Managing Health & Welfare Plan Costs with a Claims Audit: A Case Study

Linh Crider, CPA, CFE

Health & welfare plan administrators are facing increasing costs and complexities. Reviewing your plan’s claims processing is often a helpful tool for understanding current costs incurred, ensuring accurate claims processing and payment, and managing health plan costs. We recently performed an audit for a client to help understand what contributed to an unexpected and significant dollar increase in medical claims costs. This post details the claims audit process and the insights gleaned.

Obtain the Data
Just as the real estate mantra is “location, location, location,” for claims auditing it is data, data, data. It is imperative that plan sponsors have access to accurate and timely data regarding claim costs and utilization.

Review and Interpret the Data
Our client requested our help to determine what caused a spike in health claims costs that was not explained by seasonal fluctuations or plan design changes. We then made several recommendations of potential targeted audits that we could perform, such as duplicate payments, high-dollar claims, and provider claims with the highest increase in claim volume from the previous year.

The Approach
After discussing the client’s needs, we agreed to perform a targeted audit on potential duplicate payments. From data files provided by our client, we were able to generate a report of potential duplicate payments with matches in the following categories: patient ID, relationship ID, Provider Tax ID, Date of Service, Procedure Code, Diagnosis Code, and Amount Paid. This report contained over 35,500 records and was the basis for our audit.

The Process
Our audit consisted of a sample of 60 pairs of claims (120 in total) judgmentally selected from the report described above, which the team analyzed to determine if they were true duplicate payments. We reviewed the claim processing detail as well as the claim image using the client’s claims processing system. As part our audit process, we also checked to see if a refund check was received.

We took care to note if a procedure code modifier was present which, by its definition, specified that the claim or service was not a duplicate. Examples include modifiers that indicate that a separate and distinct service was performed, or that the physician performed a surgical service that required a return trip to the operating room for an unrelated problem. We documented our preliminary findings and then confirmed which items were true duplicate payments from the claims administrator.

Analysis and Findings
We found that 24 of the 60 pairs of claims we tested were indeed duplicate payments. This is an astounding number. Delving into the root causes, we were able to determine two reasons for the duplicate payments. The predominant cause was that a Claims Examiner entered manual overrides of the processing system’s feature that flagged potential duplicate claims. The processing system did its job, but human intervention caused the error. Additionally, we also determined that the claims processing system did not flag claims as a duplicate if the charged amounts were different. This can be problematic if a provider rebills duplicate lines, but not complete duplicates of the original claim.

Recommendations to Client
After tabulating our results and drafting a report, we met with our client and made several recommendations. Specifically, we suggested a review of the duplicate edit programming of the claims systems for potential enhancements and additional claims examiner training on overrides and duplicate payments. This targeted audit identified significant claims overpayments and helped establish efficient, cost-saving processes.

Wait…There’s More!
As part of our audit, we also noted an additional issue regarding the provider refund check process. Based on our initial findings we recommended a more detailed review of the entire refund process that would strengthen the efficiency and effectiveness of internal controls over this area.

Regularly monitor your claims activity, and engage in periodic claims audits to ensure correct and efficient processing. These steps will help your plan manage costs, prevent fraud, and ensure accuracy.

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