Cosourcing: The Right Vendor Partnership Increases Employer Flexibility

Employers often face a leave management conflict when considering outsourcing: the complexities make outsourcing attractive, but employers can’t outsource legal responsibility for decisions affecting their workforce. “Cosourcing” is a third option that may provide the right balance for some employers.

The complexity of leave management is always increasing, with states and municipalities passing new leave laws, and federal agencies pushing to expand their enforcement scope. “Twenty-five years ago, leaves were simple. Now this is one of the most complex things we do in human resources,” said Michael Vittoria, Director of Benefits at Lifespan, Rhode Island’s largest healthcare system.

Outsourcing to a vendor can solve many administrative challenges, but employers continue to bear legal responsibility for compliance. To balance these concerns, self-insured employers especially may seek a more flexible partnership with an outsourced vendor called “cosourcing”. They pay vendors to perform functions such as legal review, notification, medical certification, and leave tracking. Yet they retain or reclaim functions where an employer’s superior knowledge of operations and local conditions may yield a better decision. That is one of the core concepts behind cosourcing.

Taking It Back: Lifespan

How can you tell when a particular function in your leave management program has reached a tipping point and you should move it back to internal management?

For Vittoria, the big clue came in reviewing leave management outcomes. “Too many leaves were approved as Americans with Disabilities Act (ADA) accommodations,” he said. When Lifespan brought ADA accommodations in-house, the number of ADA leaves dropped by more than half.

An employer has a deeper knowledge of its operations and may be able to capture temporary opportunities for work reassignments. Lacking this knowledge, a vendor may be unable to rebut a medical provider’s certification that additional leave is necessary. An employer is not required to provide an employee’s preferred accommodation; it can select another approach that accommodates the employee and is a better match for the employer’s needs. Lifespan had more leverage on accommodations than the vendor did and achieved better outcomes.

Advantages of Outsourcing and Cosourcing

Accommodations and early return to work (RTW) are areas where employers may be able to achieve better outcomes through an insourced or cosourced program, said consultant Skip Simonds.

For many leaves, however, the specialized administrative skills and legal knowledge of a vendor are the core competency. As a result, across the entire scope of disability and leaves, outsourcing frequently produces lower total cost per leave, he noted. While a vendor’s more distant relationship with its client’s employees may have disadvantages for accommodations and early RTW, he said, it may have advantages in the vendor’s ability to adhere to protocol and consistently approve or deny claims based on established criteria.

Vendor Give-and-Take

In a cosourcing relationship with a vendor, an employer has more latitude to modify the way functions are performed, or which party performs them.

In addition to taking ADA accommodations in-house, Lifespan also asked its third-party administrator (TPA) to begin managing its state leaves. Their per-employee fee to the TPA has increased and decreased over the course of the relationship as functions were reassigned in either direction.

In some cases, employers plan a cosourcing relationship with its vendor from the start, with the goal of keeping some functions in-house, such as ADA accommodations.

In other cases, employers may seek to modify a simple outsourcing relationship into cosourcing due to dissatisfaction with one or more outcomes or metrics. But along with more control, an employer also assumes more responsibility in cosourcing. The employer may encounter surprises when attempting to design its internal workflow for a function that it wants to share with its vendor. “Do you really know your organization as well as you think you do?” asked Vittoria.

For example, the employer may want its line managers to play a role in leave intake or follow-up, giving the employer more control at key junctures in a claim. What if the organization’s priorities don’t allow managers enough bandwidth to perform this role? Is it sufficient to fine-tune and simplify the manager role, automating some tasks? Or will enough managers push back against the new role that the organization has to pull this item off their plate — and if so, what alternatives does the organization have?

The terms of the vendor contract may allow give-and-take to modify functions performed by the vendor and employer, or they may not. Lifespan self-insures its short-term disability (STD) and works with a TPA for leave management administration, including the Family and Medical Leave Act (FMLA) and leaves under other state and federal laws. Lifespan has been able to modify the functions performed by its TPA and has worked with this TPA for about three years.

Starting Over: SCL Health

ADA programs are also an important focus in cosourcing for SCL Health. In both their prior and current contracts, a disability insurance carrier tracks ADA accommodations with or without leaves, while SCL Health manages the interactive process and makes all accommodation decisions. Their newest vendor also tracks transitional RTW with restrictions, a valuable addition for SCL Health.

“The HR business partners in leadership wanted more collaboration over that whole process,” notes Michele Bolach, Director, Associate Occupational Health. The interactive and accommodation processes are mediated from end to end by Connie McCray, CPDM, Disability Case Manager. McCray works with the employee, the manager, human resources (HR), legal, healthcare providers, and all other process stakeholders.

“The Equal Employment Opportunity Commission (EEOC) truly wants you to have a conversation with the employee,” said Bolach. Managing the process in-house increases their confidence that they are meeting the EEOC’s standard for interaction.

SCL Health did not have the flexibility or services it wanted in its prior contract. When that contract ended, they wanted a new vendor, so they put out a request for proposal (RFP). The prior carrier provided leave management administration, including STD, long-term disability (LTD), FMLA, and ADA tracking (SCL Health self-insured STD, and the carrier covered LTD).

SCL Health was looking at the same scope and configuration, but with several service enhancements. Although they wanted to retain control over the ADA accommodation process, they wanted an active partner providing ADA tracking, record-keeping, and communication infrastructure. They expected this support to streamline ADA administration so their in-house interactive process could be timely and well-documented.

Some of their other goals in the RFP were:

• Simplified notifications sent to associates, managers, and other stakeholders
• Ability for SCL Health to customize telephone scripts (especially intake)
• More touch points with associates throughout the claim to explain next steps and the roles of key players in the process
• Assistance with the RTW process
• Payroll integration with vendors reports
• Access to view medical documentation received by the vendor to help SCL Health address leave accommodations
• Integration with SCL Health wellness programs
• A clinical model to help SCL Health reduce leave durations of complex claims

Implementation Challenges

As SCL Health found, some contracts or vendors prove too inflexible for cosourcing in the ever-changing world of leave management, which meant starting over with a new vendor.

Their experience with this transition reminds us that starting over has its own challenges. Bolach and McCray described some of these:

• Data transfer from the former vendor to the new vendor can present issues. Basic data compatibility is just the start. For several claims, the new vendor has needed help to differentiate an ADA claim from an FMLA claim. “Language the vendor uses can be a lot different from our language as an employer, which can cause miscommunications,” said Bolach. And with the complex overlap between the ADA and the FMLA, this area may involve some interpretation. “Even the lead people at some of these vendors have to go back to their reference materials,” said Bolach.
• Communication can be a challenge, due to language differences between vendors and employers. Bolach and McCray both worked for vendors before coming to SCL Health, yet still find challenges in this area. Have you understood the vendor, and did they understand your response? McCray restates to the vendor in her own language how she understands a vendor communication to ensure she understood it correctly.
• Implementing a new program with this level of complexity introduces many opportunities for miscommunication. Based on their recent start-up experience, Bolach said it is important to identify not only if a vendor has a particular capacity, but also how it performs that function to ensure a healthy partnership interface.
• Line managers will need start-up training. The vendor may be able to provide useful training resources such as videos, but some of these training resources will come at a cost. Plan on plenty of travel to train line managers at key locations.

Conclusion

Some employers want the best of both worlds: the specialized skills of an outsourced business partner, along with more flexibility and control in key areas. Cosourcing can provide that, if an employer is ready to assume greater responsibility for some functions, as well as orchestrating a more complex relationship with a vendor partner. Managing an outsourced vendor’s performance requires an employer to retain expertise in-house; cosourcing may require another step up from there.