Healthcare Audits: Different Types & How to Approach Them

What is An Audit in Healthcare?

A healthcare audit is a complete & thorough review of a private practice, hospital, or health organization's operations. Audits usually focus on one area, like patient care or clinical practices. This article will focus on healthcare finance audits, which review materials and processes related to an organization's billing and financial health.

What is the Purpose of a Healthcare Audit?

Healthcare audits help ensure compliance, prevent fraud, and pinpoint areas for process improvement. The specifics of an audit depend on its type and whether it is internal or external.

Generally, an internal healthcare audit aims to develop and follow an official process to assess, analyze, and improve patient care and internal processes. The purpose of an external audit is usually to ensure all parties are paid fairly and accurately in the insurance claims process.

What are the Different Types of Audits in Healthcare?

There are multiple types of audits in the healthcare space, depending on who is conducting the audit and for what purpose. The following types of audits are common in hospital finance departments.

External Audits

An external healthcare audit examines a hospital's finances or processes conducted at the will of an outside party. Usually, this outside party is either the government or a commercial insurance company. These entities want to check that correct payments were provided to the hospital for past cases.

Commercial Payer Audits

Private insurance companies or commercial payers carry out these audits. 

A hospital negotiates reimbursement rates when establishing its contract with the insurance company. It also establishes parameters around what can be audited and how the hospital can respond to that audit. Insurance companies then audit certain groups of claims based on these parameters. They examine healthcare claims and billing practices to:

• Ensure accuracy
• Identify fraud or abuse
• Evaluate compliance with the payer's policies and guidelines.

Federal Government Audits

The government reimburses healthcare services on state and federal levels, following state and federal guidelines depending on the type of assistance. There are two main types of government healthcare audits: Medicare and Medicaid.

Medicare & Medicaid

Medicare is one of the biggest hospital payers, making up around 40% of the payer mix. Medicare audits evaluate claims and reimbursement. Federal government employees or third-party recovery audit contractors usually conduct these audits.

Contractors often conduct Medicaid audits, but can be done by state government employees. Whoever performs the audit must have acute knowledge of the state's laws, as Medicaid laws vary from state to state.

Often, contractors specialize in auditing within a specific state. They can also specialize in auditing a specialized medical subject, looking only at cases within it.

Internal Audits

While external parties conduct the audits mentioned above, hospitals can conduct internal audits. Hospitals may commission an internal examination of finances for several reasons. Usually, it is used to identify potential audit exposure. These audits may also seek to proactively address issues that may result in an audit down the road.

First, auditors select several subsets of claims inside the organization. They determine if these claims are at risk of being audited from a compliance standpoint. For example, a hospital may be concerned paperwork is not being coded correctly. If this is the case, auditors in or outside the organization may pull a group of codes and analyze them for accuracy.

If several errors are found, the hospital must assemble a team to organize and check codes on internal paperwork. It may be tedious, but putting in the work in advance is crucial. It prevents the negative consequences if an external party decides to audit that hospital's coding.

Types of Auditing Methods

The following methods of conducting healthcare audits may be used for internal or external audits.

Random Audits

Random audits are unsystematic, in which random claims are pulled and reviewed for accuracy. A deeper dive and more extensive audit are required if several errors are found. 

Comprehensive Audits

If a random audit finds numerous issues, the auditor may move on to a comprehensive audit. This involves deeper diving into the hospital's finances to find emerging trends and risks. This lays the groundwork for establishing an action plan to correct them.

Prospective Audits

Prospective audits occur before claims are submitted to the payer. These audits can be internal or external, and they are usually conducted by third-party auditors outside the hospital facility. Auditors usually gather claims related to one specific service or specialty. Then, they check to confirm that documentation supports the bills on these claims.

Retrospective Audits

Retrospective audits occur after the claims are submitted to the payer for reimbursement. These audits can be internal or external but are usually conducted by hospital staff. Appointed auditors gather related claims to:

• Review patterns
• Assess outcomes
• Identify any issues that need correction for future claims

The Benefits of Conducting Healthcare Audits

• Patient Safety Leads to Improved Outcomes: Hospitals pay to fix errors, which is money they could use for better patient treatment. Audits help providers understand how money is managed. This knowledge allows for proper budgeting and increased investment in proper care.
• ‍Stay Compliant with Regulations: HIPAA is a legal and ethical obligation for hospitals. Audits can help ensure patient information is protected from data breaches or unauthorized access.
• ‍Properly Manage Risks: Audits detect patterns around errors so hospitals can improve quickly and mitigate risks. Numbers and data drive them, so risks are mitigated as accurately as possible.
• ‍Better Oversight of Staff: Audits show critical internal data & can improve accountability and ownership among staff. Some data includes:
  • Who is making decisions
  • Which departments tend to make the most errors
  • Which departments require more training
• Identify Billing Errors: Mistakes will happen when hundreds of bills come in and out of the hospital daily. Audits can uncover problems like late and duplicate bills. 
• Identify Coding Errors & Strengthen Revenue Cycle: Audits can unearth coding issues that lead to excess claims denials. Some examples include out-of-date codes and incorrect inputs. Fewer denials help hospitals maintain a healthy cash flow and prevent uncompensated care.

What to Look for in Healthcare Audit Solutions?

The best solution for audit management is often software-based. These configurable tools bring all audit response workflows into one database. An ideal software should have the following characteristics:‍

• Automation: Manual tools are subject to human error and require tedious data entry tasks. An integrated system designed for automation eliminates the need for manual processes.
• Standardized workflows: The software should be customizable to your hospital's technical capability. It should also conform with your internal audit and denials process. When it comes to health system audit management, there is no one-size-fits-all.
• Real-time work lists: Team members should know who is assigned to work on which task and when. This information should be updated in real-time. Real-time updates help team members achieve benefits like:
  
  • Meeting more deadlines
  • Better understanding priorities
  • The ability to respect others' workloads
• Data integrity: One of the main perks of audit management software is greater confidence in data provided to outside auditors. In past processes, data may have required triple and even quadruple-checking. Quality software provides peace of mind that the right people receive the right information. The result is saved time and effort.

All these features (and more) exist in Audit & Denial Tracker, the most powerful, comprehensive audit management and response solution available in the market today. Featuring enhanced case management, claims and remittance file interfacing, electronic document transmission, payer contract tools, and reporting. Click here to learn more about Audit & Denial Tracker.