Employers sponsoring a self-insured health plan are accountable to certain standards of fiduciary responsibility as established in the Employee Retirement Income Security Act of 1974 (“ERISA”). These standards include the selection and monitoring of your service providers such as TPAs. By monitoring or “auditing” your TPA’s performance, employers can demonstrate their fiduciary oversight to corroborate that the TPA is processing claims properly.
Since TPA’s are processing employers’ self-insured healthcare claims which typically represent a significant amount of annual expenses, every employer should periodically perform an audit of their TPA which would mitigate risks associated with claims processing. A typical claims audit has the following objectives:
TPA audits are a powerful tool employers can use to meet their fiduciary duty, and they offer an unbiased view of the TPA’s accuracy of processing claims. A typical claims audit includes the following components:
A review and analysis of the ASA governing the TPA’s performance should include, but not be limited to, the following questions:
Use data analytics to identify trends and anomalies that can help target further attention. Some of the categories to analyze include:
Additionally, the following tests can typically be performed through data analytics on 100% of the claims processed during the audit period:
Summarize risks of improperly paid claims identified through the planning and data analytics phases of the audit. This summary can also include non-quantifiable risks such as categories of claims subject to manual adjustment by processors. This list should be utilized to organize the entire population of claims paid during the audit period and select a sample of individual claims. It is also worthwhile to include a random sample of claims to allow opportunity to discover unexpected errors.
For the sample of claims selected, perform detail testing, which can include the following procedures:
There are no explicit rules regarding the frequency of conducting claim audits. Some employers perform these audits annually, while other set audit frequency based on changes to plan documents and results of past audits. For example, if previous audit results were satisfactory and there have been no significant changes to plan design, performing an audit once every three years may be adequate. If audit results are unsatisfactory, then the employer should certainly consider conducting audits more frequently. The frequency of these audits is usually covered in the ASA, so it’s important that the plan sponsors negotiate the audit terms before signing the contract with the TPA.
Also, especially for those who have not performed audits in the recent past, employers often discover that the cost of performing these audits is very quickly recovered in full by the overpayments recovered as a result of the audit findings.