Handling Insurance Audits

Facing an audit is one of the most frustrating challenges for any practice, but it doesn’t have to be. With the right knowledge, preparation, and prevention, you can avoid major headaches. In this article, we break down two different types of audits—each with unique processes and outcomes—and how both in-network and out-of-network offices can be impacted. 

Perhaps one of the most irritating aspects of healthcare and insurance is when you and your team are facing an audit. However, the audit process doesn’t need to be a huge problem.  Knowledge, preparation, and prevention can mitigate most issues that may arise.

First, let’s talk about two different kinds of audits that you might face, because the process and results are widely different.  Some audits do affect out-of-network (OON) offices just as much as in-network (INN).

Clinical Audits 

Clinical audits can only be requested if you are an INN office, so if you are OON feel free to skip to the next section.  For those INN, the potential for an audit of your office practices is covered in a clause within the contract you signed, therefore, you cannot decline if the insurer comes calling.  

These audits are generally straightforward and should require minimal time. They are always prescheduled, with the auditor contacting your office in advance. Typically, they’ll request access to a few charts and walk through the office, taking notes. Afterward, they’ll ask the doctor a few brief questions before wrapping up and leaving.

These audits are required of the insurance company by law.  As such, the auditor tends to be looking for the normal infractions that may occur in an office from OSHA, HIPAA, safety, equipment, etc.  These are all basic features of a well-managed office, meaning not a lot to worry about.  Clinical audits rarely have much to do with insurance other than finding the most blatant errors (like filing for a service that was not provided and documented in the clinical notes).

If the auditor finds an infraction or concern, you typically will have 30 days to address the concern and report back to the insurance provider.  At that point the audit is done and over.  While these may be a small irritant, these are not the audits to worry too much about.

Financial Audits

Financial audits affect all offices the same, in and out of network. These do not require you to sign a contract with the insurance company to perform and are not typically done within the physical office space.

Financial audits come about when the insurance company finds some form of misbilling or fraud, and therefore they are looking to recoup money from said misrepresented services.  Because fraud is a breach of state and federal law, insurance companies do not need your permission to run financial audits.  Since the insurance company is not an enforcement agency, all they can do is demand their money back for any incorrect billing.  Insurance cannot demand or request any kind of penalties.  However, if you create problems during the audit or insurance finds major breaches, they can and likely will refer the case to the state after they are done with the audit.  Which leads to the common question:

“Do I have to participate with the audit, especially if I am OON?”

Yes!

Failure to participate not only means you are choosing not to defend yourself, but also means insurance is far more likely to refer the case to the state as well.  Not to mention even for OON offices insurance can pull money you owe them from future claims, even from patients not involved with the original claims that were being challenged.

So, it is important to participate in an audit to be able to defend yourself and your actions.  Now for the good news of this:

Insurance companies will always exaggerate the “damages” or overpayments.  

If they find a discrepancy in a few charts, the audit may extrapolate that “damage” to all patients of that insurance company during the period of the audit.  An office that legitimately has a few mistakes adding up to $1000 might have an audit outcome for $15,000 in claimed damage.

This is where the irritation comes, you must go patient by patient, claim by claim and defend whatever insurance is challenging you over. The key to your defense is to NOT get emotional.  These are purely math and legal challenges to what occurred within your office, and they want you to get emotional because only facts and logic will win.

Yes, financial audits will require a good amount of time to defend.  The only two positives about this process are that it can be done on non-clinical time and that an effective defense can reduce audit damages by 75% or more, even to zero.  If you aren’t fully prepared to defend against an audit and the claimed damages are in the thousands or tens of thousands, it would be highly useful to hire outside help.

As someone who has survived multiple audits and reduced damages by 90-100% in my own office, I can easily tell you from experience they are annoying but not something to be feared if you prepare well.

Preparation and Prevention

Audits of both types are very similar to state board investigations, they are almost purely about documentation.  Did each treatment and bill match what is in the clinical notes and other documentation?

Did you commit fraud or not?  Common examples of fraud are:

• Billing for services not provided 
• Billing for a higher level of service or material than provided (upcoding)
• Changing dates of services
• Failing to bill patients for copays and deductibles
• Billing cash and insurance patients differently

So, the first level of prevention is to learn what fraud is and avoid it.  While this may sound common sense, most offices are participating in some level of fraud, even with just the above list.  Correcting this now can be highly important.

The second level of prevention is one we tend to have the most challenge with, which is acknowledging their level of case documentation does not match what is required in today’s world.  Documentation standards continue to increase with technological advances, and what was acceptable in 1990, or even 2010, is no longer adequate today.

How do you know your documentation is sub-adequate?

When your office’s claim denial rate increases, that tends to indicate a need for improvement on documentation.

If you and your team learn to take clearer x-rays, notes, and most importantly photos you can avoid and defend against most audits.  Improved clarity of documentation also protects one better from state boards and malpractice findings. The best part is that clear photography also improves patient understanding, trust, and treatment acceptance.