10 tips for surviving payer audits

By Tiffany E. McFarland, RHIT, Analyst, Coding & Reimbursement, April 1, 2025

Academy coding staff address important coding topics each month in DermWorld Coding Consult. Read more Derm Coding Consult articles.

In the complex world of health care, payer audits are an inevitable reality for dermatology practices. These audits, whether triggered by high billing patterns, coding errors, or random selection, can be overwhelming. In addition to the possibility of having to return payments, an audit can drain valuable time and create frustration as you try to justify the medical necessity of procedures and services performed.

However, getting audited does not automatically mean a mistake has been made. Even if errors are identified, a single finding is unlikely to derail your career. With proper preparation and a clear understanding of the process, dermatologists can navigate audits effectively while maintaining compliance with payer requirements.

Insurance companies conduct payer audits to ensure compliance with contractual agreements, regulatory requirements, and appropriate use of health care funds. These audits aim to identify billing errors, overpayments, and potential fraud or abuse. Dermatology practices often face audits due to the high volume of procedural claims, utilization of high-value codes, frequent use of modifiers, and billing for services such as phototherapy, injectables, or cosmetic procedures that require detailed documentation. Understanding these triggers can help practices proactively address potential issues.

The art of preparation

Ideally, practices should strive to avoid audits altogether. Conducting internal audits is a proactive step that can significantly reduce the likelihood of external audits. Regularly reviewing 10 to 15 records can help practices identify and correct patterns of errors before they become problematic.

Internal audits also help identify recurring issues. If certain procedures or diagnoses are causing problems, it may be time for an office-wide coding refresher. Despite careful preparation, audits can still happen, so having a compliance plan in place is essential. Accurate, well-maintained records can simplify the process and may even lead to auditors determining that no further actions are required. However, not all audits are straightforward.

When an audit occurs, dermatologists must meet specific obligations as participating physicians in an insurance network. Cooperation with audit requests is mandatory, including providing access to patient records, responding to inquiries within specified time limits, and allowing payer representatives to review records onsite if required. Physicians should also be aware that private payers establish their own policies regarding the maximum number of charts and the frequency of claim and documentation reviews, which are typically outlined in the participation agreements signed during the onboarding process. Compliance with the Health Insurance Portability and Accountability Act (HIPAA) is essential, requiring the redaction of unnecessary information and the secure transmission of records.

Key steps for surviving an audit with confidence

1. Use the right codes

Ensure that all documentation for procedure, diagnosis, and drug codes, where applicable, are selected accurately from the most current versions of coding manuals (CPT, ICD-10, and HCPCS). Double-check that the codes represent the services rendered and align with the payer’s policies. For example, coding an injection must include the appropriate drug and dosage (e.g., J3300 for triamcinolone acetonide 40 mg). Errors in coding are among the most common reasons for claim denials.

2. Apply modifiers correctly

Modifiers provide additional information about a procedure or service, helping payers understand why it was performed. For instance:

• Modifier 25: Used to indicate a significant, separately identifiable E/M service performed on the same day as a procedure.

• Modifier 59: Signifies a distinct procedural service, typically when multiple procedures are performed at different sites or times. Misapplication of these modifiers can lead to claim denials or audits, so ensure their usage is supported by the documentation.

3. Maintain clear medical records

Documentation should include detailed, comprehensive notes that clearly outline the patient’s history, the medical decision-making (MDM) process, procedures performed, and follow-up plans. For example, include specifics such as the location and size of a lesion biopsied or the rationale for choosing a particular treatment.

4. Avoid illegible handwritten notes

Illegible notes increase the risk of misinterpretation, denials, or delays in payment. If handwritten notes must be used, ensure they are neat and clear. Keep a log of physician and non-physician clinician (NPC) signatures to validate the authenticity of records, as illegible or unverified signatures can lead to noncompliance during audits.

5. Authenticate records

All documentation must be signed and dated by the physician or NPC. Electronic health records (EHRs) should include timestamps and electronic signatures to meet compliance standards. Unsigned or undated records are considered incomplete and may result in claim denials.

6. Document thoroughly

Include enough detail in the records to justify medical necessity for each service rendered. For example, when coding an injection, include the drug administered, dosage, site of injection, and the patient’s response. If using modifier 25, include notes that show the E/M service went beyond pre-procedure care.

7. Monitor E/M documentation

Follow E/M coding guidelines based on the 2021 updates, which allow documentation to be based on MDM or total time spent. Ensure that the chosen approach is fully documented, with time breakdowns or specific details about diagnoses, treatment options, and risk factors.

8. Respond promptly to auditor requests

Keep a log of audit requests, including dates of receipt and deadlines. Timely responses are critical to avoid penalties or further scrutiny. If additional time is needed to gather documents, communicate this to the auditor before the deadline.

9. Submit complete documentation

Include all required records, such as progress notes, operative reports, and any supporting lab or imaging results. Submissions missing key details may lead to unfavorable findings or requests for additional information, delaying reimbursement.

10. Communicate clearly with auditors

Proactively address any concerns or barriers to compliance during an audit. If clarification or additional time is needed, notify the auditor immediately. Open and transparent communication can help prevent misunderstandings and expedite the process.

Managing the audit process

An organized system for storing patient records, claims submissions, and payer correspondence can streamline the process of responding to audit requests. Designate a staff member to oversee audit responses and ensure all deadlines are met. By addressing common pitfalls — such as missing or incomplete records or inconsistencies between coding and medical record documentation practices can mitigate risks and improve outcomes.

After the audit, the payer will provide a summary of the findings. Dermatologists should review this report carefully to understand any issues identified. If discrepancies or disagreements exist, practices can initiate the appeal process within the specified time limit, providing additional documentation or clarification as needed. Implementing corrective actions based on audit findings is crucial for addressing deficiencies and improving compliance. This may involve revising documentation practices, conducting additional training, or modifying workflows to ensure accuracy.

Building a culture of compliance

Long-term success in surviving payer audits requires cultivating a culture of compliance. Practices should invest in resources such as coding manuals, payer guidelines, and professional training programs to stay informed and prepared. Consulting health care attorneys or certified coders can provide valuable guidance on adhering to complex payer requirements. Leveraging technology, such as electronic health record (EHR) systems with built-in compliance checks, can also reduce errors and streamline processes. Regularly monitoring changes in health care regulations and payer policies ensures that practices remain proactive and adaptable.

Payer audits are an unavoidable aspect of practicing medicine, but they do not have to be a source of panic. By understanding the audit process, fulfilling their obligations, and maintaining a commitment to compliance, dermatologists can successfully navigate audits and protect their practice. Preparation, organization, and professionalism are the keys to surviving and thriving in the face of payer scrutiny.

Visit the Academy’s Coding Resource Center for additional guidance and more coding resources.

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