Spending on healthcare accounts for roughly 18 percent of U.S. gross domestic product (GDP), and that number is expected to grow over the next several years¹. Controlling costs in this sector while improving quality of care and patient outcomes is essential to the vitality of the U.S. economy as a whole and to individual patients. Health plans, life sciences companies, hospital systems, and group purchasing organizations (GPOs) spend billions of dollars outside of medical treatment. These entities contract with third-party vendors to provide a variety of goods and services. Cotiviti performs contract compliance of third-party vendor expense agreements and accounts payable audits in the healthcare sector to identify overpayments, recover lost profit, and prevent future losses. Strategies focused on auditing medical expenses are only part of the equation – a focus on auditing non-medical expenses in this sector can further contribute to an overall reduction in healthcare spending.

Tailoring audit strategies to match unique spending profiles

Indirect spending covers a range of categories and the amount of spending on each category fluctuates by industry. Health plans spend on information technology (IT) and data security to protect sensitive patient information. Pharmaceutical and biotechnology companies invest heavily in research and development and contract research organization (CRO) relationships to bring new innovations to the market. Post-approval, life sciences run marketing and advertising campaigns to reach their target patient population. Hospital system expenditures include facilities, waste management, supplies, and real estate. Overpayment for goods and services can occur in all categories of indirect spending. Unchecked overpayments contribute to rising costs and lower the value these organizations realize from carefully negotiated third-party vendor agreements.

Identifying non-compliance in vendor contracts to recover lost profit

Cotiviti’s experienced contract compliance audit team completes more than 100 third-party vendor audits annually, deploying highly experienced teams to review the terms, conditions, and intent of vendors’ contracts and compare them with goods and services delivered. We identify anomalies to contract intent thorough analysis of key cost, pricing, and profit elements within each contract.

Recoveries on average are historically between 1 to 5 percent of auditable indirect spend and cover a host of spending categories including, but not limited to:

• Information technology (IT): Onshore/offshore time and materials projects, data security, hardware, and software
• Facilities: Services, repairs and maintenance, HVAC, janitorial, and equipment
• Business process outsourcing (BPO): IT, accounting, call center, logistics, and warranty management
• Supplies: Tools, equipment, and cleaning supplies
• Marketing/advertising: Agencies, digital advertising, direct mail, eCommerce, and printing
• Warehousing/distribution: Equipment, logistics, fleet management, packaging, and materials
• Real Estate: Construction, engineering, and environment services
• Other areas: Temporary labor, staff augmentation, and FWA investigations

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Creating a culture of accountability to improve vendor relationships

Establishing a third-party vendor contract compliance program sets a tone of accountability—vendors are expected to honor negotiated contract terms, and safeguards are in place to protect against lost profit. Perhaps not surprisingly, most errors identified in vendor audits financially benefit the vendor. Contract compliance audits are an insurance policy to protect against billing discrepancies such as simple human error, misunderstanding of terms, and outright fraud on rare occasion.

A robust vendor contract compliance audit is mutually beneficial to both contracted parties. The result is a greater understanding of how the negotiated contract terms are applied. Aligning expectations helps to strengthen third-party vendor relationships and reduce future friction.

Achieving payment accuracy for health plans’ non-medical spending

Health plans naturally focus on providing access to high-value care while reigning in unnecessary medical spending. Cotiviti is a trusted partner in that arena—today we work with more than 100 healthcare payers to deliver >$5.4 billion in annual medical cost savings. Health plans can realize additional savings by taking a similar approach to payment accuracy as it relates to indirect spending on non-medical costs including goods and services provided by third parties.

Connect with one of Cotiviti’s experts if you would like more information on how Cotiviti can apply a combination of proprietary technology, processes, and experienced auditors to bring the same level of rigor and scrutiny to your plan’s non-medical third-party vendor contracts as they do to medical claims.

¹Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS), Projections of National Health Expenditures through 2027