Veritus, Inc., d/b/a Blue Cross of Western Pennsylvania and Pennsylvania Blue Shield -- US District Court, W. D. Pennsylvania

The Situation

US Air wanted to investigate how well Blue Cross of Western Pennsylvania was administering its employee health plan by auditing the claims that were submitted between 1988 and 1992. Specifically, US Air wanted to know whether errors were made during the processing of claims and how much the errors had cost them. Since there were over six million claims filed in the relevant time period, US Air decided to audit a sample of the claims. NERA experts were retained by US Air to design and select the sample of claims.

NERA's Role

Because the value of the claim was an important variable by which errors may have varied, the NERA team selected a stratified sample. We divided the claims into 18 strata based on the claim amount, ranging from reimbursements (i.e., negative amounts) to claims worth $50,000 or more. Within each stratum, we applied a statistical principle known as "optimal allocation" to decide how many claims should be selected in each stratum. This was done by using higher sampling rates for the strata in which the error amounts likely varied more, and smaller sampling rates for the strata in which the error amounts were likely less varied. Since we assumed that there would be more variation in the more expensive claims, we sampled claims that were worth more money at higher rates than claims that were worth smaller amounts. Furthermore, because we anticipated that some claims would not be located by Blue Cross, we designed the sample to be large enough so that we could still calculate precise estimates even in the event of missing data (non-response).

The Result

The total sample size was approximately 1,500 claims, of which about 1,000 were actually located and audited. After auditors evaluated the claims and determined whether errors were made, they calculated the total dollar value of the errors. NERA experts then used these results to calculate the error rate for each stratum and estimate the total dollar value of the errors made in the six million claims. After weighting the data and adjusting for non-response, NERA estimated that the errors had cost US Air approximately $20 million dollars. US Air used the results of the sample to negotiate a settlement with Blue Cross of Western Pennsylvania.