responding to an insurer’s recoupment of past payments

Healthcare providers are acutely aware of the continuing reductions in payment for their services. But most providers are less familiar with insurance carriers' use of recoupment techniques, which can have an even greater effect on finances. With carriers issuing overpayment demand letters with increasing frequency, providers should be aware of regulations that may govern such activities and incorporate strategies to avoid recoupment of valid payments.

Factors Behind Recoupment Demands

Most providers probably have received a letter from a health insurance carrier stating that a past claim was improperly paid (an "overpayment," in the carrier's view) and demanding repayment of the allegedly overpaid amount. Two factors are driving major health insurance carriers to increase their issuance of such letters: the increased use and scope of special investigations units (SlUs) and state laws that require carriers to process and pay claims within a certain period of time (usually 30 days after the claim is submitted).

SlUs. Most insurance carriers have units dedicated to both preventing healthcare fraud and recovering payments the insurer believes the provider obtained through mistake or fraud. These units investigate fraud through referrals from state and federal healthcare payers, law enforcement agencies, other carriers' SlUs, insurance carrier trade associations, and the SlU's own audits of past claims and payments.

Although SlUs can be effective at preventing and detecting fraud, these units can cause carriers to become overzealous about accusing providers of fraud and seeking recoupment of amounts paid for services the providers actually performed. For example, carriers often demand repayment for claims that-in their view-the providers did not bill properly, even though the providers performed the services at issue. The alleged impropriety leading to a perceived overpayment can be as simple as use of an incorrect modifier or diagnosis code.

In some instances, these laws impose hefty penalties on carriers for failing to pay claims promptly (for example, Texas law requires a carrier to pay up to an in-network provider's full billed charge plus interest, depending on how late the claim is paid). The tight time frames imposed by these laws motivate carriers to pay claims and then seek to recoup any overpayments later, generally through their SlUs.

How Carriers Recoup Overpayments

In many instances, insurance carriers do not provide an explanation as to why they believe a claim was overpaid. When they do, the most common allegation is that the claim was billed incorrectly, either through use of an incorrect modifier or diagnosis code, upcoding, or unbundling (billing for services that are not separately compensable, but are paid as part of a "global" fee). Other payments are challenged on the basis of medical necessity and whether the services were covered under the patient's benefit plan.

In conflict with federal laws, these demand letters often do not allow the provider to appeal the overpayment finding or otherwise challenge the carrier's determination. When a carrier agrees to consider an appeal, the appeal might be routed not through the carrier's ordinary appeals channels, but through the very SIU investigator or in-house counsel who determined the insurer had overpaid the claim in the first place.

Another common trend among insurance carriers is the use of sampling and extrapolation to determine overpayments. In several recent instances, the SIU investigator reviewed only a small sample of the provider's claims to determine whether any overpayments had been made. Following a review of that sample, the investigator extrapolated the alleged overpayments to hundreds of claims the provider had submitted over a period of several years. Carriers rarely include details of the process used for determining overpayments.

In one instance, a large health insurer reviewed claims submitted by an in-network chiropractor for 24 patients. The insurer concluded it had overpaid the chiropractor by more than $10,000 for his services to those 24 patients. Based on this limited sample size, the insurer demanded a repayment of approximately $110,000 for services the chiropractor provided to patients over a two-year period.

Frequently, recoupment letters end with a demand that the provider repay the alleged overpayment. Such letters also might threaten to place the provider's future claims on a "prepayment review" status, which generally requires the provider to submit certain documentation to support each claim it bills. Some letters make implicit threats about the provider's network status or indicate that litigation will be pursued if payment is not made.

In some instances, the carrier may not issue an overpayment demand letter at all, but instead will automatically recoup the alleged overpayment from payments for the provider's future claims. Some network contracts explicitly permit this action, meaning a provider might not become aware of the alleged overpayment until funds are deducted from payments for new claims. Many carriers recoup past overpayments in this way even if the provider has challenged the overpayment allegation.

Legal Regulation of Recoupment Attempts

Several laws and regulations may govern overpayment demands and offer significant procedural protections to providers. A primary source of these protections is the Employee Retirement Income Security Act (ERISA), the federal law that regulates employee benefit plans.

ERISA requires that a carrier, in its capacity as the patient's benefit plan administrator, provide appeals procedures and a full and fair review of an "adverse benefit determination." ERISA also requires a carrier to provide written notice that includes the reasons for the adverse determination, the specific plan provisions at issue, and an explanation of appeal rights. Although carriers have argued that an overpayment demand letter is not an "adverse benefit determination," several pending federal lawsuits challenge a carrier's failure to provide proper notice of an overpayment allegation and an opportunity to appeal.

ERISA also establishes a cause of action to recover improperly denied benefits. This section allows a provider that believes it was properly paid for a claim the carrier later recouped to bring a claim against the carrier for the improper denial.

Carriers' contracts and provider manuals might be sources of additional legal protection for providers faced with recoupment scenarios. For participating providers, managed care contracts typically detail a process to appeal denied claims, and the providers should use this process when disputing alleged overpayments. Carriers' provider manuals, which generally apply to both participating and nonparticipating providers, also might include details of such a process.

Finally, state laws might provide important legal protections against overpayment allegations. For example, Texas regulations provide similar procedural protections to ERISA and include a deadline by which a carrier must notify a provider of an alleged overpayment. However, state laws might not apply to claims made pursuant to certain ERISA-governed health benefits plans, such as self-funded employee benefit plans.

<p>Strategies for Avoiding Recoupment of Properly Paid Claims

When faced with a letter threatening to recoup alleged overpayments against payments for future claims, providers should take several steps, including the following.

Review the overpayment demand letter carefully to determine which claims are at issue and whether the carrier's allegations of overpayment are accurate. This process might require reviewing files and other documents substantiating the claim.

Request additional information as needed from the carrier regarding both the allegedly overpaid claims and the carrier's appeal processes, and seek additional information from third parties, if necessary. For example, if the carrier's explanation for the overpayment relates to an alleged billing impropriety, then the provider should consult a certified professional coder or other medical billing expert.

Determine the best course of action, including whether to contest the claim directly or with the assistance of outside counsel. However a provider decides to contest a carrier's determination, the provider should adhere to the carrier's appeals processes, even if those processes are not explained in the overpayment demand letter. Most carriers have two levels of appeals, and it is important to exhaust both.

The provider also should submit all documentation that is necessary-not only documents requested by the carrier-to show the payment was appropriate.

Engage as quickly as possible with the appropriate representatives of the insurance carrier, such as the relevant SIU investigator, network representative, or inhouse counsel. The provider should maintain detailed notes of all communications with the carrier's representatives, including full names, dates of contact, and the carrier's internal reference number for each communication and for the claims themselves.

Pay close attention to all Explanation of Benefits forms and other correspondence from the carrier during the months following receipt of the overpayment demand letter. Providers should ascertain:

* Whether the alleged overpayment has been recouped against subsequent payments

* Whether other past payments are being recouped against payments for recent claims

* Whether the carrier is processing all claims of the type it alleges were overpaid (e.g., where the carrier alleged a particular service was not billed properly) in the same way

Considerations When Challenging Overpayment Allegations

Providers can take many of these steps on their own, particularly with the aid of billing staff. Once an overpayment demand letter is received or a past payment is recouped, it is vital to quickly investigate and address the carrier's allegations. Carriers' internal appeals processes run on strict deadlines, and failure to comply could limit a provider's ability to challenge the adverse determination.

Furthermore, addressing an overpayment dispute generally is easier in the early stages than it is after the carrier has begun to recoup the alleged overpayments from amounts due on more recent claims. Providers should develop a protocol with their billing staff to ensure overpayment demands and past payment recoupments receive attention quickly.

Legal counsel might be required to resolve the dispute, specifically to escalate overpayment and recoupment issues to the proper level of authority within an insurance carrier's organization when providers and their billing staff cannot. Consider obtaining outside counsel when the carrier's overpayment demand targets a large number of claims or a particular type of claim, rather than only a single claim. Legal counsel also is advisable when the overpayment letter makes accusations of fraud because these allegations can turn into lawsuits or government investigations.

Undertaking all available avenues of appeal and fully documenting responses to overpayment demands are crucial. Good record-keeping can be key to substantiating a provider's claims and showing that the payment in question was properly made and not an overpayment at all.

Based on the changing landscape of healthcare reimbursement and regulation, the trend of recoupment of alleged overpayments likely will accelerate. Providers should be aware of how this trend might affect them and consider a response strategy that protects their relationships with insurers and patients, as well as their bottom line.

AT A GLANCE

> Healthcare providers increasingly face the prospect of losing revenue to recoupment, a process by which insurance carriers reduce payments to make up for alleged overpayments on prior claims.

> Carriers often are unclear about their reasoning for alleging an overpayment was made and about their methods of recouping the overpayment, as well as providers' opportunities to appeal the determination.

> Providers can use various strategies to mount an effective appeal of an overpayment claim and should be sure their appeal is timely and comprehensive.

Several laws and regulations may govern overpayment demands and offer significant procedural protections to providers.

Jennifer Rudenick Ecklund, JD, is a partner, Thompson & Knight LLP, Dallas ([email protected]).

Andrew Cookingham, JD, is an associate, Thompson & Knight LLP, Dallas ([email protected]).