Physician, audit thyself: It's worth the expense

Your staff can do it. But spending a little money to have an outside expert check your books could reap much bigger rewards.

By — Posted March 21, 2005

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Like most physicians, Mary Marshall, MD, is uneasy hearing the word "audit" in connection with her billing and coding methods. After all, whether it's a private insurer sitting down to dust off the practice's files in search of overpayments to recoup, or Medicare scanning for discrepancies that could trigger repayments and a fine, audits can make any doctor feel anxious.

But audits instigated by doctors themselves as a strategy for beefing up revenues and efficiency can be enormously helpful in an era of declining reimbursements. They can pinpoint entrenched, longstanding weaknesses. They also can help avoid hostile audits by outside payers.

Dr. Marshall, a family physician in Grand Blanc, Mich., remembers a coding and billing audit that she commissioned in late 2003 as a watershed in her career, one that taught her how to halt defeating business practices and to put in place procedures that helped her medical office thrive.

In the months before the audit, things were getting grim. Dr. Marshall, who had recently become a physician after nearly 20 years as a nurse, was grappling with an income level more meager than she could explain, poor cash flow and the realization that she had graduated medical school without learning anything about CPT and I/M codes, insurance company policies or ways to get patients to pay what they owe. A solo physician, she had 2,000 active patients and could accept no more, was working 100 hours a week, and "couldn't account for $4,000 to $5,000 a month" because of disorganized record-keeping and lax collections by her billers.

"I was working harder but not generating more income," she says. "It was just overwhelming." Her husband, who had an MBA and formerly owned his own business, did the math and broke the news to her: She was earning about $4 per hour after expenses.

Turnaround time

Wondering how long she could continue as a physician, Dr. Marshall met a certified professional coder through the Michigan State Medical Society who offered to help her analyze her business dealings with insurers. The consultant spent a day at the practice reviewing records: hundreds of diagnoses and procedures that the doctor had charted, the amounts billed to private insurers and government payers, the status of claims pending or rejected, and what was received for those already paid.

Most of the time, when a practice codes patient care incorrectly, "they're underbilling, or not billing for things that can be billed," says Julia Lowe, director of health care services at Saginaw, Mich.-based Yeo & Yeo, a CPA firm that helps medical practices audit themselves. In her 14 years auditing physician claims, she says, only two of the practices had a consistent pattern of overcoding.

Lowe, who conducted Dr. Marshall's audit, says a variety of problems that result in lower reimbursements can readily be uncovered.

Practices, she says, can get incorrect patient demographic information that delays payment, send bills to insurers that ultimately are rejected because they're backed up with scanty documentation, use outdated procedure or diagnostic codes or fail to use modifiers to their advantage.

In Dr. Marshall's case, the audit cost about $115 per hour, or roughly $1,300 for the day. Because her practice wasn't breaking even at the time, it seemed like a large investment, but she says the audit provided her many insights into how to get additional money that she deserved. Lowe's review of encounter form information showed that "most of the [procedure or diagnostic code] numbers were not detailed enough or actually wrong," Dr. Marshall says. "That translates into not being reimbursed as much for that care."

Getting the right help

It's possible for physicians' own staffs to conduct an internal audit, according to practice management consultants, but it might not always be easy or wise. Business staffs without extensive experience in doing audits could be at a loss to know how to begin, though certainly they can learn the process from consultants, watch how the initial audit is done and participate in subsequent audits, says Marian Costello, a nurse and certified coder in Pittsburgh who audits medical practices.

"Every practice should audit itself, but the key of it is to know how to audit," Costello says. "If you're not going to audit yourself correctly, it really a waste of time."

In some ways, auditors say, it's their task to make their own role obsolete -- to teach practices how to scrutinize their own claims and billing procedures as a matter of course. An audit of a practice should be a learning experience that involves coders, billers, nurses, desk staff and the doctors themselves, each learning how the self-audit process benefits the practice, Costello says.

A baseline audit usually entails a fairly large number of charts, pulled at random, to help each physician in the practice pinpoint "what the visit should have been but was not," she says.

Some auditors recommend about 50 charts per doctor the first time around, though it can be greatly reduced if money is tight. The point is to begin the process.

Credit where it's due

Dan Kushner, a Miami Beach, Fla., CPA who advises physicians, says doctors often disregard the lengthy amount of time they spend with patients. They do this even though recording it correctly and marking the complexity of the visit appropriately would raise the level of, and hence potential reimbursement associated with, the appointment. This can be highlighted by a self-audit, he says.

"Unfortunately, most of the smaller practices don't pay attention to [time spent on patients], and it's a real problem and a real issue," he says. "Many doctors record everything as a basic [level 3 encounter], hardly ever a level 4 or level 5. It affects their income, but I guess they feel it will help them stay under the radar screen" of Medicare and private insurers.

An average practice easily can lose $50,000 a year due to undercoding, often because doctors or staff are fearful that claims that are coded too high will be rejected, Costello says. An audit can bring these unspoken habits and inhibitions out into the open and help doctors recognize that they can code more assertively where appropriate, she says.

"You can typically uncover thousands of dollars in lost revenue by scrutinizing the coding, and seeing it's being done well and done properly," says Doug Bush, a CPA and president of Cleveland-based CBIZ Professional Medical Management, a contractor that provides billing and administrative services to hospital-based physician groups. "A simple change or fix often can make a difference."

A physician with no business background could need assistance to do a meaningful and objective audit, he says.

"Physicians are trained primarily clinically, and the process of their getting paid for the services they're providing requires constant education," he says. "The rules are constantly changing, and [doctors] have to understand what constitutes a billing event and what triggers it, so they can get paid for the event. And a small practice may not have the expertise and talent to do a self-review."

After the first audit is completed and the practice receives recommendations for corrections, smaller quarterly audits can be conducted with fewer charts per physician, consultants say. Later audits might focus on a certain aspect of the claims process that the practice thinks needs to be strengthened, says LuAnn Jenkins, a certified coder and medical biller in Morrice, Mich., who has audited practices for more than 20 years. Jenkins says her typical charge would be $35 to $50 per chart, including education of the practice staff.

To some doctors, an audit might seem like a good defensive strategy regardless of their financial condition. Many physicians conduct internal audits as a kind of preemptive strike, because they are fearful that an outside audit could find deficiencies or errors, Jenkins says.

"Obviously, you don't want Medicare to come in and do the audit," she says. "It's going to cost you more than $1,000 if you're doing everything wrong."

For her part, Dr. Marshall in February set up a new practice and says she is now applying many of the lessons she learned from her first -- and so far only -- audit. Her reimbursements are up, collections are good, and rejected claims are down. She understands better what role each of her employees should play as a check on accuracy and efficiency. She does her own coding, as she did before, but has taken several additional classes through the state medical society to keep current. And she plans to have additional audits every six months or so.

"It made me look at my practice as a business," she says. "If you're worried about paying the bills ... you can't provide adequate care to your patients."

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Missing money

Professional auditors and practice management specialists say they look for, and often find, weaknesses in the way doctors chart, and the way practices file claims and pursue collections, such as:

  • Poorly documented E&M codes
  • Incorrect physician/practice ID numbers or patient IDs on the claim
  • Inaccurate use of CPT modifiers, or lack of use
  • Lack of understanding of how insurer defines "medical necessity"
  • Lack of follow-up by staff when claims remain unpaid
  • Billing for noncovered services
  • Weak collection of patient co-pays, co-insurance and unpaid balances
  • Coding nearly every office encounter as equal in complexity
  • No documentation for reasons for lab tests and other ancillary services
  • No attempt to write an OIG compliance program
  • Failure to bill "incident to" services provided by physician extenders under the physician's code, if appropriate, to increase payment level.
  • Lack of coding to separate out extra services that might add additional revenue
  • Few formal reviews of explanation of benefits forms to understand why claims were rejected
  • Not enough documentation to back up either CPT or diagnostic coding
  • Inadequate use of "scrubbing" software to check out the completeness of superbills

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Out of the mouths of auditors

When a practice commissions a billing and coding audit, it typically gets a final report proposing improvements. Here are some actual comments submitted to doctors by Yeo & Yeo, practice management consultants in Saginaw, Mich.:

  • "I noted many, many rejections stemming from incorrect demographic information, which I believe should be corrected by front desk staff and then rebilled by them. A biller has plenty of work to do and certainly does not need to spend time correcting demographic information."
  • "Some patients are receiving statements for services that should be covered with their insurance companies and some patients are not receiving the statements for routinely noncovered services. ... I believe there is a lack of understanding of the information contained within the rejected EOBs. This shows a lack of billing expertise."
  • "A Medicare EOB dated 8-2-04 contained 38 claims, 2 were totally rejected and the other 36 were paid. Nine of these 36 claims were reduced by a late filing charge, which totaled $48.09. This was not an isolated situation."
  • "Retrieving billing information in your practice is not an easy task. ... Your files are a mess, to put it very bluntly."
  • "In speaking with your office manager, she indicated that for 2005 she has a system in place to check for unbilled services. It is important for you to note that you can go back and capture most billing for 2004, if the service has not been billed to date."

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