Quick Question: What is a Medical Billing Audit and Why Conduct One?
A medical billing audit is a systematic review of a practice’s billing and coding processes to ensure accuracy, compliance, and financial efficiency.
Why it matters:
- Identifies revenue leakage from coding errors or missed charges.
- Reduces claim denials and compliance risks.
- Improves clean claim rate and reimbursement speed.
- Strengthens financial performance.
Conducting regular internal audits helps practices catch problems before they affect cash flow or trigger payer audits.
Introduction: The Link Between Audits and Revenue
Medical billing is complex, involving thousands of codes, payer rules, and compliance requirements. Even well-run practices can experience denials, underpayments, or compliance risks if billing errors slip through.
An internal medical billing audit is one of the most effective tools for protecting revenue. Instead of waiting for insurers or regulators to flag errors, practices can proactively identify issues, correct them, and optimize processes for long-term growth.
Step 1: Define the Scope of the Audit
Before diving in, decide whether your audit will focus on:
- Comprehensive Review: Full analysis of coding, billing, and collections.
- Focused Audit: Narrow review of specific problem areas (e.g., high denial rates, coding accuracy, payer-specific issues).
Pro Tip: Start with focused audits if your practice is new to auditing, then move toward comprehensive reviews.
Step 2: Gather Key Data
An audit is only as strong as the data you collect. Focus on:
✅ Claims data (accepted and denied)
✅ Coding accuracy (ICD-10, CPT, HCPCS)
✅ Documentation and encounter notes
✅ Accounts receivable reports
✅ Payment posting and write-offs
✅ Denial management logs
According to the Office of Inspector General (OIG), documentation and coding errors are among the most common issues found in healthcare audits (OIG).
Step 3: Review Coding Accuracy
Coding errors are a top cause of denials and lost revenue. Focus on:
- Undercoding: Failing to capture the complexity of care (revenue loss).
- Overcoding: Assigning higher-level codes without supporting documentation (compliance risk).
- Modifier Misuse: Incorrect use of modifiers like -25 or -59.
Conduct side-by-side comparisons of encounter notes and assigned codes to ensure accuracy.
Step 4: Evaluate Claims Submission Processes
Audit how claims are being submitted:
✅ Are claims checked for accuracy before submission?
✅ What percentage of claims are clean (accepted first time)?
✅ Are claims submitted electronically and on time?
Industry data shows that clean claim rates above 95% significantly improve cash flow and reduce rework costs (AAPC).
Step 5: Analyze Denials and Write-Offs
Every denial represents preventable revenue leakage. In your audit, categorize denials by reason:
- Eligibility errors
- Coding errors
- Missing documentation
- Payer policy issues
Then, track patterns: Are denials concentrated with a specific payer? A certain provider? A particular service line?
Fixing root causes of denials can boost collections by thousands each month.
Step 6: Check Compliance and Documentation
Audits aren’t just about revenue — they also protect practices from regulatory penalties.
- Ensure documentation supports every claim.
- Verify compliance with HIPAA and payer-specific rules.
- Confirm that records are stored and secured properly.
The Centers for Medicare & Medicaid Services (CMS) emphasizes that incomplete or inaccurate documentation is a leading cause of improper payments (CMS).
Step 7: Assess Accounts Receivable (A/R)
High A/R days mean slow payments and cash flow risk. Review:
- Average days in A/R (benchmark: < 35 days).
- Percentage of A/R over 90 days.
- Collection effectiveness index (CEI).
An audit should flag old receivables that require follow-up or outsourcing.
Step 8: Review Patient Collections
Patients are increasingly responsible for larger portions of bills due to high-deductible plans. Your audit should ask:
- Are co-pays and deductibles collected upfront?
- Are statements patient-friendly?
- Is there a system for payment plans and reminders?
Step 9: Document Findings and Corrective Actions
An audit isn’t complete without a clear action plan. Create:
- A summary report highlighting findings.
- Corrective actions (training, new tools, policy changes).
- A timeline for implementation.
- A follow-up audit schedule to measure progress.
Step 10: Establish Ongoing Monitoring
Audits should be part of a continuous improvement cycle.
✅ Quarterly focused audits
✅ Annual comprehensive audits
✅ Benchmarking against industry standards
This ensures your revenue cycle remains optimized and compliant.
Benefits of Internal Medical Billing Audits
- Increased revenue by identifying and fixing missed charges.
- Reduced denials and faster reimbursements.
- Stronger compliance with payer and federal regulations.
- Improved staff accountability and training.
- Clearer financial picture for long-term planning.
Conclusion
An internal medical billing audit is not just a compliance exercise — it’s a revenue protection strategy. By proactively reviewing coding, claims, denials, and patient collections, practices can plug revenue leaks, reduce compliance risks, and strengthen their financial future.
Regular audits are one of the best investments a practice can make to ensure sustainable revenue growth.
Supportive References
- OIG – Reports on Common Healthcare Errors
- AAPC – What is Medical Billing?
- CMS – Improper Payments & Documentation Errors
FAQs
1. What is a medical billing audit?
A review of billing, coding, and collection processes to ensure accuracy, compliance, and revenue optimization.
2. How often should internal billing audits be conducted?
At least once a year for comprehensive audits, with quarterly focused audits on high-risk areas.
3. What are the top benefits of billing audits?
Higher collections, fewer denials, stronger compliance, and better financial visibility.
4. Do billing audits require external consultants?
Not always. Many practices conduct internal audits, but external reviews can provide deeper insights.
5. What data is essential for a billing audit?
Claims history, denial logs, coding accuracy, A/R reports, and documentation records.
Related Resources
- Medical Billing Services for Small Practices
- Denial Management Solutions
- Credentialing Services
- A/R Recovery Services
- Step-by-Step Guide to the Medical Billing Process
- Essential KPIs for Financial Health
About the Author
Hasnain Ali is the Founder & CEO of Global Tech Billing LLC, a U.S.-based medical billing and revenue cycle management company. With years of experience helping healthcare providers streamline billing, improve collections, and maintain compliance, Hasnain writes about practical, people-first strategies for financial health in medical practices
