While not explicitly required under Department of Labor (DOL) fiduciary regulations, conducting annual evaluations of third-party service providers is widely considered a best practice for plan sponsors of self-insured health plans. Regular, structured reviews are a practical and effective way to demonstrate ongoing fiduciary oversight, satisfy ERISA’s duty of prudence, and ensure that plan assets are managed in the best interest of participants and beneficiaries.
As plan sponsors, delegating core administrative responsibilities to vendors such as TPAs, PBMs, and specialty networks is often necessary for operational efficiency. However, delegation does not absolve fiduciary responsibility. Sponsors must actively monitor these vendors to verify that services are delivered accurately, fees remain reasonable, and participant interests are protected.
Why an Annual Vendor Review Matters
While vendors may offer periodic performance reports throughout the year, the annual review serves as a dedicated touchpoint to assess overall service quality, financial integrity, compliance, and strategic alignment. It provides a forum to address unresolved issues, clarify expectations, and evaluate whether the vendor continues to meet the evolving needs of the plan. Importantly, it documents the sponsor’s fiduciary oversight and can serve as evidence of prudent governance.
Who Should Attend the Review Meeting
A successful annual vendor performance review hinges on assembling the right participants, individuals with the authority, insight, and subject matter expertise to assess the vendor relationship across operational, financial, and strategic dimensions.
From the Plan Sponsor’s side, the review team should typically include:
- Plan Fiduciaries/Trustees – Ensure prudent use of plan assets.
- Benefits leadership (HR Executives) – Oversee daily plan operations and member experience.
- Finance and compliance personnel – Assess financial integrity and regulatory adherence.
- Internal auditors or external consultants, if an independent review or benchmarking is needed.
- Legal counsel – Advise on contracts, regulations, and risk.
From the Vendor’s side, it’s important to involve:
- Account Manager – Manages the relationship and deliverables.
- Operations Lead – Oversees claims and service performance.
- Compliance Officer – Addresses controls, privacy, and regulations.
- Data Analysts – Present metrics and reporting capabilities.
- Clinical Experts – Offer insights on care quality and utilization.
Engaging a cross-functional group from both the sponsor and the vendor ensures that every critical facet (i.e., service delivery, data integrity, financial accountability, and compliance) is evaluated comprehensively and constructively.
Meeting Preparation: Distribute Materials in Advance
To ensure a productive and focused discussion, all relevant meeting materials, including performance reports, audit findings, financial summaries, and compliance documentation, should be distributed to attendees in advance. Providing materials ahead of time allows participants to review the content, prepare questions, and engage more meaningfully during the meeting. Ideally, documents should be sent at least one week prior to the review session.
Addressing Vendor Underperformance
If performance issues are identified, they should be addressed constructively and directly. Consider outlining clear expectations through a formal performance improvement plan (PIP), including timelines, measurable goals, and review checkpoints. In serious cases, sponsors should be prepared to enforce contractual remedies or consider vendor transitions where appropriate.
Supporting Materials: Vendor Review Packet
Plan sponsors should prepare a vendor review packet to support the discussion and promote transparency. This may include:
- Prior year’s meeting summary and follow-up items
- Vendor self-assessment or pre-meeting questionnaire
- Recent audit summaries or performance scorecards
- Compliance certifications or attestations
- Open issues or concern logs
This packet not only structures the discussion but reinforces the sponsor’s oversight role.
Linking to Governance and Oversight Structures
The annual vendor review process should be formally tied into the plan sponsor’s governance framework. Key outcomes and observations from the meeting should be documented and reported to fiduciary committees or boards of trustees, as applicable. This ensures alignment with broader oversight responsibilities and reinforces the plan’s commitment to prudent management.
Sample Agenda
- Define goals, format, and review scope
- Present results from internal or third-party audits
- Evaluate error rates, financial impact, and systemic issues
- Discuss corrective actions taken and process improvements implemented
- Review vendor adherence to performance guarantees
- Analyze financial recoveries, penalties, and incentive payments
- Discussion corrective action plans to address vendor performance issues
- Confirm ongoing compliance with ERISA, HIPAA, ACA, Mental Health Parity, and No Surprises Act
- Review regulatory developments and vendor preparedness
- Request documentation of internal controls and compliance audits
- Assess SLA metrics such as turnaround times, responsiveness, and resolution rates
- Review participant complaints, appeals, and overall member satisfaction
- Solicit feedback from internal staff interacting with the vendor
- Evaluate the completeness, timeliness, and accuracy of reporting deliverables
- Confirm the sponsor’s access to underlying claims and eligibility data
- Identify gaps that may hinder internal analysis or external audits
- Review most recent SOC 1 and SOC 2 reports or equivalent controls testing
- Assess vendor readiness for data breach response and incident resolution
- Evaluate protocols for handling PHI and other sensitive data
- Determine whether the vendor provides insights, trend analysis, or innovation beyond transactional duties
- Discuss initiatives to improve cost containment, health outcomes, or member engagement
- Evaluate how well the vendor aligns with long-term strategic goals
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Review significant issues escalated during the review period
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Assess the timeliness, transparency, and effectiveness of resolution efforts
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Discuss root cause identification and mitigation steps
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Confirm vendor adherence to key contractual terms and deliverables
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Verify compliance with audit rights, data retention, and reporting requirements
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Discuss any proposed contract amendments or renewal terms
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Preview changes, regulations, and next steps
Key Takeaways
The annual vendor performance review is not simply a compliance exercise, it is a critical tool for driving accountability, enhancing performance, and safeguarding plan resources. By following a structured agenda and engaging in open, data-driven dialogue, plan sponsors can reinforce their fiduciary oversight and build more collaborative, transparent relationships with vendors. Whether working with a TPA, PBM, or other service provider, a thoughtful annual review process strengthens operational effectiveness and promotes better outcomes for the participants you serve.
Contact Us
For more information on this topic, please contact a member of Withum’s Multiemployer Benefit Plans Team.
