Why You Should Audit Your Employee Benefit Plans Now…Really Now

Why You Should Audit Your Employee Benefit Plans Now…Really Now

Last year I wrote about the government actually taking a leadership role to rout out fraud and improper payments through new initiatives imbedded in the Affordable Care Act. Reducing unnecessary costs and routing out fraud from the healthcare system has been elevated to a high priority.

The crackdown to prevent waste, fraud and abuse in the Medicare and Medicaid programs by the government is commendable and long overdue. Enhanced auditing techniques, including data mining, have been deployed by the government to rout fraud perpetrators and indifferent providers from overbilling for services and abusing the healthcare system. These efforts have yielded $4.1 billion in recoveries this past year alone. The governments return on investment runs from 6 to 1 for fraud activities and 14 to 1 yield for prepayment and claims audits. While $4.1 billion dollars recovered is nothing to sneeze at it is important to note that in an article in the National Review Online, the Cato Institute’s Michael F. Cannon pointed out that fraud against Medicare and Medicaid alone costs about $87 billion a year. Some experts predict fraud at 10% or greater, yet the governments results are based on auditing only a very small percentage of its claims. The question remains: why do private employers not seem as interested as our government in compliance auditing to uncover excessive or inappropriate claims payments?

EMPLOYERS HAVE A FIDUCIARY DUTY TO THEIR OWNERS, SHAREHOLDERS AND EMPLOYEES TO PAY ONLY FOR APPROPRIATE AND NECESSARY SERVICES, OTHERWISE SEVERAL THINGS HAPPEN, INCLUDING:

  • You may be non-competitive in the market place. If your benefit costs are unnecessarily higher than your competition, you are at an economic disadvantage.
  • Costs are incurred that don’t relate to treatment. Why pay for prescriptions that have no correlation to what’s wrong with your employees (off label uses)?
  • Price creep (unintended increase in cost due to not monitoring utilization or overpayment of fees which results in inflation to a company’s healthcare spend). Brand name drugs filled when generics were ordered. Acute pharmacy used instead of the mail formulary. Incompatible test ordering. Inpatient admissions when outpatient services are more appropriate. Preferred provider network coverage that may not be adequate resulting in higher costs to the company and employee.
  • Disgruntled employees. Employees generally share in the costs of premiums and deductibles; therefore, if the plan is not delivering optimum results, your employees will be subject to unnecessary financial strains. This also gives you competition an advantage in recruiting your best and brightest.
  • Ineligible persons on your benefit plan. Statistics show that on average 3-5% of dependents are ineligible for coverage. Removal of ineligible dependents will reduce claims and possibly lower your stop loss risk. Also under PPACA, self-insured plans are required to kick in an estimated $60-90 per health plan participant per year; reducing ineligible participants can lower this exposure.

NOW FOR THE REAL QUESTION: WHAT DOES YOUR TPA DO TO MAKE SURE YOU ARE NOT OVERPAYING BENEFITS IN YOUR SELF-INSURED PLAN?

Do they do pre-screening of all new providers before adding them to their network? Are they comparing your claims payments by provider type to their book of business to determine potentially adverse and possibly fraudulent utilization patterns? Are they auditing your enrollees as provided in the Summary Plan Description? Are they flagging suspect providers and suspending payment instead of paying and pursuing? If they are not, your plan may not be doing any better than the Federal government in preventing inappropriate payments.

LOOKING BEYOND THE OUTRIGHT SHYSTERS, PAYMENT ERRORS CAN OCCUR FOR A MULTITUDE OF REASONS:

  • Complex contracting arrangements create opportunities for over payments. When logic cannot be programmed into a payment adjudication module, humans must intervene to interpret how a claim should be paid; when this happens errors can be made. We have audited insured and self-insured plans and have found that regardless of the type, errors can be made.
  • High cost claims tend to be more error prone just due to the sheer volume of services provided. While these claims typically get closer scrutiny, they still have the highest potential for error and potential recovery.
  • For plans offering prescription drug coverage, there can be serious overpricing of drugs and/or inappropriate calculation of rebates that employer may not be aware of at all. Even more concerning is that the medical claims and prescription drug claims generally operate in separate closed loop systems that never compare if the drug being ordered has any relation to a valid medical condition. This, in turn, can lead to excessive overpayments in drug costs. To further complicate matters, we have found that many prescription plans with mail formularies are not delivering as sold; employees often have to bypass the mail formulary because of service timeliness issues related to filling their Rx’s.
  • Little errors can add up to big errors too! Remember that a large volume of your medical claims can be for services less than $250, however, small errors that happen consistently in a large population will add up to a major amount of money.
  • Not all errors go in your favor. If providers are underpaid, they can still come back to your employees and your company for payment. Would you want to find out two years later that your TPA has made these kind of errors?
  • Pass through pricing agreements can also yield savings to the employer. If a medical service is provided with a non-par provider (someone not in the TPAs network), the TPA will use a network access agreement to re-price the claim.
  • Not all dependents are dependents! While some TPAs indicate that they check eligibility annually or more frequently, it does not always happen. The end result is you may be paying for claims for someone that is not legitimately entitled to coverage.

In previous articles that I have written, I have advised employers to audit their self-insured plans to ensure that the plan is being run in compliance with the SPD (Summary Plan Document). Typically these audits uncover savings related to lost Rx rebates, benefit coverage errors or improper payments/discounts made by the third party administrator and uncovering eligibility errors. Some audit initiatives can uncover up to 10% or higher returns for the employer. Also, remember that there are new SPD rules in place that require modifications to lifetime and annual benefit limits, claims review timeliness, appeals language requirements and general information reformatting/design changes to comply with the PPACA between now and 2014. Not complying with these changes can subject you to fines and penalties. With health care now comprising a major portion of a company’s budget, CEOs and CFOs cannot afford to overlook the potential impact on their financial statements. The issues we discussed highlight the importance of monitoring compliance and performance of ERISA based benefits. While ERISA plans offer employers many levels of savings and freedom from multiple jurisdictional regulations, it does not relieve them of the responsibility to exercise fiduciary duties. If you have not audited your plan within the last two years, you need to do it as soon as possible. If you have audited your plan recently, did the report evaluate the impact of phantom discounts or R&C? Has it evaluated the fairness of benefit decisions and the veracity of clinical information supporting the underlying decisions to pay or deny a claim? Is there consistency in your benefit decisions across the board (i.e.: highly compensated vs. non-highly compensated employees)? BENEFIT PLAN AUDITS ARE NOT AS EXPENSIVE AS SPONSORS MAY THINK. HOWEVER, THE CONSEQUENCES OF NOT AUDITING YOUR BENEFIT PLAN CAN BE MORE EXPENSIVE THAN EXPECTED; YOU JUST WOULDN’T KNOW IT! ASK YOURSELF, “WHY AM I NOT AUDITING MY OWN BENEFIT PLAN WHEN THE GOVERNMENT HAS INCREASED ITS AUDITS TEN-FOLD WITH A YIELD OF $10 FOR EVERY DOLLAR EXPENDED?”

ABOUT THE AUTHOR

Lewis D. Bivona, Jr., CPA, AFE (Lew) is the Insurance Practice Leader and Partner at WithumSmith+Brown. He has over 33 years of experience in the healthcare and insurance industries. The depth of his experience has been garnered from high-level positions within the public accounting, HMO, consulting and hospital industries as well as a period in HMO regulation. Lew has been the team leader on many financial condition examinations of some of the largest insurance companies in the country. Lew has also lead and participated in the audits of ERISA health benefit plans and has also been a presenter to numerous employee benefit groups across the region. The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.

NEED MORE INFORMATION?

If you need more information regarding this or any other topic affecting your retirement plan, visit our Withum ERISA Knowledge Corner online, follow us on Twitter at WSB_ERISA or contact us at [email protected] to arrange a free consultation today.


The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.

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