Ten Value Added Audits Bringing in the Money

1. Ten Value Added AuditsBringing in the Money

2. Agenda • Bringing in the Money—Internal Audit as a value added function • Ten value added audits • Reporting on value added contributions 2009 AHIA Annual Conference

3. 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? 2009 AHIA Annual Conference

4. 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 2009 AHIA Annual Conference

5. 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 2009 AHIA Annual Conference

6. 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 2009 AHIA Annual Conference

7. 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 2009 AHIA Annual Conference

8. 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) 2009 AHIA Annual Conference

9. 1. Revenue Cycle—Charge Capture • Data Analysis—What’s missing? • 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) 2009 AHIA Annual Conference

10. 1. Revenue Cycle—Charge Capture 2009 AHIA Annual Conference

11. 1. Revenue Cycle—Charge Capture • Facility fees (for ED and provider based services) • Check E&M facility bell curves for alignment issues • Review your facility charge tool 2009 AHIA Annual Conference

12. 1. Revenue Cycle—Charge Capture • Supplies—for major procedural areas (Cath Lab, Interventional Radiology, Implants) check procedures against a standard supply listing; compare to CDM; test billings • 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 2009 AHIA Annual Conference

13. 1. Revenue Cycle—Charge Capture Other Reviews 5. Check Zero Charge report (patient showed for services but no charges) • Check Insurance denials • Check payor contracts for carve-outs • High tech drugs, implants • Check correct assignment of revenue codes to ensure payment 2009 AHIA Annual Conference

14. 1. Revenue Cycle—Charge Capture • 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 2009 AHIA Annual Conference

15. 1. Revenue Cycle—Charge Capture • 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 2009 AHIA Annual Conference

16. 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? 2009 AHIA Annual Conference

17. 2. Revenue Cycle—Contracts Outsourced collection of large $ accounts: To speed up collections Effect of implementation of Payment Caps 2009 AHIA Annual Conference

18. 2. Revenue Cycle—Contracts Large $ accounts: To speed up collections Effect of re-negotiation on contract rates (for example: from 15% to 12%) 2009 AHIA Annual Conference

19. 2. Revenue Cycle—Contracts • 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 2009 AHIA Annual Conference

20. 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 CycleNet Revenue Strategies 2009 AHIA Annual Conference

21. 3. Revenue Cycle— Net Revenue Strategies • 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) • 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 2009 AHIA Annual Conference

22. 3. Revenue Cycle— Net Revenue Strategies • Maximize clinical appeals • Convert off-campus services to hospital based • Bill under Part A versus Part B = increased net reimbursement • Compliance with Medicare criteria 2009 AHIA Annual Conference

23. 3. Revenue Cycle— Net Revenue Strategies • Check packaged payment arrangements • When were they last updated? • Review cost/contribution margin • Monitor large write-offs (specific review of all write-offs over a certain limit) • Review all Admin Adjustments • Customer Service • Residency Program • Legal • Other 2009 AHIA Annual Conference

24. 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 2009 AHIA Annual Conference

25. 4. Vendor Contracts—Purchasing 2009 AHIA Annual Conference

26. 4. Vendor Contracts—Purchasing • 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 2009 AHIA Annual Conference

27. 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 2009 AHIA Annual Conference

28. 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 2009 AHIA Annual Conference

29. 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 2009 AHIA Annual Conference

30. 6. Outsourcing Opportunities • 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 2009 AHIA Annual Conference

31. 6. Outsourcing Opportunities • Medical Devices • Purchasing • Inventory management • Billing • Compliance • Telecomm reviews—usage, billing • Utility reviews—usage, billing 2009 AHIA Annual Conference

32. 6. Outsourcing Opportunities • Check out vendors at this conference • Contingency vs. Negotiated fee arrangements • Check references • Give references • Manage your consultants 2009 AHIA Annual Conference

33. 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 • Manage your consultants 2009 AHIA Annual Conference

34. 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) 2009 AHIA Annual Conference

35. Construction – unsupported costs 2009 AHIA Annual Conference

36. 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 2009 AHIA Annual Conference

37. 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 2009 AHIA Annual Conference

38. 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) 2009 AHIA Annual Conference

39. 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 2009 AHIA Annual Conference

40. 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) 2009 AHIA Annual Conference

41. Summary • Current hot topic • Many lists/many opportunities • Share • Focus on returns • Report savings • Taking and giving credit 2009 AHIA Annual Conference

42. Contacts • Catherine Wakefield • VP Corporate Compliance and Internal Audit • Catherine.wakefield@multicare.org • 253-459-8002 • Nate Morgan • Compliance/Internal Auditor II • Nathan.morgan@multicare.org • 253-459-8015 2009 AHIA Annual Conference