Each year, companies – and their employee benefits manager or health insurance broker – hold negotiations with third-party administrators (TPAs) to handle the details of self-funded healthcare plans. These agreements can directly impact a company’s bottom line.
Considering the rising cost of healthcare and incidences of significant overpayments of claims, including fraudulent or abusive claims, ensuring the plan addresses its fiduciary responsibilities is very important. If you are currently in the important “negotiations season,” be sure your self-funded healthcare plan is fully protected.
Did You Know?
You don’t have to accept the standard audit language in a proposed TPA agreement. It is an ERISA fiduciary responsibility of human resource managers or benefits consultants/brokers working on behalf of their plan to ensure that the language included in a services agreement is beneficial to everyone, but most importantly to the company.
The Most Common Mistake in Negotiations
Most TPAs will tell clients that they do in fact have audit rights within their agreements. However, in too many cases, the language is very restrictive and doesn’t really protect the company. Not negotiating for full audit rights is a HUGE mistake!
Full audit rights include these key components:
- Comprehensive claims review, not just random sampling
- Non-restrictive targeted sample size
- Minimum of two-year period for recovery of overpayments
- Fee structure based on recovery, not fixed
Random Sample vs. Comprehensive Audits
Random sample audits are usually listed as the allowed audit type the standard audit found in
most TPA agreements. Sometimes TPAs do not allow any type of audit. The biggest downside to random sample audits is that they, obviously, do not allow for a full review of all the data. When only a randomly selected portion of a data set is analyzed, it is nearly impossible to identify any patterns of abusive billing or systemic issues.
While benefits consultants claim they are performing audits and don’t need an external audit company, most of these audits only consist of
- high dollar claims,
- eligibility reviews, or
- obvious fraudulent charges.
Here is one example of how a random sample audit works.
- Auditors randomly select approximately 200-300 claims out of millions of transactions.
- Auditors examine those claims for errors based on predetermined criteria.
- Auditors extrapolate the results across the entire range of millions of claims to determine a claims error percentage of the entire population.
This approach carries a high margin of error that can work against the company. The fallout from the random sample approach is significant.
- If the auditor encounters an error on a randomly selected sample claim, it is virtually impossible to determine if the error is isolated or systemic in nature.
- It is likely that significant one-off errors exist outside of the random sample selection.
- It is often difficult to convince payers to issue settlements based on the results of a random-sample audit.
Random sample audits may leave undiscovered mistakes, and therefore money, on the table. This penalizes not only the company but the employees as well.
Conversely, a comprehensive audit starts with a review of the entire data set and an identification of known trouble areas. Audit companies with decades of experience can see red flags in data sets and start reviews at this point. Then, the comprehensive audit can pinpoint isolated and systemic errors in the audit process. Actual dollar amounts are assigned to these mistakes, making it very easy for payers to see where reimbursement is owed. As a result, employers can recover significantly more in overpayments and can correct root causes of the issues, which will prevent future claims from being paid in error.
Demand Comprehensive Audits Rights During Negotiations
There are numerous misconceptions about working with an outside auditing firm. The most common is that many TPAs believe working with a company like Healthcare Horizons will penalize them. At Healthcare Horizons, we work WITH a TPA to ensure errors are found and corrected. The TPA has the interest to see that their client is protected.
During the next negotiations cycle, HR departments, benefits consultants/brokers, and TPAs need to work together to demand accountability in healthcare claims and protect the financial interest of the client.
Use this checklist to make sure you have comprehensive audits rights in your TPA agreement. It’s YOUR money and your fiduciary responsibility to make sure that your medical plan is being administered appropriately.
Healthcare Horizons offers a free assessment of administrative service agreements to determine the proper inclusion of audit rights. Contact us so we can help you manage your fiduciary responsibility as it pertains to your company’s self-funded healthcare plan.
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