What External Audit Do Payers Use Before Processing Claims?

The healthcare landscape involves an intricate system of claims submission and processing. Healthcare providers submit claims for services rendered, and various payers, such as insurance companies and government programs, are responsible for reviewing and adjudicating these submissions. Before any payment is disbursed, specific checks and balances are implemented to manage the vast volume of financial transactions.

A significant external audit performed by payers before claims are processed is known as a pre-payment claim review. This audit verifies the medical necessity, appropriateness, and coding accuracy of healthcare services prior to any financial outlay. Its purpose is to ensure that only legitimate and properly documented claims receive payment.

These reviews are conducted by commercial insurance carriers, government programs like Medicare and Medicaid, and third-party administrators. Performing reviews at this early stage allows payers to proactively prevent improper payments from errors, waste, or fraudulent activities. By identifying potential issues before funds are disbursed, payers mitigate financial losses and ensure compliance with healthcare policies, benefit plan rules, and regulatory guidelines. Pre-payment claim reviews manage healthcare costs and safeguard resources against unmerited claims.

Key Areas of Scrutiny

During a pre-payment claim review, auditors examine several specific aspects and supporting documentation.

Medical Necessity

This assesses whether the healthcare service or treatment was clinically appropriate and essential for the patient’s diagnosis or condition. For example, an auditor might review if an MRI was justified for a common musculoskeletal complaint, or if a more conservative treatment should have been pursued first.

Coding Accuracy

This involves verifying that medical codes on the claim precisely reflect the services rendered and documented in the patient’s records. This includes Current Procedural Terminology (CPT) codes for procedures, International Classification of Diseases, Tenth Revision (ICD-10) codes for diagnoses, and Healthcare Common Procedure Coding System (HCPCS) codes for supplies and services. An auditor checks if a claim for a complex surgical procedure is billed with the correct CPT code corresponding to the operative report, ensuring no upcoding or downcoding.

Documentation Adequacy

This focuses on whether the patient’s medical records provide sufficient support for the services billed. This involves reviewing physician’s notes, operative reports, and test results. For example, if a claim is submitted for an office visit, the auditor confirms that the physician’s notes detail the patient’s history, examination, medical decision-making, and plan of care to support the billed service level.

Policy Compliance

Auditors check the claim’s adherence to specific payer policies, coverage limitations, and pre-authorization requirements. This ensures services are medically necessary and covered under the patient’s benefit plan, and that any required prior approvals were obtained. Instances of service duplication or unbundling are also identified, such as billing a basic dressing change separately from a minor surgical procedure when it is typically included in the global surgical package.

Consequences of Review Findings

If discrepancies, errors, or non-compliance are identified during a pre-payment claim review, several actions and outcomes can result.

Claim Denial

A common consequence is claim denial, where the claim is rejected entirely, and no payment is issued for the services. This means the healthcare provider will not receive reimbursement for the billed amount, leading to potential revenue loss.

Request for Additional Information

In other instances, the payer may issue a request for additional information. This action halts the claim processing and requires the healthcare provider to submit further documentation or clarification to support the services rendered. The claim remains in a pending status until the requested information is received and reviewed, which can prolong the payment cycle.

Claim Adjustment

Another potential outcome is a claim adjustment, where the claim may be paid partially, with specific services or amounts reduced or removed from the original submission. This typically occurs when some services on the claim are deemed medically unnecessary, incorrectly coded, or not adequately documented, while other services are approved for payment. Such adjustments directly impact the provider’s expected revenue.

Delayed Processing

The review process itself inherently introduces delayed processing, even if a claim is ultimately approved. This delay can impact the healthcare provider’s revenue cycle management and cash flow, as the time from service delivery to payment extends beyond typical processing times.

Payers typically communicate their findings and decisions to healthcare providers through formal notification letters or electronic remittance advice. These notifications detail the reasons for denial, adjustment, or requests for information, often citing specific policy violations or documentation deficiencies. For healthcare providers, these findings impose an administrative burden, requiring staff to address denials, resubmit claims with corrected information, or engage in appeals processes. This can significantly affect a provider’s operational efficiency and financial stability, and indirectly, patients may face questions about their financial responsibility if a claim is ultimately denied.