Ten Value Added Audits Bringing in the Money. August 31, 20092009 AHIA Annual Conference 2 Agenda ...

Ten Value Added Audits Bringing in the Money

August 31, 20092009 AHIA Annual Conference 2

Agenda

Bringing in the Money—Internal Audit as a value added function

Ten value added audits

Reporting on value added contributions


Bringing in the Money

Who is not losing money to:

– Economic pressures?– Eroding margins?– RACs (or the anticipation thereof) and other audits from

government and commercial payors?– Reduced reimbursements?– Increased costs for labor and supplies?– Increased bad debt and charity care?– Increased number of self-pay patients?– Etc, etc, etc?


HFM Magazine, June 2009

54% of 203 hospital financial executives reported negative margins

78% reported declines in non-op revenues

73% reported decreases in days cash on hand

43% reported decreases in patient revenues

60% reported increases in the numbers of un-insured patients

22% had cut programs

77% reduced capital spending


Internal Audit as a Value Added Function

Financial and Operational Audits

Risk based

Focus on controls

– Compliance with regulations and internal policies– Safeguarding of assets– Efficient and effective operations– Reliability of reporting and integrity of data

People, processes, systems


Rules of Engagement

Quick wins

$ not process—Process-intense issues should go to the parking lot

Tight focus, small teams

Brainstorm lists– 2 per quarter = 8 initiatives

Under commit—Over deliver


Ten Value Added Audits

Revenue Cycle– Charge Capture– Contracts– Net Revenue Strategies

Vendor contracts– Purchasing – IT

Outsourcing Opportunities Co-sourcing Opportunities Cost Avoidance Opportunities Contracting reviews—before the contract is signed Labor Opportunities


1. Revenue Cycle—Charge Capture

Start with:

Chart Reviews—Orders, documentation, charges

– This will provide areas for data reviews– Identify your team– Select from IP, OP, Procedural services– Focus review on charge capture, not clinical

documentation (though findings there should be noted as potential compliance issues)



Data Analysis—What’s missing?

1.J code drugs and infusions—if a drug is given, then you should have an administration charge

• J-codes are separately reimbursable • Check Oncology, Emergency Department • Review Infusion chart documentation

– Look for: Missing orders, missing start and stop times (charged in 15 minute increments).

– Key charge terms: For hydration, Therapeutic, Sequential

– See Example (next page)



Missing Initial Hour

Hydration Order $200

Missing Order for Additional

Hydration Hours $64

Missing Stop Time on

Initial Hydration


Additional Hydration


Initial Therapeutic


Additional Hours


Sequential Infusion $134


Concurrent Infusion $78

Hospital 1: # of occurrences 47 170 8 40 71 10 14 1Hospital 2: # of occurrences 58 21 4 2 4 0 0 0

Total: 105 191 12 42 75 10 14 1

Total charge per item: $21,000.00 $12,224.00 $2,400.00 $2,688.00 $18,375.00 $810.00 $1,876.00 $ $78.00

Physician impact: $33,224.00

Clinician impact: $26,227.00

36.5 x $59,451.00 = $2,169,961.50 annualizedTotal overall impact: $59,451.00

Infusion Documentation SummaryTaken over a 10 day period: HP1 (3/12/07 – 3/21/07), HP2 (3/23/07 – 4/1/07)

10 days / 365 days a year = 36.5 ten day periods



E&M Bell Curve

0

200

400

600

800

1000

1200

Level 1 Level 2 Level 3 Level 4 Level 5

E&M Levels

Nu

mb

er o

f V

isit

s

Physician

Facility

2. Facility fees (for ED and provider based services) Check E&M facility bell curves for alignment issues Review your facility charge tool



3. Supplies—for major procedural areas (Cath Lab, Interventional Radiology, Implants) check procedures against a standard supply listing; compare to CDM; test billings

4. Check Pharmacy spend listing (what you buy) against CDM (what you charge for)• How do you charge for new drugs not currently in the Charge

Description Master?• How do new drugs get on the Formulary?• Can providers order off formulary? How do they get billed?• Audit for discrepancies



Other Reviews

5. Check Zero Charge report (patient showed for services but no charges)

6. Check Insurance denials

7. Check payor contracts for carve-outs

– High tech drugs, implants– Check correct assignment of revenue codes to ensure

payment



8. Check expected to actual reimbursement reports

– Process for collecting underpayments• Internal? External?

– Check trends over years – Is this included on a Revenue dashboard?

• If it is not reported, it does not get resourced, addressed



Check your infrastructure (this is process work)

– Training for charge entry/capture/reconciliation• Are there current training materials available?• Are they used to train new employees?

– Fixing errors—credits, mapping, wrong patient, date• Are there instructions for how to fix the most common errors?• Is this done on a timely basis?

– Daily, monthly reports, revenue variance reporting, actual to budget

– Charge description master (CDM) maintenance, compliance checks for coding, completeness, accuracy,

– Pharmacy CDM—check for accuracy of billing quantities• Compliance Issue


2. Revenue Cycle—Contracts

Inventory of Revenue Cycle Contracts

– When was the last time they were put to bid?– How current are the terms and conditions?– When was the last time the rates were negotiated?– How much revenue cycle work is done in house versus

contracted out?



Outsourced collection of large $ accounts:

To speed up collections

Effect of implementation of Payment Caps

Admit Date Total Charges Payment Amt Invoiced Amt Fee Cap of $5,0005/25/2007 $236,631.69 $77,823.25 $11,673.49 $6,673.499/27/2006 $265,326.40 $77,230.46 $11,584.57 $6,584.5712/8/2006 $209,032.28 $62,236.91 $9,335.54 $4,335.544/24/2006 $165,323.00 $59,469.61 $8,920.44 $3,920.442/9/2007 $151,366.00 $58,205.89 $8,730.88 $3,730.886/7/2007 $222,154.00 $56,924.91 $8,538.74 $3,538.74

7/16/2007 $189,432.05 $55,967.49 $8,395.12 $3,395.124/30/2007 $177,898.10 $52,650.82 $7,897.62 $2,897.623/5/2007 $180,489.43 $52,511.44 $7,876.72 $2,876.72

Savings $37,953.12



Month Total Payments Net Fee Cap Net Payments Invoice @ 15% Invoice @ 12% Net BenefitMarch 537,807.22$ 208,492.81$ 329,314.41$ 49,397$ 39,517.73$ 9,879.43$ April 509,814.05$ 226,449.43$ 283,364.62$ 42,505$ 34,003.75$ 8,500.94$ May 214,464.93$ -$ 214,464.93$ 32,170$ 25,735.79$ 6,433.95$ June 538,305.00$ 245,854.45$ 292,450.55$ 43,868$ 35,094.07$ 8,773.52$ July 434,875.50$ 142,242.73$ 292,632.77$ 43,895$ 35,115.93$ 8,778.98$ August 222,696.45$ 65,556.58$ 157,139.87$ 23,571$ 18,856.78$ 4,714.20$

Total Net Benefit (YTD) 47,081.01$ Number of Months (YTD) 6Annualized Net Benefit 94,162.03$

Large $ accounts: To speed up collectionsEffect of re-negotiation on contract rates (for example: from 15% to 12%)



Medicaid Pending

– Check contract—terms and conditions; incentives• # of accounts submitted• # converted to Medicaid (Medicaid pays better than self-pay)

Bad Debt

– Check contract—terms and conditions– Consider two firms—splitting alphabet; creating

competition


3. Revenue CycleNet Revenue Strategies

Gross Revenue

– Rates (Charge Capture)• Services

• Prices

– Volumes

Net Revenue

– Contracted rates• Carve-outs

• % of charges payments

– Collections• Cash collections

• Insurance payments

• Patient payments

– Bad Debt– Charity Care– Denials


3. Revenue Cycle— Net Revenue Strategies

1. Contract Carve-outs

– Check contracts for carve-outs (pharmacy, medical devices, supplies—high cost/high tech)

– Audit for revenue code assignment (generally processed based on revenue code)

2. Increase Point of Service cash collections

– Improves AR– Reduces billing/collection expenses– Reduces bad debt– Determine total current and total opportunity for POS

cash collections



3. Maximize clinical appeals

4. Convert off-campus services to hospital based

– Bill under Part A versus Part B = increased net reimbursement

– Compliance with Medicare criteria



5. Check packaged payment arrangements

– When were they last updated?– Review cost/contribution margin

6. Monitor large write-offs (specific review of all write-offs over a certain limit)

7. Review all Admin Adjustments

– Customer Service– Residency Program– Legal– Other


4. Vendor Contracts—Purchasing

Bulk purchasing

– Check for high cost items in purchase quantities of 1• Compare quantity of 1 price to price for multiples• Example: Pacemakers at $28K for one; $16K in any quantity• Report savings for buying in multiples• See Example (next page)

Purchase thresholds (if you hit a threshold the price is reduced—timing intervals, monitoring, reporting)

– End of quarter discounts



Total Est Est Medical Devices Bulk Bulk

Savings % Savings $ 1 2 3 4 5 Total3.00% 3% 3% 3% 3%

1,485,020 2.50% 37,126 38,239 39,386 40,568 41,785 43,039 203,017 2,593,427 2.50% 64,836 66,781 68,784 70,848 72,973 75,162 354,548 2,592,747 5.00% 129,637 133,526 137,532 141,658 145,908 150,285 708,910 3,421,377 5.00% 171,069 176,201 181,487 186,932 192,540 198,316 935,475

234,535 5.00% 11,727 12,079 12,441 12,814 13,199 13,595 64,127 343,724 5.00% 17,186 17,702 18,233 18,780 19,343 19,924 93,981

10,670,831$ 4.04% 431,580$ 444,528 457,864 471,600 485,748 500,320 2,360,058$

Bulk buys 2,360,058$

Growth for Years . . .



Clinical Engineering

– Warranty costs versus service contracts• Compare equipment purchases (with warranties) in last year to

service costs

– Compare service contract costs to utilization of service– Check for service contract payments on equipment no

longer in service

Universal Garbage pick-up

– Check costs for scheduled pick-up versus cost for pick-up based on capacity/weight/volume

• MHS experience = 33% fewer pick-ups; $127K savings


5. Vendor Contracts—IT

Software licenses—inventory of software used to payments

– Microsoft licenses• Added licenses over time, by entity—re-negotiated for a system

license; saved over $500K

– Check for payments on software no longer in service

Computers and peripherals

– Terms– Vendor bids– Bulk purchases– Standardized computers


5. Vendor Contracts—IT

Vendor discounts/rebates

– Good install discounts– Volume discounts (# of users, devices)– Consulting expenses with build/implementation

• Audit expenses

Telecommunications

– Pagers—check usage by pager; if not used in the last X months, delete from inventory and billing

• # of companies used—move to one for larger discounts


6. Outsourcing Opportunities

When to Outsource?

– Lack of specific expertise– Specialized area– Not frequently reviewed– Politics

Manage your consultants

– Define scope of project– Define expectations – Define report requirements– Manage timeline



Tax reviews (state specific)

– Property taxes—exemptions for hospital services– B&O taxes—review for intercompany transactions– Sales and Use tax exemptions– Tax credits

• Training programs• Research, R&D• UBI—Work opportunity credits



Medical Devices

– Purchasing– Inventory management– Billing– Compliance

Telecomm reviews—usage, billing

Utility reviews—usage, billing



Check out vendors at this conference

Contingency vs. Negotiated fee arrangements

Check references

Give references



7. Co-Sourcing Opportunities

When to Co-Source?

– When you can learn from an expert and expect to then provide the audit services in-house

– Audit considerations• Size• Complexity• Time

Clearly define roles



7. Co-Sourcing Opportunities

Major construction projects (see New Perspectives Feb 2009)

– Audit to contract. – Identify unallowable/unsupported costs (see example).– Tie out labor rates to union contracts.– Self-performed Work

IT Reviews and/or System Optimization projects

– # of servers

IT Penetration testing

Data quality reviews (clinical data analysis)


Construction – unsupported costs

PA # Inv. Date Vendor Name Inv. Total Amount Amt. Questioned Lot Sell Reason1 1 8/1/2007 Computer Vendor $6,465.57 $6,465.57 Computers2 1 9/7/2007 Computer Vendor 390.78 390.78 Computers3 16 9/4/2008 Petty Cash 494.37 494.37 Incidentals - Golf, Parking, QFC, Tolls, Lunch4 20 11/14/2008 Restaurant 30.81 30.81 Incidentals - Restaurants7 22 3/3/2009 Supply Vendor 308,375.00 308,375.00 Lot Sell - unsupported8 22 3/6/2009 Supply Vendor 26,207.00 26,207.00 Lot Sell - unsupported9 22 3/9/2009 Supply Vendor 70,500.00 70,500.00 Lot Sell - unsupported

11 23 3/25/2009 Supply Vendor 338,792.00 338,792.00 Lot Sell - unsupported13 15 7/24/2008 Office Vendor 4,183.37 4,183.37 Office Equipment - 36" ink jet printer14 23 3/20/2009 Office Vendor 108.99 108.99 Office Equipment - CHAIR15 9 2/14/2008 Office Vendor 5,110.19 406.37 Office Equipment - Copy Machine Lease16 18 10/21/2008 Office Vendor 16,794.18 406.37 Office Equipment - Copy Machine Lease20 5 9/7/2007 Office Vendor 653.38 653.38 Office Equipment - desk jet and laser printers21 5 9/7/2007 Office Vendor 2,777.40 231.45 Office Equipment - live security bulk renewal22 5 9/11/2007 Office Vendor 1,647.38 494.22 office equipment - NEC ITR24 16 6/25/2008 Office Vendor 303.07 303.07 Office Equipment - Nikon Camera and flash drives25 21 1/23/2009 Office Vendor 130.80 130.80 Office Equipment - Office Chairs26 18 10/15/2008 Office Vendor 103.00 103.00 Office Equipment - programmed radio27 23 3/30/2009 Office Vendor 103.00 103.00 Office Equipment - programmed radio28 6 9/25/2007 Office Vendor 275.00 275.00 Office Equipment - Red VIP desk phone29 23 3/13/2009 Office Vendor 100.28 100.28 Office Equipment - shredder30 6 10/29/2007 Tool Vendor 16.69 16.69 Small Tools -- 31 18 10/15/2008 Tool Vendor 5,654.60 564.60 Small Tools - 2 socket sets, fish tape, brush32 23 3/27/2009 Tool Vendor 1,633.50 1,633.50 Small tools - 30 pipe threaders33 16 8/27/2008 Tool Vendor 96.31 47.93 Small Tools - 500w Gladiator Light64 16 8/21/2008 Tool Vendor 570.25 570.25 Small Tools - string lights and service lamp65 14 6/10/2008 Tool Vendor 565.83 39.35 Small tools - torch kit66 5 10/3/2007 Tool Vendor 150.58 150.58 Small tools - voltage detector; hot stick67 23 1/20/2009 Trailers 6,093.61 6,093.61 Temporary Facilities - Trailers68 16 7/10/2008 TOLL 14.45 14.45 Travel - Edmonds/Kingston Ferry69 9 1/1/2008 Expense Reimbursement 55.86 55.86 Travel - Mileage72 19 12/2/2008 Expense Reimbursement 181.35 181.35 Travel - mileage73 19 9/24/2008 Expense Reimbursement 4.00 4.00 Travel - toll74 1 8/13/2007 TOLL 14.45 14.45 Travel - Tolls75 7 12/14/2007 TOLL 11.55 11.55 Travel - tolls76 21 1/28/2009 TOLL 60.00 60.00 Travel - Tolls77 21 1/16/2009 TOLL 1,063.69 1,063.69 Travel - Tolls & Transponders78 19 9/25/2008 TOLL 72.00 72.00 Travel - transponder

various Small tools @ 2% of labor, not in contract 4,458.29 4,458.29 various Safety, included in ovhd 4,458.29 4,458.29 various Vehicle charge included in ovhd $490.00 490.00 various Insurance - unsupported 12,950.14 12,950.14

$47,831.41 $743,874.00


8. Cost Avoidance Opportunities

External Audit support

Fines and Penalties

Legal and Finance support (in lieu of attorneys and consultants)

– Establish internal billing rate– Track hours– Obtain internal agreement


9. Contracting Reviews—Before the Agreement is Signed

Where you don’t have the specific expertise,

Buy it, in advance!

Construction contracts

– Reviewed by external consultant experienced in construction work during the negotiations

– Savings in rates, terms• Cost 28K; savings $2M+

Management Services Agreements

– Validation of market rates (property purchases and sales; management service fees; broker fees)

• Cost $16k; savings $240K


10. Labor Opportunities

PTO usage (balance sheet impact first year)

– Audit use it or lose it limits; # of exceptions

Overtime usage (address top users)

Agency use costs

– Audit use over time, by department – Check overtime use and sick use in conjunction with agency

Eligible dependent audit (out-source)


10. Labor Opportunities

Audit health insurance use

– Utilization trends– If self-funded and using a third party administrator, ask

for SAS 70 and audit if needed

Reduce travel expense (time and money) by optimizing internal webinars and teleconferences


Other

Read New Perspectives—many great ideas

Grant Writer (should have at least 4:1 payback)

Contract Manager (for negotiations, management, FMV documentation) (should have payback)


Summary

Current hot topic– Many lists/many opportunities

Share

Focus on returns

Report savings– Taking and giving credit


Contacts

Catherine Wakefield

– VP Corporate Compliance and Internal Audit– [email protected]– 253-459-8002

Nate Morgan

– Compliance/Internal Auditor II– [email protected]– 253-459-8015

Ten Value Added Audits Bringing in the Money. August 31, 20092009 AHIA Annual Conference 2 Agenda ...

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