A growing trend among self-funded medical plans is the increased focus on claims audits. Unlike dependent audits, claims audits are more comprehensive and time-consuming. Employers are increasingly recognizing their fiduciary duty to act in their employees’ best interests, making claims audits an essential part of meeting these responsibilities.
Third-party administrators (TPAs) often emphasize their speed in processing claims. While quick payment is beneficial, it does not guarantee accuracy. A claims audit is conducted to assess the continuous performance of your TPA and to confirm that the medical plan is being administered in accordance with the plan documents, summary of
benefits, stop-loss contract, and all other governing materials. It’s important to remember that TPAs make payments on behalf of the employer—ultimately, it’s the employer’s money. Therefore, implementing financial controls through auditing is essential to ensure claims are processed and paid correctly.
Industry estimates suggest that overpayment error rates range from 2–5% of total claims costs. Audits help uncover issues such as payments for ineligible claimants or services, missed referral requirements, duplicate payments, and benefit maximum violations. They also identify overpayments and underpayments, facilitate fund recovery, and provide valuable feedback for improving claims processing.
How Does the Audit Process Typically Work?
The standard audit methodology involves a stratified random sample, typically conducted on-site at the TPA’s office. The specific details and timing may vary depending on the TPA and the auditing firm, so these factors should be evaluated before initiating a formal audit.
Once the review is complete, a preliminary report is presented to the TPA for feedback. After the TPA’s review, the auditing vendor prepares a final report for the client. The TPA is also expected to respond to the formal report. If errors are found, this phase may involve a back-and-forth process until claims are reprocessed and alignment is achieved.
Most audits focus on medical claims and are typically recommended every three years.
Vendor Selection and Cost Considerations
A range of vendors are available to perform audits, with some operating on a flat fee basis and others charging a percentage of the realized savings. It is essential to interview both types of vendors alongside the client to determine the most suitable partnership. Note that it’s rare for every single claim to be audited. We can review the administrative agreement with the TPA, as it may include restrictions on the audit process and limits on the number of claims that can be reviewed.
Types of Claims Audits
There are four main types of audits:
- Medical Claims Audit – The most common type, focusing on the accuracy of medical claim payments.
- Focused Sample Audit – Targets specific areas of concern or high-risk claims.
- Pre-Implementation/Installation Audit – Conducted before a new plan or TPA is implemented to ensure readiness.
- Operations Review Audit – Evaluates the overall operational efficiency and compliance of the TPA.
While the medical claims audit remains the most popular, the pre-implementation audit is gaining momentum.
Written by Tim Rieger, Vice President, Sales, Consulting & Education