foster cooperation. Published by the Defense Research Institute (DRI), the guidelines set forth recommendations for cost-effective litigation management. Driven by continuous communication between claims personnel and attorneys, the guidelines include budgeting and billing procedures, case development, legal staffing, and reporting requirements. Each of these matters must be reflective of an overall strategy. Insurers have long realized that litigation strategy, including decisions on filing motions and conducting depositions, is a critical buying decision that must be made on a cost/benefit basis.

Managing costs begins with sound and informed case planning and collaborative cost projection. Rather than questioning bills after the fact, estimating costs for the legal tasks (those agreed as necessary to the strategic plan) effectively creates a roadmap of the litigation. Establishing a guide for expenses from the outset allows the insurer to manage counsel, which puts the focus on managing outcomes, rather than resolving disputes. Collaborative cost projection also reduces the time insurers spend on administrative billing tasks. The law firms benefit as well, as the system promotes faster payment.

Technology is the Driver

While it may be clear to see that collaboration is the best route through the path of litigation, a good question would be: How do you make it happen? Even if lawyers and insurers are willing to make the effort, what drives the process? Fortunately, there's a very good answer to that: Internet-based technology. The nature of the Internet allows it to function as a collaborative work environment, and it has become a platform for hosting a wide assortment of work group applications. Application service providers (ASPs) that are focused in the insurance industry can provide the systems infrastructure and manage software-based services that can be purchased by customers on a pay-as-you-go basis.

The beauty of the Internet is its accessibility and its real-time functionality, thus offering a practical setting for collaboration. In managing litigation, information can be instantaneously shared between insurance carrier and counsel, as well as any other authorized personnel. Risk management, in-house counsel, and reinsurers--all those given passwords to access the system--can work together to resolve a lawsuit from beginning to conclusion.

With the technology in place, collaboration begins with an analysis of the details of the lawsuit by both law firm and client, to develop an agreed strategy. Both sides can assess the cost/benefit of each task to be undertaken. Issues might include the amount of discovery, identification of needed depositions, whether there is a need for expert witnesses, what motions will be filed, and the advisability/cost potential of settlement. Estimation of the time needed to complete each task facilitates cost projection.

Once both law firm and client agree on strategy and have entered it into an online application, ongoing case development is compared against the projected case cost and the desired outcome. Throughout the duration of a case, as lawyers enter case developments and time against each task, real-time monitoring of costs is available to insurance company personnel and other authorized users. This anytime, anywhere access dramatically assists collaboration. In addition, threaded discussions between carrier personnel and counsel can take place online, cutting down on phone calls and paperwork. Attorneys can post comments, request additional information, and offer suggestions for strategy. Estimates on exposure, chances of success, and settlement objectives are all open for continuing review and comment.

The efficiencies of having all information related to a case easily accessible in one source is a significant time saver for the insurance company. In addition to being able to monitor time and cost, case status is tracked to identify which cases need attention, which ones have pending outstanding matters, and various other critical items that must be completed in order to move a case to successful resolution. Documents generated in relation to a case (such as medical records, deposition summaries, etc.) can be electronically filed for viewing.

Having the resources to build complete electronic files on lawsuits leads to a wealth of useful data going into the bank. Lawsuit data can be used to generate reports on how legal dollars are being spent, project future expenses accurately, and generate performance benchmarks for outside counsel. Over time, this data will create the ability to use analytical tools to continuously improve the litigation process and outcomes.

The Right Technology

If an HMO decides to investigate the merits of collaborative technology, there are certain factors to consider. In choosing a provider, evaluate the functionality, service level agreements, training, process impact, return on investment, and security. Be sure that password protection restricts data to authorized users. Insist upon the highest level of encryption allowed by the federal government, and a server with multiple levels of security for facility, network, data and application. Finally, ensure that the provider can deliver excellent client support and training, which will help smooth the transition.

Adhering to the litigation process described here takes more than the right technology and the mindset to collaborate with counsel. Success depends upon taking steps to formally align organizational processes to enhance collaborative litigation. To begin, executive leadership is needed to set the tone for a collaborative environment. For a smooth operation, it is advantageous to assign a project manager to oversee the vendor relationship, elicit feedback from users and strive to ensure needs are met.

The objective of creating a collaborative approach to litigation management is to control costs and facilitate better outcomes. As HMOs prepare for a new world of litigation, now is the time to plan how litigation will be handled, and to take advantage of what the P&C industry has learned. As the collaborative process takes hold, as data banks become useful tools for decision-making, and as insurance company personnel become adept at strategic planning, total outcomes will be positively affected. Most important is the commitment to make it happen.

Faiz Ahmed is CEO of Visibillily Inc., a Chicago-based application service provider that delivers litigation management solutions to the insurance industry. He can be reached at [email protected].

COPYRIGHT 2002 Axon Group
COPYRIGHT 2002 Gale Group