Best Practices for Physician Contract Audits

An internal audit can provide valuable information on contracting practices and identify opportunities to implement change. Internal audits are periodic, methodical examinations of all contracts and the approval process. They provide an excellent way to document your organization's commitment to compliance. Even if a contract was approved when it went into effect, vague language, complex formulae, lax recordkeeping, and physician relationships can make adherence to your compliance protocols and standards challenging. A periodic, objective and disciplined review of contracts is always a good idea. MD Ranger provides subscribers with web-based tools and reports to make internal audits more efficient and effective.

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Goals of an Internal Audit

An internal audit of physician contract payment rates will:

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• Provide oversight of organization-wide contracting practices. Conducting an internal audit can identify differences in contracting practices and rates across specialties or facilities. It is sometimes difficult to monitor the significance of differences with a large number of contracts that are negotiated by multiple parties; auditing may identify some non-compliant practices within an organization.
• Uncover potentially non-compliant agreements. An internal audit can help identify contracts which have payment rates above typical market benchmarks or reveal contracts that need better supporting documentation. An audit can bring these contracts or practices to the attention of your legal or compliance team for further review or documentation at renewal. MD Ranger's tools allow sorting of contracts by where they fall on the market benchmarks, making identification of problematic contracts simple and fast.
• Ensure all agreements have appropriate documentation. Most organizations have at least a few unusual contracts that need additional documentation of FMV or a few that didn't go through the proscribed approval or documentation process. The audit will identify the need to improve documentation to show the source of FMV determination when the contract was negotiated and the timing of extensions and amendments. An audit should include a review of time records from physicians that document actual time spent.
• Prevent duplicative services. An audit may reveal medical directorship positions than can be justified, either because multiple people provide substantially similar services or a contract calls for more hours than meets the FMV. Investigate how many directors are commercially reasonable for a service, or if some directors may have a more specific title that is not being adequately described. Unsure how many medical directors make sense per specialty? Use MD Ranger's Number of Administrative Positions per Service table for a gut check.
• Check that approval process is working. Review the records for contract approvals to ensure that all contracts are processed appropriately.
• Verify all contracts are current. Stark requires payment rates to be set in advance; hence it is important that contract renewals are processed prior to expiration. Be sure extensions are in place if contract negotiations are going to extend beyond the expiration date.

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Approaches to Auditing

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The Bottom-up Audit

The bottom-up approach is the most traditional an audit method, entailing a review of each contract for adequacy of FMV documentation, time records, and renewal/approval process.

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The Top-down Audit

The top-down auditing approach looks at an organization's contracts and physician contracting compliance process as a whole to assess whether there may be underlying issues with the process, such as duplicate or excessive payments to individual physicians or groups. The process can be an effective tool for financial management and budgeting, as well as providing support for negotiations through comparisons in rates across specialties, consistencies, etc.

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A few suggestions if you audit in aggregate:

• Review how much is being spent per service (Neurology, Cardiology, etc.) across all types of agreements (administrative, call coverage, leadership, etc.).
• Determine if the number of medical directors for each specialty/service is appropriate and within market ranges.
• Examine the combined revenues from net professional collections plus stipends for hospital-based services.
• Review specialties where all administrative or coverage contracts are staffed by a single physician or one practice to be sure payments do not exceed market rates for actual time committed, or if the physician cannot be reasonably expected to dedicate the minimum number of hours while maintaining their clinical practice load.
• Multi-campus deals need particular documentation for time required.
• Documentation of competitive bidding and a Request For Proposal process in contentious/excessive situations.

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How Often Should Audits Occur?

Your organization may already have a policy for conducting periodic internal audits, thus the initial step is to document that the process is being followed. If there is no policy, investigate how other departments and business functions are audited at your organization. Depending on your facility and how your physician agreement terms are organized, audits can be annual or biennial. Whether routine or ad hoc, an internal audit is a valuable process for documenting a strong compliance process and identifying potential risks to your organization.