Back to the Basics: How to Do an Internal Coding Audit

Internal coding audits are an important tool in any hospital’s compliance program. They illuminate potential areas for corrections prior to scrutiny by payers and regulators, which can help reduce payer denials and protect revenue. Additionally, performing regular, ongoing internal auditing can improve clinical documentation and coding initiatives, enhance data integrity, and increase communication across the organization.

Not only do they reduce risk, but internal coding audits can increase a hospital’s financial health at a vital part of their revenue cycle. Auditing is a proactive step to address the potential for missed dollars due to such things as undercoding, lost charges, lack of coder training, and poor documentation.

Step 1: Determine What Types of Records to Review

  • Check your case mix – What are your top 10 DRGs? What are your top 10 procedures performed in the facility for inpatient and for outpatient services? What are your high volume/high risk diagnoses and procedures?
  • Check your facility’s PEPPER (Program for Evaluating Payment Patterns Electronic Report) report – The report gives provider-specific Medicare statistics for target areas that are often associated with improper payments due to billing, DRG and/or admission necessity concerns.
  • Consider any specialized audit focus – such as HAC/PSI, HCC reviews, and charge capture audits.
  • Determine payers to auditMedicare (MS-DRGs), APR DRGs, mix of all payers, etc.
  • Check current Office of Inspector General (OIG) reports and annual work plan to target some of the areas of OIG focus.
  • Include a random sample of records which can often provide some unexpected results.
  • Include types of accounts for which deficiencies were found on prior external audits or payer denials.

Step 2: Determine Volume of Records and Frequency to Review

  • Sample size should be statistically valid for best results and is usually based on a percentage of volume, generally 10% of the case volume.
  • Be sure to include a representative sample of each coder in the audit.
  • Determine frequency of auditing by individual facility based on overall volume (higher volume may require more frequent reviews), previously identified problem areas, and other audits conducted within the facility outside of Health Information Management (HIM) department.
  • Quarterly reviews are recommended, with at least one annual external audit in order to validate internal audit findings/process.
  • Whether an audit is retrospective or concurrent is dependent on individual hospital resources for holding up the bill while auditing concurrently versus re-billing if variances found.

Step 3: Analyze Results

  • Establish a method for tabulating variances; consider weighing critical discrepancies (e.g. DRG impact) heavier than noncritical discrepancies (e.g. minor secondary diagnosis with no impact).
  • Calculate coder specific and hospital accuracy rates.
  • Establish an acceptable accuracy rate; traditionally 95% is the standard.
  • Identify root causes of coding discrepancies and areas of improvement.
  • Utilize and base audit findings on official coding guidance with consideration of payer requirements.
  • Assess financial impact of the audit.
  • Allow for coder feedback and establish a rebuttal process.

Step 4: Corrective Action and Training

  • Create a comprehensive final report outlining specific variations with recommendations for improvement and suggestions for education, quality control, and documentation.
  • Review findings with all pertinent staff and departments including coders, clinical documentation improvement department, compliance officer, and revenue cycle staff.
  • Formulate a corrective action plan for improving any identified areas of concern.
  • Provide education and training for any identified areas needing improvement both individually and department wide.
  • Identify any problematic areas which may warrant intensified review.
  • Re-bill as appropriate for findings that have impacted reimbursement.
  • Use audit results to promote and enhance physician documentation initiatives.
  • Establish and standardize a plan for auditing and coding compliance.
  • Formulate a clear outline of the process incorporating all factors noted above.

Step 5: Get a Fresh Set of Eyes

CMS and the OIG recommend regularly having your coding audited by an outside reviewer. These reviews offer several benefits:

  • Provide an unbiased, independent evaluation of your coding.
  • Findings may be received and accepted easier when provided by an outside source.
  • Establish a set schedule for review.
  • Allows for no interruption in your current workflow or time commitments in having to perform your own audits.
  • Outside reviewers provide a different perspective and have additional expertise in areas you may not be familiar with.

Partnering with a third-party like MRA can make sure your coding is compliant and your revenue is secure. If you are ready to continue the conversation, contact MRA today.

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AHIMA Approved

This program has been approved for continuing education unit(s) (CEUs) for use in fulfilling the continuing education requirements of the American Health Information Management Association (AHIMA). Granting of Approved CEUs from AHIMA does not constitute endorsement of the program content or its program provider.