The report states that the TPA "cited corporate policy" for not showing the contract to auditors. "They told me point-blank I wasn't getting it," says Ken Shaw, a director in the office of the school district's chief auditor, about his in-person request for the CorVel contract at Gallagher's offices in Itasca, Illinois. "Their argument was that it had nothing to do with [Broward's] contractual relationship" with Gallagher. Moquin, the risk manager, expects to receive a legal opinion by the end of this month about whether the district is, in fact, entitled to see the contract, according to Shaw.

For their part, the auditors write that the contract is "paramount to understanding the relationship between these two parties," and the inability to see it might hinder the district's staff from authorizing and accounting for "how our people are treated or our money is to be spent."

That understanding is essential to proper oversight, say workers' comp experts, because the TPA is in a position to steer employer business to a managed-care vendor. If the vendor buttresses that relationship by doling out fees or commissions to the TPA, the employer could end up paying dearly. Despite claims of working solely on the employer's behalf, for instance, the TPA might choose vendors based on the fees or commissions they pay, or look the other way if vendors overbill. In fact, the TPA could stand to gain from the overbilling, since vendor-to-TPA fee arrangements are commonly based on a percentage of the managed-care company's revenue.

Without commenting on the Broward situation specifically, CorVel's Clemons says that the company has "paid sales commissions to TPAs." He also says that CorVel pays Gallagher for scanning incoming medical bills involving Broward workers, pointing out that Gallagher has "strong and effective systems in place."

To be fair, the existence of sales commissions might well stem from the excessive price pressure that employers have put on TPAs. Employers "have been to a certain extent complicit" in vendor-to-TPA payouts by trying to "beat [TPAs] up for lowest possible administrative costs," observes Joseph Paduda, the principal of Health Strategy Associates, a Madison, Connecticut-based workers' compensation and managed-care consulting firm. "It's difficult for TPAs to get a profit, and they seek it in other places," says Paduda.

Citing "employer involvement and oversight" as "the most critical component" in a workers' comp system, the Broward auditors hold the risk manager, rather than the TPA, ultimately accountable. The auditors, who also find the handling of the program "woefully inadequate," recommend that the district restructure its operations so that workers' comp is a department unto itself, rather than a fiefdom under the sway of risk management.

As for finance chiefs of other self-insured organizations, the message of the Broward audit is readily apparent: Keep close watch on how your risk manager handles vendor relationships. To be sure, the workers' comp system "is a complex environment not well understood by those not working in it," says CorVel's Clemons. But CFOs need to be confident that the risk managers who report to them are among those who do.

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