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The Art of the Internal Billing Audit


You may be afraid of audits, but if you aren't auditing your own billing procedures, you're probably losing a fortune. Here's how.

Your practice works hard to monitor revenue and expenses, invest regularly in staff training, and implement managerial practices that help to increase productivity. But if you don't keep tabs on your billing and coding activity, all your efforts may be for naught. Indeed, diagnostic and procedure codes are the lifeblood of the physician practice, the numeric system used to ensure your doctors get paid fairly for the work they do. Your billing staff, of course, submits such codes to payers along with pertinent patient information in their claims for reimbursement.

On both fronts, however, opportunity for human error abounds. Doctors who don't keep current with coding changes, for example, often undercode, which reduces revenue to the practice - or overcode and expose the practice to external audits, take backs, or even charges of Medicare fraud. Billers, on the other hand, might just as easily transpose a number in the CPT code, leave off dates of birth, or omit a prefix or suffix in the patient's name, all of which will result in a denied claim.

Watching the henhouse

Whether you perform such functions in-house or hire a clearinghouse to do it for you, the onus is on you to validate the accuracy of your charges. To that end, Sami Spencer, CEO of Missoula Bone & Joint and Surgery Center, an eight-physician practice in Missoula, Mont., performs an internal billing audit once each quarter to spot errors and opportunities for physician training. "We'll take 10 or more charts for each provider and our coders will look at the documentation versus what was filled out and educate that provider if they've undercoded because they missed a review of systems or because their documentation would have supported a higher level of reimbursement," she says. "If they overcoded, they'll tell them why and what was missing." Any billing errors uncovered get handled according to the payer's guidelines.

Spencer's billing staff, most of whom are certified coders, also work proactively, performing careful presubmission monitoring of physician charges before sending claims to payers. "A lot of providers aren't always educated on coding, so if there's a question with the code selected by the physician, based on their documentation, or if it's complicated, our coders ask that provider before it gets submitted," says Spencer. "The documentation has to match with the code."

As you embark on an internal billing audit, the American Medical Association says you should designate a person on your team to spearhead the initiative, someone well-versed in coding and billing and documentation requirements. You should also identify the type and size of the sample to be drawn. (Will it be random, controlled, include all payers or a select few?) Also identify the risk areas you wish to monitor.

Billing reports are key

A good starting point is to monitor monthly reports that help spot reimbursement trends early on. For her part, Barbara Sack, executive director of Midwest Orthopaedics in Shawnee Mission, Kan., tracks the growth in net collection percentages for her practice. She also calculates the practice's days in accounts receivable and trends the results against the same month a year ago, along with her practice's 3-, 6-, and 12-month averages. That, in turn, gets benchmarked against the prior year results and the Medical Group Management Association's national data. "It's pretty easy to spot trends when you do it that way," says Sack. "If we see one developing we start talking about it and discussing what's going on and why. It's an ongoing open discussion between myself and the billing manager and the billing office."

If you haven't done so already, Michele Olivier, a billing and coding consultant for the Pinnacle Physician Resource Group in Centennial, Colo., suggests reaching out to your practice management software support team to find out what they can offer by way of reporting capabilities. "You should have a system where you can track your revenue cycle for each patient backwards completely from the time the patient schedules an appointment all the way through when you get paid in full for that service," she says.

Though the volume of data can be daunting, you need not audit every claim or process within your billing system. Go for the areas with the biggest potential return. For example, it's easy enough to track how many patient appointments were charged out during the most recent week or month. "Did every patient who got seen by every physician actually get charges put into the system?" says Olivier. '"If no one's watching to be sure you're matching the number of encounters with the number of appointments, you could have some missing opportunity for reimbursement."

Next, she suggests, run a report that shows how your CPT codes are being reimbursed and compare that to your contract with individual payers to be sure they're paying what they owe. "You would be surprised," says Olivier. "Some of the big payers try pretty hard to get away with stuff if you don't watch them. That's another place where you get a big bang for your buck."

Benefits of benchmarks

The American Medical Association further recommends you review the frequency of your physician services over a one- to six-month period and compare it with that of your peers. Most medical software can produce an evaluation and management (E&M) frequency report. You can obtain the most current Medicare E&M frequency data from your Medicare carrier, the AMA notes, which may help you determine whether you are overcoding or undercoding E&M services. Outliers may be flagged for audit by the Office of the Inspector General and Medicare Recovery Audit Contractors (RACs).

As part of your internal audit, Olivier also suggests you take a look at your CPT codes to be sure nothing is being written off at 100 percent. "You need to make sure that there's nothing you're giving away for free - no services you're performing that you're not getting paid for," she says. "If you keep writing that off that means you're not coding correctly."

Going forward, you should have a process in place for dealing with claims that get denied or paid incorrectly. And if you're with a larger group, you may also wish to create a policy for addressing providers who consistently code poorly, says Cindy Dunn, a consultant with MGMA Health Care Consulting Group. "If you're a group of six or 12 and you have one provider who doesn't get their notes in on time or doesn't do them at all, or repeatedly miscodes them, you need a system to address that," she suggests.

Though the process is labor intensive, regular internal billing audits can help improve both cash flow and compliance within your practice. The effort, says Olivier, is well worth the reward. "Every penny is worth it," says Olivier. "Any place in the revenue cycle where there could be lost revenue is a place where we should be looking to stop leaks."

Shelly K. Schwartz, a freelance writer in Maplewood, N.J., has covered personal finance, technology, and healthcare for more than 17 years. Her work has appeared on,, and She can be reached via

This article originally appeared in the April 2011 issue of Physicians Practice.


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