Demystifying the internal auditing program

2001 11 16 10 13 24 706

This is one in a series of coding-related articles for U.S.-based radiology practitioners that is appearing on courtesy of Coding Strategies Incorporated. If you'd like to offer your comments on the material, please e-mail

By Melody W. Mulaik
Coding Strategies Incorporated

2001 11 16 10 13 24 706 In today’s healthcare environment there are plenty of reasons to perform internal coding and documentation audits. Potential reasons to audit include the identification of positive and negative risk areas, as well as opportunities for improvement. Internal audits are an expected business practice, and there is a high probability that outside organizations are already performing them on your practice.

Office of the Inspector General (OIG) focus

The following are some of the billing and coding practices detected in audits of Medicare patients for which medical entities have been fined, sanctioned, or convicted:

  • Billing a service in disguise as another service so that it falls under Medicare/Medicaid coverage.

  • Down-coding to maximize reimbursement.

  • Changing codes to get a claim paid.

  • Billing patients for services already paid by Medicare/Medicaid.

  • Billing Medicare/Medicaid for care not given, for care given to patients who have died or who are no longer eligible, or for care given to patients who have been transferred to another facility.

  • Requiring vendors to kick back part of the money they receive for rendering services to Medicare/Medicaid patients (in addition to cash, kickbacks may include vacations, merchandise, or other incentives).

  • Unbundling services.

  • Incomplete documentation.

  • Documenting a specific diagnosis for the sole purpose of receiving insurance reimbursement.

  • Billing Medicare/Medicaid for x-rays, laboratory tests, or other procedures that were never performed, or falsifying a patient’s diagnosis to justify unnecessary tests.

  • Ordering excessive tests performed by practices in which referring physicians have a financial interest, such as pay based on referrals, or tenants in a building owned by the referring physicians.

  • Waiving coinsurance and deductibles in the absence of financial hardship.

With so much focus on incorrect billing practices, where does this leave today’s healthcare provider? They need to develop, implement, and maintain an internal auditing program to ensure coding and billing compliance.

The internal chart audit

The internal chart audit supplements a compliance program by ensuring that the organization is correctly assigning procedural and diagnosis codes to all insurance claims filed. The objectives of an internal audit may include examining coding and billing practices for lost revenue due to the improper assignment of medical codes, but this process can also reveal inappropriate billing and subsequent overpayments from third-party payors.

A common concern regarding chart selection is whether to select charts prospectively or retrospectively. Prospective (prior to billing) chart selection is preferred by many organizations because it reduces the risk of unearthing a refund obligation. By reviewing a chart prospectively and making corrections prior to claim submission, an incorrect claim has not been filed; therefore, overpayments have not been received by the firm.

At the same time, a chart audit may be considered useless if no action is taken on the findings, even if that action consists solely of acknowledging that the documentation, coding, and billing practices are acceptable. The appropriate administrative medical personnel should review the ratio of correct and incorrect coding, as well as compliance and noncompliance issues.

Areas of incomplete or inaccurate documentation can also be identified, and corrective action taken. A timeframe should be established and an action plan developed to make needed changes on the basis of the organization’s determination of issues that require immediate attention -- as well as issues that can wait for long-term revision and implementation.

Sample physician audit work plan

The following is a sample audit work plan for physician practices that outlines the basic steps to be taken, audit deliverables, and other key details.

Completed By
Select the number of physician services for review including:
  • the original charge document
  • medical record
  • detail bill
  • claim form or facsimile
  • payor explanation of benefits (if retrospective)
Review the medical record documentation and services billed to assess the following:
  • accuracy of CPT code assignment
    • separate procedures
    • most extensive procedure
    • with/without services
  • accuracy of ICD-9-CM code assignment
  • appropriateness and accuracy of modifier use, where assigned
  • accuracy of units represented on the claim form for the services provided
  • correct dates of service billed
  • compliance of code assignment against CCI or other source for unbundling or fragmentation
  • compliance of code assignments under Medicare or other payor guidelines for coverage or medical necessity
  • accuracy of provider name and number billed
Review the original charge document, detail bill, and HCFA claim form for consistency and validation that all services provided were accurately billed.
Review the patient detail bill against the payor explanation of benefits statement to validate that contractual allowances were correctly reimbursed and payments were posted according to guidelines.
Interview key personnel involved in the coding and billing process to determine the following:
  • Method for addressing and reconciling Medicare credit balances
  • Policy and procedure for issuing ABNs
  • Office policy for monitoring rejects or denials
  • Practice use and billing practices related to non-physician personnel
  • Obtain practice analysis data by CPT code for comparison and benchmarking -- if prior year’s analysis is available. Compare current code usage to identify and explain areas of change (both increased and decreased)
Enter claims review findings by record into database and run sample analysis report to prepare summary findings and recommendations.
Provide worksheets and detailed claims review as final report. (attorney-client privilege, if applicable)
  • Pay close attention to the “Top 10” problems encountered and focus on resolving them first.
Maintain records of internal audits as part of comprehensive compliance program.
  • Master copy maintained by compliance officer or other designated individual
Identify education or training needs. Arrange for the appropriate sessions.
  • May involve budget allocation
Establish frequency of additional or continuous audits to ensure that corrections have been made where necessary, and to detect new opportunities to improve medical record documentation.


By Melody Mulaik contributing writer
October 16, 2002

Melody Mulaik is president of Coding Strategies Incorporated. Her company will be presenting its comprehensive radiology-only workshop networking (CROWN) seminar for diagnostic radiology on November 5 in Nashville, TN, and November 12 in Baltimore. An interventional radiology CROWN series will be presented November 6-7 in Nashville and November 13-14 in Baltimore. The company can be contacted at 877-626-3464 for further information.

Related Reading

Coding changes on tap for October 1, 2002, July 16, 2002

Do you know who is minding the codes? March 27, 2002

Necessity criteria compliance critical for PET reimbursement, February 28, 2002

New Year brings new coding and bundling changes, January 18, 2002

New diagnosis guidelines could affect your operations and reimbursement, December 18, 2001

Copyright © 2002 Coding Strategies Incorporated

Page 1 of 1162
Next Page