Healthcare Claims Audits
With the rising costs of healthcare and increase in premiums both employers and employees are required to absorb under the traditional fully insured arrangements, many employers are opting to utilize self-insurance as an alternative solution to counter the annual double-digit premium increases required to maintain healthcare coverage. While the primary objective of such a transition is focused on cost reduction, it is also accompanied with increased risk. Under a self-insured arrangement, employers or plan sponsors, not insurers assume the risk for paying the costs of claims. Typically, under a self-insured arrangement, a Third-Party Administrator or Insurer under an Administrative Services Only (ASO) (hereafter collectively termed TPA) is hired to process claims. Since TPAs are processing employers’ self-insured healthcare claims, including any resulting errors, these costs are paid directly by employers and represent their true out-of-pocket healthcare costs. As a result, there is a need for employers to undertake their fiduciary responsibilities to monitor and control costs and mitigate the risks of error by developing and implementing an oversight system for their TPAs.
Healthcare claim audits performed on a recurring basis (typically performed every 2-3 years) is one mechanism available to employers and proven effective to allow employers to satisfy their fiduciary obligations, monitor costs and identify opportunities for true cost savings. Claim audits serve as a monitoring component of an employer’s internal control environment to detect errors that may occur in the claims administration and adjudication process executed by TPAs. These audits offer an unbiased view by an independent auditor on the accuracy of the claims adjudication and administrative payment process and assist employers in validating a TPA’s self-reported results.
Why an employer should consider an audit of a TPA
- Assess whether claims are being adjudicated by a TPA in accordance with the established provisions for plan benefits and terms of the administrative agreement
- Meet ERISA (or other applicable) fiscal / fiduciary standards for oversight
- Determine if industry best practices for claims processing and payment are being met
- Identification of payment errors and opportunities for future cost savings
- Confirmation that claims reimbursement and policies are consistent with current provider contracts for in network and out of network benefits
- Optimize claim paying performance by uncovering root causes of errors
- Identify basis for cost savings in future TPA negotiations based on audit results
There are various types of health care claims, eligibility and third-party contract compliance audits an employer can consider to meet their objectives of monitoring and reducing healthcare costs. At CAWIGGAN, CPA LLC, with our extensive employee benefits auditing experience, we are well positioned to assist you in the execution of the type of audit that best suits your need. Below is a listing of the various types of audits to be considered. Please do not hesitate to give us a call if we can be of assistance.
Medical Claims Audit
What is it?
An audit that reviews medical claims to ensure they were paid accurately.
Plans and participants maybe not be set up correctly in TPA’s system.
Claims paid manually or with adjustments are conducive to errors.
Certain type of claims that are more prone to pricing and processing errors.
Apply business rules from plan design and ASO contract to claims data.
What is it?
An audit that reviews the Pharmacy Benefits Manager (PBM) in its provision of pharmacy benefits.
Plan pharmacy benefits and formulary not accurately being applied.
Pharmacy contract pricing and dispensing rates may not be accurately applied.
PBM financial guarantees are not being met.
Participant co-payments are under collected.
Rebates and refunds are underpaid, missed or not remitted.
Utilization governance is often not up to par or as planned.
Apply business rules from plan design and PBM contracts to claims data.
Stop Loss Audit
What is it?
An audit that provides assurance the reinsurance program is working as designed.
Payments for claims may straddle plan years (based on batch processing) and excluded from specific or aggregate limits for a plan year.
Drug or other designated claims may be excluded from aggregation towards plan limits.
Review the stop loss coverage arrangements and the claims aggregation process.
Employee Eligibility Audit
What is it?
An audit that confirms employees eligible for benefits at a particular point-in- time.
You could be paying claims for participants who were ineligible for coverage benefits at the time of service.
Compare census, time and attendance (minimum hours required for coverage) and enrollment data to validate eligibility.
Dependent Eligibility Verification Audit
What is it?
An audit to confirm eligibility of enrolled spouse, domestic partner and children.
Independent research shows that at any given time approximately 5-10% of dependents are ineligible.
Plan participants fail to make the necessary and timely changes for their dependents that are no longer eligible for coverage.
Obtain employee affidavit and require supporting documentation for each enrolled dependent.
What is it?
An audit to assess if a dependent spouse is working and whether benefits are available to the dependent through their employer.
Employees often misunderstands or neglects the working spouse provisions of the plan (if applicable).
There may be an opportunity to assess a surcharge for spouses with alternative coverage to offset costs.
Provide employee with a questionnaire or survey related to the working spouse.