Understanding Health Plan Audit Rights: What Self-Insured Employers Can Demand

Introduction

Self-insured employers have unique responsibilities when it comes to managing health plans. One significant aspect of this responsibility is understanding health plan audit rights. These rights allow employers to review the performance and financial dealings of Third-Party Administrators (TPAs) and Administrative Services Organizations (ASOs). Despite their importance, many employers fail to exercise these rights. This guide will clarify what you can demand from TPAs and ASOs and why audit rights are often overlooked.

What are Health Plan Audit Rights?

Health plan audit rights refer to the contractual provisions that allow self-insured employers to evaluate the accuracy and compliance of their TPAs and ASOs. These rights are typically outlined in the service agreements and can include:

• Financial audits: Review of claims data, payment accuracy, and administrative expenses.
• Performance audits: Assessment of service levels, claim processing times, and customer service metrics.
• Regulatory compliance: Ensuring adherence to laws such as HIPAA and ERISA.

Common Audit Rights Included in Contracts

When negotiating your contracts, look for these specific audit rights:

• Annual financial audits: Employers can request an annual financial audit of claims and administrative costs.
• Claims data access: Full access to claims data and relevant documentation for a defined period (often 6-10 years).
• Performance metrics reporting: Regular reports on key performance indicators (KPIs), such as claims processing times and customer service response rates.
• On-site audits: The right to conduct on-site reviews of claims processing and administrative operations at least once a year.

Why Most Employers Don’t Use Audit Rights

Despite having these rights, many self-insured employers do not take advantage of them. The reasons for this include:

• Lack of awareness: Many employers are unaware of their audit rights or do not understand how to exercise them.
• Resource constraints: Conducting audits requires time, personnel, and financial resources that employers may not have.
• Fear of confrontation: Employers may hesitate to challenge TPAs or ASOs for fear of damaging relationships or hindering service delivery.
• Perceived complexity: Employers often view audits as complex and burdensome, leading to inaction.

The Financial Impact of Not Auditing

Neglecting audit rights can lead to significant financial repercussions. For instance, a study by the National Business Group on Health found that self-insured employers who do not audit their vendors can overpay between 5% to 15% on claims. For a company spending $1 million annually on employee healthcare, this translates to a potential loss of $50,000 to $150,000 each year.

Potential Areas of Loss

• Claims overpayment: Errors in claims processing can result in overpayments. The average overpayment rate is approximately 3% to 5%.
• Administrative inefficiencies: Lack of oversight can lead to inefficiencies, resulting in higher administrative costs; these can range from 5% to 10% of total healthcare spending.
• Compliance fines: Non-compliance with regulatory requirements can lead to fines ranging from $100 to $500 per violation.

Best Practices for Exercising Audit Rights

To effectively use your audit rights, consider the following best practices:

1. Review your contracts: Ensure that your TPAs and ASOs include robust audit rights in their contracts.
2. Develop an audit plan: Create a structured audit plan that outlines the scope, frequency, and objectives of audits.
3. Engage external auditors: Hire third-party auditors who specialize in healthcare to provide an unbiased review.
4. Communicate with your TPA/ASO: Maintain open lines of communication with your TPA or ASO regarding your intention to conduct audits.
5. Leverage technology: Utilize data analytics tools to streamline the audit process and identify discrepancies quickly.

Bottom Line

Self-insured employers have the right to audit their TPAs and ASOs, but many do not take advantage of these rights. By understanding what you can demand and implementing best practices, you can significantly reduce costs and enhance the performance of your health plan. Start by reviewing your contracts and developing a structured audit plan to protect your financial interests.