Is It Time for a Third-Party Administrator “Check- Up” for Self-Insured Employers?
In conjunction with the development of an annual budget employers typically perform a risk assessment for their organization. With spending on health care services estimated to reach 20% of the gross domestic product by 2021, health care cost is a high risk and priority continuously addressed by every employer.
Many employers are utilizing the self-insurance method and hiring a Third-Party Administrator (TPA) under an Administrative Services Only (ASO) contract to process their claims. These organizations have determined that self-insurance is cost effective as insurers build in higher profit margins for fully insured products, partly reflecting the actuarial risk they are taking for higher-than-expected healthcare costs.
Since TPA’s are processing employers’ self-insured healthcare claims totaling millions of dollars, every employer needs to mitigate this risk and perform a “check-up” of their TPA’s claims adjudication system. It is imperative that self-insured employers develop and implement a monitoring system of their TPA. The monitoring should include an audit which offers an unbiased view on the accuracy of the claims payment process and verifies a TPA’s self-reported results.
Risk Mitigation Strategy
The following are reasons why an employer should audit a TPA or an Insurer under an ASO contract:
- Designed to assess whether your claims are being adjudicated by a TPA or an Insurer under an ASO contract in accordance with the provisions of your plan of benefits, and benefits paid only for eligible participants
- Meet ERISA (or other applicable) fiscal / fiduciary standards for oversight of plan assets
- Determine if industry best practices are being met (e.g., 98% financial accuracy; 95% claims accuracy, etc.)
- Identification of payment errors (typically 2%-4%) and opportunities for future cost savings
- Confirmation that internal claims payer reimbursement totals and policies are consistent with current provider contracts for in network and out of network benefits (e.g., why is claim reimbursement being calculated at 100% of charges, etc.)
- Optimize claim paying performance by uncovering root causes of errors and obtain assurance from TPA that process improvements have been implemented
Typical Audit Process
A typical TPA audit process includes the following components:
- Analysis of TPA or ASO contract
- Are there performance guarantees and measurement criteria (e.g., financial accuracy, claim accuracy, and turnaround time, etc.)
- Are all parameters for claims to be processed defined (covered services, deductibles, stop loss insurance, etc.)
- Request for claims data for selected audit period
- Last 2 years annual claims cost by category (hospital inpatient, outpatient and emergency room, physician, pharmacy, dental and vision)
- Data mining/analysis
- Analyze data received (billed charges, reimbursement, etc.) and review for trends and anomalies
- Pull sample of claims
- Focused audit
- high-dollar claims and high volume providers
- special reimbursement parameters such as implants which could require manual intervention
- Stratified, random sample of paid claims
- Focused audit
- Detailed testing of each sample claim
- Recalculate reimbursement rates claims included in the sample based on the TPA or Insurer’s contract with the provider and determine if there any over/under payments and if the employee was eligible to receive benefits
- Includes retroactive terminations which the TPA was not timely notified of the employee’s termination date and
- Recalculate reimbursement rates claims included in the sample based on the TPA or Insurer’s contract with the provider and determine if there any over/under payments and if the employee was eligible to receive benefits
- Recalculate claims turn-around time
- Confirm results with TPA or Insurer for applicable payment adjustments to be processed
- Findings and Recommendations included in report
- Follow-up with remediation
Typical Errors
Typical errors discovered during an audit include but are not limited to the following:
- Incorrect application of (or failure to apply) network rates – usually where manual processes are involved
- Inpatient- multiple levels of care and carve outs such as implants paid at invoice cost
- Outpatient- anesthesia (number of units)
- Same Day Surgery- Multiple Procedure Reduction (MPR) and “Top of Range“ cap vs. percentage of charges
- Rate change effective dates
- Failure to apply correct deductible and out-of-pocket maximum (including copayments)
- Payment for ineligible charges
- Incorrect coordination of benefits calculations
- Duplicate claims
- Claims are paid for dates of service subsequent to employee termination date
- Delays in forwarding termination dates to TPA or Insurer result in claims paid for ineligible employees
In order to monitor self-insured employers’ healthcare costs, TPA audits are consistent with best practices in the industry. There are no hard and fast rules as to the frequency when claims audits should be conducted; it depends upon your comfort level with the administrator and how hands-on you want to be. Best practices indicate that if previous audits have been satisfactory and no significant plan design changes have been made, auditing once every three years is adequate. If an audit has less-than-positive results, then the employer should certainly be considering either conducting audits more frequently or focusing on specific areas of concern.