Part 6. Building an Audit-Ready Time Study Program
It’s not a matter of if your time studies get audited, but when. This is a relatively routine process by MACs, as directed by CMS. However, there has been an increase in scrutiny to validate reimbursement levels for hospitals following the pandemic.
During the COVID-19 crisis, time study reporting was suspended to relieve pressure on overtaxed hospital staff. CMS reinstated time studies in FY23, but hospitals were slow to respond. What resulted was a directive issued to Medicare Administrative Coordinators (MACs) to review time study reporting more closely, sometimes even reopening inquiries for Cost Reports that had already been approved. Transplant centers are also expected to receive more attention based on a 2025 directive by the HHS OIG to ensure accurate support for organ acquisition reimbursements.
An audit can be a relatively straightforward process when a solid process is in place. However, if your “time study house” is not in order, that’s when the alarm bells can go off. The consequences can be dire, with the worst-case scenario involving an extended process (that may even require litigation) and a “claw back” of Medicare reimbursement by CMS.
We will take a look at what an audit could mean, walk through the auditing process, and recommend ways to minimize the impact on your organization.
What’s at Risk with Audits
“The consequences can be dire, with the worst-case scenario involving an extended process (that may even require litigation) and a “claw back” of Medicare reimbursement by CMS.”
As we’ve covered in this series, time studies provide the foundational evidence for Part A compensation under the annual Medicare Cost Report. When CMS chooses to audit, its goal is to verify that the reported time allocations used to calculate reimbursement are supported by data. Following is what’s at stake:
▶ ‘At-Risk’ Reimbursement
What’s on the line isn’t future dollars you might receive. Now, we’re talking about money you’ve already received. Funds that may have already been applied to staffing, capital improvements, or patient care. CMS can disallow reported wages altogether or even claw back funds already distributed if an organization cannot provide the receipts. Living under the cloud of “at-risk” reimbursement could be painful and, in some cases, even catastrophic if your system has to forfeit reimbursement that it had counted on.
If you think this does not happen, we previously shared a story of how an audit can go wrong without proper documentation. A hospital that was audited had $97 million in high-wage physician compensation disallowed, which had a material impact on their wage index and commensurate reimbursement. No one wants to experience that “self-inflicted” damage.
▶ Audit Expense and Distraction
Going through an audit has inherent costs associated with the process. First and foremost is the extra time required by the reimbursement team to prepare materials for the audit. If the hospital is using a paper-based process, it may take organizing many boxes of paper into an orderly system that an outsider can review. However, even using email or spreadsheets can require some refinement to prepare them for an auditor's review.
Furthermore, hospitals that use third parties to assist in cost reporting will incur significantly more fees. If the audit becomes contentious, the unexpected costs can become astronomical, especially if legal action is required.
▶ Reputational Damage
A failed audit, or even a contentious one, can lead to a reputational hit that can sour the relationship between your system and your MAC. Like it or not, the two organizations will be working together for years, so any hiccups will likely linger and result in additional scrutiny for years to come.
If the audit goes sideways and there are material impacts, the CFO will need to be alerted, possibly even the Board of Directors or similar leadership structures. Finally, if litigation or sanctions occur, they have the potential to become public knowledge, including through the press and shareholders.
Inside the Audit Process
What happens during an audit? It all starts with your MACs, who take the lead on the process. Although you may have a cordial relationship with them, this is not a time to expect favors. Their mission is to hunt for flaws in your wage allocation process.
▶ Scoping
Work with the MAC to identify the period during which studies are being reviewed and what specific aspects they are testing. They may be evaluating a particular program, such as GME, or assessing your Physician Part A Administrative time more broadly.
Ensure the request is as specific and concise as possible. Agree on how the information should be prepared and the deadline. Finally, get all of this recorded in writing.
▶ Gathering and Production
Now it is time to pull all of the documentation together, and your process will dictate the level of difficulty. If you’ve been meticulous with organized and accessible records, this step will be straightforward. Otherwise, it may be an effort more akin to an archeological dig.
The easier you can make the MAC’s job, by having time studies quickly retrievable and documented in an easy-to-follow format, the better. Conversely, if your records are outdated, scattered across manual systems, or require extensive effort to retrieve, the audit could drag on for weeks.
For electronic records, the process is similar, however, ensure that MACs can easily access and search them. This means using file formats that auditors are comfortable with and organizing the information into folders that are intuitive to someone outside your organization.
▶ Auditor Sampling and Review
The auditor will typically randomly select files to “test” the process. They will conduct a time study and want to review what was recorded, how that information was used to calculate wage allocation, and ultimately, how it was incorporated into the Medicare Cost Report.
If the data is incomplete, inaccurate, or deemed insufficient, the auditor will request more information. For example, if a physician only submitted two time studies, and 10 are missing, was the individual’s data entered as reported or extrapolated for an annual wage allocation? If the latter, that’s a problem.
▶ Follow-up requests
After the initial review, subsequent requests will likely filter in for additional information. If the initial review revealed a weakness in the hospital’s process, further data will be required to determine whether this was a single case or a systemic failure.
▶ Findings and Remediation (if needed)
Ultimately, the auditor will present their findings in a written report. If your process is rock-solid, it should be both concise and straightforward. However, if the auditors find problems, they will be noted and provide recommendations to address these issues in the future.
If the MAC determines that your hospital received reimbursement for which it lacked proper documentation, CMS will assess penalties. You may have portions of your wage allocation disallowed, resulting in clawbacks of reimbursement.
Designing an Audit-Ready Program
Audit defense requires organizations to be proactive in their time study collection and management. To quickly recap time study requirements, you need one time study for each month, ideally completed in near real-time. Time documentation needs detail that’s granular enough to capture daily tasks accurately. Submitters need to attest to the accuracy of their reports.
From an administrative perspective, start designing your program with the end in mind to develop a program that is built to pass an audit. We’ve discussed business rules in the context of survey design. Now, we’re going to take a closer look at the business rules for those overseeing the process.
Here are a few tips to keep you on an auditor’s good side:
▶ Rigorous Process That Is Detailed and Timely
Time studies can be classified in many ways, but the reported time needs to be realistic. If someone is showing the same hours each day, that is a huge red flag. Also, being able to show when the time study was completed is essential.
An auditor will want to see that the time was submitted as close to the period being studied as possible. This is easily demonstrated with automated systems that include timestamps, but it is harder to show this level of detail with paper or homegrown systems.
Finally, being able to directly correlate the time reported via a time study with another record, such as a calendar or an EHR system, adds veracity to the submitted time.
▶ Traceable Audit Trail
Being able to show who did what and when is critical. Could you verify that the person who submitted and attested to the hours was, in fact, the same person? Show signatures and a time stamp of when the reimbursement team received the time study.
Without validation, the entire process is suspect, as time submissions could have been fabricated after the fact. In written forms, one may be asked to compare writing and signatures.
For electronically collected data, you can provide validation with login records and credentials supplied by Single Sign-On (SSO).
▶ Compliance and Training
Demonstrating that the hospital has a solid process stems from having repeatable systems that reinforce compliance among staff. You can elevate the rigor of your program by showing that the time study process was discussed in onboarding and reinforced through ongoing training.
No time study program is perfect, so demonstrating that you monitor compliance and send regular reminders to time study subjects can help mitigate any issues that may arise.
Effectively creating an audit-proof program should reduce the effort by administrative staff, not increase it. However, some investment in time, energy, and cost is needed upfront. Could you take the time to establish rules, software tools, and delegate responsibilities for implementing the program?
Preparing now means fewer disruptions, lower expenses, and significantly less risk down the road. With the right systems and policies in place, your time study program can safeguard your reimbursement.
