Medicare's $63 Million Question: When Does a Dermatology Visit Justify Separate Billing?
On November 18, 2025, the Office of Inspector General (OIG) released an audit that sheds light on a billing practice that has long concerned federal healthcare regulators. The report examined whether dermatologists properly billed Medicare for evaluation and management (E&M) services performed on the same day as minor surgical procedures—a practice that generated an estimated $62.9 million in overpayments during 2019 and 2020.
The Core Issue
When a dermatologist removes a suspicious mole or destroys a precancerous lesion, the payment for that procedure includes certain evaluation services. The physician examines the area, decides the procedure is necessary, explains risks and benefits, and provides follow-up care. Medicare considers this work inherent to the procedure itself.
But what happens when a patient comes in for a skin check and the dermatologist discovers something requiring immediate treatment? Or when a patient scheduled for lesion removal also needs evaluation of an unrelated skin condition? In these situations, Medicare allows providers to bill separately for the E&M service—but only if it's "significant" and "separately identifiable" from the routine work associated with the procedure.
This distinction creates a gray area. To signal that separate payment is warranted, providers append modifier 25 to the E&M code. This two-digit modifier tells Medicare: "I performed substantial evaluation work beyond what's normally included in the procedure."
The audit found that dermatologists used this billing pattern frequently. During 2019 and 2020, approximately 61.5% of Medicare-paid dermatology claims for E&M services included a minor surgical procedure performed by the same dermatologist on the same day. Given the volume of these claims, even a small error rate translates to millions in potential overpayments.
What the Audit Found
The OIG examined 100 randomly selected claims from this population. Auditors reviewed medical records to determine whether the documentation supported billing both an E&M service and a minor surgical procedure on the same day.
The results were mixed. Dermatologists met Medicare requirements for 90 of the 100 sampled claims. For these cases, documentation clearly showed that providers performed significant evaluation work separate from the procedure itself. But the remaining 10 claims failed to meet the standard.
Based on statistical analysis of this sample, the OIG estimated that Medicare made overpayments totaling $62,915,655 to dermatologists for claims where E&M services did not meet Medicare requirements. This represents a 10% error rate—not catastrophic, but significant given the dollar amounts involved.
Understanding Minor Surgical Procedures in Dermatology
To understand the audit's implications, it helps to know what counts as a minor surgical procedure in dermatology. Medicare assigns global periods to surgical procedures indicating how many days of pre-operative and post-operative care are included in the payment.
Minor procedures have global periods of either 0 days or 10 days. In dermatology, these include:
0-day global period procedures:
Skin biopsies (tangential, punch, incisional)
Shave removals
Mohs micrographic surgery
10-day global period procedures:
Destruction of lesions (cryotherapy, electrosurgery, laser treatment)
Excisions of benign and malignant lesions
Simple repairs
For all these procedures, the Medicare payment includes the decision to perform the surgery, the usual evaluation beforehand, the procedure itself, and routine follow-up care during the global period. Billing separately for these included services constitutes improper billing.
The Modifier 25 Standard
Medicare requires that E&M services billed with modifier 25 be both "significant" and "separately identifiable." But what does this mean in practice?
According to Medicare guidelines, the E&M service must reflect work above and beyond the usual pre-operative and post-operative care associated with the procedure. The service should be able to stand alone as a billable encounter if documented separately.
Consider these scenarios:
Scenario 1: Appropriate use of modifier 25
A patient scheduled for removal of a seborrheic keratosis on the arm mentions new symptoms during check-in. The dermatologist performs a full-body skin examination before the scheduled procedure and discovers suspicious lesions on the patient's back requiring biopsy. The dermatologist documents separate findings from the examination, discusses treatment options for the newly discovered lesions, and then proceeds with the originally scheduled keratosis removal.
In this case, the comprehensive skin examination addresses problems entirely separate from the scheduled minor procedure. The documentation clearly shows two distinct services: an evaluation of new symptoms and lesions, plus the scheduled removal. Billing an E&M with modifier 25 would be appropriate.
Scenario 2: Inappropriate use of modifier 25
A patient arrives for a scheduled biopsy of a suspicious mole. The dermatologist examines the lesion, discusses the need for biopsy, explains risks and benefits, obtains consent, and performs the procedure. The medical record documents the pre-procedure evaluation and the biopsy itself.
Here, the evaluation documented is exactly what Medicare expects as part of the biopsy's global surgical package. There's no significant, separately identifiable E&M service. Billing an E&M with modifier 25 in this situation would be improper.
Scenario 3: The challenging middle ground
A patient comes in for follow-up of psoriasis. During the visit, the dermatologist evaluates the psoriasis treatment response, adjusts medications, and discusses lifestyle modifications. While examining the patient, the dermatologist notices an actinic keratosis and performs cryotherapy to destroy it.
This scenario presents a judgment call. If the dermatologist performed a comprehensive evaluation of the psoriasis that would justify an E&M visit on its own, and the cryotherapy was incidental to that visit, modifier 25 may be appropriate. However, if the visit was brief and the psoriasis evaluation was minimal, billing separately for the E&M may not be justified.
Documentation Requirements
The audit revealed that documentation failures drove most improper payments. Medicare doesn't require providers to submit documentation with claims, but medical records must support any services billed.
For claims involving modifier 25, documentation should clearly distinguish the E&M service from the procedure. Best practices include:
Physically separate the documentation. Record the E&M service in one section of the note and the procedure in another. This makes it clear to auditors that two distinct services occurred.
Document complete E&M elements. The E&M note should include appropriate history, examination, and medical decision-making that could support a standalone visit.
Note different problems when applicable. If the E&M addresses a different condition than the procedure, document this explicitly. While different diagnoses aren't required for modifier 25, they strengthen the case for separate billing.
Avoid language suggesting routine pre-procedure work. Phrases like "examined lesion prior to removal" or "evaluated area before biopsy" describe work included in the procedure's payment.
Be specific about what made the E&M significant. Document why the patient's condition required services beyond routine pre-procedure evaluation.
The Compliance Landscape
This audit exists within a broader context of increased scrutiny on dermatology billing. The OIG first announced its intention to review these claims in April 2021, adding the project to its Work Plan. The announcement itself likely prompted many practices to review their billing patterns.
Dermatology has drawn regulatory attention for several reasons. The specialty performs high volumes of procedures, often with same-day E&M services. The decision-making about when modifier 25 applies requires clinical judgment, creating opportunities for both honest mistakes and intentional overbilling. And previous analyses suggested significant variation in how frequently different providers use modifier 25.
Beyond federal oversight, commercial payers have also tightened policies around modifier 25 in dermatology. Many now use prepayment edits that flag claims with modifier 25 for review, particularly for providers whose usage rates exceed peer benchmarks.
CMS Response and Recommendations
The OIG made two recommendations to the Centers for Medicare & Medicaid Services (CMS) to improve oversight:
Recover the identified overpayments from the audit sample.
Implement additional controls to reduce the risk of improper payments for E&M services billed with minor surgical procedures.
Notably, CMS did not concur with these recommendations. In its response, CMS described steps already taken to promote compliance with Medicare requirements, suggesting the agency believes existing oversight mechanisms are adequate.
This disagreement isn't unusual. OIG audits frequently result in recommendations that agencies don't fully accept. CMS may believe that provider education and existing claim review processes sufficiently address the issue, while the OIG evidently thinks stronger measures are needed.
Implications for Dermatology Practices
The 90% compliance rate found in this audit actually represents good news compared to some OIG reviews. It suggests that most dermatologists bill appropriately most of the time. However, a 10% error rate creating tens of millions in overpayments will keep this issue on regulators' radar.
Practices should take several steps to ensure compliance:
Conduct internal audits. Review a sample of charts where modifier 25 was used with minor procedures. Apply Medicare standards rigorously. If your error rate exceeds 5%, additional education and process improvements are warranted.
Educate providers. Make sure dermatologists understand when modifier 25 is appropriate. Provide examples of compliant and non-compliant scenarios specific to your practice patterns.
Implement documentation templates. Electronic health record templates can prompt providers to document E&M services in ways that clearly distinguish them from procedure-related work.
Monitor utilization rates. Track how often each provider bills modifier 25 with procedures. Compare these rates to specialty benchmarks. Outliers may indicate either billing errors or documentation deficiencies.
Be conservative in ambiguous cases. When uncertain whether an E&M service meets the "significant and separately identifiable" standard, consider not billing it separately. The financial risk of incorrect billing may outweigh the additional revenue.
The Broader Context
This audit reflects ongoing tension between paying fairly for physician services and preventing overbilling. Minor surgical procedures in dermatology are common, often quick to perform, and frequently occur during visits that include other evaluation services. The challenge is distinguishing between situations where separate payment is appropriate and those where it's not.
From Medicare's perspective, the concern is straightforward: paying twice for the same work wastes taxpayer dollars and increases program costs. From providers' perspective, legitimate evaluation services that happen to occur on the same day as a procedure deserve separate compensation.
The truth lies somewhere in between. Medicare's rules attempt to draw lines, but those lines don't always align perfectly with clinical reality. A dermatologist who spots a concerning lesion during a routine skin check and immediately treats it has genuinely provided two services. But documenting this in a way that satisfies auditors requires care and attention.
Looking Ahead
Several factors will shape how this issue evolves:
Continued audit activity. The OIG will likely continue reviewing dermatology billing patterns. Practices with high rates of modifier 25 usage may face targeted review.
Payer policies. Commercial insurers often follow Medicare's lead. Expect private payers to increase scrutiny of these claims as well.
Documentation standards. Professional societies may develop more detailed guidance on documenting E&M services that occur with procedures.
Payment reform. Broader shifts toward value-based payment may eventually reduce emphasis on billing for individual services, potentially making these distinctions less important.
For now, the message from this audit is clear: billing for E&M services on the same day as minor procedures is often legitimate, but requires careful attention to documentation and Medicare requirements. The 90% compliance rate suggests most providers are getting it right, but there's room for improvement.
The $63 million in estimated overpayments represents only 10% of claims in the audit sample. That's simultaneously reassuring (most billing is appropriate) and concerning (10% error rates are too high for a program serving 65 million beneficiaries). As healthcare costs continue rising, expect Medicare to maintain focus on these high-volume billing patterns where even small error rates translate to significant dollars.
Sources
Office of Inspector General, U.S. Department of Health and Human Services. "Dermatology Providers Generally Met Medicare Requirements for Evaluation and Management Services Performed on Same Day as Minor Surgical Procedures." Report A-04-21-04083. November 18, 2025.
American Academy of Family Physicians. "How to Use Modifier 25." March 28, 2024.
Centers for Medicare & Medicaid Services. "Medicare Claims Processing Manual, Chapter 12: Physicians/Nonphysician Practitioners." Publication 100-04.
Noridian Healthcare Solutions. "Modifier 25 - Significant, Separately Identifiable Evaluation and Management Service."
American College of Cardiology. "Appropriate Use of Modifier 25."
American Academy of Family Physicians. "Skin Deep: How to Properly Code for Biopsies and Lesion Removal." March 15, 2019.