The Rules Don’t Apply: Private Payers

A client called me this week after receiving the results of an audit by a private insurer. While I have done Medicare audits for clients in nearly every state, audits by private insurers are rare. They happen, but they are atypical.

If you are used to dealing with Medicare audits, it is important to understand that private pay audits, while similar, are not identical. The first major difference is that the private payor is not automatically entitled to use Medicare rules to recoup money, and similarly, you are not entitled to automatically rely on a Medicare-based defense. 

Instead, the rules contained in the payor’s contract, if there is one, apply. Assuming any contract incorporates the plan’s policy manuals, as nearly every contract does, the manuals therefore are equally important. Determining which rules and policies will apply can require some detective work, and locating the manuals isn’t always easy. Absent a contract, industry norms control how things work. This is one reason audits by non-contracted insurers are rare.

This particular audit denied every single claim, asserting that the services were neither documented nor medically necessary. The insurer’s position was particularly puzzling because the letter described the “nonexistent” documentation in detail. For example, it recounted an encounter for which the practitioner spent 50 minutes counselling a patient about a sleep disorder, irritable bowel syndrome, and mood issues, and provided nutritional counseling beforehand; I am not making this up, but the insurer asserted that there was no documentation of the service.

Obviously, an appeal is warranted. How is it done? While Medicare has a clearly defined appeals process, the situation with private payors is largely up to the insurer. They have the ability to determine who will hear the appeals and how they will work. That does not mean, however, you are totally dependent on the insurer’s mercy. You have at least two options to push back. First, insurers are regulated. Identify the state agency (likely to be the insurance commissioner or commerce commissioner) that oversees the plan’s regulation. Government agencies often will rein in abuses, particularly when they are egregious. One huge advantage of this option is that it is free. The other option is going to court. This approach is may cost you, but it will require the plan to explain its position. Note that if you have agreed to arbitration in your contract, you may be required to use that private dispute resolution mechanism rather than a court. Mediation provides another alternative to resolve a dispute. When a plan is taking an irrational position, sometimes an independent mediator can help them see reason. 

It is important to consider what laws or contractual terms limit the insurer’s ability to recoup funds. Some contracts place limits on a plan’s ability to recoup overpayments. For example, many Blue Cross contracts limit recovery to 12 months, absent fraud. It is common for the time limits to be expanded when there is fraud (or, in some cases, abuse). That can make the determination of whether conduct is fraudulent or abusive very important. Even in the absence of a contractual limitation on recovery, state law almost always has a statute of limitations that will limit recovery, thought that limit may be as long as four to six years, and possibly longer. 

If you have a contract with the insurer, the contractual statute of limitations should apply. In the absence of agreement, the limitation for torts likely governs. 

When the dispute involves a Medicare Advantage plan, it seems that the plan’s appeal mechanism governs, not the typical Medicare appeal rules. However, here is an important difference between Medicare Advantage appeals and other private disputes: Medicare Advantage contractors must provide coverage that is no less restrictive than Medicare. This should prevent the plan from recouping from you in situations where Medicare is prohibited from making a recovery. 

Private insurance audits remain less common, but they definitely happen. If you conclude that the audit findings are incorrect, you can and should challenge the payor.