Understanding Insurance Audits in the Health Care Industry

Posted on Health Care Law News by Rachel Broughton

Aggressive insurance audits have become increasingly common within the health care industry, and all health care providers who bill insurers are susceptible to audits from those payers, whether it be the government (such as Medicaid or Medicare) or private insurance companies. While private insurance companies each have their own policies and procedures with respect to their appeals processes, there are multiple levels of appeal available when dealing with government payers, which includes the potential to have the matter judicially reviewed in Federal District Court. Medicare and Medicaid audits are conducted by third party contractors while commercial insurance audits may be conducted by either a third-party contractor or an employee of that insurance company. Generally, there are two categories of health insurance audits: pre-payment review (claims are reviewed prior to the insurers issuance of payment) and post-payment review (claims are reviewed after the provider has received payment from the insurer). Sometimes, a provider will be subject to a pre-payment review because of a prior unfavorable post-payment review decision.

Audits are usually initiated by correspondence from the insurer notifying a provider of the payer’s intent to conduct an audit. This initial correspondence will oftentimes accompany a request for records so that the insurer can review a sample of the provider’s records and other documentation before issuing its decision. Some of the most common risk areas that insurers look for include the lack of medical necessity, coding errors, personnel qualifications, improper supervision, and the failure to abide by the insurer’s specific policies and procedures.  For these reasons, physicians and other practitioners should invest significant time and financial resources in shoring up their documentation and billing compliance to decrease the risk of an overpayment determination to support and protect their reimbursement efforts.  Expending some time and resources on the front end can help avoid expending exponentially more time and resources on the back end trying to contain an audit mess and potentially large overpayment.

Another important aspect of insurance audits is the payers sometimes use statistical extrapolation methodologies to estimate the full extent of an alleged overpayment. Contractors have broad authority to use a wide array of statistical methods when extrapolating an overpayment amount, which can lead to grossly inflated overpayment determinations. More specifically, the payer will review a small “sample” of submitted claims and extrapolate the results of that review to a larger “universe” of claims to estimate the overpayment amount. This practice oftentimes leads contractors into rendering catastrophic overpayment demands of hundreds of thousands or millions of dollars despite only reviewing the documentation for a small portion of claims.  Such extrapolations are subject to attack on statistical (math) and other grounds, and our firm routinely works with a leading statistics expert to do so.

Nicholson & Eastin, LLP has represented healthcare providers and suppliers in connection with numerous audits conducted by various insurers, including both governmental payers as well as private insurers. If you or your health care practice are the subject of an audit, or if you’re simply interested in learning more information regarding how you and your practice may reduce the risk of an overpayment finding in the future, please do not hesitate to contact our office today.