LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management Introduction .. The information contained here is to provide carriers with some of the key elements and tasks associated with the due diligence and selection of a supplier. Performing a thorough due diligence when a decision is made to outsource a service and/or function is key to a successful partnership with a supplier. A formal due diligence process is most successful when it is performed: • • • In partnership with a Corporate Sourcing Unit At least every 3 years Distributed to 3-5 suppliers A. Vendor Due Diligence, Selection, Experience and Management Request for Proposal (RFP) and Request for Information (RFI) Process Based on the service that is being evaluated, you will need to determine if a request for information (RFI) or request for proposal (RFP) process is appropriate. An RFI process is more informal and allows the carrier to determine if that supplier should be selected for the formal RFP process. Typically, an RFI process asks high level questions and is most effective when you are testing the market to survey if the supplier performs the service or if you have utilized a supplier for many years and want to validate that the product, service model and fee schedule are “cutting edge” and competitive. The RFP process contains in-depth questions related to the function or service. The RFI process is typically completed within 30 days and an RFP process in 45 – 60 days The RFI or RFP process typically begins with a standardized document. Larger carriers may look to their corporate sourcing department and legal department to prepare such documents. Smaller carriers might look to a knowledge expert internally who is most familiar with the service or function they are seeking to outsource to help develop the questions for the RFI or RFP and then obtain sign off from senior management. The document provides the following information: • • • • • • Introduction Objectives Requirements (product/service) Process Overview Communications (who to channel question through and how to respond to RFI or RFP) Specific questions related to the product or service (developed by the Business Unit) LTC Claims Advisory Committee Guide 2008 1 LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management Timetable (example) • 2/01/07 • 2/7/07 • • • 2/21/07 2/28/07 • • 3/15/07 • • • • • • • • • • • RFI/RFP document issued to companies Confirm intent to respond Forward clarifying questions Forward HIPAA business associate confidentiality agreement Response deadline Opportunity to submit “best and Final” offer Notification of selected company/vendor Right to Reject Right to Terminate Right to Negotiate Right Not to Proceed Preparation Costs Confidentiality Use of Information Clarification of Bids Disclaimer HIPAA Business Associate Agreement While the Business Unit plays a significant role and is the ultimate decision maker, it is usually most effective when the sourcing department drives the process and is the primary communicator. The RFI or RFP process may be leveraged across the corporation with other business units (Life, Annuities, Disability) to achieve the following: • • • • Volume discounts Pricing competitiveness Best product World class service LTC Claims Advisory Committee Guide 2008 2 LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management B. Vendor Due Diligence, Selection, Experience and Management Developing the RFI or RFP Questions The RFI/RFP questions will need to be very detailed. It is not unusual for an RFI to contain approximately 50 questions and an RFP to contain 100+. Following are key areas of focus: • • • • • • • • • • • • • • Supplier Diversity Corporate Culture o minority diversification Company Profile o # clients o revenue o financial statements o years providing service o clients added & lost last 3 years o references o benchmarks of service o profile of staff o use of background checks & frequency Claim Services o description of services o who performs service, skillet, credentials o training o sample of all reports i.e. cycle time o external network o copy of off-the-shelf tools o ability to use customized tools Quality Assurance o performance stands by service type o results of quality assurance program for the last 12 months Capacity Scalability Systems Security Disaster Recovery/Business Continuity Upgrade & Release Schedules (Pursue 30 day guarantees) o maintenance o frequency o fees Record Management Compliance o HIPAA o Fraud External Auditing o adherence to Sarbanes Oxley key controls LTC Claims Advisory Committee Guide 2008 3 LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management • • • • o SAS 70 or internal control letter from independent auditor Litigation o past 5 years of litigation including threatened or pending Use of outside suppliers and contractors Implementation Service & Fee Schedule C. Vendor Due Diligence, Selection, Experience and Management Supplier Due Diligence In addition to completion of the RFI or RFP, an in-depth due diligence of the supplier is critical to the ultimate decision. You may want to consider the following: • • Dun and Bradstreet report which contains o Corporate information o Risk Score Predicts the likelihood of a company not paying creditors o Risk Score Analysis o Incidence of Financial Stress o What markets they are doing business within o Pending litigation Completion of a supplier reference sheet based on discussions with other clients D. Vendor Due Diligence, Selection, Experience and Management Vendor Selection The Sourcing Department typically develops a spreadsheet containing a detailed comparison of all questions asked and the supplier(s) responses and fee schedule. The decision is typically determined based on the following: • • • • • • Years performing service Applicable industry experience Quality Assurance Due Diligence References Pricing Through this process you may consider a multi-vendor approach or an exclusive arrangement which can achieve a highly competitive fee schedule. If an exclusive arrangement is being selected you want to ensure that the supplier has a 5 year plan with the ability to handle the expected capacity. You will also want to ensure that you have selected a back-up or overflow supplier in the event the service standards cannot be achieved. LTC Claims Advisory Committee Guide 2008 4 LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management E. Vendor Due Diligence, Selection, Experience and Management Contracting Once a determination is made you will want to include some key features of the contract as follows: • • • • • • • • • Comprehensive Service Level Agreement with penalties Fee Schedule including any associated volumes Quality Assurance Program Robust Monthly Reporting on all aspects of service, product or program Dedicated Account Management ‘Right to Terminate” for any reason clause in the event supplier cannot meet performance standards, is acquired, merges with another company, etc. Protection of data and experience Errors & Omissions of approx. $10 million Background checks every 2 years F. Vendor Due Diligence, Selection, Experience and Management Relationship Management If a new supplier is selected, weekly conference calls for approximately 12 months are effective. This will allow for constant feedback on the suppliers performance. During these conference calls an agenda should developed with “standing” topics such as a process and performance update, a review of audit results, a discussion of any procedural changes and associated retraining. In order to provide feedback, it is important to have benchmarks in place in addition to a quality assurance program. A quality assurance program should measure the accuracy and appropriateness of the service and/or product. Auditing at 100% for the first 3 months will provide a level of assurance that the function is being performed at a high level. Based on the service/product, quality assurance can be measured by internal staff or can be measured through a customer satisfaction survey. Based on quality assurance results, the percentage of auditing can be reduced over time to approximately 5%. Once the partnership is established, conference calls should transition to monthly. LTC Claims Advisory Committee Guide 2008 5