How Therapists Can Prevent & Prepare for Insurance Audits

If you’re like most mental health clinicians who choose to accept insurance, you’re passionate about this decision, despite the fact that it comes with drawbacks. Accepting insurance increases access to therapy, ensuring that people who can’t afford cash-pay rates can get the mental healthcare they need. It also opens doors to a broader client base — for example, 90% of clients who visit Alma are searching for in-network care, helping you grow and maintain your caseload.

Of course, insurance comes with the unavoidable risk of audits and potential clawbacks. While audits are rare, they do happen. And because some audits are random or system-wide, they can be prevented sometimes but not always.

Your best bet is to do everything you can to lower your chances of being audited — and increase your odds of passing an audit, if you are subjected to one. This guide will help you do exactly that. We researched the red flags that can trigger an audit, and the green flags that show auditors that your documentation and billing practices are above board.

What’s an insurance audit, and why do they happen?

In the world of health insurance, the goal of audits is to identify and reduce fraud, abuse, and waste. Audits are often initiated in response to some kind of error or discrepancy in the way you keep your records or bill for services. Here’s what to watch for and avoid, to the best of your ability.

Coding errors

Coding errors, even when unintentional, can be considered a “misrepresentation of services” and flag you for an audit. A coding error can be as simple as mistyping a number or absent-mindedly writing down the same code you used for your previous client.

Intentional coding errors include upcoding, which involves using a code for a more expensive service than was performed. While undercoding involves coding for fewer services than provided or leaving out codes from a patient’s record. The latter is sometimes done to save patients money at the cost of the clinician, but it can nonetheless result in an audit and/or legal consequences.

Another coding issue that gets the attention of auditors is overutilization of codes, especially if you use the same general or non-specific code (for example “individual psychotherapy” or “generalized anxiety”) for the majority of your clients. Unusual codes that are not typically matched with the diagnosis you’ve specified can also trigger an audit.

And finally, coding for longer sessions (for example 90-minute psychotherapy sessions), without clear rationale, could raise a flag.

Billing red flags

In addition to the coding errors mentioned above, a common billing error is to enter incorrect or missing patient information into a claim. As a busy clinician trying to get your paperwork done at the end of a long day or week, it can be all too easy to switch-up the details.

Inadequate documentation

Proper documentation is one of the most important parts of preparing for an insurance audit. During an audit, an insurance company will closely examine your session notes and treatment plans to understand which services you provided and to ensure they meet the standard for the services billed. If they fall short, the insurance company may determine that you were improperly reimbursed and demand that some funds be returned (aka a clawback).

Cloned progress notes

While it may seem minor, copying and pasting information, known as “note cloning,” is considered malpractice and could increase your risk of a tricky audit. Note cloning includes instances of copying past notes, using a template without adding any original information, or auto populating notes without inputting any new information.

Are there different types of audits?

Not all audits are the same. Some audits are handled over the phone, similar to a clinical review, where you discuss treatment without the need to send in paperwork. Other audits are a lengthy process that include full reviews of your documentation.

The experience largely depends on what triggered the audit and what type of audit it is. Audits from an insurance provider will look different than Medicare audits, and out-of-network audits are a different process entirely.

Here are some of the most common types of audits you could experience:

Risk adjustment audit

Risk adjustment audits allow insurance companies to understand the health of their enrollment population to stay competitive in the insurance marketplace and forecast future expenses. These audits are often randomly selected and have a smaller scope and thus less implications for the provider and their patients. While this audit is not about your treatment and thus should not impact it, it still requires providers to submit a treatment summary.

Managed care audit

A managed care audit has a broad scope and looks at the full gamut of documentation, billing, and coding information. During such an audit, the scope can shift based on new information uncovered during the audit.

Claims related audit

A claims related audit can happen pre or post payment and aims to surface fraud or poor documentation. These audits can be triggered by abnormal billing patterns.

Out-of-network audits

Clinicians are often shocked to discover that they can be targeted for an insurance audit even if they’re not paneled with insurance. This can happen if a client has out-of-network benefits and submits a claim/superbill to their insurance for potential reimbursement. 

Your patient’s contract with their insurance company gives the insurance company the right to review your records — a process known as an out-of-network audit. That means it’s important to keep proper documentation for all your insured patients, even if you don’t take their insurance.

What documents can be requested in an audit?

To prepare for an audit, it’s important to make sure your documentation is accurate, clear, concise, and up-to-date. Making edits or altering documents in any way once an audit is underway is illegal and considered fraud. So it’s critical to be proactive in keeping detailed records.

How to stay up to date with documentation

For providers hoping to prevent and prepare for an insurance audit, having proper documentation is a central part of your strategy. Having proper documentation not only protects you against audits, but ensures seamless claims processing and can help increase your credibility as a provider. Here are some strategies to stay prepared and maintain compliant documentation:

1. Understand Insurance Requirements

Review each insurance company’s documentation guidelines, including billing codes and required formats and ensure your documentation meets those requirements. Even if you’re a member of a platform like Alma, which can make working with insurance faster and easier and reduce your risk of being audited, it’s ultimately your responsibility to stay in compliance.

2. Maintain Comprehensive Session Notes

Include all essential details in your notes including patient and session information, diagnosis, treatment goals, services provided, progress, and future plans. Tools like Alma’s AI-powered and HIPAA-compliant Note Assist can make this much easier. You can also use helpful resources like this downloadable Progress Notes Checklist.

3. Use Electronic Health Records (EHR)

Utilize EHR systems such as those provided by Alma which include detailed templates and auto-populated fields that make it easier to keep up with documentation, and ensure that your notes are consistent and comprehensive.

4. Document Communication with All Insurers

Keep a log of any communications with insurance providers, noting dates, representatives, and instructions to refer back to in the instance of an issue, discrepancy, or audit.

5. Regularly Update Treatment Plans

Review and update treatment plans on a regular basis, noting any changes in goals or approaches to care for each of your patients. Using Alma’s Wiley Treatment Plans can streamline this process and make upkeep less time-consuming.

6. Check and Double-Check Codes

To avoid coding errors, be vigilant about checking that the code you’re billing for matches the service provided in your notes and is appropriate to the stated diagnosis.

7. Conduct Regular Self-Audits

Schedule your own documentation audits monthly or quarterly to identify any gaps or issues before an external audit occurs, and create a process of addressing issues.

8. Stay Informed About Policy Changes

Do your best to stay on top of updates from the insurers you’re paneled with, as well as broader policy or law changes that could impact your documentation and billing requirements.

By consistently following these practices, you can ensure that you’re well-prepared for audits and that you maintain accurate, compliant documentation.

Insider tips from audit experts

Be mindful of start and end times.

This may be common knowledge to some clinicians, but according to Gabrielle Juliano-Villani, a Medicare and Medicaid Consulting Specialist, this is one of the most common errors in Medicare audits. “Your start and stop times need to match the CPT code billed––if you bill 90837, your timing should show that you spent 53 minutes or more with the client.”

Keep your process and progress notes separate.

According to Barbara Griswold, a Licensed Marriage and Family Therapist and the author of Navigating the Insurance Maze: The Therapist’s Complete Guide to Working with Insurance – And Whether You Should, in order to be compliant with HIPAA Privacy Rule 45 CFR 164.501 you must keep your process notes separate from the rest of a client’s medical record, including their progress notes.

Progress notes should contain:

• Session start and stop times
• Frequency of treatment
• Diagnosis functional status
• Treatment plan
• Symptoms
• Prognosis
• Progress

Your process notes, on the other hand, contain your clinical thoughts about treatment or your analysis of the session.

Capture your role in care.

A common theme that Dr. Maelisa McCaffrey, an expert on documentation and note taking, tries to drive home when talking to colleagues and providers, is how important it is to capture a provider’s presence and impact in progress notes. “Progress notes are not just about what the client said or did—they should reflect your active role in facilitating progress,” says Dr. McCaffrey. While many clinicians put care into their interventions in-session, the same does not translate in their notes.

“Your interventions—both structured ones and organic, in-the-moment decisions—deserve to be acknowledged in your progress notes,” says Dr. McCaffrey. “From guiding a client through a breathing exercise to challenging a cognitive distortion, these moments… provide essential documentation of the therapeutic process and highlight your role in achieving client outcomes.

Can you prevent an insurance audit?

While there’s no guaranteed way to prevent an insurance audit, you can prepare for one — which is the next best thing. Ultimately, your best protection will be keeping proper and thorough notes, confirming your documentation is accurate, and ensuring you are using proper codes when billing insurance.

By staying on top of compliance requirements, which can vary state-by-state, you can ensure that you will be ready if and when an audit happens. You can stay current on changing requirements through workshops, webinars, and professional associations.