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Great write-up. My big concern is that legal billing goes the way of medical billing where the whole thing becomes a game. Our goal is to get to clean and fair

by nwenzel 13y ago

Great write-up. My big concern is that legal billing goes the way of medical billing where the whole thing becomes a game. Our goal is to get to clean and fair bill where the client is happy to pay for services rendered and the law firm feels well compensated for a job well done. Not sure if this link is behind a paywall, but this visualization of Profit per Partner for the top 200 law firms show why people may feel legal billing has gotten out of control: http://www.americanlawyer.com/PubArticleTAL.jsp?id=1202601823260 http://www.americanlawyer.com/PubArticleTAL.jsp?id=120260182...

rayiner 13y ago
I'm not sure what the visualization is supposed to demonstrate. PPP is a function of supply, demand, and leverage. As an economic matter, billing methodology cannot have an impact on the overall profits of law firms as a group. At the end of the day, the clients pay for a service--hours are just an imprecise way to allocate "scope of work" risk between the client and the service provider. If your software says that one firm is charging 10% too many hours relative to the other comparable firm that also does work for you, that can save you money in that instance. But it cannot save you money if it says every firm is charging 10% "too much." Then that's just the market price of the service--if you cut down those hours, hourly rates will just increase to achieve the same price, at least in the long-term equilibrium. In economic terms, the real value of your service is reducing transaction cost inefficiencies by offering better information and allowing clients to better allocate "scope of work" risk between themselves and outside counsel. But real reductions in legal bills, not achieved through finding efficiencies in the billing process, must be rooted in supply and demand: either increasing effective supply by considering a broader range of law firms for work, or reducing demand by bringing work in house. The reference to medical billing is interesting, but I don't think your explanation is economically sound there either. Medical bills are not high because hospitals charge $200 for an asprin. That's an artifact, not a root cause. Medical bills are high because supply is limited and demand is high and inelastic. Software that checked medical bills for high-priced pills would not reduce bills--the prices would just rise in other parts of the bill. Because at the end of the day the customer is not paying for the pill or for a stent, he's paying for an overall result and the price of that result is dictated by economics, not the specific costs of specific billing items.

by nwenzel 13y ago

rayiner 13y ago

I'm not sure what the visualization is supposed to demonstrate. PPP is a function of supply, demand, and leverage. As an economic matter, billing methodology cannot have an impact on the overall profits of law firms as a group. At the end of the day, the clients pay for a service--hours are just an imprecise way to allocate "scope of work" risk between the client and the service provider. If your software says that one firm is charging 10% too many hours relative to the other comparable firm that also does work for you, that can save you money in that instance. But it cannot save you money if it says every firm is charging 10% "too much." Then that's just the market price of the service--if you cut down those hours, hourly rates will just increase to achieve the same price, at least in the long-term equilibrium. In economic terms, the real value of your service is reducing transaction cost inefficiencies by offering better information and allowing clients to better allocate "scope of work" risk between themselves and outside counsel. But real reductions in legal bills, not achieved through finding efficiencies in the billing process, must be rooted in supply and demand: either increasing effective supply by considering a broader range of law firms for work, or reducing demand by bringing work in house. The reference to medical billing is interesting, but I don't think your explanation is economically sound there either. Medical bills are not high because hospitals charge $200 for an asprin. That's an artifact, not a root cause. Medical bills are high because supply is limited and demand is high and inelastic. Software that checked medical bills for high-priced pills would not reduce bills--the prices would just rise in other parts of the bill. Because at the end of the day the customer is not paying for the pill or for a stent, he's paying for an overall result and the price of that result is dictated by economics, not the specific costs of specific billing items.