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The Rise of Managed Care Audits and Reimbursement Demands in the Wake of the ACA
September 18, 2017
If the summer of 2017 demonstrated anything, it is that health care remains a complex and contentious industry. One of its many complications stems from the natural tension between health care providers and health care insurers as to reimbursement for services. Due in part to the uncertainty surrounding future health care legislation and the increased pressure on the Centers for Medicare and Medicaid Services ("CMS") under the Affordable Care Act of 2010 ("ACA"), the health insurance industry is pressured to cut costs and reduce reimbursement rates. One way is to audit services previously rendered and paid for, in whole or part, for alleged overpayments, and then demand reimbursement from the health care provider. Many state agencies are ramping up audits and reimbursement demands, a practice which is encouraged by the CMS. Though this is frequently found in Medicaid, it has come to our attention that a similar practice is developing by managed care providers ("MCOs") in the private insurance context as well.
In these situations, MCOs will conduct an audit under the terms of the provider agreement between the MCO and the provider to review past payments and billing procedures. Sometimes these audits extend to services performed over a number of years. Based upon the results of the audit, the MCO may decide the provider was overpaid for services rendered. The basis for such overpayments may range from billing code errors and redundant services to inadequate documentation and fraudulent claims. To recoup these suspected overpayments, the MCO sends the provider a demand letter seeking reimbursement based on the findings of the audit, which may total hundreds of thousands of dollars. These letters urge the provider to either pay the requested amount (outright or by offset against future payment) or appeal through the MCO. Regardless of which option the provider chooses, the letter usually imposes a strict deadline of approximately 30 days.
Many providers have never received this kind of audit before and, therefore, may not be well equipped to respond without legal counsel. For example, though the demand letter mentions an appeal, it may not explain the process which is often contained in one of the myriad policies governing a provider agreement. This may leave providers unsure as to how to dispute the MCO's allegations, how the appeal process will proceed, what evidence or documents are needed for an appeal, and whether he or she has legal options in addition to the appeal referenced in the demand letter. This uncertainty can disadvantage the provider when negotiating directly with the MCO regarding the alleged overpayment.
To avoid this disadvantage, it is critical for providers to be well-informed as to:
  • their options in responding to this kind of demand letter from an MCO,
  • their rights under the law or a provider agreement, and
  • the most effective strategies to dispute the MCO's allegations.
Upon receipt of a demand letter from an MCO, providers should seek legal counsel immediately. This is necessary to determine what financial liability, if any, the provider faces and make a well-informed decision. After all, the audit may be accurate regarding a particular overpayment.
Having a trusted attorney complete such an analysis ensures the provider only pays what he or she is obligated contractually to return. For example, if a letter demands reimbursement for more than one year, this could violate West Virginia Code § 33-45-2 (the "Prompt Payment Act"), which prohibits the retroactive denial of previously paid claims of health care providers after one year from the date the claim was originally paid. In these instances, the provider may have legal recourse in the event of litigation. A law firm with experience with such audits can craft these legal arguments and use them in negotiations to reach an agreement with MCOs and thereby level the playing field.   
Most provider agreements contain some form of "claw back" provision, which authorizes repayment of the MCO by the provider under certain circumstances. The provider contracts generally reference the specific terms and conditions that govern when a provider is obligated contractually to reimburse the MCO for previously paid claims. Therefore, the provider contracts require a detailed legal analysis to determine what amounts, if any, can be "clawed back" by the MCO and the proper process for doing so.  
In summary, the receipt of an audit letter can cause a provider to waste needless time, money and stress, but it does not have to. As the number of such audits and demand letters continues to rise, it is important for providers to be aware of his or her legal options in dealing with them, while preserving necessary and long-standing relationships with MCOs. There are methods of satisfying both medical providers and the insurance industry as to audits and reimbursement payments. After all, effective and efficient billing practices are only possible through the ability and willingness of both sides to work together to achieve quality care at an acceptable rate.  

If you have any questions, please contact us.

Labor & Employment Law Chelsea E. Thompson