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Step #2: Maintain a Disciplined Sales Approach

It is likely easier to define unhealthy sales activity for a TPA than it is to define healthy sales activity. At the highest level, I like to use a “Sales Cost Ratio”, comparing total sales expense (salaries, incentives, sales support, travel and entertainment) with new revenue generated. If annual revenue from new sales does not exceed expenses by 250% and approaching 300%, there are likely unhealthy activities. That standard applies to the Departments and individually.

Other measures for evaluation of TPA sales effectiveness are: the number of new producing (proposals requested) and selling (cases sold) brokers/consultants; the total qualified RFP activity (number of RFPs resulting in proposals being generated) and the close ratio on proposals generated. Those are great indicators of sales activity, but equally important is “sales stress” placed on the company’s financial metrics and operations. Here are some additional measures worth considering. A word of caution…the measures may generate shocking results:

  • Percentage of new business sold with revenue at or above the company’s breakeven PEPM level. If a TPA generates $20 PEPM for revenue and has a profit level of 10%, $18 would be considered “breakeven”;

  • Percentage of new business cases sold with less than the company standard implementation time. A reasonable standard for a small to medium size group (100-250 covered employees) might be 45 days. MCS studies have shown that the average total implementation cost for a group that size is $6-8,000, with that cost doubled for each 15 days the implementation time is reduced;

  • Percentage of new business cases sold where a vendor not completely integrated with the TPA technically and operationally is sold. This should be viewed based on different size and overall revenue segments, since the operational and financial impact is much more significant for a smaller group;

  • Percentage of new business which terminates the contract within the first 3 years. While this can be driven by operational issues, MCS studies indicate that it is more likely caused by failure to set or understand client expectations; a client with a risk profile inappropriate for self-funding; and/or use of a broker/consultant with and unstable relationship with the client.

In last week’s discussion of Business and Sales Planning, we noted the importance of all Departments within a TPA working together toward common goals, with increasing revenue one of the top two goals for every TPA. With that said, it is incumbent on the TPA to ensure that there is alignment between what the TPA is attempting to sell and operational strengths. Agreement on that principal will go a long way toward a disciplined sales approach.

Operational Support of Sales

One of the most important things for a TPA’s operations and senior management team to pursue is establishing the boundaries for what should be sold, and where there may be allowable variation. In its simplest form, this could be a minimum size requirement. Let’s say that is 50 covered employees. Unfortunately that boundary alone may not be sufficient. Does the picture change if the group has multiple plans or uses a PPO network or PBM that the TPA has not used previously? How about if the group utilizes a low specific stop loss level and the TPA has never worked with the stop loss market previously?

The evaluation of a prospect should be completed at many levels and the sales force must understand and respect operational strengths and weaknesses. In the above example, it may be that the group wants two Plans, but is willing to use model plans that the TPA has built so plan building is minimal. That would reduce operational stress by shortening plan building time and placing more covered lives in plans that Examiners and CSRs are familiar with. If the group is not willing to modify its plans to “standards”, stress begins with plan building and continues throughout the relationship.

Future blogs will tackle to topics of PBMs and PPOs, but from a sales perspective if new relationships are not handled properly and with sufficient covered lives to justify the implementation resources they can create serious operational and financial issues. New “one off” PBM relationships pursued for a specific client used to be much easier. That changed with the need to synch participant out-of-pocket accumulators. Given the implementation resources, file exchanges and potential for reconciliation issues impacting claims and customer service, I don’t know that I would recommend implementing a new PBM for less than 1,500 covered employees.

The decision on implementing new relationships with PPOs boils down to: future business opportunities (i.e., Do we stand a better chance at new business if we promote the TPA’s integration with the PPO?); the re-pricing arrangement (i.e., Is the PPO able to act as a clearinghouse and send and receive re-priced claims); and most importantly are the agreement with the PPO and the PPO’s contracts with providers consistent with the TPA’s efforts to control cost for its clients.

One of the most beneficial projects that a TPA can take on is identification of “business standards” for prospect evaluation and services. That includes higher level evaluation criteria and definition of specific services and what is standard, allowable, allowable with pricing adjustment and a “deal breaker”. Customization and creativity are important, but selling deal breakers is not worth the stress on operations and financial impact on the organization.

Beyond evaluation criteria and boundaries, the TPA’s operations must provide sales with reporting on metrics, success stories and multiple (and willing) referenceable existing clients that support communication of the TPA’s value. Beyond price, Plan Sponsors focus on cost controls, service to covered members and support of their efforts to manage their plans. TPAs like to say that their cost controls offset any advantage that carrier-developed networks may have. A concise, up-to-date and effectively presented set of results from cost control programs “puts the money where the mouth is”. Standard service metrics like abandon rate, claims turnaround and accuracy are “rule out” measures, and only important form an evaluator perspective if the results do not meet standards. Anyone buying TPA services expects a TPA to perform at standards. They confirm this by reputation and references. Does anyone think that there is a perceived difference between a 1% abandon rate and 3% if the standard is no more than 5%? How about 90% of claims processed in 10 days versus 80%? Think outside the box with operational measures on provider billing challenges, appeal rates, types/topics of calls, care re-direction to less costly alternativesseveral factors and participant compliance and understanding.

Focus on the Sales Team

Effectiveness in the TPA sales world is really a product of several factors, including: having the right people; giving them the right direction and tools; promoting laser focus; choosing the right time to “punt”; and compensating the team appropriately. My 10 Sales Golden Rules are:

  1. Continually evaluate the team to ensure that members have the right balance of relationship development AND technical knowledge. The market is increasingly complex and terrific relationship builders cannot succeed without that technical knowledge.

  2. Hire team members with technical expertise or be committed to investing in training.

  3. Focus efforts on niche specialty markets/prospect types where operational capabilities might flourish or the TPA has had successes.

  4. Leave “old and dusty” messages behind and focus on emerging areas of interest. Buyers care less about 150 combined years of experience in the management team than what Apps might be available to assist the covered participants.

  5. Require initial and ongoing evaluation of distribution partners (brokers and consultants). This includes their real contacts and book-of-business as well as how they evaluate options for clients and their ongoing role in managing the client.

  6. Linked to #5 is the requirement to complete a full “post mortem” on any prospect where the TPA was not successful, focused on the distributor’s efforts (i.e., Was the RFP complete and representative of someone collecting appropriate data to assist with management of the Plan? Did we retrospectively confirm that the distributor had control of the client? Did we receive appropriate and professional feedback during the process?).

  7. Require the sales person to complete a full evaluation and strategy for each submitted prospect. That means that 20-30% of prospects should never be submitted because they do not meet criteria with respect to distributor, size and services, lack of data or any other factor. For those which are submitted, the sales person ultimately owns the strategy and must document the support needed from operations and other areas.

  8. Ensure that the sales team member adequately manages their own time and that of the remainder of the TPA. This includes a constant and accurate assessment of “potential to close” and a willingness to understand that the TPA will not be a good fit for every prospect. In those situations where there is not a good fit, the sales person should “punt”.

  9. Create a culture of accurate and complete sales reporting, including contacts, RFPs, prospects, issues and probability of close. Every other area of the company depends on this feedback for planning, product/service development and quality improvement.

  10. Develop a sales compensation program which is fair, acknowledges the importance of the first 9 Sales Golden Rules and is linked to team and individual performance.


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