Private health fund audits

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Practitioners can be subjected to an audit of their billing practices by a private health fund. This article explains what can trigger an audit; answers some frequently asked questions; identifies some common billing issues that Meridian Lawyers has observed; and provides some hints and tips to practitioners seeking to avoid common pitfalls.

How are audits commenced?

What triggers an audit?  

Audits are typically triggered as a consequence of the practitioner (provider) having a high servicing ratio relative to their peers in their state and postcode.   It is important to remember that each of the private health funds collects data, and turn that data into statistical models that identify billing trends across the industry. The funds collect data on individual provider’s billing and patterns and compare these levels to industry “norms”.

A provider’s servicing profile has been explained by one of the private health funds, as being made of up the following:

  • Service and Benefit ratios per patient
  • Service and Benefit level ratios per membership
  • Service and Benefit level comparison ratios for the provider’s State and Postcode
  • Age Group Service comparison ratios for the provider’s State
  • Item Category Service comparison ratios for the provider’s State

A high servicing ratio may often trigger a letter to the provider seeking an explanation, which is generally followed by a second letter informing the provider that an audit is to occur. Typically, a provider who has been identified as having a high service ratio, can expect the following line of correspondence from a private health fund:

Letter 1 : Provider advised of high servicing profile and asked to provide an explanation


Letter 2 : Provider advised that private health fund has decided to conduct an audit of the practice. Private health fund will seek access to the clinical records of specific patients over a specific period of time.


Letter 3 : Provider will be advised of audit’s findings. Provider will be provided an opportunity to respond to the audit findings.


Letter 4 : Provider will be advised of the private health fund’s decision. The provider will be informed as to whether the private health fund will take action.


What power does the private health fund have to audit my practice?

The relationship between a provider and a private health fund is contractual in nature. As such, the power of a private health fund to perform an audit will be created by the terms of the contract. Generally speaking, these contracts contain a clause requiring the provider to co-operate with any request for documents. A failure to perform an obligation under such a contract, may give the private health fund the right to suspend that provider’s billing privileges, and ultimately, end its relationship with the provider.

Will I breach patient privacy if I provide the private health fund a copy of my clinical records?

Previously, this has been an issue faced by providers. However, most patients will have now consented to such a disclosure when becoming a member with the private health fund. Before providing a copy of any clinical records, it is prudent to request a copy of the patient’s consent or at least, written confirmation from the private health fund that this has been obtained.   We note that some funds provide this information at the time of a request for clinical records. We recommend seeking legal assistance to draft an appropriate first response to such a request.

What can the private health fund really do if I do not cooperate/respond in a timely manner?

Most private health funds reserve the right to suspend billing privileges or end the relationship with the provider, should there be a failure to respond by the nominated date. It is extremely important to keep this in mind if correspondence is received from a private health fund. We are aware of private health funds suspending the provider’s billing facility until a response is received.

What are the possible outcomes of an audit?

The contract between the private health fund and the provider generally reserves the right of the private health fund to end its relationship with that provider, if a serious breach has occurred.   It is important to remember that when an item number is billed to a private health fund, it is a representation that the service has been appropriately provided. Consequently, audits that uncover item numbers that have been inappropriately billed, albeit unintentionally, could result in termination of the relationship with the provider.

Private health funds may also reserve the right to require the provider to fix the breach, if possible. For item numbers that have been billed incorrectly, this generally means paying back to the private health fund the billed amounts. This is called restitution. Be warned that if a billing trend for a particular item number is uncovered by an audit, the private health fund very often seeks full restitution for all times that item number has been billed, even beyond the sample of audited files.

We note that should a provider’s status as a provider be terminated, as a consequence of an audit, the provider may have an obligation to notify AHPRA of the event. Depending on the circumstances, this may also be the case should a provider’s billing privileges be suspended during an audit. We recommend that a provider seek legal advice should either of these events transpire.

Frequent issues

Audits by private health funds generally focus on the following three issues:

  • Was the treatment in fact provided?
  • Was the treatment provided warranted?
  • Was the item number appropriately used?

The potential to defend these types of allegations depends almost entirely on the quality of and the detail in the provider’s notes. The provider, in answer to these issues, will need to look to the following:

  • Is there a record of the treatment that is the subject of the claim?
  • Does the record of the history and examination findings, including the conclusions from any radiology/intraoral photographs justify the treatment that was provided?
  • Is the recorded treatment within the scope of the claimed item number?


Audits frequently target the use of the following item numbers:

Item 011                      which provides for a comprehensive oral examination.   The funds have taken issue with clinical records that do not support a comprehensive oral examination having been completed.

Item 013                      which provides for a limited oral examination. The funds have taken issue with providers who bill this item number in conjunction with planned treatment.

Item 015                      which provides for an extended consultation of 30 minutes or more. The funds have taken issue where this item is being used for every first consultation; or routinely where there does not appear to be any clinical justification for doing so. Where there is complex treatment proposed, and the provider is required to explain the treatment plan in detail, including the risks and benefits, and the outcomes, such circumstances may justify the use of this item. However the provider must ensure that this necessity is detailed in their notes. A simple consultation is unlikely to justify the use of this item.

Item 022                      which provides for intraoral periapical or bitewing radiograph per exposure. Providers need to ensure that radiographs that are being claimed under this item are actually able to assist in clinical diagnosis.   Audits have identified instances where radiographs of poor and unusable quality have been claimed inappropriately. It is important that providers retain all radiographs and document the findings/conclusions from these radiographs in the patient’s clinical file.

Item 122                      which provides for home application topical remineralising and/or cariostatic agents. This item requires that the patient is provided with a custom-made tray. Audits commonly identify the inappropriate use of this item where providers are simply providing the patient with an over the counter tray.

Item 123                      which provides for concentrated remineralising and/or cariostatic agents. This item cannot be used where restorative treatment of the same tooth/teeth is also provided. We note that this item may be used for the prolonged and targeted application of concentrated fluoride where it is a procedure to promote caries resistance in a specific situation. Audits have focused on the incorrect use of this item for fluoride treatment or for the issuing of tooth mousse, particularly in circumstances where there are no clinical records to justify such treatment. It is not appropriate to claim item 123 where a desensitising agent is applied.

Restoration items       The funds have focused on providers that claim for restorative items on the same tooth over a relatively short period of time. They maintain the position that this may indicate an issue with the quality of the workmanship, and believe it should be a cost borne by the provider. We recommend that providers think carefully when engaging in this practice. If the replacement restoration is not because of workmanship, the reasons for the treatment should be detailed in the patient’s clinical notes.

We understand that providers rely heavily on their administrative staff when it comes to billing.   We have observed that some of the item numbers disputed by the funds have arisen because the administrative assistant entered the incorrect item number; or the administrative assistant billed and then cancelled an item number in order to quote a service to the patient. These entries form part of a provider’s servicing profile, thereby adding to the provider’s servicing ratio.   Providers should ensure staff are trained on how to use the billing systems properly and what is and is not acceptable.

Auditors regularly seek explanation for pre-claiming, back dating or splitting claims over the calendar/benefits year.

Hints and tips

Practitioners need to be mindful of the potential for audits to be conducted by the private health funds. Meridian Lawyers’ recommends that practitioners:

  • Ensure complete and accurate clinical records are retained
  • Ensure administrative staff are educated regarding appropriate billing practices
  • Ensure they are familiar with the ADA Schedule of Dental Services and Glossary, and that their treatment accords with accepted practice
  • Ensure that any clinical records provided to a private health fund are:
  • Complete; and
  • Good quality copies (if the x-rays are digital, we recommend providing a CD/DVD containing the digital image)
  • It is strongly recommended that any practitioner contact their professional indemnity insurer for assistance, if correspondence from a private health fund regarding an alleged high servicing ratio is received.

Detailed clinical records enable a provider to respond to an audit request, or demand by a private health fund with:

  • a contemporaneous record of the treatment, which accords with the item description; and
  • a contemporaneous record of the clinical justification of the treatment.

Without detailed notes, whether the treatment was provided, whether it was appropriate, and whether it was within the item number claimed, are open to dispute.


This article was prepared by Jeremy Smith, Solicitor; Marnie O’Brien, Solicitor and Kellie Dell’Oro, Principal of Meridian Lawyers.

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