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Internal Audit Procedure in Healthcare and Pharmaceutical Sector

The healthcare and pharmaceutical industry is a critical and intricate aspect of the global economy. It is a sector that is highly regulated, with a wide range of laws and regulations that govern the delivery of healthcare services and the development.

Internal Audits in the Healthcare and Pharmaceutical Sector ensure the effectiveness of organisation’s internal controls. These audits involve detailed examinations of financial controls, data security, clinical practices, and compliance with stringent healthcare standards, all of which are designed to protect the health and well-being of patients and the integrity of the industry.

Given below are the parameters on which Internal audit is carried out in any organisation.

 

 

Revenue Generation in Healthcare and Pharmaceutical Sector

The duty of an internal auditor is to examine the revenue generation strategies adopted by the organisation. They assess whether fees structures are competitive within the market and aligned with the value of services provided. Reviewing contractual agreements with other healthcare providers, pharmaceutical companies, and research partners to ensure revenue generation from partnerships is maximised and contractual terms are upheld. In addition, audits explore the appropriate use of research grants and philanthropic donations by monitoring donor restrictions and reporting requirements.

Revenue Assessment

Revenue-related processes, such as patient services, insurance reimbursements, government fundings, grants, and donations, are analysed by internal audits in healthcare. Auditor's responsibility includes the entire revenue cycle, from patient registration to billings and claims processing. They ensure that coding practices are compliant and documentation supports the services charged. Revenue leakage can also be detected through audits due to billing errors, missed charges, or improper claim denials.

An internal auditor also verifies that:

  • Billing accuracy: Ensuring that services are correctly documented, coded and billed helps in maximised legitimate revenue while avoiding billing errors and potential legal issues.
  • Revenue cycle management: The audit is responsible for scrutinising the entire revenue cycle, from patient registration to claim submission, payment posting, and follow-up on denials.Streamlined processes and reduced time between service delivery and revenue collection are guaranteed by a well-managed revenue cycle.
  • Missed charges and undercoding: Internal auditors are responsible for discovering instances of missed charges or undercoding where healthcare services provided are not accurately recorded or billed.Capturing all billable services can significantly boost revenue by addressing these gaps.
  • xMissed charges and undercoding: If the organisation offers telehealth services,ensure that the billing and reimbursement processes for virtual visits are accurately documented and aligned with regulatory guidelines.
  • Patient Collection: To assess efficiency of patient collection processes. Implement strategies to improve timely collection of patient’s co-pay, deductibles and outstanding balances.
  • New Revenue Streams: Explore opportunities to diversify revenue streams such as offering new services, expanding into different specialties or partnering with other healthcare providers for complementary services.
  • Technology and Automation: Assess the organisation’s technology infrastructure and software systems. Implementing revenue cycle management software and automation tools can streamline processes and reduce errors.

 

 

Cash Management while auditing in Healthcare and Pharmaceutical Sector

Managing cash is a crucial aspect of financial operations in the healthcare sector, and conducting an internal audit of the cash management process helps ensure the organisation’s financial health and regulatory compliance. The steps and considerations for an internal audit of cash management in the healthcare sector are as follows:

  • Cash Handling procedures and controls: Review the organisation’s policies and procedures for cash handling. Ensure that there are clear guidelines for collecting, counting, recording and depositing cash.
  • Assess segregation of duties to prevent having overall control of a single person. This might help in mitigating risks of fraud and errors.
  • Cash collection and recording: Examine how cash is collected, whether through patient payments, co-pays or other sources. Verify that all cash transactions are accurately recorded at the point of collection. Check for any inconsistencies between the amount collected and the amount recorded. Identify and resolve the inconsistencies promptly.
  • Cash reconciliation and balancing:CAudit the process of reconciling the cash transactions with the recorded amount. Ensure that regular reconciliation is performed, and any discrepancies are investigated and resolved. Make sure that the reconciliation process involves comparing cash on hand, receipts, and records.
  • Cash deposits: Review the procedure for making cash deposits into bank accounts. Ensure that deposits are made in a timely manner to reduce the risk of loss or theft. Verify that the deposit slips are accurately completed and that supporting documentation is provided to the financial team.
  • Safeguarding and security: Assess the security measures in places to safeguard cash including, secure storage, restricted access, and surveillance systems if applicable. Evaluate the organisation’s policies for handling cash during transportation to bank branches.
  • Internal controls and fraud prevention: Evaluating the internal controls in place to prevent and detect fraudulent activities related to cash handling. Cross-check whether the management has implemented controls such as approval processes for expenses and regular reviews of financial transactions.
  • Bank reconciliation: Audit the bank reconciliation process to ensure that the organisation’s bank statements are reconciled with internal records on a regular basis. Verify that any discrepancies identified during the reconciliation process are promptly investigated and resolved.
  • Documentation and recordkeeping: Examine the paperwork pertaining to cash transactions, including receipts, deposit slips, reconciliations, and any related correspondence.Ensure documents are properly organised, easy to access and stored in accordance with regulatory requirements.

 

 

Account Payable Processing

Account payable (AP) processing in the healthcare and pharmaceutical sector involves managing and recording the organisation’s financial obligations to vendors, suppliers and service providers. Efficient AP processing is crucial for maintaining good vendor relationships, managing expenses, and ensuring timely payments.

This is a summary of the processing of AP in these sectors:

  • Invoice receipt and verification: Invoices from various vendors, suppliers, and service providers are received by the accounts payable department. These bills may come in various formats, such as paper, electronic or electronic files. In recent years, many organisations have been tractioning to electronic invoicing (e-invoicing) for faster and more accurate processing.
  • Invoice approval:Regulatory compliance and internal controls can make the approval process for healthcare and pharmaceutical invoices complex. The process can be streamlined and authorised properly by using electronic approval systems and document management tools
  • Data entry and recording: To prevent mistakes in payments and financial reporting, invoice processing involves extracting relevant information from invoices and entering it into the AP system accurately.
  • Keeping record and reporting: Keeping the accurate record is essential because it is essential for financial audits, compliance requirements and reporting purposes. The AP department needs to maintain organised records of all invoices, approvals, payments and related correspondence.
  • Payment processing: Payment is scheduled after matching and approving the invoices. Checks, electronic funds transfer (EFT), or virtual credit cards are all methods that can be used to make payments. Some organisations negotiate early payment discounts with vendors to optimise cash flow.
  • Auditing and controls: Internal and external auditors play a significant role in maintaining financial integrity. AP departments need to be prepared for audits by having proper documentation and processes in place.

 

 

Compliance Overview in Healthcare and Pharmaceutical Sector

Focusing on compliance is critical to ensuring compliance with regulatory standards and corporate policies during internal audits in the health care sector. The audit assesses various aspects including Patient data privacy (HIPAA), medical coding accuracy (ICD-10), billing integrity, clinical protocols and infection control measures.

The affordable care act (ACA) of 2010 introduced further regulatory changes, emphasising quality of care and financial integrity. Overall, compliance in the health sector in the 2000s has seen an evolution toward more comprehensive regulation, increased enforcement, and an emphasis on transparency and accountability to ensure the best possible standards of care and protection for patients and stakeholders alike.

Risk Management

The process of risk management involves measuring or assessing risk and developing strategies to manage risk within the risk appetite in a structured, consistent, and continuous manner. The process involves identifying, assessing, mitigating, planning, and implementing risks, as well as developing an appropriate risk response policy.

Risks associated with Health Sector

Types of risks involved in health and pharmaceutical sector are as follow:

  • Clinical Risks: Patients safety and medical errors are involved in these risks. Mistakes in diagnosis, treatment or surgery can lead to harm or even death. Inadequate infection control, medication errors, and complications during medical procedures are examples.
  • Operational Risks: Supply chain disruptions, equipment failures, staffing storages, and facility management challenges are just some of the risks related to day-to-day operations.
  • Public Health Risks: Outbreak of infectious diseases, pandemic and public health emergencies can strain health care systems, overwhelm resources and pose risks to both patients and healthcare workers.
  • Regulatory Risks: Health organisations must adhere to numerous regulations and standards, such as HIPAA for patient data privacy, FDA regulations for drugs and medical devices, and CMS guidelines for billing and reimbursement. Failure to comply can lead to legal actions and financial penalties.
  • Environment Risks: Environmental risks, such as pollution and chemical exposure, hazardous emissions, etc., can lead to legal liability, reputational damage, and financial penalties for organisations.
  • Financial Risks: Healthcare organisations' financial stability can be influenced by changes in insurance policies, fluctuating healthcare reimbursement rates, and the rising cost of medical supplies. Economic uncertainties and changes in government funding are both factors that lead to financial risks.

 

 

Internal Controls of Healthcare and Pharmaceutical Sector

To protect assets, ensure accurate financial reporting, promote compliance, maintain efficiency, and manage risk, internal controls are a set of processes in the hospital industry. Segregating tasks, approval processes, reconciling, access control, data security, stock management, care standardisation, quality control, billing accuracy, and revenue cycle management are key controls. Patient care is improved, assets are protected, and compliance is promoted through internal controls.

 

 

Expense Management

Internal auditors review various aspects of expenses in the health sector, such as clinical supplies, labour costs, administrative overhead, patient care services, and technology investments, to ensure compliance with budgets, regulations, and operational efficiency.

Moreover, they examine vendor relationships, contract compliance, and potential cost-saving measures. Maintaining financial integrity, optimising resource utilisation, and enhancing healthcare service delivery while safeguarding financial sustainability are all essential reasons for conducting these audits.

Types of Expenses in Healthcare Sector

During internal audits in the health sector various types of expenses are evaluated to ensure financial accountability, compliance and operational efficiency. The expenses assessed typically include:

  • Operating Expenses: The healthcare facility's daily expenses are linked to its normal operations. Salaries of staff, utilities and supplies, maintenance and other costs related to hospital needs to keep the staff running are included in operating expenses.
  • Medical Supplies and Pharmaceuticals: To ensure proper procurement practices, inventory management, and cost efficiency, auditors review the expenses related to medical supplies, medications, and pharmaceuticals.
  • Equipment and Capital Expenses: This category includes all the expenditure related to purchasing, maintaining, and upgrading medical equipment and facility infrastructure. Auditors assess whether these investments align with the healthcare facility’s long-term goals and provide value for money.
  • Patient Care Costs: Auditors evaluate expenditures related to direct patient care, such as diagnostic tests, treatments, surgical procedures and consultations.They may review whether these costs are appropriately billed and reimbursed.
  • Labour Costs: Internal auditors examine the allocation of labour costs, including salaries, benefits, overtime, and other compensation-related expenses. This ensures compliance with labour laws and regulations.
  • Administrative Expenses: Non-clinical functions like billing, coding, administrative staff salaries, and office supplies are covered by administrative expenses.These expenses are reviewed by auditors to ensure accuracy and efficiency.
  • Compliance Costs: The purpose of these expenses is to ensure that healthcare regulations, privacy laws, and quality standards are adhered to.Auditors evaluate spending on compliance activities and verify compliance with legal and regulatory requirements.
  • Marketing and Promotion Expenses: Auditors may assess expenditures related to marketing and promotion activities conducted by hospitals to ensure transparency, proper use of resources and compliance with ethical standards.
  • Training and Professional Development: The auditors examine expenditures related to staff training and professional development to ensure that investments help improve patient care and organisational effectiveness.
  • Emergency preparedness Cost: Auditors may evaluate expenses related to emergency preparedness and response, ensuring that the facility is adequately equipped to handle unforeseen situations.

 

 

IT Assessment in Healthcare and Pharmaceutical Sector

IT assessment during internal audits in the healthcare sector is a crucial process that evaluates the information technology systems, infrastructure and practices within healthcare organisations.

This assessment is to ensure that IT resources are effectively managed, data security is maintained, and regulatory compliance is upheld. IT evaluation usually occurs during internal audits in the health care sector as follows:

  1. Scope Definition: Internal auditors collaborates with IT Experts to define the scope of the assessment. This includes identifying the systems, networks, applications and processes that will be evaluated. The scope may cover electronic health records (EHR) systems, patient data management, network security, software applications and more.
  2. Regulatory Compliance Review: Auditors assess whether the organisation’s IT practices comply with relevant regulations and standards in the healthcare sector.This includes evaluating compliance with regulations like HIPAA, HITECH Act, and the General Data Protection Regulation (GDPR), if applicable.
  3. Data Security Assessment: The Internal Auditor examines organisation’s data security measures to protect patient’s sensitive information and unauthorised access, breaches and cyber threats. This involves reviewing encryption practices, access control, authentication methods and vulnerability management.
  4. Electronic Health Records (EHR) Audit: If the organisation uses an EHR system, then the auditor must review accuracy, completeness and security of patient’s records stored in these systems. They should ensure proper documentation and data integrity controls are in place.
  5. Network and Infrastructure Evaluation: The organisation's network infrastructure, including firewalls, routers and servers is assessed for vulnerabilities and security measures. Auditors verify that the network is properly segmented to prevent unauthorised access.
  6. User access and authorisation: Auditors evaluate the users access controls to ensure that employees have appropriate access privileges based on their roles. They check for inactive accounts and unauthorised attempts to access.
  7. IT Governance and Policies: The organisation’s IT governance framework is assessed, including IT policies, procedures and controls. Auditors verify that IT practices align with organisational goals and industry best practices.

 

 

Patient’s Safety Measures

Hospitals prioritise patient’s safety in internal audits to ensure that the highest standard of care has been provided to the patients. Audits evaluate adherence to clinical protocols, medication management, infection control, patient identification, medical records, communication, emergency preparedness, staff training, patient involvement, informed consent, privacy protection, event reporting, and investigation, etc.

 

 

Conclusion

In healthcare, the multifaceted nature of expenses, ranging from personnel costs to patient care and compliance expenditures, demands vigilant oversight. Internal audits in the healthcare and pharmaceutical sector not only safeguard against financial mismanagement but also ensure that each dollar invested resonates in improved healthcare delivery. Likewise, within the pharmaceutical realm, the scrutiny extends to aspects like research and development costs, quality assurance, and regulatory adherence, crucial in fostering innovation while safeguarding public health.

Internal audits in the pharmaceutical industry are essential for ensuring compliance, safeguarding public health, and fostering innovation. These audits assess critical areas such as research and development costs, quality assurance, and regulatory adherence.

 

 

 

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