Visual Analytics • Analytical Monitoring • Information Management

Right of Reimbursement: There’s No Time Like The Present

reimbursementEarly in my career I needed to find a vendor to recover approximately $2.5 million in medical claim overpayments for one of my clients.  After meeting with a couple of cost prohibitive recovery vendors my client’s legal counsel suggested I meet with a well-known subrogation attorney who just recently started-up a subrogation company.  The attorney wasted no time and flew in to meet with me within a couple of business days after our introductory call.  After an hour or so meeting I agreed to visit their offices before I recommended my client utilize them as a recovery vendor.  In short, we agreed to proceed and they commenced to recover the overpaid claims.

During the time they were helping my client I got the chance to ask questions and understand the concept of Right of Reimbursement and how it works in the back office.  But I was more curious as to what inspired this attorney to invest his hard earned money in this start-up.  When the right opportunity came I asked him why he decided to start his subrogation company.  He said “Michael, it’s simple.  I’ve been a subrogation attorney for a while now and I have seen how insurance companies and subrogation vendors operate.  In my opinion I believe I can administer subrogation better by recovering more dollars quicker than anyone in the industry.”  While his words were direct and poignant, I was more impressed with his body language and how he spoke with conviction, and it made me somewhat of a believer.

Around the same time my boss suffered a compound ankle fracture which required surgery and a few months of physical therapy.  At some point after he returned to work I asked him if he would let me know if he received any correspondence or phone calls from the insurance company regarding his injury.  My boss smiled and agreed.  At the time I was working in the Human Capital Practice of a public accounting firm and my boss was an ERISA attorney.  He knew I wanted to verify the representations about the substandard performance I previously heard from the subrogation attorney.  After a full recovery from surgery and physical therapy sessions he received a letter from a subrogation vendor about nine months after the onset of the injury.

I asked him not to respond to the mailed survey and let me know if he received another letter or phone call.  In about 60 days he did receive another letter.  Again I asked him not to respond.  He was never contacted again.  His hospital claim exceeded $20,000 and his injury did occur on a property that did not properly remove snow and ice on a side walk several days after a snow storm.  This is a classic subrogation case where the plan could have sought equitable relief from the owner of the property.

I shared my boss’s experience with the subrogation attorney.  I remember him saying “That’s normal.  These vendors have so many injury claims and it’s difficult to staff properly to follow-up by telephone or otherwise to resolve whether cases warrant an investigation or need to be closed.  After so many days of no response the case is closed.”

It was later conveyed that plan participants have other motivations to not respond to inquiries regarding their accident.  Plan participants are sometimes concerned that if they respond their car insurance rates will increase because the car insurance will have to pay the bodily injury claims, or they don’t want to disclose private health information, or they receive advice from their legal counsel suggesting injured individuals not respond to subrogation surveys.

About a year later over lunch I was asked by a self-insured client to conduct a claim audit.  I knew who the carrier was and I told my client about my (and other reputable firms’) positive experiences with this carrier.  Generally, their paid claims were accurate and my audit would probably validate their strong and consistent performance.  The client fully agreed with my risk assessment so I had to ask why they wanted to proceed anyway.  They handed me a letter written by a claim audit company.  The letter was addressed to their corporate board of directors claiming their carrier was mismanaging funds, millions of dollars in overpayments were being made to healthcare providers, and their benefits staff was complicit.  Apparently this claim audit firm was unsuccessful in getting a meeting with my client and thought disparaging the benefits department and making a desperate plea to the board level was their best chance at securing an engagement.  As I was reading this letter I was probably shaking my head in disbelief and remember looking at my friends and simply saying “unbelievable.”

About six months later we started the engagement.  Prior to getting underway I asked if it was okay if we spent some time getting to understand the subrogation process.  They agreed.  We limited the subrogation analysis to the following three areas: 1) Employee response rates, 2) Turn-around-time to create a subrogation case and 3) Injury related claims not detected by the vendor.

The review revealed that almost 800 (or 71%) of injury related claims paid > $500 were closed because the employee did not respond to the initial and subsequent subrogation survey.  On average it took 280 days from the original claim paid date to create a subrogation case.  In some cases, it was over a year after a claim was paid before an investigation started.  Lastly and less concerning, there were a small number of injury claims not investigated by the subrogation vendor.

After the engagement my client and the carrier agreed to share and evaluate a report for the non-response cases.  My client then started to contact its employees included in this report.  From what I was told the response rates improved and an influx of cases were either properly closed, further investigated and ultimately recovered or were held as a lien.

Unfortunately, recent legal precedence is going to make it tougher for ERISA plans to recover plan assets unless they take a more active role to ensure cases are being developed timely and employees respond.

On January 20, 2016 the U.S. Supreme court ruled in Montanile v. Bd. Of Trs. Of Nat’l Elevator Indus. Health Benefit Plan that when an ERISA plan participant obtains a settlement fund from a third party, but spends the settlement on nontraceable items (meals, flights, hotels, golf, Super Bowl 50, etc.), a plan fiduciary cannot recover from the participant’s remaining assets it paid on the participant’s behalf [1].

I would encourage a plan administrator of a self-insured plan who wants to exercise their Right of Subrogation and recover plan expenses from liable third-parties to:

  • Ensure the carrier or carrier vendor acts quickly to identify the potential subrogation cases and;
  • Have effective follow-up procedures with the plan’s help and support to encourage employee’s response to subrogation surveys.

Plan sponsors have a need to know if outsourced resources are making a timely claim for appropriate equitable relief as defined in § 502(a)(3) before the employee (or plan participant) spends or comingles the settlement proceeds with their other assets.

In closing, I have a few questions for plan administrator’s:

  • Is it important for you to have paid injury claims, representing 9% to 14% of claims cost, be identified and investigated on a timely basis for possible recovery?
  • Are you interested in having visual analytics capabilities to identify suspect subrogation cases not detected on a timely basis by your subrogation administrator?
  • Would you like to have tools to be able to timely address your highest cost cases to ensure employees respond to subrogation surveys?

If you said yes to all of these three questions, we encourage you to contact us and learn more about our Subrogation Monitor solution.


[1] U.S. Supreme Court Ruling – ERISA Equitable Relief Not So Equitable (—erisa-equitable-relief-not-so-equitable-02-09-2016/)