'Value billing' may set stage for alternative legal fees

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Insurance companies hire lawyers as in-house counsel at reduced (wholesale) rates, pay lawyers in accordance with insurance policies, and otherwise have a dramatic influence over billing practices in the legal community.

In the 1960s, insurance companies demanded that lawyers submit bills showing the time expended in matters for which they were paying. As a consequence, attorneys began using time increments as a basis for pricing, not just as a management tool. Before then, lawyers had based their fees on the value received by the client.

Perhaps the insurance industry is once again poised to have a dramatic impact on the legal profession — but this time, indirectly.

In Rhode Island, it was recently reported that Lifespan hospital group and Blue Cross have reached an agreement intended to overturn the way hospital care is financed. The goal is to promote and pay for health (value) rather than episodes (hourly) of treatment.

Currently a patient pays (and the insurance company reimburses or pays directly) for the hospital stay, tests performed, and surgeries and related care. Does that remind you of the hourly bill that lawyers produce monthly (hopefully no less frequently)?

The agreement is the first to meet Rhode Island's unique rules concerning health insurance policies and their premiums. Blue Cross, the largest health plan in the state, and Lifespan, the largest provider in the state, have agreed in principle, with the details yet to be worked out.

The program will provide for fixed fees (alternative or "value" billing) for given procedures, thus discouraging tests and procedures that might not be needed but are usually performed because of insurance payments or attempts to make sure no stone is unturned in the treatment.

Does that sound familiar: performing more discovery than needed just to make sure "no stone is unturned" and to avoid an accusation of malpractice for failure to uncover hidden evidence?

The hospital will be eligible for bonus payments when it meets yet-to-be determined quality standards. Again, that has a familiar ring to it: bonus payments for faster resolution of the litigation, payment for results below the insurance company's reserve or other standards determined by the parties. It almost sounds like a professional athlete's bonus payments for playing more games or hitting more home runs than set forth as minimums in the contract.

Increased and more effective communications and streamlining payment processes to increase the hospitals cash flow are also part of the agreement — another familiar premise. When lawyers have effective communications in place, the client is seldom upset with the attorney and rarely refuses to pay in accord with the engagement agreement, thus increasing realization rates for the lawyer.

Tying payment to quality care is available elsewhere, but to a modest extent and never before to an entire state. The insurance commissioner in Rhode Island is mandating change in connection with premium rate reviews. As they say elsewhere, "follow the money."

In this case, when customers demand change, suppliers change. Here, the review process for payment of insurance premiums and health care will change, not overnight, but quite assuredly, and only because the customer (or regulator) demands the change.

When will lawyers' clients finally say "enough is enough" and demand change?

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