Passive, Proactive, and Retrospective Cost Containment in Medical Auditing
A case study analysis of services supplied to our hospital/provider clients
By Christopher Baggott, CEO Medlinks Cost Containment, Inc.
The great boxer Jack Dempsey said, “The best defense is a good offense.” Hospital/Provider medical auditing is primarily defined as “defense.” The defense is generally against the onslaught of Government and Commercial Payers who challenge claims, coding, documentation, and contracting. While a good medical audit firm should know how to defend against all these things, we started applying an offense several years ago that has netted dramatic results. Here’s a case study from one of our clients.
Passive Cost Containment
Passive Cost Containment refers to the careful review of medical records requests. For detailed information on passive cost containment see our article here.
The problem; you’re a provider with an ever-increasing request for medical records/claims and those requests require both front end (copying and delivery) and back end (respond to request for refund or appeal). Problem number two is that the payer contractually and ethically has a right to this information. The often-overlooked solution is that you the provider often has the right to determine HOW the record or claim may be reviewed. In order to define how a payer may review a record or claim you need to first decide a few things:
- The most important question you and your staff should be asking is WHY does the payer want or need this information. That answer is not easily definable when reviewing the requests but suffice it to say, it is to audit it in some form or another at least 80% of the time. That means refund requests and or appeals will later need to be done by you.
- The second most important question you or your staff should be asking is HOW should I deliver this requested content. The answer for many providers today is to cooperate fully and completely using payer encrypted portals, or other forms of delivery on a “silver platter” right to the doorstep of the payer. Many providers don’t know or have forgotten there are options.
- Finally, this medical records/claims request “discerning process” can be confusing in defining should I or shouldn’t I deliver in the requested manner.
Medical records/claims/coding summary requests carefully considered for their “use upon release” will highlight for you the many ambiguous and confusing nature of the letters being sent. Many that claim to “require” the data for contractual or federal/state mandates are really a “veiled audit.” See our article on “veiled audits” here
It’s critical to understand that we never say “no” to a record request as the payer almost always has the right to review the record, but how they view the record is up to you, the provider. In the example below we show you 4 years of approved/not approved request to obtain medical records. Note that “not approved” means we did not send the medical records as requested either electronically or by mail, but simply told the payer they could review the medical record “on-site only” and very often with an audit fee due before the review.
MEDICAL RECORDS COST CONTAINMENT ILLUSTRATION
| YEAR | # of Charts Approved | # of Charts Not Approved |
| 2016: (YTD) | 807 Approved |
785 Not Approved A savings of $137,625.00 “at-risk dollars” |
| 2017: (YTD) | 6 Approved |
116 Not Approved A savings of $20,400“at-risk dollars” (partial years) |
| 2018: (YTD) | 617 Approved |
835 Not Approved A savings of $145,875.00 “at-risk dollars” |
| 2019: (YTD) | 25 Approved |
104 Not Approved A savings of $18,100 “at-risk dollars” (partial years) |
| Total Not Approved Records: 1,840 | ||
| Total Savings in Staff Hours to copy: $11,500 | ||
| Total Not Approved Records in Cost Containment: $276,000 |
The cost containment is represented here are as follows:
- The lack of staff involvement and record copying. As an example, that’s 1,840 records that were not sent, not at risk for refund request, and not requiring an appeal.
- Conservatively we applied a rate of $25/hour for staff who could conceivably copy 4 records per hour, saving $11,500 in copying fees.
- The $276,000 cost containment represents a conservative estimate of DRG savings of $500 per claim. We assumed 30% of these claims (552 records) would have had a DRG review.
- No contract disputes occurred, and these requests simply disappeared.
- Further, on the requests where they did review a claim on-site, we collected an audit fee turning a revenue losing dept. into one that at least recoups some loss. To do this, you’ll need a strong audit policy. Get a free audit policy here.
Proactive Cost Containment
Proactive Cost Containment refers to process of understanding your audit aggregate data and adjusting internally to address that data. In the movie Moneyball, Billy Bean, the Oakland A’s GM runs into a solution that sums up to one number. The number of base hits will ultimately win a championship.
In medical auditing, the all-important number is your error rate. If your error rate is low, and your audit policy is strong, the payer’s motivation to audit is very low as their ROI just stops making sense.
Let’s imagine you must send an auditor with travel expense, to pay an audit fee, only to recover 2% – 3% of a claim. That may still make sense depending on the claim size but with so much more easy fruit picking out there, our experience is they (the requests and the payer) go away.
COST CONTAINMENT ILLUSTRATION #1:
“Audit Pipeline” refers to all audits that are either pending or scheduled and further represent “at-risk” dollars
AUDIT PIPELINE (COMMERCIAL REVIEWS) as of 07/02/2019: 46 Cases
Total Dollar Amount of claims = $9,457,866.43
Error Rate Calculation
2019 Overbilled Error Rate = 5.85%
2019 Underbilled Error Rate = 0.24%
2019 YTD Error Rate Calculation: 5.61% (Overbilled Error Rate minus Underbilled Error Rate)
2019 YTD At-Risk Dollars: $530,586.31
Total Audit Fees due = $8,375.00
- In the first line above under audit pipeline we’re telling the client you have 46 cases with a total audit dollar amount of just over 9 million dollars.
- According to the statistical data that’s 9 million+ “at risk” dollars with a statistical loss rate of 5.61% based on your over-billed charges versus your under-billed charges or $530,586.31. This at-risk dollar amount should be in reserve as potential loss.
- The $8,375 in collected audit fees represent a proactive recoupment of money.
For some sample data of what you’ll want to see each month click here.
COST CONTAINMENT ILLUSTRATION #2:
TOTAL AUDIT REDUCTION IN ERROR RATE: Because providers generally don’t pay attention to these important numbers there’s no reliable published data on national standards. An error rate that will get you off the radar however must be below 5%. Note below that were tracking this facilities error rate in order to “know” the number but also to know where the audit drop off in volume will occur. When we began with this facility their error rate was 11%. Overbilled charges were mostly accountable due to lack of documentation and lack of M.D. orders.
2016 Overbilled = 4.11% 2016 Underbilled = 0.34%
2017 Overbilled = 3.71% 2017 Underbilled = 0.82%
2018 Overbilled = 2.61% 2018 Underbilled = 0.81%
2019 Overbilled = 5.85% 2019 Underbilled = 0.24%
TOTAL AUDIT CANCELLATIONS
2016 Total Cancellation: 21 cases equaling $6,128,452.95 for a savings based on overbilled percentage of 4.11% = $251,879.42
2017 Total Cancellation: 47 cases equaling $4,750,613.73 for a savings based on overbilled percentage of 3.71% = $176,247.77
2018 Total Cancellation: 22 cases equaling $2,944,675.94 for a savings based on overbilled percentage of 2.61% = $76,856.04
2019 Total Cancellation: 5 cases equaling $397,225.30 for a savings based on overbilled percentage of 5.85% = $23,237.68
TOTAL AUDIT CANCELLATION PROJECTED SAVINGS = $528,220.91
TOTAL AUDIT FEE COLLECTED:
2016 Audit Fees Collected: $33,700
2017 Audit Fees Collected: $23,225
2018 Audit Fees Collected: $16,200
2019 Audit Fees Collected: $11,150
TOTAL AUDIT FEE COLLECTED: $84,275.00 plus $8,375.00 of Projected Audit Fees to be collected. TOTAL AUDIT FEE: $92,650.00
The cost containment represented above is because of a strong audit policy, a strong process, and a proactive approach to understanding why losses occur. Why is this important? To lower your error rate!
Retrospective Cost Containment
Retrospective or look back auditing is how much of the industry operates. In order to address this, we’ve highlighted for you above both passive and proactive audit processes. Retrospective Defense can have a variety of steps to understand what’s occurred and where you are:
Audit Analysis – Audit Analysis is critical and done by so very few. Let’s ask a few questions:
- What is your facility’s audit overcharges and undercharges? Does this number include defense auditing, government auditing, business office denials, HIM coding denials?
- Who cross references disallowed charges with the contract?
- What’s your appeal strategy?
- Do you have an audit committee, run by your audit team to highlight trends?
- Is this meeting attended by administration and department director’s?
- Is its focus on problem identification and resolution?
- Does it provide critical data reports that identify problems and trends?
- Want to review critical data reports you should see monthly? Click here
Concurrent Reviews – These reviews done within 30 days of bill drop are crucial to understanding the current climate and catching error long before your payer, RAC, and so on. This is worth every penny you spend on it.
Defense Auditing – While each audit is important, they are all a symptom of other issues. In short, a defense audit highlights a few problems:
- Overcharges – charges in the on the bill but not correctly represented in documentation/orders or incorrectly billed.
- Undercharges/unbilled charges – charges in the on the bill but not correctly represented in documentation/orders or incorrectly billed. Unbilled are not on the bill at all but should have been. These are often referred to as late charges.
- Disallowed – These are “contractually” disallowed, and no auditor should ever allow bullying by a payer, auditor, or other entity to declare something was not needed. That’s an MD decision that not allowed in defense auditing.
- Disputed – Inevitably in auditing as in coding and other disciplines auditors are going to disagree. When they do you have disputed charges. How do you handle these?
Let’s Review Some Critical Data
2016 (YTD) OVERBILLED BY PRICE, BY UNIT QTY
The data below represents four categories of review important in addressing errors and correcting those errors. The breakdowns represent the TOP TEN items over billed by either price or number of items (units). The last two columns are the reverse and represent the TOP TEN underbilled by price or units. By defining these (monthly) you can quickly and proactively discuss what’s wrong and how to fix it.
| Overbilled by Price | Overbilled by Units | Underbilled by Price | Underbilled by Units | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Reviewing the above data, beginning with the Overbilled by Price column and working right, you will find the following: 1. 7 of the Top 10 Overbilled by Price items represent Room and Board charges. These accommodation codes are incorrect because they were not assigned correctly upon admission or transfer. As a result, the Underbilled by Price is affected in that it’s #1 item is a lower cost room and board charge associated with moving the charge from the incorrect accommodation code to the correct one. Appropriately assigning the correct accommodation code will DRAMATICALLY lower your error rate because these high dollar errors are chronic patterned behavior. 2. The Overbilled by Units column is dominated by Saline Flushes. This is an item a facility may not chase for resolution because of the hundreds of time that saline flushes are given, which may not be properly documented. However, the Underbilled by Units column show specific items that need explanation as to why they were underbilled or not documented. While the savings may not be significant in total, it is worth noting for liability, continuity, and billing reasons.
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2017 (YTD) OVERBILLED BY PRICE, BY UNIT QTY
The data below represents four categories of review important in addressing errors and correcting those errors. The breakdowns represent the TOP TEN items over billed by either price or number of items (units). The last two columns are the reverse and represent the TOP TEN underbilled by price or units. By defining these (monthly) you can quickly and proactively discuss what’s wrong and how to fix it.
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Reviewing the above data, beginning with the Overbilled by Price column and working right, you will find the following:
1. Again, in 2017, the room and board issues remain a problem as seen in the Overbilled by Price and Underbilled by Price columns. These 2 columns are dominated by room and board charges. Because R&B generally constitutes 50% of the total billed amount, corrections here will almost resolve this facility’s error rate and have it approaching zero percent. 2. Overbilled by Units column is heavily weighted towards “drips” and this means either math related documentation or pharmacy billing processes are off. A careful re-review of these audits should be able to identify where the problem lays although a combination of both factors is likely. A few other interesting trends here indicate some tightening of documentation and or billing could occur with Respiratory Therapy.
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2018 (YTD) OVERBILLED BY PRICE, BY UNIT QTY
The data below represents four categories of review important in addressing errors and correcting those errors. The breakdowns represent the TOP TEN items over billed by either price or number of items (units). The last two columns are the reverse and represent the TOP TEN underbilled by price or units. By defining these (monthly) you can quickly and proactively discuss what’s wrong and how to fix it.
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Reviewing the above data, beginning with the Overbilled by Price column and working right, you will find the following:
1. A single re-review should be done with the first case in the Overbilled by Price column to determine how a high-priced pass-through item from the OR could be a top ten item. Experience tells us that the remaining R&B issues, remain as noted in 2016 and 2017, and the possibility of dramatically lowering error rates still exist. 2. 8 of the 10 Respiratory items in the Underbilled by Price column remain concerning as these “top ten” items, when extrapolated across their entire billed population, means a large amount of dollars may be left unbilled.
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2019 (YTD) OVERBILLED BY PRICE, BY UNIT QTY
The data below represents four categories of review important in addressing errors and correcting those errors. The breakdowns represent the TOP TEN items over billed by either price or number of items (units). The last two columns are the reverse and represent the TOP TEN underbilled by price or units. By defining these (monthly) you can quickly and proactively discuss what’s wrong and how to fix it.
| Overbilled by Price | Overbilled by Units | Underbilled by Price | Underbilled by Units | ||||||||||||||||||||||||||||||||||||||||
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Reviewing the above data, beginning with the Overbilled by Price column and working right, you will find the following:
1. In the Overbilled by Price column, it should be noted that a review of these individual audits may be necessary to determine trends but often our first assumptions are correct. In 2019, you’ll notice the corrections seem to be occurring with R&B as they don’t dominate the top ten any longer. We now see a variety of charges ranging from the OR to Obstetrics, to infusion therapy. These should be reviewed retrospectively to define the “root cause.” 2. Overbilled by Units has a disturbing trend in Tylenol, and it would prompt an immediate look at the pharmacy billing process for this med since it dominates the list.
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Contract Negotiation and Focused Auditing
Finally, at this facility as in many across the country, contract disputes and re-negotiations occur. It is here that the skill sets above come into play to address disputes before the legal teams are brought in. In these negotiations we are generally reviewing, along with the payer, sets of disputed claims that are ramping up in value. In this case study, this facility incurred 4 million dollars in disputed charges (in 4 years), nearly all of which were “routine supplies” disputes between payer and provider. To learn more about how we resolve these matters on “routine supplies,” see our article here.
Focusing audit reviews to a specific subject as done here in addressing contractual issues is an incredibly under-valued and often overlooked tool. It is quite the eye opener for many sites to see these tough negotiations made much easier by supplying real data and real questions to the task of focused auditing. Focused auditing is a way to quickly get to the real answers of correct billing, correct documentation, and the correct contract interpretation of this data. In doing so at this site, we have reviewed on multiple occasions, claims associated with disputed charges. Looking at a payer’s process for determining disputed charges and comparing that to their contract, the facility netted $2.5 million of recovery in $4 million worth of disputes.
Benefits
Medical Auditing Cost Containment is a powerful defensive tool but even more powerful when flexed as an offensive tool. It is clear from the data above that the model should not rely solely on defense, but also to shift your facility to an offensive approach to external audits. Secondly, if you’re not reviewing this data AND intervening for correction, the financial “bleeding” will just go on and on.
Let’s review the cost containment at this site:
| Passive Cost Containment: | $276,000.00 |
| Proactive Cost Containment: | $530,586.31 |
| Audit Cancellations: | $528,220.91 |
| Audit Fees: | $92,650.00 |
| Contract Negotiations & Focused Auditing: | $2,500,000.00 |
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Total Cost Containment for this client in 4 years: $6,350,220.91 |
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