Commercial Audits and Appeals White Paper

Michael D. Bossenbroek, Esq.
Jesse A. Markos, Esq.
Jessica C. Forster, Esq.
Kevin R. Miserez, Esq.
Wachler & Associates, P.C.



Michigan healthcare providers and their legal counsel must be prepared to address audits and appeals initiated by commercial payors. Although healthcare compliance often focuses on state and federal regulatory authorities and audits, commercial payor audits may seriously affect a provider’s ability to continue providing services to patients and have a detrimental impact on the provider’s practice. Therefore, understanding potential commercial payor audits, steps to respond to audits, and challenge improper denials and appeals strategies are all critical skills that healthcare providers and their legal counsel should develop.

The following outlines the key types of commercial audits and the corresponding appeals processes that Michigan healthcare providers often encounter. In addition, the following addresses key strategies for preparing for an audit, responding to an audit and strategic tactics to employ in the event of unfavorable claim denials. While every audit and subsequent appeal will have a unique set of circumstances understanding the basic strategies is important for both healthcare providers and their legal counsel.

Blue Cross Blue Shield of Michigan Audits and Appeals Process

A healthcare provider’s claims for medical services may be audited by Blue Cross Blue Shield of Michigan (“BCBSM”) for a number of reasons. Some audits are a result of random selection. Others result from data analysis that reflects that the provider may be outside the norm among their peers in the provision of services. Audits may also arise from complaints by individuals including patients, disgruntled employees, and competitors about the provider’s billing practices. Regardless of the initial reason for the audit, it is very important for the provider to appeal the audit results in conformance with the BCBSM Disputes and Appeals process. This process is currently contained in addendums to BCBSM’s practitioner participation agreements made publically available on BCBSM’s website as well as in policy materials accessed through BCBSM’s provider portal (more commonly known as “web-DENIS”). Failure to adhere to this contractually set forth process can lead to unnecessary overpayments, continuing problems with the ongoing submission of claims, subsequent audits, placement on pre-payment utilization review, or termination/disaffiliation from BCBSM programs.

I. BCBSM Audit Overview

In typical cases, the provider becomes aware of a BCBSM audit through notification requesting that the provider send copies of identified medical records to BCBSM or through notification that BCBSM will be performing an on-site review of medical records (which may or may not be identified beforehand). Upon completion of the record review, BCBSM will notify the provider that the claims are either payable, partially payable, or denied. The most common denials, by way of example, are denials based on lack of medical necessity to support the claim, pre-certification program rejections relating to length of stay or appropriateness of treatment setting, and recovery demands involving requests for repayment related to services unsupported by the documented medical record.

II. BCBSM Appeals Process1

A. Step One: Written Complaint

When BCBSM sends a provider a post-payment audit denial letter, the letter will make an overpayment demand and provide a time frame for recovery of the overpayment. After receiving the audit results, providers must be careful to timely exercise their contractual appeal rights. The provider must begin this process by submitting a Written Complaint to BCBSM regarding the nature of the dispute.

In addition to defending the audit on the substantive merits in the Written Complaint, which may include providing written medical summaries of the claims at issue focusing on the services that were denied and the medical explanation for why the services were medically necessary (this may involve retaining a physician expert in some cases), providers may also take advantage of other legal defenses including: challenging the statistical sampling in audits involving extrapolation (this will usually entail retention of a statistical expert); arguing that BCBSM violated various provisions of PA 350 of 1980 and the accompanying administrative code regulations in conducting the audit and in making its denials (this law is BCBSM’s enabling legislation and sets forth many prohibitions and mandatory requirements that BCBSM must follow); and challenging denials based on lack of BCBSM policies or notice to the provider community or failure of BCBSM to follow its’ own published policies.

B. Step Two: Informal Conference

BCBSM must then issue a Written Response to the provider within 30 days from the Written Complaint that details all of the reasons for BCBSM’s decision. Providers that are dissatisfied with the explanation in BCBSM’s Written Response must submit a Notice of Dispute requesting an informal conference within 60 days of receiving that written response. Within 30 days from the provider’s request, BCBSM will schedule an informal conference. This conference may be held in-person or over the telephone. The purpose of the informal conference is to discuss the audit results in an informal setting and to explore a possible resolution of the dispute. If the dispute involves medical-related matters then a BCBSM consulting doctor will participate in the conference. Likewise, if the dispute is non-medical in nature, other appropriate BCBSM employees will attend.

Within 10 days following the conclusion of the informal conference, BCBSM will issue the provider with a decision. This decision or “Post-Conference Statement” must include a proposed resolution, the facts and supporting documentation on which the proposed resolution is based, and the specific section or sections of the law, contract, or other written policy or documented on which the proposed resolution is based.

C. Step Three: Independent Third Party Determination

Within 120 days after receipt of BCBSM’s Post-Conference Statement, the provider will have the right to appeal BCBSM’s proposed resolution to an external review body. The provider has the right to appeal BCBSM’s decision by either submitting a Request for Review by an External Peer Review Organization or initiating litigation and seeking judicial review of the dispute. Importantly, if the provider elects judicial review for resolution of the dispute then any right to review by an External Peer Review Organization is waived.

1. Review by External Peer Review Organization

Review by an External Peer Review Organization is an alternative to judicial resolution. However, once a provider initiates this external review process, the provider is required to complete it prior to seeking judicial resolution. An External Peer Review Organization includes Physician’s Review Organization of Michigan (“PROM”) or any other independent review organization (“IRO) approved by the Director of the Michigan Department of Insurance and Financial Services as eligible to be assigned to conduct external reviews for members under the Patient’s Right to Independent Review Act (PRIRA).2

The Review Organization will base its decision upon written materials and any records submitted by the parties. Within thirty (30) days of the receipt of the written materials the Review Organization must issue its determination.

2. Judicial Resolution

If either the provider or BCBSM is dissatisfied with the Review Organization’s determination, they may then seek judicial review of the dispute. As stated above, the provider may also seek judicial review at the conclusion of Step Two in this contractual process in lieu of the Review Organization stage. In making that decision, the provider should be aware that a finding or determination by PROM/IRO on an issue of medical necessity is given due deference and a court may not substitute its judgment for that of the PROM/IRO, if it is reasonable and absent credible conflicting evidence.

III. Blue Care Network Health Maintenance Organization Appeals Process

Blue Care Network (“BCN”), a subsidiary of BCBSM, provides different appeals processes for certain types of claim denials for health maintenance organization (“HMO”) plans. The appeals process for claim denials under BCN’s HMO commercial plans are more plan-friendly in that providers are not afforded an external appeal level. Furthermore, a provider’s appeal rights vary depending on whether the provider is appealing care management decision (medical necessity or administrative denials) or clinical editing denials, as outlined below.

A. Appealing Medical Necessity Denials

Medical necessity denials are made by plan medical directors based on medical record reviews, information from the attending and primary care physicians, clinical judgement of the medical director, and the member’s benefit coverage considerations. The process for appealing care management decisions is a two-step process, both of which are internal.

“Level One” appeals must be submitted in writing to BCN within 45 calendar days from the date of the written denial notification and should include any additional clarifying clinical information to support the denial being overturned. Once the appeal request and supporting documentation are received, BCN has 30 calendar days to notify the provider of its decision. 3

If the Level One decision is unfavorable, the provider may submit a “Level Two” appeal request within 21 calendar days from the date of the Level One appeal decision.4 Similar to Level One, Level Two is conducted as a written internal appeal. A Level Two appeal enables the provider another opportunity to submit new or clarifying clinical information. In addition, providers have the option to request that the Level Two appeal be performed by a different BCN physician reviewer from the physician who reviewed the appeal at Level One.5 Providers seeking a different physician reviewer must include a clear statement in the written appeal indicating such request.6 Following receipt of the provider’s Level Two appeal submission, BCN has 45 calendar days to issue its Level Two decision. Once issued, the Level Two decision is final, and the provider has no further appeal rights.7

B. Appeal Administrative Denials

Administrative denials are not based on the medical necessity of care, and can be issued by BCN without the need for review by a plan medical director.8 Rather, BCN makes administrative denial determinations pursuant to administrative policies and/or contract language (e.g., noncompliance with clinical review requirements for elective procedures requiring pre-approval by BCN).9 For administrative denials, providers are only afforded one level of appeal, which is conducted as an internal written appeal. Providers must submit the written appeal request within 45 calendar days of receiving the denial.10 BCN will review the information submitted and issue its decision within 30 calendar days of receiving the written appeal request.11 Once issued, the decision is final, and the provider has no further appeal rights except in cases where the administrative denial is overturned but a subsequent determination is made whereby BCN denies the claim based on medical necessity-related grounds. In this case, the provider would be eligible to appeal under the process described in the previous section.12

C. Appealing Clinical Editing Denials

Additional claim denials are made by BCN on an automated basis through the use of clinical editing software that compares the procedures codes billed by providers against nationally accepted coding and billing standards to verify clinical appropriateness and data accuracy.13 Common reasons for which providers receive clinical editing denials include, but are not limited to, unbundling of services, duplicate claims, unlisted codes, invalid modifiers, incidental or mutually exclusive procedures, and up-coding.14

Similar to administrative denial appeals discussed in the previous section, BCN only provides one level of appeal in connection with clinical editing denials.15 However, prior to initiating the appeals process, BCN recommends that providers should first review the denial code listed on the denied claim because in some cases BCN will indicate on the claim that the provider needs to correct the applicable defects and resubmit the claim.16 If correcting and resubmitting the claim is not an available option, providers have 180 days from the date of the claim denial to submit a written appeal using BCN’s “Clinical Editing Appeal Form.”17 BCN will review the information submitted and issue a final decision within 30 days of receiving the appeal request.18

Continue Reading: Commercial Audits and Appeals White Paper – Part 2

This publication is intended to serve as a preliminary research tool for attorneys. It is not intended to be used as the sole basis for making critical business or legal decisions. This document does not constitute, and should not be relied upon, as legal advice.

2017 State Bar of Michigan Health Care Law Section and Michael Bossenbroek, Jesse Markos, Jessica Forster, and Kevin Miserez; All Rights Reserved. Photocopying or reproducing in any form, in whole or in part, is a violation of federal copyright law and is strictly prohibited without consent. This document may not be sold for profit or used for commercial purposes or in a commercial document without the written permission of the copyright holders.

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