What are your risks if one of your vendors goes bankrupt?
Health insurers have gone belly-up in the past, in some cases leaving hundreds of millions in unpaid claims.
Here’s a potential scenario, where a payer – say a TPA or insurer – contracts with a vendor to handle certain types of medical services. The vendor schedules the patient, the patient gets the care, the provider bills the vendor; the vendor bills and is paid by the payer. 30-60 days later the vendor pays the provider.
At least, that’s how it is supposed to work.
Now let’s say the vendor runs into cash flow problems. Provider payment delays increase, and soon there are complaints from providers to the payer, or worse, regulators.
Some savvy payers who stay on top of this stuff immediately require the vendor pay their treating providers immediately after the payer reimburses the vendor. Others figure it’s no big deal and it will work out.
This goes on for a little while longer, until the vendor’s owners – let’s say a big investment firm – decide to walk away and write off their stake in the vendor. The new “owners” are the debt holders, the firms that bought bonds issued by the vendor’s owners. Now, the value of those bonds has dropped , and the bondholders need to quickly re-organize the vendor to cut their losses.
The new owners declare bankruptcy so they can buy some time while they figure out what to do.
No big deal, you say…companies go bankrupt all the time…someone will buy the vendor, and all will be fine.
The treating providers who are delivering care to your patients now demand that you – the payer – guarantee payment for past bills and for scheduled care. You protest that you’ve already paid those past bills. The treating providers point out that no one’s paid them, and now that the vendor is in bankruptcy, there is no assurance they will ever be paid all they are owed.
The potential consequences include:
- the patient gets billed, and/or;
- the Insurance Commission weighs in, and/or;
- treating providers refuse to continue or deliver treatment until payment is guaranteed by the payer.
So, payers may have to A) pay twice for the care that has been already billed and paid, and B) do so immediately or risk angry patients not getting treated, calling lawyers, and staying out of work even longer.
That’s the immediate problem – and it has to be addressed immediately.
There’s a bigger problem, though, and it’s almost as urgent.
If the bankrupt vendor is a dominant player in its niche(s), do other vendors have enough capacity to quickly step in and take over?
If not, how quickly can they ramp up?
If the answer is “not for a while”, how are you going to schedule treatment, collect and review data, manage care – all those functions the vendor was performing?
If you’re a TPA, the problem is even knottier. How do you go back to your employer/insurer clients and tell them they need to pay again for services they already paid for? Oh, and the vendor in question is one you – the TPA – recommended?
What does this mean for you?