Revenue Cycle

Tip: Audit for medical necessity to catch lost revenue

Patient Financial Services Weekly Advisor, September 24, 2004

Hospitals are most susceptible to losses in the area of medical necessity for outpatient tests and services. Each year, hospitals may be losing several hundred thousand or even millions of dollars in revenue for diagnostic tests and services alone.

According to Stacie Buck, RHIA, LHRM, president of Health Information Management Associates, Inc., in North Palm Beach, FL, an effective medical necessity auditing and monitoring process is a simple way to boost revenue.

Buck suggests these five steps:

1. Conduct an audit to identify those procedures/services that Medicare commonly denies for lack of medical necessity.

2. Obtain key documents to audit for medical necessity. Find the medical record documentation, including test orders, test results, and reports/interpretations for services rendered. Also obtain billing records, including a copy of the UB-92 or CMS-1500 claim form, remittance advice, and a copy of the advance beneficiary notice (ABN), if there is one on file.

3. Generate a report that identifies medical necessity denials for a specified time. Select a time period long enough to allow you to identify trends and problem areas.

4. Your next step is to conduct a chart audit. It should focus on the following:

  • Verification of correct CPT-4 and ICD-9-CM code assignment based on medical record documentation
  • Review of the appropriate national coverage determination (NCD) or local coverage determination (LCD) to determine whether the test was medically necessary
  • Appropriateness of denial
  • Whether a valid ABN was obtained, and if so, whether the appropriate modifiers/condition codes were used on the claim
  • Determining whether those incorrectly coded claims that Medicare denied can be resubmitted for payment, and determining which denials the facility can appeal

    5. After completing your audit, assemble a summary of audit findings. The results of your audit will assist you in determining any issues or errors, as well as their sources.

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