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Cryptic communications

What insurance outlier letters really mean.


By Ruth Carol, Contributing Writer, April 1, 2023

Banner for DW feature on cryptic communications

Being on the receiving end of an outlier letter may instill confusion, fear, anger, frustration, or all of the above. Although they are not new or uncommon, insurers have been sending them more frequently in recent years. Should you get an outlier letter, don’t let your emotions take over and lead you down an ill-fated path of ignoring it or automatically assuming guilt. There is a middle ground that may even help you improve your coding process down the road.

Generally speaking, outlier letters are intended to be educational. One insurance carrier explained to Molly Moye, MD, FAAD, chair of the AADA’s Coding and Reimbursement Committee, that the purpose was not to cause physicians to panic and change their coding methodology, but rather to educate themselves on correct coding and documentation practices. “Even though the intent does seem more educational, it is certainly scary to receive one of these letters,” she said.

Insurers are interested in controlling cost and quality, stated Mollie A. MacCormack, MD, FAAD, chair of the Academy’s Patient Access and Payer Relations Committee. The goal of an outlier letter is to prompt dermatologists to reflect on their coding patterns.

“We may or may not understand how our peers practice. So, these letters are being sent to show that it’s possible that your coding behavior is outside of what’s typical for physicians in your specialty.”

“The truth is that dermatologists, like a lot of physicians, practice in solo and small groups,” said Howard Rogers, MD, PhD, FAAD, deputy chair of the Academy’s Coding and Reimbursement Committee and a Mohs surgeon practicing in Connecticut. “We may or may not understand how our peers practice. So, these letters are being sent to show that it’s possible that your coding behavior is outside of what’s typical for physicians in your specialty.” In reality, a secondary reason is to potentially save money. Randomly reviewing scores of medical records costs insurance companies a lot of money, time, and effort. “But if they can get physicians to question their own coding behavior and code in a more conservative fashion by sending a letter, that is incredibly cost effective,” he said.

Although it is not uncommon to receive an outlier letter, it is becoming more common as carriers, across the board, have stepped up their efforts to identify outlier behavior or perceived overpayments in the name of payment integrity, noted Louis Terranova, MHA, associate director of practice advocacy for the Academy. Some insurers employ people whose sole job is to come up with a target for these letters, Dr. Rogers stated. “They’re not necessarily dermatologists, and they look at all the dermatology codes to see how they can separate dermatologists into groups of those who bill more often for a particular code,” he explained. Dr. Rogers received an outlier letter stating that he performed too many malignant destructions, which is the least-expensive way of removing a lesion. Not only did he think it made no sense, but the medical director at the insurer he called agreed with him. “Just because you get an outlier letter doesn’t mean it makes clinical sense,” Dr. Rogers added.

How frequently these letters are sent depends on the payer and their priorities as well as the market area, Dr. MacCormack said. “There are waves of activity and then things settle down for a bit and then we see a resurgence,” she added.

Recent coding triggers

The change in the definition of evaluation and management (E/M) codes sparked a recent uptick in outlier letters. The changes went into effect in January 2021 and insurers are still grappling with how to incorporate the new coding guidelines into their systems, Dr. MacCormack said. The revised code structure is based on either the level of medical decision-making or time. As part of that, the E/M framework now allows physicians to account for social determinants of health. Providing care for a patient who is homeless, for example, can elevate the level of medical decision-making because it is more complicated than providing care for patients who can drive to their appointments and afford their prescriptions. A time-based encounter now includes all the work performed related to caring for a particular patient on the date of service, including chart review, communications, and lab evaluation, a much broader definition than the pre-existing rule, she said. “One of the challenges for payers is that the same diagnosis can be billed at different levels, depending on the circumstances of that encounter,” Dr. MacCormack said.

“For dermatologists, the appropriateness to bill for certain office visits was raised with the new definition,” Dr. Rogers noted. Previously, a visit for a psoriasis patient that may have been billed at a level 3 can now be billed at a level 4 or 5. That is prompting more outlier letters because dermatologists are appropriately billing higher-level office visits more often than their peers. It doesn’t help that clinicians interpret the levels differently than the payers, Dr. Moye added.

The perceived overuse of modifier 25 is another common reason that dermatologists receive outlier letters, Dr. Moye said. Dermatologists frequently use modifier 25, which involves billing an E/M office visit the same day as billing for a minor office procedure, because patients come in with multiple complaints, Dr. Rogers said. For example, treating a rash is covered under the office visit code while removing a lesion is a procedure.

Similarly, patients returning during a global period for post-operative care following a surgical procedure present with an unrelated issue, Dr. Moye said. The perceived unbundling of the global period triggers outlier letters. “A payer would have to look at the chart notes to know if the coding was appropriate or not,” she said.

The average number of stages for Mohs micrographic surgery also commonly triggers outlier letters, Dr. Rogers said. The average number of stages for Mohs is 1.6 to 1.7, according to a study published by the American College of Mohs Surgery. This study defined an outlier as two standard deviations away from the mean. However, insurers have decided that anything greater than the mean is an outlier, he said.

If that outlier letter leads to an audit

If an outlier letter leads to an audit, visit our coding page on audits to learn about:

  • Audit types

  • Recovery audit contractors

  • Audit target areas

  • A description of the audit process

  • Tips on surviving an audit

  • Resources on how to appeal an audit

Responding appropriately

Dermatologists who receive an outlier letter should take a deep breath and read it carefully, advised Kayleen Moore, LPN, CDC, a certified dermatology coding manager at Forefront Dermatology. “Take the time to understand what the letter says before making any changes. It’s important not to panic,” she added.

“You can use the educational letters as an opportunity to critically evaluate your own coding practices,” Dr. Rogers said. “Is it possible that you are billing a higher level of office visit inappropriately? Look at your coding structure to make sure it’s appropriate and meets the necessary guidelines.”

“If the practice can demonstrate that it has taken steps to identify any patterns and what was done to correct them, it may be helpful to share that with the insurer as long as their review letter or audit is on the same issue that the practice addressed.”

Dermatologists may want to do an internal review focused on the specific codes cited in the outlier letter, Moore said. Be sure to keep a record of the review and any education provided to correct any inappropriate coding behavior. “Down the road, if you’re still an outlier and the payer requests medical records, having documented education is helpful,” she added.

“If the practice can demonstrate that it has taken steps to identify any patterns and what was done to correct them, it may be helpful to share that with the insurer as long as their review letter or audit is on the same issue that the practice addressed,” Terranova said. Documentation should be clear and provide enough details to address the coding issue raised in the letter. That could mean explaining, as an example, that the practice treats a large number of patients with chronic conditions or a complicated medical history that pushes up the E/M code for their visits. While getting medical documentation in order is important, there is no need to send any information beyond what was requested.

“If dermatologists determine that their coding habits truly reflect the work they are doing, they shouldn’t alter their coding patterns,” Dr. MacCormack said. “They shouldn’t allow themselves to be intimidated. But it’s very important that they are coding correctly.” Some dermatologists care for patients who are sicker and more complex than those seen in a typical medical dermatology setting, so the billing should reflect that patient population. Dr. MacCormack recalls when she received an outlier letter citing her use of modifier 25 compared to her peers. “I paused and verified that I was using modifier 25 correctly, and then didn’t give it another thought,” she said. To this day, she is unclear if those peers were other Mohs surgeons, dermatologists, or other physicians, said Dr. MacCormack who does primarily Mohs surgery. Insurers never disclose who the peer group is, saying that it is proprietary information, Dr. Rogers concurred.

When an outlier letter requests additional communication, contact the insurer to discuss the coding in question. Dr. Rogers, who has received a fair number of outlier letters, simply calls the insurer as instructed. “In general, you don’t have to have a big defense,” he said. Dr. Rogers indicates that he understands the insurer’s concerns, but that he stays current on all the new CPT coding guidance on the issue that was flagged and complies with it. “There isn’t a big hoop to jump through; the call takes a few minutes,” he said. Dr. Rogers has never been asked to provide documentation in an outlier letter, but he has received requests for medical records, which he promptly provides.

While some outlier letters indicate they are educational, they may include a warning that there is a possibility that continued claims at this level may result in future non-payment or an audit. That is why reading the letter carefully and completely is so important, Dr. Moye said.

Conducting routine reviews

“Every practice should conduct periodic coding audits,” Terranova stressed. In general, the Academy recommends that dermatologists just starting out in practice review 10 to 15 records every six months while established dermatologists review 10 to 15 records once a year. Dr. MacCormack believes that conducting routine internal audits is central to running a dermatology practice. “They allow you to catch possible errors and identify potentially problematic coding patterns,” she said.

Both routinely auditing medical records and implementing a coding compliance policy serve as proof of coding compliance, Dr. Rogers added. Dermatologists who do either can share that information with the insurer. However, they don’t need to share the results of internal audits or the actual policy.

Larger practices typically have certified coders or practice management staff who can conduct the audits, Terranova said. In smaller practices, a physician who has a coding background could do them. If the dermatologist has not conducted any internal audits, it will take a while because they are starting from scratch. The AAD recommends doing periodic audits, so they become second nature, he said. How long it will take to conduct an audit depends on the quality of the physician’s documentation and reviewer’s level of expertise, said Dr. MacCormack, who has reviewed numerous claims that are being audited or have been denied. Clear, concise records take much less time to review than notes, particularly with electronic health records, that require having to wade through documentation. In general, a thorough review of 20 records could take two to four hours, depending on the scope of the review, Moore said.

Using an external auditor is an option, but the cost can vary significantly, she added. An outside auditor typically charges per hour, but some charge per record or number of clinicians being reviewed. The hourly rate ranges from $100 to $300, Moore said. She recommends choosing someone who is qualified, reputable, certified, and experienced in dermatology. Dr. Rogers suggests asking a colleague to serve as an external reviewer.

Staying current

It behooves all dermatologists — and their coders — to keep up to date with the most current documentation of CPT codes. CMS publishes new and/or revised CPT codes and definitions in the fall of each year, with an effective date of Jan. 1. Commercial insurers usually follow CMS’s lead. “Every year, we figure out the changes and educate dermatologists in the practice at the end of the year,” said Dr. Moye, who cites the AADA as the number one source to stay up to date. Among its resources are the:

  • Coding Resource Center, which offers practical tips, tools, quizzes, and videos about common dermatologic coding issues at www.aad.org/coding.

  • DermWorld Coding Consult, which features Academy coding staff who address important coding topics each month that are then archived for future reference at www.aad.org/dw/dcc.

  • Derm Coding Consult, which provides the latest information about accurate diagnostic and procedural coding, as well as Medicare reimbursement issues in dermatology at www.aad.org/dcc; and

  • Coding@aad.org, a dedicated email hotline to answer coding questions.

Even coding experts, however, can receive an outlier letter. “Don’t assume if you receive one of these letters that you’re doing something wrong,” Dr. MacCormack concluded. “There is nothing wrong with being an outlier as long as it truly reflects the work you are providing.”