HCP 516 Week 1 Auditing Versus Monitoring in Health Care Compliance Example

Checking Every Week or Testing Once a Year? How a 12-Clinic Outpatient Therapy Company Divides Compliance Work Between Monitoring and Auditing

[Student Name]

University of Phoenix

HCP/516: Auditing, Monitoring and Corrective Action in Compliance

Week 1 Assignment

[Instructor Name]

[Date]

The therapy company, its clinics, data and plan are composites written for a model paper; federal reports, rates and research come from the sources listed.

When a composite outpatient physical and occupational therapy company with 12 clinics, 96 therapists and about 38,000 Medicare visits a year hired its first compliance manager, she found that clinic managers each reviewed five charts a month for missing signatures. No one had ever pulled a random sample of claims and tested them against Medicare's requirements, and no one reviewed billing data across clinics. She asked a basic question: what is the difference between what the managers were doing and what an audit would do, and does the company need both? This paper answers that question.

Why Therapy Claims Carry Risk

Outpatient therapy has well-documented billing problems. A federal audit of a random sample of 300 Medicare outpatient physical therapy claims found that 184, or 61%, did not comply with Medicare requirements, most often because services were not reasonable in amount, frequency or duration, timed units billed did not match documentation, plans of care were missing, unsigned or vague or modifiers were misused; the auditors estimated $367 million in improper payments for six months (Office of Inspector General, 2018). Nationally, the Medicare fee-for-service improper payment rate for fiscal year 2025 was estimated at 6.55%, or $28.83 billion, with Part B providers at 8.44% (Centers for Medicare & Medicaid Services, n.d.).

What Auditing Is

Auditing is a periodic, formal review that tests a sample of activity, such as claims and the documentation behind them, against defined standards. It is usually performed by someone independent of the work being tested, such as the compliance department or an outside auditor, follows a written plan and methodology and produces findings, error rates and recommendations. Its value lies in objectivity and depth.

What Monitoring Is

Monitoring is ongoing, routine checking, usually by the people responsible for the process, to catch problems as they happen. It often uses indicators and data, such as the share of visits billed with a particular code, and is lighter and more frequent than an audit. Its value lies in speed and coverage.

How Federal Guidance Frames Both

The federal inspector general's general guidance treats risk assessment, auditing and monitoring together as one element of an effective compliance program, expecting organizations to identify risks, monitor them continually and audit them periodically, with results reported to leadership and the board (Office of Inspector General, 2023). The managers' chart checks were a form of monitoring; the company had no auditing at all.

The Role of Data

Much monitoring now runs on data. A review of studies on data mining for health care fraud and abuse described supervised methods that learn from known cases and unsupervised methods that flag unusual patterns, such as outlier providers or unusual combinations of services, and found both useful for detection (Joudaki et al., 2015). For a therapy company, simple analytics go a long way: units per visit by therapist, the share of visits with exactly the maximum units, visits per plan of care and time from evaluation to physician certification.

Comparing the Two

Auditing and monitoring differ in several ways. Auditing is periodic, perhaps annual; monitoring is continuous, weekly or monthly. Auditing is independent; monitoring is performed by operations. Auditing tests a sample in depth; monitoring watches indicators across all activity. Auditing produces formal findings and corrective action plans; monitoring produces alerts and quick fixes. Monitoring tells the company something may be wrong this week; auditing tells it how wrong, how widely and why.

How They Work Together

The two feed each other. Monitoring can reveal a pattern that triggers a focused audit, as when one therapist's units per visit rise sharply. Audit findings, in turn, tell the company what to monitor, as when an audit finds unsigned plans of care and the company adds a weekly report of unsigned certifications.

Assigning the Company's Risks

The manager listed eight risks drawn from the federal audit and the company's own history and assigned each. Timed units matching documentation: weekly monitoring of units per visit by therapist, plus annual audit. Plan of care certification signed within required time frames: weekly monitoring of unsigned certifications, plus annual audit. Medical necessity and progress documentation: annual audit by an independent therapist reviewer. Correct use of modifiers for services by therapy assistants: monthly monitoring, plus audit. Supervision of assistants: quarterly monitoring of schedules against supervision rules. Evaluation and re-evaluation coding: annual audit. Exclusion screening of staff: monthly monitoring. Duplicate billing: automated monitoring in the billing system.

What the Managers' Checks Missed

The manager tested the value of the existing chart checks. For one month, she reviewed the same charts the clinic managers had reviewed, but against the full set of Medicare requirements rather than a signature checklist. The managers had found 4 problems in 60 charts; her review found 19, including 7 plans of care without a physician's signature within the required time and 6 visits where billed timed units exceeded documented minutes. The checks were not useless, but they were narrow, and the managers were reviewing their own clinics' work, which made it hard to see patterns they had come to accept.

Independence Without Distance

Independence is what makes auditing credible, but auditors who know nothing about therapy miss clinical context. The company addressed this by pairing the compliance manager, who is independent of operations, with a contracted therapist reviewer from outside the company for medical necessity questions. Clinic directors are invited to respond to draft findings before they are final, which improves accuracy without compromising independence.

Costs and Benefits

The program costs about $85,000 a year, mostly for the outside reviewer and analytics time. The first month's findings suggested that without it, the company was likely retaining overpayments that it would be obligated to return once identified and exposing itself to extrapolated demands if a contractor audited first. Finding problems internally, returning money promptly and fixing causes is far less costly than responding to an external audit.

Thresholds and Escalation

Monitoring works only if someone acts on it. Each monitored indicator has a threshold, such as a therapist billing the maximum units on more than 60% of visits, that triggers review by the clinic director within two weeks and, if unexplained, a focused audit by compliance.

Who Does What

Clinic directors run weekly monitoring reports and document follow-up. The compliance manager runs monthly company-wide analytics, conducts or contracts annual audits and reports to the compliance committee. An outside therapy auditor performs the medical necessity review to provide independent clinical judgment.

Conclusion

The company's managers were monitoring, but no one was auditing, and no one looked across clinics. Federal audit findings show where therapy claims fail; the inspector general's guidance expects both activities; and data mining research shows what monitoring can detect. By assigning each risk to weekly monitoring, annual audit or both, with thresholds and owners, the company now has fast signals and deep tests that reinforce each other.

References

Centers for Medicare & Medicaid Services. (n.d.). Improper payment rates and additional data. Retrieved September 30, 2026, from https://www.cms.gov/data-research/monitoring-programs/improper-payment-measurement-programs/comprehensive-error-rate-testing-cert/improper-payment-rates-and-additional-data

Joudaki, H., Rashidian, A., Minaei-Bidgoli, B., Mahmoodi, M., Geraili, B., Nasiri, M., & Arab, M. (2015). Using data mining to detect health care fraud and abuse: A review of literature. Global Journal of Health Science, 7(1), 194-202. https://doi.org/10.5539/gjhs.v7n1p194

Office of Inspector General. (2018). Many Medicare claims for outpatient physical therapy services did not comply with Medicare requirements (A-05-14-00041). U.S. Department of Health and Human Services. https://oig.hhs.gov/oas/reports/region5/51400041.pdf

Office of Inspector General. (2023). General compliance program guidance. U.S. Department of Health and Human Services. https://oig.hhs.gov/compliance/general-compliance-program-guidance/