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The Pearly Eight

You can avoid a fire and brimstone audit experience by using these eight great best practices.

March 06, 2011 Photo
We all know the old saying, "Timing is everything." When it comes to audits by state regulatory bodies, however, there's a little more to it—timing and positioning are everything.

In most cases, state regulatory agencies will schedule claims reporting audits in advance, so preparing for them and addressing issues identified in previous audits is crucial.

Audits are a complex, often challenging requirement, but they're a fact of life. With the right internal business processes, cooperation with colleagues and peers, and confidence in data validation and accessibility, audits can actually be an opportunity to improve the overall claims administration process and even introduce new efficiencies that can reduce an insurer's claims costs.

Top Eight Ways to Succeed in State Audits of Workers' Comp Claims

  1. Understand the state bureau's objectives. At the most fundamental level, state audits are meant to ensure that injured parties are being paid promptly. That's why the bottom line for most audits comes down to determining if an insurer and its claims administrator are effectively monitoring transactions and maintaining compliance without being compelled to do so.

    The basis of a successful audit begins well before the actual inspection. This means, at a minimum, providing workers' comp claims data in the timelines prescribed. The information in question often includes calculations of benefits, submission of first reports of injuries, subsequent reports of injuries, and payments of indemnity benefits. Audits can also extend to a survey of the business as a whole, including financial records and ledgers as well as financial reserves.
  2. Build your audit team. Having a team approach to audits is essential for success. No single person has all the answers or ready access to all the resources needed to maintain compliance or to demonstrate that compliance during an audit.

    As an ongoing endeavor, collaborate with colleagues and involve external resources, including technology systems vendors, to ensure that you understand the impact new laws and mandates have on your organization and its actions. This kind of proactive approach can prevent accidental non-compliance.

    When an audit is scheduled, contact those who need to contribute as early as possible. Audits require that an immense volume of data and materials be available, and gathering that information is a big job. Make sure that contributors will be on hand during an on-site audit to answer the auditor's questions, and make it a point to talk to your peers in other organizations who have gone through the same kinds of audits so that you'll have the best possible idea of what to expect.

    At the time of the audit, on-site access to the claims administration system will be needed, and expert, technical and/or vendor-provided guidance on how to extract data could prevent glitches and delays that frustrate the auditor and stymie the process. If the insurer or claims administrator is "paperless" and has all its information inside a computer system, the auditing staff will probably need separate workstations and will surely need access to the claims databases. In this case, you would need to provide technical and end-user staff to assist in the use of the system. In the ideal scenario, you would want the most experienced users to guide the auditors through the system; doing so will ensure that the auditors get clear, concise information, look in the right places for the data they need, and can easily view and track the files in which they're interested.
  1. Get ready for electronic audits. Claims departments are audited for a variety of criteria and in a number of ways. Most states still conduct on-site audits, and auditors will notify insurers in advance of the event. Some states, however, perform automated, remote audits on a regular basis using system-automated reports that list late reporting, late payments, reporting data errors, and the like without even sending an auditor to the insurer's claims department.

    As more and more states move toward exclusively electronic claims reporting, audits are likely to become more automated and more frequent, and insurers may have less time to rectify problems before the auditor has his eyes on the records. This trend means that it's increasingly important for claims departments to be aware of the specific regulations in each state in which they operate, any potential gaps in the reporting solutions provided by the claims administrator's systems, and any recurring situations resulting in late payments to injured parties or late reporting of claim information to the state.
  2. Self-audits: painful but necessary. Many claims departments fall short in a task that can be time-consuming and laborious to implement but that generates strong returns in the form of successful audits: namely, the internal audit.

    As states move toward automated remote audits, it's essential that claims departments evaluate themselves more frequently and look for the same kinds of potential gaps and issues that the states themselves are seeking to uncover. In the event that a state audit identifies issues not brought to light in an insurer's or claims administrator's internal audit, the carrier and/or administrator can significantly mitigate potential fines and penalties by demonstrating that it has proactively taken steps to maintain compliance, including regular self-audits.
  3. Identify and rectify recurring problems. States rarely expect an insurer to score perfectly on an audit. Fines, penalties and sanctions usually do not stem from first or second infractions. Claims departments do, however, leave themselves open to significant exposure during audits when they fail to address and correct issues identified in previous audits or reviews.

    It's essential to closely study the results from previous audits and rectify the most frequently occurring and severe problems. If a claims department cannot completely correct a problem identified in a prior audit, it should be prepared to show the steps taken to address the issue or its root cause and to define a resolution timeline for the auditor.
  1. Let your claims administration system help you address recurring issues. Claims administrators, TPAs and claims departments can and do often overlook the potential in their claims administration system to address recurring issues identified in audits. Start early to review promised changes and address system functionality, and let the claims administration system help meet audit-identified shortcomings.

    Either in preparation for an audit or as soon as possible after, a request should be made of the system vendor to add or modify system functionalities to meet state reporting requirements or allay the auditor's concerns.
  2. Look to the claims administration vendor for data validation. When a new law comes into effect or when a law is modified, most claims departments understand the importance of working with their technology partner to capture the required data elements in the system. In many cases, the data are already being captured; in other instances, however, the claims administration system needs to be modified.

    Frequently, the system needs to have a new field, checkbox or drop-list box added to a screen, which allows the end user to capture the data during the normal course of claims administration. Just because a box has been checked or a field completed, however, does not mean that the data are ready to be collected and reported.

    Providing data validation that immediately alerts users to data issues or errors is key. Data validation can also include reports to claims supervisors as well as messages to the end users. The overall goal of data validation is to ensure that the data have been processed without errors before the report is submitted to the reporting bureau, thereby achieving successful reporting transactions without returned errors or delays in further processing.

    Claims departments should look to their claims administration system vendor for data validation. Ask the vendor the hard questions, including:

    • Can we capture the data required?
    • How will a user (adjuster) know when there is an error?
    • How can we fix an error and then have the system perform data validation again?
    • What's the purpose of the data in question?
    • What's involved in developing a solution to meet this new reporting requirement?

    Getting data corrected and validated prior to reporting to the auditing organization is one thing, but you also need to know the results of the data reporting and know the results of the report submission as you work through day-to-day claim events. Ensure that your claims administration system can handle bureau responses and communicate the results back to users (in reports or on user diaries, for example). This will ensure that, if there are errors to address, the user can tend to them and get updates back to the state as soon as possible.
  1. Don't rely on help from the auditor. Although audit experiences vary widely, don't expect an auditor to share insights or helpful suggestions on the day of the audit. That's not to say auditors aren't nice folks but, rather, that auditors represent the enforcement side of the regulatory agency overseeing a claims department. Their job is to gather the information needed to determine an insurer's or administrator's level of compliance. Respect the auditor by being as open and helpful as possible.

    Being audited doesn't have to be a fire and brimstone experience. By following these eight best practices, you will be well prepared and may even find that the benefits of routine audit preparations are a blessing in disguise.
Cindy Hall, PMP, is compliance manager with Aon eSolutions and sits on the IAIABC EDI Council. cindy.hall@aon.com or (925) 242-4609.
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