Plan administrators should make payment integrity reviews a part of their process

As benefit consultants help their employer clients comply with new federal transparency regulations, greater attention is being paid to an important subset of that issue known as payment integrity. This emerging area involves more than just ensuring that medical bills are accurate; payment integrity (PI) examines all aspects of the billing and claims paying process.

The result of a PI review and ongoing analysis should be the elimination of errors (and abuse, in some cases), as well as peace of mind for the plan sponsor. While payment integrity does not normally focus on third-party administrators (TPA) or other claims paying activities, occasional errors there can be caught as well.

One case study I came across sheds some light on the potential impact of PI. Watching health plan costs spiral out of control, the administrator of a Taft-Hartley health plan suspected that a portion of payments must have been made improperly. Through random sampling, he reviewed 100 claims and found that 16 were improperly paid.

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“When we notified our network, they told us we were wrong and that there was no issue,” he said, shocked by the response.

In response, he sought the assistance of a PI firm, ClaimInformatics, which specializes in identifying and recovering improper payments. After providing the historical claims needed to do a thorough review, his initial fear was confirmed — and he learned that those 16 claims proved to be the tip of a much bigger iceberg.

This plan administrator’s experience is not unique. The Office of the Inspector General for Health and Human Services, which tracks and reports improper payment rates for Medicaid, noted that 21.7% of all healthcare claims were improperly paid for fiscal year 2021. More broadly, the Journal for the American Medical Association confirms that upwards of 20% of all healthcare spending in the U.S. should be classified as fraud, waste and abuse.

This problem, — one of the key systemic drivers of skyrocketing healthcare costs — is not unique to one provider, one carrier or one network, and combating this fraud, waste and abuse can save self-funded plans more than 10% of their annual expenditure.

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Many forces contribute to the improper-payment epidemic. In the ER, an overworked nurse mistakenly coding a “4” instead of a “3” can bill $1,000,000 instead of $10,000. After receiving the claim, networks often have a challenging time appropriately applying pricing rules.

To accurately price, claims must be checked against standard guidelines that apply to all plans, as well as a bevy of plan-specific rules. Even the most robust payment systems let some issues slip through the cracks.

The conflicts of interest that plague our healthcare system are also a factor. While many of my clients assume that their carrier or TPA is catching this fraud, waste and abuse, the reality is that most carriers (and many TPAs) do not have the expertise, bandwidth or interest required to protect self-insured plans.

Indeed, most eye-opening has been the realization that to solve this problem and meaningfully cap costs, claims oversight must be provided by an independent third-party that is not financially tied to the insurance networks or providers. More than just controlling costs, independent oversight is legally required.

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The legal landscape
As I have counseled my clients for decades, plan sponsors as ERISA fiduciaries are legally obligated to ensure that plan assets are administered in accordance with plan documents. Only in recent years have they realized that such an obligation includes searching for improperly paid claims, including but not limited to the members’ portions — and then recovering any monies paid out improperly.

These obligations (and the legal liability for plan sponsors that do not fulfill them) have grown dramatically over the past two years. The Consolidated Appropriations Act of 2021 expanded plan sponsors’ responsibilities, but also gave them new rights to access their claims data and network pricing agreements.

This administrator liability is not just theoretical: the DOL and DOJ are actively targeting plan administrators that do not conduct independent reviews of their medical claims. In Chimes v. Acosta, an ERISA plan was able to defeat a lawsuit from the Secretary of Labor only because it proved that an annual audit of healthcare spending was performed by an independent third party.

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This year, the Employee Benefits Security Administration announced that it is focusing on investigating “plans and participants adversely affected by improper administrative practices or the mishandling of plan funds.” Self-funded healthcare plans are entering a new regulatory environment: 401(k) oversight has come to ERISA plans.

Possible solutions
With skyrocketing costs and new legal exposure, plan sponsors might be overwhelmed. The financial underpinnings of the healthcare system can certainly appear intimidatingly opaque, particularly for administrators that thought their carrier and TPA had it handled.

As an independent broker, I am seeing firsthand that true PI — the independent, third-party review of claims before and after they are paid — is as close to the silver bullet as administrators can get in arming themselves with tools to cut spending and satisfy their legal obligations.

PI expert Dawn Cornelis, who has been in the business for more than 30 years, agrees: “I can’t stress it enough. It all starts with the agreements. Plan sponsors, you must demand transparency. Bring an independent third party to the table to review claims in a post payment as well as a prepayment environment, and hold your carriers accountable to really work for you.”

Payment integrity, long a “nice-to-have” service in healthcare, is now a practical and legal necessity. ERISA plan sponsors can, and should, take proactive measures to meet their fiduciary obligations and generate meaningful savings for their plan and members. Between capping costs and protecting members, independent PI is a rare bright spot in modern American healthcare. It’s in every plan administrator’s best interest to explore a PI solution.