After Congress passed the Affordable Care Act in 2010, the 38 health insurers that operate under the Blue Cross and Blue Shield brand needed guidance, and they needed it fast. Blue Cross and Blue Shield Association, the umbrella group for the independent companies, saw an opportunity not only to streamline the way the insurers got legal advice, but also to save some money in the process.
The Chicago nonprofit had relied for years on its Legal Department Cooperative, an initiative run through its Washington office that coordinated hiring outside counsel on matters of common interest to the independent plans, among other things. The cooperative model proved a good way to cope with the onslaught of new health care regulations, said general counsel Roger Wilson.
"Instead of having each one of the plans’ legal departments go out and hire separate counsel on specific esoteric issues…they did [a request for proposals] and got a fixed rate," Wilson said. "That results in a big savings to the plans and to the Blue system as a whole."
The association and plans divided the cost of hiring Washington-based Miller & Chevalier to provide system-wide advisory services as the health care reform legislation went into effect. Wilson estimated that the move saved the Blue system $18 million in legal expenses.
Kirkland & Ellis partner David Zott, who serves as the association’s lead outside counsel for litigation, singled out the cooperative as an example of the association’s innovative approach to managing its relationship with outside attorneys. "On behalf of themselves and plans, they’ll send out a bid and are able to select the most cost-effective firm," he said.
The association’s legal department might be innovative in its dealings with outside counsel, but it also has an affinity for the tried and true. Given the association’s wide range of functions and the at times complex relationship with the independent insurers, Wilson said, he prefers to stick with law firms that already are up to speed with the association’s way of doing things. The association typically has relied on a group of six to eight law firms in Washington and Chicago.
"What we tend to do is go to those organizations that don’t have an education curve that they have to climb up, costing us money to learn how the system operates," he said. "We have a bevy of outside law firms that we know have expertise in particular areas."
For routine work, Wilson said, the association solicits proposals for firms to handle matters at a fixed rate. The company doesn’t deal with enough human resources matters to warrant a specialized in-house attorney, for instance, so it contracts with a firm at a fixed monthly rate — in recent years, Seyfarth Shaw — to be on hand for that type of work. "We like to get away from the hourly rate if we can," he said.
In other cases, Wilson, a former Kirkland & Ellis partner, said he recognized that a fixed rate wouldn’t be appropriate. The legal department will negotiate certain limits on hourly rates — insisting on a discount for "significant" litigation matters; negotiating percentage caps on how much a firm can increase hourly rates; and saying no to automatic annual hourly rate increases for partners and associates. The association will negotiate a certain number of "free" hours for work not directly associated with litigation, he said, such as appearing before the association board to brief members on the status of a case.
To keep track of fees, the legal department requires outside counsel to submit bills electronically through a web-based system. Wilson said the software enables the association to more efficiently keep tabs on rates and make sure outside counsel complies with the association’s guidelines. "If somebody’s rate has suddenly gone up, and they haven’t come to us to get that approved, the system will point that out," he said.
Although the association doesn’t take a one-size-fits-all approach to fee arrangements, it does have "well-defined guidelines that are helpful for the outside counsel to guide our practice so we know exactly what we need to deliver to be regarded as efficient and productive," Zott said.
Most recently, Zott has led the association and individual plans’ joint defense against antitrust cases consolidated in December as multidistrict litigation in the U.S. District Court for the Northern District of Alabama. Wilson pointed to the case as another instance in which the cooperative model for hiring outside counsel made sense.
Besides cost, Wilson said, the association’s outside counsel guidelines make it clear that it wants reports from firms detailing the diversity of their work forces. "We want to encourage them to make sure people working on our matters do reflect the general population. We try to do that here ourselves at the association," he said. — Zoe Tillman
|Blue Cross and Blue Shield Association, a nonprofit umbrella group for health care insurance companies|
|Number of lawyers in the Chicago area:||13|
|Number of lawyers in the U.S.:||22|
|Number of lawyers worldwide:||22|
|General counsel:||Roger Wilson|
|KEYS TO SUCCESS
"Because of the uniqueness of the Blue Cross Blue Shield system, we look to people who know us. We have a bevy of outside law firms that we know have expertise in particular areas."
"If it’s a routine, regular type of work, we’ll send out [requests for proposals] looking for a fixed rate. We like to get away from the hourly rate if we can."
"There are some matters that don’t lend themselves well to a fixed rate.…In those cases, what we will work to negotiate is off the hourly rates that the firm charges, restricting in various ways the extent to which they can charge us on their hourly rates."
"We want to get reports from firms we deal with on diversity profiles. We want to encourage them to make sure people working on our matters do reflect the general population."
— Roger Wilson, general counsel