External Claim Audits Key to Strong Hospital Compliance Programs

Hospital compliance programs have the potential to prevent costly denials and healthcare fraud investigations by conducting audits of high-risk areas, including coding, clinical documentation, and medical billing. Yet hospitals are still leaving millions of dollars on the exam room table.

According to a recent analysis conducted by Change Healthcare, payers initially denied $262 billion of hospital charges in 2016, the most recent year for which the company had data. For the average hospital, those initial claim denials translate to almost $5 million.

Hospitals can recoup denied or rejected revenue through the appeals process. However, data from the Advisory Board shows that the appeals process has shifted in favor of healthcare payers. The median for successful claim denial appeals for hospitals fell from 56 percent to 45 percent for commercial payers and from 51 percent to 41 percent for Medicaid from 2015 to 2017, the data reveals.

Verifying that claims are clean before going out the door is becoming increasingly important for hospitals, especially as payers reduce reimbursement rates and payment models become more complex under value-based care.

Claim audits are key to billing correctly. Chart reviews and claim audits can increase coding accuracy, improve clinical documentation, enhance charge capture, and guarantee compliance with medical billing and healthcare fraud prevention requirements. As a result, hospitals receive fewer claim denials and do not have to chase as many appeals.

But conducting internal claim audits is complex. It takes a village to create a claim, and effective claim audits must examine the processes of every department involved with generating a claim. Audits, therefore, should cover everything from quality review to clinical documentation improvement to other parts of the revenue cycle.

Internal audits are also resource-intensive, requiring not only people but also technology. Claims denial management and other financial transactions are still relatively manual processes, which makes effective claim auditing more difficult (if not impossible) for hospital compliance staff.

Hospitals do not have to go at claim audits alone though, says Sue Belley, RHIA, the manager of content and outsource services at 3MHealth Information Systems.

Partnering with a third-party auditor can help hospitals overcome compliance and auditing challenges to identify and correct claims management processes leading to claim denials, missed charges, and other financial risks, explains the former coding and clinical documentation improvement manager at Cleveland Clinics.

“Having somebody from the outside who can look in and see things that you don't see or don't have the time to perform a deep dive on is beneficial,” she says. “And an outside party can identify not just surface coding problems, but also process issues.”

Benefits of external claim audits

Hospital compliance and revenue cycle management staff often miss process inefficiencies or workflow problems.

“Sometimes hospital staff have the tendency to develop ‘group think,’” she says. “They may think that the organization is doing something correctly, but they may not have been exposed to what the industry is saying about the coding of a particular topic, for example.”

These innocent oversites, however, can lead to severe financial and legal consequences, she adds. Entities such as the HHS Office of the Inspector General (OIG)  and the Department of Justice will go after hospitals failing to comply with state and federal billing requirements, potentially resulting in an investigation and corrective action plan that cost more than an external audit.

Third-party auditors can prevent healthcare fraud investigations and ensure claims are compliant, accurate, and complete before reaching the payer by offering a non-biased perspective. The external auditor also has the expertise and knowledge regarding medical billing requirements, healthcare fraud prevention laws and regulations, and OIG's work plan, which lists the audits and evaluations the agency is prioritizing.

“A professional auditing service can give you a report card on how your coding looks,” Belley explains. “The company can also provide education to the appropriate staff about any findings that need improvement. For example, they can provide education to coding staff or quality review staff. It could also be the CDI staff or even others in the revenue cycle.”

Selecting the right third-party auditor can also elevate a hospital’s compliance program, Belley adds.

“You want to make sure that the auditing program or the auditor has the breadth and depth of knowledge and experience to review the type of cases that your organization has,” she states. “If you're an academic tertiary medical center where you're performing trauma procedures, cardiac surgery, and other complex services, then you need a sophisticated, experienced auditor.”

“You want to make sure that auditing experience matches the complexity of your organization,” she stresses.

A third-party auditor should also rely on a multidisciplinary team to give the hospital a complete audit picture that encompasses the processes for all involved in claim generation.

“It's important that the auditing firm has some different skillsets,” Belley advises. “Coding and auditing professionals are first and foremost, but you also need some clinical knowledge, so a nurse or a physician can help with that audit.”

External audits bolster hospital compliance programs by providing an outside perspective on established processes and workflows that impact claim generation, accuracy, and regulatory compliance. A third-party auditor also fills the gaps that the hospital compliance program may have, such as a lack of technology or auditing staff.

But even if hospitals can conduct claim audits, an external examination of claim management processes is still beneficial and should be included in every hospital compliance plan, Belley argues. Additionally, utilizing ad hoc audits performed by a third party is an effective way hospital leaders can gain insight into any abnormalities that may be impacting revenue cycle performance.

“In a hospital, an external accounting firm audits the financial books every year. It should be the same way for coding,” she emphasizes. “External coding validation should be part of every hospital’s compliance plan, so hospitals are making improvements and enhancing performance.”