In the realm of plan sponsor vendor oversight, the pivotal role of well-defined, mutually agreed-upon contractual performance guarantees (PGs) cannot be overstated. These guarantees, when intricately tied to key performance indicators and industry best practices, serve as indispensable elements in ensuring that service providers meet and exceed the expectations outlined in their contracts.
Crafting PGs demands a meticulous alignment with the unique functions and contracts of each service provider. For instance, a service provider handling claims processing assumes responsibility for various tasks, spanning account management, enrollment, claims processing, cost containment, and customer service. To incentivize meaningful change, penalties for falling short of expected performance in a specific area should be substantive. Therefore, PGs should be designed to properly measure performance and place a significant portion—20% or more—of the total administrative fees at risk. These penalties should be thoughtfully distributed among the implemented PGs.
Once PGs have been identified, it is imperative to establish the tools and techniques for measurement and monitoring. Drafting PGs requires clear definitions of the standard to be achieved, along with measurement criteria, metrics, measurement periods, fees at risk, and damages for non-compliance.
To eliminate ambiguity and ensure robust measurement, guarantees should encompass a comprehensive damages calculation. In cases where sampling is employed for performance measurement, defining parameters such as the population at risk, sampling methodology, confidence levels, intervals, and procedures is crucial. Additionally, outlining the sampling frequency, reporting process, and the department responsible for compliance measurement ensures transparency and accuracy.
Recognizing that PGs rely on self-reported data, periodic engagement with an independent auditor is crucial to verify the accuracy of reported results. Audits often uncover significant discrepancies that may have otherwise gone unnoticed. The scope and frequency of audits are typically outlined in the contract between the organization and its vendor, emphasizing the importance of capturing PGs in the Right to Audit clause.
As part of a comprehensive vendor oversight and monitoring program, the incorporation of well-crafted PGs ensures that the relationship between plan sponsors and service providers remains robust, transparent, and aligned with the highest standards of performance and accountability. Regular audits and a proactive approach to performance guarantees not only mitigate risks but also foster a culture of continuous improvement in service delivery and contractual compliance.
Strengthen Your Vendor Oversight Strategy
As part of a comprehensive vendor oversight and monitoring program, the incorporation of well-crafted PGs ensures that the relationship between plan sponsors and service providers remains robust, transparent, and aligned with the highest standards of performance and accountability. Regular audits and a proactive approach to performance guarantees not only mitigate risks but also foster a culture of continuous improvement in service delivery and contractual compliance.
Are you maximizing the potential of your vendor oversight strategy? Elevate your approach by implementing effective performance guarantees tailored to your unique needs. Engage with industry experts, revisit your contracts, and initiate a proactive audit plan to ensure the highest standards of performance and accountability in your vendor relationships. Strengthen your commitment to excellence in service delivery and contractual compliance today.
Authors: Tina Getshall | [email protected] and Matthew Dubnansky, CPA, Partner | [email protected]
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For more information on this topic, please contact a member of Withum’s Self-Insured Health Plan Advisory Services Team.
