The Physician Executive

Retrospective Audits: Facing the Black & White Problems of a Grey Process

By Stephanie L. Jones, CPC-E/M

Dr. Smith sat in his chair scanning letters he’d read three times already. The payer audit itself had been only mildly annoying, a slight disruption of his office staff and an intrusion, but nothing he’d felt overly concerned about. Everything he billed he felt was justifiable. However, the results were far from what he expected and spelled out a state of affairs he felt unprepared for. With a frustrated hand through his hair he turned to his office manager and said, “Well, you’re the code expert—what do I do now?”

Post-payment payer audits of physician visits and consultations services are a complex environment where what is right can be as convoluted and difficult to understand as the rules are to ensure it. When faced with unfavorable audit results there are several points of consideration and of perspective to assist those involved in reaching the best end result. The most powerful answers begin from an objective, high-level understanding of the finances.

Health care is a business in crisis. In 2006, the United States spent 16.5 percent of its gross domestic product (GDP) on health care, which was more than four times the amount spent on national defense. National health expenditures are projected to nearly double by 2015. Fewer employers are offering health benefits and the numbers of uninsured are growing. Payers remain focused on is combating waste, with estimated annual fraud losses of over $90 billion. Inaccuracies in physician visits coding are estimated to account for up to 3 percent of the medical loss ratio in commercial plans and up to 1 percent in Medicaid plans. Abuses, honest mistakes in billing for physician visits and consultations services, account for estimated national losses of $20 billion a year.

Like Dr. Smith, the vast majority of physicians are committed to billing accurately and are surprised when mistakes are uncovered. Part of the problem rests with difficulties in the subjective aspects of correctly coding evaluation and management (E/M) services. On the surface, code selection appears black and white. However, interpreting the rules for documentation requirements and determinations on medical necessity can be frustrating. From the aspect of medical necessity, the correct level of service is determined by how sick a patient is. Conditions that pose an immediate threat to life or limb qualify for the highest level whereas patients with minor or well-controlled problems are at the lowest.

Levels are Key

For many physicians, selecting a level of service is hazy. On a scale of one to five with five being the highest level of service, selecting between a level three and a level four or two is more difficult. Peers may see the same patient and assume the same diagnosis yet they may still argue how sick the patient really is.

Beyond medical necessity aspects, the rules that govern documentation requirements are also subjective. Properly trained and certified auditors may agree on the actual code selection better than ninety percent of the time; however the means and measurements of their conclusion can be different upwards of 50 percent.

It is highly useful for a physician to have records concurrently reviewed while responding to an audit request. This gives an opportunity to identify potential problems and to respond. This review should include whether the physician adhered to the payer’s rules for documentation and code selection with regard to medical necessity. A qualified coder may review a document and establish that a comprehensive service was rendered. A medical review may find the same document lacking. For example, a comprehensive history and physical may not be necessary to repeat on a two week follow-up visit to recheck the patient’s normal blood pressure. A coder may not give a complete glimpse of the payer’s potential findings.

An Unbiased Peer

The most credible medical review comes from an unbiased peer, a physician may wish to review the records personally. The physician should use the perspective of other physicians in the same specialty. A comprehensive service may be a physician’s style of practice but may not be considered necessary and billable by a majority of peers. Familiarities with clinical examples from creditable sources are valuable in making determinations. Where no examples can be found, the written opinions of specialty associations establish objective measures.

Physicians’ Actions

When a concurrent internal review uncovers incorrect overpayments due to billing errors, the physician may chose to voluntarily return the money prior to receiving the payer’s audit results. Some physicians may seek legal advice to answer this and other tough questions. For example, a non-statistical audit without validation of overall payment accuracy may be considered refundable without admission of guilt or self-implication of a bigger problem.

However, statistically valid audit results have potential for much larger ramifications. A physician who billed a significant number of level three claims to a payer and found by a statically valid audit to be under-documenting level three visits can extrapolate overpayments of hundreds of thousands of dollars. Assuming that a physician codes services similarly with all payers, the statistically valid results may produce a situation where it is necessary to self-report to Medicare and other payers. Mistakes such as under-documenting a service that was fully rendered are areas where commercial payers often agree to adjusted settlements. Proper legal advice can be invaluable in determining if extrapolation is allowable, reaching settlement agreements and responding properly.

A physician should be fully aware of rights and responsibilities prior to responding to a request for medical records in retrospective overpayment recovery audits. Many physicians may decide to incorporate the assistance of an attorney to gain proper legal advice. Contractual agreements, prompt payment laws, payer settlement agreements and other statutes may govern when a retrospective audit and overpayment recovery occurs. In some cases, a retrospective audit is not allowed at all without suspicions of fraud or advance notice to a physician at the time of payment. Many states have laws that only allow overpayment recovery on claims billed within a limited time frame. Others have rules that govern how long a physician has to produce the records, appeal rights, and when repayments by deductions from future claims is permissible.

Some rules allow a practicing physician of the same specialty to make overpayment determinations. From a practice expense aspect, physicians may be allowed to bill a payer for producing records. The rules are different based on governing laws, and physicians practicing in different states may have very different rights and responsibilities. Fully understanding them is the key to ensuring a properly and fairly conducted audit.

Examine the Cause

When a payer returns unexpected and unfavorable results, the physician should carefully examine what caused the denied level of service. Due to problems of subjectivity in the audit process, a physician may overturn audit results with valid and reasonable debate. There are times when two separate audits of the same service produce different results and neither party is proven technically “wrong.” Correct interpretation in these cases requires a sophisticated understanding of code selection, citable references, and logical argument. These discussions often improve future payer policies and result in physicians who are better informed. Unless it is specifically spelled out, physicians should not assume that the payer intends to collect overpayments based on audit results. Many times an educational audit is conducted rather than an audit intending an overpayment demand. The collection process is expensive and physicians who show an expected response to audit-based coding education and correct billing may ultimately produce a higher return to the payer.

Government officials, employers and patient consumer stakeholders are demanding controls on health care costs. Many are far less concerned with who is right than what is right. Shoring up subjectivity to assure uncontestable coding and billing requires experienced certified coders, and the backing of medically accepted practice standards. With the proper coding advice and education, a strong backing from peers on issues that relate to levels of service and medical necessity, an understanding of the legal environment and the financial concerns regarding national health care spending a physician can most objectively challenge audit results or change coding behavior to ultimately achieve the most favorable and correct ongoing outcomes for all involved.

Muriel had been Dr. Smith’s office manager for five years. She calmly collected the offending letters from his desk and handed him her report with a complete audit trail that mapped out the specific areas of concern. “I’ve identified that these codes are in discrepancy based on the level of examination you performed. The payer audit found that you lacked the necessity to perform a detailed exam. Based on this, I redacted the claims and forwarded them for a written opinion from the medical society and the peer review organization. I believe we are on strong ground.”


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