LTC Claims Administration Toolbox Vendor Due Diligence, Selection, Experience and Management Introduction

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LTC Claims Administration Toolbox
Vendor Due Diligence, Selection, Experience and Management
Introduction
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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:
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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:
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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
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LTC Claims Administration Toolbox
Vendor Due Diligence, Selection, Experience and Management
Timetable (example)
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2/01/07
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2/7/07
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2/21/07
2/28/07
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3/15/07
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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:
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Volume discounts
Pricing competitiveness
Best product
World class service
LTC Claims Advisory Committee Guide 2008
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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:
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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
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LTC Claims Administration Toolbox
Vendor Due Diligence, Selection, Experience and Management
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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:
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Dun and Bradstreet report which contains
o Corporate information
o Risk Score
ƒ 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:
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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
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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:
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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
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