White Papers for Sarbanes-Oxley (SOX)

Health Plan Auditing: 100-Percent-Of-Claims Vs. Random-Sample Audits

Healthcare Data Management, Inc. (HDM)

This paper addresses an independent study Healthcare Data Management, Inc. (HDM) commissioned to gauge the relative efficacy of 100-percent-of-claims versus random-sample auditing of employee health plans. Multiple data sets of claim errors ("exceptions") determined in the 100-percent-of-claims audit of paid medical claims from two HDM Fortune-100 clients were analyzed and compared to 100 simulated audits each of 300- and 400-claim random samples taken from the same claim errors. Dramatically, the random-sample simulations failed to identify a minimum of 90 percent or more of the errors identified by the 100-percent-of-claims methodology. The dollar value of errors missed totaled up to $750,000 for a single year. Executives in charge of governance and management of risk and health plan expenses - particularly in organizations that follow Six Sigma and/or strive for zero defects - should consider how the dramatic results of this study can favorably affect their organization.

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