Who should read this document?
Property Casualty (P&C) insurance executives in key insurance operational positions (Chief Executive
Officer, Chief Operations Officer, Chief Financial Officer, Chief Claims Officer, Chief Actuary, etc.) and claims
management, general counsel and claims adjusting professionals who are concerned about:
- Maintaining profitability in an increasingly soft market;
- Experienced personnel “brain drain” in their claims professional communities;
- Increasing the efficiency, consistency, productivity, cost effectiveness and service levels of their claims operations;
- The escalation of medical costs in bodily injury claims; and
- The high resource load required to select and maintain a large number of Voluntary Provider Network (VPN) relationships.
This paper is designed to accomplish three major goals:
- Provide an overview of what a modern property & casualty insurer should look for in a modern fully integrated VPN solution—from both business process and technology viewpoints;
- Describe how fully integrated VPN relationships, that exist today, can positively impact the key areas of concern insurers have as they look to their claims handling futures; and
- Pique your interest in examining the capabilities integrating Mitchell DecisionPoint® in to your claim handling process to meet these needs.
Key facts to keep in mind while reading this paper:
- Combined ratio results in the high 80s to low 90s are required to achieve “Fortune 500” results.1
- Modern fully integrated Voluntary Provider Network solution have been proven to bring tangible
and sustainable benefits to those property casualty (P&C) insurers—and most importantly to policy
holders—who have adopted them.
- Estimates are that a 4% to 6% reduction in pure losses and a 10% to 12% reduction in loss
adjustment expense are feasible through the appropriate selection and application of modern
claims technologies. This estimate represents a 4 to 5 point improvement in the carrier’s combined
- The medical payer landscape is in a high state of flux. The Government’s “Patient Protection and
Affordable Health care Act” is not yet fully deployed, and will likely have a number of currently
unknown teething issues. Nearly 10 percent4
of the US population is unemployed (and thus perhaps
without medical insurance). How and where will this impact property and casualty insurers? Where
and how these same carriers help to ensure access to quality healthcare professionals for their
insureds and assist them with receiving the maximum appropriate amount of the highest quality
medical care within the terms and conditions of these customer’s coverages?
A Property & Casualty insurer’s financial performance depends heavily on its claims organization. Even for
the best carriers, combined losses paid and loss adjustment expense routinely account for sixty to seventy
percent of the cost side of their combined ratio equation. The opportunity for P&C claims improvement to
impact insurer and policyholder success and satisfaction in several key areas is significant:
- Claims Adjusting Efficiency—more than 40 percent of claims adjuster’s time is spent on activities that
do not actively assist in bringing the claim to a prompt and reasonable conclusion. 5
to longer claim settlement times which can impact customer satisfaction, drive up litigation rates and
negatively impact loss and loss adjustment expense payment amounts. Worse, these inefficiencies
waste valuable adjuster time—an ever diminishing resource.
- Customer Satisfaction—Carriers achieving high levels of satisfaction retain customers and enjoy lower
customer acquisition costs. Among customers who indicate high levels of satisfaction with their carrier
overall, 94 percent renew their policy, 56 percent “will definitely recommend” and 46 percent indicate
they “will not switch for any price”. Acquisition costs for these carriers average 4.1 percentage points
lower for these carriers than “low satisfaction carriers”. Low satisfaction carriers retain 81 percent
of their customers with 31 percent “planning to shop” and only 27 percent in the “will definitely
Satisfaction with claim handling drives 12.3 percent of overall satisfaction for
policyholders, but this can dramatically increase around an actual claim event driving 44 percent of the
overall insurer impression by customers who filed a recent auto claim.7
- Claims Indemnity Leakage—Estimated at an annual rate between 6 to 10 percent of net written
- Loss Adjustment Expense Leakage—Inefficient processes and inappropriate use of claims adjusting
resources can add another 1 to 4 percent of NWP in leakage each year.9
Over the last decade, overall health care costs have continued to rise at rates that significantly outpace
inflation. According to the Bureau of Labor Statistics, medical costs have grown at nearly twice the rate of
the Consumer Price Index (CPI) between 2000 & 2010. This is largely due to soaring hospital and pharmacy
charges, increased costs associated to medical technological advances, and the increased costs of medical
services provided by physicians to treat patients. This dramatic increase in costs requires Healthcare, Workers
Compensation, and Property & Casualty insurers to find new and innovative ways to control these costs
while continuing to improve the quality of care and extending and enhancing the benefit received by the
insured—all while providing ever increasing levels of customer service to their member communities.
Voluntary Provider (VPN) networks—also known as Preferred Provider Organizations (PPOs)—are a form
of Managed Care Operation that arose as a result of consumer and provider disenchantment over tightly
managed Health Maintenance Organizations’ (HMO) plans formed in the 1960’s to help control costs and
direct patient care. These VPNs were formed to deliver members broader choices of available physicians and
hospitals in their geographic area along with fewer requirements and constraints than existing HMO plans.
A VPN offers numerous benefits to provider members, including development of wellness programs, overall
communication to its member community, access to peer specialties, and many others. In order to provide
the highest levels of care to their members, VPNs seek out and contract with highly qualified physicians—
who are not only licensed, but credentialed and board certified in their various areas of expertise; ensuring
that the provider network has the very best and brightest medical providers.
Medical providers benefit as well. In exchange for accepting pre-determined payment rates for specific
medical services, the medical providers voluntarily join and obtain the opportunity to assist more patients
through activity within Group Health, Workers Compensation and Automobile insurance network programs.
As no per bill rate negotiation is required, an additional benefit to providers is prompt payment of the
compensable submitted claims, along with a consistent claims handling and reimbursement process across
all three of these lines of business. This mutually beneficial relationship between the payer and medical
provider ultimately serves to deliver superior medical care and increased satisfaction to the patient, a more
consistent stream of patients, and lower administrative costs for medical providers while helping to control
rising medical costs in the insurer community.
- Preferred Provider Organization (PPO)—A healthcare delivery system through which medical
providers contract with payers to offer medical services to members at various reimbursement levels in
return for more activity, timely payment, or other benefits.
- VPN Channeling—To guide or informally direct policy holders or members towards medical providers
within the VPN network as a means to increase awareness of the availability of medical providers. This
aspect is also known as “channeling.”
- Tiering—The process of implementing more than one VPN network in the same geographic area in an
effort to expand the probability of provider participation.
Note: It is important to underscore that tiering is not to be confused with cherry-picking—which is the
deliberate selection of the lowest cost network rate available to the insurer for the delivered medical
care and treatment provider.
VPNs: How Do They Work in Auto Claims?
In the late 90’s, the VPN networks began to expand their traditional focus from group health and workers’
compensation networks to include automobile insurance providers. During this time, VPN networks began
to contract with medical providers to allow auto insurance carriers to participate in the VPN network
programs under terms and conditions that benefited both the automobile insurer and the medical providers
themselves. In exchange for soft channeling (directing) of injured parties to network providers, automobile
carriers received the benefits of improved medical cost management and customer service.
Most insurance carriers within the P&C market use VPN networks through partnerships with medical bill
review software applications or service providers. Within these applications and processes, three general
types of workflow models exist for processing and determining the VPN adjustment.
The first option is called an “Embedded Model” and is an all-inclusive process that simultaneously determines
whether a medical provider participates in a VPN network using a sophisticated algorithm to match provider
demographic variables (e.g. tax identification number, name, address, etc.) to a database contained within
the bill review application. Once matched, the medical bill is automatically priced to the VPN adjusted rate.
This process of determining whether a provider is a participating member of the network and the application
of contractually agreed upon pricing to the charges takes place simultaneously and instantaneously within
the bill review application.
The second option is called a “Pend & Send” model and is used to place a bill on hold status, or “pend” the
medical bill within the software while it is sent directly to the VPN for processing using an electronic data
interface (EDI) between the bill review application and the VPN network. Upon receipt of the medical bill
from the bill review vendor, the VPN prices the medical bill according to the predetermined adjusted rate
and returns the data electronically to the bill review vendor for import into their application. This process
typically occurs within a 24 hour window. Within this model, numerous electronic file formats are supported,
including custom text files or XML or the medical industry supported ASC X12 837.
The third and most recent technology based option is called a “real time” model and is used to price the
medical bill to the VPN rate immediately upon receipt without having to pend the bill off to the VPN for
Below is a typical workflow of how a P&C Automobile carrier might receive notice of an injury, communicate
with a policyholder about a VPN provider, and process medical billings related to the injury.
Under either model, the claims representative is presented with the contracted pricing for medical charges
in accordance with the network fee schedule and allows for an associated Explanation of Benefit (EOB)
statement to be generated for mailing to the medical provider denoting that the payment was adjusted
from the submitted amount in accordance with the network fee schedule. This indicates to the provider
that the auto carrier is a participating payer and that the provider is contractually obligated to accept the
contracted rates due to the voluntary agreement with the VPN. This process greatly shortens and simplifies
claims adjuster involvement in the medical bill review process and many medical bills need no adjuster
“touch” at all as they flow through system supported “straight through” processes.
VPNs: Rate and Payment Considerations
As it relates to the use of medical bill review edits, state fee schedules, benchmark fees and/or VPN networks,
most VPN agreements stipulate that payers are obligated to pay medical providers at the maximum
contracted rate. While generally speaking that vast majority of VPN rates are lower than the benchmark
fees, there are circumstances in which the VPN rate is higher.
In a small percentage of circumstances, medical providers might question the application of or the amount of
the VPNs reimbursement to the submitted charges. Although rare, such disputes involving network medical
providers are handled by the customer service departments of the VPN directly with the provider. Disputed
issues may include (1) whether the provider was participating in the network as of the date of service, (2) the
contractually agreed upon amount for the services rendered or (3) the timeliness of payments. Mitchell Auto
Casualty Solution customers can also rely on our customer service department to assist them in the dispute
resolution process and help to ensure any such issues are resolved expeditiously.
Finally, most VPN agreements require that auto payers make a timely payment to the medical provider
upon receipt of a complete medical bill (e.g. within 21 days of being re-priced by the VPN). Such “prompt
payment” provisions offer an added benefit to medical providers who can be assured of timely payment of
their claims. For medical bills paid beyond the contractually acceptable period, within some jurisdictions,
medical providers may have the option to not accept the VPN rate and instead request full payment of the
Benefits of VPNs in Auto Claims
Within the last decade, VPN usage within Property & Casualty has increased significantly. Through the use
of appropriate, pre-established and contractually based rates, the use of VPNs offers an effective customer
service benefit by effectively increasing the benefit amount available for necessary medical care available
within a policyholder’s coverage limits. Looking at this from an individual claim basis shows that as provider
charges are adjusted by network programs, more of the insured’s coverage limits remain available, thus
effectively “protecting” available coverage limits so injured parties can continue with appropriate medical
care for injuries sustained under policy terms, conditions and limits.
In addition, VPNs have offered a viable alternative to the use of benchmark fee re-pricing and the associated
legal and customer service limitations of using such practices. Since providers have contractually agreed to
accept reduced charges in advance, claimants no longer receive “balance billing” statements from medical
providers, which reduces provider disputes and their attendant costs (generally arbitration and/or litigation).
In most instances, the contractually acceptable pricing is less than the benchmark fee, thus offering payers a
cost effective and safer alternative to the use of benchmark fees in bill review.
VPNs provide a substantial increase in overall cost containment as compared to other methods to review
medical charges. Typical adjustments of charges from participating providers can range between 5-25%
or higher, depending on the jurisdiction, the VPN in use, or the type of service rendered (professional or
facility). The extent of program benefits vary depending on each jurisdiction and the VPN utilized. To assist
in further understanding the broad range of benefits available to insurers and their policyholders from
the implementation of a VPN network, Mitchell Auto Casualty Solutions can conduct a detailed analysis;
including estimating the percentage of medical charges that would be eligible for network pricing, the
opportunity improvement from the submitted charges using historical claim data as well as significant and
valuable insight in to claim frequency, severity and treatment patterns.
Finally—and most importantly—VPNs allow the highest levels of superior medical care to be made available
to policyholders within a cost structure that provides for the maximum appropriate medical benefit possible
to be received by the injured party under the terms and conditions of the insured’s policy.
Implementing a VPN: Practical Considerations for Effective Claims Handling
By following specific implementation guidelines, the inclusion of VPN programs in automobile claims
handling processes is a very viable technique to help insurance carriers and other payers control medical
costs, maximize policyholder benefits, and offer access to accredited medical care for covered individuals.
Numerous opportunities exist within the P&C market to capitalize on the implementation of VPNs, using
well-tested best practices and acceptable contract terms to ensure positive medical provider relations and
ensure quality medical care. Currently, there are several National VPNs, numerous regional VPNs, and several
targeted specialty provider VPNs that can be selected and implemented by an insurance carrier.
In considering implementing a VPN network, it is important for P&C insurers to only apply VPN amounts
(adjustments) to providers who have explicit contracts allowing bills to be adjudicated by property and
casualty insurers (and what type – e.g. automobile). Relative to whether providers have received sufficient
consideration for allowing automobile carriers to participate in the network, the courts have ruled
that participation in a network wherein providers receive referrals from group health and/or workers
compensation payers is sufficient to support the additional discounts provided to automobile insurers as
Implementing Best Practices
When considering implementing an automobile VPN program, it is critical to follow established best
practices to ensure a successful rollout. Mitchell Auto Casualty Solutions encourages our clients to adhere to
follow best practices in the implementation of a VPN program:
- No Silent VPNs—Establish an internal and external communication and notification plan to ensure
the use of the VPNs is clearly known and understood by all constituents. Payers are encouraged to
advertise the VPN for their policyholders and members whenever any of the following events occur:
- A new policy is written.
- Within a contracted specified time frame after initiation of the VPN (e.g., VPNs notify providers of
the start date of the insurer to start utilizing VPN discounts OR Insurers notify policy holders OR
both dependent upon the VPN).
- By state requirement (California SB 559) — Upon first notice of loss by the claimant, or as part of an
application for no-fault benefits, the provision of medical authorizations, etc.
- Likewise, VPN’s are encouraged to regularly notify their provider members of the automobile
insurance payers within the program. Mitchell Auto Casualty Solutions can provide sample
communications as part of the implementation process. Types of marketing and advertising may
- Upon policy renewals, carriers may provide referral cards for the VPN to members and
information on how to access the providers.
- A toll-free 800-number and websites to the VPN network to locate a participating physician or
- Development and maintenance of information or website links/references from the insurer’s
website to or about the VPN network.
- Provide referral cards for claimants that identify the claimant’s auto payer as participating in
the VPN network and directing the provider where to bill submitted charges. This is not to be
confused with an authorization for medical care or a guarantee of payment.
- Provide business cards, emails, magnets and other types of marketing materials to claimants,
insurance agents or adjusters. This includes general policyholder notifications (e.g. via new and
renewal policy mailings), claimant notifications (e.g. including a program description in the
application for benefits), claims adjuster and agent education programs.
- Letters to VPN members notifying them of the addition of a new automobile insurance payer.
- Develop a soft channeling process to ensure claimants can locate and find VPN Providers. This can
include providing a website link to the VPN networks physician referral listing on mailing, or other
claimant communications. Nonetheless, carriers should never require policyholders to use network
physicians as a condition of receiving policy benefits. At all times, VPN networks are an “injured party
- Review your state’s specific insurance policy contract language to ensure it supports use of provider
networks. Although not required, automobile insurers may consider modifying policy language to
support the use of VPN networks as an added measure.
- Consult with your legal counsel to ensure you are complying with all contract terms, conditions, and
processes. It is important to maintain excellent provider relations by strictly adhering to the VPN terms
- Consult with Mitchell Auto Casualty Solutions and your other partners before implementing a VPN
program in any state in order to ensure a timely rollout of the automated data interface.
- Select an internal team to review workflow, processes, exception handling, billing and credit processes,
handling provider disputes before implementing a new VPN.
- Work with Mitchell Auto Casualty Solutions to review the VPN provider contracts to ensure they
specifically identify acceptance of “Automobile Insurance” market.
- Once the VPN is implemented, review the end-to-end process yearly to ensure all documentation is
up-to-date and that the program is being adhered to.
Provider networks are an effective customer service and cost containment option for automobile insurers.
Over the last decade, VPNs have delivered outstanding value to automobile insurers and should be an integral
component of their comprehensive claims cost containment programs. By implementing a clear, concise
and documented “best practices” approach with Mitchell Auto Casualty Solutions, VPNs can be seamlessly
integrated in to an automobile carrier’s claims handling workflow provide benefits for the insurer, VPN
providers and—most importantly—the injured party.
About Mitchell Auto Casualty Solutions
Mitchell Auto Casualty Solutions (ACS) provides technology, database and service solutions that enable
customers to achieve claims operational excellence while handling 1st- and 3rd-party liability and medical
claims in a more timely, efficient, cost-effective, accurate, consistent and fair manner.
For more than 20 years ACS has delivered high-quality products and services to property casualty claim
insurers, service providers and TPA customers assisting them to better analyze and adjudicate 1st- and 3rdparty
medical bills and execute complete, comprehensive and consistent liability and injury evaluations and
claim settlement strategies and deliver superior claims service.
Mitchell DecisionPoint® Suite reviews over 13 million medical bills each year representing more than $11
billion in medical provider billed charges. DecisionPoint is in use by more than 40 top US property casualty
insurers including 8 of the 10 largest automobile insurers representing more than 60 percent of direct
written premium in the personal auto lines market.
Mitchell ClaimIQ™—provides investigative and damage evaluation consistency and negotiation, including
settlement support to more than 5 million automobile and general liability claims per year.
Mitchell International (www.mitchell.com) is a leading provider of information and workflow solutions to
the Property & Casualty claims and Automotive Collision Repair industries. The company’s comprehensive
solution portfolio streamlines the entire auto physical damage, bodily injury and workers’ compensation
claims processes. Mitchell enables millions of electronic transactions between more than 30,000 business
partners each month to enhance partner productivity, profitability, and customer satisfaction.
For More Information
To learn more about Mitchell International, call 1-800-238-9111 or 858-368-7000 (US and Canada), or visit
- 1 ISO, Insurance Information Institute.
- 2 Celent, Technology Enabled Claims Performance Improvement, September 6, 2006.
- 3 PricewaterhouseCoopers’ Financial Services Institute indicates that “effective claims transformation has the potential to reduce loss and expenses by
- 5-12 percent. A Timely Adjustment—Transforming Claims Operations for Measurable, Sustainable Advantage, March, 2010.
- 4 Per this report, twelve areas recorded jobless rates of at least 15.0 percent, while 9 areas registered rates below 5.0 percent. The national unemployment rate in August of 2010 was 9.5 percent, not seasonally adjusted, compared with 9.6 percent a year earlier. Metropolitan Area Employment and Unemployment Summary, United States Department of Labor, Bureau of Labor Statistics, September 29, 2010.
- 5 Estimates by consulting firms and industry analysts including Accenture, Celent and Tata.
- 6 J.D. Power and Associates, Preparing for the Hard Market in Personal Auto Insurance, August, 2009.
- 7 J.D. Power and Associates press release, Providing High Levels of Customer Satisfaction Has Clear Implications for Auto Insurers, August 29, 2006.
- 8 Estimates by consulting firms including Accenture, McKinsey & Co., and PricewaterhouseCoopers (now IBM) and leading industry publications put leakage and excess loss adjustment expense at 10-15% of NWP. A May 25, 2010 Insurance & Technology article “Talking Claims Transformation With Ernst & Young’s David Connolly” indicates that claims leakage is “trending at about 13 to 15 percent.”
- 9 Ibid.
- 10 Seaview Orthopaedics v. National Healthcare Resources 348 N.J. Super. 272, 791 A.2d 108.
Copyright © 2011 Mitchell International, Inc. All rights reserved.
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must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Mitchell, and Mitchell cannot guarantee the
accuracy of any information presented after the date of publication.
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