On February 28, I posted a piece entitled “Are’ Quick Pay’ Discounts Really Worth Anything?” I wrote that despite the seeming win-win allure of quick pay discounts, they can actually be lose-lose propositions. Here is why.
Attorneys universally hate having up to 3% to 5% of their bills cut just to have the insurer pay their bills in 14 days or less which is what many “quick pay” discount programs promise. No wonder that some attorneys look for ways to get back that lost money. If you do not think that many attorneys are not trying to reinsert the lost money back into their bills, think again.
From the insurers’ perspective, taking up to a discount in legal bills can actually wind up costing more money than the intended savings. For one, discounts can promote more, not less bill padding (see above paragraph). Also quality control problems can arise when reviewers are focused (and measured) on not only on trying to accurately review bills, but also to get them out the door in 10-14 days of receipt.
Compounding the quick turn-around problem is the fact that legal bills do not come in for review in even increments. That is, there are peaks and valleys. Adding to the problem is the issue of availability of staff not only during “normal” periods, but peak periods as well. Remember that staff often has a habit of taking vacations or being ill or resigning at the least opportune times. Because of staffing issues, bills during peak periods may get inadequate scrutiny before they are pushed out the door just to to meet the deadline to take a prompt pay discount.
The alternative? Slooooowing down reviews and payments. That’s right. Slowing down payments to 45 days gives reviewers more time to do more careful reviews on legal bills especially during peak periods. It also removes at least the temptation some attorneys have to pad their bills to make up for the quick pay discount.
But there also is a positive financial impact from moving from a 14 day pay to a 45 day pay – at least in the first 12 months of the program. Consider the example of a company that pays out $1 Million every 14 days to outside counsel. Now convert those same payments to a 45 day schedule and do the math to see the “savings” generated by making just 11 payments in the first 12 months of such a program.
Moving from a “quick pay” 10-14 day program to a 45 day program has the potential to produce a win-win situation for both insurers and attorneys. In fact, maybe attorneys will be so grateful, they may deduct 3% from their bills before sending them in. Well, then again, maybe not.