Why a Copay Audit by a Large Auditing Firm Will Find Little if Any Fraud (Part 1)

The most prevalent type of copay audit done today is the copay vendor audit. A copay vendor audit is most often performed by one of the large auditing firms.?

As part of this audit, a brand may require the accounting firm to look for fraud in a subset of copay claims in hopes of checking “both boxes” for completion. There are two different types of audits here, a copay vendor audit is the most common and often comes with a copay claims “check”. Having your accounting firm do this “check” will only give you a false sense of security as a copay claims audit requires a completely different process and skill set.?

A copay claims audit looking for incorrectly processed claims and fraud is one of the most important things pharma brands can do now. It’s like checking over a car but not having the experience to run diagnostics on the engine that makes everything run. Eventually, problems will bubble up to the top, but by then things usually have gotten out of hand and the costs to the brand are huge.

We’ve all heard about companies and their external issues, but we seldom hear about the internal waste happening inside the walls of pharma companies and brands. Over the years there have been countless stories of poorly structured copay programs, and programs ravaged by fraud costing the brands tens of millions of dollars in wasted spend. The result was at least one lawsuit against a copay vendor, and many good people over the years losing their jobs. Almost all of these issues could have been caught by a copay claims audit done by a company with the proper experience. ??

Having your auditing firm do your copay claims audit is a mistake that will yield you nothing due to the lack of expertise accounting firms have with copay programs/data processing. This is compared with topic experts who have worked structuring copay programs and analyzing the claims data for years. Over the years you see the tricks of the trade and the havoc it can cause.

The copay vendor audits accounting firms do look at copay from the operational accounting perspective, checking:

·?????? If your copay vendors are properly paying out and billing correctly

·?????? If they are properly reporting and handling adverse events reported by patients

·?????? If the business rules in the program are being implemented properly

·?????? A subset of your claims (10% or less) to see if they are “correctly processed”

These audits are very common in today’s environment, however, they don’t place the proper emphasis on the area with the biggest issues yielding the largest potential savings and net margin improvement. Identifying "incorrectly processed" or fraudulent claims is the most important because the longer fraud happens the larger the wasted spend numbers become.

While Big accounting firms are the perfect choice for doing a copay vendor audit, they don’t have the experience to do the claims portion of the audit looking for fraud. For this, very specific detailed knowledge of how the NCPDP system works, and the tricks some of the independent pharmacies employ to separate you from your budget is needed.

Just the thought of taking a subset of maybe 10% of claims for your audit should start your “spidey senses” tingling! Something isn’t right and the result is, they will find little to nothing. To do the audit correctly, you need to look at every claim (both paid and reversed).

Let me present to you this analogy on why hiring someone with the best skills for the job is always your best course of action:

You see an ad for an all-original, never in an accident, 1965 Corvette in what looks like great condition for sale for $38,000. You look at and decide to purchase the car but you want your accountant friend to meet with the seller, and check over the terms of the contracted sale. Joe your accountant meets with the seller the next day, identifies the vehicle’s VIN# as the car advertised in the ad, walks around, kicks the tires, and eyes every inch of the vehicle (which looks great). He then verifies the $35,000 agreed-upon selling price.

He pays with the cashier's check you provided him and completes the transaction on your behalf. He drives the car to your home and reports everything went smoothly on the transaction (No issues). You are happy you sent your friend the accountant to confirm all the financial details. Your "significant other" comments on how good the 65 Vette looks in your driveway!

Option #2: What would have happened if you sent your other friend Mike who is an expert mechanic and vintage car guy instead? Mike shows up at the buyer's house and sees the Vette in the driveway.

1)???? Mike first walks around the car dragging his hands across the paint. As he does, he notices the paint isn’t as smooth in one area on the back fender, so he takes a magnet from his pocket which he finds does not stick to the car in that area, indicating an unreported accident and body filler being used to cover it up.

2)???? Mike sits in the car and examines the interior and the car gauges. He notices the odometer has wear lines on a few of the numbers which indicates the mileage may have been turned back.

3)???? Mike then opens the hood checks a few connections and notices yellow paint under the orange indicating the car’s current orange paint is not original to the car.

4)???? Mike goes to his pickup, pulls out his mini lift, jacks up the front of the car, and finds a lot of rust on the frame. Clearly what he is seeing does not match the representations the seller made in his ad. The red flags are flying everywhere!

Mike’s next call is to you and he says “I recommend you don’t buy this car. It’s pretty much a lemon that will give you future problems, and not worth nearly what the seller is asking. Let me help you find a better car!”.

Who was the right person to send to check on the car… your accountant or your expert mechanic? While the second option resulted in you not buying a car you now know the lay of the land and you are on the proper road to finding the dream car you always wanted. Option #1 got you the car now but it was a ticking time bomb that was getting prepared to explode at the time you could least afford it. ?

It’s the same situation with your copay claims audit, you don’t send an accountant to do an expert mechanic’s job. Looking at 10% claims for your audit is ridiculous and shows both the firm's inexperience and the lack of knowledge on the importance of a thorough examination of claims data in this type of audit. ?

In part 2 of this article, I’ll give an example of a series of claims and show you just one example of why copay claims fraud can be so difficult to discover.

For a wealth of information on Copay Program Optimization please visit our website: https://alpha1c.com/category/best-practices/

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