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Understanding Prepayment Audit Reviews

On Behalf of | Apr 16, 2012 | Articles, Audits & Investigations, Healthcare Law

By: Mathew J. Levy, Esq. and Stacey Lipitz Marder, Esq.


The unfortunate reality is that the cost of running a medical practice is increasing while reimbursement from third party payers is decreasing.  In order to survive, it is crucial that physicians get paid for the services rendered to their patients in a timely manner.  In today’s climate, insurance companies are engaging in several tactics in order to make it more difficult for physicians to receive proper reimbursement.  In addition to overpayment demands[1], insurance carriers are delaying and making it more difficult for physicians to get paid through prepayment audits.  Being placed on prepayment audit review is extremely frustrating for a physician, and can ultimately have a devastating impact on the operation of a practice.  We have outlined a few key concepts that every physician should understand in order to avoid and be removed from a prepayment audit if applicable.

What is prepayment audit review?

When a physician has been placed on prepayment audit review, each time the physician submits a claim, the claim is denied by the insurance carrier and there is a request that the physician submit a copy of his/her medical records in order to support the claim[2].  Once the insurance carrier receives the medical records, the records are reviewed in order to determine whether the claim should ultimately be paid or not.  Even if the claim is eventually paid, payment would not be made until approximately 90-120 days after the claim is submitted, as opposed to 30 or 45 days in the event the physician was not on prepayment review.  This process can be very costly for a physician –  in addition to the physician’s staff spending countless hours preparing the medical records to be submitted to the insurance carrier, the delay in payment can have a significant impact on cash flow as many physicians rely on reimbursement from insurance carriers in order to pay their employees and run their practices.

How does this happen:

Insurance carriers, including Medicare, are investing heavily in billing software programs.  These sophisticated billing software programs are able to compare a physician’s billing habits with those of his/her peers in his/her specialty and geographic location.  To the extent that a physician’s billing pattern differs from the insurance carrier’s predetermined norms, the insurance carrier may place the physician on prepayment audit review so that the carrier can justify payment based upon a review of the medical records.

How to be removed from prepayment audit review:

In order to ensure removal from prepayment audit review, it is imperative that the physician have his/her medical records reviewed and analyzed so that it can be determined whether the physician’s documentation supports the code submitted.  In the event that a physician’s documentation does not justify the codes submitted, the physician must rectify such billing deficiencies going forward.  Once the records have been reviewed, the physician’s healthcare team, including attorneys and coding experts, will contact and negotiate with the insurance carrier.   In order to be removed form prepayment audit review, the physician must be in compliance with the insurance carrier’s requirements regarding coding and documentation.  If a physician is placed on prepayment audit review, it is recommended that the physician begin the removal process immediately in order to avoid being placed on prepayment audit review by other carriers.  Since the insurance carriers often enter into arrangements with third party contractors (who have relationships with the other carriers) to review records, if a physician is on one carrier’s radar, there is a good chance that the physician will be hit with multiple audits from other carriers.

How to avoid being placed on prepayment review:

Physicians must recognize that today’s billing and coding systems dictate the need for specialized assistance.  As such, physicians must ensure that their current billing practices are in compliance with the carrier’s policies, and that their documentation adequately supports their billing claims.  From simple pre-printed forms, through digital transcription to an electronic medical record, ample resources exist that can document the level of services rendered, confirm the medical necessity for those services and bar prepayment audit reviews. Furthermore, an annual review conducted by a certified coder can provide valuable insight into what areas are currently under scrutiny, what trends are developing with one’s peers and/or what can be done to keep the practice in the mainstream. Advice from any billing resource should be provided verbally (any written reports could be discoverable in any future proceedings) and should be provided directly to the physicians involved.  Physicians who are willing to recognize that billing and coding in today’s medical practice management environment is very complex, and who obtain ongoing advice from specialists, will have taken an enormous first step in avoiding coming under review and the potentially devastating impact of a prepayment audit review.


Being placed on prepayment audit review can be very frustrating for a physician since payments are delayed and there are additional administrative burdens placed on the physician’s staff.  To that end, in the event that a physician is placed on prepayment audit review, it is in the best interest of the physician to retain a team of professionals specializing in health care – attorneys and coding experts– to ensure that the claims submitted to the insurance carriers are substantiated by the documentation in the medical records and that the physician’s billing is in compliance with the insurance carrier’s guidelines.  Although it can be a trying process which may take several months to resolve, resolution does not have to be expensive for physicians.  Physicians must recognize that there is hope and that there is light at the end of the tunnel with respect to prepayment audit reviews.

About the Authors:

Mathew J. Levy is a Partner of the firm and co-chairs the Firms corporate transaction and healthcare regulatory practice. Mr. Levy has particular experience in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, healthcare fraud & billing fraud, insurance carrier audits including prepay and post payment review, litigation & arbitration, and asset protection-estate planning. You can reach Mathew Levy at 516-627-7000 or email: [email protected].

Stacey Lipitz Marder is an associate at Weiss Zarett Brofman Sonnenklar & Levy, PC., with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling.  Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.


[1] Overpayment demands involve insurance carriers conducting an audit and review of a physician’s medical records in order to determine whether the amount that was previously paid to the physician was substantiated by the records.  Often times the insurance carriers determine that the records do not substantiate the services billed, and the insurance carriers then demand that the physician refund the amount of paid that is in excess of the appropriate payment as determined by the carrier.  The refund demand does not only take into account the amount involved in the audit, rather the carriers extrapolate the amount to extend over a randomly selected number of past years.

[2] An insurance carrier may place a physician on prepayment audit review in connection with all claims submitted by the physician, or on in connection with claims involving specific services.