Healthcare Reimbursement Audits: What Providers Need to Know

Healthcare providers across Virginia are facing an increasing wave of aggressive reimbursement audits from insurance companies and government payors. Often, such audits result in significant demands for clawbacks of funds paid months or years earlier (referred to a “post-payment audit”).

Whether you operate a medical practice, behavioral health practice, pediatric office, ambulatory surgery center, or other healthcare practice or facility, understanding the audit process and your options for response can mean the difference between a minor setback and a practice-threatening financial crisis.

Why Healthcare Reimbursement Audits Are Increasing in Virginia

Fraud and abuse in healthcare is costly. Bad actors can submit false claims for services not performed or engage in any number of other fraudulent schemes. Both government payors and private health insurance companies have strong incentives to root out such bad actors and prevent fraudulent healthcare spending.

For payors seeking to improve their financial performance, the same tools used to identify and address illegal fraud schemes are being used to claw back previous reimbursements from healthcare providers based on much less sensational allegations.

Insurance companies are increasingly using artificial intelligence and sophisticated data mining techniques to allege that providers have received improper payments based on minor documentation deficiencies or documentation requirements that are obscure and opaque. Major payers have ramped up their audit activities, targeting a wide variety of providers and services and casting a wide net to identify potential opportunities to recoup payment from providers.

While reimbursement audits are common across the industry, behavioral health providers have emerged as a particular target. During the pandemic, many mental health providers adapted their services to meet surging demand through telehealth and expanded programs by utilizing waivers and other regulatory flexibilities in effect at the time. This surge in auditing activity seemed to initially center on these pandemic-era mental and behavioral health services. Payors are now applying lessons learned to broader audit initiatives.

How the Healthcare Reimbursement Audit Process Works

A post-payment audit typically begins with a letter from a payor requesting records from a specific time period and targeted patient population. The letters may come directly from the insurance company or may be sent by a contractor working for the payor. Such a letter may seem routine, but it requires immediate attention.

Providers should not treat an audit as a clerical exercise and send in the requested records without careful preparation. Audit letters can be vague in defining the specific documentation the payor or contractor is looking for, and a quick response can work against the provider. For example, submitting only individual progress notes without accompanying treatment plans or assessments can result in a 100 percent error rate, even when the underlying care was appropriate and well-documented.

Following a payor’s review of the records, an audit results letter typically includes instructions for the provider to payback any newly denied claims. The letters also include information about the providers’ rights to dispute the findings. Most payors provide two levels of review within the company, while overpayment claims related to Medicare or Medicaid can be disputed through additional methods.   

The Extrapolation Problem

Initially, an audit may cover only a small sample of claims. However, even a small audit sample can result in large repayment demands using “extrapolated overpayments.”

After examining a small subset of claims and identifying a high percentage of alleged problematic claims, a payor will assume that the same errors are present across a much larger universe of similar claims that have not been audited. At that point, the payor will use a calculated error rate to extrapolate the alleged overpayments to the provider across a much larger universe of claims.

The resulting extrapolation (and effective multiplier) can lead to recovery demands that are orders of magnitude larger than the actual sample overpayment. Thus, an audit that identifies an alleged overpayment of a few thousand dollars can turn into an extrapolated overpayment claim of hundreds of thousands. Extrapolations are often subject to challenge, but only if providers respond appropriately and timely.

Essential Steps in Responding to a Healthcare Reimbursement Audit

The initial response to an audit letter is critical. Providers who anticipate audit letters and have a plan for a response will be better positioned to defend their services and protect their finances. In response to an audit, providers should consider the following steps:

1. Don’t panic, but take it seriously. Receipt of an audit letter does not mean the provider has necessarily done anything wrong. However, these letters require prompt, strategic responses. Early review of the request letter and engagement with legal counsel can help providers formulate responses and identify and address potential issues early on.
2. Provide complete documentation. Review carefully the information the audit letter requests. If the payor asks for documentation supporting dates of service, the payor could be looking for a broad range of documentation, including progress notes, treatment plans, comprehensive needs assessments, and any other supporting documentation that demonstrates medical necessity and compliance with reimbursement contracts, rules, and policies.
3. Review the results. Upon receipt of a payor’s findings following an audit, providers should review the decision carefully with legal counsel, evaluating whether the payor’s claims about the content of documentation and the applicable billing rules are accurate. Often, payor audits miss important parts of a provider’s documentation that could resolve a concern, or misinterpret governing law, regulations, and payment policies. Even if an audit is relatively small and providers are tempted to simply pay back the funds, providers should be careful in setting a precedent or tacitly acknowledging errors without careful consideration. 
4. Consider options to dispute adverse findings. If a payor’s audit findings are inaccurate or subject to unfair extrapolation, providers should discuss dispute options with legal counsel as soon as possible. Often, dispute timelines can be very short and require a provider to formulate a dispute in only a few weeks. Missed deadlines can waive the ability to appeal later.
5. Learn from the process. Sometimes audits identify legitimate documentation deficiencies that warrant corrective action. For example, if an audit conducted by an insurer reveals missing required signatures, and that insurer represents only a small portion of your payor mix, a provider may reasonably conclude that the specific finding is not worth contesting. However, if a deficiency identified in a small audit extends across the organization and may affect claims submitted to Medicare, Medicaid, and other payers, the appropriate response is to address the systemic issue promptly to mitigate broader risk.

In other instances, audit findings could be based on questionable interpretations of coverage policies or do not accurately reflect the care provided. Those determinations should be carefully evaluated and, where appropriate, challenged through the available review and appeal processes.

The Sands Anderson Health Law Team has successfully represented healthcare providers at every stage of the audit, reconsideration, and appeal process. If you need help with a reimbursement audit, contact a member of our Health Law Team.