Claims Audit FAQ’s
auditing your health plans
The cost of health care benefits is among the largest expense items for most employers. Along with comprehensive healthcare reform, self-insured employers are facing additional pressures to ease the financial strain through conducting audits of their benefits plans. Industry experts in Human Resources along with Internal Audit executives commonly recommend that all sponsors of health care benefit plans periodically conduct an independent audit of their third-party claims administrators.
Many employers have never conducted an audit, yet they provide draft authority on their bank account for the third-party administrator to issue funds to pay the organization’s health care claims.Increased scrutiny by the Department of Labor relative to proper discharge and monitoring of fiduciary duties by employers and/or sponsors of group health plans may be reason enough to conduct an audit.Plan sponsors put a lot of effort into designing health care benefits for their employees and want to be assured that these benefits are being provided at the right cost.
why do errors occur?
Electronic claims payment systems minimize errors, but the complete claims payment process relies on human judgment. Multiple combinations of factors exist that attribute to claims payment issues such as:
- Weak investigative efforts
- Volume Pressures
- Poor Claims payment systems or outdated software
- Internal policies prevail over plan language
- Human misinterpretation during plan set up
common approaches to auditing
There are several common approaches to conducting an audit when an outside vendor is engaged. All coverages can be examined including medical, prescription drug, dental and vision. Regardless of the approach used, claims auditing involves sampling. The most commonly used statistical sampling methods used are:
100% Analysis with Judgmental Sampling
Due to its effectiveness, this approach has become increasingly popular and more widely available. The approach may also be referred to as a focused audit, comprehensive audit, judgmental audit, targeted audit, or 100% review audit.
At a high level, this approach involves the electronic analysis of 100% of all claims paid within a specified period of time (the audit period). The objective is to use technology to electronically analyze claims payment data to aid the auditor in identifying or ruling out potential errors and judgmentally selecting samples for on-site review. A forensic analysis of claims data before sampling can identify patterns and trends. This method of sampling promotes the accuracy of audit results based on actual data rather than perceived statistical accuracy.
This audit approach may be performed as due diligence but also to get a closer look at administrative practices to identify root causes which lead to process improvement/corrective action. BMI was one of the first professional audit firms to utilize this approach and developed proprietary software, AUDiT iQ™, as a result.
This audit approach is more traditional, but may be perceived as somewhat outdated. Still effective in certain situations, this approach allows the auditor to select and test a random sample of claims within a specific audit period.
This approach focuses more on overall claims administrative procedural and financial accuracy which is then extrapolated to the entire claims population.
These audits are often performed in a due diligence process, or as a simple assessment of overall performance capabilities.
How do i decide?
The decision on which audit approach to use is typically based on the desired outcome of the audit and intended use of the results. This should be discussed with any potential vendor. Often the Administrative Services Only Agreement (ASO) between the plan sponsor and third-party administrator may dictate which approach may or may not be permitted.
Key Considerations When Selecting a Vendor
- How long has the vendor provided audits?
- Does the vendor offer additional services or products that could be considered a conflict of interest?
- What third-party administrators have they worked with?
- What type of audit technology or software is employed?
- Does the vendor offer an audit approach that meets the organization’s objectives?
- Will the vendor continue to provide value-added support services after issuance of the final audit report?
It is important that organizations do their homework before engaging with any vendor.
A few key considerations or questions to ask:
Claims Audit Types
Medical Claims Audit
Due to the high costs associated with providing comprehensive medical coverage, these types of claims audits are most popular with self-insured organizations. Lasting anywhere from 4-6 months dependent on a variety of circumstances, these audits usually begin with a thorough review of benefit plan design. Most audit firms receive data from the employer’s third-party administrator and then samples are selected for closer examination.
Depending on the audit approach, some firms may employ technology to aid in sample selection. These samples should be examined further onsite at the third-party administrator’s claim payment facility where more pertinent claims processing information is made available.
Depending on the audit firm, audit approach, and technology used, medical claims audits can uncover a wide variety of claims adjudication issues and/or weaknesses such as system limitations, plan-build inaccuracies, overuse of processor overrides, and provider billing errors.
Prescription Drug Claims Audit
The costs of providing prescription drug coverage continue to rise making claims audits increasingly popular in recent years. Organizations often decide to conduct prescription drug claims audits and medical claims audits at the same time to maximize opportunities for cost savings.
Compared to medical claims audits, these audits often take less time to complete and usually don’t require an onsite examination at the third-party administrator’s claim payment facility. Similar to medical claims audits, plan documentation is received, claims data is analyzed and samples are selected.
Depending on the audit firm, audit approach, and technology used, prescription drug claims audits can uncover a wide variety of claims adjudication issues and/or weaknesses in areas such as exclusions or limitations, prior authorizations, copays, dispensing fees, discounts or rebates.
Pre-Implementation Claims Audit
Pre-implementation audits are becoming more popular with organizations who may be changing third-party administrators, making significant changes to benefit plan design or moving to self-insured plans for the 1st time. Though third-party administrators do their own plan testing before implementation, information being programmed may not be consistent with plan language or intent. Many organizations believe it is critical to find and correct discrepancies before actual claims are paid. It is also not uncommon for an organization to conduct a complete claims audit post-implementation for additional assurance.
Typically these audits are performed on a live-remote basis allowing the audit firm to review plan documentation against the system setup. Dependent on the audit firm, audit approach, and technology used, the auditor may use existing and/or customized claim testing scenarios. Areas of testing may include deductibles, copay levels and application, out-of-pocket rules, exclusions or limitations.
DENTAL CLAIMS AUDIT
Dental claims audits are effective way to ensure systems and processes are in place to optimize claims payment performance. Dental claims audits may or may not require an onsite examination of audit samples. Organizations who elect to conduct dental claims audits often pair them with audits of other coverages like medical, prescription drug or vision to receive an overall assessment of third-party administration effectiveness.
Depending on the audit firm, audit approach, and technology used, dental claims audits can expose a wide variety of claims adjudication issues and/or weaknesses in areas such as exceptions to covered services, services provided to ineligible participants, timely filing limits, deductible application, coinsurance application, and maximum benefits.
vision claims audit
Vision claims audits are another important cost containment solution which is sometimes overlooked.
Organizations who elect to conduct vision claims audits often pair them with audits of other coverages like medical, prescription drug or dental to receive an overall assessment of third-party administration effectiveness.
Depending on the audit firm, audit approach, and technology used, vision claims audits can uncover a wide variety of claims adjudication issues and/or weaknesses, but may be primarily focused on exceptions to limitations and exclusions given the nature of how these claims are paid.
Other benefit-related audit solutions
Our extensive experience and knowledge of employee benefits along with software developed, updated, and maintained in-house enables us to perform and develop a variety of customized audit solutions. Please contact today to discuss your specific needs. If we can’t assist you with your specific need then we can often refer you to an organization that may be able to help.