Automating Health-care Audits

Internal Auditor, June, 2001 by Tammy Rice, Stacey Mckendree, Kathy Kennedy

A health-care audit shop finds that CAATs are just what the doctor ordered.

IKE ALICE THROUGH THE looking glass, it's a whole new world out there for health-care providers. The U.S. health-care delivery system has had to face significant new financial strains. Regulatory compliance and penalties, a stampede to managed care, declining Medicare and Medicaid reimbursement levels, and the gradual shift from inpatient to outpatient services have all brought intense pressure to bear on health-care providers.

At the Catholic Healthcare Audit Network (CHAN), we actively strive to help our clients meet these growing challenges by providing them with independent assurance that business risks and opportunities are identified and managed. CHAN provides internal audit services to a number of health-related organizations, such as hospitals, physician practices, and long-term care facilities, with combined client assets of approximately $13 billion.

Our leadership team firmly believes in and is committed to using technology to produce better audits and to help our client organizations better meet their strategic business goals. Data analysis and extraction software has been particularly important to our efforts. We've used data analysis technology for traditional audit applications such as accounts payable, payroll, and operations, as well as for key "focus areas" that change from year to year. We've implemented several computer-assisted routines in areas such as managed care, bad debt analysis, and most recently, compliance audits, which have yielded significant findings and allowed us to add substantial value to our clients' health-care processes.

MANAGED CARE

Given the phenomenal growth of managed care services in recent years, we realize that there is often more than meets the eye when attempting to optimize the amount of cash collected from contracted managed care payers. Consequently, we have developed some sophisticated Audit Command Language (ACL) tests that we apply against high-volume or complex contracts to ensure that our clients are collecting the exact amounts due to them under their managed care agreements.

STANDARD PAYMENT TEST The first test we normally perform to check managed care collections is a general payment analysis. This test enables us to determine whether or not the managed care company has accurately paid their patients' accounts.

Using the expression builder in ACL, we program the terms of our clients' contracts into the software, separating inpatient records from outpatient records, as reimbursement differs for these two types of accounts. We then perform a test on the records that calculates expected payments due and run a comparison between the total expected payments and the actual payments received. Exceptions are exported to a report for further investigation.

STOP-LOSS PAYMENT TEST Special contract clauses offer hospitals the potential for significant payment increases from health maintenance organization (HMO) payers. One such clause is the stop-loss payment, which protects hospitals against instances where patients develop complications that result in hospital stays exceeding anticipated duration and cost. The stop-loss clause ensures that the hospital receives additional monies from its insurer in the event of such circumstances.

Because these occurrences are rare, hospital administrators are often unaware that they can receive additional reimbursement and may not collect the full payment to which the/re entitled. Using ACL, we are able to identify accounts that meet or exceed the stop-loss dollar amount and then test the file to determine whether stop-loss reimbursement was received. First, we determine which patients meet the stop-loss provision. We then calculate the expected stop-loss reimbursement for those patients and compare this amount to the received reimbursement.

The information extracted from this test, as well as the standard payment test, can be invaluable when our clients renegotiate future contracts. Once we analyze a contract and develop an ACL routine for it, these tests can then be used repeatedly until the contract changes, at which time the routine need only be updated.

TIMELY PAYMENT TEST We run an aging test on our managed care contracts to determine whether reimbursements have been received within the time specified for paying a "clean" claim. This test is performed by comparing the billing date to the payment date to identify any accounts that exceed the contacted payment period. In addition, the testing provides the hospital with information on the number of days the managed care payer is taking to pay the claim. Some contracts specify that the hospital must be paid 100 percent of charges if the insurer does not pay within the time agreed, which means that identifying reimbursement delays can result in significant increase in payment for the organization.

The findings from our aging tests have resulted in substantial recoveries for our clients. Managed care audits performed at client facilities have identified anywhere from $60,000 to millions of dollars in discrepancies. Such findings and recoveries enable CHAN to add quantifiable value to its client organizations.