Claims Audit

Definition

A claims audit is a systematic review of the claims paid under an employer's health plan to identify billing errors, coding mistakes, duplicate payments, overpayments, fraud, and compliance issues. For self-funded employers, claims audits are conducted by independent audit firms who analyze the TPA's claims payment records against plan documents, fee schedules, network contracts, and coding standards. Audits may be comprehensive (covering all claims in a defined period) or targeted (focusing on specific claim types, providers, or high-cost diagnoses). Recovery audits seek to recoup identified overpayments; prospective audits identify systemic issues to prevent future errors.

What This Means for Employers

Claims audits consistently uncover a meaningful level of billing errors and overpayments — industry estimates typically range from 3–10% of total claims paid. For a self-funded employer spending $5 million annually on health claims, a 5% error rate represents $250,000 in recoverable or preventable overpayments. Beyond direct recovery, audits identify TPA performance issues, coding trends, and systemic vulnerabilities that, when corrected, improve long-term claims accuracy. The ERISA fiduciary duty to prudently manage plan assets arguably obligates self-funded plan sponsors to conduct periodic claims audits. Most reputable TPA contracts permit or require periodic audits; resistance to auditing is itself a red flag about a TPA's confidence in its payment accuracy.

Related Terms

• Self-Funded Health Plan
• Utilization Management
• Stop-Loss Insurance
• Employee Benefits Broker vs. Consultant