Retrospective audits by commercial payers are on the rise. Enhancing documentation and fully justifying medical necessity can take the sting out of these reviews and preserve revenue.

The retrospective audit is becoming an increasingly attractive method for payers to determine overpayments and recoup money. For example, the American Hospital Association’s RACTrac survey reveals that the number of RAC medical record requests increased by more than 50 percent from third quarter 2012 to first quarter 2013, and the total number of complex audit denials increased by 42 percent during the same period.


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Although less common than RAC audits, retrospective audits by commercial payers are also increasing. Commercial payer audits may occur separately from a RAC audit or dovetail with the federal government’s efforts. Recently, for example, several commercial payers “piggybacked” on a Medicare audit of a Kansas physician group, seeking to recoup perceived secondary insurance overpayments associated with the Medicare audit before the physician group had a chance to appeal, according to a Health Business Daily  article.

In the following Q&A, Richard Quadrino, founding partner of the New York law firm Quadrino Schwartz, shares some insights on commercial recoupments as well as some ideas on how healthcare organizations can prevent retrospective audits.

Do commercial payers often seek recoupment from healthcare organizations?

Quadrino: Although they don’t happen as frequently as RAC audits, I am seeing an increase in commercial audits and recoupments, reflecting a national trend. Commercial audits can target a variety of providers. For example, I recently represented a physician group in Tennessee. A payer had decided to stop paying for an expensive test, indicating the test was investigational and experimental. In addition to ceasing future reimbursements, the payer decided to recoup everything it had paid the physician group for the test in the past, which was a significant dollar amount. In addition, the announcement came with no warning to the healthcare provider.

This was particularly troubling because the payer had regularly paid for the test in the past, but suddenly reversed its decision without giving detailed information about how the decision came about. Since most health insurance is an employer-sponsored benefit, most commercial payers are governed by the federal employee benefits law called ERISA. ERISA’s regulations require that any recoupment decision be clearly justified and explained. Payers must share with the provider all the documentation supporting the decision and give the provider an opportunity to appeal.

The physician group began a lawsuit in federal court and the matter was settled, with the insurer waiving all of its claims against the group for recoupment.

Access related sidebar: When and How ERISA Can Protect a Medical Provider in an Audit Situation

Are you seeing any trends in commercial payer audits?

Quadrino: Similar to CMS, commercial payers are starting to hire private vendors to review and analyze claims data to identify patterns and reveal potential outliers. Commercial payers are then using retrospective audits to dig deeper into perceived payment anomalies and determine whether overpayment has occurred.

For example, one of my cases involved a psychiatrist who practiced in an inter-city area and focused on treating troubled youth. Due to the unique patient population, the frequency and intensity of the patient visits were above the norm for a typical psychiatric practice. A commercial payer began investigating why the provider’s claims were higher than average. After looking into the issue, the private insurer determined it had overpaid the provider and sought to recoup money associated with treatment. Although the psychiatrist’s claims were appropriate for the patient population, the payer disagreed, again not adequately justifying why it sought recoupment. As of today, this issue is still pending and not resolved.

Can healthcare organizations avoid this type of commercial payer audit?

Quadrino: Detailed documentation is probably the best way to avoid any audit, whether it be from a commercial payer or the federal government. When documentation clearly reflects the care an organization provides and describes the reasons behind that care, it leaves less chance for misunderstanding. Taking time to review your documentation and ensure it accurately and comprehensively indicates the who, what, where, when, and why of patient care is key. You don’t want to leave any room for suspicion or cause the payer to jump to conclusions or make false assumptions.

As part of this review, providers should also make sure that the services they provide are necessary and non-duplicative. If a payer believes that services are excessive, it may open the provider up to greater scrutiny. Taking time to bolster medical necessity justification can foster prompt and appropriate payment, and prevent both federal and commercial audits at the same time.

While providers can engage in preventive efforts, payers must also take some of the responsibility and reduce their reliance on retrospective audits. Right now, commercial payers often process large volumes of claims without thoroughly reviewing and analyzing them to ensure they are compliant with health plan benefit coverages and provider contractual agreements. This increases the payer’s reliance on using retrospective reviews—often years after payments have been made—as the primary means of verifying compliance.

If payers can proactively identify discrepancies between claims and benefit coverage/contracts, and provide more detail about their concerns to providers, then the interaction between payers and providers can be more positive, resulting in more consistent payment and less reliance on audits. Not only is this the right thing to do, but it is what the ERISA legislation and regulations require—a clear and honest exchange of information that leads to prompt and fair processes for payment. 


Kathleen B. Vega is a freelance healthcare writer and editor who contributes regularly to HFMA Forums.

Interviewed for this article: Richard Quadrino, founding partner of Quadrino Schwartz, New York City.

Access related sidebar: When and How ERISA Can Protect a Medical Provider in an Audit Situation


Discussion Starters

Forum members: Please share your insights, questions, and comments about this article. You can use the "inshare" button at the top of this web page or visit the Payment and Reimbursement Forum LinkedIn discussion board

  • Are you experiencing an uptick in the number of retrospective audits by commercial payers?
  • What situations seem to be prompting these audits?
  • What are you doing to limit the potential for these kinds of audits?


Publication Date: Monday, August 05, 2013