Category: OIG

Dental Practice and Private Equity-backed Dental Support Organization Settle With Government Regarding Allegations of Improper Billing and Violations of the Corporate Practice of Dentistry

ImmediaDent of Indiana, LLC (“ImmediaDent”), the operator of nine dental care practices in Indiana, and Samson Dental Partners, LLC (“Samson”), the provider of administrative support services to ImmediaDent, have agreed to pay $5.1 million to settle allegations of improper Medicaid billing and violations of the Indiana corporate practice of dentistry.  As part of the settlement, the two companies will pay approximately $3.4 million to the federal government and $1.78 million to the State of Indiana.

ImmediaDent owns and operates thirty-three dental locations in Indiana, Kentucky, and Ohio.  Kansas-based Samson provides management, administrative, and other support services to ImmediaDent, but does not have an ownership interest in ImmediaDent.

The U.S. Attorney’s Office intervened in this matter after Dr. Jihaad Abdul-Majid filed a qui tam, or whistleblower, suit in February 2013 against ImmediaDent and Samson in federal court.  According to the complaint, Dr. Abdul-Majid worked for ImmediaDent from July 2011 to March 2012.  His efforts to speak out against the alleged false billing practices he witnessed resulted in the termination of his employment.

Allegations constituting improper Medicaid billing by the two entities included billing tooth extractions as surgical extractions and billing for “deep cleanings” that were never performed or were not medically necessary.  Further, Samson was accused of violating Indiana’s law prohibiting the corporate practice of dentistry, Ind. Code §25-14-1-23.  See also Orthodontic Affiliates, P.C. v. OrthAlliance, Inc., 210 F. Supp. 2d 1054, 1059 (N.D. Ind. 2002).  Specifically, it was alleged that Samson improperly influenced ImmediaDent’s medical professionals and staff by rewarding employees for reaching production goals, disciplining employees for failing to meet production objectives, and exerting influence over staff in a manner that compromised their clinical judgment.

According to the U.S. Attorney’s Office, both companies refused to enter into corporate integrity agreements, which would have required oversight of the company by the United States Department of Health and Human Services, Office of Inspector General (“OIG”).  Corporate integrity agreements typically last for a period of five years and require companies to hire additional compliance staff, develop compliance training, have annual external reviews performed, and submit performance reports to the OIG.  Due to both entities’ refusal to enter into corporate integrity agreements, the OIG has determined that ImmediaDent and Samson “pose a continuing high risk to the federal health care programs and their beneficiaries.”

There is a small, but growing trend, of federal and state governments filing claims against management companies of medical and dental practices, and, in some instances, the private equity firms that invest in these management companies, for the alleged misdeeds of the billing providers.  Even though the firms do not have direct equity interests in the providers themselves, federal and state governments are more closely scrutinizing the influence that the firms have in the providers through the management relationships and trying to argue that such influence is so great that the management companies and the firms should also be liable for the liabilities of the providers.  It is important that management companies and private equity firms take great care in their relationships with health care providers to remain at arms’-length, so as to try to avoid being implicated in these actions.

The 2017 OIG Work Plan – Areas of New Focus In the New Year

On November 10, 2016 the Department of Health and Human Services Office of Inspector General released its 2017 Work Plan. The Work Plan, which is updated annually, furnishes key guidance to providers, suppliers, and others doing business in the health care industry regarding audit and enforcement activities that will be focused upon by the agency in the upcoming year. Providers should therefore be diligent in ensuring that their compliance programs and scheduled audit activities encompass these areas of focus. The following is a summary of some of the key new areas of focus identified in the Work Plan for Part A and Part B Medicare services. Unlike in some prior years, there does not appear to be one new area of emphasis by the OIG but rather the identification of a few select focused new items of interest that it has added to its Work Plan. In addition to these new areas, the OIG has maintained in its Work Plan several other areas of focus that it will continue to work this year.


  1. Hyperbaric Oxygen Therapy Services – Hyperbaric oxygen (HBO) therapy involves giving a beneficiary high concentration of oxygen within a pressurized chamber. Given that HBO therapy is primarily an adjunctive treatment for the management of select nonhealing wounds, CMS Publication 100-03, National Coverage Determinations Manual, Ch. 20, § 20.29(A) requires a beneficiary meet 1 of 15 covered conditions for providers to receive reimbursement. In the past the OIG has reviewed such claims for medical appropriateness, sufficient documentation and noncovered conditions. The OIG intends to reemphasize its efforts in assessing whether reimbursement was in accordance with Federal requirements.
  2. Incorrect Medical Assistance Days Claimed by Hospitals – The OIG will be reviewing Medicaid patient days to determine whether the Medicare administrative contractors have properly settlement Medicare cost reports for disproportionate share hospitals (DSH) that have received Medicare DSH payments to ensure compliance with all Federal requirements.
  3. Inpatient Psychiatric Facility Outlier Payments – From FY 2014 to FY 2015 the number of claims with outlier payments increased by 28 percent for Inpatient Psychiatric Facilities providing active psychiatric treatment to meet the urgent needs of those experiencing an acute mental health crisis, which may involve mental illness or alcohol- or drug-related problems. In terms of Medicare payments for such stays, the total outlier payments have increased from $450.2 million to $534.6 million. OIG intends to determine whether these facilities have complied with Medicare documentation, coverage and coding requirements for stays resulting in outlier payments.
  4. Case Review of Inpatient Rehabilitation Hospital Patients Not Suited for Intensive Therapy – In a separate medical review seeking to identify adverse events in inpatient rehabilitation hospitals, physician reviewers found a small number of cases in which patients appeared to be unsuited for intensive rehabilitation therapy. This study will assess a sample of rehabilitation hospital admissions to determine whether the patients participated in and benefited from intensive rehabilitation therapy for their illness, injury or surgery. For those identified as not suitable candidates, the reviewers will identify reasons why.

Nursing Homes

  1. Nursing Home Complaint Investigation Data Brief – The OIG will be reviewing the diligence with which State agencies are investigating complaints categorized as “immediate jeopardy” or “actual harm” within the applicable timeframes called for under the law at nursing homes.
  2. Skilled Nursing Facilities – Unreported Incidents of Potential Abuse and Neglect – The OIG will be assessing whether there are incidences of abuse and neglect at Skilled Nursing Facilities that are going unreported. The OIG will be looking for evidence that incidents were properly reported and investigated per Federal and State requirements.
  3. Skilled Nursing Facility Reimbursement – Skilled Nursing Facilities must periodically assess their patients using the tool called the Minimum Data Set to classify each patient into a resource utilization group for payment. Medicare reimbursement is tied to the activities of daily living and therapy received by each beneficiary and reported on the Minimum Data Set. The OIG will be reviewing documentation at selected SNFs to determine if the requirements for each particular resource utilization group is accurate.
  4. Skilled Nursing Facility Adverse Event Screening Tool – The OIG will be assisting in rolling out the Adverse Event Screening Tool in coordination with the Institute for Healthcare Improvement. The goal of the product is to disseminate practical information about the tool for use by those involved with the skilled nursing industry.


  1. Medicare Hospice Benefit Vulnerabilities and Recommendations for Improvement – The OIG has identified vulnerabilities in payment, compliance and oversight as well as quality-of-care concerns that directly impact beneficiaries of these services. The OIG will be making recommendations for protecting beneficiaries and improving the program.
  2. Review of Hospices’ Compliance with Medicare Requirements – A review of hospice medical records and billing documentation will be conducted to determine whether Medicare payments for hospice services were made in accordance with Medicare requirements.
  3. Hospice Home Care – Frequency of Nurse On-Site Visits to Assess Quality of Care and Services – A review will be conducted to determine if hospice nurses were performing the requirements on-site visits to the homes of Medicare beneficiaries receiving hospice care at least once every 14 days to assess quality of care and services provided by the aid.

Home Health Services

  1. Comparing HHA Survey Documents to Medicare Claims Data – The OIG is concerned with identifying potentially unqualified or fraudulent providers. Home Health Agencies are required to supply patient information to State agencies and thus a determination will be made as to whether HHAs are accurately providing patient information to State agencies for recertification surveys.

Medical Equipment and Supplies

  1. Part B Services During Non-Part A Nursing Home Stays: Durable Medical Equipment – If a beneficiary resides at a SNF after 100 days, Medicare Part B may provide coverage for certain therapy and supplies (non-Part A stay). However, a 2009 OIG report found that Medicare Part B allowed inappropriate payments of $30 million in 2006 for durable medical equipment, prosthetics, orthotics and supplies during non-Part A stays in SNFs. This new study will determine the extent of inappropriate Medicare Part B payments for such items during non-Part A stays in 2015.
  2. Medicare Market Share of Mail-Order Diabetic Testing Strips – The OIG will be releasing its required reporting on the market share of diabetic testing strips in anticipation of the next round of the competitive bidding program.
  3. Positive Airway Pressure Device Supplies – Beneficiaries routinely receive replacements of continuous positive airway pressure or respiratory assist device therapy (PAP) when they wear out or are exhausted. Previously the OIG had discovered that equipment was being shipped when no physician order for refills were in effect. The OIG will be investigating whether claims for frequent replaced PAP device supplies were properly documented as medically necessary along with ensuring frequency of replace and other Medicare requirements are being met.

Prescription Drugs

  1. Drug Waste of Single-Use Vial Drugs – The FDA approves vial sizes for single use submitted by manufacturers but does not control the vial sizes submitted for approval. A study will be conducted to determine if savings might be realized if smaller single use vial sizes were utilized here in the United States as is done in other countries.
  2. Potential Savings from Inflation-Based Rebates in Medicare Part B – Each year statutorily mandated rebates enable Medicaid to recoup substantial portions of the billions spent on prescription drugs. In contrast, Medicare Part B similarly spends billions annually but has no similar rebate. The OIG will perform a sample study to calculate how much the Federal Government could potentially collect from pharmaceutical manufacturers if similar rebates were required for Part B.

The Work Plan also contains new endeavors relating to other Providers and Suppliers such as Diagnostic Laboratories, Transitional or Chronic Care Management and Ambulance Services.

In addition to Medicare Part A and Part B, the OIG will be implementing new focuses for Part C and Part D services as well. They include the following new initiatives:

Part C – Medicare Advantage

  1. Medicare Part C Payments for Service Dates After Individual’s Date of Death – CMS pays MA organizations for Part C benefits prospectively. A prior OIG review determined that Medicare improperly made $23 million in payments in 2011 for deceased beneficiaries of which $20 million was directly related to Part C payments. The OIG will therefore be examining if payments made after a beneficiaries’ date of death were in accordance with Medicare requirements.
  2. Extent of Denied Care in Medicare Advantage and CMS Oversight – Capitated payments, as used by CMS to pay MA plans, can result in financial incentives for plans to underserve beneficiaries. A review will be conducted to assess the extent to which inappropriate denials are occurring.

Part D – Prescription Drug Program

  1. Medicare Part D Rebates Related to Drugs Dispensed by 340B Pharmacies – The OIG will assess potential savings if pharmaceutical manufacturers paid rebates for drugs dispensed through the Medicare Part D program but at 340B covered entities and contract pharmacies.
  2. Questionable Billing for Compounded Topical Drugs in Part D – Part D spending for compounded topical drugs grew by more than 3,400 percent between 2006 and 2015. The OIG will be investigating the potential fraud risk given this sharp increase in spending and identifying pharmacies with questionable Part D billing for these drugs and any associated prescribers.

A review of the full Work Plan identifies a number of other areas to be reviewed by the OIG including review of the States’ operations of their Medicaid programs and the activities within the Health Insurance Marketplaces.

Not surprisingly, it will be another busy year for the OIG and its various audit, investigation and review bodies.

CMS Ramps Up Use of Predictive Analytics to Combat Fraud and Abuse

On June 18, 2015, the United States Department of Justice announced that the Medicare Fraud Strike Force has charged 243 people in 17 cities with $712 million in alleged fraudulent Medicare billing.  In bringing these charges, the strike force relied on advanced predictive modeling technology among its investigatory resources and tools.

As detailed in a 2012 press release, the Centers for Medicare and Medicaid Services (CMS) Fraud Prevention System (FPS) has been applying various forms of statistical analyses, known as “predictive analytics” in an attempt to identify or prevent improper payments.  It is estimated that in its first two years of operation, the FPS prevented over $300 million in improper Medicaid fee-for-service payments, which is a sizable proportion of the estimated $19.2 billion in fraud recoveries over the last five years.  Recently, the CMS Office of Inspector General (OIG) announced its intention to increase its enforcement efforts predicated on similar data-mining techniques.

Predictive analytics begin with gathering historical and transactional data which are then subjected to various forms of statistical analyses, usually using sophisticated modeling, such as machine learning, and other techniques.  According to CMS, its analysts use near-real-time data to examine Medicare claims to identify potentially fraudulent providers and patterns of suspected fraud. This analysis includes studies of disproportionate payment levels for various services and ratios of services as compared with national averages. These and other assessments enable OIG to identify and adapt enforcement efforts to emerging trends as they evolve.

The use of sophisticated data collection and analysis to build a predictive score, or probability, that each individual among a large number of individuals will act in a particular manner is already widely used by retail stores, investment banks, grocery chains, and even the U.S. Postal Service.  Its application to healthcare fraud detection in this context is neither unprecedented nor surprising.

A recent settlement with a California pharmacy illustrates the manner in which “near real time” data analysis is being used by OIG. Using information provided to it, the OIG alleged that the pharmacy and its owner submitted Part D claims for brand name prescription drugs that it knew, or should have known, were not provided as claimed, and were false or fraudulent.  These allegations were based on inventory records that indicated that the pharmacy could not have dispensed the quantity of Part D drugs which were billed to Part D.  The government’s allegations were settled after the pharmacy and its owner agreed to pay over $1.3 million.

As analytics are applied to the vast amounts of healthcare claim and transaction data that have been collected by CMS, investigations like this one are likely to become more common.  Indeed, at the recent American Health Lawyers’ Association Annual Conference, OIG representatives praised data-mining based investigations and indicated that providers and suppliers could expect increased activity in this regard.  Already, in a nationwide series of audits of Medicare outpatient services in which payments exceeded charges, an OIG audit team used of data mining and analysis to issue a total of 26 final reports to the Medicare contractors, resulting in expected recoveries totaling $106 million. In addition, because of CMS’s verification policy edit implemented as a result of these OIG audits, the Federal Government is expected to save about $30.3 million in future Medicare payments each year.

Utilization of these techniques is not limited to the federal government.  Beginning in 2013, the OIG issued a final rule permitting Federal financial participation in the costs of data mining by state Medicaid Fraud Control Units (MFCUs), provided that certain criteria are satisfied.  To date, six state MCFUs participate in this program:  Florida, Michigan, Missouri, Oklahoma, California, and Louisiana.

Data analyses and predictive analytics are becoming increasingly cost-effective, and therefore popular, fraud-detection tools.  Instead of investigators spending hours poring over paper records, outlier situations can be identified through predefined automatic algorithms, or a few clicks of a spreadsheet.  It is likely that the government and other payers will continue to scale-up use of these tools, possibly capturing conduct which would have remained otherwise undetected absent a more obvious and focused forensic analysis.

OIG Issues Anti-Kickback and False Claims Warning to Pharmaceutical Manufacturers and Others Who Administer and Honor Copayment Coupon Programs

On September 19, 2014, the OIG issued a Report and Special Advisory Bulletin warning of inadequacies surrounding manufacturer safeguards designed to prevent copayment coupon use for Medicare Part D beneficiaries.  The OIG warned that the acceptance and the use of co-payment assistance coupons for Part D (and other federal health care programs) beneficiaries is a potential  violation of the Anti-Kickback Statute and False Claims Act by the manufacturer, its coupon manager or administrator, and individual pharmacies.

Pharmaceutical manufacturer copayment coupons are designed to stimulate the use of specific products.  After a patient enrolls in a specific drug program, (usually online) and provides basic information, they receive a coupon card.  When the prescription and the coupon are presented to a pharmacist, the pharmacist transmits the information to the patient’s health insurance company or its pharmacy benefits manager (PBM).  The insurer or PBM respond by verifying enrollment and providing the pharmacist with the patient’s copayment obligation.  The pharmacist then processes the coupon as a form of secondary insurance, resulting in the patient paying only the out-of-pocket difference between their copayment and the amount subsidized by the coupon.  An insurer is never told, and has no way of knowing that a third-party has paid all or nearly the entire personal copayment obligation, and pays the full amount of its usual payment for the drug in question, but the patient only pays part (or none) of their ordinary copayment.

Although the OIG recognized that copayment coupons can “provide an immediate financial benefit to beneficiaries,” it nonetheless warned that ultimately, they result in higher overall costs because the availability of a coupon may cause physicians and beneficiaries to choose an expensive brand-name drug when a less expensive and equally effective generic or other alternative is available.  Further, in relieving consumers of copayment obligations, drug manufacturers are simultaneously relieved of a market constraint on drug prices, resulting in excessive costs to federal health care programs such as Medicare Part D in violation of the Anti-Kickback Statute and False Claims Act.

Moreover, the OIG observed that if manufacturers wanted to offer copayment support to needy beneficiaries, there are a plethora of independent charitable organizations that offer such services without regard to the particular medication involved.  The OIG has previously discussed the proper establishment and operation of such entities in Special Advisory Bulletins from 2014 and 2005.

The Report details measures that surveyed manufacturers claim they have in place to prevent the use of copayment coupons to fund copayments for drugs paid for by Part D and concludes that these measures may not prevent all such use.   These safeguards consisting of  manufacturer notices to beneficiaries and pharmacists along with claims edits in the processing of coupons were determined to be inadequate by the OIG because not all manufacturers used such notices, and claims edits cannot reliably identify all Part D claims.   As a result, the OIG Report found that coupons lack transparency in the pharmacy claims transaction system to entities other than the manufacturers themselves.  This lack of transparency prevents anyone except the manufacturers from fully identifying or  monitoring the use of coupons for drugs paid for by federal health care programs such as Part D, raising serious concerns under the Anti-Kickback Statute and False Claims Act.

In addition to warning pharmaceutical manufacturers, their vendors and pharmacies that use of copayment coupons for Part D and other federal health care program beneficiaries may potentially lead to criminal and civil liability under the Anti-Kickback Statute and False Claims Act, the OIG recommended that the Centers for Medicare and Medicaid Services (CMS) “cooperate with industry stakeholder efforts to improve the reliability of mechanisms to determine when copayment coupons are used in connection with the purchase of drugs paid for, in part, by Part D.”

Until CMS issues definitive guidance in this area, pharmaceutical manufacturers who provide patient co-payment assistance coupons, vendors who operate and administer such programs, and the pharmacies that honor drug coupons should insure that they take all reasonable measures to insure that coupons are not processed for claims involving beneficiaries of any federal health care program, including Medicare Part D.

Extrapolation – Coming to a Hospital Near You

A review of the OIG’s daily bulletins reveals the common use of extrapolation in its audit of hospitals. Subsets of records identified by the government as statistically valid are regularly reviewed at hospitals across the country and then the identified error rate projected out across all reimbursement for the facility. As a result, $600,000 worth of identified overpayments within a subset is routinely extrapolated to a demand for repayment of over $10 million. One such recent example occurred at the University of Cincinnati Medical Center. This leaves hospitals in the precarious position of deciding whether to challenge the government’s error rate and risk revealing an even greater percentage of overpayments or accepting a repayment the facility knows is not based on a review of all claims composing that $10 million figure.

This controversial practice of extrapolation has been around for decades as courts have permitted the practice by government agencies and their contractors. Courts have recognized the importance of extrapolation as a means of performing realistic and practical audits, given the enormous number of claims at issue and the limited resources of the federal government to investigate. See e.g. Ratanasen v. California, 11 F.3d 1467 (9th Cir. 1993); Yorktown Medical Laboratory, Inc. v. Perales, 948 F.2d 84, 89–90 (2d Cir. 1991); and Chaves County Home Health Service, Inc. v. Sullivan, 931 F.2d 914 (D.C. Cir. 1991). As previously discussed on this blog, the United States District Court in Tennessee has even go so far as to allow extrapolation as a means of establishing liability in a False Claims Act litigation.

Extrapolation does have its limits and Congress has specifically stated that “[a] medicare contractor may not use extrapolation to determine overpayment amounts to be recovered by recoupment, offset, or otherwise unless the Secretary determines that — (A) there is a sustained or high level of payment error; or (B) documented educational intervention has failed to correct the payment error.” However, there is no such express limitation on audits conducted by the OIG, which is what has caused concern for many hospitals and the American Hospital Association (“AHA”). The concern is that the government is using the OIG as a proxy for CMS and the Medicare Administrative Contractors to perform extrapolation despite no determination by the Secretary that “there [was] a sustained or high level of payment error” or that “documented educational intervention [had] failed to correct the payment error.” Thus, by having the OIG perform the audits, this prerequisite to extrapolation is avoided. The AHA has argued that the MAC has been using the OIG as a sort of subcontractor and impermissibly attempting to do an end-run around the congressionally-imposed limits on the MAC’s ability to utilize extrapolation. To date, challenges to the practice have been unsuccessful and thus the practice continues.

Thus, hospitals must be proactive in identifying and correcting errors before the auditors arrive. A review of recent OIG audits reveals a pattern of common areas of problems that are being seized upon by the government. These areas include inpatient short stays, incorrectly billed inpatient stays and improper DRG coding. For additional information please see our prior posts discussing these areas of focus by the OIG audits and our discussion of the new additions to the OIG Work Plan for 2015, both of which will provide some insight into where the government is focusing its efforts.

Extrapolation appears to be here to stay and therefore hospitals must be proactive in their compliance efforts and in coordinating the proactive internal reviews necessary to identify and correct these issues before the OIG auditors knock on the door.

What Is the OIG Focusing Upon During Its Hospital Audits?

A statutory mission is being carried out through a nationwide network of audits, investigations and surveys evaluating participating hospitals for compliance with the Medicare requirements. In doing so, auditors are assessing hospital compliance with the Medicare Conditions of Participation for all services, areas and locations covered by the hospital’s provider agreement. These hospital “surveys” are traditionally all unannounced and in many instances almost compels full cooperation given that refusal can put a provider’s enrollment in question and potentially result in the termination of a hospital’s Medicare provider agreement.

As hospitals learn to cope with governmental challenges to paid claims and long-standing reimbursement streams, recovery audit contractors are putting at risk great deals of money. For calendar year 2012, Medicare paid hospitals $148 billion, which represents 43% of all fee-for-service payments. As such, the Office of Inspector General (“OIG”) has emphasized continuous and effective oversight of Medicare payments to hospitals to protect the integrity of the program.

Several recent audits and recoupment efforts by the OIG have revealed a pattern of focus for many of these audits.  Four common areas reviewed and at risk for recoupment are:

  • Inpatient short stays;
  • Incorrectly billed as separate inpatient stays;
  • Incorrectly billed diagnosis-related-group codes; and
  • Manufacturer credit for a replaced medical device not reported

Inpatient Short Stays

Medicare payments may not be made for items or services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member” (Social Security Act, § 1862(a)(1)(A)). It is important for hospitals to be extremely careful in billing correctly. In many instances of noncompliance hospitals are incorrectly billing Medicare Part A for beneficiary stays that should have been billed as outpatient or outpatient with observations services. Hospitals should pay specific attention to proper staffing resources, simplifying admissions and using the Electronic Medical Records systems to their advantage.

Incorrectly Billed as Separate Inpatient Stays

The Medicare Claims Processing Manual states that when a patient is discharged or transferred from an acute care hospital and is readmitted to the same hospital on the same day for symptoms related to, or for evaluation and management of, the prior stay’s medical condition, hospitals should adjust the original claim generated by the original stay by combining the original and subsequent stay onto a single claim. (Chapter 3, § 40.2.5) To avoid the overpayment, hospitals must pay particular attention to the billed diagnosis codes and compare the patients’ subsequent admissions.

Incorrectly Billed Diagnosis-Related-Group Codes

Medicare payments may not be made for items or services that “are not reasonable and necessary for the diagnosis
or treatment of illness or injury or to improve the functioning of a malformed body member” (Social Security Act § 1862(a)(1)(A)). In addition, the Medicare Claims Processing Manual states, “In order to be processed correctly and promptly, a bill must be completed accurately” (Chapter 1, § One example of such noncompliance occurs when a hospital submits a claim with a secondary diagnosis when the medical records did not support the coding of the diagnosis. The false submission results in an overpayment. Thus, hospitals must maintain proper staffing resources, proper use of Electronic Medical Records and updated medical documentation to make sure the proper codes are submitted.

Manufacturer Credit For A Replaced Medical Device Not Reported

Federal regulations require a reduction in the Outpatient Prospective Payment System for the replacement of an implanted device if (1) the device is replaced without cost to the provider or the beneficiary, (2) the provider receives full credit for the cost of the replaced device, or (3) the provider receives partial credit equal to or great than 50% of the cost of the replacement device (42 CFR § 419.45(a)). Services furnished after January 1, 2007 require the provider to report the modifier and reduced charges on a claim that includes a procedure code of the insertion of a replacement device if the provider incurs no cost or receives full credit for the replaced device. Hospitals must take particular measures to implement a process for identifying when a qualifying credit for a replaced device was received.

The above scenarios are some of the many audit issues that hospitals must be aware of and prepared for to avoid necessary repayments to the government. Such audits in the recent past have proven financially successful to the government. This coupled with the goal of rooting out fraud, waste and abuse suggests that such audits and investigations are only going to continue and likely increase in frequency. Thus, Hospitals must make every effort to improve and operate their compliance programs to proactively stay ahead of these issues and identify/correct them before the government comes in to perform an audit. Such efforts will only help to minimize the potential financial implications when the government inevitably comes knocking at a particular institution.

The Office of Inspector General Releases Its Fiscal Year 2015 Work Plan

On November 1, 2014, the United States Department of Health and Human Services, Office of Inspector General (OIG), published its Fiscal Year 2015 Work Plan (available here). For most providers subject to the OIG’s reviews, the areas of focus remained the same with the core categories of review being (1) policies and procedures; (2) billing and payments and (3) quality of care and safety.

Hospital reviews of billing and payment practices included a new area of focus: hospital wage data used to calculate Medicare payments. According to the OIG, past work in the area of wage indexes revealed hundreds of millions of dollars in incorrectly reported wage data. This resulted in CMS changing its policy with regard to how hospitals report deferred compensation costs. The OIG will be placing a renewed emphasis this year on the validity and accuracy of the wage data.

Another new area of hospital review in the quality of care and safety category will include: long-term care hospitals – adverse events in post-acute care for Medicare beneficiaries. The OIG will be estimating the national incidence of adverse and temporary harm events for Medicare beneficiaries receiving care in long-term-care hospitals. From those estimations, the OIG will be identifying factors contributing to these events and attempting to determine whether they were preventable and thereby estimating the associated costs to Medicare.

The OIG introduced a few other new areas of focus for fiscal year 2015. For independent clinical laboratories, the OIG will be attempting to determine laboratory compliance with selected billing requirements believed to be at high risk for overpayments. Accountable Care Organizations are also being reviewed with the OIG indicating it will be conducting a risk assessment of the Pioneer Accountable Care Organization Model to determine whether there are appropriate internal controls over the administration of these new health care delivery systems.

State Medicaid programs will also see a few new areas of focus under the OIG’s 2015 Work Plan. State collection of rebates for drugs dispensed by Medicaid MCOs will be one new area of focus with the OIG reviewing whether drug utilization is being properly reported to the State and whether the States are then appropriately collecting the rebates from the manufacturers. Another area of focus will be transfers of Medicaid patients from group homes or nursing facilities to hospital emergency departments. The OIG will be determining whether high occurrences of transfers is a sign of poor quality of care. The OIG Work Plan notes that this area is one of interest to Congress as well. Finally, the OIG has identified concerns with MCO’s paying for services after a Medicaid beneficiary has passed away or for beneficiaries later determined to have been ineligible for Medicaid at the time of services.

These are just a few of the new areas of focus identified by the OIG. The OIG’s Fiscal Year 2015 Work Plan provides a complete list of all new areas of focus along with all areas of past review that remain part of the OIG’s target work.

OIG Issues Favorable Advisory Opinion 14-05 Regarding A Pharmaceutical Manufacturer’s Direct-To-Patient Product Sales Program

The U.S. Department of Health and Human Services, Office of Inspector General (the “OIG’), on July 21, 2014, issued a favorable advisory opinion regarding a pharmaceutical manufacturer’s (the “Manufacturer”) direct-to-patient product sales program, which allows eligible patients to purchase one of the Manufacturer’s brand name products for a fixed price from an online retail pharmacy vendor outside of any applicable prescription drug insurance benefit (the “Arrangement”).  The OIG decided not to impose administrative sanctions on the Manufacturer pursuant to the civil monetary prohibition on offering inducements to beneficiaries or the Anti-Kickback Statute in connection with the Arrangement.  Although Advisory Opinion 14-05 is limited to only the specific Arrangement of this particular Manufacturer, it is a promising decision for patients in desperate need of discounted brand name products and other pharmaceutical manufacturers with aspirations to establish similar arrangements.

Pursuant to the Arrangement, the Manufacturer sells a brand name product, which is eligible under Medicare Part D, but not included on most third party payer formularies or otherwise placed on non-preferred formulary tiers due to the availability of generic equivalents.  The participants enroll by phone, internet, or mail and purchase the product directly from an online retail pharmacy vendor, who contracted to be the Manufacturer’s dispensing agent.  The Arrangement operates completely outside of all federal health care programs.

The OIG addressed several issues regarding the Arrangement, including:  (1) whether the discount provided under the Arrangement is likely to induce the participants to select the online pharmacy to supply items, for which payment may be made by Medicare, Medicaid, or a State health care program; and (2) whether the Arrangement implicated the Anti-Kickback Statute by providing remuneration to the participants or the online pharmacy.  When deciding whether the Arrangement induced participants in violation of the civil monetary prohibition, the OIG concluded that the availability of a discount was not likely to influence the participants to select the online pharmacy to supply other products, which may be payable under Medicare or Medicaid.  Moreover, the OIG similarly concluded that there was a sufficiently low risk that the Arrangement violated the Anti-Kickback Statute.

Advisory Opinion 14-05 is encouraging for other pharmaceutical manufacturers with ambitions of establishing similar arrangements and patients in need of discounts on brand name products.  However, the OIG acknowledged that its decision might be different if the product has no generic equivalents, is covered by more plan formularies, or is more generously covered by some plan formularies.  The
full text of Advisory Opinion 14-05 can be found here.

“Audit And Extrapolate” – The Unofficial Motto of the Office of the Inspector General

Recently the Office of Inspector General (“OIG”) issued a report on a compliance review conducted at the University of Cincinnati Medical Center (“UCMC”) for the years of 2010 and 2011. As a result of the audit, the OIG is seeking repayment of $9.8 million in alleged overpayments. The audit is the most recent example of the government’s use of the lawful, yet controversial, process of extrapolation.

UCMC is a 695 bed acute care teaching hospital with approximately $256 million in Medicare payments for 2010 and 2011 combined. The OIG’s audit targeted 2,742 claims identified by the OIG as high risk for possible billing errors accounting for $22.8 million of UCMC’s reimbursement for the two years. However, rather than review all of these possibly problematic claims, the OIG reviewed only a subset of 228 claims accounting for $3.2 million. The OIG found UCMC failed to comply with Medicare billing requirements for 127 of the claims amounting to an overpayment of $603,276. The OIG extrapolated this error rate over the entire amount in question to arrive at a repayment figure of $9.8 million.

The errors identified in the inpatient claims included:

  • Services incorrectly billed as inpatient;
  • Incorrectly billed DRG codes;
  • Credits not obtained;
  • Incorrect discharge status;
  • Incorrect source of admissions; and
  • Incorrect outlier payments

The errors identified in the outpatient claims included:

  • Insufficient documentation
  • Credits not reported
  • Incorrect E/M services
  • Incorrect HCPCS
  • Incorrect number of units

The OIG concluded its report by emphasizing its legal right to use statistical sampling and extrapolation. It also reiterated UCMC’s right to appeal individual determinations if it disagrees with the total amount owed.

UCMC, in response to the audit, identified several concerns it felt undercut the validity, accuracy and fairness of the OIG’s audit. UCMC highlighted the fact that the OIG did not allege any services were medically unnecessary or not rendered. Rather, the OIG raised Medicare billing requirement technicalities having nothing to do with the quality or appropriateness of care. UCMC also took issue with the fact that the OIG specifically identified claims believed to include overpayments while excluding any that might have resulted in underpayments. Thus, according to UCMC, an accurate determination of any under- or overpayment could not be determined based on the OIG’s audit work. Finally, UCMC took issue with the small sample sizes of claims for each of the potential overpayment issues being investigated claiming they did not constitute a sufficient statistical sample for such an audit and extrapolation. The OIG disagreed with UCMC’s position.

It is anticipated that UCMC will appeal the results of the audit. However, every indication suggests that the OIG will continue to implement these audit tactics and utilize extrapolation as a means of making up for its shortage in resources. The American Hospital Association recently also entered the debate. It penned a letter to Secretary Sebelius of the United States Department of Health and Human Services on June 2, 2014 expressing its concerns with this and other OIG audits of hospitals for the calendar years 2010 and 2011.

Hospitals must remain vigilant and proactive in their compliance efforts as these audits appear to be only increasing in frequency.

Medicare Part B Inappropriately Paid $6.7 Billion for E/M Services in 2010

In a recent report, the Department of Health and Human Services (DHSS) Office of Inspector General (OIG) examined whether or not Medicare Part B management (“E/M”) services in 2010 were incorrectly coded and/or lacking overall documentation.

This is the third in a series of reviews by the OIG concerning E/M services.  The first study found that from 2001 to 2010, physicians increased their billing of higher level E/M services in all visit types, and that in 2010, over 1,600 physicians consistently billed for the two highest level codes for E/M services.  The second study looked at the adoption of electronic health record (EHR) technology, finding that 57 percent of all physicians providing E/M services in 2010 used EHR technology at their primary practice location in 2011.

This most recent analysis determined that in 2010, approximately $6.7 billion in Medicare Part B claims, representing some 55 percent of claims submitted by physicians and non-physician practitioners, were incorrectly coded and/or so lacking documentation that payment should have been denied.  This sum represents over a fifth of all Medicare payments for evaluation and management (E/M) services in 2010.

Over a quarter of all claims surveyed were “upcoded,” i.e., the correct code for the services provided was lower than the code originally billed for, while nearly another 20 percent were either insufficiently documented or undocumented altogether.   In the aggregate, over 45 percent of E/M claims reviewed were either upcoded or unsupported by the medical records.  Most miscoded claims (79 percent) were upcoded or downcoded by one level; in addition, 17 percent and 4 percent of claims were upcoded and downcoded, respectively, by two levels.

In its study, the OIG identified “high-coding physicians” as those whose average code level was in the top 1 percent of their specialty and billed for the two highest E/M level codes at least 95 percent of the time.  Claims by these physicians were more likely than not to be incorrectly coded or insufficiently documented compared to physicians outside of this classification.  The overwhelming amount of coding errors (99 percent) were in the form of upcoding, resulting in an average of $15,594 inappropriately paid to each physician.

OIG made three recommendations as result of this study:  first, increased physician education concerning proper E/M coding; second, contractor encouragement to review E/M services billed by high-coding physicians; and third, follow up on claims that were paid in error that have resulted in overpayments or underpayments.

CMS agreed with the first recommendation to increase physician education on this topic.  However, it did not concur with OIG’s second recommendation based on negative return on investment after previously directing a medical review contractor to review claims by high-coding physicians.  CMS also partially agreed with OIG’s third recommendation to pursue overpayment recoveries beyond a certain threshold and to implement remedial educational requirements for physicians below this threshold.

CMS and its contractors clearly have the resources and incentive to seek recovery of overpayments.  Even though Medicare payment rates for individual E/M services are small (approximately $100 on average), the volume of claims is enormous:  physicians billed for some 370 million E/M services in 2010 that accounted for nearly 30 percent ($32.3 billion) of all Part B payments that year.

Given the substantial spending on E/M services and prevalence of error (56 percent of E/M claims by high-coding physicians, and 42 percent of E/M claims for all other physicians) it can be readily expected that physicians who regularly provide E/M services under Part B will face increased audit risk from CMS and its contractors.