HME COLUMN
The Rise of the Third Party Administrators
Understanding what TPAs do & how to curb abuses
By Jeffrey S. Baird
A Medicare Advantage plan (MAP) constitutes the classic middleman model. The MAP is paid money by the Centers for Medicare & Medicaid Services (CMS), pays money to durable medical equipment (DME) suppliers and retains the difference.
This model inherently generates the potential for abuse. The MAP wants to receive as much money as possible from CMS and wants to pay out as little money as possible to DME suppliers—thereby increasing the MAP’s profits.
CMS pays money to the MAP for specifically delivered services. The MAP is expected to do the following:
- enroll patients
- sign up DME suppliers (i.e., bring them into the MAP’s network)
- work with enrollees on an ongoing basis
- work with DME suppliers on an ongoing basis
- pay DME suppliers
Increasingly, MAPs are subcontracting many of the “details” to another middleman: the third party administrator (TPA). The TPA handles many of the functions that the MAP has contracted with CMS to handle. And out of its “spread,” the MAP pays the TPA.
There is little government oversight—and little MAP oversight—of TPAs. While DME suppliers have appeal rights when it comes to actions by MAPs, such rights generally do not exist when it comes to actions by TPAs.
What Is a TPA?
A TPA is a company that manages the administration, utilization review, billing and provider networks on behalf of MAPs. The stated goal of the TPA is to reduce costs by curbing “unbundling,” streamlining claims and acting as a bridge between the MAP and the DME supplier.
Responsibilities of a TPA are:
- Network Management: Providing access to a contracted network of DME suppliers
- Regulatory Compliance: Ensuring compliance with state and federal regulations for equipment reimbursement
- Cost Control & Utilization Review: Monitoring equipment rentals and purchases to prevent overpayment, unbundling and unnecessary utilization
- Claims Management: Processing and adjudicating claims
- Supplier Management: Handling DME supplier inquiries, authorization and payments
Unlike insurance companies, TPAs do not take on financial risk, but they do take on certain operational responsibilities of the MAP.
What Is a TPA?
A TPA is a company that manages the administration, utilization review, billing and provider networks on behalf of MAPs. The stated goal of the TPA is to reduce costs by curbing “unbundling,” streamlining claims and acting as a bridge between the MAP and the DME supplier.
Responsibilities of a TPA are:
- Network Management: Providing access to a contracted network of DME suppliers
- Regulatory Compliance: Ensuring compliance with state and federal regulations for equipment reimbursement
- Cost Control & Utilization Review: Monitoring equipment rentals and purchases to prevent overpayment, unbundling and unnecessary utilization
- Claims Management: Processing and adjudicating claims
- Supplier Management: Handling DME supplier inquiries, authorization and payments
Unlike insurance companies, TPAs do not take on financial risk, but they do take on certain operational responsibilities of the MAP.
This model inherently generates the potential for abuse. The MAP wants to receive as much money as possible from CMS & wants to pay out as little money as possible to DME suppliers—thereby increasing the MAP’s profits.
Problems With TPAs
There are several problems caused by TPAs to consider.
First, economics are increasingly disconnected from healthcare reality. Since COVID-19, DME equipment acquisition costs and operating expenses have dramatically increased. At the same time, TPAs routinely propose reimbursement rates that are dramatically lower than prevailing commercial fee schedules for commonly provided items.
TPAs claim that their primary value lies in proprietary technology and administrative efficiency. Yet today’s DME suppliers already rely on sophisticated, widely available platforms for electronic referrals, documentation management, e-prescribing, inventory control, delivery tracking and claims submission. In many cases, the TPA does not introduce new capability, but rather inserts itself as an additional administrative intermediary between the physician, the patient and the DME supplier.
For the providers, network participation frequently requires near-immediate order acceptance, rapid delivery, 24/7 on-call staffing and after-hours responsibilities. These requirements are challenging for small to mid-sized DME suppliers that may not receive enough reimbursement to cover the cost of equipment.
TPAs incorrectly suggest that managing claims and payer interactions generates meaningful savings for DME suppliers.
The operational requirements imposed on contracted durable medical equipment suppliers are often onerous, especially in light of the low reimbursement.
Access to care is constrained. Physicians are not able to direct patients to their preferred DME suppliers; instead, referrals are routed to providers based on negotiated pricing, often without regard to proximity or service capability. Too often, patients who once traveled a short distance to obtain basic equipment are now sent to durable medical equipment suppliers much further away.
The DME provider’s staff time is often redirected toward manually correcting errors, resolving discrepancies and chasing payment issues that were introduced by the intermediary process.
The proliferation of third party administrators in the durable medical equipment space does not represent the elimination of inefficiency, but the creation of another layer of administrative bureaucracy.
Steps to Curb TPA Abuses
DME suppliers can take these steps to address problems caused by TPAs:
- Lobby the Centers for Medicare & Medicaid Services (CMS) and state insurance commissions to issue regulations designed to curb the abuses caused by TPAs.
- Lobby federal and state legislators to pass legislation designed to curb the abuses caused by the TPAs.
- Educate the following groups regarding the flaws of the TPA model: media, physicians, the community at large, Congress, CMS, state legislators and state insurance commissions.
- Work with the American Association for Homecare, state associations and other industry stakeholders to accomplish the above.
Jeffrey S. Baird, Esq., is chairman of the healthcare group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, home medical equipment companies, manufacturers and other healthcare providers throughout the United States. Baird is board certified in health law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or jbaird@bf-law.com.
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