Why Every Plan Sponsor Needs a Medical Claims Audit: 30 Categories of Risk Exposed
A medical claims audit helps plan sponsors uncover errors hidden in daily claims processing. By reviewing categories like eligibility, plan design, cost control, fraud/waste/abuse, and standard industry practices, audits reveal more than overpayments, they expose systemic issues, coding gaps, and misalignments between the SPD and how the TPA pays claims.
Client Profile: Technology Sector Employer Strengthens Oversight
BMI Audit Services conducted a medical claims audit for a large client in the technology sector. With nearly 465,000 claims totaling $185.9 million processed in 2023, the employer wanted to confirm that its plan was administered correctly, ensure alignment with the SPD, and identify risks that could expose the plan to unnecessary costs and compliance risks.
Audit Methodology
To achieve a comprehensive review, BMI combined electronic analysis with expert manual review:
100% Data Review: Every claim was analyzed using BMI’s proprietary software, AUDiT iQ.
Focused Sample: 250 claims, representing $7.5 million in payments, were selected for manual review by an expert auditor.
Category Testing: Claims were measured against six groupings
Eligibility
Plan Design
Cost Control
Fraud/Waste/Abuse
Other Party Liability
Standard Industry Practices
Findings: 30 Categories Flagged
The audit flagged errors in 30 separate categories, highlighting the need for vigilant oversight in healthcare claims administration.
Systemic & Confirmed Errors
Marriage Counseling: Paid despite SPD exclusions, confirmed as a systemic error. The TPA updated system logic to ensure future denials.
Other Overpayments: Errors included dental services, hearing aids beyond limits, infertility benefits exceeding the lifetime maximum, dependents over age 26, and personal convenience items. Confirmed overpayments totaled $3,123.62.
Plan Design Discrepancies
Non-emergency conditions billed as emergency room services.
Cosmetic and varicose vein procedures paid for despite SPD exclusions.
Routine vision exams allowed under medical benefits.
Biofeedback therapy covered despite exclusionary language.
Standard Industry Practice Errors
Unbundling of services - Claims paid for robotic surgery codes, lab charges, and infusion services that were also included and paid for within the primary procedure payment. This resulted in higher-than-expected plan payments.
Incorrect use of modifiers - Modifier 26 applied where not appropriate – causing an excess reimbursement to the provider. This resulted in higher-than-expected plan payments.
Multiple procedure reductions not applied, which are intended to adjust reimbursement when multiple related services are performed during the same encounter. This resulted in higher-than-expected plan payments.
These discrepancies represented over $38,000 in questioned payments.
Eligibility Lapses
Claims paid after member termination due to late eligibility updates.
Dependents over age 26 allowed coverage beyond SPD rules.
Cost Control Issues
Price outliers in ambulance and ER claims reimbursed well above plan allowances.
A large claim that exceeded standard pricing benchmarks.
Outcomes & Next Steps
The following corrective actions were identified:
System Fixes: TPA system logic was corrected to prevent repeat systemic errors.
SPD Alignment: Employer was encouraged to reconcile discrepancies between SPD language and TPA practices.
Eligibility Reporting: Improvements were recommended to ensure timely reporting of terminations and dependent age limits.
Coding Edits: Opportunities to improve bundling, modifier use, and multiple procedure edits were identified.
Importantly, the client chose not to reprocess individual sample errors, but directed the TPA to fix systemic issues and notify impacted members moving forward.
Conclusion
These results and findings make it clear that one of the key benefits of a healthcare claims audit is the ability to uncover categories of risk that may otherwise go unnoticed. With concerns identified in 30 categories, the review shows how small errors, misapplied plan design rules, and eligibility delays can impact overall plan integrity.
For plan sponsors, conducting regular claims audits ensures alignment with the SPD, supports ERISA compliance, and improves oversight of TPA administration. While recoveries can be modest, the long-term value lies in reducing risk, strengthening compliance, and protecting member benefits.