Unearthing the 36-Hour Day Billing

Law firms charge their clients by the hour. The greater number of billable hours, the greater the revenue. However, even the most talented attorney does not work more than 24 hours per day. Yet, clients sometimes find that they are billed for more hours than there are in a day. Stuart Maue is a firm that specializes in helping the clients of legal firms ensure that they are billed only for the work done for them and only for work that the legal firm was asked to perform. To this end, Stuart Maue maintains a large database containing details of thousands of legal relationships. For example, it might discover that a deposition that could be taken in an hour was billed for four hours. The firm was established in 1985 to provide legal auditing and litigation consulting services. Over the years it has adopted increasingly sophisticated hardware and software to offer its clients—usually corporations—a range of cost-management consulting services. Thus, it should come as no surprise that the Careers section of its Web site lists at least as many IT specialist openings as lawyers and accountants. Between 2000 and 2006, the firm spent over $10 billion on IT. In the 1980s, the work was mostly manual. Accountants and lawyers pored over bills and searched for inconsistencies, double billings, and noncompliant charges. In addition to common sense, the analysts also used the rules that corporations set for the law firms representing them. For example, a guideline may be that lawyers do not fly first class, or that no more than two lawyers take a deposition. The manual work to discover noncompliance was effective, but labor-intensive. In 1988, Maue purchased its first Oracle database management system and hired software developers. The database served to store the details of thousands of bills. The software was designed to search and analyze legal bills, fees, and expenses. To be able to analyze how its clients are billed by their attorneys, Stuart Maue fed all billing details of the client into a data warehouse. Its staff used an optical character recognition (OCR) system to read and feed the data warehouse. It then used statistical and other proprietary software applications to find irregular and inappropriate billing. One client was a golf course developer in Texas. The innovative course had some holes that mimicked famous holes of world-renowned courses, such as Pebble Beach, Pinehurst, and Augusta National. An attorney involved in the case thought that to better understand the case it would be a good idea to test these professional courses. Combing the legal bills details stored in the data warehouse, Stuart Maue analysts found that the law firm billed the developer for the expensive games at those golf courses. Stuart Maue is the oldest business in the legal audit industry, but its success attracted competitors. In 2004, the company had another wave of technology overhaul, partly because of mounting competition and partly because clients wanted to access reports through the Internet. Clients used to call the technical staff and ask for reports such as a list of all the legal firms serving the client ranked by billable hours or overall dollars charged. The staff produced the reports, but this typically took at least a day. Several clients threatened to switch to competitors if Maue did not provide selfservice reporting. They also wanted to perform some analyses of their own. Maue upgraded its DBMS to the latest Oracle system that offers a business intelligence tool (which we discuss in detail in Chapter 11) called Discover and Oracle Portal, which links a database to the Web. The system cost $2 million. The data warehouse is installed on a Dell 6800 server with a storage capacity of 500 GB. Online data entry and retrieval takes place on a HewlettPackard Itanium 2 server, and the firm’s proprietary software runs on a variety of Dell servers. The Web portal is managed by the open source Apache application, which runs on a Red Hat Linux operating system. Maue hoped that the technological overhaul would allow the firm to continue to serve customers with the same number of 17 IT staff members. It wanted to accommodate a growth rate of at least 20 percent per year in audited billing. It wanted to enable customers to access their own data through a self-service Web site and produce reports by themselves. In addition to satisfying client demands, Maue also hoped that adding self-service would reduce the amount of IT staff labor by 80 to 90 percent. Shortly after the system upgrade, Maue was approached by Steadfast Insurance, a unit of the Swiss company Zurich Insurance. The company insured Purdue Pharma, a pharmaceutical corporation that was sued over its OxyContin, a pain killer. Purdue Pharma claimed it incurred over $400 million in legal fees to defend against nearly 1,400 lawsuits over injuries attributed to use of the pain killer. It demanded that Steadfast, Purdue’s insurer, reimburse the company. Steadfast refused to reimburse some of the money because it suspected the billing was exaggerated. Purdue Pharma sued. Steadfast hired Maue to audit the legal bills.

The task was huge. The legal defense for Purdue involved 70 law firms in 32 states, 322 partners, 849 associates, and 1,032 paralegal workers. Steadfast was served with invoices for 1.2 million billed hours and associated expenses. Maue passed this test with flying colors. Using the OCR system, its staff took only six weeks to feed the data from 200 boxes of paper documents into the new database. The task would take many more months if it were performed manually. Maue provided Steadfast with reports that were used to successfully challenge some of the bills. Purdue Pharma and Steadfast reached a confidential settlement. The company and three of its current and former executives pled guilty to criminal charges of misleading doctors and patients by claiming OxyContin was less likely to be abused than traditional narcotics, and both the company and its executives had to pay hefty fines. Experts say that the use of business intelligence tools is spreading from retailers to other industries. Maue’s success can be attributed in part to the fact that the business intelligence software it uses is preintegrated with the DBMS. This eliminates the need to fit analysis tools to a database. The same is true of the Web site that serves clients through a standard Web browser. Clients are happy that they can see their legal expenses in different perspectives by sorting them in various ways and at different levels of detail. Maue, a privately held company, hoped to grow the business to analyzing $700 million of legal billing by 2006. It actually handled $2.2 billion in that year, and enjoyed revenue of $20 million. The clerical staff now spends a fraction of the time originally spent on the same tasks before the implementation of the data warehouse and its upgrade. The use of OCR technology alone reduced labor by 30 percent. Since the upgrade, the turnaround time from invoice submission to audit and report has been reduced from 10 days to 5 days. The IT staff has remained at its 2003 size: 17 people.

Source: Duvall, M., “No Lawyer Joke,” Baseline, December 18, 2006; Maue, B., “Stuart Maue Wins Big with Oracle Business Intelligence Solution,” DMReview, January 2007; (www. stuartmaue.com), May 2007; Meier, B., “Narcotic Maker Guilty of Deceit Over Marketing.” The New York Times, May 11, 2007.

Thinking About the Case

1. Consider the type of data entered into Maue’s data warehouse. In what sense is it different from data entered in retail enterprises?

2. One benefit of the self-service capability that the system now affords the clients was to satisfy client demand. What was the other benefit?

3. What technologies (hardware, software, networking) save labor for Stuart Maue when compared to the situation in the 1980s?

4. Modern DBMSs are usually bundled with other applications. Identify those applications in this case, and the purpose they serve.