Audits

There’s nothing like getting a paycheck, and then having someone take it back.

If you’ve ever dealt with a recovery audit contractor (RAC), then you might know the feeling. RACs find and correct errors in payments that have already been made. If a RAC isn’t quite sure that a service you billed was medically necessary, they may conduct an audit and determine whether your clinical documentation supports the service claim submitted. 

They also gather data about where there are often high rates of errors, so they can provide the Centers for Medicare & Medicaid Services (CMS) with tools and guidelines for preventing future improper payments.

If you find out that you’re getting audited, you might feel a little (well, a lot) overwhelmed. But try not to get upset just yet. Physicians get audited all the time, and yet continue practicing successfully. 

The first thing you need to do is learn about the auditing process. An audit can be an easier pill to swallow if you understand what’s happening behind the scenes. 

The three review methods

RACs have three different ways to review claims and find payment errors. 

Automated review: This occurs when the RAC makes a claim determination at the system level. They use a computer program to find errors covered in national and local medical policies, and there is no human review. 

Because no human eyes are going through the claims, the errors have to be objectively clear. The errors must be either clearly non-covered services or have an obviously incorrect application of coding rules and conventions. So while an automated review won’t be able to determine medical necessity, it could catch that you tried to bill for cosmetic surgery (generally not covered).

If an automated review finds an error, you won’t be left in the dark. The RAC can’t hand you a post-it note that just says, “We found an error.” They are required to send an informational letter that describes the rationale for the improper payment determination, the refund process, and your appeal rights, should you disagree with the findings.

Semi-automated review: A semi-automated review is similar to an automated one. The big difference is that there is some level of human review. 

The process begins with an automated review. If this review catches something that has a high probability of being an error — but there is some possibility that it’s not an error — you will be sent a letter that lets you know that an error was identified. Just as with an automated review, the letter will let you know why there might be an improper payment. It won’t just tell you an error was found and leave it at that. You have 45 days to submit documentation that supports your initial billing. 

The next step is human review. The RAC will look at your documentation and determine whether it supports the level of service claimed. If they agree, you’re home free. They won’t send the claim for adjustment and the case will be closed. However, if they don’t agree, or you don’t even bother to send in documentation (not good, FYI), they’ll send the case to your Medicare claims processing contractor for recoupment adjustment.

Complex review: Here comes the fun one. During a complex review, the RAC will make a claim determination based on human review of the medical record. Records requiring complex review are generally those with a high-probability of being a non-covered service, or where there is no definitive Medicare policy or guideline. 

The RAC can look at any aspect of supporting medical records, including evaluation and management (E/M) services. The reviewer must be a qualified health coder or clinician, as they will often be making decisions about medical necessity. 

For a complex review, RACs must send notification letters that include detailed rationales, indicating the specific reasoning for determining that there was an improper payment. They are also required to reference the applicable policies and information within the medical documents to inform you about how to avoid similar errors in future Medicare billing practices.

Let the overpayment process begin

Medicare begins the process when they notice an overpayment of $10 or more. 

The RAC starts by requesting and reviewing medical records from the provider. They determine and communicate findings with the provider and MAC. If necessary, the MAC adjusts the reimbursement.

Demand letters: When the RAC audit detects an overpayment, they will send you a demand letter requesting payment refund. If you don’t pay them by the 31st calendar day from the day listed on the letter, you will start accruing interest.

If there is no response within 30 calendar days after the date of the first letter, the RAC will send you a second demand letter. Recoupment begins on the 41st day from the date of the first letter. 

Finally, if the debt has not been paid or recouped, or there is no valid appeal on file, within 120 days of the date of the first letter, you will receive a third letter. You really do not want to get to this level. At this point, the overpayment may be eligible for referral to the Department of Treasury for recoupment or collection. 

Appealing a Medicare decision

Don’t agree with the decision? Once you have received the initial claim determination, you have the right to appeal. (Note that dermatologists who do not take assignment on claims have limited appeal rights). And put that phone down because all appeals must be made in writing. For more on developing an appeal letter, go to Appealing an audit.

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