HCP 516 Week 3 Conducting a Compliance Audit and Reporting Error Rates Example

Thirty Claims, Then One Hundred Twenty: Conducting a Timed Units Audit at an Outpatient Therapy Company, From Probe Sample to Estimated Overpayment

[Student Name]

University of Phoenix

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

Week 3 Assignment

[Instructor Name]

[Date]

The therapy company, its claims, error rates and dollar figures are composites written for a model paper; federal rules, protocols and findings come from the sources listed.

The first audit in the composite outpatient therapy company's annual plan tested whether billed timed units matched documented treatment minutes. The compliance manager conducted it in April with a certified coder. This paper describes the audit's fieldwork, from the standard applied to the probe sample, the statistically valid sample, error classification and the calculation of an estimated overpayment.

The Standard

Medicare pays many therapy services in timed units. Under Medicare's timing rule, the provider totals the minutes of all timed services delivered to the patient during the visit and converts the total to units: 8 to 22 minutes equals one unit, 23 to 37 minutes two units, 38 to 52 minutes three units, 53 to 67 minutes four units and so on in 15-minute steps; minutes are then assigned among codes by rules for dividing units (Centers for Medicare & Medicaid Services, n.d.). A visit with 45 minutes of timed services supports three units, even if four different timed services were provided. The documentation must record total timed minutes and total treatment time.

The Probe Sample

The manager drew 30 Medicare visits at random from the six-month period using a random number generator and reviewed each against the rule. Nine visits, 30%, were billed with more units than the documented minutes supported. A probe shows whether a problem exists but cannot estimate its size across 17,000 visits with confidence. Given a 30% error rate, the manager moved to a statistically valid sample.

Designing the Statistically Valid Sample

The population was every Medicare visit with at least one timed code in the six months, 17,000 visits. The sampling frame, a list of all visits with identifiers, was saved. The manager drew a simple random sample of 120 visits, above the minimum of 100 that the federal self-disclosure protocol expects for estimates, and documented the seed and software used (Office of Inspector General, 2021).

Reviewing Each Visit

For each visit, the coder recorded the timed minutes documented for each service, total timed minutes, units supported under the rule, units billed and the payment difference. The manager reviewed every error. Visits with unclear documentation, such as minutes recorded in narrative text without totals, were resolved conservatively in the company's favor only when the record supported it.

Results by Visit

Twenty-six of 120 visits, 21.7%, were billed with more units than documented minutes supported. Twenty-three were overbilled by one unit and three by two units. No visits were underbilled by more than one unit, though four were underbilled by one unit, which the manager recorded and netted against overpayments as the protocol allows.

Results by Dollars

Sampled visits were paid a total of $11,460. The net overpayment in the sample was $492, about 4.3% of sampled dollars. The average net overpayment per sampled visit, counting visits without errors as zero, was $4.10.

Classifying the Errors

The coder and manager classified each error by cause. Sixteen came from therapists billing one unit per distinct service rather than applying the total-minutes rule, eight from documentation templates that did not total timed minutes, leaving billers to count units from service lists, and two from a billing office keying error. Most of the errors were not dishonest; they came from a misunderstanding of how units are counted and a template that invited it.

Estimating the Overpayment

Using the difference estimator, the average net overpayment per sampled visit of $4.10 was multiplied by the population of 17,000 visits, producing a point estimate of about $69,700. The manager also calculated the lower limit of a 90% confidence interval, about $52,300, which the self-disclosure protocol and many repayment settings use because it favors the provider while remaining statistically defensible.

Context From Federal Findings

The pattern matches federal findings. When federal auditors examined Medicare therapy claims nationally, billed units that exceeded documented time were among the most common reasons claims failed Medicare requirements (Office of Inspector General, 2018).

Workpapers

Every step of the audit produced a record. The workpapers include the sampling frame, the random seed, the list of sampled visits, the coder's review sheet for each visit with the minutes and units recorded, copies of the documentation relied on, the manager's second review of each error and notes from validation meetings. If a regulator, a payer or a court later asks how the company reached its figures, the answer is in the file, not in anyone's memory.

Keeping Fieldwork Objective

Two safeguards protected objectivity. The coder had no role in the company's billing and did not know which clinic each visit came from until the review was complete. And the manager decided in advance how ambiguous documentation would be treated, rather than making case-by-case choices after seeing whether a visit was an error. Pre-set rules prevent an auditor's expectations from shaping results.

Limits of the Scope

This review tested whether units matched documented minutes; it did not test whether the minutes themselves were accurate or whether the services were medically necessary, which were the subjects of other audits in the plan. The report says so plainly, because a reader might otherwise assume that visits without unit errors were fully compliant.

The Outlier Clinic

The focused review of 30 additional visits from the outlier clinic found 12 errors, 40%, consistent with its high rate of maximum-unit billing and with a template the clinic had customized.

Talking With Therapists

The manager interviewed six therapists whose visits had errors, not to assign blame but to understand how they counted units. Four said they had been taught at a previous employer to bill one unit for each service lasting at least eight minutes, a practice that overstates units when several short services add up to less time. Two said they relied on the template's service checkboxes and never totaled minutes. Their explanations matched the error classification and pointed directly to training and template changes. Interviews also reassured staff that the audit's purpose was to fix the process, which made the validation meetings more productive.

Validating the Findings

Before finalizing, the manager shared each error with the treating therapist and clinic director, who could point to documentation the audit had missed. Three findings were reversed when therapists located addenda signed within policy. The final counts above reflect those changes.

The Draft Report

The draft report states the objective, standards, method, samples, results by visit and by dollar, error causes, the estimate and its confidence limit and preliminary recommendations. It goes to the compliance committee and legal counsel, who will decide on repayment and whether disclosure is warranted.

Conclusion

A probe of 30 visits showed a problem; a statistically valid sample of 120 measured it. Applying Medicare's timing rule visit by visit, classifying errors by cause and using the difference estimator produced a defensible estimate of the overpayment and, more importantly, showed why errors happened: a misunderstanding of the rule and a template that did not total minutes. Those causes will drive the root cause analysis and corrective action that follow.

References

Centers for Medicare & Medicaid Services. (n.d.). Medicare claims processing manual, Chapter 5: Part B outpatient rehabilitation and CORF/OPT services. Retrieved September 30, 2026, from https://www.cms.gov/regulations-and-guidance/guidance/manuals/downloads/clm104c05.pdf

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. (2021). OIG's health care fraud self-disclosure protocol. U.S. Department of Health and Human Services. https://oig.hhs.gov/documents/self-disclosure-info/1006/Self-Disclosure-Protocol-2021.pdf