As human beings, we are all inclined to save money wherever and whenever possible. The internet has enabled many of us to become even better shoppers due to “deal” and pricing transparency websites. We feel good when we get good travel deals on Travelocity and LastMinuteCruises.com. We feel good when we do price comparisons on Amazon and end up saving a lot of money. We even feel pretty good when we get a 25% CVS coupon emailed to us. We feel even better when we buy a used car through Truecar.com and we’re told we’re getting a “really great deal.” Net, net – the internet has provided us with good pricing information which has turned many of us into good, or even better, shoppers. These savings are in fact, quite real.
New healthcare pricing transparency tools, such as Castlight Health, Compass Healthcare and Mpower360 have shown us there are material pricing differences among providers for many medical services including colonoscopies and MRIs as well as prescription drugs. Employees in high deductible plans like these tools. Self-insured employers also enjoy savings that are realized vis-à-vis pricing transparency websites. Obviously, these savings are also quite real. Other types of savings are also quite real.
As consumers, we generally have our “was I charged the right price?” radar on high alert when we pay the cashier at the grocery store or when we get the check from our waiter or waitress. Not only do we make sure we are paying the right price, but we’re also checking to make sure we actually bought all of the items we are being charged for. Again, when we find mistakes and ultimately pay less than originally requested, those savings are quite real. Still other types of savings are routine for many people.
For example, millions of homeowners have their local real estate property taxes lowered periodically. These homeowners seek the assistance of real estate attorneys who have the requisite specialized skills and knowledge to make this happen (and they are usually paid a percentage of the savings). In other cases, millions of Americans consult with their trusted CPA to make sure they do not overpay their taxes (and these accountants are generally paid a fixed fee).
Benefits Managers Don’t Like Saving Money, Or Do They?
Unfortunately, when it comes to the topic of plan sponsors and saving money, most of these savings are simply realized through shifting costs to employees by raising deductibles as well as co-pays and/or limiting/excluding medical services. Other common savings tactics include negotiating more favorable administrative fees, shopping stop loss insurance, adding wellness programs, removing ineligible dependents and adding working spouse provisions. While these are good savings tactics, cost shifting is quite ironic since the majority of plan sponsors and their advisors feel that carrier/provider mistakes are common, everyday experiences. In fact, a survey conducted by ADP revealed that plan sponsors on average, perceive a 95% accuracy rate among carriers.
Even though a 95% accuracy rate sounds pretty good, this “pretty good” accuracy rate means there’s a 5% error rate. That said a plan spending $10,000,000 on claims has an “accepted” leakage rate of $500,000. Said another way, a business operating on a 5% profit margin would need to generate $10,000,000 of revenue simply to pay for this waste. Would a business walk away from a $10,000,000 sale? I think not.
Not only do audit-driven savings represent a material improvement to the bottom line, but c-suite management would applaud plan management for running the healthcare plan the way core parts of their respective business is managed. In fact, given the materiality of healthcare costs the need for routine governance only makes sense. While these savings sound good in theory,the following examples illustrate the reality of audit-driven savings.
A retailer realized a $400,000 overpayment recovery by auditing End-stage Renal Failure claims.
A financial services company realized a $500,000 overpayment recovery by auditing prescription drug co-pays.
A healthcare company realized $900,000 in savings by auditing plan exclusions, such as gastric by-passes.
A public sector entity recovered millions of dollars by auditing employee eligibility over the course of a few years.
A retailer realized material savings by auditing network discounts.
A school district realized hundreds of thousands in savings by auditing prescription drug rebates.
A services organization realized a $180,000 overpayment recovery by auditing stop loss.
A manufacturer identified 15% more “spousal surchargers” by auditing its working spouse provision.
A non-profit entity reduced its healthcare costs by hundreds of thousands of dollars annually by removing ineligible dependents.
A propane delivery company reduced its costs by several million dollars by auditing its case and disease management programs which paved the way for a much-needed plan redesign.
As you think about these aforementioned savings and more specifically, your (or your client’s) health plan, you may be asking, “how is it possible that carriers and TPAs allow this financial leakage to exist?” The answer to that question is for another blog… In the interim, let’s focus on what all of these client examples have in common: 1) The desire for actionable results, 2) An independent and objective auditing firm is retained and 3) A data-driven approach is utilized.
The Desire for Actionable Results
Let’s face it; contrary to popular belief, all audits are NOT created equal. In fact, most health plan audits utilize a commodity-based approach. A typical commodity audit includes up to 300 randomly selected claims which are then stratified into 4 financial strata. Each of these claims is then reviewed to make sure each claim was adjudicated in a manner that mirrors the SPD. When pharmacy is managed by the same carrier, the claims are split 150 for medical and 150 for pharmacy (this further reduces the likelihood of finding errors).
Not surprisingly, the results are often lacking since claims adjudication software has evolved and improved over many years. Savvy benefit managers understand this and strive to make sure the selected auditing firm has a proven track record of delivering actionable results. That being said, it’s important to understand why audits are not created equal.
Why is this? First of all, the likelihood of finding errors in a random sample of 300 claims is very low given that the claims universe could range from tens of thousands to hundreds of thousands of claims. Second of all, there are ASO contract provisions, such as subrogation and claims-repricing, which are often excluded from commodity style audits. To add insult to injury (no pun intended), shock claims pertaining to stop loss contracts are often excluded in commodity type audits that are conducted by most of the large benefit consulting and accounting firms. So, it really should not be too surprising when audits that are flawed-out-of-the-starting-gate do not generate the savings that the c-suite and plan management is seeking. Another characteristic of successful audits follows.
An Independent and Objective Auditing Firm is Retained
Even though we’ve all heard the expression, “don’t let the fox guard the henhouse” employers routinely hire their benefits advisor to audit their claims. After all, it’s much easier to hire your current benefits advisor than it is to have to find and contract with a different firm. To be fair, while big benefits and accounting firms have armies of experienced professionals with advanced degrees along with impressive credentials, their audits are generally architected to find lackluster savings. “How can this be?” you might ask. A few reasons come to mind.
Your incumbent firm is protecting its interests. It cannot after all find material problems with the carrier it helped select (or co-managed) unless the client (usually the CFO) is really pushing for it.
Your incumbent firm has existing, broader relationships to protect. These relationships are with account management and with carrier executives that are responsible for retention. By the way, even though Eliot Spitzer’s work identified and fined brokerage firms for “kickers” it is likely many of these financial incentive programs still exist.
The big benefits and accounting firms do not have proven experience applying the requisite BIG HR Data sets (e.g. census, enrollment, COBRA, medical claims, pharmacy claims, case management, disease management, wellness, workers’ compensation and disability) in the audit context. They simply use technology to audit a single, or perhaps a second, data set.
The big benefits and accounting firms employ a “silo” approach due to specialization and cost pressures. The good news is that big service firms employ lots of smart and talented people that could be made available for your audit. The other news is these same people are highly specialized and have very limited knowledge of areas outside of their respective specialty. In order to gain access to other specialists that often means reaching out to other practice areas and importing talent. This translates into 1) Much higher costs and 2) A loss of revenue for the main practice area. As a result, leveraging your big benefits or accounting firm’s “wide and deep” resources seldom happens.
Net, net – your plan needs a truly independent and objective audit firm that will “go to the mat” to help you meet or achieve your objectives. Your plan needs an independent and objective audit firm that will represent your cause and not be bogged down by firm politics.
A Data-driven Approach is Utilized
Today’s healthcare ecosystem has many moving parts and in many ways, is like a jigsaw puzzle. Trying to obtain assurance your health plan is being administered correctly is like trying to complete a jigsaw puzzle using one puzzle piece. In order to find actionable savings all of the BIG HR Data puzzle pieces including, but not limited to: census, enrollment, COBRA, medical claims, pharmacy claims, case management, disease management, wellness, workers’ compensation and disability must be integrated.
Case in point – a high dollar claimant incurred hundreds of thousands of dollars in medical costs. While a traditional, single dataset audit approach would focus on areas, such as member liability accuracy, discount realization or duplicate payments, it would miss the big items, such as case management, disease management and subrogation. Why is this so? In order to answer a little background is first required.
It turns out this patient had a lengthy hospital stay because he had Sepsis. The patient developed Sepsis while in the hospital as a result of a gastric bypass. A review of the patient’s prescription drug history showed this patient was taking anti-psychotic medications. A more detailed review of the patient’s case management history showed this patient was not engaged by the carrier’s case management outreach team. The audit further revealed that this patient was not even a candidate for gastric bypass because of his mental health issue (i.e. this procedure should not have been performed). In spite of the carrier’s clinical protocols, the procedure was performed and the plan unnecessarily incurred hundreds of thousands of dollars of avoidable charges. Not to mention, subrogation was not pursued either.
Again, a traditional single dataset would have simply validated member liability accuracy, discount realization or duplicate payments. In all likelihood, errors would not have been found in a more traditional audit. While this example did not result in an overpayment recovery, the data-driven insights forced the carrier to improve its clinical governance which when implemented, would ultimately save the plan money prospectively.
Hence, the only way to truly obtain assurance that claims are being paid consistently with the respective plan design and ASO contract provisions is to 1) Integrate as much data as possible, and 2) Broaden the scope of the audit to include areas beyond medical claims such as pharmacy claims, case management and subrogation.
Audit-driven Savings – Myth or Reality?
In conclusion, audit-driven savings are a reality and can be a reality for your plan IF you want them to be. If you either 1) Hire your current big benefits or accounting services firm to audit your plan, 2) Do not integrate multiple datasets, and 3) Employ a siloed approach, than the odds are your savings will be minimal. If, however, you 1) Hire a specialty audit firm, 2) Leverage BIG HR Data assets and 3) Expand your scope beyond either medical or pharmacy claims than your savings will be a REALITY!
Founder & President HR Best Practices