Adjustment Audits: Catching Suspicious Write-Offs
Adjustments are necessary. Adjustments can also hide theft, cover errors, and erode revenue. Knowing the difference requires systematic auditing.
📚 Part of our reconciliation series: This article is part of The Complete Guide to Dental Practice Reconciliation, our comprehensive resource on closing your books accurately and preventing revenue leakage.
Why Adjustment Audits Matter
Adjustments reduce what patients owe. Sometimes this is appropriate and necessary, like contractual write-offs for insurance or legitimate professional courtesy. Sometimes adjustments are inappropriate, like write-offs that cover stolen payments or errors that inflate revenue reduction.
Without regular adjustment audits, inappropriate write-offs accumulate undetected. Revenue leaks slowly. Fraud hides behind legitimate-seeming transactions. By the time problems surface, losses may be substantial.
Types of Adjustments
Contractual adjustments reduce charges to insurance-contracted rates. These are automatic and expected for in-network claims. The difference between your fee and the allowed amount is written off as a contractual adjustment.
Professional courtesy adjustments discount fees for employees, family, other healthcare providers, or special circumstances. These should follow documented policy and require appropriate approval.
Collection adjustments write off balances deemed uncollectible. These should follow attempts to collect and be documented with reason codes.
Administrative adjustments correct errors or handle special situations. These should have clear documentation explaining why the adjustment was needed.
Insurance adjustments reflect payer decisions beyond contractual write-offs, such as bundling, frequency limitations, or non-covered services.
Red Flags in Adjustment Reports
Unusual volume from specific users suggests one person may be writing off inappropriately. Compare adjustment activity by user and investigate outliers.
Round-number adjustments suggest estimation rather than calculated write-offs. Legitimate adjustments typically have specific amounts based on contracts or account balances.
Adjustments without documentation may hide inappropriate activity. Every adjustment should have a reason code and supporting detail.
Patterns of adjustments followed by payments suggest stolen payments being covered with write-offs. If a payment is received and then an adjustment is made to the same account, investigate.
Adjustments that consistently reduce balances to zero on accounts with payment activity may indicate theft of those payments.
Adjustments exceeding normal percentages indicate a problem. Track adjustments as a percentage of production and investigate significant increases.
Audit Procedures
Run adjustment reports for the audit period, filtered to show user, date, patient, amount, and reason code.
Sample-test adjustments by selecting a random sample for detailed review. For each sampled adjustment, verify the reason code is appropriate, documentation supports the adjustment, approval was obtained if required, and the adjustment makes sense given account activity.
Analyze patterns by looking for users with unusual adjustment volume, time patterns such as adjustments at end of day or month, relationship between adjustments and payments on same accounts, and trending that shows increasing adjustment rates.
Investigate anomalies by following up on anything suspicious with documentation requests, employee interviews if warranted, and review of related transactions.
Building an Adjustment Control Framework
Require reason codes for every adjustment. No adjustment should be posted without selecting a reason that explains why.
Set approval thresholds requiring supervisor approval for adjustments above certain amounts or of certain types.
Limit adjustment access so not everyone can post every type of adjustment. Restrict high-risk adjustment types to appropriate personnel.
Review adjustments daily or weekly rather than waiting for periodic audits. Early detection limits damage.
Segregate duties so the person collecting payments is not the same person posting adjustments. This prevents the most common theft scheme.
Document policies so staff understand what adjustments are appropriate, what approval is required, and what consequences follow inappropriate adjustments.
Responding to Audit Findings
Minor issues like missing documentation or inconsistent reason codes suggest training needs and process improvement.
Significant patterns suggest possible fraud requiring investigation. Involve appropriate parties including HR, legal, and potentially law enforcement.
Confirmed fraud requires employment action, potential legal action, and control improvements to prevent recurrence.
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