UNIVERSITY OF CALIFORNIA, DAVIS
INTERNAL AUDIT SERVICES
University of California, Davis Health System
Pricing of Hospital Services
Internal Audit Services Project #10-16
April 2010
Fieldwork Performed by:
Laotong Ea, Principal Auditor
Reviewed by:
Jeremiah Maher, Associate Director
Approved by:
Rick Catalano, Director
University of California, Davis Health System
Pricing of Hospital Services
Internal Audit Services Project #10-16
MANAGEMENT SUMMARY
Hospital charges submitted incorrectly with miscellaneous service codes may be denied
by payors, not reimbursed, or reimbursed at a significantly lower amount. Also,
additional costs are incurred to research, correct, and rebill these charges.
Furthermore, a majority of miscellaneous service codes do not have a defined price in
the hospital charge description master, thus must be manually calculated which may be
inefficient and calculated incorrectly. During fiscal year 2009, over $35 million in
hospital gross charges were processed with miscellaneous service codes, of which over
$23 million were Operating Room Department (OR) charges.
The purpose of this audit was to assess internal controls over the accurate and
consistent pricing of hospital services. Based on our risk assessment we limited the
scope to manually priced items with miscellaneous service codes.
The scope of the audit was further limited to the OR, which had the most significant
amount of charges to miscellaneous service codes for fiscal year 2009.
To conduct our examination we interviewed Information Systems, OR, and Patient
Financial Services personnel, reviewed charges to miscellaneous service code reports,
and observed the OR charge capture process and use of miscellaneous service codes.
Procedures were reviewed for compliance with University policies and business
practices.
Based on this review, we have concluded that the OR is generally compliant with
university policies. We did note a few areas where controls should be further
strengthened related to the billing of services through Invision, which is the hospital’s
billing system. The OR should migrate away from direct charge entry into Invision,
which bypasses the standard Recirculating Error file (RCE) checks, and convert to a
system such as Clinic Charge Entry (CCE) that requires charges to pass through the
RCE checks. The OR should work with UCDHS IT to develop a target timeframe and
define supporting project plans for the conversion to CCE. The OR should discontinue
use of miscellaneous service codes to affect interim price updates. Where the OR feels
that the delay through normal processing of adding or updating an item through the
Rate Review Committee may have a significant impact, they should request this
committee evaluate their request in an expedited manner or provide guidance on
whether interim alternatives such as miscellaneous service codes should be used while
awaiting approval. In the event that a decision is made to continue to use Invision for
charge entry, the OR needs to explore alternative solutions for ensuring HCPCS coding
is included in the final bill where necessary.
OR is actively addressing these findings and has already implemented several new
procedures. Details on these and other observations can be found in the body of this
report.
UNIVERSITY OF CALIFORNIA
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University of California, Davis Health System
Pricing of Hospital Services
Internal Audit Services Project #10-16
TABLE OF CONTENTS
MANAGEMENT SUMMARY ............................................................................. i
TABLE OF CONTENTS ................................................................................... ii
I.
BACKGROUND ..........................................................................................1
II.
AUDIT PURPOSE AND SCOPE ................................................................1
III.
CONCLUSION............................................................................................1
IV.
OBSERVATIONS, RECOMMENDATIONS, AND MANAGEMENT
CORRECTIVE ACTIONS
A. Charge Entry Via Invision ......................................................................2
B. Use of Miscellaneous Service Codes ....................................................3
UNIVERSITY OF CALIFORNIA
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Pricing of Hospital Services
Project #10-16
I. BACKGROUND
Hospital charges submitted incorrectly with miscellaneous service codes may be denied
by payors, not reimbursed, or reimbursed at a significantly lower amount. Also,
additional costs are incurred to research, correct, and rebill these charges.
Furthermore, a majority of miscellaneous service codes do not have a defined price in
the hospital charge description master, thus prices must be manually calculated which
may be inefficient and calculated incorrectly. During fiscal year 2009, over $35 million in
hospital charges were processed with miscellaneous service codes, of which over $23
million were Operating Room Department (OR) charges.
II.
AUDIT PURPOSE AND SCOPE
The purpose of this audit was to assess internal controls over the accurate and
consistent pricing of hospital services. Based on our risk assessment we limited the
scope to manually priced items with miscellaneous service codes.
The scope of the audit is further limited to the OR, which had the most significant
amount of charges to miscellaneous service codes for fiscal year 2009.
To conduct our examination we interviewed Information Systems, OR, and Patient
Financial Services personnel, reviewed charges to miscellaneous service code reports,
and observed the OR charge capture process and use of miscellaneous service codes.
Procedures were reviewed for compliance with University policies and business
practices.
III.
CONCLUSION
Based on this review, the OR generally has good internal controls to ensure accurate
and consistent pricing. We did note a few areas where controls should be further
strengthened related to the billing of services through Invision. The OR should migrate
from direct charge entry into Invision, which bypasses the pre-processor edit system, to
a system such as CCE that requires charges to pass through this edit system. The OR
should work with UCDHS IT to develop a target timeframe and define supporting project
plans for the conversion to Clinic Charge Entry (CCE). The OR should discontinue use
of miscellaneous service codes to affect interim price updates. Where the OR feels that
the delay through normal processing of adding or updating a service code through the
Rate Review Committee may have a significant impact, they should request this
committee evaluate their request in an expedited manner or provide guidance on
whether interim alternatives such as miscellaneous service codes should be used while
awaiting approval. In the event that a decision is made to continue to use Invision for
charge entry, the OR needs to explore alternative solutions for ensuring HCPCS coding
is included in the final bill where necessary.
OR is actively addressing these findings and has already implemented several new
procedures. Details on these and other observations can be found in the body of this
report.
UNIVERSITY OF CALIFORNIA
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Pricing of Hospital Services
IV.
Project #10-16
OBSERVATIONS, RECOMMENDATIONS, AND MANAGEMENT CORRECTIVE
ACTIONS
A. Charge Entry Via Invision
The charge entry system utilized by the OR bypasses the pre-processor edit
system that is designed to ensure billing transactions are complete and
accurate.
Certain charge entry systems such as CCE send charges through a pre-processor
edit system to ensure the validity and completeness of data. Charges that do not
pass certain defined edit checks are held in a Recirculating Error file (RCE) until they
are reviewed and corrected. The OR currently enters all hospital facility charges
directly into Invision and the normal edit checking process is bypassed. Instead, a
“dummy copy” of the charge is captured and processed through the pre-processor
edit system a day later. If a correction is made to the “dummy copy” before the bill is
sent out the correction will override the original charge; otherwise the original charge
will be sent out with errors or missing information.
Such handling may result in denials or extra time and effort to correct and rebill
charges. For example, we noted one charge that was denied due to missing a
Treatment Authorization Request (TAR). The missing TAR was not detected since
the RCE edit checks were bypassed. Because the TAR was not obtained we were
under reimbursed by an estimated $9,000. Patient Financial Services is in the
process of working with OR to rebill this account.
In addition to the OR we were informed that the entire Perioperative Services
division, which also includes the Same Day Surgery Center, Post Anesthesia Care
Unit (PACU), Children’s Surgery Center, Anesthesiology, and Neuromonitoring, enter
charges directly into Invision.
Recommendations
1. UCDHS IT should evaluate options to address Invision charge entry bypassing
RCE edit checks.
Management Corrective Actions (suggested wording)
UCDHS IT will coordinate with OR and Perioperative Services Billing by January
1, 2011 to evaluate migrating charge entry activities from Invision charge entry to
CCE. CCE passes charges through standard Recirculating Error file (RCE)
checks and business rules to help ensure the validity and completeness of data.
Project plans and appropriate timelines will be developed cooperatively by OR
and IT management within the context of key business activities.
UNIVERSITY OF CALIFORNIA
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Pricing of Hospital Services
Project #10-16
B. Use of Miscellaneous Service Codes
Certain OR billing practices do not promote effective billing of services and
may result in lost reimbursement, denied claims, delays in payment, and
additional follow-up work to rebill.
The OR bills some charges using miscellaneous service codes when there are
existing service codes in the Charge Description Master. Billing OR services not
using defined service codes bypasses programmatic checks which ensure proper
HCPCS coding and service authorizations exist for certain third party payors.
The OR utilizes many different types of implants, joints, plates, screws, and supplies.
The hospital’s policy for charging for these items is the cost multiplied by a markup
rate. For some of these items a specific service code with the price has been
established in the hospital’s Charge Description Master (CDM), which is the file used
to price services to be billed to patients and third party payors. However, the large
number of OR items in the CDM coupled with the indication by OR of frequent cost
changes to these items, it is challenging to ensure the prices are updated in the
CDM. When prices need to be updated or a new item added, a request must be
submitted to the UCDHS Rate Committee for review and approval. Requests must
be submitted by the 10th of each month. If approved, the new item or change will be
applied to the CDM by the 1st of the following month. The OR indicated that while
waiting for rate update approval, they utilize a miscellaneous service code which
allows them to assign an updated rate manually.
IAS reviewed a sample of high dollar implant charges for outpatient accounts
processed with miscellaneous service codes and identified multiple instances where
the HCPCS billing code was missing for the implant. Although the OR department
indicated they were manually adding HCPCS codes through Invision, the codes were
not being included on the final bill. It was discovered that the current programmatic
logic does not utilize the HCPCS codes entered via Invision for the generation of the
final billed charge. Missing HCPCS Codes can cause a reduction in reimbursement.
Patient Financial Services indicated that although a price in the CDM does not reflect
the latest cost, it is better to use a specifically assigned service code reflecting the
old cost because relatively few payors reimburse on a percentage of charge basis. In
addition, any reimbursement impact can be further minimized because the Rate
Review Committee will routinely act on updated price requests they receive up until
the current month’s Rate Review Committee meeting. Requests received after the
monthly meeting will be considered for the following month’s Rate Review
Committee meeting. The Rate Review Committee can also determine when a
request for price updates should be expedited if the reimbursement impact
associated with the delay is significant. In addition, other systematic edit checks are
bypassed if a miscellaneous service code is used. For example, the system cannot
identify the need for a TAR because the specific service performed is not known for a
miscellaneous service code. The likelihood of error also increases if HCPCS codes
are manually assigned.
UNIVERSITY OF CALIFORNIA
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Pricing of Hospital Services
Project #10-16
Recommendations
1. The OR should discontinue use of miscellaneous service codes to affect interim
price updates or seek appropriate guidance where normal processing through the
Rate Review Committee is deemed to be inadequate.
2. Migrating the OR to CCE will eliminate the need to enter charges directly into
Invision. In addition, if CCE is implemented, the OR's ability to enter charges via
Invision will be removed. In the event that a decision is made to continue to use
Invision for charge entry, the OR needs to explore alternative solutions for
ensuring HCPCS coding is included in the final bill where necessary.
.
Management Corrective Actions
The OR will obtain guidance from the Rate Review Committee for
discontinuing use of miscellaneous service codes to affect interim price
updates by October 1, 2010. Possible solutions that should be explored
with engagement of the Rate Review Committee include an expedited
process for CDM updates, approval for use of miscellaneous service
codes while awaiting CDM updates, or using current service codes with
old prices while waiting for price updates to be approved by the Rate
Review Committee.
If the decision is made to not migrate to CCE, the OR will ask Patient
Financial Services to help them evaluate by March 1, 2011 whether
business process changes such as requesting expedited rate review or
continuing to use existing CDM prices while waiting for Rate Review
committee approval are sufficient to eliminate the need to enter
HCPCS coding into Invision. If such changes are not sufficient, OR will
either explore other business process changes or submit a service
request for necessary program modifications by May 1, 2011.
* * *
UNIVERSITY OF CALIFORNIA
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