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Effective compliance plan development

By John A. Beattie, CPA, CFE & Salvatore Savatteri, Jr., JD, MHA

Health care remains one of the most heavily regulated industries in the United States. Physician practices seeking payment from federally funded health programs (i.e., Medicare, Medicaid, TriCare) are subject to a variety of statutes, regulations and program requirements. While physicians are under increased scrutiny by government enforcement agencies and need to assure compliance, the benefits of a compliance plan helps limit risk.

Compliance plans can, when properly implemented, strengthen operational efficiencies and economies. How? By reducing denial rates and resource usage in back-end correction of errors particularly systematic errors, improving documentation and managerial/operational feedback mechanisms, fostering better communication between physicians and their staff, enhancing the practice’s community image, and increasing the billing staff’s knowledge and claims processing efficiency.

What does compliance really translate to for a physician practice? A professional staff that jointly and individually understand their role in contributing to a successful practice. Compliance program buy-in invests each employee in the practice’s reputation for quality and integrity.

The Department of Health and Human Services, Office of Inspector General (OIG) issued its final Compliance Program Guidance for Individual and Small Group Physician Practices (Guidelines) in late 2000. Although released almost three years ago, the guidelines remain an integral tool for physicians and practice administrators when implementing a compliance program. The guidelines offer a foundation and provide direction when developing a customized compliance program.

The initial step when developing a program involves a billing, operational and legal risk assessment of practice operations. This involves reviewing current practice standards and procedures to assure relevancy, completeness and timeliness. If incomplete and/or out-of-date, this should be an area of priority for the compliance program to address. As part of this process, some of the questions relating to compliance and billing that should also be answered include:

• Do we have all relevant bulletins and provider notices relating to coding, billing and documentation for services and procedures we provide?

• Are these documents centrally stored and readily accessible for reference and read?

• Are they understood by staff?

• Do we possess current CPT, HCPCS and ICD-9-CM reference books?

• Do we possess current copies of managed care and other contracts and are they briefed for claims submission procedures and fee structure?

• Do our employment applications request applicants to disclose whether they are listing on the OIG or GSA databases as sanctioned individuals?

• What is the training history of our billing and coding staff?

• Do we obtain Advanced Beneficiary Notices where appropriate and warranted?

• Do we perform denial analysis on a routine basis?

The practice should also appraise the billing function to assure compliance with applicable coding, billing and documentation requirements. Although there are a variety of means to evaluate the coding and billing function, analytical review and sample testing of prospective or retrospective claims or both provide a reliable means of performance assessment.

During claims analysis, determination is made of whether claims submitted are accurately coded based upon documentation in the medical record. This process requires developing claims and medical record samples. Samples can be non-statistical or statistical depending on the testing objectives.

When statistical samples are used, testing the sample is done to predict, within a confidence level and precision rate, the dollar amount in error within the population. Typically, a variable appraisal difference estimation methodology is used. Characteristics measured include assessing medical necessity, diagnosis and coding documentation. Assessment of the results should also include determining outlier amount.

Although determining a sampling methodology may present a challenge to the practice, it is important to remember that the size of the statistical sample is typically determined through the use of a probe sample. Typically, the full sample is designed to generate an estimate with 90 percent level of confidence and a precision of 25 percent. The probe sample usually contains 30 sample units. Depending on whether top-off is used or accepted, probe sample units may be used as part of the full sample.

Other matters to consider when developing a sampling plan include, sample design (unrestricted random, stratified), sample unit (patient, claim, line item), scope period and selection program. RAT-STATS is a statistical software program developed by the OIG that is widely used by consultants and providers and available from the OIG web site ( Providers should retain the input and the program’s statistical output in the event validation of the sampling and estimation methodologies is needed at some future point in time.

In addition to sampling, analytical methodologies may also be employed. Such analyses include but are not limited to horizontal and vertical analysis. Vertical analysis involves comparing physicians among their peers within the same practice with the same specialty. Horizontal analysis involves assessing coding trends over time. Analytical review can be a useful compliance monitoring technique to flag potential aberrancies to determine the need for focused claims testing.

The practice should examine their claims denial history. The most recurrent sources of those denials should be identified. A review of the billing function will facilitate the practice to improve its cash flow by submitting correct claims that will be paid upon original submission. It generally is materially more costly to correct inaccurate claims resulting from deficient front-end edits compared to correctly billing claims on the first submission.

The next step is to develop a process for dealing with identified risk areas through well-defined standards and procedures. Practices that do not have such procedures should create them by developing a written standards and procedures manual and by updating clinical forms to guarantee they facilitate and encourage clear and complete documentation of patient care. Standards and procedures must serve as the cornerstone of the compliance program.

Appropriate training and education must be performed in order to ensure that all applicable employees understand the compliance program and the pertinent statutes, regulations and guidelines affecting practice operations and billing, coding and documentation. It is worthwhile to consider some of the commercially available educational tools and professional trainers for implementation during this learning phase. When trainers are contracted specifically for the practice, the trainer’s resume, handouts, workbooks, sign-in and out sheets, student/participant testing administered and instructor evaluation sheets should be retained by the practice to evidence compliance. Since rules are continually evolving, education needs to be on ongoing process.

After the audits have been completed, risk areas identified and standards and procedures created, one member of the practice needs to accept the responsibility of developing a corrective action plan and managing the practice’s adherence to that plan. This individual should serve as the compliance officer.

Timely and appropriate corrective action is critically important and cannot be overemphasized. A corrective action plan should be developed to respond to compliance violations as they occur. If, for example, an issue is identified as a result of a prospective inspection of claims performed as part of the risk assessment phase, it may not be sufficient to merely correct the process for future claims. It may necessitate a retrospective review of claims for one or more payers to identify erroneous claims. Erroneous claims may result from such conditions as upcoding due to non-compliant documentation of the level of service.

Corrective action may include the return of any federal program or other payer overpayments and voluntary self-disclosure to appropriate agencies where warranted. Everyone must recognize the consequences of improper actions, and there must be well-publicized guidelines detailing the procedure for disciplining individuals who violate the established standards. It is often vital to retain counsel to assure all legal issues are considered when evaluating and implementing corrective actions.

There are few businesses that would not benefit from better communication methods. Communication should occur between the compliance officer, physicians and employees of the practice. Depending on the size of the practice, compliance hotlines or a secure integrity drop-box may be a good tool that allows employees, patients, vendors and others to report compliance issues anonymously and seek answers to compliance questions on a confidential basis.

A log of complaints received through the reporting mechanisms should be maintained along with documentation of the ensuing evaluation and investigation and any corrective actions implemented and tested.

Although the OIG has provided guidance for physicians when developing a compliance programs, there is no one size fits all compliance program. Therefore, physician practices should consider using the OIG guidance as a foundation when developing a more customized program to meet their practice needs.

A properly developed and effective physician compliance program will improve operational processes and practices, demonstrate provider trustworthiness and reduce risk exposures. Considering the relative ease of developing a voluntary compliance program, there is no reason why a practice should not implement a program.

John A. Beattie, CPA, CFE is a director with Parente Randolph LLC – Healthcare Consulting Group. Salvatore Savatteri, Jr., JD, MHA is a senior consultant with Parente Randolph LLC – Healthcare Consulting Group.

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