Hospital Alert: Where Will Federal Law Enforcement Focus Its Attention in 2009? Are You Prepared?
December 11, 2008
Daniel S. "Dan" Fridman- Miami
Every fall brings with it a new Work Plan from the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS). The Work Plan identifies the areas the OIG will focus on in the coming year as it conducts its investigations, audits and inspections. Now is a good time for hospital executives, board members and compliance officers to perform an annual “check-up” on their operations to make sure the hospital is focused on the same issues as the federal government. Civil and criminal enforcement efforts by HHS-OIG and, in turn, the Department of Justice (DOJ), often reflect Work Plan initiatives. It would also be prudent for a hospital to select Work Plan issues for audit as a part of its compliance program. By examining the Work Plan, as well as recent DOJ criminal cases and civil settlements, hospital executives and board members can better understand areas of risk for their hospital. The Work Plan lists 26 areas of focus, but some of the more significant areas of focus for hospitals are highlighted in this alert.
- Provider-Based Status for Inpatient and Outpatient Facilities
Hospitals often purchase a variety of other medical entities, such as physician practices, nursing facilities and home health agencies. Under Medicare, hospitals can account for medical entities they own as either free-standing or as part of the hospital. If a hospital accounts for an entity as part of the hospital, it is referred to as a “provider-based” arrangement, and this can result in a higher reimbursement amount for the hospital because it increases the share of the hospital’s general and administrative costs supported by Medicare. Such an arrangement can only be made with the approval of the Centers for Medicare & Medicaid Services (CMS), and it generally requires the demonstration of a high level of financial, professional and administrative integration between the main provider and the other facility. The OIG plans to review the impact on Medicare and its beneficiaries when hospitals improperly claim provider-based status for inpatient and outpatient facilities.
- Hospital Ownership of Physician Practices
OIG continues its focus on “provider-based” arrangements by looking at hospital-owned physician practices that have been designated as provider-based. Under these arrangements, hospitals may receive greater Medicare reimbursements for outpatient services in provider-based practices than through CMS’s Medicare Physician Fee Schedule. The OIG will investigate whether these hospitals have met the federal requirements for the provider-based designation, the impact on Medicare of reimbursement under the hospital outpatient prospective payment system (OPPS) to such provider-based practices and the extent to which hospital-owned physician practices that do not have provider-based designation were improperly reimbursed under the OPPS.
- Reliability of Hospital-Reported Quality Measure Data
Starting in 2003, hospitals were asked to report to CMS quality of care measures for a set of 10 indicators to avoid a Medicare payment reduction of 2 percent. Some examples of the initial 10 measures are: whether acute myocardial infarction patients were given aspirin and beta blockers on arrival and at discharge, and whether pneumonia patients were given an antibiotic within four hours of hospital arrival. The OIG plans to assess whether hospital controls are sufficient to ensure this quality measurement data is valid. Please be aware that for the fiscal year 2010 reporting period there will be a total of 42 measures to report. A complete list of the 10-measure “starter set” is available at: http://www.cms.hhs.gov/HospitalQualityInits/downloads/HospitalStarterSet200512.pdf.
- Additional Part A Medicare Capital Payments for Extraordinary Circumstances (Such as Hurricanes)
Hospitals may request additional Medicare capital payments for unanticipated expenses over $5 million (net after insurance and other payments) resulting from extraordinary circumstances such as a flood, fire or hurricane. The OIG will determine whether Medicare capital payments to hospitals satisfied federal requirements.
- Coding and Documentation Changes Under the Medicare Severity Diagnosis Related Group System
The OIG plans to review the impact of the Medicare Severity Diagnosis Related Group (MS-DRG) system, implemented on October 1, 2007, which increased the number of DRGs from 538 to 745. DRGs are payment groups. Patients that have similar clinical characteristics and similar costs are assigned to a DRG. The DRG is associated with a fixed payment amount based on the average cost of patients in the group. Patients are assigned to a DRG based on diagnosis, surgical procedures, age and other information. Medicare uses this information provided by hospitals on their bill to decide how much they should be paid. The OIG will scrutinize coding trends and patterns that have emerged due to the new system and determine whether specific MS-DRGs are vulnerable to potential upcoding. Upcoding is billing for a more highly reimbursed service or product than the one provided, and this practice has been the source of a number of multi-million dollar civil fraud judgments recently obtained by the DOJ against hospitals.
- Serious Medical Errors (“Never Events”)
This is an area of increased focus from CMS and the OIG. The OIG plans to conduct a series of studies related to “never events,” which are conditions that are acquired by a patient at a hospital after admission, such as injuries from falls in the hospital, infections such as MRSA, blood incompatibility complications, catheter-associated urinary tract infections and foreign objects remaining after surgery. The OIG will review hospital compliance by identifying various hospital-acquired conditions using the Present on Admission coding system that was implemented on October 1, 2007. There is legislation pending to prohibit hospitals from receiving payment for “never events.” As hospital executives and board members focus on quality of care issues, it is important that hospitals accurately monitor the occurrence of “never events” through proper coding and billing practices.
There are 20 additional hospital-related areas that the OIG will examine in 2009. The full fiscal year 2009 OIG Work Plan is available at: http://www.oig.hhs.gov/publications/workplan.asp.
Notable Civil and Criminal Cases from the Department of Justice in 2008
In addition to the areas specifically identified in the Work Plan, there are other areas of hospital operations that are getting increasing attention from the OIG, the Department of Justice, and Congress. These areas include the following:
Physician and Hospital Financial Relationships: The Anti-Kickback Statute
There is an increased focus on enforcement of the federal anti-kickback statute. The law’s main purpose is to protect patients and the federal health care programs from fraud and abuse by curtailing the corrupting influence of money on health care decisions. Straightforward but broad, the law states that anyone who knowingly and willfully receives or pays anything of value to influence the referral of federal health care program business, including Medicare and Medicaid, can be held accountable for a felony. Violations of the law are punishable by up to five years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal health care programs. As evidenced by recent prosecutions and monetary settlements, there is a renewed focus on the relationships between hospitals and the physicians that refer patients to the hospitals.
In June 2008, a health care system in Springfield, Missouri, agreed to pay the United States to settle claims that it violated the False Claims Act, the Anti-Kickback Statute, and the Stark Law between 1996 and 2005, by entering into illegal financial relationships with referring doctors at a local physician group designed to induce referrals to the health care system. The health care system also engaged in improper billing practices, including improper billing for end-stage renal disease treatments and passing on inflated overhead costs to Medicare. The health care system, a not-for-profit health care organization, will pay the United States $60 million to resolve these claims.
In April 2008, a New Orleans hospital agreed to pay the United States $1.75 million to settle allegations that it submitted false claims to the Medicare program between 2000 and 2004, by making payments of $144,000 per year to a psychiatrist in order to induce the psychiatrist to refer patients to the hospital. The payments were made pursuant to a series of consultant and medical directorship contracts that the United States contended were shams intended to disguise kickbacks to the psychiatrist. The United States pursued criminal charges against the psychiatrist, and on April 16, 2008, a jury in the Eastern District of Louisiana returned guilty verdicts on 39 counts of health care fraud against the psychiatrist, including 13 counts arising from
the psychiatrist’s contractual relationship with the hospital.
Misclassification of Outpatients as Inpatients to Receive Higher Medicare Reimbursements
In December 2007, an Atlanta hospital agreed to pay $26 million to resolve allegations that the hospital falsely claimed Medicare reimbursement for inpatient admissions that were, in fact, less costly outpatient visits. A registered nurse, formerly employed by the hospital, initiated suit under the False Claims Act’s qui tam provisions. The complaint alleged that the hospital improperly billed for short inpatient admissions, usually of one day or less, when the service should have been billed as an outpatient “observation” or emergency room visit. Medicare reimburses hospitals a higher rate for inpatient admissions than it does for observation care or emergency room visits.
Systemic Problems at a New York Hospital
In September 2008, a New York hospital agreed to pay $74 million to the United States to resolve two False Claims Act qui tam suits and two other matters. In the first action, a physician and former director of chemical dependency services, filed suit alleging that the hospital fraudulently billed Medicare and Medicaid for substance abuse and alcohol detoxification services provided to inpatients in beds which had not been given a certificate of operation from the state of New York. In fact, the hospital was authorized to provide inpatient detoxification care to patients in 56 beds, but it used an additional 12 beds located in a locked, separate wing that was kept concealed from state authorities. The hospital paid the United States $11.8 million and New York
$14.88 million in settlement of this qui tam action.
In the second action, the widow of a cancer patient of the hospital filed suit alleging that between 1996 and 2004, the hospital submitted false claims to Medicare and TRICARE using incorrect codes for cancer treatments not covered by the programs. The hospital paid the United States $25 million.
In the third matter, the United States alleged that the hospital deliberately inflated the number of residents it employed as part of its graduate medical education (GME) program to fraudulently increase Medicare reimbursement between 1996 and 2003. The hospital paid the United States $35.7 million in settlement of this matter. Lastly, the hospital paid the United States $1.47 million to settle allegations that it billed Medicare and Medicaid for treating psychiatric patients in unlicensed beds from 2003-2005. In conjunction with the settlement, the hospital also entered into a Corporate Integrity Agreement with the Inspector General of HHS to ensure future compliance.
10 Questions to Ask During Your Annual Compliance “Check-Up”
As hospital executives and board members consider the 2009 Work Plan and recent cases brought by the Department of Justice, here are 10 questions worth asking about hospital operations.
1. How frequently does the board of directors receive reports about compliance issues?
2. Has the compliance program been reviewed and updated to address new risks to the hospital, such as those identified in this alert?
3. What is the scope of compliance-related education and training across the organization?
4. Has the effectiveness of the training program been assessed?
5. Have new training sessions been developed to target emerging areas of risk?
6. How is the board kept apprised of significant regulatory and industry developments affecting the hospital’s risk?
7. How is the compliance program structured to address such risks?
8. What processes are in place to ensure that appropriate remedial measures are taken in response to identified weaknesses?
9. What guidelines have been established for reporting compliance violations to the board?
10. What policies govern the reporting to government authorities of probable violations of the law?
When a hospital uncovers evidence of a potential violation of a law, it may be prudent for the organization to seek outside counsel for an independent investigation and advice. Holland & Knight’s teams for White Collar Defense, Health Law and Life Sciences, and Compliance Services are ready to assist hospitals to deal with emerging risks, internal investigations, and responses to federal law enforcement investigations and civil litigation.
For more information, contact:
Daniel S. Fridman
daniel.fridman@hklaw.com
305.789.7412
toll free: 1.888.688.8500
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