With more than 4.5 billion pharmacy claims occurring each year, it is easy for a consumer or health plan to just pay the claims, assuming they are accurate. Because most pharmacy claims are automatically adjudicated electronically, even a minor coding error could result in a large volume of incorrectly paid claims with a serious financial impact. Common errors may include duplicate billing, incorrect or missing discounts and rebates, and mistakes in member eligibility.
The most important aspect of auditing focuses on pricing—verifying that the benefits spelled out in the contract are in fact being provided, especially the discounts that may apply to average wholesale price (AWP) or other forms of pricing.
Additionally, a claim audit should review manufacturer contracts regarding rebates and reconcile rebate payments received with the plan sponsor’s contractual guarantees. The approach to the audit may vary depending on whether the client has spread pricing (where the PBM charges its client more than the PBM pays the pharmacy for filling a prescription) or pass-through pricing (the PBM charges the client the same price the PBM paid the pharmacy) returns in place.
Goals of the Audit
The primary goal of our PBM audit is to verify the accuracy of claim payments according to the pharmacy plan’s parameters and contractual agreements. This process covers several other contractual terms and parameters as well. The audit will have the following specific objectives:
A comprehensive PBM audit can help identify cost savings opportunities and ways to enhance your existing benefit strategy. The following provides a general overview of the types of reviews and audits available to support employer efforts.
Operational Review typically covers:
A lack of transparency could be the reason your plan overpays for its pharmacy benefit. Nine out of ten employers do not have radical transparency in there PBM arrangement with up to $400 thousand in available savings for a group with 500 members, for instance. Contact TransparentRx to learn more.
Plan Performance Assessment: Provides a more in-depth analysis of cost drivers, utilization patterns and PBM value, while providing the opportunity to assess potential savings that can be realized through benefit design changes utilizing alternative co-insurance or co-pay structures, generic and mail order management tactics.
Pharmacy Benefit Audit: May include a fixed fee and/or a performance fee component. The fixed fee payment for executing on specific audit criteria that should be proposed by an employer includes the following:
Claims audit re-adjudication/evaluation fees on a per claim basis, unless otherwise indicated. We include all the following benefit program elements in the per claim fee:
The performance fee payment component is based on a percent of dollars recovered by the employer/plan sponsor from the PBM, ASO or integrated health plan managing the pharmacy program. A Pharmacy Benefit Audit can result in recommendations or savings opportunities that may include:
The Auditing Process: First Stage
The comprehensive audit takes place in two stages. The first entails a thorough electronic testing of all available claim data, including claim adjustments and reversals. The second stage is a manual evaluation of claim issues that the electronic testing identified.
Our computer-assisted audit tools and techniques make it possible to examine 100% of a plan’s data in the first stage. The efficiency and completeness make this far preferable to the earlier practice of manually reviewing only a sample. Reviewing all the electronic claim records, including claim adjustments and reversals, gives the plan sponsor the most accurate final audit report possible.
A comprehensive audit checks every claim during a fixed period (e.g., a plan year) to assure compliance with contractual guarantees.
The Auditing Process: Second Stage
In the second stage, we examine individual claims (or groups of claims) that the electronic testing flagged from the complete data set because of apparent discrepancies. The purpose of this stage is to determine whether the electronic testing of those claims was accurate. In addition, the auditor may go on site for a firsthand operational review of how the PBM is managing the plan.
Often, when issues are identified, the auditor finds groups of claims paid incorrectly for a single reason. The objective at that point is to determine if the PBM has a systematic error in its processing system for the plan and, if so, how to correct the issue.
At the end of the audit, the auditor compiles the findings and delivers a preliminary report to the plan sponsor and the PBM for review, comment and clarification. There follows a reconciliation assessment, in which the auditor reevaluates identified claim errors based on the PBM’s response to the preliminary report.
The final report takes the review and reconciliation process into consideration, explains the auditor’s position on each item, and makes recommendations for any corrective action needed. The final audit report includes:
Return on Investment
On average, problems are found in 3% to 5% of paid claim costs, with recoveries of 1% to 2%. The return on investment is estimated to be six to ten times the cost of the audit.Moreover, one of the biggest returns is from prospective savings resulting from a contract market check review conducted in conjunction with the audit. The market check review helps to clearly define ambiguous contract terms to achieve more competitive market terms and rates.
Contract market check reviews are becoming increasingly more common. Market check provisions also come with a variety of contract considerations such as their timing (e.g., midterm with changes effective the next plan year); what pricing can be compared; whether the PBM or the consultant (or both) conducts the market check; and, if by the consultant, the amount of information the market check will require.
With both audits and market checks written into their contracts, plan sponsors are doubly armed to maximize their potential for savings, and PBMs will benefit from a more transparent relationship.
Thanks to electronic auditing, claim audits are more effective than ever before. They can identify workings of a plan that can be improved, whether it is a single isolated issue or systematic/repetitive errors, noncompliance with the terms of a third-party contract or simple data entry errors.
As noted, PBM audits are generally cost-effective. While certainly not guaranteed, it is not unusual to find savings exceeding the cost of the audit. At minimum, the plan sponsor can be rest assured that it has met its fiduciary responsibilities in the areas of managing its PBM contract and ensuring its plan participants receive the benefits to which they are contractually entitled.