Frequently Asked Questions

A healthcare claims audit is an independent review of medical claims and/or pharmacy claims to verify that claims are processed accurately, paid according to plan terms, and administered in compliance with contractual and regulatory requirements.

Healthcare claims audits evaluate areas such as eligibility, plan design, industry billing standards, payment accuracy, fraud, waste and abuse indicators, and contractual compliance. The goal is to identify errors, improve vendor accountability, protect plan assets, and support fiduciary oversight.

For self-funded employers, medical and pharmacy claims audits provide valuable insight into how TPAs and PBMs are administering the plan and whether participants are receiving benefits as intended.

The only way to be sure that your healthcare plan’s claims are being processed correctly is to perform an audit. A healthcare claims audit will identify errors, confirm the plan is being administered as intended, and demonstrate compliance with federal regulations like ERISA, Sarbanes Oxley, and the Department of Labor (DOL) rules.

A healthcare claims audit can identify a variety of error types that occur during the claims process. These errors can lead to overpayments, underpayments, or noncompliance with regulations. Below are some of the common types of errors found during a medical claims audit:

Plan Design Errors
Plan design errors are mistakes or inconsistencies between claims processing and how the health plan is structured or documented. These include:

• Incorrect copayment or deductible setups

• Excluded services, such as cosmetic procedures or over-the-counter items

• Misapplied benefit limits or exclusions, such as exceeding therapy visit limits

• Payment for services that required prior approval from the insurer but were not authorized

Standard Industry Practice Violations
Standard industry practice violations refer to instances where claims are processed in ways that don't align with widely accepted healthcare or insurance industry norms. These include:

• Use of invalid codes or inappropriate modifiers

• Medically unlikely edits (units exceeding standard medical usage)

• Incorrect application of bilateral or global payment rules

• Unwarranted assistant or co-surgeon billing

• Unbundling of procedures that should be billed as a single service.

Fraud, Waste, & Abuse Indicators
Claims that have Fraud, Waste, & Abuse indicators are those that could be misrepresenting a service, gaining financial benefit, or expending resources carelessly. These include:

• Duplicate claims

• Billing for services without proper destination, such as ambulance errors

Eligibility Errors
Eligibility errors are found in claims when the plan’s eligibility criteria are not met, but the claim is still paid by the plan. These include:

• Dependents over the age of 26

• Claims paid after the member’s termination date

Cost Control & Payment Errors
Cost control and payment errors are mistakes that result in overpayments, underpayments, or missed opportunities to reduce costs. These include:

• Lack of medical necessity documentation

• Overpayments due to pricing errors or missing provider discounts

• Underpayments due to pricing errors or missing provider discounts

Other Party Liability Errors
Other party liability (OPL) errors are identified in claims that could potentially have another party that is responsible for the claim payment. Our auditors make selections and review claim-related documentation (eligibility dates, coordination of benefit documentation, accident details, etc.) to determine if another party is responsible for claim payment.

• Review of high-cost claimants for stop-loss coverage

• Failing to comply with the coordination of benefits (COB) when multiple insurers are involved - primary vs. secondary payer mistakes

• Unaccounted third-party liability (e.g., workers’ compensation)

These errors can result from human oversight, system issues, lack of training, or weak investigative efforts. To see real-world examples of audit findings, visit our blog.

If you find an incorrectly paid healthcare claim within your plan, a medical audit of all claims should be conducted by a third-party auditor to confirm there are no more errors. Any errors that are uncovered should be presented to the third-party administrator or pharmacy benefit manager to ensure the system and processes are corrected and claims are adjusted as applicable.

Now is the best time to conduct a healthcare claims audit!

Lumelight advises beginning with an audit of the most recent 18 months of paid claims, followed by annual audits covering 12 months. It is best to align the audit period with the benefit plan for a complete review of items like deductibles and out-of-pocket calculations. Medical claims auditing reviews help organizations identify issues before they become costly systemic problems.

It is also important to conduct Implementation Audits when switching administrators, implementing plan design changes, or moving to a self-funded plan for the first time. This helps to ensure that the plan is set up correctly from the beginning and avoids incorrect payments due to implementation errors.

Healthcare claims should be audited at least annually. For organizations conducting their first audit, Lumelight recommends reviewing the most recent 18 months of paid claims to establish a baseline and identify any recurring issues.

Additional audits should be considered when:

• Changing TPAs or PBMs

• Implementing significant design changes

• Transitioning to a self-funded health plan

• Experiencing mergers, acquisitions, or workforce changes

• Discovering a claim processing error or compliance concern

Regular medical claims auditing helps plan sponsors fulfill their fiduciary responsibilities, monitor vendor performance, and ensure plan assets are being used appropriately.

A healthcare claims audit typically spans 5–7 months from start to finish. The timeline is influenced by factors such as the availability of third-party administrators and pharmacy benefit managers. For plan sponsors or broker consultants, the process requires minimal effort, approximately 1-3 hours total, to submit plan documents, review email updates from Lumelight, and join kick-off and wrap-up sessions.

The cost of a healthcare claims audit is dependent on various factors like the number of plans and enrolled members, as well as the type of audit.

Request a quote so that we can provide you with a cost that aligns with your plan needs.

Healthcare claims audits provide independent verification that healthcare claims are being processed accurately, plan assets are being managed responsibly, and vendors are administering benefits according to plan documents and contractual obligations.

Organizations conduct healthcare claims audits for four primary reasons:

• Compliance. Increased scrutiny by the Department of Labor (DOL) relative to proper discharge and monitoring of ERISA fiduciary duties by employers and/or sponsors of group health plans is reason enough to conduct an audit. Plan sponsors put a lot of effort into designing health care benefits for their employees and want to be assured that these benefits are being provided at the right cost. Based on data gathered from BMI customers in 2024, compliance was the top motivator for conducting an audit.

• Fiduciary oversight. Many plan sponsors have never conducted an audit, yet draft authority on their bank account is granted to the third-party administrator for payment of the organization’s health care claims. Audits provide assurance that benefits are being provided as intended and claims are being paid accurately.

• Rising costs. The cost of health care benefits is among the largest expense items for an employer and along with comprehensive healthcare reform, self-insured employers are facing additional pressures to ease the financial strain.

• Suspected or known issues. Sometimes, an incorrectly processed claim is discovered through the normal course of business. The most effective way to ensure that no additional errors are going undetected is by conducting a thorough medical or pharmacy claims audit.

Ultimately, medical claims audits help employers protect their healthcare investment while ensuring employees receive benefits as intended.

Medical claims audits and pharmacy claims audits frequently uncover opportunities to improve plan performance, strengthen compliance, and reduce unnecessary spending. While results vary by organization, Lumelight commonly identifies claims processing errors representing approximately 0.5% to 3% of annual claims spend. Findings may lead to:

• Recovery of incorrectly paid claims

• Improved claims administration processes

• Enhanced TPA or PBM accountability

• Better compliance oversight

• Reduced future payment errors

• Increased confidence in vendor performance

Beyond financial recoveries, many employers value the peace of mind that comes from knowing their health plan is operating as intended and their fiduciary responsibilities are being fulfilled. Some TPAs will even help fund the cost of a follow-up audit.

See actual audit results here.

Healthcare claims audits improve compliance by verifying that claims are processed according to plan documents, administrative agreements, and applicable regulations. They help identify errors, operational weaknesses, and inconsistencies that could expose plan sponsors to financial or regulatory risk.

For self-funded health plans, audits provide documented evidence that fiduciaries are actively monitoring vendors and protecting plan assets. This oversight supports compliance with ERISA fiduciary obligations and demonstrates prudent plan management.

A healthcare claims audit can also identify:

• Plan administration errors

• Eligibility processing issues

• Improper benefit application

• Contract compliance concerns

• Coordination of benefits errors

• Pharmacy benefit management discrepancies

By proactively identifying issues, employers can address problems before they become larger compliance or financial risks.

Several regulations and contractual obligations influence medical claims auditing, particularly for self-funded employer-sponsored health plans.

These may include:

• Employee Retirement Income Security Act (ERISA)

• Department of Labor (DOL) fiduciary oversight requirements

• Sarbanes-Oxley internal control expectations

• Consolidated Appropriations Act (CAA)

• Mental Health Parity and Addiction Equity Act (MHPAEA)

• HIPAA privacy and security requirements

• Administrative Services Only (ASO) agreements

• Pharmacy Benefit Manager (PBM) contracts

A healthcare claims audit helps verify that claims administration aligns with these requirements while supporting prudent oversight of healthcare spending and vendor performance.

By identifying claims processing errors, medical claims audits and pharmacy claims audits help prevent future waste and ensure vendors follow contract terms, ultimately reducing overpayments and protecting plan funds.

Self-funded healthcare plans of all sizes benefit from claims audits benefit from medical claims audits and pharmacy claims audits, especially those with recent TPA transitions or high claims volume.

Organizations that have not audited their plan in the past two years, experienced mergers or eligibility changes, or want to validate vendor performance and compliance are ideal candidates for a medical and pharmacy claims audit.

Under ERISA, fiduciaries are required to act prudently and solely in the interest of plan participants. A claims audit supports this duty by verifying that claims are paid accurately, according to plan terms and contractual agreements. Medical claims audits provide documented supervision, help identify systemic errors and show that plan assets are being managed responsibly.

By proactively identifying errors and evaluating administrator performance, audits demonstrate careful management of plan assets, which is critical for ERISA compliance and avoiding litigation

Lumelight offers the following types of audits:

Medical Claims Audit
A medical claims audit is a review of medical insurance claims data to check for errors and make sure claims are paid correctly by the third-party administrator (TPA). The audit examines key areas such as duplicate charges, eligibility, standard industry practices, potential other party liability, and compliance with plan design and contract terms.

Prescription Claims Audit
A prescription (Rx) claims audit is a review of pharmacy insurance claims data to check for errors and make sure claims are paid correctly by the pharmacy benefit manager (PBM). The audit examines key areas such as dispensing fees, copayments, deductibles, out-of-pocket maximums, plan design compliance (including days’ supply limits, specialty drug rules, and exclusions), and plan utilization management (including prior authorization, quantity limits, and step therapy).

Additionally, a prescription drug claims audit can also include a Prescription Drug Manufacturer Rebate Audit and/or a Contractual Financial Guarantee Audit.

Focused Sampling
With focused sampling, 100% of paid claims are systematically reviewed against the client’s specific plan design using Lumelight’s proprietary category-based algorithms, which flags claims with potential errors. Flagged claims are then reviewed by experienced auditors who use their expertise to make final sample selections. This methodology may also be referred to as a comprehensive, judgmental, targeted or a 100% review audit.

Random Sampling
Random sampling begins with stratifying claims by the paid amount, such as $0 - $500, or $100,000+. A predetermined number of samples will be randomly selected from each stratum. These random samples are reviewed by experienced auditors who will determine if any of these claims have errors.

Here is an example of how Lumelight would stratify and select 200 random samples from 111,282 claims totaling $42,310,675 in paid claims:

Hybrid Sampling
Samples are chosen using a combination of focused and random sampling methodologies. This is best for plans that want a thorough review, as well as a measurement of performance guarantees.

Due to its effectiveness, Lumelight recommends conducting a focused audit. This is because the focused methodology programmatically reviews 100% of claims, with samples being selected by an expert auditor from those identified by the software as having potential errors. Using the focused sampling methodology is best for plans that want the most thorough review.

However, the decision is largely influenced by the plan sponsor’s desired outcome and the intended use of the results. Oftentimes, the Administrative Services Only Agreement (ASO) between the plan sponsor and third-party administrator dictates which approach may or may not be permitted.

A prescription drug manufacturer rebate audit is a review of each manufacturer’s rebate program to confirm that the correct pharmacy rebate amounts are being passed through and delivered back to the plan sponsor per the contracts. These audits help ensure that plan sponsors are receiving their full share of rebate dollars.

A financial guarantee audit evaluates whether a PBM is meeting the financial and/or performance guarantees outlined in the Administrative Services Only (ASO) contract, helping plan sponsors fulfill their fiduciary responsibilities.

This audit includes:

• Complete contract analysis with consultative and cost containment recommendations.

• Thorough evaluation of compliance with all contractual financial guarantees, such as average wholesale price (AWP) discounts, dispensing fees, minimum rebates, generic dispensing rates, and other applicable guarantees. 

Lumelight’s medical and pharmacy claims audits follow a structured, multi-step process to deliver accurate results and actionable insights:

1. Kickoff & Planning
   We begin with a kickoff call to align on audit goals, timelines, and responsibilities. The client shares plan documentation and sends the audit notification to the TPA and/or PBM.

2. Data Analysis & Sampling
   Lumelight analyzes data provided by the TPA/PBM and makes sample selections based on the chosen sampling methodology.

3. Audit Review & Validation
   The Lumelight team of auditors works together with the plan administrator to review a sample of claims. Claims are tested against various categories within the groupings of Plan Design, Standard Industry Practices, Eligibility, Cost Control Programs, Other Party Liability, and Fraud, Waste, & Abuse.

4. Reporting & Recommendations
   Findings are shared through a detailed audit report, confirming correct and incorrect claims, accuracy ratings, and cost recovery opportunities. A wrap-up session follows to discuss the findings and recommend next steps.

Typical audit timeline: 5–7 months, depending on administrator availability and data readiness.

To start a claims audit, Lumelight will need the Summary Plan Descriptions (SPDs), plan amendments, stop-loss contracts, and the ASO agreement from the plan sponsor. The TPA/PBM will provide claims data and eligibility files.

It is important for organizations to do their homework before engaging with any audit firm. A few key considerations or questions to ask:

• How long have they been in business?

• How many audits have they successfully completed?

• What third-party administrators have they worked with?

• What type of audit technology or software is utilized?

• Does the firm specialize in healthcare claims auditing?

• Do they offer an audit approach that meets the organization’s objectives?

• Do they offer additional services or products that could be considered a conflict of interest?

Yes. Most healthcare claims audits can be conducted remotely with minimal disruption to the plan sponsor.

Lumelight works directly with TPAs and PBMs to obtain claims data, eligibility files, and supporting documentation electronically. Audit reviews, status updates, and final reporting are typically completed through secure virtual meetings and digital file exchanges.

For most organizations, participation is limited to:

• Providing plan documents

• Attending a kickoff meeting

• Reviewing periodic updates

• Participating in the final findings presentation

This streamlined process allows employers and consultants to gain valuable audit insights without significant administrative burden.

Yes. Lumelight utilizes its own proprietary healthcare claims auditing software. AUDiT iQ™ is a healthcare claims auditing software designed to analyze 100% of claims data and efficiently identify inaccurate payments for sample selection during focused claims audits.

After the audit is completed, Lumelight delivers a comprehensive report detailing findings, observations, error rates, and opportunities for improvement.

The engagement concludes with a findings review session where our team walks through:

• Claims reviewed

• Errors identified

• Financial impact

• Compliance observations

• Vendor performance insights

• Recommended corrective actions

Where applicable, Lumelight assists clients in discussing findings with TPAs or PBMs and identifying opportunities to strengthen processes, recover funds, and prevent future errors.

The result is a clear roadmap for improving plan performance and protecting healthcare spend moving forward.