Your Audit Losses – Step One

Of all the sites I’ve ever consulted for there is always the same pattern and posture with auditing. Some are better than others but all have divided the audit losses into generally three categories.

1. Business Office Denials

2. Commercial and Government Audits

3. DRG/APC/Risk Assessment/Coding Reviews

It may surprise some of you to see these referred to as “audits” but all three contain the ingredients of an audit. They all require third party review. They all effect the bottom line, and in most cases they are all handled by someone different within a site.

Talking Points –

1. Business Office Denials come in all forms but there are a couple of denials worth considering for their potential impact. First are the newly popular medical necessity and level of care reviews. The second are the line item deletion by payers such as supplies and nursing increments as defined by the payer. Both are audits for sure and we’ll talk in detail about their defense later on under Contractual Corrections.

2. Commercial & Government Auditing contain the components for tremendous loss (in the millions) and yet I see many hospitals fight this fight with one hand tied behind their back. Commercial and Government audits like RAC deserve all you can throw at them. As a start you cannot effectively manage audits without at least a simple tracking system. Considering the RAC impact alone you’ll need to track target dates with multiple levels of appeal so a well-organized spreadsheet is the least that can be done. Without at least this your losses will be perpetual.

3. DRG/APC/Risk Assessment Your Audit Losses begin with Medical Record Requests – Audit losses in most facilities begin with a medical records or release of information clerk. Every good director, C-Suite exec, V-Suite exec should go spend 2 hours with this individual. It will open your eyes to the many sly, confusing, and incredibly voluminous number of requests. This person is making decisions, “do I send these records or don’t I”? In many, many cases no decision making exists, the record is merely sent. That’s a mistake. Many of your “letters of intent” to audit begin right here. Many requests ask for multiple visits and every page of the record. Besides the high cost of copying and sending the record you have just facilitated a “desk audit’. If your facility is on the ball, you don’t allow for desk audits and every audit must be done on site. Next, many requests need an interpretation and that interpretation should be defined this way. “Will this release of records affect the bottom line”? The answer in a large number is “possibly yes”. This includes DRG Validation requests, Risk Assessment requests, APC requests, confirmation requests, review of services requests. All of these and many, many more are intended to remove dollars from the bottom line. This is done in the form of rev code denials such as with supplies. It is done with desk audits. It is done with misinterpretation of contract rules. All these take backs start right at the records requests. Records Request or retrospective Utilization Review – One of the sites where we service their audit needs recently started receiving Medical Records and audit requests for Medical Necessity and level of care auditing. Here is some of the objections we sighted in a letter to them: These audit “types” are considered Utilization Reviews that could and should have been done during the patient’s inpatient stay. These reviews retrospectively done must require a set of criteria that you would use to determine your findings. We would need a complete understanding of the process, criteria, reviewers, and any other components used to make these decisions. We further object to a retrospective review that usurps the physician and practitioner’s experience “at the bedside” and “during the events” where decisions are made in the patients interest for best care practices. It is our belief that a retrospective review such as you propose is unfairly weighted in your favor. These reviews would further burden our site in that they have the distinct ring of a CMS RAC audit. As (Payer name here) is no doubt aware this type of review has cost providers millions of dollars in that these reviews require massive internal man hours to review, respond, appeal, and adjudicate. These cause further financial delays to both parties. They would require us to formulate a team, use untold resources, and create an entirely new set of individuals to review and respond to an unknown number of requests. No request approved until reviewed – In our audit expert practice here at Medlinks we encourage our clients to allow us to review these requests and we do so daily. A request that fails the litmus test is considered an audit and the firm is thus notified with an audit policy. If the request id deemed OK, than we release records. The most important factor is that we record all these transactions so the facility has an idea of the onslaught of requests and the savings incurred by refusals. Savings are calculated by the hourly wage divided by 3-4 requests equals the site savings. I can tell you at our clients this savings is substantial.

Consolidating Data for a More Complete Picture of Your Audit Losses – Step Two

Combining data for:

1. Business Office Denials

2. Commercial and Government Audits

3. DRG/APC/Risk Assessment/Coding Reviews

This will give you a much more complete picture of where your losses occur and what areas of concern should be addressed first. Data sets should include monthly:

Number of reviews

Total refunds or losses

Percent of loss versus requests (error rate) by area

Talking Points – Do you understand your “error rate”? If we were to take all of your business office denials, commercial and government audits, and DRG/Risk Assessment audits that resulted in loss and compared that to the total number of requests we’d have your “error rate”. Driving down your error rate is the primary way to take away motivation for continued audits.

The Audit Plan – Step Three

So, now we know. Having de-compartmentalized the auditing at your site or firm will show the true areas of risk and loss. It is not practical to have one area handle the audits but one area (the auditor) should be “tracking” all audits within an institution as part of your audit plan. The auditor’s job is not processing audits. The auditor’s job is ELIMINATING audits. This is a culture change that needs to happen at many, many locations. So how do we eliminate audits? Three daily must do activities:

1. Know your audit pipeline – what’s coming and why?

2. Vigorously defend every audit – whether its loss is big or small.

3. Track all possible activity associated with an audit – what works and what doesn’t.

Talking Points – Audit pipelines take a while to put together without an audit tracker but a shared Microsoft Access or Excel sheet at the least with all requests is a good starting point. These requests represent your pipeline. If you know your audit losses equal 10% than 10% of your pipeline can be calculated as your reserve. It also gives you a number to work on with regard to lowering your error rate. Defending every audit whether big or small is also a huge step towards making the change at your site. The coordination of efforts, the processing of audits is a two way street. If your site is passing losses back to the Third Party Audit firm or the payer than you are creating the exact same workload that they’re sticking you with. Believe it or not, this along with a tough audit policy and substantial audit fees makes a big difference in the onslaught of audit requests. Finally tracking audits, for what works and what doesn’t especially in RAC appeals is a great way to stop perpetual losses. While you must address practice outside of the audit venue some correction can occur in auditing and delivered to your internal audience this will make a difference often equal to a few percentage points in your audit error rate.

The Audit Policy – Step Four

Many sites do not have a Third Party Audit Policy. An Internal audit policy is a must. It should include extensive clauses on the following:

1. Terms of engagement, including acceptable request dates, letter of intent content, rules of engagement.

2. Scheduling rules, cancellation policy, re-schedule rules, and exit parameters.

3. Audit fee schedule that includes every review. Don’t allow any firm except government and contracted exclusion firms to review records without paying a fee. Go to for a free audit policy

Talking Points – If you’re listening to this webinar and your site doesn’t have a strong, carefully considered audit policy than that should be job #1 after this session. A strong audit policy should include a few key components; it should define Letter of Intent parameters like the time restraints from discharge to receiving a letter of intent. It should also contain Audit Fees associated with EVERY transaction where you comply with a request. That’s every audit, every DRG validation request, everything!  

The Internal Audit Committee – Step Five

So now you have a plan, you de-compartmentalized the audit venues within your site (at least partially) and you’ve collected key data.

The Internal Audit Committee is key in finding issue but the chair needs to walk gently in this meeting. You’re pointing to errors here. You’re highlighting mistakes so an attitude of cooperation should prevail. Billing and documentation errors along with contractual constraints take a while to see and even longer to fix.

Talking Points –The internal audit committee is your key to all solutions. It’s impossible to know everything within an institution and an audit committee will show a good leader of that committee how charges are applied, what troubles are occurring within the trenches, and ultimately how to solve those troubles. We at Medlinks have seen a site go from an 11% billing error rate to under a 3% error rate only because of the interactions conveyed and ideas shared at an Internal Audit Committee.

The Internal Audit Committee – Continued – Step Six

As committee members gain confidence that you’ll not throw them under the bus they’ll start to talk of the struggles they face with internal operations, staff training, supply and pharmacy chains, and a variety of other components that are likely clues to the cause or the actual cause of loss. Developing the skill of teasing out reasons is the audit chairs job and done well you’ll see losses start to disappear.

Talking Points – You’re a threat! Remember when chairing an audit committee your sharing “errors”. Those errors whether through sloppiness, contracting, CDM issues, or whatever are putting someone on the hot seat. Be gentle and careful about your delivery, it will yield results.

Billing Practice Corrections – Step 7

Billing practice corrections start generally with the CDM. There was a noticeable amount of attention in the past two years to updating and maintaining CDMs and certainly proactive sites continue this practice, but we’ve seen a drop off in interest in CDM maintenance and updating likely related to the large amount of EHR focus and activity over the last couple of years. The use of tools such as CDM software can be invaluable in not just assigning correct codes and charges but in assigning charges for items not billed at all.

The second crucial stage of billing practice corrections is educating staff and re-visiting their processes around P&P’s and correct application of timed increments and posting times as a couple of examples.

Talking Points – There are generally three things regarding line item auditing that can make a difference. Contracting, the CDM, and documentation. Your search for where the problem lies with losses is almost always in one of these categories. Thoughtful consideration during this meeting is almost always the way to the solution of why losses occur and where.


Documentation Corrections – Step 8

Documentation solutions are the hardest. Especially when they involve so many and at the top of the list is physician documentation. A real point of change can begin with a Clinical Documentation Improvement (CDI). This is certainly an excellent solution for RAC losses and perhaps one of the few ways to document and follow issues with the multiple people involved. We also use documentation newsletters, Epic post it notes indicating documentation requirements, and a strong tie between case management and physicians.

               Talking Points – Seeking a solution to documentation starts for us with the “story dialogue”. The OIG, RAC, and other government audits have clearly focused their attention on the weakest link. This link is documentation, canned documentation, and the interpretation of the documentation.

Order Corrections – Step 9

Order Corrections have a current focus on the 2 midnight rule but auditing uncovers more, such as lack of orders, incorrect orders, and ambiguous or confusing orders. A complete line item review contains the review of the bill versus the documentation and a review of the bill versus the orders.

               Talking Points –Orders are like documentation one of the hardest fixes in auditing. Like documentation correcting order issues can be difficult for an auditor. The solution again is most effectively achieved through CDI feedback, EHR post it notes, and other such education models to feedback and correct the problem. This is usually a long term and constant process. We will also use a documentation/orders newsletter and direct peer to peer feedback by involving the medical director.

Contractual Corrections – Step 10

Of all the frustrating and long term fixes in eliminating denials none compare to contracting, and in the view of auditing “bad contracting”. While the situation is somewhat improving there are some terrible contracts out there when it comes to audit protections. Many payers have become very savvy in the realm of audit contracting and we’ve visited sites where are hands are completely tied when it comes to contracting. While it is not the norm for an auditor, you should know your contracting officers and have a good working relationship with them. You’ll need to know simple things like does the contract apply the midnight rule to room and board? And does the contract allow for audit fees? These conversations are a good way to introduce your contracting officer to the audit policy and to offer to be a part of the advisory committee for new contracting. Here’s a chance to convey all that can be done via auditing.


               Talking Points –There is really no greater satisfaction for an auditor to have lowered their sites error rate as far as possible and then see contracting heed their advice, make changes to the contract, and watch those last few digits of error rate slip away. It takes time, sometimes years but it’s worth it.

Starting Over – Step 11

Generally speaking auditing is boring! Now I could tell you quasi exciting audit stories of achievement and reducing losses to save millions but day to day it’s boring. After a while you may notice your audit committee members are glazing over. This is especially true since you’ll have a limited number of topics to bring to the table and many of your topics may be stymied by contracting, administrative P&P’s or just apathy on the parts of the players involved. As the auditor and chair of the committee you need to consider “starting over”. By starting over I mean redefining the role of chairing your committee and bringing about change by freshening your approach. Here at Medlinks we’ll do that after initially fixing all that we can and getting the obvious fixes off the agenda, we’ll go after the losses a different way. One of the tools that’s been most successful is to give the committee a top ten list. Those top ten lists consist of:

Top 10 overbilled by price

Top 10 overbilled by quantity

Top 10 underbilled by price

Top 10 underbilled by quantity

Top 10 disputed charges

Top 10 disallowed charges

These six categories re-calculated prior to each meeting will yield all sorts of constructive discussion as to why these items have made the top 10 list and how to correct those changes naturally becomes your topic.

               Talking Points –I can’t stress enough how this simple idea of reinventing this committee changed my practice in auditing. Done with your members and the audit solutions in mind you’ll find that this recreating the discussion is perhaps one of your most valuable tools.

Thanking and Acknowledging Large and Small Steps – Step 12

As an auditor who plans committee meeting, drives the agenda, establishes the ground rules, makes changes to the audit policy and etc. it’s easy to forget your committee members and their contributions. One of the biggest fixes I ever achieved at a hospital was a quiet suggestion to add OR supply documents to the medical record for evidence of use of those supplies. It took months to achieve and tons of effort on my part but I was always careful to acknowledge the individual who presented the idea rather than taking credit for all that hard work I’d done. This paid off in that my level of internal cooperation went way up and we continued to see big dips in our numbers. That site currently enjoys a less than 3% error rate and their commercial audits have gone from 100s per year to less than 100 per year.

               Talking Points –This cannot be done single handedly. It is a team effort and with the auditor taking charge of their role and trying to work their way out of a job big corrections are possible.

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