Legal and Regulatory Compliance

Avoiding and Managing CMS Audits

August 20, 2015 12:08 pm

Routine internal and external auditing of Medicare claims is a critical step in avoiding denials and managing audits effectively when they do occur.

Hospital and health system finance leaders can take important steps—such as self-audits and accurate documentation—to limit denials and avoid CMS audits. This proactive approach is also helpful to successfully navigate the claim appeals process.

To Avoid Audits, Perform Audits

“To avoid CMS audits you have to do your own audits,” says attorney Michael Schulze, of the law firm Sullivan Stolier Schulze, LLC, in Lafayette, Louisiana. “And you have to use the findings to provide ongoing education and training of coders, billers, and clinicians.”

This may seem elementary, but Schulze and Joseph Koons, managing director of revenue cycle for Centra Health, Inc., Lynchburg, Va.—who discussed denials and audits during a recent HFMA Forums webinar—repeatedly stress the importance of internal and external compliance audits, use of comparative data reports (e.g., Program for Evaluating Payment Patterns Electronic Report, known as PEPPER reports), and regular training to avoid simple coding mistakes and keep up to date on billing rules. “Make internal and external auditing routine so that it doesn’t get pushed aside by the daily grind,” Schulze advises.

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“The government gets about $8 in return for every $1 it spends on fraud and abuse enforcement, including audits, so the audit contractors are not going to go away and denials will continue,” Schulze says. Talking about compliance is not enough.  Regular internal audits and periodic external compliance checks demonstrate to the entire staff that the provider is committed to accurate and complete documentation and billing. “It is critical for coders to feel comfortable, to be encouraged, to query physicians for more details when a medical record is incomplete or does not support the code being assigned. They can only code what is supported by the record and need to have the provider’s full support when they correct a code to a lower level,” Schulze says.

Physician education on proper documentation is also critical. Schulze gave the example of an inpatient psychiatric hospital with physicians routinely listing Alzheimer’s disease as the admitting Axis I diagnosis. “However, the patients were sent to the hospital because of their disruptive behavior. Unless there was conclusive evidence that the behavior was due solely to their Alzheimer’s, the disease would more appropriately be listed on Axis III as a chronic condition. Even though the care was the same and medically appropriate, routinely listing Alzheimer’s on Axis I caused the provider’s statistics to fall out of the industry norm and triggered an extensive ZPIC audit.”

One caveat: Coders may not intentionally lead a physician to documentation just to enable higher reimbursement; they only may ask objective questions such as, “Did you mean … ?” or “Can you be more specific about … ?”

Denials Will Occur and Appeals Will Follow

No matter how hard we try, however, there will always be claims denials, and the process begins with a request for records. Schulze and Koons stress that it is essential to organize the medical records carefully and make it easy for the CMS auditors to find important information in the record. They suggest doing this by taking the following steps.

  • Reviewing every chart for completeness and uniformity of format
  • Stamping every document page with identifying numbers (e.g., Bates stamping—a method for placing identifying numbers and date/time marks on images and documents)
  • Providing a table of contents of the chart with Bates stamp page ranges
  • Highlighting relevant portions
  • Using attestations for incomplete sections
  • Responding to all government requests in a timely manner
  • Transcribing hard-to-read physician notes

After the records are submitted, a Medicare contractor reviews them—a process that often takes a year or more—and issues an audit results letter and a demand for repayment. Auditors rarely rule in favor of providers’ at this stage, and thus begins the first level of appeals.

First level appeals. This first appeal is a request for redetermination by the auditor, and it can usually be handled in-house. “It may not be cost effective to hire outside counsel at this stage as long as the provider has trained personnel to prepare the appeal,” Schulze says.

He recommends appealing every wrongful denial because the government may later attempt to use those denials to establish the provider had “imputed knowledge” of possible overpayments. “Providers have to decide if a denial is worth appealing, but they shouldn’t just look at the cost of appealing.  Even if they accept the denials due to cost, the government will consider the denials legitimate and may use those denials to argue that the provider should have been aware of a pattern of improper claims. This could come back to haunt you,” Schulze says. 

Second level appeals. Once the redetermination decision has been issued—usually an affirmation of the original denial—comes the second level appeal, a request for reconsideration by a Qualified Independent Contractor (QIC). Koons and Schulze recommend engaging the servicers of an experienced healthcare attorney at this stage and including the provider’s entire argument and basis for appeal, including statistical arguments if the agency extrapolated the claims to determine their repayment demand. These points will form the administrative record for a possible administrative law judge (ALJ) decision at the next appeal level.

Because of the well-publicized backlog of appeals at the ALJ level, Schulze and Koons are beginning to see greater provider success rates for second-level appeals, but there is still no way for the system to keep up with the demand, they say. “We’ve occasionally had cases where we got 90 percent of the denials overturned at the second level, but the increased success rates are still pretty sporadic,” Schulze explained.

Third level appeals. The third level appeal is made to the ALJ and is supposed to take approximately 90 days. Unfortunately, providers are experiencing significant delays before their ALJ appeals are heard and the situation continues to get worse. For example, in 2013, the average delay was 220 days; 2014, 415 days; and 2015, 661 days. The situation shows no signs of improving. The delay jumped to 795 days for the first quarter of 2016 and 861 days for the second quarter of 2016.

“The system is broken and providers are being forced to shoulder the burden. They don’t have any choice but to wait because so many claims get overturned by the ALJ. But the excessive delays require providers to pay back money they desperately need while they wait years to win their appeals before the ALJ,” Schulze says. “Many providers are facing bankruptcy because they cannot afford to repay large overpayments due to statistical extrapolations, even under an extended repayment plan, while they wait to get their money back when the ALJ overturns most of the denials.”

See related tool: Summary of CMS Audit Procedures

Proactive Steps Minimize Pitfalls

Koons and Schulze concluded the webinar with these recommendations:

  • Create a dedicated audit team under the compliance department that includes revenue cycle personnel, billers, coders, compliance and legal staff, and nursing and physician advisers to audit all clinical documentation by physicians and other clinicians.
  • Establish a physician review program with respected physicians who can help improve medical record documentation and advise on appeals; Koons uses employed physicians for this purpose and reports that among other benefits this has improved his system’s case mix index.
  • Use audit tracking software to monitor all appeals because government payers and private insurance have different processes and timelines, and it’s impossible to track them all manually.
  • Use PEPPER Reports—Microsoft Excel files summarizing provider-specific Medicare data for target areas often associated with improper Medicare payments—to help flag potential problem areas to be dealt with before denials occur.
  • Consider education to be a never-ending journey for clinicians, billers, coders, and other key personnel.
  • Recognize that the “pay and chase” system of Medicare reimbursement is an unfortunate way of life, but its pitfalls can be minimized.

J. Stuart Showalter, JD, MFS, is a contributing editor for HFMA.

Interviewed for this article:
Joseph Koons is managing director, revenue cycle, Centra Health Inc., Lynchburg, Va., and is a member of HFMA’s Virginia-Washington D.C. Chapter.

Michael R. Schulze is managing member, Sullivan Stolier Schulze, LLC, Lafayette, La.

Discussion Starters

Forum members: What do you think? Please share your thoughts in the comments section below.

  • How does your hospital handle Medicare appeals?
  • Do you employ full-time physician advisers to assist with the appeals process?


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