Building An Effective Delegated Oversight Program

You  Cannot Delegate Responsibility

Proper oversight of delegated entities can help limit liability and legal exposure, help ensure that your company meets it regulatory requirements, and is a good business practice. Good oversight requires an effective delegated oversight program.  The manner in which delegated services are rendered may have a negative impact on profits, corporate reputation, and licenses required for core business operations. Companies are ultimately responsible for corporate, legal, contractual, and fiduciary obligations whether performed by the company or those to whom the company delegates those obligations. Your company will have to answer to regulators, boards, members, and clients for the functions that you entrusted third parties to perform. Simply put, you can delegate the function but not the responsibility or liability.

Delegated Oversight is Not Optional

Most government healthcare programs have specific Delegate Oversight regulatory requirements. CMS refers to delegated entities as First Tier Entity*, Downstream Entity**, or Related Entity***. Health plans holding Medicare contracts must follow certain guidelines addressing First Tier, Downstream and Related entities delegation.  For example, those with Medicare contracts must (1) enter into agreements with delegated entities and those agreements must contain specific contract provisions, (2) contracts must be revoked when unsatisfactory performance is not corrected in a timely fashion, and (3) contractors must monitor the activities of delegated entities for compliance with CMS requirements.One function of the compliance team is to be aware of regulatory requires as it relates to delegating core contract obligations.

Establish a Delegated Oversight Committee and Audit & Reporting Requirements


Notwithstanding regulatory oversight requirements, your company should establish a Delegated Oversight Committee to help ensure that there is proper oversight of core administrative and management functions. Your first step is to draft a charter.  Click here for a sample charter.


Aside from setting up a Delegated Oversight Committee, your company should:

  • Conduct pre-contract audits of delegated entities
  • Receive monthly report cards from delegated entities
  • Conduct quarterly meetings with delegated entities
  • Conduct annual audits of delegated entities
  • Require routine reports from delegated entities


Reports from delegated entities should help you monitor things such as:

  • Claims processing
    • Electronic Claims Processing (system response time and availability, contract language on member protections for inaccurate claims payment)
    • Paper Claims processing requirements
    • Out of Network Claims Processing requirements
    • Call center performance – Answer rate, call wait, etc. (24 services, pharmacy help desk, etc.)
  • Enrollment and Eligibility – Processing requirements
  • Grievance and Appeals responsibilities (hand-off of information)
  • Tracking of True out-of-pocket (TrOOP) costs, Low-Income Subsidy (LIS), Coordination of benefits (COB), Pharmacy Rebates Explanation of Benefits” (EOB), and Plan Materials requirements
  • Accuracy of file exchanges
  • Financial records
  • Performance of other services outlined in Scope of Work


* CMS defines First Tier Entity as any party that enters into a written arrangement, acceptable to CMS, with a Part D plan sponsor or applicant to provide administrative services or health care services for a Medicare eligible individual under Part D.

** CMS defines Downstream Entity as any party that enters into a written arrangement, acceptable to CMS, below the level of the arrangement between a Part D plan sponsor (or applicant) and a first tier entity. These written arrangements continue down to the level of the ultimate provider of both health and administrative services.

*** CMS defines Related Entity as any entity that is related to the PDP sponsor by common ownership or control and— (1) Performs some of the Part D plan sponsor’s management functions under contract or delegation; (2) Furnishes services to Medicare enrollees under an oral or written agreement; or (3) Leases real property or sells materials to the Part D plan sponsor at a cost of more than $2,500 during a contract period.