A commercial health insurer's audit of a medical practice can arrive with the same urgency as a government audit letter, carrying a lookback window, a records deadline and a recoupment number, yet it runs on different authority. The review is conducted by the insurer's special investigations unit (SIU) or an outside payment integrity vendor, and its reach comes from the provider agreement and the payer's own provider manual, not Medicare regulation. What follows, offset recoupment, a prepayment flag, network termination, or a law enforcement referral, turns on that contract and the patient's plan.
Who Conducts the Review
A commercial insurer's audit is run by the plan's own special investigations unit (SIU), a fraud, waste and abuse division, or by an outside payment integrity vendor retained to examine billing and coding for the plan. An SIU investigation opens over claims referred as potentially fraudulent rather than as an open-ended records pull, and it is handled by investigators kept separate from the staff who process ordinary claims. The review's authority sits inside the provider agreement and provider manual, a contract basis that differs from a Recovery Audit Contractor (RAC) audit grounded in published Medicare rule. A Medicare Advantage plan's post-payment review runs closer to this contract model than to a traditional Medicare audit; see Medicare Advantage Plan Audits Versus Traditional Medicare.
The Provider Agreement and Provider Manual Set the Terms
The provider agreement a practice signed to join the network, with the provider manual it incorporates, sets what records the plan can demand, how far back the lookback period reaches, whether the plan may sample claims and extrapolate a finding across the period, whether it can collect recoupment by offset against unrelated claims, and how a dispute is resolved. The agreement can route a dispute into an internal appeal and, if that fails, into binding arbitration rather than court, removing the case from a jury and limiting the discovery available. A commercial plan's medical necessity standard lives inside its own provider manual rather than a published local coverage determination, which the plan can revise without any public rulemaking process.
Fully Insured Plans and Self-Funded Plans Follow Different Rules
Whether a state's insurance code reaches a given dispute turns on how the patient's plan is funded, not on which insurer's name is on the card. A fully insured plan is one where an employer or individual pays premiums to an insurer that assumes the claims risk and is regulated under state insurance law, including any recoupment or notice statute. A self-funded employer plan carries its own claims risk and treats the insurer as an administrator, and federal ERISA law, specifically its deemer clause, is designed to keep that arrangement outside state insurance regulation. Whether ERISA actually preempts a state recoupment law in a given dispute depends on the statute's own terms and how courts have read it, a fact-specific question to confirm case by case, not a rule to assume either way.
Whether state insurance law or federal ERISA law controls a recoupment dispute depends on how the patient's plan is funded, not on which insurer's letterhead is on the demand.
State Recoupment Limits, Offsets and Escalation
State law can cap how far back into paid claims an insurer may reach for recoupment, and require a defined notice period first; both depend on the state's statute and should be confirmed there, not assumed. Insurers can also collect recoupment by offsetting the amount against payment owed on unrelated, undisputed claims; whether that offset can proceed while an appeal is pending depends on the state's regulation and the provider agreement. An SIU investigation can place a provider on prepayment review, on terms the provider agreement sets, holding new claims for extra review before paying them. The most serious matters escalate further: a persistent pattern can support network termination for cause, and suspected intentional misconduct can bring a referral to law enforcement. A single product line audit, such as skin substitute claims, applies this same framework to a narrower set of codes; see Commercial Payer Audits of Skin Substitute Claims. Assembling the clinical record before the claims are requested is the strongest response to a medical necessity review; see Medical Necessity Denials: Building the Clinical Record.
Why Early Legal Counsel Is Critical
It is critical that medical practices promptly retain experienced healthcare defense counsel after receiving a commercial insurer's audit letter, SIU records request, or recoupment demand, before any response is sent. Early intervention can confirm which law applies to the plan at issue, preserve appeal and arbitration rights under the provider agreement, and prevent records or statements from supporting a broader finding than the audit originally raised. Delaying representation can affect the outcome and expose the practice to recoupment beyond the claims first identified.
How Health Law Alliance Can Help
Health Law Alliance has represented 2,500+ clients nationwide. The firm represents medical practices facing a commercial insurer's SIU investigation, payment integrity audit, recoupment demand, or network termination notice, in addition to Medicare and Medicare Advantage contractor audits. If your practice has received an audit letter or a recoupment demand from a commercial plan, contact Health Law Alliance's audit defense attorneys for a free, confidential consultation before you respond to the insurer.
