By: Jennifer Kirschenbaum
      Rachel Weinrib

There is an inherent disconnect in the current third party payor system. Third party payors have taken it upon themselves to decide when medical care should be covered and how much that care should cost. Hence, any money that is paid out for patient care is money out of the third party payor’s pocket. So, what do the third party payors do under the current system? They deny care when possible, bilk medical providers and oftentimes look to nickel and dime those healthcare providers who are reimbursed for services.

In New York, under the NYS Insurance law, Section 3224-a, third party payors are required to pay all claims made within 45 days of receipt unless there is a presumption of fraud. In recent years, third party payors have tried to take a second bite of the same apple on claims paid by conducting “retrospective reviews”. A retrospective review oftentimes takes the form of a full-blown audit, which in turn leads to a refund demand to recoup monies previously paid to practitioners for services rendered. This article provides an overview of the insurance carrier audit process.

Retrospective Reviews and Audit Process

Audits are initiated for any number of reasons, but the most common reason identified by healthcare lawyers in the defense of audits is that your practice “came up on a third party payor’s radar screen”. In other words, in tracking billing patterns of providers in your area, the third party payor identified your practice as deviating from “normal” billing patterns. Carriers have extensive data banks that provide the frequency with which each participating physician bills a particular CPT code as well as how that compares on a percentage basis with CPT codes billed by providers serving a similar patient population. The third party payors generate practice profiles by gathering data that indicates how often a physician performs a specific treatment or procedure (e.g., colonoscopy), where the treatment or procedure is performed (e.g., in or out of a hospital setting), and what CPT code the physician assigns to that treatment or procedure. All the while, insurers are comparing each physician's practice profile to those of other providers. Additionally, insurers maintain data banks that compare how often a provider orders laboratory tests and which tests they order. They subsequently generate provider profiles based on this information.

Unfortunately, even though New York mandates that managed care companies supply medical practitioners with the profiling data gathered in regard to that physician under Public Health law s. 4406-d(4), many managed care companies do not comply. And, as such, physicians have little opportunity to amend their coding and billing practices. Should you find yourself on a third party payor’s radar, it is likely that an audit will be conducted of your practice.

i) How Audits are Initiated

A retrospective review or audit is typically initiated by a letter requesting medical records from the healthcare practitioner under review. For the letter request to be valid under New York State law patients must be identified and specific dates of service must be referenced. A record request is proper whether you are a participating provider with the third party payor or not, so long as all Federal and State laws are complied with. In many instances, the third party payor will not pay heed to confidentially requirements in their record request letter, and therefore, should the healthcare practitioner send over the records without reviewing their confidentiality responsibilities to their patients, they will be in breach of those obligations and face potential liability for their actions. It is critical to make sure that you are in compliance with all confidentiality requirements prior to responding to any record request.

ii) The Extrapolation Process

The record request will be for a small fraction of records that the healthcare practitioner treats because the third party payor is only looking for a snapshot of billing practices. From the few records requested, the third party payor will use “extrapolation”. In other words, the third party payor will determine from that snapshot of records how frequently the healthcare practitioner is billing incorrectly, and as a result, how much money the third party payor paid to the practitioner that, after the review, should not have been paid. Thereafter, the third party payor multiplies the findings by the amount of patients actually being treated by the healthcare practitioner for the particular treatment or procedure under review.

A quick example of this would be a review for colposcopies and whether they are medically necessary. A third party payor may ask an OBGYN for 10 records of patients who received colposcopies. Thereafter, they may determine that out of the 10, only 5 charts indicated a medically necessary reason to order the colposcopy. The third party payor will take that 50% number and then multiply the rest of that practitioner’s patient population who received colposcopies by 50% and demand 50% of all monies paid to that practitioner for colposcopies back. Oftentimes, the coding analysis is conducted by an independent organization retained by the third party payor that is comprised of coding "experts".

iii) The “Negotiation” Begins

Once the third party payor has made a money refund demand to the healthcare practitioner, usually citing lack of medical necessity or improper documentation to support coding practices, the healthcare practitioner has the opportunity to mitigate damages by presenting evidence on why the third party payor was incorrect. Once that is presented, oftentimes the third party payor will go back to the table and recalculate monies they claim are owed. Oftentimes, a middle ground is reached, neither party happy, and a settlement is negotiated.

iv) Failure to Meet Common Ground

Sometimes, the situation escalates and that is what I consider to be the “worst case scenario” for the practitioner. The worst case scenario is when a third party payor refuses to withdraw their demand for repayment or refuses to settle the case on terms agreeable to the practitioner. In this situation, the matter may go to arbitration (if the practitioner is a participating provider and the provider agreement calls for arbitration) or litigation. Hopefully, well before reaching this stage, the practitioner has retained legal counsel. Some practitioners are confused by the concept of arbitration and think that they can go unrepresented, however, do not be fooled. The arbitration process is much like a full-blown trial. Both sides are represented by counsel and the case is heard by one to three arbitrators who make a final ruling. Both litigation and arbitration are expensive and not usually a preferred method of resolution.

Reducing Your Risk of an Audit: Developing a Compliance Plan

The best way to protect your practice from a retrospective review or audit is to develop the right compliance plan, which includes regular self-audits. By working with your team of advisors, you can protect your practice from the piranha looking to prey on your livelihood.

For additional information on Insurance Carrier Audits and Compliance Plans or to join our healthcare email list please contact Jennifer Kirschenbaum at Kirschenbaum & Kirschenbaum, P.C. at (516) 747-6700, ext. 302 or at