The Typical Process of a Recovery Audit

SpendMend Team

Written by: Kylee Savage, Marketing Manager

Every Recovery Audit firms offers a slightly different approach, but the general approach of most firms follows a similar pattern:

  • Discovery —Each firm goes through an investigative or discovery phase in which the Recovery Audit firm will learn about the client, their process, and their preferred recovery parameters.
  • Planning — Leveraging information from the “discovery” phase, the audit firm determines and presents a strategy for identifying and recovering payment errors. This phase outlines all tasks, timeframes, and schedules for future client review meetings.
  • Data Collection – The Recovery Audit firm provides client’s IT with templates for pulling the necessary data for the review.  This process is quite well established and should not require much time from client’s IT staff.
  • Auditing — Through automated and manual efforts, the Recovery Audit firms runs trend and anomaly analysis to identify potential errors.  It is at this point where industry familiarity plays a big part.
  • Recovery —The Recovery Audit firm works directly with suppliers (and client’s staff when needed) to validate and prepare claims for deduction against future payments.  When the supplier has a debit balance, auditors will secure a check from the supplier.
  • Recommendations —Audit firms offer recommendations from their findings to help the client patch the gaps that  caused the financial leakage.

For more information regarding the benefits of using a Recovery Audit firm to help boost your hospital’s bottom-line, or to drive new insights and visibility into your Cost Cycle, contact SpendMend today

Department of Health and Human Services-Office of Inspector General Released a New Report on Hospital Compliance for Reporting Cardiac Device Credits

SpendMend Team

Written by: Alan Brander, FACHE, abrander@spendmend.com

As a follow up to previous audits of hospital compliance with Medicare requirements for reporting cardiac device credits between 2004 and 2016, the OIG conducted a new audit to assess if hospitals had shown improvement. In the primary audit, the OIG found an estimated 1.5 billion dollars in overpayments which revealed a dire need for a subsequent audit.

For this audit, the OIG reviewed a list of warranty credits issued between January 1, 2015 and June 30, 2017 by the top three cardiac device manufactures to Medicare recipients, and matched them against claims submitted by hospitals for cardiac device replacement procedures. OIG reviewed 6,558 claims from 911 hospitals and determined that 3,233 of these claims or nearly half (49.2%) of them were not correctly reported. This resulted in overpayments of $33 million. This was not the only troubling discovery other key results included: 754 of those Medicare claims at 405 hospitals were issued as ‘reportable warranty credits’ by the manufacture at least 10 days prior to them submitting the original claim. In addition, the report found that 817 hospitals were issued 2,643 ‘reportable warranty credits’  (81 percent) within 90 days of the replacement procedure.

The bottom line revealed that hospitals are not taking the appropriate action to identify potential overpayments. The report clearly shows that the audited hospitals did not have adequate internal controls and procedures in place to correctly report on the initial or subsequent resubmitted claims of the manufactures warranty credits they received. Hospitals did not have adequate internal controls for tracking and reporting overpayments. The underlying causes are summarized more thoroughly below:

  • Billing systems that were not updated to reflect changes in 2014 regarding new condition and value codes. Hospitals that have made those updates in their systems are not using the code when updating the UB-O4 either on original or resubmitted claims
  • Lack of written policies and procedures or a lack of following those that are in place.
  • Insufficient communication between departments when receiving reportable claims. The audits clearly show that hospitals are getting 25% of the credits in time to submit them on the original claim and 81% on the 90-day resubmission.
  • Inadequate compliance testing by the hospitals. Contributing factors include: lack of internal resources or expertise, and difficulty collecting the data both from the facility and the vendors.

Despite CMS making significant efforts to educate hospitals regarding requirements for reporting manufacture warranty credits, most hospitals are not correctly returning overpayments. The OIG report gives several recommendations on how to improve compliance, but for now CMS continues to rely on hospitals to report overpayments and using onsite audits to assess compliance.

 

Source: Hospitals Did Not Comply with Medicare Requirements for Reporting Cardiac Device Credits, A-01-18-00502 (hhs.gov) by Amy Frontz Deputy Inspector General for Audit Services November 2020.

COVID-19 Critical Challenges Told By Healthcare P2P Staff

SpendMend Team

Written By: Amanda Geelhoed Papach, Marketing Director at SpendMend

A few weeks ago, SpendMend created a COVID-19 Idea Exchange for Healthcare Finance, Internal Audit, Supply Chain, and Accounts Payable Departments. This Idea Exchange survey requested input about how the COVID-19 pandemic has impacted their work environment and processes. We received many thoughtful responses from healthcare professionals from over 31 major U.S. hospitals. The data gathered was eye-opening, meaningful, and thought provoking.

The pandemic has affected every facet of the healthcare industry, but the answers to one key open-ended question needed to be shared. The question “What are the critical challenges you faced throughout the COVID-19 outbreak?” I have broken the answers down into categories, and hope these responses show that we are in this together and other hospitals are experiencing the same concerns you are.

 

  1. Staffing Issues

    1. Limited Staff – “We had limited staff so the first thing we did is re-prioritize tasks within the department.  Essential tasks were prioritized highest.  We then set parameters around non-essential tasks and assigned targeted dates.  While we still have a backlog on some of the non-essential tasks – we are functioning at normal level on our essential tasks.”
    2. Furloughed Staff – “Until this past week this was not an issue for us but with the additional financial impact, we are being asked to furlough 20% of our team on a temporary basis.  We have decided rather than to completely shut down for a week or fully furlough an associate we would rotate one staff member each day which provides the same overall financial result yet provides us coverage for our internal customers and vendors.”

  2. Working Remotely

    1. Working from Home – “It took a while for us to get settled in with remote access but once we did, we are functioning at probably 75% of normal.  We froze all our automation projects and our system conversion timeline has been extended due to limited resources all around the hospital.”
    2. Staff Communication – “I would have said our staff communication was average before COVID.  I think we have improved our overall staff communication using video conferencing.   Our meetings are shorter with better participation.  Each participant adds to the agenda and we go around the Zoom room and address all the points.  We document the notes while we are on the call and it’s been a great way to stay connected.”
    3. Motivating Staff – “Working remote really makes this a challenge.  We made an effort to make it personal and gave everyone a chance to comment on what they liked and what they didn’t.  We took the positive responses and incorporated some of those recommendations into our overall process and the ones we were challenged with we discussed various ways to fix the issue.  The team was very open to discuss change and I think motivated them to openly communicate.”
    4. Remote Access – “This has been extremely challenging.  First, we could not get remote access for all the users.  Then we had connectivity issues.  After about 2 weeks of difficulty we were finally able to fully connect to our systems.”  
  3. Exception Processing – “Our non-match invoices created the biggest challenge for us.  Our workflow routes the match exceptions to procurement after AP has performed initial review.  With procurement focused on PPE we started to backlog exceptions.  Procurement and AP worked together to develop new exception limits and prioritized the larger exceptions which procurement agreed to turn within 3 days. Those transactions under the new match exception limit were paid and a variance account established.  We notified our vendors that due to COVID -19 we would be processing transactions and tracking exceptions.  When we get back to full staff, we will reconcile those vendor’s variance starting with the largest supplier balance.” 
  4. Invoice Approval – “Our invoice approval is automated for the most part, but we are finding delays in obtaining approval.  Because of this we have noticed the vendor call activity increasing and duplicate invoices being presented from suppliers.”
  5. Interacting With Suppliers – “At first we found it difficult to reach our normal vendor contacts but over time this improved.  We just tried to prioritize critical tasks and limited our outreach.”
  6. Third Party Invoice – “This was a real challenge.  We outsource certain functions that are performed offshore which was totally shut down.  We had to scramble to get resources in place to cover the gap in our process. One thing is for sure, we are looking at each of our processes to ensure there is a fall back option.”
  7. Pause Projects – “COVID paused all projects we have going on.”

We don’t know how COVID-19 will change healthcare, but we do know that as a healthcare community we must work together to support each other. As critical challenges continue to change and grow – know that you are not alone in your experiences #weareinthistogether.

The Fear That May Be Holding Some AP Professionals Back

SpendMend Team

Written By: Jill Ulliman, System Director, Accounts Payable at OhioHealth Corporation

I recently shared a story with a long-time colleague from the Recovery Audit firm, SpendMend, about a session I attended this past year at the annual IOFM conference.  After recounting the story for my friend, he asked me if I would be willing to write a guest blog for their website.  He is in sales and he insisted that my story hit directly on the single biggest obstacle he faces when working with prospects and potential clients.

Here’s what happened…  The Procure-to-Pay session was covering Post-Payment Audit and in an effort to engage a room of about 50 AP professionals, the speaker asked us to raise our hands if we were using a Recovery Audit firm or had experience with post-payment audits.  To my surprise only about 10 hands went up.  The speaker was a little surprised by this too; she quickly followed up with a couple of informal questions trying to understand why the vast majority of the room was avoiding a Recovery Audit.

After a few minutes of lively conversation, an AP manager boldly stated what was on their mind:

“I’m concerned my CFO would think I’m not doing my job if there happens to be a high volume of findings.”

As the others nodded in agreement, it was obvious that the AP professionals in the room had a fear that they might be exposed by the findings of a Recovery Audit, and they worried it could reflect poorly on their team’s quality of work.

My first thought was “WOW!” as I considered all of that lost revenue for their organizations.  I then thought ignoring the issues that could cause overpayments doesn’t make them go away and it certainly doesn’t put preventive measures in place to stop the bleeding.

I’ve engaged various firms in post-payment recovery audits over the years. I admit my ego may have been a bit bruised when I saw the executive summary after that first audit and how easily some of the overpayments seemed to occur.  I wanted to think my department’s processes were bulletproof.  Well guess what? All AP departments are vulnerable (typical recovery audits can yield 1.5% of spend in potential recoveries) and many things are outside our immediate control.  However, based on what we discovered, many things are within our control.   It was my call-to-action to close some process gaps in our operations.

I also have a tendency to be slightly (ok, maybe considerably) competitive.  So I shared the results with my team and put many of the recommendations into place.  I then challenged the team to help ensure that overall recovery findings would be less than the previous year.  Year over year audit findings declined until our organization was less than half in percentage of recoveries based on spend from the 1.5% industry average.

That’s the story our financial leaders want to hear!

I know that the need for post-payment audit recovery can create a certain perception from associates not as familiar with the process and why it is necessary.  I wanted to help dispel some of those beliefs by presenting our experience to our organization’s finance team (about 300 associates) at a recent retreat.

This is how I led into the presentation:

Post-payment audit ensures that terms and conditions of all purchases negotiated with suppliers are captured appropriately. The review provides an independent third-party evaluation of our procurement cycle, validates departmental controls and recaptures lost revenue.

If we do not review supplier payments on a regular basis, we are at risk of not recovering funds owed back to us as well as not having good data to hold suppliers accountable for contract compliance.

Many of those seasoned finance professionals were surprised to learn that ‘payment errors’ represented only 0.022% of our audit sample and the majority of claims were from pricing, rebates, and RTV credits.  Imagine if those claims were never recovered!  We just don’t have direct visibility into those transactions from the AP standpoint.

We have gotten so much value from recovery audits, both financially and operationally, that we decided to step up the timing.  In the past we would engage in audits every 2 to 3 years but the drawback was that we were always working with latent findings and credits that were from previous budget periods.  A solution was presented that performs continuous monitoring of more current activity (beyond 90 days versus 2-3 years) that helps us uncover erroneous payments and unidentified credits in the current budget period.  It also provides the visibility into process issues or supplier behavior that we can react to more timely for prevention.

While I don’t endorse any firm in particular, (much like this blog) I have a high regard for the practice itself.  I make sure I leverage the data from the executive summaries as well as ask the audit firm for industry benchmarking so that we continue our march toward best in class. (Did I mention I’m a tad bit competitive?)

I know many of you feel my pain when I lament that accounts payable tends to get a rap for being the ‘spenders’ and the transactions fall on the spectrum of being non-value add.  Imagine informing your CFO that you can happily bring lost revenue back into the financial statements.  Trust me, he/she won’t think you aren’t doing your job well; instead you may make an impression for identifying opportunities to control expense and leveraging additional process improvements.

Take my advice, get over your fear, and reap the benefits of a Recovery Audit.  You’ll quickly realize you had nothing to fear in the first place and can leverage audit findings to bring value back to your organization.

 

About the Author

In 33 years at OhioHealth, I have grown with the organization as an agent of change.  During my tenure, I’ve held various Finance positions that led to my current role as accounts payable director.  I have a passion for operational strategy, and I have led my team through Lean transformation with dramatic results.  I strongly believe in developing and empowering my associates so they can be experts at problem-solving and efficiency

Medical Device Warranty Credits & Regulatory Requirements…Is Your Hospital at Risk?

SpendMend Team

Written By: Alan J. Brander, CSO at SpendMend, abrander@spendmend.com

Medical Device warranty tracking and credit payments have become a focal point for the Centers for Medicare & Medicaid Services (CMS), as evidenced by several new requirements in past last ten years. Hospital compliance of those rules are being closely scrutinized by the Office of Inspector General (OIG) through the Office of Audit Services (OAS).

The reason for this focus is twofold:

  • The US Government is the largest single purchaser of implantable medical devices in the world.  Spending approximately $35B dollars per year. In the period between 2012 -2014, Medicare paid $30B for cardiac devices alone.
  • Recent audits show that hospitals have done a poor job of self-regulation and reporting. A NY Times article from May 4, 2017, quoted the Department of Health and Human Services (HHS) OIG audit report; a NY area hospital was required to repay $14M dollars due to overpayments. Audits like this have fueled CMS, which recently announced it plans to recoup $1 Billion in improper payments by 2020 through wide spread audits, according to a new rule that hit the federal register on November 1, 2018.  CMS has also stated that they intend to recoup a subsequent $381 Million in improper payments (at minimum) every year beyond their 2020 goal.

The last 10 years have seen a huge increase in surgically implanted devices designed to decrease morbidity, mortality, and improve patient lifestyle. These devices remain in the patient after the conclusion of the procedure for one or more of the following reasons: organ support (i.e. pacemakers), limb or joint replacement (i.e. hips, knees), or automation of monitoring and therapy delivery (neural stimulators or medication pumps). Many of these devices are high tech and may include batteries and computer chips which can fail, malfunction, or have early battery depletion. Even low-tech devices like hips or knees can fail or be recalled. Manufactures of these devices stand behind their product and provide either free replacement cost or partial money back.

The hospital is required to pursue either a no cost replacement or available credits if the device is under warranty. This is determined by returning the explanted device back to the manufacture for testing. The manufacturer then assesses the cause of the device failure then sends credits as applicable. The hospital is supposed to report the credits they receive and if the amount is greater > 50% of the device cost. The hospital is legally responsible to return those monies to the payor of the original procedure. This is known at the 50% Rule. A second rule, known as the Prudent Buyer Standard states that a hospital owes the warranty money to the payor, even if they do not send the explant for review or if they do not recover the funds.

Regardless of intention, failure to refund the payor for Medicare overpayments puts hospitals in violation of the False Claims Act and will prove an extremely costly mistake.  In 2019 the U.S. government increased the penalties to a per violation charge of $11,463 plus 3X the amount of the violation in question – to a maximum of $22,927 plus 3X the amount of the violation in question.  The determination of how and why a violation would trigger a minimum versus a maximum violation was not reported in the update.

To put this is more relatable terms, in a recent use case at a SpendMend client, a Southeastern regional healthcare system with only 1 location and 256 Beds incurred fines of nearly $2 Million.

This seems straight forward…right?  Let’s summarize, if an implantable device is recalled, malfunctions, or fails: send the device back to the manufacture.  The manufacturer will determine the cause of failure and issue a credit if the device qualifies. If the hospital receives a replacement or a credit, which they are to keep, unless it is equal or greater than 50% of the device cost. If the 50% Rule applies, then they must send those monies back to who paid for it. If hospitals do not follow these processes, they will be forced to pay significant penalties and fines.  The OIG is reporting that hospitals are not only failing to properly report, but also, they go so far as to say that hospitals lack the internal procedure and control to manage this process.

The complexity of the explant process, vendor return requirements, and the lag time of 3-6 months to get a determination, is the root cause of many of these errors. There are several hospital departments involved: clinical, pathology, supply chain, compliance, hospital finance, patient billing, and coding. Each has a part, but rarely does anyone own it. Manufactures have several hoops to go through as well as documentation you must provide before they to proceed with testing. The hospital gets a credit check several months after the device has been sent. The Patient Billing department has no idea a credit was received and rarely told to revise a bill and return a credit.

Here are some suggestions to decrease your risk.

  • Find a third-party firm that provides tracking and oversite. The tracking is only as good as your staff’s charting. The oversite and auditing are important to catch what is missed.
  • Globally, develop a system wide policy to guide which devices to return, and a procedure that clearly outlines each departments responsibility.
  • Define an owner or champion of the process.
  • Develop a report that provides a minimum data set to aid in returns. Consider putting a flag in the EMR when an eligible device is explanted. Make sure device description and serial number is a required field.  Do not let your Vendor reps retrieve and initiate the process, or if they do make sure there is a tracking sign off by supply chain to record the relevant data like patient name, encounter number and device serial number in the ERP system.
  • Make sure that the RMA and return kit is obtained from the vendor, accurately filled out and returned with in the 30 to 45-day window.
  • To aid in the return create a specific form and process, ideally managed by supply chain. With every return always ask for a product analysis and report to be returned to the hospital.
  • Consider OCR technology to scan and track credit memos. Make sure your policy and procedure include consistent notification of Patient Accounts of any credit > to 50%.