Outsourcing Healthcare Lien Resolution: Eliminating the “Hassle Factor” and Complying with New Rules and Regulations

By Matthew Garretson

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The word “outsourcing” oftentimes carries a negative connotation, rendering images of jobs shipping overseas and workers lining up for unemployment. However, with the American Bar Association’s recent acknowledgement of the value of “legal outsourcing”, attorneys have reason to consider what outsourcing can mean to their firm and its clients.

For law firms, outsourcing may involve a different set of considerations than solely the “cost reduction” motivation that initiated the trend to outsourcing certain legal or legal support functions offshore –Specifically, outsourcing for law firms is not necessarily all about reducing costs, it’s about reducing hassles as well as achieving outcomes for clients that exceed what law firms can accomplish on their own.

As this article explores, outsourcing has a host of benefits attached to it that enable law firms to become more efficient, effective, nimble and valuable to clients. Outsourcing to a specialist may help – among other things - enable core competency “focus” on the part of a law firm’s internal staff, ensure compliance with applicable rules and regulations, as well as speed up the completion of certain aspects of a case. While there are many benefits to outsourcing, it is not as simple as making a handshake and handoff to a service provider - There are many considerations and commitments a law firm must make if an outsourcing arrangement is going to benefit the firm’s ultimate “consumer”.

Understanding the Lexicon

“Outsourcing ” entered the vocabulary of manufacturing business in the 1980s, as then bloated organizations sought to become more agile competitors in global markets by focusing on their core business.[i] It has been defined as “the use of outside resources to perform activities traditionally handled by internal staff and resources”.[ii]

Over the last 30 years, business segments typically outsourced include information technology, human resources, facilities, and accounting. Many companies also outsource customer support and call center functions like telemarketing, customer service, research, designing, web development, and engineering.[iii] But, for law firms, the concept is relatively new.[iv]

When the concept of outsourcing first emerged in the legal industry, it often involved a law firm obtaining legal support services from an offshore law firm or legal support services company. But offshoring - wherein a company outsources services to a third party in another country with lower labor costs - is only a small subset on the spectrum of outsourcing arrangements. The rationale for outsourcing ranges from accessing a lower cost pool of resources to perform commodity-like, less business-sensitive functions to strategically tapping specialized knowledge bases that are not feasible to maintain in-house.

Legal outsourcing companies, primarily from India, had early success[v] by providing services on the cost-savings end of the outsource rational spectrum, such as document review, legal research and writing, drafting of pleadings and briefs.[vi] In these economic times, there is a strong public opinion that outsourcing (especially when combined with offshoring) damages a local labor market.[vii] While offshore outsourcing in the legal industry has gained ground in the past few years, the debate extends beyond the displacement of local labor. According to one commentator, a major concern with legal out sourcing is the potential for breach of client’s confidentiality. Another concern is that the people performing legal work in different countries are not bound by the same ethical standards attorneys are subject to at home.[viii] Others question whether American attorneys can perform their due diligence and adequately evaluate and supervise the service provider when separated by an ocean from the people performing the work.[ix]

The buzz created by these concerns led to opinions from various state Bar Associations[x] and recently, the American Bar Association[xi] that lay down the framework for ethical legal outsourcing. Much of the discourse around legal outsourcing has centered on the cost-benefit analysis of tapping into lower cost, offshore labor pools to perform less sensitive, more administrative functions. The more strategic set of considerations at the opposite end of the spectrum (that is, accessing unique, domestic knowledge bases or skill sets that are not feasible to maintain in house) are often overlooked in the dialogue. These strategic purposes for legal outsourcing not only have been given the “green light" by the ABA and other ethics bodies; they may very well enhance your firm’s value to clients.

Strategic outsourcing is the organizing arrangement that emerges when firms rely on third parties to provide specialized capabilities that supplement their existing capabilities.[xii] According to outsourcing experts, such an arrangement produces value beyond those benefits achieved through cost savings[xiii] and cost restructuring (between fixed and more predictable variable costs) to accomplish more strategic objectives:

· Improve quality – Measurements may inc lude factors such as shortening lead times and ensuring compliance with applicable rules / regula tions

&mid dot; Foc us on core competencies – The ability to focus on core competencies by ridding yourself of the ancillary or peripheral ones.

· Knowledge - Access to innovation, subject matter expertise and wider experience.

· Operational expertise - Access to processes and procedures that would be too difficult or costly to develop in-house.

· Access to talent - Access to a larger, sustainable talent pool.

· Risk sharing or management – Sharing or transferring risk to a partner who is better able to provide the mitigation of such risks (and thereby help alleviate the “fear of loss”).

Strategic outsourcing often is characterized as pure business process outsourcing – or BPO - and knowledge process outsourcing – or KPO. BPO is the outsourcing of a specific business process task, such as payroll, to a third-party service provider. It’s often divided into two categories: back office outsourcing, which includes internal business functions such as human resources or finance and accounting, and front office outsourcing, which includes customer-related services such as call-center marketing or tech support.[xiv]

While most business process outsourcing involves executing standardized processes for a company, knowledge process outsourcing—or KPO—involves processes that demand advanced research and analytical, technic al and decision-making skills.[xv] This is where KPO differs from traditional BPO (business process outsourcing). As stated above, BPO is very focused on specific back office or front office transactions or tasks. As one commentary notes, “KPO, simply put, is BPO but at a higher level in the intellectual value chain." [xvi]

While there are many functions within a law firm that may be candidates for strategic outsourcing, the balance of this article explores one area – health care lien resolution – that appears to be on the leading edge of the trend. With respect to health care lien resolution, intermediate “providers” of service have emerged that provide specialized capabilities as ever-changing rules and regulations make the transaction both critical to cash flow (an important back office concept) as well as increasingly complex (requiring a deep knowledge base). As such, lien resolution is a hybrid of both business process outsourcing (BPO) and knowledge process outsource (KPO). Accordingly, it is a prime example of outsourcing for purposes at the more strategic end of the rationale spectrum.

All that said, the fundamental notion behind strategic outsourcing for the personal injury practitioner isn’t all that avant-garde. For years, personal injury attorneys have been looking to other professionals to address ancillary or peripheral issues that surround their client’s injury claim, such as probate, bankruptcy, tax and government benefit planning.

What Makes Healthcare Lien Resolution Suitable for “Outsourcing”

“Hassle” seems to be the word most often utilized by attorneys to describe health care liens. Resolving healthcare liens upon settlement has become an arduous process. Each new lien often presents a new learning curve. Attorneys find themselves devoting as much time to trying to clo se a case as they d id litigating it in the first place – especi ally if they wait until a case settles to start dealing with a client’s healthcare liens.

Medicare, Medicaid, and ERISA lien rights and procedures have undergone vast changes in recent years, making them more fact-specific and difficult to navigate. Severely complicating matters, many c li ents w ill have mult iple health care liens associated with his or her recovery.[xvii] If liens are ignored until settlement, it is possible they will prevent a file from closing for months or even years in some cases. Astoundingly, a recent study suggests that 55% of the average personal injury law firm’s cash flow is tied up in liens that impact 15% of the firm’s overall case inventory.[xviii]

Beyond the difficulties and time delays, missteps in addressing Medicare, Medicaid, private health / ERISA and other healthcare lien rights could have serious implications for the client. He or she could be subject to lose their government assistance or healthcare coverage or become the subject of a lien recovery action. In addition, in recent years tweaks to the statutory frame work have thrown attorneys into the mix of potentially liable targets if healthc are liens ar e not addressed.

Adding yet more complication, the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) is set to take effect July 1, 2009. MMSEA requires defendants to report certain information regarding settlements with Medicare beneficiaries to the Secretary of Health and Human Services. The implementation of MMSEA poses more challenges to those practitioners settling single event and mass tort personal injury claims.[xix]

Furthermore, while plaintiffs and defendants battle, healthcare providers and their recovery contractors pool their resources and influence to make near-daily improvements in their rights and means for lien recovery. For instance:

· Healthcare data mining applications are making health plans more adroit at finding potential liens;

· The ABA recently adopted Model Rule 1.15, requiring that an attorney hold client funds when the attorney has actual knowledge of a just claim by a third party.[xx]

· Several states have adopted legislation requiring plaintiffs counsel to affir matively notify any benefit provider that has paid benefits related to the injury of the client’s injury claim.[xxi]

Perhaps the New York County Lawyers’ Association Ethics Committee summed it up best, “lien issues are made more difficult to handle because of constantly changing regulations and protocols” and that “resolving liens is a complex area... with many traps for the inexperienced and unwary.”[xxii] In each case someone must:

· Determine the settling parties’ affirmative obligation to notify healthcare plans;

· Assess the healthcare plans’ right of recovery in light of the f acts at hand;

· Audit and analyze all reimbursement claims to determine accuracy and to carve out items unrelated to injury/settlement;

· Pursue relevant administrative or legal remedies, such as damage allo cation, waivers, and compromises, to ensure the appropriate “net” recovery for the injured individual; and,

· Handle other healthcare issues related to settlement, such as Medicare Set-Asides (MSAs) – allocation for future in jury-related care that Medicare would otherwise pay.

If all of this is attempted before settlement, it often dis­tracts the attorney and her staff from the case itself; if it is left until afterwards, it will delay disbursement to the client. Because of the difficulties and confusion these knowledge-intensive demands create, defendants increasingly are moving away fr om r elying on “indemn ification clauses” in settlement agreements to requiring “proof of resolution” prior to disbursement to clients. Such requirements place tremendous strain on a firm’s back office, making an outsource solution that brings business processes (BPO) and knowledge process (KPO) more salient now than ever before.

The Benefits of Outsourcing Healthcare Lien Resolution Work

A specialized third party who provides a strategic outsource service for liens should be able to bring deeper subject matter expertise in people, processes and technology. Further, they should bring a deeper body of knowledge realized in hundreds of thousands of documented liens resolved; fully developed and comprehensive work flow and lien audit models; and, relationships with key enablers (agencies). In addition to providing this access to knowledge and operational best practices, an outsourcing arrangement for healthcare lien resolution may provide the following benefits:

· Quality Improvements: Outsourcing this essential function should accelerate the resolution timeline and result in more favorable and compliant results than your firm perhaps would have achieved on its own. Beyond benefiting the client, accelerating the lien processing time will have a positive effect on your firm’s cash flow.

· Operational Improvements: A firm dedicated to this specialty will have the accessible resources and systems to deal with all cases and healthcare providers while keeping up with the ever-changing demands of the healthcare landscape. In sum, you will replace a process that is a hassle to manage (or perhaps out of control) with a formalized, firm-wide compliant program.

· Cost Restructuring: Outsourcing a time consuming matter such as healthcare lien resolution can result in significant cost savings for your firm. Beyond the direct actual costs for staff to process liens, you may avoid the disruption associated with staffing turnover as well as lost opportunity cost. Further, outsourcing helps mitigate or shift the financial or “penalty” risk that is associated with mismanaging obligations.

· Change Agent: Making the decision to outsource healthcare lien resolution to an outside partner could be a significant positive change agent for your firm, allowing you to re-direct your resources to direct revenue gene rating activities (i.e. focusing on obtaining the maximum recovery for your cli ent). T he relationship therefore should allow your firm to focus on its core competencies by ridd ing yourself of the peripheral ones. The end result should be top line and margin growth.

The same legal ethics opinions that enabled firms to access a lower cost pool of resources to perform commodity-like, less business-sensitive functions apply equally to these more strategic outsource purposes. The ABA, legal ethics consultants , and various state ethics committees have acknowledged the value of outsourcing so long as the attorney follows a specific framework.

The ABA’s Opinion on Outsourcing – Laying Out a Framework

In August 2008, the American Bar Association’s Standing Committee on Ethics and Professional Responsibility r eleased Formal Opinion 08-451: Lawyers’ Obligations When Outsourcing Legal and Nonlegal Support Services. The opinion states:

A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She s hould make r easonable efforts to ens ure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with “direct supervisory authority” over them.

In addition to the ABA opinion, state ethics committees have also issued opinions in support of outsourcing. The common theme is that outsourcing is completely acceptable as long as the attorney performs his or her due diligence in ensuring the following:

· Confidential information is protected;

· Service providers are competent and suitably trained;

· Reference checks are performed and background information on service providers is obtained;

· The attorney interviews the primary professionals on the project team and perhaps even visits the premises of the service provider;

· The client’s informed consent is obtained[xxiii];

· Referring attorney remains responsible for the work and for oversight of the project;

· The client receives the net benefit of the arrangement (if passing fees to client); and

· Fees are reasonable (if passing fees to client).

How Do I Decide What Vendor To Work With?

If you decide to part ner with an outside firm to handle lien resolution first and foremost, ask that they provide you with all the information you need to satisfy the due diligence requirements set forth by the ABA and other opinions referenced above. Among other questions, ask yourself, do they truly bring deeper subject matter expertise in people, processes and technology? Can they demonstrate hundreds of thousands of documented liens resolved and fully-developed work flow and lien audit models? As Henry Ford so eloquently stated, “you can’t build a reputation on what you are going to do.”

Further, to make an informed decision, you need to articulate what you want to gain from the outsourcing relationship and extract from that your most important criteria for a service provider. It&rsq uo;s important to figure this out before soliciting any outsourcers who will undoubtedly come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Who Pays For the Costs of the Outsource Service Provider?

Consider how you wish to handle the fees. Healthcare lien resolution should not be viewed as an administrative function. The complexity and liability of healthcare liens equate this area to other ancillary specialties such as probate, bankruptcy, taxation and disabili ty planning wherein the client and not the attorney – pays for specialize knowledge or counsel.[xxiv]

One of the key pieces of the ABA’s rec ent opinion is the notion that it is ethical to pass outsourcing fees on to the client as long as it is clearly communicated at the onset of the case. In July, 2008, another ethics board added to the critical mass and approved the use of outside assistance for lien resolution as a client expense. In its “Ethics Opinion 739,” the New York County Lawyers’ Association Ethics Committee found that charging such an expense to the client was justified so long as the client was made aware of the charge in the fee agreement and the fee was reasonable.[xxv]

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