Legal Spend Management
: Paying What You Owe
Bob Mullen, Director of Industry Relations, Bottomline Technologies John Alles, Regional Sales Director Southeast, Bottomline Technologies
This Morning’s Agenda
• What is Legal Spend Management?
• Who Utilizes Legal Spend Management?
• Legal Spend Management Models & Results
• Common Billing Mistakes
• Measuring Results
• Appendix
What is Legal Spend Management?
It’s About Cost Control
Why the Focus on Legal Cost Control?
What is Legal Spend Management?
Framework for the “Rules of Engagement”
• Not an Open Ended Assignment
• Driven by Billing & Case Guidelines
Manage and Control Legal Spend
• Industry Accepted Standards
• Ethical Billing – ABA Model Rules
Only Pay What You Owe
• Negotiated Rates
• Expense Reimbursement Thresholds
• Authorized Work
Legal Spend Management Components
Common
Industry Practices
Vendor Management
• Centralized Management
• Preferred Panel
• Negotiated Rates
• Billing Guidelines
• Case Budgets
• Electronic Billing
• Prompt Pay Discounts
• Non-panel Electronic Billing
Cost Control
• Central Bill Review
• Automated Workflow
• Validation of Rates
• Guideline Compliance
• Budget Warnings
• Claim System Integration
• Payments Integration
Who Practices Legal Spend Management?
Annual Volume
2,300,000 Invoices
$5,800,000,000
Bottomline Technologies
Legal Spend Management Community - 2013
Insurance
Company/
TPA
1000
+Independent
Adjusters
12,000
+Law Firms
I
Insurance
Company/
TPA
Expert Review
200+ Programs
30 of AM Best Top 50
Legal Spend Management
Legal Spend Management
Connected to Whole of the Law Firm Community
1-10 Attys
7,819
11-50 Attys
2,961
51-99 Attys
503
100-499 Attys
408
500+ Attys
21
Vendor Spend Management
Models For Legal Spend Management
Legal Spend Management Philosophy
Objective
• Rates
• Expenses
• Overhead
Moderate
• Clerical
• Budgeting
• Authorized
Subjective
• Time
• Staffing
• Billable
Automated
1-3%
Additional Time
1-3%
Analysis Required
1-3%
•
Conservative vs. Aggressive
Bill Review Business Models
Decentralized
• Claim Adjuster
• Standing Tradition – Claim Management Function
Centralized
• Specialist Attorney or Paralegal Staff
• Evolving Business Model – Vendor Management
Function
Decentralized – Adjuster Review
Pros:
• Proximity to Materials
• In-depth Knowledge of File & Parties
• Aligns with Budgeting & Case Management
Cons
:
• Thorough Review Very Time Consuming
• Lower Priority/Lower Interest Task
Centralized - Dedicated Bill Reviewer
Pros:
• Expertise to Evaluate Legal Fees & Expenses
• Consistent Review Process
• Higher Guideline Compliance & Lower Cost
Cons:
• Investment in Headcount or Added Vendor Services
• No Direct Access to Case File
ABC Mutual - Invoice Adjustments
Industry Comparison – August 2013
Measure
ABC
Mutual
Ins Co 1
Ins Co 2
Ins Co 3
Ins Co 4
Ins Co 5
Approved Invoices
14,954
16,189
11,417
14,085
58.611
4,323
Client Adjustments
5.20%
9.00%
9.00%
10.00%
6.81%
7.48%
Give Back on Appeal
2.00%
1.00%
3.00%
3.80%
0.12%
1.45%
Net Adjustments
3.20%
8.00%
6.00%
6.20%
6.69%
6.03%
Vendor Edits
0.75%
1.00%
1.35%
1.20%
0.68%
0.10%
Total Adjustments
3.95%
9.00%
7.35%
7.40%
7.37%
6.13%
Common Billing Mistakes
ABC Mutual Feasibility Study
Deduction Categories
Category
Reduction Amount
Reduction %
Travel Time*
$6,037.25
20.15%
Paralegal Activity*
$5,561.75
18.45%
Reasonableness of Time
$4,654.75
15.44%
Staffing
$3,401.00
11.28%
Scheduling
$2,804.75
9.30%
Enclosure Letter Prep*
$1,126.50
3.94%
Duplicate Entry Fees
$742.00
2.46%
Photocopy Charges*
$722.21
2.40%
Postage*
$601.46
2.00%
Measuring Results
Informed Decision Making
Getting the Most from Panel Counsel
3 Key Questions
1. Is the Law Firm
EFFECTIVE?
2. Is the Law Firm
EFFICIENT?
3. Is the Law Firm
0 10,000 20,000 30,000 40,000 50,000
Dissen & Page Mullen PLC
Cost/Case
Paid/Case
EFFECTIVE:
Measuring the Results
Total Cost of Outcome
$15K $30K
$17K $20K
Law Firm Closed
Cases Total Fees Total Exp. Total Cost
Avg.
Cost/Case Paid Loss
Avg. Paid Loss Total Cost of Outcome TCO/Case Mullen PLC 20 280,000 60,000 340,000 17,000 400,000 20,000 740,000 37,000 Dissen & Page 20 250,000 50,000 300,000 15,000 600,000 30,000 900,000 45,000
EFFICIENT:
Firm Staffing Patterns
Tracking the Hourly Effective Rate
Mullen PLC
Partner Associate Paralegal
Dissen & Page
Partner Associate Paralegal
Law Firm Hourly Rate Effective
Rate TK/Case Partner Associate Paralegal
Mullen PLC $275 $275 2.5 35% 50% 15%
Dissen &
COMPLIANT:
Paying Only What You Owe
Monitoring Billing Accuracy
0 2 4 6 8 10 12
All Firms Mullen PLC Dissen & Page
Percent Reduction
6%
Law Firm Billed Adjusted Adjusted Percent
Return on
Appeal Net paid
Percent
Reduction Law Firm Billed Adjusted
Mullen PLC 300,000 30,000 10% 300 270,300 9.90% ABC 300,000 30,000 Dissen &
Page 450,000 45,000 10% 25,000 430,000 4.40% XYZ 450,000 45,000 All Firms 2,000,000 140,000 7% 30,000 1,890,000 5.50% All Firms 2,000,000 140,000
Making Meaningful Comparisons
Assign Case Characteristics
Plaintiff’s Attorney
Severity/Complexity
Case Type
Line of Business
Appendix
Invoice Submit and Approval Workflow
LF Submits
Electronic
Invoice
Invoice
Validated
by
Bottomline
System
Invoice
Received &
Reviewed
by EBR
Attorney
Bill Analysis
Report
Sent to
Client & LF
Payment
Initiated
Invoice Submit and Approval Workflow
LF Submits Electronic Invoice
• Secured Web Portal
• Standard File Format
• Simple Upload
• Invoice Status View
Invoice Validated by Bottomline System Invoice Analyzed by Expert Bill Review Attorney Bill Analysis Report Sent to Client & LF Payment Initiated
Invoice Submit and Approval Workflow
LF Submits Electronic InvoiceSystem Validation
• Math
• Case Match
• TKs/Rates
• Auto Adjust Rules
Invoice Analyzed by Expert Bill Review Attorney Bill Analysis Report Sent to Client & LF Payment Initiated
Invoice Submit and Approval Workflow
LF Submits Electronic Invoice Invoice Validated by Bottomline SystemAttorney Expert Bill Review
• Client Guidelines Applied
• Reasonableness Standards
• Line by Line Review
• Multi-Invoice Review
• Life of Matter Review
Bill Analysis Report Sent to Client & LF Payment Initiated
Invoice Submit and Approval Workflow
LF Submits Electronic Invoice Invoice Validated by Bottomline System Invoice Analyzed by Expert Bill Review AttorneyBill Analysis Report Generated
• Sent to Client & Law Firm
• Summary & LI Details
• Approved Amount
• Deductions & Reasons
• Basis for Appeal if Any
Payment Initiated
Invoice Submit and Approval Workflow
LF Submits Electronic Invoice Invoice Validated by Bottomline System Invoice Analyzed by Expert Bill Review Attorney Bill Analysis Report Sent to Client & LFPayment Initiated
• Web Services Integration
• File Transfer Protocol (FTP)
• Bill Analysis Report
• Export CSV
• Export XML
Claims & Litigation Management Backgrounds
Bottomline Technologies’ Expert Bill Review Staff
Company Experience
• AIG
• Chubb
• Farmers Group
• Liberty Mutual
• Selective Insurance
• State Farm
• The Hartford
Responsibilities
• Casualty Claims Supervisor
• Defense Attorney
• Director Litigation Management
• Litigation Cost Manager
• Senior Claims Attorney
• Vice President of Claims
Defining an Expert Bill Reviewer
Staff Biographies
Tom Romando
Team Leader
•
Experienced and accomplished
insurance executive, managing
attorney and civil trial attorney.
•
Member of NJ and PA Bar
Associations for 30 years .
•
Former VP and Regional Director
of Staff Counsel for Selective
Insurance Company.
•
Former Shareholder Partner at
Parker McCay law firm.
•
University of Dayton School of
Law, J.D.
Laura Pillsbury
Team Leader
•
Accomplished senior executive in
insurance litigation, litigation
management, and business and
legal strategies.
•
Former Chief Legal Counsel for
Legion Insurance Company.
•
Former insurance and
re-insurance attorney at White and
Williams LLP.
•
William and Mary Law School,
J.D.
Defining an Expert Bill Reviewer
Staff Biographies
Kimberly Cummings
Team Leader
•
Decade of experience in medical
malpractice, personal injury and
toxic tort suits as both litigator and
director of outside counsel.
•
Member of PA Bar Association.
•
Former Associate Counsel for
regional health system.
•
Former Associate at prestigious
Philadelphia law firm.
•
Villanova University School of
Law, J.D.
Richard Hess
Team Leader
•
Recognized expert on law firm
fees with more than 25 years
experience in auditing and fee
dispute settlements.
•
Former court-appointed fee expert
for Enron, WorldComm & Adelphia
bankruptcies.
•
Former VP of legal spend special
projects for F500 company.
•
Former general practitioner.
•
Widener University Law School,
Why Can’t Law Firms Get it Right?
Too much
turnover in
the billing
department
.
Human nature.
Human error
.
Timekeepers
measured by
billable hours
.
No mechanism to
track the varied
client guideline
agreements
.
Early on when promoting the value of legal ebilling, it was common to hear in a sales pitch something like this, “So if your law firm is charging you .50 cents per page for photocopies the system will automatically adjust it down to your approved rate of .10 cents per page. “
Good stuff, low hanging fruit, immediate value – absolutely. But as systems have become more sophisticated and legal spend management programs have matured, the focus has been on managing the bigger cost drivers of time and task. And while this is the proper focus, I still come across programs where the photocopy rate allowed is above the industry norm of .10 per page. In one scenario, the excess photocopy charges added up to a hefty $265,000 per year.
Double check to see you are reimbursing expense items at a reasonable rate in line with your peers and industry standards. Specific to photocopies, the bigger questions is how many photocopies are even necessary; what are they for? With so many of us going Green, this is definitely a number that should be going down.
Director of Industry Relations, Legal Solutions bmullen@bottomline.com
In a conversation with a lawyer who utilizes Legal-X to send bills to a multitude of insurance clients, he told me the number one frustration within his firm wasn’t with ebilling, or even someone reviewing the bills, but rather the inconsistency of the bill review. He pointed to examples of where adjustments were taken for specific work on one invoice, but fully approved for the same work on another invoice. Handling invoice objections and appeals is time consuming, expensive, and adds friction to a relationship. Strive for consistency in your review by using standard practices within your organization.
Even something as simple as having common adjustments reasons among reviewers improves the consistency and message to the law firm on acceptable billing practices. It also provides you with better data so that when you speak with individual firms about poor billing practices, you can quantify the problem areas needing correction and benchmark for future monitoring
.
Director of Industry Relations, Legal Solutions bmullen@bottomline.com
An important extension of any legal ebilling system is the ability for the law firm to create a budget online the client can approve and automatically track with each successive invoice. In a paper environment creating a budget in Excel and making manual edits once a paper invoices crosses your desk is an inoperable model. And given most clients come to us from the paper world, they are not in the habit of requiring case budgets from their law firms.
Some firms advise it is too difficult to budget at the outset as each case follows its own lifeline. Well, if clients were asking for a budget that was in actuality a fixed pricing agreement I would concur. But what our clients want, and what we’ve been able to help them automate, is a process where a firm provides a baseline budget used to proactively monitor cost. The budget might be for the life of the case or set up to track spending through a particular phase (e.g. discovery) that then requires a re-set if the case continues on. Alerts are built in to warn of potential cost overruns at various stages of the claim to avert surprises.
A client recently came to us with a situation where they uncovered $100,000 of legal fees on a claim with a settlement value of $50,000. A budget set up with proper alerts would have identified early on the mismatch between the value of the case and the efforts of the law firm. Approved budgets are now required before the firm can submit an invoice for payment. No one wants to be blindsided by runaway cost and a budget can provide both perspective and a safety net when managing a claim.
. .
Director of Industry Relations, Legal Solutions bmullen@bottomline.com
Last month we went over the $500,000,000 mark for review of electronic invoices submitted to our clients by independent adjusters. The results continue to prove that, just as with legal invoices, there are significant efficiencies, cost savings, and business intelligence opportunities available by converting a vendor from paper invoicing to electronic.
What we see in the legal world is a well understood and closely controlled approach to reimbursement for expenses submitted by the defense firm handling the case. Mileage, meals, hotel, transportation, photocopies, telephone, express mail, overhead, prior approvals are all defined areas of each client’s guidelines distributed to the firms. But the same agreements with independent adjusters and other vendors is either lacking, or there is no mechanism in place to monitor compliance.
Over 1,000 independent adjusters are ebilling ready! This is spend that can be monitored. .
Director of Industry Relations, Legal Solutions bmullen@bottomline.com
Legal spend management applications have given claims organizations the upper hand in tracking the cost of defending a claim. The line item detail captured in the electronic invoice provide the ability to instantly report on legal fees and expenses for a claim, subset of claims, or all claims by any number of criteria. One critical measure enabled by ebilling is the ability to compare and contrast historic results by firm so new cases can be assigned to the firms who drive the best results.
But how do you measure the best results? If you rely strictly on the data collected from electronic invoices, your measurement is limited to the Average Cost per Case - legal fees plus expenses incurred. After all, the invoice is only a reflection of the time and expense billed while working on the case. And though the Average Cost per Case is instructive, it leaves out the most important factor – the end result.
Total Cost of Outcome is the purest measure of law firm effectiveness as it includes the Average Cost per Case plus indemnity payments. Settlement data resides in the claim system but can easily be incorporated into a legal spend management system through simple systems integration or minimal data entry. Too many companies with legal ebilling programs overlook this important step or put it off as a project for another day.
Comparing your law firms only on cost provides a false picture as your lowest cost firms aren’t necessarily your most effective firms. Adding in case results may show that a firm who would otherwise rank in the middle of the pack is actually a top performers …and valued partner!
. .
Director of Industry Relations, Legal Solutions bmullen@bottomline.com
Useful Links
• Sample Guidelines:
– Claims & Litigation Management (CLM) Guidelines -
http://www.theclm.org/Uploads/ContentPage/clm-guidelines.pdf
– Defense Research Institute (DRI) Guidelines -
http://www.dri.org/ContentDirectory/Public/WhitePapersReports/DRI
%20Recommended%20Case%20Handling%20Guidelines%20for%
20Insurers%20(2000).pdf
• Ethical Billing:
– American Bar Association (ABA) – Model Rule 1.5 – Fees
-http://www.americanbar.org/groups/professional_responsibility/publi
cations/model_rules_of_professional_conduct/rule_1_5_fees.html
– Department of Justice (DOJ) Fee & Expense Reimbursement -
http://www.justice.gov/ust/eo/rules_regulations/guidelines/docs/Fee
_Guidelines_no_exhibits.pdf
• Standards:
– Legal Electronic Data Exchange Standard (LEDES) & Uniform Task
Based Management System (UTBMS) –
www.ledes.org
John Alles
Regional Sales Director P 919.879.8597
C 919.750.8688
jalles@bottomline.com
Bob Mullen
Director of Industry Relations P 603.501.6738
C 860.335.4136
bmullen@bottomline.com