Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them

Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)

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Executive Summary

Despite the best efforts of physicians and their staff to ensure that health care claims are properly billed, mistakes are still likely to occur. Medicare and third-party payer coding and billing requirements are extremely complex and ever-changing. A common dilemma many health care providers face is how to handle these instances of improper billing once they are discovered. This section identifies a number of mistakes that physicians make, and issues that should be considered, when deciding how to best handle an overpayment.

Mistake 1   Failing to Properly Return Overpayments to the Government

Once it has been determined that an overpayment has been made by the government, physicians and their staff should diligently work to ensure that the overpayment is properly returned. Federal law enforcement agencies are increasingly asserting that a provider has an affirmative obligation to return an overpayment, despite the fact that the government may not have identified that the provider has been overpaid. As guidance issued by the federal Department of Health and Human Services, Office of Inspector General (HHS-OIG) reflects:

“Failure to repay overpayments within a reasonable period of time could be interpreted as an intentional attempt to conceal the overpayment from the government, thereby establishing an independent basis for a criminal violation.” (HHS-OIG’s Compliance Program for Third Party Billing Companies; 63 Fed. Reg. 70138, Dec.18, 1998).

Notably, a provider’s obligation to return an overpayment is not limited to federal health benefits programs. Under 18 U.S.C. § 669, it is a criminal violation to “knowingly and willfully” embezzle, steal, or otherwise without authority covert or intentionally misapply the monies, funds, or assets of a health benefits program.

In addition to federal regulatory and statutory provisions covering the failure to properly return an overpayment, providers will likely find that state Medicaid provider agreements likely include a contractual requirement to disclose overpayments and material violations.

Action Step           Physicians and their staff should have an effective compliance plan in place. Overpayments should be promptly identified and returned to the proper payer. 

Mistake 2   Turning a Civil Problem into a Criminal Problem

The vast majority of billing mistakes health care providers make are mere errors, accidents, or simple negligence. Once a problem is discovered, a physician can significantly complicate matters by concealing the problem, destroying evidence, or improperly attempting to influence testimony. Under various federal obstruction statutes, a physician may be charged with obstruction of justice for willfully engaging in activities that obstruct, mislead, deceive, or impede a health care fraud investigation. Similarly, false statements made to agents or government officials may lead to criminal charges under 18 U.S.C. § 1001, for the making of false statements.

Action Step          Physicians should ensure that false or misleading statements are not made when dealing with the government in connection with improper billings or overpayments received. Depending on the particular facts and circumstances, it is likely prudent to suspend document destruction activities. Legal counsel should be consulted to ensure that this is properly handled.

Mistake 3   Improperly Handling “Credit Balances”

Physicians may find that “credit balances” remain on the books for an extended period of time. Office billing staff and payers regularly make adjustments to accounts that sometimes result in underpayments. Other times these adjustments may result in an overpayment that is properly best characterized as a “credit balance.” “Credit balance” funds do not belong to physicians, and serious consequences can result if they are improperly handled.

Action Step           Physicians should work with payers to ensure that credit balances are properly returned. On occasion, there have been situations where a nongovernment payer responds that for one reason or another, the “credit balance” does not have to be returned. The money still does not belong to the physicians. Physicians should check with legal counsel to determine whether applicable state escheat laws require for the funds to be turned over to the state.

Mistake 4   Conducting an Internal Investigation of Billing Practices without First Consulting Legal Counsel

When improper billings are recognized, a physician may seek to resolve the problem as quickly as possible, either by directing staff to conduct an internal review or by hiring a billing consultant to review an office’s billing practices. In doing so, staff or consultants may uncover issues that law enforcement would readily obtain should the government initiate an investigation. Internal work papers and documents created in this fashion may later serve as a “road map” for the government’s investigation into possible billing fraud. Physicians should contact their attorney before engaging in these activities. Under certain circumstances, it may be appropriate for legal counsel to conduct or direct the internal investigation. In doing so, the work product and investigative results may qualify as privileged under the attorney work product privilege or possibly the attorney-client privilege.

Action Step           Physicians should immediately notify legal counsel if they find that improper billing practices have been employed that have resulted in improper payments to the provider. Legal counsel can assist the physician in determining whether the mistakes were isolated incidents or whether broader, systemic deficiencies may be involved. Moreover, legal counsel can help determine whether it is advisable to conduct an internal investigation, or engage outside billing consultants, through the law firm and under the direction of legal counsel, thus possibly protecting any adverse findings from disclosure.

Mistake 5   Involving the Wrong Government Entity When Returning an Overpayment

In returning an overpayment made by a federal health benefits program (e.g., Medicare), it is imperative that physicians fully appreciate how the improper billings may have occurred. Honest mistakes and isolated incidents of improper billing may best be addressed by returning the monies to the applicable carrier or intermediary. In contrast, efforts to resolve incidents involving significant improper payments or fraudulent conduct may require the involvement of HHS-OIG or the Department of Justice (DOJ). Reporting cases of clear fraud to a carrier or an intermediary rather than to HHS-OIG may be viewed as an attempt to avoid review and enforcement. Rather than avoid detection, it may result in the provider’s billing practices being reviewed on an even broader scale. It is important to remember that both carriers and intermediaries are required to report instances of possible fraud directly to HHS-OIG, leaving the physician in the position of appearing both fraudulent and intentionally evasive.

Action Step           Properly addressing this issue is essential to resolving serious cases of improper billings. Once again, a physician’s legal counsel should be consulted as early as possible in this process. If the decision is made to involve HHS-OIG or DOJ when returning an overpayment, legal counsel will also want to discuss remedial steps that have been taken to better ensure that the these improper billings do not recur.

Mistake 6   Failing to Consider Federal Programs Other Than Medicare

Consider this scenario: A physician finds that Medicare has been significantly overcharged due to improper coding or billing practices employed by the physician’s office personnel. Steps are immediately taken to ensure that the underlying problem is resolved, and the physician enters into settlement negotiations with HHS-OIG to arrive at a settlement figure. Problem solved, right? Not exactly. Systemic billing problems rarely affect only a single payer (e.g., Medicare). More typically, a problem that results in overcharges to one payer also adversely affects other payers as well. It is easy to overlook the fact that the HHS-OIG is not the only agency that should concern physicians. A provider may have also overcharged Medicaid (comanaged by the state and HHS), the Federal Employee Health Benefits Program (covering federal employees), and Tricare (covering Department of Defense dependents).

Action Step  When an overpayment is identified, a physician should identify the full scope of the problem. A physician should work closely with legal counsel. In most cases, it is in the physician’s best interest to seek a global resolution of overpayments to all federal health benefits programs, not just Medicare.

Mistake 7     Failing to Consider Third-Party Private Payer Issues When Settling with the Government

Third-party private payers have become quite aggressive in their efforts to recover improper payments made to providers. After learning of a Medicare settlement, a third-party payer may conduct its own investigation, determine if it was improperly charged, and send an overpayment letter seeking the recoupment of certain payments. 

Action Step  When a billing problem is identified, physicians should assess the full scope of the problem. To the extent that third-party payers have been overcharged, overpayments will need to be returned. In determining whether monies are owed, billing staff will need to carefully analyze the payer contract. Billing requirements and allowances may differ in certain respects from payer to payer.

Mistake8  Failing to Fully Appreciate the Importance of Private Insurance Audits

As third-party private payers step up efforts to identify improper billings, a physician may find that periodic audits are conducted by “program integrity” or similar sections within the payer organization. These reviews should be taken seriously. Rather than simply writing a check covering an overpayment, the physician should document why the payer is incorrect with respect to certain billings.

Action Step    As with other audits, it may be prudent to involve legal counsel in preparing a response to the payer’s allegations. Over the last few years, private payers have been found to readily report audit results to state and federal authorities if they believe that fraudulent activity is occurring.

Mistake 9   Failing to Consider the Full Ramifications of Participation in HHS-OIG’s Voluntary Disclosure Program

Not all improper billings are the result of mistakes, errors, or mere negligence. When faced with more egregious conduct, a provider may consider participating in HHS-OIG’s Voluntary Disclosure Program. There are a number of significant benefits to voluntarily disclosing improper Medicare billings through the program. Nevertheless, a provider should make this decision only after fully considering all aspects of the program. It is important to remember that under the program, there are no guarantees of protection from immunity from civil, criminal, or administration action. Moreover, admissions to HHS-OIG can be used against a provider in subsequent litigation. Additionally, once the government learns of problems, it is free to expand the scope of its investigation into other billing practices, beyond those disclosed under the program. 

Action Step     The decision whether to participate in HHS-OIG’s Voluntary Disclosure Program can be quite complicated. A physician’s legal counsel should be consulted so that an informed decision can be made.

Mistake 10     After Identifying Improper Billings, No Efforts Are Made to Prevent the Problem from Recurring

All too often, a physician or the physician’s staff identifies that improper billings have been made, refunds are issued, and no real effort is made to fix the problem. If the same problem recurs in the future, a physician will be in the unfortunate position of having actual knowledge that this was an issue. Such knowledge can adversely elevate the nature of a problem. While the initial occurrence may have been unforeseen, repeated mistakes of this type could result in expanded liability under various federal statutes.

Action Step     Physicians should take the time to assess how overcharges occurred. Once the problem is properly diagnosed, remedial procedures should be implemented and safeguards put in place to prevent improper billings from recurring. After correcting the problem, staff should be trained (and this training should be documented) so that they will be readily able to recognize future billing problems. Finally, audit systems should be adjusted so that the problem will continue to be monitored.


It is critically important that physicians avoid these mistakes when handling overpayments from health care payers.

Written by:

Robert W. Liles, Esq.

Peer reviewed by:

Iden Grant Martyn, Esq.

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