One of the few certainties for healthcare providers in the evolving healthcare environment is that there will be an increase in audits by all payors, including Medicare, Tenncare MCOs, commercial payors, and even self-funded employer plans.  Failing to anticipate them and respond properly can devastating consequences.

The audits typically begin with a request from a payor or its contractor for copies of specified medical records. This is often followed (sometimes months later) by a letter asserting that there have been “overpayments”, and demanding payment or threatening recoupment from future monies owed. The “overpayments” asserted in the audit may be “extrapolated” to a large universe of claims, perhaps extending over a period of years, resulting in a demand for payments several-fold larger than the amount of the actual “overpayments” asserted in the audit. Some audits result loss of network participation, or in rare cases, even criminal charges.

The initial request for records should prompt an attempt to determine why the audit is occurring. Although some audits may be routine, they are often prompted by concerns about a specific coding practice that could alert the provider to a billing/coding problem.  The audits often occur when a payor’s data analysis indicates that the provider is an “outlier” (for example, billing a larger percentage of Level 5 “E&M” office visit codes than other practices, or if a certain type of service is performed more frequently than the norm).  If the nature of the problem can be determined at the outset of the audit, the problem might be corrected at an early stage, or addressed in the audit response so that the outcome is more favorable or the consequences are reduced.

In some instances, there may be a very logical explanation for “outlier’ status, such as a specialized practice area. Determining why the audit likely occurred can help in providing an explanation along with the records that would lower the suspicion level and scrutiny. It may also help in ensuring that all appropriate records are supplied to the auditors to support the necessity and appropriateness of the services. Upon receipt of an audit request, a provider should consider having a qualified outside consultant quickly review a sample of the records requested, and make an internal determination of whether there is a problem. Having an attorney arrange this process may protect the results as “privileged” if they are unfavorable, and may assist in developing an appropriate response. The importance of this has increased as a result of changes in the law that now consider the failure to return overpayments as a “false claim”, and result in a claim for trebled (tripled) liability.

An unfavorable audit result should be reviewed promptly and carefully for several reasons. The criteria applied to the claims are sometimes in error. For example, in a recent Medicare audit, the auditor concluded documentation was inadequate based upon a federal regulation that it contended required “documentation of how the test was utilized in the management of the patient”. In fact, the regulation simply specified that tests “must be ordered by the physician who uses the results in the management of the care”. By addressing the improper standard, multiple disallowed claims were allowed, with a substantial reduction in the claim due to extrapolation based upon the erroneous documentation standard.

If the demand uses “extrapolation” to estimate a much larger liability from the small group of audited claims, this should also be reviewed. A threshold question is whether the payer is entitled to use extrapolation, and even if it is permissible, whether the process was performed correctly. This may involve the use of experts in statistical sampling.

In many cases an appeal is appropriate and may be fruitful.  An effective appeal requires a thorough understanding of the level of appeals, and the requirements and deadlines of each level. It is important to analyze the decision at each level of appeal, to determine what to submit at the next level of appeal. Simply forwarding the same information is unlikely to address an issue that could easily resolve the dispute.  It is important to utilize every level of appeal, and not waste the initial appeal stage.

The decision accompanying a demand for overpayment may not be clear, and may be difficult to organize for review of common threads. Sometimes information can be obtained in a different format, such as an Excel spreadsheet, that will make it possible to organize a large group of asserted overpayments, so as to enable responses globally by category, which may be more efficient and require less time and expense. This data organization may also result in a better understanding of the exact reason why each claim was deemed an overpayment, so that it can be more effectively appealed and/or corrected.

When a demand for a small overpayment is made, there is a temptation to simply pay it. However, a small audit may be a “probe audit”, and doing so may result in a larger audit and compromise the ability to defend it. Therefore, it is important to give consideration to whether to appeal small overpayment demands, even though it does not seem cost-effective to do so.  

In some instances, it may be possible to negotiate a compromise resolution when arguably valid issues have been raised, or when it is not cost-effective to challenge the results. Having someone involved with experience in this process can help determine whether this is an option, and if it is, to effectively negotiate a reduction in the amount the payor will accept to resolve the claim.

Another area of concern is “scam audits”. If there is a demand for overpayment when there has never been a request for records, this should raise a red flag. There are unscrupulous individuals who simply send out a demand for return of an “overpayment”, hoping that providers will simply send a check without questioning it.  Before a payment is sent, the basis for the assertion of overpayment should be understood, and its authenticity established.

Assuring that billing staff is sensitive to these issues, and obtaining early assistance when appropriate, can avoid some of the problems mentioned above.

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