There's a paradox of recovery auditing for ASO-providing health plans

July 1, 2008

It's no secret that health insurance claim errors resulting in hundreds of millions of dollars in overpayments are common for large health plans. However, when the health plan is providing administrative services only (ASO) for self-funded plans, the incentive to recover overpayments decreases for a number of reasons.

It's no secret that health insurance claim errors resulting in hundreds of millions of dollars in overpayments are common for large health plans. In fact, most large health plans have internal teams and outside vendors to help identify and recover overpayments. However, when the health plan is providing administrative services only (ASO) for self-funded plans, the incentive to recover overpayments decreases for a number of reasons.

First, if the health plan recovers overpayments and returns them to the plan sponsor, is the health plan admitting to making a mistake? Second, if the health plan uses an outside recovery audit firm to unearth the overpayment, who pays their bill? The health plan? Or does the health plan pass the cost to the plan sponsor? Third, a client confronted with recovery audit costs might say, "The health plan made the mistake; therefore, the health plan should pay for it!"

This is the paradox faced by health plans. Despite a seemingly significant volume of claims overpayments, very little is being done to recover them, consequently costing the plan sponsors millions of dollars annually. In fact, it is estimated that nearly $1 billion is lost annually due to overpayments, despite various prepayment systems and processes in place to mitigate those losses.

1) If the health plan recovers overpayments and returns them to its customer, is the health plan admitting to making a mistake?

Overpayments are endemic to any large medical insurance operation, sometimes up to 5% of paid claims. To miss recovering those overpayments means that plan sponsors are losing tens of millions of dollars. Many plan sponsors are beginning to recognize that a portion of their paid claims dollars are being overpaid and not recovered, and they are demanding the implementation of recovery efforts. The health plan that does not facilitate the recovery of overpayments will be at a competitive disadvantage in the marketplace.

2) If a health plan uses an outside recovery audit firm to uncover the overpayment, who pays their bill? The health plan? Does the health plan pass the cost to its self-funded client?

The answers obviously depend upon the nature of the health plan's relationship with the plan sponsor. The closer the partnership, the better the odds that recovery audit expenses can be passed along to the client.

3) It is possible a client confronted with recovery audit costs might say, "The health plan made the mistake, the health plan should pay for it!"

However, there is always the possibility that the plan sponsor will refuse to pay recovery costs. The health plan may be able to overcome that objection in one of three ways:

Ideally, the plan sponsor client will recognize that the recoveries realized far outweigh any associated fees.

Benefits of a recovery program

Recovering overpayments is a medical cost containment best practice and is an excellent way for the health plan to demonstrate that it is providing the best service to its clients. The dollars recovered can be passed on directly to the plan sponsor. The health plan owes it to its clients to lower costs and make processes as efficient as possible. Future savings can also be realized as process improvements are put in place. By proactively addressing the plan sponsor's claims overpayments, the health plan increases the probability of insulating clients from competition.