Taylor Smith, president of Suite 200 Solutions, will tell you that there are greater and more consequential challenges facing the claims and litigation communities than disagreements over billing guidelines and adjustments. He has frequently sounded the alarm about innovations on the plaintiffs’-attorney side—such as EvenUp, a platform serving personal injury lawyers that says its mission is to “close the justice gap” using technology and artificial intelligence (Smith would encourage those on the insurance defense side to click that link and see what they’re up against).
Speaking to CLM, Smith notes that EvenUp, in October, achieved “unicorn” status, becoming a privately held startup company with a valuation of $1 billion. “They’ve done this faster than anyone thought they could,” says Smith. “They’re funded by the Silicon Valley's best investors.” He adds that EvenUp boasts that more than 1,000 plaintiffs’ law firms are now using its services, resulting in settlements that are 30% higher than those without the use of their tool—a 69% increase in policy-limit settlements.
“Those industry threats are emerging over there while we’re having this conversation about billing over here,” he warns.
Still, friction over billing remains a persistent thorn in the side of the relationship between claims departments and outside counsel, and, to the extent that this issue is getting in the way of tackling larger challenges, it would serve the industry well to discuss the pain points and find solutions that claims and legal professionals can live with. To that end, CLM is initiating some of those discussions through its recently formed Litigation Management Task Force. Billing is a topic that the task force’s legal and claims representatives are eager to tackle, and as the task force progresses in its discussions, CLM will have more to share about what comes from those discussions.
Smith has valuable insights when it comes to approaching the topic of billing from both sides. Suite 200 Solutions has polled litigation and claims professionals for CLM going back to 2011 and Smith, in leading that effort, has talked to and heard from litigation executives and attorneys regarding their unique perspectives, concerns, and suggestions.
Here, Smith discusses some of what he has learned about both sides’ positions when it comes to billing, backed up by some data from recent CLM Defense Counsel and Litigation studies.
Billing is higher on the list of pain points for attorneys compared to claims executives.
Smith notes that, in the “2023 CLM Litigation Management Study,” the issue of billing had fallen to number three for litigation executives on the list of most common friction points. On Suite 200’s “pain score,” billing scored 1.8, below the top pain point, which was that law firms are not showing strategic focus (score of 2.35), and the second-most common pain point, which was under-reporting (2.24). In 2019, litigation executives scored billing at 2.17 on the index.
“A year later [in 2024], we polled defense attorneys and they’re out of their minds with pain points around billing,” Smith notes. In the “2024 CLM Defense Counsel Study,” the average “pain” score for attorneys when it comes to submitting invoices and dealing with invoice adjustments was eight out of ten, a dramatic increase from 2020’s survey when the average score was 5.6. In addition, the average pain score for waiting to be paid was 6.7, up from 5.6 in 2020.
Explaining the deteriorating view of billing among attorneys, Smith says, “I don't think we can look at billing issues just as billing issues without also considering other challenges that law firms are facing. And the big shift, in my view, post pandemic, for law firms is a staffing issue. They never had a shortage of attorneys. Now they’re desperately short of attorneys.”
He adds, “The reason I raise that is when you’re under those pressures, issues around billing are magnified. I think you feel like you’re giving up more when you’re already struggling with other issues.”
A major source of friction centers around perceived lack of clarity on bill adjustments.
According to Smith, “The majority of attorneys continue to believe that adjustments are either subjective or inconsistent. There's a lack of core understanding—and I'm not passing judgment on whether the guidelines are good or bad. I am just reporting on the perception of the attorneys. That’s been pretty consistent over our survey.”
Smith notes that 76% of attorneys said in 2020’s study that invoice adjustments felt subjective and/or inconsistent. In 2024, 78% of attorneys said the same. When asked if attorneys thought adjustments were based on objective and clear guideline violations, only 8% of attorneys said yes in 2024 compared to 18% in 2020.
“Now, to be fair,” notes Smith, “if I’m talking with claims executives, they say, ‘We’ve had no lack of education around the guidelines. There shouldn’t be a lack of clarity around the guidelines.’ But the reality remains that the perception of what’s happening is different on both sides.”
Part of this disconnect may be traced to how bills are managed today. Smith explains that the industry has seen great proliferation of third-party bill review “where the insurance company says to many of these expert providers, ‘You look at the bills and you tell us what ought to be adjusted.’”
Law firms do not always understand that process, and when a bill is adjusted, attorneys call their primary point of contact at the insurer, which is usually the claims handler. Says Smith, “I think it’s more common than not now for the claims professional to say [to the attorney], ‘I’m really sorry. I’m not really involved in that process. I’m sorry that happened to you. I wish I could do something. I don’t really understand how we do it,’ or something along those lines.”
He explains, “That disconnect between the actual process of adjusting the bill and the lack of communication to the attorney, I think, leads to all sorts of perceptions that put our industry out of whack.”
One resulting conclusion attorneys draw is that there are no objective guidelines for bill adjustment. This, in turn, could drive other perspectives about how the process has gotten worse for attorneys—for example, whether there are greater adjustments to bills today compared to years past. Smith says Suite 200 Solutions has asked claims and litigation professionals for years about the average post-appeal adjustment rate. For litigation executives, the answer was 6% in in 2019, and it dropped to 5% in 2023.
“We asked the attorneys this and their average response was 9.5%,” Smith continues. “Now, most carriers will say they’re not taking 9.5%. My viewpoint is that it’s the perception that matters as much as the reality.”
Smith also says attorneys may also be looking at the adjustments with some degree of recency bias. “They may not have gone back and sat with their CFO at the law firm to determine the real number. That’s what they feel they’re giving up, and that’s a problem when you feel like you’re giving up almost 10 points even though you may be giving up five or six.”
Some billing guidelines do not reflect the current reality of the claims litigation landscape.
Feelings about billing on the attorney side may also suffer from guidelines that pose additional challenges in already challenging times. Smith explains, “Many guidelines—I don’t know if it’s most, but many—expressly prohibit law firms from using inexperienced, younger associates. This guideline remains in place in an environment where law firms don’t have enough experienced senior attorneys to work on files.”
He adds, “In a law-firm world that is principally built as a pyramid where the senior, mature professionals benefit from the work of younger [associates,] the guidelines call for fewer [associates] to work on the files. That puts incredible economic pressure on the firms…[and also] they just don’t have the people to work on the files, and then that becomes problematic.”
Controlling expenses can often seem more achievable than controlling outcomes.
Since the advent of the e-billing industry in the early 2000s, it has been easier for claims organizations to measure expense rather than indemnity, Smith points out. He adds, “We tend to gravitate, as humans, toward managing what we can measure, and that’s perfectly understandable.”
Smith points out that legal bills constitute between 16% and 20% of total case cost. “Now, that’s going to be a lower percentage if the indemnity amounts keep coming up because of the work that EvenUp and others are now doing in that space.”
He also notes that, in the 2023 survey, 76% of claims executives said their costs per file have increased in the last five years. “That’s not outcome; that’s just cost,” says Smith, noting that overall costs continue to rise despite all of the considerable work done with e-billing and bill review.
“For the big picture,” says Smith, “it benefits the industry for us not to be attracted to the low-hanging fruit that bill review offers in an attempt to show savings in an environment where the whole thing together is on an upward trajectory.”
Smith also warns against focusing too much on disagreements over expense while not paying enough attention to outcomes, because there is one group that remains hyper-focused on outcomes: “On the plaintiff’s side, they're focused on the other side of the game, which is outcome. And the challenge for our industry, in my view, is we can’t let our disagreements about this side of the game take focus away from the outcome side of it.”
For attorneys, demonstrating value can be challenging.
One question Smith says Suite 200 Solutions has asked since 2012 is whether, fundamentally, litigation executives believe that spending more on the defense of a case reduces indemnity costs. “And the answer has been, uniformly, ‘No,’” he states.
In 2023, 81% of respondents to the litigation management survey agreed with the statement that spending more on defending a case does not reduce indemnity costs. This compared to 79% who said the same in 2019 and 84% in 2015. In addition, 83% said in 2023 that higher compensation to attorneys does not translate to better attorneys or a better outcome. This compares to 92% who said the same in 2019 and 84% in 2015. Smith also says that litigation executives have consistently ranked law firms low on their ability to show value and distinguish themselves from competing firms.
“If law firms can show better value, executives will believe that spending more money might be tied to outcomes more concretely,” says Smith. “If that becomes the case, there might be less of a focus on adjusting bills in the first place.”
Attorneys have taken recent steps in the right direction and have learned to “speak the vernacular of their insurance company clients,” as Smith puts it. He explains that attorneys have traditionally tied their value solely to their skill as litigators. But, for insurance companies, only 1% or even a half-percent of their files go to trial. Firms are learning to talk about factors such as cycle time, average fee-to-indemnity ratio, and their skill as negotiators, Smith says.
He pointed to one law firm that marketed the statement, “We close files,” which resonated strongly with insurance companies. “That’s starkly different from describing to someone where you went to law school, what judge you clerked for in law school, and what a great litigator you are,” he says.
The practical steps and hard conversations ahead.
For those who will embark on the tough task of finding common ground and solutions to the billing challenge, there are some areas of focus that could yield positive results. First and foremost, for litigation executives, making attorneys aware of how and why bills are adjusted would go a long way toward demystifying the process, says Smith. He does not believe, however, that standardizing the billing process altogether would be helpful. He understands the temptation for attorneys who have multiple clients, all with their own similar but different guidelines. But Smith says, “I think that’s distracting. I think it’s okay for everyone to have their own guidelines. Companies have different litigation philosophies and to reflect that in guidelines should be respected.”
Getting to the heart of the matter, Smith states, “What’s not okay is for the recipient of the adjustments to feel that this is a random science experiment where the reinforcement is completely random.”
Smith says there could be room for standardizing both billing principles and a process to better explain adjustments. For these reasons, he believes it is important to bring the party making the adjustments—the third-party billing companies—to the table to explain their adjustments. To have this communication happen only in the context of a formal “appeal of the adjustment” limits that dialogue.
For the attorneys, transparency on their side is important as well. Smith notes the general mood of the industry is to always show strength and never weakness. But he notes that firms must be forthright about their challenges. “It’s taken a lot for them to talk about the fact that they’re understaffed,” he says. “It’s taken a lot for them to say, ‘I’m getting killed on my invoice adjustments.’”
Firms must be willing to say, “Help me do better,” adds Smith. When it comes to the carrier concern about attorneys demonstrating value, attorneys could try initiating conversations with their clients asking about how they compare to other firms. This is counterintuitive to law school training, Smith says, which stipulates that you should never ask a question you do not know the answer to. Smith says a common response he gets when suggesting that attorneys should have open conversations with their clients is, “‘Why would I ask my client how I compare to other firms if it turns out that it forces them to look at a big, ranked list of adjustment rates and then I'm in a bad spot?’
“To which I've always responded, ‘Well, you’re in the bad spot already. The insurance company already knows where you rank. The only thing missing is your knowledge of being in the bad spot.’”
The good news is there appears to be a strong desire among both litigation executives and attorneys to put all of the concerns out in the open and discuss a way forward. Smith points to the enthusiasm around CLM’s Litigation Management Task Force, and the strong participation from key representatives from both sides. But time is not infinite, and, as Smith notes, the plaintiffs’ attorney side is not keen to wait for this debate to be settled before marching forward with its own plans. With new tools at their disposal and a willingness to share data in a way that remains elusive on the defense side, he says, “Plaintiff’s firms now have dossiers on every carrier. They have dossiers down to individual claim handlers. They’re now understanding which negotiation cadences are most effective with specific adversaries. They’re measuring deltas between initial offer and final offer.” We need to catch up.