Question

Goodfellow & Perkins gained a new client, Brookwood Pines Hospital (BPH), a private, not-for-profit hospital. The fiscal year-end for Brookwood Pines is June 30. You are performing the audit for the 2023 fiscal year end, and the audit is currently in the risk assessment phase. The healthcare industry can be very complicated, especially in the area of billing for services provided. BPH contracts with private physician groups who use the hospital facilities, equipment, and nursing staff to treat patients. The physicians in the private group are not employees of the hospital; they are simply using the hospital facilities to treat patients. For example, a group of urologists have their own practice, separate from the hospital, where they treat patients. If one of these patients needs a surgical procedure that must be done at a hospital, then the attending urologist will approve the paperwork required to admit the patient to BPH. BPH offers inducements to the urologists so they will refer patients to BPH rather than a competing hospital. One of the inducements BPH offers is free office space in the hospital for the doctors to use when they are treating patients in the hospital. After the doctor and hospital services are provided to the patient, the patient and/or the patient’s insurance company is billed. The doctor will bill for the services he or she provided, and the hospital will bill for the use of hospital facilities and staff. Doctors and hospitals bill using a coding system that is standardized across the healthcare industry and consists of three main code sets: ICD, CPT, and HCPCS. Using a coding system is more efficient and data-friendly compared to writing a narrative about the procedures performed. However, the coding system is very complex, with thousands of different codes for medical procedures and diagnoses. To complicate matters even more, for patients who are covered by government-sponsored Medicare or Medicaid, doctors and hospitals must adhere to complicated government regulations surrounding billings to Medicare and Medicaid. As healthcare costs continue to rise each year, BPH administrators struggle to maintain consistent profitability. They look for ways to keep costs low and also to collect outstanding payments from patients and insurance companies as quickly as possible. In addition, BPH must have a strong risk management team to handle unique situations that may occur in hospitals such as malpractice lawsuits and periodic inspections by the state regulators. Negative publicity for BPH could lead to decreased revenues if physicians decide to contract with a competing hospital.

a) Gather information: You have been assigned to evaluate revenue from patients who are covered by government-sponsored Medicare or Medicaid programs. What questions do you want to ask about BPH’s risk assessment controls?

b) Analysis: Assume that you are focused on the occurrence of revenue recognized from patients who are covered by government-sponsored Medicare or Medicaid programs. What controls do you expect to be in place regarding this assertion?

Answer 1

Answer :

Questions to ask about BPH's risk assessment controls

1.     How do you verify if a patient is actually covered by Medicare or Medicaid? Do you have a database as reference?

2.     What are the necessary requirements prior to admission of a patient covered by Medicare or Medicaid?

3.     How do you separate the revenues from private doctors and from the hospital itself for those government -sponsored patients? Who records and review these transactions?

4.     What are the government regulations that the hospital must adhere to when it comes to Medicard or Medicaid patients?

5.     How is the billing process done for this type of revenue collection? Who collects cash? Who records the revenue and collection? Who approves the billing? (To check segregation of duties)

6.     Does the revenue from Medicard or Medicaid include those that are provided by the hospital and those that are provided by private doctors? How is it accounted for in the records?

7.     How are the claims from these patients forwarded to the government for collection? What are the necessary supporting documents?

Controls in Medicare or Medicaid programs

1.     Segregation of duties. The recording, handling of collection and reconciliation of the Medicare or Medicaid revenues should be done by three different individuals. No employee should handle any two of the duties mentioned in order to prevent fraud. This control will mitigate the risk of recording revenues which were not performed by the hospital.

2.     There should be a specific code set for the Medicare or Medicaid patients' hospital bills in order to distinguish this revenue from other revenue streams. If this is not performed, the revenues from other streams (private doctors) will be included in the revenue of the hospital.

3.     There should be an approver and reviewers for the billings before it gets submitted to the government agency. The billings on related services actually performed by the hospital are only those that the hospital can claim.

4.     The billings should be supported by the medical claims documents such as invoices, proof of service, etc. This is to ensure that the revenue recorded are supported with documents to prove the service performed.

Occurrence- is an assertion which relates to the actual happening of a transaction. The occurrence testing will check if the revenue is legitimate and if the services were already performed by the hospital.