Auditing Health Plan Claims Session – 3:00pm Friday May 7 th , 2010 Presenters:

1. Auditing Health Plan Claims Session – 3:00pm Friday May 7th, 2010 Presenters: Steve Gasparich, Audit Director, Providence Health & Services Teri Long, Senior Audit Manager, Kaiser Permanente Chrisna Meckler, Assistant Director, Regence Robert Thieling, Director Audit Services, Group Health Cooperative

2. Auditing Health Plan Claims Objectives • Meet Other Health Plan Auditors • Identify Common Risks Associated with Claims Processing • Risk-Focused Audit Approach • Provide Tools for Audits of: • Claims Adjudication • Claims Performance Monitoring / Quality Assurance • Recoveries and Adjustments • Third Party Claims Processing • Computer Assisted Audit Techniques (CAAT’s) / Data Analytics

3. Auditing Health Plan Claims Introductions • Name and Title • Type of HealthCare Entity • Size of Entity, # of Health Plan Members, Geography Covered, Etc. • Attendee Introductions

4. Auditing Health Plan Claims Claim Processing Risks • Insurance rates and premiums are built upon inaccurate claim history • Contracting with employers and other groups is built upon inaccurate claim history • Claims are paid that others should be paying for (coordinating) • Fines and penalties are levied by regulators for untimely processing • Fraudulent claims submitted are not detected and get processed

5. Auditing Health Plan Claims Risk Focused Audit Approach • Approach Used by NAIC for Financial Examinations • Focus examination on high residual risk area • Justification required for testing of low residual risk items • Assessment and reliance on work of Internal Audit and other Functions • Value in Internal Audit having a parallel approach • Talk the same language • Identify mitigation strategies • Help formulate residual risk

6. Auditing Health Plan Claims Risk Focused Audit Approach (continued) • Elements of a Risk Focused Audit of Claims • Identify key functional areas/activities within claims processing (Mailroom claim capture) • Document risks for each activity (Mailroom: limited capacity of mailroom result in multiple days before claims are opened and distributed for processing) • Document likelihood and impact to achieve and overall inherent risk assessment. (low likelihood but high impact, so medium overall inherent risk) • Need to establish criteria for measuring likelihood and impact

7. Auditing Health Plan Claims Risk Focused Audit Approach (continued) • Elements of a Risk Focused Audit of Claims • Identify any risk mitigation strategy/controls • Calculate residual risk • Based on residual risks determine which activities to examine in detail and those not to examine

8. Auditing Health Plan Claims Risk Focused Audit Approach (continued) • Example Risk Matrix

9. Risk Assessment Matrix

10. Auditing Health Plan Claims Claims Adjudication • Claims Capture – Mail Room • Contracts With Facilities • Claims Adjudication • Claims Quality Assurance

11. Auditing Health Plan Claims Recoveries and Adjustments • Recoveries and Adjustments

12. Auditing Health Plan Claims Third Party Claims • Coordination of Benefits • Subrogation • Third Party Liability • Other • IBNR

13. Computer Assisted Audit Techniques (CAAT’s) / Data Analytics Facts Information Analysis Data

14. Why use Computer Assisted Audit Techniques (CAAT’s) / Data Analytics • Better Samples - By focusing on the areas of concern we increase the coverage and efficiency of our samples. • Quantification - Utilizing data analysis auditing techniques to identify and quantify control gap exposure, operational improvements and cost savings • Complete Understanding -Greater insight and understanding into key business operations through tracing the data and doing reconciliations • Earlier identification - of risks and trends • Better Comments - Making insightful recommendations to management for enhancing operational efficiency, including development of continuous monitoring techniques for management • Risk Focused - Designing top-down analyses to identify higher risk entities or locations for more focused audit procedures

15. Continuous Monitoring Capability The following scale represents various stages of data analysis in controls. The desired future state is to achieve a division-wide, repeatable process with respect to the use of data for continuous controls monitoring Data Extraction Continuous Monitoring Ad Hoc Analysis Repeatable Division-Wide • Continuous monitoring of select controls • Efficient execution of automated controls testing • “Proactive” approach to identifying & addressing control issues • Sustainable compliance processes • Involvement in planning sessions • Documented requirements & data requests • Reconciliation procedures performed prior to data analysis • Documented data analysis logic & logs • “Reactive” approach to identifying & implementing data analysis in the review • Procedures involve data extraction for use, but no formal procedures for identifying and performing data analysis • Data Quality procedures to verify/reconcile data • Standardized sampling methods applied • Non-standardized documentation provided to teams • Standardized documentation requirements • Formalized data analysis team structure • Process in place to manage the technical infrastructure supporting data analysis

16. CAAT’s / Data Analytics Approach 4-Report and Sampling • 1- Raw Data • Member Enrollment • Group Contracts • Claims Payment • Claim Intake • Member Refunds • 3rd Party Data 3-Analysis • 2-Business Process • Flow • Controls • Individuals Involved • Policies

17. CAAT’s / Data Analytics – Claims Intake

18. CAAT’s / Data Analytics - Claims Processing

19. CAAT’s / Data Analytics – Claim Aging and Denials

20. CAAT’s / Data Analytics – Fraud / Compliance

21. Auditing Health Plan Claims Resources • List of Today’s Attendees • Audit Program Handouts • (NAIC Evaluation) Risk-Focused Surveillance Framework Update found at • www.iowaactuariesclug.org/library/riskassessment.ppt or • Search NAIC Financial Condition Examiners Handbook revisions • AHIA.ORG

22. Auditing Health Plan Claims Questions ?