About a dozen years ago, I began to notice a trend at the doctor’s office. My insurance policy required me to pay the bills in full and then get reimbursed 80 percent. Most often, I would get a small reimbursement with an explanation like, “Your doctor charges more than we will reimburse. We have calculated our reimbursement amount based on a substantially lower provider rate.”

So I had to spend time chasing down the right people at the insurance company to review my claim in hopes of a higher reimbursement. One extreme case took nearly three years to resolve. There never was an opportunity to recognize a doctor’s experience or expertise. The insurer referred to a table — not available to me — to determine an “appropriate” rate for the medical service based on procedure codes. I learned quickly that when there was a discrepancy, I’d ask the doctor for a revised bill with more or better codes.

As a result of these experiences, I changed to a provider based insurer where, as long as my primary doctors were “in network,” I simply had a copy and let the doctor worry about getting paid by the insurer. It didn’t take long for several of my key doctors to no longer take any insurance and require full payment. Unless I changed doctors, I was back to submitting claims and hoping to get a reasonable reimbursement.

By now, you may be wondering if you picked up the wrong paper. What does this have to do with lawyers? Plenty! The changes in how we pay for medical care are precursors to trends we’ll see in law, particularly in the insurance defense arena and for those firms representing large corporations. In fact, around the same time I began seeing those medical trends, the American Bar Association, in conjunction with the American Corporate Counsel Association and a group of representatives from large corporations and law firms, coordinated by consultants from Price Waterhouse, published the first set of uniform task based billing codes for litigation matters.

Today, there also are codes for counseling, bankruptcy and projects. The litigation code allows outside and in-house counsel to budget and track legal work typically involved in litigated matters. These codes are divided into five aspects of litigation: case assessment, development and administration; pretrial pleadings and motions; discovery; trial preparation and trial; and appeal. The codes associated with these usually are referred to as the “L” or “phase” codes and consist of the stages of a case, such as L240 dispositive motions within the pretrial phase. The actual work done by the timekeepers are designated as task or activity codes, called “A” codes. For example, while preparing a dispositive motion, an attorney might draft and revise the motion. On the time entry, the lawyer, if required by the particular client, would code the time entry with the appropriate phase code as well as the activity code, A103 draft/revise. Similarly, the firm’s expenses in connection with the phase and case would be identified with one of the “E” codes, such as E108 postage.

There are similar sets of codes for bankruptcy cases (“B” codes), as well as for counseling and projects that are intended to be flexible and are used primarily for transactional practices where bills are submitted to large corporations. The guidelines also require specific information within the text of the time entries. For example, a description would specify to whom the attorney spoke rather than merely “telephone call with opposing counsel.”

Inconsistent

While the set of codes are uniform, unfortunately, nothing else about the process is consistent. Each auditing company has its own set of rules about how to submit electronic bills. Some require them sent as attachments to email messages; others require law firms access a particular website and submit the bill through a series of screens. To make the process even more difficult, there are several competing standards for the file formats. The most popular is LEDES98B. As can be inferred from the name, there are other LEDES standards (see ledes.org for additional information). While there has been some movement toward a LEDES2000 standard, to date I’ve yet to encounter a law firm client that’s been required to use the newer standard. The other major format is Litigation Advisor, under which the format of the file submitted uses different fields and separators.

Even if two corporations or insurance companies request their outside counsel to use the LEDES98B format, there inevitably will be differences between their requirements. Some insurers require the law firm to track case specific information, such as the claim number, insured name, date of incident, etc., and add those as fields on the electronic bill. Other carriers require firms to include the timekeeper levels (e.g., partner, associate). While all the leading timekeeping and billing programs can produce electronic bills for filing, there may be many steps required to prepare each invoice.

Not only are there costs associated with purchasing needed modules for e-billing, but firms often must pay an annual fee to the auditing firm for the “privilege” of continuing to represent and bill their clients. Often, they also must prepare budgets to estimate the work they will do and they’re frequently required to perform the work at lower than market hourly rates and discount them even further.

Resources

Firms new to task based billing may want to look at abanet.org/litigation/litnews/practice/utbms.pdf, which gives both background about the development of the codes and complete lists and explanations of what work is intended to be classified with each code, and abanet.org/genpractice/lawyer/complete/w98toothsid.html, which offers an excellent chart that explains the most common rejections of electronic bill submissions. Included are such items as “excessive time” where an associate may have spent more time on a task than the auditing company thinks is acceptable or “overstaffing” where the auditor determines the firm had too many lawyers working on the particular activity. The explanations are certainly illuminating and sound eerily similar to the explanations I got from my health insurance company explaining the lower reimbursement. Whether discussing e-billing for lawyers or doctors, the disturbing parallel is the growth of these intermediary entities that are stripping the decision-making from the professional and the client.

When submitting a bill electronically, law firms will have billing items rejected for a variety of reasons. One of the most frequent rejections comes with the explanation equivalent to the one from my health insurer: “We (auditing company) believe this work should have been done by a lower rate employee.” The firm’s billing clerk then must follow up with the auditing company to justify the time spent by the lawyer. Some of my clients have taught their attorneys to phrase their time entries carefully to ensure the task descriptions sound “lawyerly” rather than clerical.

An entire industry of legal auditing firms has emerged to process and evaluate law firm bills. These auditors exact fees primarily from private law firms and often collect a percentage of the bills processed. I have seen instances where, to have the privilege to bill their existing clients, outside law firms pay setup fees — ranging up to several thousand dollars — and then have their hourly rates negotiated down.

Coping

So, what hoops can firms expect to jump through to work for Aetna, Home Depot, Bank of America or any other large entity that requests electronic bills?

In the past year or so, some insurance companies have begun requiring their law firm clients to provide budgets for each aspect of litigation. It’s clear the next round will be caps on the amount of fees for specific phases of work on “typical” cases. To me, this sounds more like dealing with an auto repair shop where mechanics refer to guidebooks for standard fees rather than providing sound counsel on behalf of legal clients.

Today, the majority of bills produced by law firms still are printed and mailed. It is anticipated that in the next decade, a large chunk of them, especially those sent to large corporations, banks and insurance companies, will be submitted electronically.

When asked to switch to electronic billing, many of my clients begin some soul-searching to examine their internal staffing as well as the importance of the client requesting the change. Some firms determine the changes are part of the cost of doing business. For others, it affords the opportunity to branch out to other practice areas where they may be able to earn more fees and have a more diverse practice. Each firm must determine whether moving toward task based e-bills is right for it. Whatever the decision, one thing is sure: More and more clients will want them.

Carol L. Schlein is president of Law Office Systems in Montclair, a training and consulting firm specializing in law firm automation. Copies of previous columns are on her company website, www.losinc.com. For information about her quarterly meetings for Time Matters users, check the website or e-mail info@losinc.com. Schlein formerly chaired the Computer and Technology Division of the ABA Law Practice Management Section.

Questions for Carol L. Schlein on law office technology may be faxed to New Jersey Lawyer at (732) 650-7010, e-mailed to news@njlnews.com or mailed to “Law Technology Questions,” New Jersey Lawyer, Edison Square, 2035 Lincoln Highway, Suite 3005, Edison, N.J. 08817.