As providers are faced with increasing pressure to their bottoms lines, the importance of both generating and protecting existing revenue is paramount. With Medicare and Medicaid at fixed rates, that leaves managed care contracts as the prime source for growing patient-generated revenue. With such tight margins, that means there's also a greater need to protect that growing revenue source.

One tool that can be used to protect revenue emanating from managed care payers is the audit.

Audits are internal checks on payments from payers. Providers are checking actual versus expected payments from commercial payers.

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St. Vincent Health, an Indianapolis-based system of 17 hospitals that is owned by St. Louis-based Ascension Health, has been conducting audits on its managed care payers for the past seven years. Martin D'Cruz, vice president of managed care for St. Vincent Health, believes that providers can benefit greatly from checking up on their payers, especially as managed care contracts have become increasingly complex, leaving plenty of room for differences in interpretation and outright errors. "Experience shows that the more complex the contract is, the probability of underpayment is more likely," D'Cruz says.

Currently, St. Vincent recovers between $3 million and $5 million annually from regular audits. "At one time, we were recovering about $12 million a year," D'Cruz says. The auditing process has, however, has improved payments, so the amount of recovery has actually fallen, D'Cruz says.

Here, D'Cruz offers a few tips on how to conduct a successful audit.

Why audit?

Providers use audits as a way to ensure that they're getting paid the correct amount according to their managed care contracts. "Payers have been less concerned in guaranteeing accurate payments," says D'Cruz, an adjunct faculty member at the School of Public and Environmental Affairs at Indiana University. "Basically, the burden falls on us to make sure that we're paid correctly."

How often?

D'Cruz says St. Vincent conducts audits monthly on all of its 20 managed care contracts. He says it's important to conduct audits in a timely fashion because generally a managed care contract will include a time period for how long a claim can be under review before it is considered paid in full.

"Providers that are not vigilant face compounded difficulties, because payers also are narrowing the appellate window," D'Cruz says.

If a provider does find an underpayment, but only after that defined period has expired, any recovery is unlikely. Audits, therefore, must be conducted on a regular basis in conjunction with the time period for review stated in the contract, he says. There is still a benefit however, if the audit uncovers an error in the payer's process that is resulting in underpayments. Such problems can then be corrected for future payments, D'Cruz says.

At St. Vincent hospitals, the cutoff date for conducting an audit is 90 days after the day of discharge. So, an audit on a claim with a discharge date of June 30 must be conducted by September 30, D'Cruz explains. "So, you need to be on top of the payer to make sure the claim is paid correctly and, more important, you want to make sure that the payer does not create the same problem again," he says.

Manual or computer?

D'Cruz says a combination of automatic and manual methods of auditing methods is effective. Auditing tools like coding scrubbers and managed care contract systems can effectively capture lost revenues because of the capability to review volumes of claims. Manual auditing is required for the more complex areas that need to be reviewed by an individual that can compare the payment with the terms of the contract, D'Cruz says.

"Provider's must devote considerable effort to ensuring that payers live by the terms of the negotiated amount," he says.

At St. Vincent, manual random audits are conducted to check for the occurrence of silent PPOs, or members that receive provider discounts, but aren't clearly identified as members in the managed care contract. Auditing staff use a spreadsheet to input data on actual payments, then compare those figures to expected payments, and determine any variance.

Who conducts the audits?

D'Cruz says a team approach works best. The team should include a CFO, plus staff from revenue cycle and managed care. "They need to identify what are the current problems they're having with payers, and then outline what the issues are," D'Cruz says. "What is their goal?"

Revenue cycle staff review expected versus actual payments. Once a variance is identified, revenue cycle staff works with managed care staff to discuss the issue with the payers to correct the problem and, if needed, implement changes to avoid re-occurrence.

St. Vincent also has a dedicated medical director who works in the managed care department. Once a variance in a clinical area has been determined, the medical director focuses on recovering the underpayment, D'Cruz says. The St Vincent medical director often works directly with the medical director of the payer to work out issues. "A lot of times payers, once they know that you have taken a strong position, they're more careful with reference to denying or underpaying a claim," D'Cruz says. 

Where Should the Focus Be?

High-cost areas that are prone to payment errors or differences in interpretations of the contractual terms include cardiology, orthopedics, neurosurgery, pediatrics (specifically, the neonatal intensive care unit), outpatient surgery, the emergency room, and behavioral health, D'Cruz says. Such areas have outliers that can be the source of confusion, resulting in underpayments or denials.

D'Cruz says such issues may include whether MRI and CT tests are included or separate from capped amounts for ER visits. Another issue is whether MRIs, for example, are reimbursed on a per visit basis or a per click basis (meaning each separate picture). Yet another problem area: If a contract calls for cardiac stents to be reimbursed separately, was that reflected in the payment?

"My experience shows that revenue cycle and managed care need to be on top of these carve-out payments," he says.


D'Cruz underscores the use of a collaborative approach as one of the keys to implementing a successful auditing program. Specifically, he says, there needs to be one person heading the team. Generally that leader is the chief financial officer.

He also says that because during the auditing process it may become apparent that internal errors were partially responsible for an underpayment, it's important that the team not dwell on blame. "It has to be collaborative," he says. "I think one of the things they need to recognize is to not point fingers, but rather say, `Yes, we've made these errors. How do we move forward? What are the resources that we need? How do we identify some of the problem payers and work with them?"

Perhaps fundamentally, D'Cruz says a provider needs to pay special attention to the contract. "We try to keep our contract simple and easy to implement," he says. If contracts are too complex, it just creates problems on the revenue cycle side because no one can understand it, D'Cruz says.

"If we're not sure of a complex contract, we'll provide samples of UB-04 bills to payers and say, `Show us how you would pay under these terms,' so that we know exactly what would be paid," he says. "If they can't do it, then we need to go back and re-negotiate terms in the contract that are easier for both parties to understand."

In addition to the actual contract, D'Cruz says it's also necessary to keep in mind the provider manual that's provided by the managed care payer.

"Because the thing that most hospitals need to recognize is that anything that has an impact on reimbursement should be addressed in the contract, not in the provider manual," he says.

D'Cruz says he has learned over the years that payers may often deny payment based on terms stated in the provider manual rather the actual contract. One of the problems is that hospitals often don't review provider manuals before negotiating the terms of the contract. This allows payers to address reimbursement issues in the manual, which can lead to underpayments or those outright denials, D'Cruz says.

And, finally, D'Cruz says that as more government funded plans are administered through third party payers, hospitals should also audit these payments.

"We focus so much on commercial payers, but we have to martial our resources to the Medicare Advantage and Medicaid programs," as well, he says.

Publication Date: Monday, January 12, 2009