According to Medical Billing Advocates of America, eight of 10 medical bills contain errors that cost patients and insurance companies money. Billing audits are one approach to fix this problem. These audits examine sample bills closely to find errors in the amounts billed and the medical procedures coded. These audits may be performed either internally, by the doctor’s office on its own bills, or externally by an insurance company.

Internal Audit Purpose

For patient safety, medical bills must use Current Procedural Terminology or CPT codes to record the procedures performed and billed. Standardized codes allow other doctors to quickly determine a patient’s medical history from his billing records -- information that is vital for quality continuing care. During an internal audit, physicians check for accurate use of these codes. Additionally, the physician checks that the bills meet the guidelines imposed by the insurance companies. Bills that do not meet guidelines risk rejection, which will delay payment for the physician.

Internal Audit Process

Auditing a bill takes a substantial amount of time; as a result, very few bills are actually audited. The physicians selects bills randomly -- usually a predetermined number for each insurance company. Physicians may be tempted to leave the internal audit to office staff, but for best results, they also must participate, because of their expert knowledge of CPT codes. Found inaccuracies are corrected prior to billing. If a physician finds a particularly high rate of inaccuracies, he should examine his billing procedures carefully for ways to improve accuracy.

Insurance Audit Purpose

Insurance companies have a financial interest in ensuring that doctors bill correctly and do not perform unnecessary procedures. The insurers audit bills they receive to verify that the amounts billed match negotiated fees, to check for double billing and to find unnecessary procedures. Insurance companies are able to collect huge amounts of statistical data on what procedures a patient in a given position should undergo and how many such procedures the average physicians performs each month. This lets the insurers more easily identify consistent double billings and other anomalous practices that signal the need for an audit.

Insurance Audit Process

The insurance company does not have the resources to audit all bills any more than the physician does. Unlike the physician, the insurance company does not need to rely on random sampling. It will compare the number of procedures each physician performs to those performed by other physicians in the area. If a physician is performing an unusually high number of a given procedure, the insurance company will audit bills from his office. Once a target physician is chosen, the insurance company randomly samples bills received from him and has them examined by experts. If the expert finds that some procedures may have been unnecessary, the physician will be warned. Repeat or severe offenders may be removed from the insurance company’s preferred-provider network.