Control Defense Council Costs With Alternative Fee Arrrangements

The effective claim management team should continually seek opportunities to reduce costs of managing and defending workers’ compensation claims. This delicate dance needs to balance the interests of the client against the bottom line. Part of this analysis includes the area of litigation costs and defense attorney referrals when a workers’ compensation claim is placed into litigation.

Referring a Claim to Defense Counsel

The first step in correctly managing defense claims includes the threshold decision of referring files out for defense. This is a careful analysis that needs to consider a number of factors. These items include the following:

• Procedural posture of a claim;
• The likelihood of litigation and benefits of referring a case to counsel;
• Complexity of legal issues presented in the case (and those reasonably anticipated); and
• The overall utility of managing the claim compared to benefits of having legal assistance and representation.

Another factor to consider is the experience the attorney representing the employer/insurer on the claim and their existing fee structure.

Insurance Defense Billing Structures

There are generally two types of billing structures used by attorneys in the defense of a workers’ compensation claim. Each methodology of billing has its pros and cons.

• Hourly billing with defined billing increments; and
• Flat fee billing arrangements.

Regardless of what billing methodology is agreed upon when referring a file for defense, it is important to agree with counsel on the basic terms. All fee arrangements should be in writing. Important defined terms should include:

• The nature and scope of representation;
• The obligations of the parties. This can include the frequency of status reporting and file budget matters;
• Post-hearing expectations, including appeals;
• Whom may work on the file? This can include whether multiple attorneys can work on a file, and what roles are permissible for support staff; and
• Billing increments and fee parameters. While “block billing” is generally considered outdated, it is important to define whether this practice is acceptable.

Defining the billing rates for associates, senior associates and shareholders is also necessary.

Moving Beyond the Billable Hour

Current trends indicate that insurance defense firms are interested in accepting flat fee or alternative fee structures. Under such arrangements, insurance defense attorneys accept workers’ compensation cases for defense that do not include rates billed upon time worked on the matter. They will instead bill the workers’ compensation insurance carrier or third-party administrator based on the service performed. An example of these services include:

• File in-take and initial preparation of a status report. This will include a review of the information known about the claim, what additional information would be helpful to better analyze the case, legal issues present or to be anticipated and recommendations for further handling;
• Written discovery and obtaining medical/other records;
• Other discovery, including the deposition of any witnesses, the employee and experts;
• Independent medical examination cover letter preparation and post-report analysis;
• Hearing or mediation preparation;
• Attendance at any necessary conferences, mediations and hearings; and
• Post-hearing disposition of a case.

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Deciding what type of fee structure works for a claim management team depends on a number of factors. This includes anticipated costs of each billing methodology and buy-in from component legal counsel.

Conclusions

Alternative fee arrangements can reduce the costs associated with a workers’ compensation program. Before implementing alternative fee arrangements, there are a number of important considerations. This should include a complete review of your program and the impact on retaining efficient and capable legal counsel.

Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: [email protected].

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