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Practice Management & Allied Staff News & Materials

Post-Payment Audits & Refund Requests

March 14th, 2013

Many question whether it is legal for insurance carriers to requests refunds? The answer is "Yes." Insurance carriers are allowed to conduct retrospective audits, and frequently do so. Retrospective audits are mechanisms used by insurance carriers to detect fraudulent billing behavior and recoup costs associated with administrative oversights. Carriers may also conduct retrospective audits if they have "red flagged" a physician because of what they believe to be over utilization of certain procedures or modifiers.

Before refunding the insurance carrier you should research the accuracy of the payment in question. Demand the carrier provide an explanation as to why they believe the refund is legitimate including details of their bundling edits, fee schedules, criteria or provider bulletins. Also, look into your State's laws concerning limitations on detecting and recovering overpayments. Due to the increase in the number of carriers recouping payments long after payment had been issued, some states have enacted legislation or revised their prompt payment laws to limit the time frame in which insurers can detect and recoup overpayments. As for Medicare providers, the American Taxpayer Relief Act of 2012, which became effective January 1, 2013, has extended the statute of limitations for recoupment of overpayment from 3 years to 5 years.

If you know the claim resulted in double payment, was submitted fraudulently or incorrectly you have a responsibility to refund the carrier. In fact, among fraud and abuse provisions included in the Patient Protection and Affordable Care Act (PPACA) signed into law March 23, 2010, section 6506 requires a "person" that has received an overpayment to report and return it in writing with the reason for the overpayment no later than 60 days after the date which the overpayment was identified. A "person" may refer to a provider, supplier, Medicaid managed care organization, Medicare Advantage plan and PDP (Prescription Drug Plan) sponsor. A person violating this requirement will be considered in violation of the False Claims Act. While this applies to Medicare and Medicaid, you may also find other third party payers adopting the same, therefore be sure to review your provider contracts or speak with your provider relations representatives to determine the carrier's policy.

 On February 14, 2012 CMS released their proposed rule pertaining to the reporting and returning of Medicare overpayments.  This rule reiterated the PPACA’s law from 2010.  The proposed rule also identifies the following as examples of overpayment:

  • Medicare payments for non-covered services;
  • Medicare payments in excess of the allowable amount for an identified covered service;
  • Errors and non-reimbursable expenditures in cost reports;
  • Duplicate submission of the same service or claim; and
  • Receipt of Medicare payment when another payer had the primary responsibility for payment. 

CMS also includes ramifications within the proposed rule for those who fail to report and return over payments.  Below are some of the potential repercussions a “person” may face:

  • False Claims Act liability;
  • Civil Monetary Penalties Law liability; and
  • And exclusions from Federal health care programs.

However, if you believe the claim was submitted correctly and the service was medically necessary and you are dealing with a payer other than Medicare or Medicaid, consider the following:

Are you contracted with the carrier in question? OMSs should review their provider contracts to determine how to respond to refund requests. Provider contracts often outline the carrier's claims and utilization review processes as well as their policy for recouping overpayments or retrospective audits. If your contract does not outline the time frame for refund requests, it is recommended that you renegotiate your contract to include an amendment setting a time limit the carrier has to request a refund. For example, if state law prohibits carriers from rescinding payment more than 120 days after receiving the payment, a similar time frame should be included in your provider contract. If your state does not mandate a time frame, a time frame may possibly be negotiated with the carrier. In addition, provider contracts should be reviewed for mention of "offset" provisions allowing carriers to deduct from future reimbursement. If such a clause exists it may be wise to have it eliminated during your contract negotiations.

Are you a non-participating provider?  If you are not a participating provider with the carrier requesting the refund and your state law does not broach the subject, you may contend the request since you may not be contractually bound to abide by the carrier's claims and payment policy. This presumes, however, that there is no allegation of fraud. A related issue would be whether or not you accepted assignment when you filed the claim. If you did not accept assignment, the carrier should deal directly with the patient, as they received payment from the carrier.

Does the insurance carrier normally reimburse the procedure they are claiming was paid in error? If the request for the refund was made within the appropriate time frame, the request must be investigated. It may be possible that the plan has established a new audit program or updated their parameters for coverage. If so, is the new program or parameters permitted by contract? You may also wish to obtain a copy of the patient's policy to review the language for covered benefits and exclusions. The coverage of such procedures may be addressed in the patient's policy. If covered, you may produce the patient's policy as proof that the services are covered and therefore not obligated to refund the insurance carrier. Related to this, would be documentation that the benefits were verified prior to surgery either in writing or with name, date, and time of phone verification. In addition, the service may have been provided prior to the effective date of the new policy. If it is determined that the patient was not covered at the time of service or the procedure is excluded from the patient's benefits it is reasonable to recoup payment from the patient.

Was the procedure medically necessary or coded accurately? The recoupment may be legitimate if the carrier's post-payment audit found the procedure to be not medically necessary or billed incorrectly. If the procedure was medically necessary a letter should be sent to the carrier disputing the refund, including operative reports, physician notes, x-rays or models to support your case. You also are within your right to question the plan's clinical criteria used to determine medical necessity. If audited due to a high volume or frequency of services, or inappropriate or repeated use of E&M services, quality documentation is your best defense. Incomplete documentation will not provide the support required to defend a retrospective audit. Furthermore, the HIPAA Privacy Rule requires physicians to only release the "minimum necessary" when requested. Therefore, if a carriers request for information exceeds the minimum necessary standard, the physician may inform the carrier of his or her position.

There may also be other factors prompting the refund request such as the carrier is in a financial crisis; issues concerning the plan's credentialing or re-credentialing process; or the request is tied to a problem identified by the government (i.e. the Office of Inspector General (OIG) Work Plan, improper or duplicative billing; inaccurately coding E & M services, or inappropriate use of modifier 25 and other modifiers to purposely bypass CCI edits.) At any rate, you may wish to create a log that captures carrier trends or tracks utilization review decisions through claim denials.

Nonetheless, an insurance carrier's request for a refund should not be ignored. While there are many states that have enacted legislation limiting the time in which carriers can pursue refunds, federal legislation such as the PPACA may also place time limits for you to respond as well as allow interest to be charged. Thus it is imperative to familiarize yourself with your State's Insurance Codes. You may wish to contact your State Department of Insurance for additional information. If a dispute cannot be satisfactorily resolved through the plans internal and external review processes, further appeals through an arbitrator or the court may be required.

This is obviously a highly variable issue, and one which cannot be clearly defined for all cases. The information provided is meant primarily as a general guideline, and cannot address all specifics with all carriers, or within all locales. OMS' are encouraged to follow up with their practice attorney for legal advice.

States That Have Established Time Limits on the
Detection and Recovery of Overpayments

Alabama (18 mos) (Ala.Code 1975 § 21-54-020)
Arkansas (18 mos) (A.C.A. § 23-63-1802, AR ADC 054.00.85-3)
Arizona (1 year) (A.R.S. § 20-3102)
California (1 year) (West's Ann.Cal.Ins.Code § 10133.66)
Colorado (1 year) (C.R.S.A. § 10-16-704, C.R.S.A. § 10-16-106.5)
DC (18 mos) (DC ST § 31-3133)
Florida (30 mos) (Fla. Stat. §627.6131)
Georgia (1 year) (O.C.G.A. § 33-20A-62)
Iowa (2 years) (IA ADC 191-15.33(507B))
Indiana (2 years) (IC 27-8-5.7-10)
Kentucky (2 years) (KY Rev. Stat. Ann §304.17A-708)
Maryland (COB - 18 mos, 6 mos) (MD Code, Insurance, § 15-1008)
Maine (1 year) (Me. Rev. Stat. Ann. 24-A §4303)
Missouri (1 year) (Me. Rev. Stat. Ann. 24-A §4303)
Montana (1 year) (MCA 33-22-150)
Nebraska (6 mos) (210 NE ADC Ch. 61, § 009)
New Hampshire (18 mos) (N.H. Rev. Stat. § 420-J:8-b (HMOs))


New Jersey (18 mos) (N.J.S.A. 17:48-8.4, N.J.S.A. 17:48-7.12, N.J.S.A. 17:48E-10.1, N.J.S.A. 17:48F-13.1, N.J.S.A. 17B:26-9.1, N.J.S.A. 17B:27-44.2, N.J.S.A. 26:2J-8.1)
New York (2 years) (NY Insurance Law § 3224-b)
North Carolina (2 years) (N.C.G.S.A. § 58-3-225)
Ohio (2 years) (R.C. § 3901.388)
Oklahoma (2 years) (36 Okl.St.Ann. § 1250.5)
Oregon (2 years) (O.R.S. § 743.912)
Rhode Island (2 years) (Gen.Laws 1956, § 27-18-65, Gen.Laws 1956, § 27-19-56, Gen.Laws 1956, § 27-20-51, Gen.Laws 1956, § 27-20.1-19, Gen.Laws 1956, § 27-41-69)
South Carolina (18 mos) (Code 1976 § 38-59-250)
Tennessee (18 mos) (T. C. A. § 56-7-110)
Texas (180 days) (V.T.C.A., Insurance Code § 843.350 (HMOs), V.T.C.A., Insurance Code § 1301.132 (PPOs))
Utah (COB - 2 years, Medicaid/Medicare/CHIP - 3 years, 1 year) (U.C.A. 1953 § 31A-26-301.6)
Virginia (1 year) (Va. Code Ann. § 38.2-3407.15)
Vermont (1 year) (M.G.L.A. 118E § 38)
Washington (2 years) (18 V.S.A. § 9418)
West Virginia (1 year) (W. Va. Code, § 33-45-2)

States that stipulate the recoupment process but do not institute a time limit
(3 states - as of June 2010)

Alaska (AS § 21.54.020)
Louisiana (LSA-R.S. 22:1838)
Massachusetts (M.G.L.A. 118E § 38)