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Coding Compliance Practical Strategies for Success

This review will determine whether physicians are improperly using modifier 25 on their Medicare Part B claims to increase reimbursements. Modifier 25 is intended to be used to claim significant, separately identifiable evaluation and management service on the day of surgery.

Fraud, abuse, upcoding, unbundling, and compliance have all become buzzwords in the news media. Eliminating healthcare fraud and abuse has become a top priority for the federal government. Government investigations are on the rise and providers everywhere tremble at the thought of becoming the next investigative target. An Office of Inspector General (OIG) audit of the Health Care Financing Administration (HCFA) revealed errors in 30 percent of all claims paid by HCFA in fiscal year 1996.1These errors account for approximately $23.2 billion annually, or 14 percent of total Medicare fee-for-service (i.e., excluding managed care) payments. About half of the errors identified resulted from insufficient or lack of documentation from providers, and one-third of the documentation errors were associated with providers who failed to respond to repeated requests from auditors to submit documentation. The breakdown of the types of errors resulting in the improper payments is as shown in Figure 1.

Make sure to document all internal and external training, including who was trained, what they were trained on, and the dates of training.

Incorporate payment policies affecting code assignment in your coding policies and procedures. Maintain a copy of the provider bulletin that addresses this policy with your coding policies and procedures. This will assure that you will be able to provide documentation supporting this coding practice. If your encoder allows customized edits, add a payer-specific edit for the code or codes affected by the policy. If the payers policy is not consistent with official coding guidelines or rules, send a letter to your fiscal intermediary and HCFA regional office pointing out the discrepancy and the possible problems it could cause. AHIMAsPayers Guide to Healthcare Data Quality and Integritycan be used as a tool to encourage adherence to official coding guidelines.

By comparing a sample of Medicare claims to beneficiary medical records, a medical reviewer will determine the extent to which diagnosis codes on claims match the reason for ordering and providing various services.

If you disseminate a memo describing a revised policy or procedure change, ask staff to sign the memo acknowledging their receipt of the information. Keep the memo and staff signatures on file.

Establish mechanisms for all staff to be updated on changesbeforethe effective date of the change.

Stipulate the qualifications and experience expected of the individuals in coding positions.

The OIGs 1998 workplan is currently available. It can be downloaded from the OIGs Web site. This is an excellent source of information regarding the OIGs key initiatives in 1998. Some of the projects described in the workplan that affect coding are:

Educational and training programs for staff and physicians?

These internal audits may indicate problem areas requiring more intensive review and corrective action.

In addition, the National Association of Health Data Organizations ( has published two books with information on health data sources:State Health Data Resource Manual: Hospital Discharge Data Systems and A Guide to State-level Ambulatory Care Data Collection Activities.

Increased number of prepayment reviewsIncreased postpayment reviews of medical necessity and medical record documentation supporting claimsOverpayment recoveryProviders identified by the audit as submitting improper claims will be targeted for more extensive investigationIncreased review of evaluation and management claims (as of October 1998, HCFA plans to increase the number of random prepayment reviews of evaluation and management claims)Demand for more documentation from providers who submit claimsIncreased security measures to prevent submission of claims from improper providers

Also, perform a trend analysis. Have there been any significant changes in case mix or coding practices? Have any DRGs that show substantial increases in the numbers of cases been assigned to them?

Incorporate the pertinent guidelines regarding medical necessity from the OIGs Model Compliance Plan for Clinical Laboratories. Submission of a claim to Medicare for a medical item or service which the healthcare provider knows (or should know) is not medically necessary is considered a fraudulent practice for which civil penalties may be assessed. Services that are not covered by the Medicare program, such as most routine examinations, should not be billed inappropriately so as to appear to be covered services. Screening, for instance, which encompasses examinations and/or diagnostic procedures performed in the absence of signs or symptoms, is generally not covered under the Medicare program (there are a few exceptions, such as mammograms and pap smears). The appropriate V code should be assigned to indicate a screening examination.

Make sure overpaid, as well as underpaid, claims are submitted to the fiscal intermediary. If you only submit adjustments for the claims in which you are seeking higher reimbursement, you could be charged with fraud. The investigators can claim that you were aware of instances in which you were overpaid, but you failed to return the overpayment to the payer. This can be viewed as a

Evaluate claims denials and code and DRG changes from the fiscal intermediary (FI) and Peer Review Organization (PRO). Appeal all denials you believe to be inappropriate, even if only small amounts of money are involved. Use information gleaned from patterns of errors or denials to educate staff.

Whenever a test is performed that is believed to be reimbursable by Medicare and no waiver of liability has been issued to the beneficiary, the provider furnishing the test must maintain sufficient information in the medical record to support medical necessity of the test. Upon request, a laboratory should be able to provide documentation supporting the medical necessity of a service the laboratory has provided and billed to a federal program. It is not enough for the hospital or independent laboratory to state that information is available from a third party, such as a physicians office. If the third party does not wish to comply with the hospitals request for documentation for the purpose of complying with an audit, or the supplied documentation is inadequate, then it is the provider that bears the risk of nonpayment by Medicare. Fiscal intermediaries have the authority to deny a claim that has insufficient documentation to support it. A pattern of claims submission for medically unnecessary services can be construed as fraud. Simply linking the procedure code to a payable ICD-9-CM diagnosis code is not sufficient. The ICD-9-CM code(s) reported on the claim must be supported by documentation in the medical record. The OIGs Model Compliance Plan for Laboratories directs laboratories to only submit diagnostic information obtained from the physician ordering the test. According to the model plan, laboratories shouldnot:

Special training programs should be designed to target areas found to be deficient during an internal or external audit.

The key elements recommended by the government for inclusion in a corporate compliance program can be addressed in a coding program:

Laboratoriesshouldutilize uniform requisition forms that encourage physicians to order only those tests they believe are appropriate and require physicians to document the need for each test. The ordering physician should be contacted to obtain diagnostic information in the event that the physician has failed to provide such information.

This review will determine whether Medicare claims prepared and submitted by billing service companies are properly coded in accordance with the physician services provided to beneficiaries and whether the agreements between providers and billing service companies meet Medicare criteria. Past OIG investigations have shown that billing service companies may be upcoding and/or unbundling procedure codes to maximize Medicare payments to physicians.

Monitor coding accuracy through periodic audits. A concurrent review allows you to identify errors and correct them before submitting a claim.

Before entering a contractual agreement with a consulting firm, be sure to check references and the qualifications of the personnel responsible for conducting the work described in the contract. Some things to think about ahead of time: Do they possess an HIM credential? Does their experience match the type of work they will be doing for you? For instance, you wouldnt want someone with only outpatient coding experience performing DRG validation. What are the companys continuing education requirements for their staff? Determine their fee structure. Is it a flat, hourly, or per record rate, or is it contingency based? Verify that the firm has quality control mechanisms in place. Find out if they have a corporate compliance plan. If they do, ask to review it. Ask the consulting firm to review and agree to adhere to your compliance program.

Procedures for communication of changes in regulatory requirements should be established. A procedure needs to be in place to assure that changes or additions to rules and regulations are communicated to all affected staff. This includes changes that may be contained in publications, such as provider bulletins, that have not been regularly disseminated to the coding staff in the past. You will need to establish a mechanism to assure that memoranda or regulatory issues and provider bulletins are disseminated to all affected staff. As new or revised regulations are published, add this information to your coding and billing policy/procedure manuals. Maintain an up-to-date index for this manual so information is easily accessible at all times.

Specific OIG Investigative Focus Areas For 1998

Conduct periodic inservices to reinforce understanding of the procedures. Keep records of all staff in-services, including signatures of staff members acknowledging their participation in the training session and their understanding of the policies/procedures.

Medicares Correct Coding Initiative, designed to improve the accuracy of Part B claims processed by Medicare carriers, will be evaluated. The OIG will evaluate the effectiveness of the initiative in detecting improper billings and whether carriers are uniformly adopting practice patterns being promoted by the initiative.


Comparative data is necessary to establish internal coding data monitors. Data may be obtained from a variety of sources, usually for a charge. Many private companies offer access to giant databases, often in a user-friendly electronic format. Many states, through state data organizations or hospital associations, release claims data for all payers. Peer review organizations often provide comparative data reports. The most notable comparative data is Medicare MedPar data, which can be obtained from the HCFA at:

Once the firm is on board, review all of the consultants recommendations before implementing them. The consultant should report all errors that result in decreased reimbursement, as well as those that involve increased reimbursement. Claims adjustments for both types of errors should be submitted to the fiscal intermediary. If you question the accuracy of the consultants recommended code change, ask for references or supporting documentation (such asCoding Clinic) to support the consultants advice. Make sure that for every code change requiring additional physician documentation, this documentation is obtained prior to submission of a claims adjustment. Verify that a recommendation from a consultant or information presented during a seminar does not conflict with official coding guidelines or government regulations. A number of facilities have gotten into trouble because they were coding correctly to begin with, only to change their procedures because of advice obtained from a consultant or seminar. It is particularly important to verify the appropriateness of revising a coding practice since sudden changes in coding or billing patterns attract attention, which increases the risk of being audited or targeted for a fraud investigation. Make every effort to get the consultant to take responsibility for any action related to his recommendation. Make sure your policies and procedures stipulate that you have the right to refuse to implement a consultants recommendation when you can demonstrate that the advice conflicts with official coding guidelines or regulatory requirements.

Note: The projects described above are only a few of the initiatives described in the 1998 workplan. See the actual workplan for a complete list.2

Medical record documentation requirements should be addressed. What documentation should be available at the time the record is coded? All physician documentation? All test results? What procedures do you have in place to assure that medical record documentation is adequate and appropriate to support the coded diagnoses and procedures? Your commitment to assigning codes based on physician documentation and to obtaining physician clarification whenever necessary should be explicitly documented in your policies and procedures.

This list is not all-inclusive. A number of private vendors offer comparative databases for healthcare providers. At least 37 states have been mandated to collect hospital-level data. Depending upon the state, this data may or may not be available to the public. Contact your state hospital association for information concerning the availability of comparative data.

Where diagnostic information is obtained from a physician or the physicians staff after receipt of the specimen and the requisition form, documentation of the receipt of such information should be created and maintained. Note that the Model Compliance Plan does not require that the physicians signature accompany the diagnosis. AHIMA recommends that when diagnostic information is obtained verbally from the physicians office, this information, the date received, and the name of the individual you spoke to at the physicians office be documented in the medical record (e.g., on the registration form, requisition, or physicians order sheet). Be aware that a fraud investigator could review the medical record at the physicians office to substantiate the diagnostic information you submitted on the claim. If the laboratory cannot produce documentation to support medical necessity, or the physicians office record does not support the reason for the test reported on the laboratorys claim, it is the laboratorys claim that may be denied, even though the test was ordered by the physician.

The OIGs Office of Investigations launched Project Bad Bundle to identify hospitals that unbundle blood chemistry tests when using automated equipment and then bill for each analysis separately, or bill for an automated test in addition to several of the analyses separately. Unbundling refers to the practice of submitting individual bills for separate tests that should be bundled together into a single bill for a group of related tests. The amount allowed under Medicare for this bundled amount is considerably lower than the sum of the amount for tests billed separately.

Monitor payers changes of your codes or downcoding of claims for frequency and patterns. Correct any errors in your coding and billing practices identified during this review to prevent future denials. Appeal all code changes by the FI or PRO you believe to be inappropriate. Cite official sources to support your position. Follow up on the issue until you have received a response from the payer. High denial rates or repeated coding or billing errors could increase your risk of being audited.

Make sure coding staff have been properly trained and receive ongoing continuing education. Ongoing education is necessary to assure that knowledge of changed rules and regulations is kept up to date. How will employees be educated on issues of relevance to their work processes? How will new employees be educated prior to performing any job responsibilities that could place the organization at risk? How will ongoing education on new issues, coding guidelines, or regulations occur? How will employees knowledge attainment and retention be determined? These are all questions that should be answered in your compliance program.


Breakdown by type of provider is shown in Figure 2.

This project was initiated to identify hospitals that falsify the diagnosis and DRG on claims from viral to bacterial pneumonia. The OIGs Office of Investigations is working with the Department of Justice to initiate a nationwide project in this area.

According to the workplan, this review will determine the extent to which hospitals are incorrectly coding hospital discharges for Medicare payment. An approach will be developed to identify facilities that are potentially engaged in inappropriate coding for more thorough review and proper remedial action. Approaches may include the use of changes in case mix or commercial software currently used to detect billing irregularities.

Appropriate disciplinary and corrective action measures?

If instances of potentially improper code assignments are identified, review all pertinent policies/procedures, including official coding guidelines and billing manuals. Review a statistically valid, random sample of cases in order to determine whether the problem is an isolated case or one that occurred during an isolated time period; or if it is a widespread, ongoing problem. Interview staff to find out more information about how the particular billing or coding practice in question got started (e.g., Did a consultant or new coding supervisor initiate it? Was it adopted after attending a particular seminar?).

This project will assess whether physicians are correctly coding evaluation and management services in locations other than teaching hospitals and whether carriers are adequately monitoring physician coding. Previous work by the OIG has found that physicians are not accurately or uniformly using visit codes. The analysis will build upon this previous work and add more definitive data regarding the accuracy of physician visit coding.

Become Familiar with the Hot Targets

Effective communication mechanisms?

Corporate compliance programs are seen as an effective mechanism to assure compliance with regulations and minimize risk of fraud. A coding compliance program should be a key component of any corporate program — complementing, not conflicting with, the corporate compliance program. Even if your organization has not yet begun to develop a corporate program, you can still establish a coding compliance program. In developing a coding compliance program, you need to be proactive to prevent someone less qualified from taking the initiative and creating a program for you. Begin with a risk assessment (according to the target areas outlined above and the process described underAuditing and Monitoring. Include provisions within your compliance plan that specifically address weak areas identified in this assessment. This will assure that special attention is given to functions and processes that are particularly prone to placing your organization at risk. Convene a multidisciplinary team to address areas of the compliance plan that require cooperation from entities outside your department, such as policies and procedures that address physician documentation or updating the chargemaster.

HCFA also provides some public use files free of charge. These can be accessed from HCFAs home page at stats.htm.[note: URL no longer accessible; see

Incorporate a commitment to the availability of essential coding resources, includingCoding Clinic for ICD-9-CM, CPT Assistant,and current versions of ICD-9-CM and CPT, in your compliance plan.

Evaluate your internal coding practices and assure they are consistent with coding rules and guidelines. Examine your operations with respect toallpotential risks and institute appropriate safeguards and compliance controls. Dont just focus on the current hot issue in the press. If you have developed facility-specific coding guidelines, make sure they are not in conflict with official guidelines.

Develop a code of conduct for your department which establishes your commitment to ethical, accurate coding in accordance with all regulatory requirements. AHIMAs Standards of Ethical Coding should be incorporated in your coding code of conduct.

Keep in mind that no one expects a zero percent error rate. Mistakes are okay as long as they truly are mistakes and actions are taken to prevent their recurrence.

This initiative is designed to verify compliance with the Medicare rules that govern payment for physician services provided in the teaching setting and to ensure that claims accurately reflect the level of service provided to the patient. This initiative is being undertaken as a result of the OIGs audit work in this area — which suggested that many providers were not in compliance with the applicable Medicare reimbursement policies.

by Sue Prophet, RRA, CCS, and Cheryl Hammen, ART

Your departments commitment and adherence to official coding guidelines should be explicitly stated.

When documentation deficiencies are identified, educate the physicians on improving their documentation. Clarify conflicting or ambiguous information with the physician. When clarification or additional information is obtained from the physician, make sure this information is subsequently documented in the medical record. The physician may respond to the coders query verbally or via an exchange of notes, then the coder assigns the code based on this exchange, but the physician never adds the information to the medical record. Thus, the medical record documentation does not support the code assignment.

Include policies and procedures pertaining to the procurement of a coding consulting firm. Evaluate a consulting firm carefully before signing a contract. There is nothing inherently wrong with utilizing a consultant to review medical record documentation and assure optimal code assignment based on documentation. Many ethical, responsible consulting firms have helped to significantly advance coding quality and coder and physician education. It is, however, important to be aware that if a provider utilizes a consulting firm for revenue optimization reviews, this may draw the scrutiny of fraud investigators, particularly if the consulting firm charges on contingency. In connection with some government investigations, hospitals have received letters informing them they must advise if outside consultants were utilized during the period and matter in question or if the provider was billing in response to any information previously provided by a consultant. An OIG Fraud Alert was issued in 1997 after an investigation into laboratory billing irregularities revealed a possible connection between false claims and consultants. The OIG noted that when a consulting firm is paid on contingency, there is little incentive to correct coding errors that do not result in higher reimbursement. The government determined that this type of arrangement between providers and consultants is ripe for upcoding, unbundling, and other manipulation, which increases costs to the Medicare program. The Fraud Alert recommends that government agents investigating hospital practices should determine whether the hospital has this type of consulting contract. If such a contract exists, the investigating agent is expected to contact the fiscal intermediary to compare the consultants clients to other hospitals not using this consultant.

You may wish to establish that a physician adviser is available to provide guidance to the coding staff regarding clinical issues affecting code assignment and to serve as a liaison with the medical staff.

Make sure there is a process within your organization for employees to report potential fraud, including any pressures being placed on them to code improperly.

Describe your internal coding practices, including the course of action coders should take when the coding situation is not addressed in official coding guidelines. Whenever possible, reference the official coding guidelines (promulgated by the cooperating parties comprising AHIMA, the American Hospital Association, the National Center for Health Statistics, and HCFA). AHIMAs practice brief entitled Data Quality (Journal of AHIMA,February 1996) is also a valuable resource for developing coding policies and procedures.3

First, become familiar with the major investigative targets. Key sources of information on hot targets include the annual work plan for the Department of Health and Human Services (HHS) Office of Inspector General (OIG), fraud alerts issued by the OIG, and focus medical reviews described in fiscal intermediaries provider bulletins.

But what does all this mean for you, the HIM director, coding supervisor, or coder? What can you do to reduce the chance of your employer becoming a target of a fraud investigation related to coding, or if you do become a target, minimize the risk of assessment of maximum penalties? How can you assure and demonstrate that your organization has accurate, ethical coding practices and medical record documentation that supports the diagnoses and services reported on the claim for reimbursement?

An annual review of the chargemaster by a representative from your department should be specifically included in your policies and procedures.

Use diagnostic information provided by the physician from earlier dates of service (other than standing orders)Use cheat sheets that provide diagnostic information that has triggered reimbursement in the pastUse computer programs that automatically insert diagnosis codes without receipt of diagnostic information from the physicianMake up diagnostic information for claims submission purposes

P.O. Box 7520 Baltimore, MD 21207-0520 Telephone: (410) 786-3691

This project, formerly known as the Ohio Outpatient Laboratory Unbundling Project, has recovered $8.8 million in reimbursement and penalties as of mid-1997, in Ohio alone. It has been expanded nationwide to encompass 5000 hospitals.

Provide education outside the HIM department. Educate ancillary departments on the importance of documentation to support medical necessity of ordered tests and on the need for annual updating of the chargemaster. Educate physicians and facility staff on coding, reimbursement, and documentation rules, as well as fraud/abuse penalties and sanctions. Since coding accuracy depends on the quality and completeness of physician documentation, physician education on documentation requirements is especially critical. Educate the business office staff on coding processes and in turn, invite them to educate your department on the billing process, including claims rejections and appeals.

Identify any perceived errors in the logic or edits incorporated in your encoder software. This is an area where well-trained coding personnel are a definite asset because they are able to readily recognize inappropriate direction provided by the encoding software. Refer encoder issues to the software vendor. Document all communication with the vendor, including your inquiries and the vendors response. Regularly follow up with the vendor until the issue is resolved. If you identify any unequivocal conflicts with official coding rules or guidelines, address them immediately. The coders should be immediately informed of the erroneous instruction and directed to disregard the encoder in this instance. If your encoder allows customized edits, incorporate an edit to remind the coders of the error and the appropriate code assignment. Document the encoder problem-including the date it was detected and how it was handled-in your coding policies and procedures. It is a good idea to have current ICD-9-CM and CPT books available so the validity of encoder instructions can be verified.

Develop comprehensive internal policies and procedures for coding and billing and make sure these written procedures are kept up to date.

Health Care Financing Administration

Other sources of health data include:American Hospital Directory ( Analysis of facility-specific financial and DRG dataData Advantage ( Comparative healthcare information productsHCIA ( Telephone: (800) 568-3282 Hospital benchmarking and profiling productsThe Center for Healthcare Industry Performance Studies Telephone: (800) 859-2447 Hospital benchmarking and profiling productsThe MEDSTAT Group Telephone: (800) 650-1550 Hospital benchmarking and profiling productsIameter Inc. Telephone: (415) 349-9100 Hospital benchmarking and profiling productsNational Center for Health Statistics ( Data warehouseNational Health Information Resource Center Links to sixty health data sites [link not active as of 10/01]

As a result of these audit findings, providers can expect to see increased efforts by the federal government to prevent, identify, and punish healthcare fraud. HCFAs action plan to address the problems identified by the OIG audit includes the following measures:


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