The Cost of Cost-Share: How Payors Leverage Patient Responsibility in SUD Audits

One of the most common — and consequential — issues in payor audits of behavioral health and substance use disorder (“SUD”) providers involves the billing and collection of patient responsibility amounts: deductibles, copayments, and coinsurance. What may look like a billing formality often becomes the centerpiece of a payor’s allegation that a provider engaged in “fee forgiveness,” a label that can escalate into fraud investigations, corrective action plans, and multimillion-dollar recoupment demands.

Payors often argue that collection of cost-sharing is a condition of coverage or that a provider’s routine non-collection evidences an improper waiver of such fees to induce patients to receive treatment from that provider. Cost-sharing amounts are embedded in the member’s plan design for both in-network and out-of-network arrangements, and routinely waiving them effectively gives patients a benefit unavailable to other plan members. In the SUD context, this rule can feel especially harsh. Families seeking treatment are already stretched thin emotionally and financially, and providers often put access to care above aggressive collections. That tension, however, is exactly what payors exploit in audits, reframing compassion as noncompliance.

From Audit to Recoupment

An audit often begins with a comprehensive request for patient records — typically a “random” sample drawn from a defined timeframe. Payors usually demand treatment records, billing and collection ledgers, patient statements, and the provider’s billing and collection policies. After reviewing these materials, the payor issues follow-up correspondence outlining its findings, often referred to as a “damages letter.”

While the damages letter may highlight a range of compliance issues in the sample such as documentation deficiencies and medical necessity and patient care, the real showstopper almost always involves the provider’s handling of cost-share obligations and balance billing. If the provider cannot demonstrate consistent efforts to pursue patient responsibility, the payor argues that the provider improperly engaged in fee forgiveness. That finding quickly escalates into allegations of fraud and demands for repayment of not only the uncollected cost-share, but also all claims paid during the audit period — regardless of whether the services were medically necessary and covered by the plan.

The financial consequences of a fee forgiveness finding can be staggering. What begins as a narrow review of patient billing often morphs into a full-scale recoupment effort with exposure in the millions.

In-Network vs. Out-of-Network Considerations

Collection obligations can differ depending on whether a provider is in-network or out-of-network. In-network providers contractually agree both to collect patient responsibility amounts and to accept a negotiated rate for their services. This arrangement eliminates the need to issue balance bills, but it also creates a contractual obligation to make reasonable efforts to collect patient responsibility amounts. Providers should carefully review their network agreements to determine whether they contain specific requirements regarding cost-share collection.

Out-of-network providers, by contrast, often face heightened scrutiny of both cost-share collection and balance billing. In some cases, payors — or third-party administrators — will enter into single-case agreements that include provisions limiting balance billing. Importantly, payors often argue that these agreements do not relieve providers of their obligation to make reasonable collection efforts with respect to cost-share amounts reflected on the remittance advice. Payors take the position that they would not enter such arrangements absent an expectation that the provider intends to hold the patient responsible for both the contracted rate and any applicable cost-sharing obligations.

Defining “Commercially Viable” Efforts to Collect

There is an inevitable tension between the payors’ rigid position that any waiver of patient responsibility vitiates coverage and the reality that some patients simply lack the resources to pay large sums of money before receiving treatment. This is particularly true for patients who recognize their need for SUD treatment only after their disease has destroyed their finances and relationships. The neediest patients are the ones who lack the resources to pay their portion of the care they need. And attempts to collect from patients who lack the resources to pay what they owe could threaten gains made through treatment. In light of this tension, providers frequently ask what efforts they must undertake before writing off balances as uncollectible. While in-network provider contracts or plan documents may include some specifics, this is often undefined. In one recent matter, a payor’s investigator provided unusual clarity about what it considered acceptable. To avoid fee forgiveness findings, providers should engage in all “commercially viable” efforts to collect patient responsibility amounts, including:

• Billing patients for both the full treatment charges and the member’s plan-based cost-share.
• Sending multiple written statements (at least three), each reflecting the full outstanding balance.
• Following up with documented phone calls if payment is not received.
• Sending a final written notice warning that the account may be referred to collections.
• For larger balances, referring the account to collections if unpaid after 30 days.

According to this payor, simply “checking the box” will not be enough to prevent or resolve these audits. In its view, mailing statements without genuine follow-up — or continuing to provide services while accounts remain delinquent — suggests bad faith. At the same time, payors have acknowledged that providers are not expected to spend more on collection efforts than the balance justifies. What matters is showing a consistent, good-faith process aimed at enforcing the obligation.

Balancing Compliance with Compassion

For SUD providers, the challenge is to comply with legitimate payor requirements without abandoning compassion for families in crisis. Payment plans are one way to strike that balance. A family may not be able to cover a large coinsurance bill in a lump sum, but a signed installment agreement that the provider reasonably attempts to enforce demonstrates that the obligation was not forgiven.

Documentation is equally important. Implementing written policies and procedures and maintaining copies of billing statements, call logs, notes of payment-plan discussions, and final collection notices together form the paper trail that can rebut allegations that cost-share amounts were systemically waived to induce patients to receive treatment from the provider. These practices may not prevent a payor from pursuing recoupment on an overly aggressive argument that any failure to collect cost-shares defeats the payor’s coverage obligations, but they will help the provider to fight that argument. Instead of appearing to ignore patient responsibility altogether, the provider can show it acted consistently, reasonably, and in good faith to collect those amounts where possible.

When Audits Escalate into Arbitration and Litigation

If an audit cannot be resolved informally, providers are often forced to litigate disputed amounts — particularly if claims have been pended during the review. Most network agreements include arbitration clauses, meaning in-network providers are typically required to arbitrate, while out-of-network providers typically pursue their claims in litigation.

At this stage, fee forgiveness findings become even more dangerous. What begins as a billing dispute over patient responsibility often morphs into counterclaims for fraud, dramatically increasing both the financial and reputational stakes. The provider must not only defend its collection practices but also rebut allegations that it intentionally and systematically waived cost-share amounts to induce patients to receive treatment.

Here, documentation becomes the decisive factor. Providers who can demonstrate a clear pattern of billing full charges, pursuing cost-share, and offering commercially viable payment alternatives are far better positioned to argue that the dispute is contractual, not fraudulent.

Conclusion

The issue of collecting patient responsibility may seem technical, but for SUD providers, it has become a flashpoint with life-or-death financial consequences. Payors frame failures to collect cost-share as systemic fee forgiveness, audits escalate into recoupments, and unresolved disputes often spill into arbitration or litigation with fraud counterclaims attached.

Providers cannot eliminate these risks, but they can prepare for them. By implementing written policies and procedures and following consistent billing and collection practices, offering payment plans where appropriate, and documenting every effort to collect patient responsibility amounts, providers can demonstrate good faith and create evidence that will be invaluable if an audit escalates. In an environment where payors are always looking for opportunities to avoid their coverage obligations and claw back money, those safeguards may make all the difference.