“…………..you have a nagging concern about fixed costs. Audit fees seem high, exceeding claim administration fees. Your TPA is sharing in the audit fees, and perhaps your consultant/broker is too……..”
By William Rusteberg
You have made the decision to leave the managed care world and seek financial relief using universal benchmarks such as cost plus or Medicare plus to reimburse medical providers. To make this leap, you hired a trusted partner to assist you in two key areas; claim audits and balance billing protection.
You have made the right move. Claims are down, way down. The employee revolt has dissapated, and all seems to be relatively calm. Your HR manager finally got off xanex and is back to normal.
But you have a nagging concern about fixed costs. Audit fees seem high, exceeding claim administration fees. Your TPA is sharing in the audit fees, and perhaps your consultant/broker is too. No lawsuits have occured, less than 8% of claims are contested through an appeal process, and balance billing issues go away fast. Providers cash your checks and continue to see your plan participants.
“Are my Cost Plus fees too high? ” you might ask. “And how do we know if they are? ” After all, Cost Plus reimbursement methodolgies are gaining market share as more third party administrators, audit companies, and entrepeneurs are entering the market. Has competition affected fees?
You may find the answer is yes. For example, you may be paying fees based on a percentage of billed charges, say 10%. Billed charges for a $250,000 hospital bill would produce a fee of $25,000. Of course, the audit brings the bill down to $100,000, and you are indemnified against balance billing and lawsuits, so you are still way ahead.
But let’s take the same bill of $250,000 that is reduced down to $100,000. Some audit firms may charge you 5% of allowed, or 5% of $100,000 which is $5,000. This fee also includes indemnification against balance billing and lawsuits while the fee is substantially less.
Other firms may charge a percentage of savings as low as 7% and provide the same services as the firms who charge a higher percentage of billed amounts. In the example above, a fee of 7% of savings would be $10,500, more than half as expensive as the firm who charges a % of billed.
As a Plan Sponsor, you have a fiduciary duty to pay only fair and reasonable fees. A prudent business decision is to determine market value. There is only one way to accomplish that.
Editor’s Note: Here is an actual audit sheet showing audit fee of 10% of billed charges- Sample Audit Fees. The reader may find this document instructive: The billed charges are about $118,000. PPO allowed for this claim would have been about $77,000, or about 34% off billed charges. Medicare would have paid about $20,000. So the estimated PPO allowed is 385% of Medicare. Instead, the Plan Sponsor paid the greater of Cost Plus 12% or Medicare +20%. In this case, Medicare + 20% was the allowable charge. The audit fee, 10% of billed charges, was about $12,000. Unfortunately for this Plan Sponsor, a fee less than half of this may have been realized utilizing another audit/TPA firm.
