Claims audits are a proven way to root out overpayments. So why aren’t more firms doing them?

In most cases, employers avoid doing audits either because they’re concerned about the upfront cost (both in terms of money and time), potential privacy law violations or reliance on a third-party adminstrator (TPA) to catch overpayments.

In the long-run, however, audits typically save employers about 4% (either in recovered money or billing credits) on their health plan. What’s more, as plan sponsor, your firm has a right to know if your TPA is handling claims properly.

Most TPA firms expect audits. They have an internal audit system (although odds are none of your firm’s claims will be looked at). They also have a department set up to handle external audits.

Double-check your contract with the TPA. It should have a section on your rights to audit, how often you can do them and any fees charged.

How often you should audit depends on the size of your firm. Most mid-size employers that conduct claims audits do them once a year. Some organizations also do a procedural audit of the TPA and/or a pharmacy benefits audit every three years or so.

Pays to outsource

One downside of audits is they’re time consuming. Another is HIPAA: Unless you have a well-defined compliance policy (including designating a privacy officer and creating a formal system for safeguarding records), it’s risky to get hands-on with employees’ claims.

Most firms – big and small alike – avoid both drawbacks by outsourcing audits to specialists. That way, the claims audits take up very little of HR/Benefits’ time. And reputable audit firms will already have all the needed HIPAA compliance mechanisms in place.

Yes, outsourcing the audits can cost several thousand dollars. But the investment usually pays for itself two ways:

• outsourced audits often produce more substantial savings because specialists know what to look for, and
• there’s no productivity drain.