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

Almost every practicing physician will be the subject of an audit by a third-party payer during his or her career. These audits must be taken extremely seriously. Regardless of whether the third-party payer is the government (as in the Medicare or Medicaid programs) or a private insurance company, responding to an audit in a proper manner is of the utmost importance. It could mean the difference between a small overpayment, a lifetime exclusion from the health plan, or worse, a federal fraud and abuse investigation.

Mistake 1        Letting Panic Sink in to Cloud Judgment

Physicians who have been notified that their practice has been selected for an audit should not panic. Far too often physicians overreact to an audit request and make fundamental mistakes in the way the audit is handled in an attempt to make it go away quickly. Important decisions made in haste can be very detrimental. First, physicians should read the notice carefully to see if it lists the type of review or audit being performed or the reason their practice was selected for the investigation. If a private payer has initiated the review or audit, physicians should review the company’s provider manual to see if any information is listed regarding its right to audit a practice and the types of audits that may be performed. Physicians should take the time to check the company’s website for additional information. Since Medicare and certain third-party payers often conduct reviews and audits for various purposes and even randomly, receiving a notice of an audit does not mean that a practice is doomed.

Action Step     After receiving an audit notice, physicians should take a deep breath and gather their thoughts. They should outline a basic plan to respond to the audit, starting with which staff must be alerted to the audit and which business professionals must be contacted immediately.

Mistake 2        Calling the Auditor on the Telephone

Typically, most third-party payers notify physicians by certified mail that they are under investigation. The physicians should not call the auditor or the insurance company. However, if they are contacted by the auditor by telephone, aside from a brief discussion about the logistics of the audit, physicians should say nothing. There is no reason to answer any specific questions the auditor might ask verbally about the practice or any charts. If the auditor asks questions, the physician should simply say that he or she will be responding in writing. The less the physician says, the better.

Action Step     After receiving notice of an audit, physicians should refrain from calling the auditor or the insurance company to discuss it. All communication should be in writing.

Mistake 3        Failing to Consult with Experienced Health Care Counsel

Physicians should contact their attorney as soon as they become aware that they are under investigation and being audited. Their attorney can guide them through the audit process; physicians should not make the mistake of trying to handle this alone. 

Action Step     Physicians should consult with experienced health care counsel before they have any contact with the auditors or a representative of the insurance company.

Mistake 4        Failing to Respond in a Timely Manner

Physicians should begin preparing their response by having all of the requested charts pulled. They should make sure all information has been appropriately filed and that no information is left in the filing bin in the office. It is important to act promptly because delays can create suspicion. Copies should be made of all of the relevant materials that have been gathered. Physicians should pay close attention to the requested deadlines in the notice. If they are unable to accommodate the time frame specified, their attorney should contact the appropriate party to request an extension.

Action Step     Physicians should always respond to requests for medical records from a third-party payer in a timely fashion.

Mistake 5        Improperly Altering a Medical Record

After receiving a request for medical records from a third-party payer, physicians should not alter the records in any way. Many physicians want to add information to the record in an attempt to justify the billing code. That is unacceptable. If a clarification is necessary, it should be done only as an addendum, on a separate sheet of paper, or in a narrative form to accompany the record. In either case, it should be clear when the addendum was prepared so as not to be misleading. Falsifying medical records can convert an otherwise defensible case into a career-ending fraud case.

Action Step     Physicians should provide only the information requested in the audit letter. However, they need to look at each chart in its entirety. Their attorney may decide to forward additional information from the chart to support the coding.

Mistake 6        Refusing to Hire a Consultant

A physician’s attorney may likely recommend retaining the services of a certified coding consultant to review the requested charts. This is money well spent. It is a good idea to have an outside opinion regarding the accuracy of the coding of the charts that were selected for review. A coding consultant may also be able to identify potential coding problems that may have subjected the physician to review in the first place. Knowing potential problems in advance can help the physician successfully defend the audit, and the physician may be able to provide the reviewer with supporting documentation that justifies the coding used. Also, a coding consultant may help identify other problems (e.g., illegible charts or incomplete histories) and offer advice on how to prevent such issues in the future. 

Action Step     Physicians should follow their attorney’s advice and authorize the hiring of a coding consultant. The benefits of having a consultant review the charts far outweigh the fee for the services rendered.

Mistake 7        Failing to Protect the Confidentiality of a Consultant’s Report

Physicians who hire outside consultants to review their medical records after they receive notice of an audit should take steps to protect disclosure of the content of the report from subpoenas by investigators, whistleblowers, and other adverse parties. Protecting the confidentiality of the practice’s information from third-party discovery requests is one of the most important steps physicians should take when conducting an internal audit. Before hiring an auditor or a consultant to review their records, physicians should make a formal written request to their attorney asking that he or she conduct a legal review of specific issues involved. The attorney-client privilege and work product doctrine are two rules that can be used to protect the confidentiality of a physician’s information.

Action Step     Physicians should make certain that any consultants hired to assist during the audit are hired by their attorneys. All communications with those consultants should be directed through the attorneys.

Mistake 8        Voluntary Downcoding of Services

Physicians often ask whether they should review the audit documentation before submitting it to the third-party payer, and whether they should append the record or submit a corrected claim if that audit detects any deficiencies in the documentation. Of course, physicians should review all claims before submission to the third-party payer. Whether or not it is appropriate to include an addendum or supplemental information in the cover letter describing relevant information that is not readily apparent from the original note should be considered on a case-by-case basis. Voluntarily downcoding a claim simply because the documentation does not meet the carriers’ guidelines may not be appropriate at all. Documentation guidelines are, indeed, only guidelines. Therefore, if the code accurately describes the work performed, a physician should not voluntarily lower the code simply because of a documentation deficiency.

Action Step     Physicians who performed the service that was billed for and simply did not fully document the visit should challenge any alleged overpayment rather than voluntarily downcode the patient encounter.

Mistake 9        Failing to Challenge an Alleged Overpayment

After a review of a physician’s charts, the third-party payer may request a refund for an alleged overpayment. Many physicians mistakenly believe that challenging an alleged overpayment is much riskier than merely paying the amount requested. However, before simply giving in to a refund request, the physician must consider certain factors. For example, third-party payers may view capitulating to an audit as tantamount to admitting guilt. If they are able to collect an alleged overpayment from a physician easily, they will closely monitor that physician. A physician who simply repays the overpayment with no appeal is nearly guaranteed a future audit. Moreover, succumbing to audits strongly encourages insurance companies to perform future reviews because they are an easy revenue source. In short, simply refunding the money unchallenged invites a return visit and potential problems in the future.

Action Step     While under certain circumstances repaying an alleged overpayment may be prudent, failing to challenge an overpayment out of fear or intimidation may invite future problems. Ultimately, the decision as to how best to proceed must be made on a case-by-case basis and after consultation with legal counsel.

Mistake 10      Failing to Take Corrective Action If Necessary

Physicians should use this time to determine what steps they can take to minimize their chances of another audit. They should meet with their billing staff to discuss the reasons claims are most frequently rejected or denied. They should pull a random sample of charts for each billing provider and determine if documentation improvements can be made. If the practice has a written compliance plan, physicians should review it with staff to make certain it is being followed. If the practice does not have a written compliance plan, physicians should think about implementing one. Also, physicians should be sure the billing staff is working with the most current coding and compliance materials, and that the billing software is up to date on all changes to coding practices. Finally, physicians should not overlook their overall practice policy manual, which may need to be updated to reflect new policies triggered by the audit.

Action Step     Physicians should make sure that all services are properly documented and consistent with the CPT code(s) being billed. 


Being audited is not the end of the world, although it may seem so at the time. At the end of the day, the audit will be complete and the practice will survive. Physicians should use the audit as an impetus to reinforce or institute good compliance practices and perform ongoing periodic internal audits to identify and correct any future compliance issues. 

Written by:

Wendy A. Stimpfl, Esq. 

Peer reviewed by:

T. Lawrence Tabak, Esq.

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