Spotlight hits Medicare fraud: Will it turn on you?

Issue: November 1997

WASHINGTON - Health care fraud has been dubbed the "crime of the '90s," according to an Aug. 13 Justice Department report, with ever-changing and increasingly more sophisticated fraud schemes costing taxpayers billions each year.

It is not surprising, therefore, to find that the Federal Bureau of Investigation (FBI), one of the lead investigating agencies in the new era of white collar and computer crime, has committed no fewer than 500 agents to battling Medicare and health care fraud during the past 5 years. It is estimated that the number of such cases the FBI investigated or with which they have become peripherally involved has tripled between 1992 and 1996.

In this climate, the U.S. Office of the Inspector General (OIG), using both the threat of litigation and the power of other federal investigative agencies as weapons, is intensifying its war against Medicare fraud. University medical centers and state financed health facilities, as well as private practitioners, must face the government's assumption that they are bilking the American public out of billions in improper payments.

In a recent report by the OIG, investigators estimated that $23.2 billion of the $168.6 billion spent on fee-for-service medicine could be attributed to improper Medicare payments.

Only an accounting review

The OIG's report describes the office's actions as an accounting review, not an investigation of fraud, waste and abuse. The report makes clear that almost half (46%) of the alleged improper payments were due to insufficient or no documentation submitted when requested - a fact some government officials complain was not clearly reported in most mainstream news accounts.

The improper payments, the report said, represent roughly 14% of all Medicare expenditures. Some government bureaucrats inside the Beltway applaud the government's "tough on fraud and abuse" stance, believing it is a way of deflating ballooning health care costs. But many private practitioners and facility administrators worry that the public perception of an overpriced and inherently corrupt health care industry is shaping the government's new approach.

New era of legal pitfalls

Harvey Yampolsky, JD, an attorney with the firm of Arent, Fox, Kintner, Plotkin & Kahn here, said that the lay of the legal terrain for private practitioners has grown increasingly rocky over the past few years and believes that the government has taken on the policing of Medicare with a renewed gravity.

"In today's legal climate, merely intending to comply with the law is not sufficient if the government believes that a practice that is costly to the Medicare program is the result of a failure of adequate diligence," Mr. Yampolsky said. "The government has become increasingly intolerant of wasteful practices. As a result, if the government believes that Medicare funds have been expended inappropriately or wastefully, the government is likely to look at its panoply of criminal, civil and administrative fraud provisions to determine if there is a suitable remedy beyond merely recouping the overpayment. It is therefore important for all providers to be scrupulous in their practices. Items and services must be medically necessary, properly documented and properly coded. Payments to referral sources should always be for legitimate reasons only and should fit within an applicable anti-kickback safe harbor provision whenever possible."

Suspicion, paranoia, presumed guilt

Staffers at the Health Care Financing Administration (HCFA) say they are in the process of assessing overpayments in situations where improper payments have been identified. Providers will have standard appeal rights.

HCFA and OIG officials worry over the current public perception of the study's findings and how they are being interpreted.

"Well, for the record, we certainly do not believe that we've located $23.2 billion in fraud, waste and abuse,'' an OIG source said. "What we think we've done here is simply identified some significant problems with Medicare's accounting controls. But the medical community is going to have to work with us on this - it's not going to be easy."

Unfortunately, many private practitioners feel they stand little chance in this new inquisitional legal climate of walking away from a court battle with federal prosecutors with their livelihoods and financial well-being intact.

Officials at both HCFA and the OIG seem to be doing little to ease tensions. Both agencies maintain, through a variety of media, that physicians should prepare to pay significantly more attention to procedural documentation once the new guidelines are established and published, which was scheduled to have taken place on Oct. 1.

It is not clear whether eye exams and related procedures will receive similar scrutiny by government accountants.

HCFA chief responds

In an address to the House Committee on Ways and Means on July 17, HCFA Administrator Bruce Vladeck, PhD, said the OIG raised concerns and issued a disclaimer of opinion on HCFA's fiscal year 1996 financial statements and systems.

Dr. Vladeck testified that "Numerous allegations of high rates of fraud and abuse in health care programs prompted the OIG to review in detail the supporting medical documentation accompanying a sample of claims. We want to note that this is the first time this type of audit has been done. To the best of our knowledge, no other audit either in the private or public sector has included such a comprehensive review as was done by the OIG in this audit."

The HCFA administrator also said that of the 5,314 claims audited - a statistically valid sample - about 30% were found to be incorrect.

"From this limited sample," Dr. Vladeck said, "the actual dollars in error were approximately $440,000. When these audit findings were extrapolated to the set of all existing claims, the total dollars paid in error were projected to be $23.2 billion, which is approximately 14% of the $168.6 billion in adjudicated fee-for-service payments reported by HCFA."

Poor medical documentation

He added that the six provider types in which the OIG found such errors included inpatient hospital, physician, home health agency, outpatient, skilled nursing facility and laboratory.

"Almost half of the errors identified resulted from insufficient or lack of documentation from providers, and one-third of the documentation errors were associated with providers who failed to respond to repeated requests from the OIG to submit documentation," Dr. Vladeck said. "This lack of response from the medical community raises some important questions, for which we must find the answers. These include: Why don't providers document the reasons for health care services? And why did one-third of them ignore repeated requests for medical documentation? Was the care in fact reasonable, but poorly documented, in which case it would still not be reimbursable by Medicare? Or did we pay when we should not have?

"The results of this audit should serve notice to the medical community," he continued, "to document as they were trained or face delayed or denied claims, or other actions."

Dr. Vladeck called the findings "disturbing" and vowed that his office would initiate a "corrective action plan" to improve HCFA's financial controls over Medicare payments.

The final strategy, the Medicare Integrity program, was enacted as initiative to create a separate and stable long-term funding mechanism for program integrity, to maintain a policy of open, competitive contract bidding and to permit HCFA to address potential conflicts of interest.

Additionally, in response to the OIG audit, Dr. Vladeck said his office's fraud-fighting plan would include expanding anti-fraud activities - especially among inpatient hospital services, physician services, home health, outpatient, skilled nursing facilities and laboratories; increasing the amount of payments recouped; developing and implementing a substantive claims-testing program; increasing the level of claims review; continuing documentation initiatives; greater use of sampling to project and collect overpayment; more closely reviewing inpatient hospital claims; greater engagement of the provider community; implementing a correct coding initiative; strengthening provider enrollment safeguards; developing a cost report settlement process; and substantive claims testing.

What's to come

Addressing these new initiatives, Mr. Yampolsky said that as a result of the enactment of the Health Insurance Portability and Accountability Act of 1996 (HIPPA) and the recent enactment of the 1997 budget legislation, there are a number of new bases for the government to impose civil monetary penalties, Medicare exclusions and criminal sanctions.

"For example," he said, "civil money penalties and exclusion are available as sanctions for providers who render unnecessary care or up-code the services rendered. In addition, the government now has authority to exclude investors, officers and managing employees of a health care entity that has been convicted or excluded.

However, these statutory changes do not, as a practical matter, change the criteria the government uses to determine if a fraud has occurred. Those criteria have been slowly evolving over a period of years."

Legally, the good news for physicians in the private sector, Mr. Yampolsky said, is that if an error occurs for a relatively brief period or if there is no direct evidence of negligence, the government would probably seek only repayment from the provider. However, the government is more likely to consider an inadvertent mistake to be excusable only where a regulation is clearly subject to more than one interpretation.

Conversely, in cases where negligence was clear or government investigators determine that up-coding or overbilling mistakes were avoidable through adequate care, Mr. Yampolsky explained that it is likely the government will seek a penalty in excess of the overpayment.

Mr. Yampolsky added that exclusion from Medicare is available to the government as part of virtually any sanctions prosecutors might choose to pursue. He said that, due to increased coordination and communication among key government agencies, a provider excluded from Medicare can fully expect to be excluded from other federal programs.

"If a provider can avoid the risk of exclusion by settling with the government, there is a great incentive to do so," Mr. Yampolsky said. "With respect to private insurance, unless the government believes that criminal wrongdoing has occurred, the matter is strictly a payment issue between the insurance company and the provider. As a result, if a provider disagrees with the insurance company, the provider is more likely to risk litigating the issue. Of course, this situation may change as a result of the legislation enacted last year that makes private health insurance fraud a federal criminal offense."

For Your Information:

Harvey Yampolsky, JD, can be reached at 1050 Connecticut Ave., NW Washington, DC 20036; (202) 857-6149. Mr. Yampolsky has no direct financial interest in the products mentioned in this article, nor is he a paid consultant for any companies mentioned.

Bruce Vladeck, PhD, administrator of the Health Care Financing Administration, can be contacted at 200 Independence Ave., SW, Room 403B, The Hubert H. Humphrey Building, Washington, DC 20201; (202) 690-6145. Dr. Vladeck did not disclose whether or not he has a direct financial interest in the products mentioned in this article, or if he is a paid consultant for any companies mentioned.