CSFS Course 3
Cost Containment and Vendor Selection
Networks, repricing, utilisation and case management, pharmacy, and the practical business of choosing and holding vendors accountable.
140 practice questions · page 3 of 3, questions 101–140 · answers and explanations included · updated September 2026
40 questions on this page 3 of 3, each with the answer and the reasoning behind it. Read straight through, or quiz yourself on them and the ones you miss stay in rotation until you get them right.
- 101
In the context of vendor due diligence, an employer reviews a vendor's compliance with HIPAA regulations, certifications, and credentials. Which due diligence factor is being evaluated?
- •Compliance and credentials
- •Data security and privacy
- •Expertise and experience
- •Pricing and contractual terms
Show answer
Compliance and credentials
Compliance and credentials involves verifying the vendor's compliance with relevant regulations such as HIPAA, and looking for certifications or credentials that demonstrate the vendor's commitment to quality and security.
- 102
Vision plan administration ensures benchmark quality assurance through which combination of mechanisms?
- •Annual patient satisfaction surveys combined with random provider audits conducted by the plan sponsor
- •Requiring all providers to be board-certified ophthalmologists and limiting the network to hospital-affiliated practices
- •Rigid credentialing and re-credentialing protocols, regular on-site reviews, provider profiling, utilization review, and outcome analyses and reporting
- •Setting uniform reimbursement rates nationally and penalizing providers whose costs exceed the average
Show answer
Rigid credentialing and re-credentialing protocols, regular on-site reviews, provider profiling, utilization review, and outcome analyses and reporting
Vision plan administration guarantees benchmark quality assurance through rigid credentialing and re-credentialing protocols, regular on-site reviews, provider profiling, utilization review, and outcome analyses/reporting, while cost-effectiveness is assured through long-term rate guarantees.
- 103
How does an Exclusive Provider Organization (EPO) differ from an HMO in terms of member access to care?
- •EPOs and HMOs are identical in structure, differing only in the payment model used to reimburse providers
- •EPOs do not require members to choose a primary care physician, but like HMOs, they do not cover out-of-network care except in emergencies
- •EPOs provide full coverage for out-of-network care, while HMOs restrict care to in-network providers only
- •EPOs require a primary care physician referral for specialists, while HMOs allow direct specialist access
Show answer
EPOs do not require members to choose a primary care physician, but like HMOs, they do not cover out-of-network care except in emergencies
EPOs are similar to HMOs in having a limited network and not covering out-of-network care except in emergencies, but they differ in that EPOs do not require members to choose a PCP or obtain referrals to see specialists within the network.
- 104
Which network arrangement combines elements of both HMOs and PPOs, requiring members to choose a primary care physician while also permitting out-of-network care at higher cost?
- •Accountable Care Organization (ACO)
- •Exclusive Provider Organization (EPO)
- •Point of Service (POS) plan
- •Value-based network
Show answer
Point of Service (POS) plan
POS plans combine elements of HMOs and PPOs: members choose a PCP who manages their healthcare (like an HMO), but they have the option to see providers outside the network, usually with higher out-of-pocket costs (like a PPO).
- 105
An Accountable Care Organization (ACO) uses a shared savings model to compensate providers. What is the primary objective of this payment arrangement?
- •To bundle all services into a single payment for each episode of care, eliminating the need for utilization review
- •To incentivize providers to deliver high-quality, cost-effective care through collaborative coordination while sharing in any cost savings achieved
- •To pay providers a fixed amount per enrolled individual regardless of services rendered, thereby capping total expenditures
- •To reimburse each individual service at a negotiated rate, encouraging providers to maximize the volume of services delivered
Show answer
To incentivize providers to deliver high-quality, cost-effective care through collaborative coordination while sharing in any cost savings achieved
ACOs focus on improving coordination and quality of care while controlling costs, often using shared savings models or other payment arrangements that incentivize high-quality, cost-effective care through collaboration among network providers.
- 106
Under a capitation payment model, how are healthcare providers compensated?
- •Providers are reimbursed for each individual service rendered based on a negotiated fee schedule
- •Providers receive a base salary plus performance bonuses tied to patient satisfaction scores
- •Providers receive a fixed payment per enrolled individual, usually on a monthly or annual basis, regardless of the services actually provided
- •Providers receive a single lump-sum payment for a defined episode of care covering all related services
Show answer
Providers receive a fixed payment per enrolled individual, usually on a monthly or annual basis, regardless of the services actually provided
Capitation involves a fixed payment per patient, usually monthly or annually, regardless of the services provided. This model incentivizes providers to efficiently manage the health and utilization of their patient population.
- 107
A provider receives a single payment that covers pre-operative care, the surgical procedure, follow-up visits, and rehabilitation for a knee replacement. Which compensation model does this describe?
- •Bundled payments
- •Capitation
- •Fee-for-service
- •Performance-based incentives
Show answer
Bundled payments
Bundled payments involve a single payment for a defined episode of care (such as a surgical procedure), covering all related services including pre-operative care, surgery, follow-up visits, and rehabilitation, incentivizing coordination among providers involved in the care episode.
- 108
An attorney advising a self-funded plan assists with regulatory audits conducted by government agencies. Which of the following best describes this aspect of the attorney's role?
- •The attorney acts as the plan's fiduciary during the audit, assuming all liability for any compliance deficiencies found
- •The attorney conducts the regulatory audit independently and submits findings directly to the Department of Labor without plan sponsor involvement
- •The attorney helps navigate audits by the Department of Labor or state insurance departments, responds to inquiries, prepares documentation, represents the TPA during audits, and provides guidance on implementing compliance programs
- •The attorney's role is limited to reviewing the audit report after it is completed and advising on potential appeal options
Show answer
The attorney helps navigate audits by the Department of Labor or state insurance departments, responds to inquiries, prepares documentation, represents the TPA during audits, and provides guidance on implementing compliance programs
Attorneys help navigate regulatory audits and investigations by government agencies such as the Department of Labor or state insurance departments, assisting in responding to inquiries, preparing documentation, representing TPAs during audits, and providing guidance on compliance programs and best practices.
- 109
Value-based payment models differ from traditional fee-for-service primarily because they:
- •Eliminate the need for utilization management by shifting all financial risk to the patient
- •Pay providers a fixed salary regardless of the number of patients they see
- •Require all providers to accept Medicare reimbursement rates as the maximum allowable charge
- •Reward providers based on the quality and outcomes of care delivered rather than the volume of services provided
Show answer
Reward providers based on the quality and outcomes of care delivered rather than the volume of services provided
Value-based payment models aim to reward providers based on the value and outcomes of care delivered, including pay-for-performance programs, shared savings arrangements, or global budgets, focusing on care quality and cost-effectiveness rather than service volume.
- 110
Why might a self-funded employer choose to carve out dental benefits to a dental-only specialty firm rather than including dental under the primary plan administrator?
- •Dental carve-outs eliminate the employer's fiduciary obligations for those benefits entirely
- •Dental plans involve special plan building requirements, expert dental claim processors, unique recordkeeping, and a distinct dental care subculture
- •Dental-only specialty firms are required by state law to offer lower premiums than integrated plan administrators
- •ERISA mandates that dental benefits must always be administered by a separate vendor from medical benefits
Show answer
Dental plans involve special plan building requirements, expert dental claim processors, unique recordkeeping, and a distinct dental care subculture
Some employers offer dental benefits from a separate vendor because of potential plan design challenges, including special plan building, the need for expert dental claim processors, unique recordkeeping requirements, and the subculture of dental care.
- 111
When a self-funded employer implements an organ transplant carve-out as a fully insured separate policy, what is the Form 5500 implication?
- •Form 5500 filing is only required if the transplant carve-out exceeds $1 million in lifetime maximum coverage
- •Premiums for the carve-out become a direct obligation of the plan sponsor, which is usually the employer or a trust
- •The carve-out premiums are reported as participant contributions rather than employer obligations
- •The organ transplant carve-out is exempt from Form 5500 reporting because it is a fully insured arrangement
Show answer
Premiums for the carve-out become a direct obligation of the plan sponsor, which is usually the employer or a trust
For Form 5500 purposes, premiums for an organ transplant carve-out plan become a direct obligation of the plan sponsor, which is usually the employer. The plan sponsor may also be a trust.
- 112
An organ transplant carve-out covers first-dollar transplant expenses with no co-pays or deductibles for in-network services. If the primary transplant policy denies a participant's claim due to a pre-existing condition, what happens under the plan structure?
- •The employer is required to purchase a supplemental transplant policy to cover the gap
- •The health plan's medical benefits apply, subject to prior authorization requirements
- •The participant must pay all transplant expenses out of pocket with no plan recourse
- •The stop-loss carrier automatically assumes liability for the denied transplant claim
Show answer
The health plan's medical benefits apply, subject to prior authorization requirements
If an individual is denied benefits by the primary transplant policy, whether for a pre-existing condition or other justified reason, the health plan benefits will apply, subject to prior authorization requirements.
- 113
When a self-funded plan establishes an organ transplant carve-out, plan fiduciaries become administrators of a fully insured plan. What additional requirement does this create?
- •A plan fiduciary-insurer administration agreement is required if the plan fiduciary has any recordkeeping or money-handling responsibilities
- •All transplant claims must be adjudicated by the fiduciary rather than the insurer to maintain fiduciary duty
- •The fiduciary must transfer all administrative functions to the stop-loss carrier for the transplant benefit
- •The plan fiduciary must obtain a separate ERISA bond specifically for the transplant carve-out
Show answer
A plan fiduciary-insurer administration agreement is required if the plan fiduciary has any recordkeeping or money-handling responsibilities
Because the carve-out makes fiduciaries administrators of a fully insured plan, a plan fiduciary-insurer administration agreement is required if the plan fiduciary has any recordkeeping or money-handling responsibilities.
- 114
A self-funded plan applies a $50 copay for outpatient mental health visits but only a $25 copay for outpatient medical/surgical visits. The plan also requires prior authorization for all substance abuse treatment but not for comparable medical procedures. A compliance review flags both provisions. Under MHPAEA, why are these plan design features problematic?
- •MHPAEA only applies to fully insured plans, so the self-funded employer can set different cost-sharing levels at its discretion under ERISA preemption
- •MHPAEA prohibits any copayments for mental health services but allows them for medical/surgical services, so the plan should eliminate the mental health copay entirely
- •MHPAEA requires that financial requirements and treatment limitations for mental health/substance abuse benefits cannot be more restrictive than the predominant requirements applied to substantially all medical/surgical benefits
- •MHPAEA requires that mental health benefits be administered by a separate carve-out vendor with its own cost-sharing structure independent of the medical plan
Show answer
MHPAEA requires that financial requirements and treatment limitations for mental health/substance abuse benefits cannot be more restrictive than the predominant requirements applied to substantially all medical/surgical benefits
MHPAEA requires parity — mental health and substance abuse benefits must be provided on par with medical/surgical benefits. A higher copay for MH visits and prior auth requirements not applied to comparable medical procedures both violate the parity standard.
- 115
An employer is concerned about low utilization of mental health and substance abuse benefits by employees. According to the course material, which employer response would be most appropriate?
- •Eliminate mental health benefits to reduce costs since employees are not using them
- •Enhance EAPs by expanding services, increasing access, and promoting use through targeted communication campaigns
- •Require mandatory mental health screenings as a condition of employment
- •Transfer all mental health administration to the stop-loss carrier to reduce the employer's liability exposure
Show answer
Enhance EAPs by expanding services, increasing access, and promoting use through targeted communication campaigns
The course identifies enhancing EAPs by expanding services, increasing access, and promoting use through targeted communication campaigns as a key employer response to address mental health and substance abuse concerns and overcome barriers to utilization.
- 116
A self-funded plan consultant assists employers with ongoing plan monitoring. Which of the following is a key responsibility in this role?
- •Continuously monitoring claims experience, financial stability, and vendor performance, and conducting periodic plan reviews with recommendations for adjustments or enhancements
- •Directly adjudicating high-dollar claims on behalf of the plan administrator
- •Filing Form 5500 and all regulatory reports without involvement from the CPA or plan sponsor
- •Replacing the actuary's role by projecting future claims costs and determining stop-loss attachment points
Show answer
Continuously monitoring claims experience, financial stability, and vendor performance, and conducting periodic plan reviews with recommendations for adjustments or enhancements
A self-funded plan consultant continuously monitors the plan's performance, including claims experience, financial stability, and vendor performance, conducts periodic plan reviews, and provides recommendations for adjustments or enhancements to ensure the plan remains effective and sustainable.
- 117
A hearing plan carve-out typically provides which of the following benefits to participants?
- •A fixed annual stipend that participants can apply toward any hearing care provider of their choosing
- •Coverage limited exclusively to diagnostic hearing tests, with no benefits for hearing aids or related devices
- •Discounts on hearing aids, hearing aid repairs, related hearing products, and annual cleaning and checks at no cost for devices purchased through the program
- •Full coverage for all hearing-related procedures including cochlear implants without any cost-sharing
Show answer
Discounts on hearing aids, hearing aid repairs, related hearing products, and annual cleaning and checks at no cost for devices purchased through the program
The course describes hearing care carve-outs as providing discounts on hearing aids, repairs, and related products, with annual cleaning and checking of hearing aids purchased through the program provided at no cost.
- 118
What distinguishes a PBM's 'therapeutic interchange' from 'generic substitution'?
- •Therapeutic interchange always results in cost savings, while generic substitution may increase costs
- •Therapeutic interchange applies only to over-the-counter medications, while generic substitution applies only to prescription drugs
- •Therapeutic interchange is mandated by the plan and requires no physician approval, while generic substitution requires explicit 'dispense as written' orders
- •Therapeutic interchange substitutes a drug with a different chemical composition (with physician approval), while generic substitution substitutes a different formulation of the same drug
Show answer
Therapeutic interchange substitutes a drug with a different chemical composition (with physician approval), while generic substitution substitutes a different formulation of the same drug
Therapeutic interchange allows the pharmacist, with physician approval, to dispense a drug with a different chemical composition from the one prescribed. Generic substitution occurs when a different formulation of the same drug is substituted, with all generics considered equivalent by the licensing authority.
- 119
A PBM uses one low-maximum-allowable MAC list to reimburse pharmacies and a higher MAC list when charging health plans. This practice is an example of:
- •Formulary implementation, where the PBM creates tiered lists of covered drugs
- •Spread pricing, where the PBM profits from the difference between what it charges the plan and what it reimburses the pharmacy
- •Step therapy, where the PBM shifts drugs between tiers during the plan year
- •Transparent PBM pricing, where all costs are fully disclosed to the plan sponsor
Show answer
Spread pricing, where the PBM profits from the difference between what it charges the plan and what it reimburses the pharmacy
Spread pricing is the PBM practice of charging a plan sponsor a higher amount for a drug than what they reimburse the pharmacy, pocketing the difference. Using multiple MAC lists with different pricing levels is a specific mechanism for spread pricing.
- 120
A plan participant's physician prescribes a brand-name statin without a 'dispense as written' notation. The plan has a mandatory generic requirement. The participant insists on the brand-name drug. Meanwhile, a different participant's physician writes DAW on a prescription for the same brand-name statin. How should the PBM handle each situation differently?
- •Both participants receive the brand-name drug, but the first must appeal through the plan's utilization review process while the second is approved automatically
- •Both participants receive the generic because mandatory generic requirements cannot be overridden by DAW notations under PBM formulary rules
- •The first participant receives the generic but may purchase the brand at their own additional expense; the second participant receives the brand-name drug with the plan covering it because the physician's DAW overrides the generic substitution requirement
- •The first participant's claim is denied entirely until the physician submits prior authorization; the second receives the brand with no additional cost
Show answer
The first participant receives the generic but may purchase the brand at their own additional expense; the second participant receives the brand-name drug with the plan covering it because the physician's DAW overrides the generic substitution requirement
Under mandatory generic requirements, without DAW the pharmacy dispenses the generic (the member can buy brand at their own cost difference). With DAW, the physician has specifically required the brand-name drug, which overrides the generic substitution — a critical distinction in PBM administration.
- 121
Under the transparent PBM model, how does the plan sponsor pay for prescription drugs?
- •The plan sponsor pays a fixed capitation rate per covered member per month, with no additional fees per prescription
- •The plan sponsor pays the actual amount owed to the pharmacy under the contract on a per-prescription basis, plus an administration fee to the PBM
- •The plan sponsor pays the average wholesale price for each drug, and the PBM absorbs any difference between AWP and the pharmacy reimbursement
- •The plan sponsor pays the PBM's retail price minus a standard percentage discount, with rebates retained by the PBM
Show answer
The plan sponsor pays the actual amount owed to the pharmacy under the contract on a per-prescription basis, plus an administration fee to the PBM
Under the transparent PBM model, the payor pays the actual amount owed to the pharmacy under the contract on a per-prescription basis and pays the PBM an administration fee. The majority of transparent PBMs pass along 100% of rebates and fully disclose all pricing information.
- 122
Step therapy protocols used by PBMs may include 'non-medical switching,' which refers to:
- •Allowing members to switch from brand-name to generic medications without a new prescription
- •Requiring the pharmacy to substitute a therapeutically equivalent drug without physician approval
- •Shifting drugs between formulary tiers or adding/removing them from the formulary during a plan year for cost rather than clinical reasons
- •Transferring a member's prescription from a retail pharmacy to a mail-order pharmacy mid-plan year
Show answer
Shifting drugs between formulary tiers or adding/removing them from the formulary during a plan year for cost rather than clinical reasons
Non-medical switching is the PBM practice of shifting drugs between tiers or adding or removing them from the formulary entirely during a plan year, which can require patients to change medications for cost rather than clinical reasons.
- 123
Why is there no industry standardization for Maximum Allowable Cost (MAC) lists?
- •MAC lists are regulated exclusively by individual state pharmacy boards, each with different requirements
- •MAC lists only apply to brand-name medications, which have widely varying patent expiration dates
- •The FDA prohibits uniform pricing standards for generic drugs because of antitrust concerns
- •There are no standard criteria for including drugs on a MAC list, no standardized methodologies for determining maximum prices, and no standard processes for how lists are changed or updated
Show answer
There are no standard criteria for including drugs on a MAC list, no standardized methodologies for determining maximum prices, and no standard processes for how lists are changed or updated
The course notes that there is no standardization in the industry about criteria for including drugs on a MAC list, methodologies used to determine the maximum price charged, or how MAC lists are changed or updated, making this an area of concern for plan sponsors.
- 124
An employer notices low EAP utilization rates and suspects employees fear their participation will be disclosed to management. The HR director proposes that supervisors receive quarterly reports identifying which employees used EAP services so they can encourage further participation. Why does this proposal create both a legal and practical problem?
- •EAPs must maintain strict confidentiality — disclosing participation to supervisors would violate this protection and further suppress utilization, since employees fear jeopardizing their job status or promotion chances
- •The proposal is acceptable as long as the reports are anonymized and only shared with senior management rather than direct supervisors
- •The proposal is permissible under ERISA because EAPs are classified as welfare benefit plans and the employer has fiduciary access to all plan utilization data
- •The proposal only violates HIPAA if the EAP provides clinical treatment; informational and referral-only EAPs are exempt from confidentiality requirements
Show answer
EAPs must maintain strict confidentiality — disclosing participation to supervisors would violate this protection and further suppress utilization, since employees fear jeopardizing their job status or promotion chances
EAP confidentiality is essential — without it, employees would be unwilling to admit personal problems for fear of jeopardizing their job status. Sharing participation data with supervisors would directly undermine the confidentiality that makes EAPs effective, suppressing utilization rather than improving it.
- 125
What legal precaution should employers take to minimize liability when establishing an Employee Assistance Program?
- •Assess the adequacy of the plan provider's liability insurance coverages, obtain written confirmation of compliance with all state licensing and regulatory requirements, and review applicable state legal requirements
- •Ensure the EAP provider is accredited by the Joint Commission and limit services to only licensed psychiatrists
- •Maintain separate payroll deductions for EAP funding to insulate the employer from direct liability
- •Require all employees to sign liability waivers before participating in any EAP services
Show answer
Assess the adequacy of the plan provider's liability insurance coverages, obtain written confirmation of compliance with all state licensing and regulatory requirements, and review applicable state legal requirements
Employers may be sued by employees who claim to have been harmed by EAP services. At minimum, employers should assess the provider's liability insurance, obtain written confirmation of compliance with all state licensing and regulatory requirements, and review state legal requirements for compliance.
- 126
Which of the following is a recognized benefit that employers derive from offering an Employee Assistance Program?
- •A guaranteed reduction in workers' compensation claims by at least 20%
- •Automatic compliance with MHPAEA parity requirements for all mental health benefits
- •Elimination of the employer's obligation to provide health insurance under the ACA
- •Reduced absenteeism through early intervention and support that helps employees address personal issues before they escalate
Show answer
Reduced absenteeism through early intervention and support that helps employees address personal issues before they escalate
EAPs provide early intervention and support, helping employees address issues such as mental health, substance abuse, and financial difficulties before they escalate and result in prolonged absences or reduced productivity, thereby reducing absenteeism.
- 127
A risk management consultant for a self-funded plan develops customized risk mitigation strategies. Which of the following activities falls within this consultant's scope but outside the scope of a plan consultant?
- •Analyzing claims data to identify cost drivers and recommend cost containment strategies
- •Assisting with vendor selection and management of third-party administrators
- •Developing disaster preparedness and business continuity plans that address natural disasters, cybersecurity threats, and other events that could impact the employer's financial stability
- •Staying updated on ERISA, HIPAA, and ACA regulatory changes
Show answer
Developing disaster preparedness and business continuity plans that address natural disasters, cybersecurity threats, and other events that could impact the employer's financial stability
While both consultants share some overlapping responsibilities (like vendor management and compliance), the risk management consultant uniquely addresses disaster preparedness and business continuity planning, including protection against natural disasters, cybersecurity threats, and other events impacting financial stability.
- 128
Some employers use the EAP as a mechanism for addressing substance abuse by employees. Under what circumstance might this occur?
- •Only after the employee has been terminated and applies for COBRA continuation coverage
- •Only when the employee voluntarily self-refers to the EAP for substance abuse treatment
- •Only when the employee's health insurance carrier mandates EAP participation as a condition of continued coverage
- •When a supervisor suspects substance abuse or a drug test confirms such use, the employer may require the employee to seek assistance through the EAP
Show answer
When a supervisor suspects substance abuse or a drug test confirms such use, the employer may require the employee to seek assistance through the EAP
Some employers use the EAP as a mechanism for aiding employees suspected of substance abuse. If a supervisor suspects abuse or a drug test confirms use, the employer may require the employee to seek assistance through the EAP.
- 129
The HITECH Act, enacted as part of the American Recovery and Reinvestment Act of 2009, primarily impacts self-funded plan administration by:
- •Addressing privacy and security concerns associated with the electronic transmission of health information and strengthening civil and criminal enforcement of the HIPAA rules
- •Establishing minimum software specifications that all third-party administrators must meet for claims processing systems
- •Mandating that all plan administrators obtain HITRUST certification before processing any electronic claims
- •Requiring all self-funded plans to transition to fully electronic claims processing within two years of enactment
Show answer
Addressing privacy and security concerns associated with the electronic transmission of health information and strengthening civil and criminal enforcement of the HIPAA rules
Subtitle D of the HITECH Act addresses the privacy and security concerns associated with the electronic transmission of health information, in part through several provisions that strengthen the civil and criminal enforcement of the HIPAA rules.
- 130
Claims processing software for self-funded plans should include which of the following capabilities to ensure regulatory compliance?
- •Automatic generation of stop-loss insurance policies and premium calculations
- •Built-in compliance checks, audit trail capabilities, and HIPAA/ACA/ICD-10 compliance features
- •Direct integration with state Medicaid systems for dual-eligible participants
- •Mandatory encryption of all provider communications regardless of content type
Show answer
Built-in compliance checks, audit trail capabilities, and HIPAA/ACA/ICD-10 compliance features
The course identifies compliance and regulatory support as a key feature of claims processing software, including built-in compliance checks and audit trail capabilities, as well as specific HIPAA/ACA/ICD-10 compliance features.
- 131
PPO repricing software performs which essential function for self-funded plan administration?
- •It automates the repricing process by applying negotiated rates, considering the type of service and geographic location, to ensure providers are reimbursed accurately within the PPO network
- •It calculates the appropriate stop-loss attachment points based on the PPO's historical claims experience
- •It determines whether a provider should be added to or removed from the PPO network based on utilization data
- •It generates provider credentialing reports to verify that all network providers meet quality standards
Show answer
It automates the repricing process by applying negotiated rates, considering the type of service and geographic location, to ensure providers are reimbursed accurately within the PPO network
PPO repricing software streamlines and automates the repricing process, considering factors such as negotiated rates, type of service, and geographic location to ensure healthcare providers are reimbursed accurately for services within the PPO network.
- 132
What is the preferred method of payment for a claims audit of a self-funded plan, and why?
- •A fixed fee is preferred because payment based on a percentage of savings can create a conflict of interest for the auditor
- •A per-claim fee is preferred because it directly ties the auditor's compensation to the volume of work performed
- •A percentage of savings is preferred because it aligns the auditor's incentives with the plan's financial goals
- •An hourly rate is preferred because it ensures the auditor conducts the most thorough review possible
Show answer
A fixed fee is preferred because payment based on a percentage of savings can create a conflict of interest for the auditor
The preferred method of payment for a claims audit is a fixed fee, not a percentage of savings, because paying a percentage of savings can cause a conflict of interest for the auditor who might inflate findings to increase their compensation.
- 133
During a claims audit of a self-funded plan, the problem identification phase should include all of the following EXCEPT:
- •Analyzing claims-processing procedures and evaluating cost-effectiveness of program administration
- •Highlighting coordination-of-benefits opportunities and investigating utilization management programs
- •Negotiating new provider reimbursement rates based on audit findings
- •Verifying eligibility of patients and identifying erroneous claims payments
Show answer
Negotiating new provider reimbursement rates based on audit findings
The problem identification phase of a claims audit includes verifying eligibility, identifying erroneous payments, highlighting COB opportunities, investigating utilization management, analyzing claims procedures, evaluating cost-effectiveness, and making recommendations. Negotiating new provider rates is not part of the audit function.
- 134
A hospital bill auditor reviewing a surgical claim notices the hospital billed the anesthesia, surgical suite, recovery room, and post-op nursing as four separate line items instead of as a single surgical episode. The same audit reveals a routine lab panel coded as a comprehensive metabolic panel. Which two billing irregularities has the auditor identified, and which poses the greater financial risk to the self-funded plan?
- •Balance billing and duplicate charging; balance billing poses the greater risk because the patient has no obligation to pay the difference
- •Duplicate billing and downcoding; duplicate billing poses the greater risk because it doubles the total claim amount
- •Unbundling (billing components separately instead of as a bundle) and upcoding (coding at a higher level than warranted); unbundling typically poses the greater risk because it can inflate multiple line items across a single episode of care
- •Upcoding and fraud; fraud poses the greater risk because it triggers mandatory reporting to the Department of Labor under ERISA
Show answer
Unbundling (billing components separately instead of as a bundle) and upcoding (coding at a higher level than warranted); unbundling typically poses the greater risk because it can inflate multiple line items across a single episode of care
Unbundling (billing services separately that should be bundled) and upcoding (coding services at a higher level than provided) are two distinct billing irregularities that hospital bill audits specifically target. Unbundling can inflate multiple line items across a single episode, making it particularly costly.
- 135
During the conducting of an audit of a self-funded plan, the compliance review phase specifically verifies adherence to which laws?
- •ERISA, the Affordable Care Act, and HIPAA, including assessment of whether the plan is meeting its fiduciary duties and adhering to reporting and disclosure requirements
- •The Fair Labor Standards Act, the Family and Medical Leave Act, and the Americans with Disabilities Act
- •The Internal Revenue Code, OSHA workplace safety standards, and state workers' compensation laws
- •The Sherman Antitrust Act, the Federal Trade Commission Act, and state consumer protection statutes
Show answer
ERISA, the Affordable Care Act, and HIPAA, including assessment of whether the plan is meeting its fiduciary duties and adhering to reporting and disclosure requirements
The compliance review phase of an audit verifies the self-funded plan's compliance with ERISA, the ACA, and HIPAA, and assesses whether the plan is meeting its fiduciary duties and adhering to reporting and disclosure requirements.
- 136
A self-funded plan's claims experience has increased 15% year-over-year with no change in plan design or workforce size. The TPA suspects that ineligible dependents may be enrolled. The plan sponsor orders a specialty audit. During this audit, the auditors discover that terminated employees' dependents were not removed from eligibility files for an average of 90 days after termination. Which type of audit uncovered this issue, and what is the downstream financial impact?
- •A claims audit, which reviews individual claim adjudication accuracy; the delayed removals primarily affect stop-loss reimbursement timing rather than total claims costs
- •A financial audit, which reviews the plan's reserve adequacy; the delayed removals suggest the actuary underestimated incurred-but-not-reported claims
- •A managed care audit, which evaluates network utilization patterns; the delayed removals indicate the TPA failed to comply with COBRA notification requirements
- •An eligibility audit, which verifies enrollment compliance and timeliness of participant records; the delayed removals mean the plan paid claims for ineligible individuals, directly inflating claims experience
Show answer
An eligibility audit, which verifies enrollment compliance and timeliness of participant records; the delayed removals mean the plan paid claims for ineligible individuals, directly inflating claims experience
An eligibility audit specifically verifies enrollment compliance, evaluates accuracy and timeliness of participant records, and identifies ineligible participants. Delayed removal of terminated dependents means the plan paid claims for people no longer eligible — a direct and preventable source of excess claims cost.
- 137
When selecting a subrogation firm for a self-insured plan, why is the firm's cost structure and use of performance-based fees particularly important?
- •Fixed-fee arrangements are prohibited because they discourage the firm from pursuing smaller recovery amounts
- •Performance-based fees are mandated by ERISA for all subrogation activities involving self-funded plans
- •Performance-based fees eliminate the need for the firm to have legal expertise or resources for potential litigation
- •Performance-based fees, contingent upon successful recoveries, align the firm's interests with the self-insured plan's financial goals
Show answer
Performance-based fees, contingent upon successful recoveries, align the firm's interests with the self-insured plan's financial goals
The course recommends considering performance-based fees for subrogation firms because fees contingent upon successful recoveries align the firm's interests with the self-insured plan's financial goals, ensuring the firm is motivated to maximize recoveries.
- 138
A plan participant is injured in a car accident caused by a third party. The self-funded plan pays $85,000 in medical claims. The participant later receives a $200,000 settlement from the at-fault driver's auto insurer. The plan's subrogation provider seeks reimbursement of the $85,000 from the settlement proceeds. Under what legal framework does the plan have the right to recover these funds, and what happens if the participant refuses to cooperate?
- •ERISA governs the plan's subrogation rights; the plan document should contain subrogation and reimbursement provisions that obligate the participant to cooperate, and the plan can pursue legal action to enforce recovery
- •HIPAA requires the participant's written consent before any subrogation recovery can be initiated, and without consent the plan has no legal recourse
- •State insurance law governs subrogation for all health plans; the plan must file a lien with the state court before the settlement is distributed or forfeit its recovery rights
- •The ACA prohibits subrogation from personal injury settlements, so the plan can only recover from the at-fault driver's insurer directly through an intercompany arbitration process
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ERISA governs the plan's subrogation rights; the plan document should contain subrogation and reimbursement provisions that obligate the participant to cooperate, and the plan can pursue legal action to enforce recovery
ERISA governs subrogation rights for self-funded plans. The plan document should include subrogation provisions requiring participant cooperation. If the participant refuses, the plan can pursue legal action. Subrogation providers must stay current on ERISA requirements and coordinate with legal counsel when necessary.
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A subrogation provider must ensure compliance with which key federal law that may impact the subrogation process for a self-funded health plan?
- •ERISA, because it governs the fiduciary duties and legal framework applicable to self-funded plan subrogation activities
- •HIPAA, because it requires subrogation firms to obtain patient consent before reviewing any medical claims data
- •The Affordable Care Act, because it establishes the maximum amount that can be recovered through subrogation
- •The HITECH Act, because it mandates that all subrogation investigations be conducted using certified electronic health record systems
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ERISA, because it governs the fiduciary duties and legal framework applicable to self-funded plan subrogation activities
Subrogation services providers must ensure compliance with ERISA and other relevant laws governing subrogation. They stay updated on changes in legislation that may impact the subrogation process and adjust their practices accordingly.
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How does the role of an actuary differ from that of a CPA in managing a self-funded plan?
- •An actuary handles all regulatory filings including Form 5500, while a CPA provides investment advice for plan trust assets
- •An actuary is responsible for adjudicating claims disputes, while a CPA audits provider reimbursement rates
- •An actuary only works with fully insured plans, while a CPA exclusively serves self-funded plans
- •An actuary uses mathematical and statistical methods to assess financial risks, project future claims costs, and determine appropriate funding levels, while a CPA focuses on financial statement preparation, tax compliance, and internal control evaluation
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An actuary uses mathematical and statistical methods to assess financial risks, project future claims costs, and determine appropriate funding levels, while a CPA focuses on financial statement preparation, tax compliance, and internal control evaluation
Actuaries use mathematical and statistical methods to analyze financial risks, project claims costs, determine funding levels, and perform actuarial valuations. CPAs focus on financial statement preparation, tax planning and compliance (including Form 5500), and internal control evaluation — complementary but distinct roles in plan management.
CSFS is the Certified Self-Funding Specialist designation. These are my own practice questions, written while studying for the exam. This site is not affiliated with, endorsed by, or connected to the organisation that administers the CSFS designation, and nothing here is official exam content or a substitute for the course material.
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