Traditional legal insurance e-billing and legal fee auditing software and services can be confusing. By the end of this article, you will understand these services, their benefits and burdens, and how you can help your company truly advance its claims litigation department.
What is Legal Insurance E-Billing?
Legal insurance e-billing allows law firms to submit digital versions of their legal invoices into online management software for insurance companies’ personnel to review, accept or reject, and process for payment. This software provides opportunities for insurers to improve their litigation department, however, many misconceptions about these services often create problems that cancel out the benefits.
Common Misconceptions about Legal Insurance E-Billing:
Understanding what legal insurance e-billing software is can be simple. Understanding what legal insurance e-billing software is not can be more complex. There are several misconceptions that have left insurance companies with incomplete litigation management infrastructures.
• Legal Insurance E-Billing is Not “Case Management” or “Matter Management”: Although often referred to as case management software, legal insurance e-billing software is simply an online portal where legal assistants or bookkeepers upload digital invoice files. No substantive communication occurs through e-billing software. No legal processes occur through e-billing software.
• Legal Insurance E-Billing Software Does Not Automate the Bill Review Process: E-billing software streamlines communication and management of legal invoices, but it does not review the invoices for the insurer. Insurer personnel typically have to review and approve each review finding. Further, legal insurance e-billing is not legal invoice auditing. Without outside legal invoice auditors, insurance company personnel must review each invoice.
• Legal Insurance E-Billing Software Does Not Produce Actionable Analytics: E-billing software providers only provided analytics regarding cost and duration. Insurers cannot make any meaningful hiring or strategy decisions without significant details and settlement outcomes on cases.
• Legal Insurance E-Billing Software Does Not Produce Return on Investment: Insurance company + Legal Billing ≠ Savings. There are many pivotal and draining efforts along the way, such as: hiring staff or third-party auditors to conduct the review of every line item in thousands of invoices; requiring those same people to manage thousands of monthly appeals to those reviews; and building out extremely detailed processes and workflows to lighten the load on the legal invoice auditing team.
Why are these Misconceptions Important?
Insurance company executives are demanding their litigation departments reduce legal expense, improve analytics, and provide transparency into their processes.
If you are a litigation manager that has been asked to find software to make lawyers’ invoices paperless, you can confidently recommend the legal insurance e-billing software. But if you have been asked to improve the legal department, you must avoid the common e-billing software misconceptions and recommend truly advanced insurance claims litigation management software.
What is Legal Fee Auditing?
Legal fee auditing or legal bill review is the process of reviewing legal invoices for billing errors, budget compliance, and unreasonable attorneys’ fees. General industry understanding is that legal fee auditing programs can reduce legal spend by 5-8% in the first year, with declining results thereafter.
Auditors review each line item in each invoice and accept, reject, or modify each billing entry. If the auditors reject or modify an entry, the law firm will then appeal the auditor’s decision. At that stage, the appeal is submitted either to the auditor or to the assigned litigation adjuster to make a final decision.
In the smallest legal departments, the litigation adjuster handling the claims will also review the lawyers’ invoices. In larger legal departments, insurers may have a team that exclusively reviews invoices and appeals. A third alternative for legal fee auditing is to hire an outside company to staff the bill review process.
Two Problems with Legal Fee Auditing:
1. Legal Fee Auditing Alone Can Do More Financial Harm than Good.
Legal fee auditing can often create more problems than it solves. Insurers that only measure attorneys by cost and duration run the risk of large increases in indemnity settlement spend by sacrificing outcome metrics for expense. Additionally, legal fee auditing can bring a false sense of return on investment at its inception. Law firms will adapt their invoicing to the requirements and, as a result, the auditing can become more expensive than the legal fee reductions. Lastly, because legal fee auditing is a time-intensive effort, it can distract claims and litigation executives and draw them away from other initiatives that can produce more significant financial results.
2. Legal Fee Auditing Drains Resources.
We will use an example to illustrate this point. At an insurance company with 2,000 pending cases, auditors must review 2,000 invoices each month, which equates to 100 invoices per workday. Those invoices contain approximately 5 to twenty-five line items in each invoice. That amounts to 10,000 to 50,000 line items per month, or 500 line items to 2,500 line items per workday!
Wait, there is more. During that same month, the auditors need to review thousands of appealed line item adjustments made the previous month, communicate this to law firms, determine the amount owed on the invoice, and issue payment.
In every scenario except for the fully outsourced model, legal fee auditing can easily drain insurers’ already overstretched resources.
What Should Insurance Companies Do?
Despite these concerns, insurers need legal insurance e-billing and legal fee auditing. Insurers cannot avoid devoting resources to auditing legal invoices, and they need e-billing software to keep these efforts organized. Ultimately, legal fee auditing and e-billing can help control legal spend. However, insurers must understand that these services can obstruct true claims litigation management, rather than improve it.
If an insurance company executive tasks a manager with solving litigation problems, the manager must be able to clearly articulate that e-billing and auditing creates more problems with true litigation management. That manager must be able to explain that if the executive wants a better legal department, they must select software and services that truly help manage litigation.