Fraud & Abuse Category Archives — Wachler & Associates Health Law Blog Published by Michigan Healthcare Attorneys

Published on: May 31, 2022

Why It’s Important to Appeal that Medicare Audit

There are many types of Medicare audits, conducted by many types of Medicare contractors: Medicare Administrative Contractors (MACs), Recovery Audit Contractors (RACs), Unified Program Integrity Contractors (UPICs), the Supplemental Medical Review Contractor (SMRC), and others. Sometimes, where a Medicare audit results in a relatively small overpayment demand, a healthcare provider may consider simply paying it and moving on. However, there are several reasons why Medicare audits should be appealed, regardless of the dollar amount at issue, that providers should consider.

First and foremost, the audit results and overpayment determinations issued by Medicare contractors are often erroneous. This may be because the contractor either misunderstands Medicare requirements, misapplies them to a provider’s records, or misapprehends the medical documentation in the first place.

Second, a provider who does not appeal a Medicare audit result may unwittingly signal to the contractors a tacit admission that the audit findings were correct, and that the provider is non-compliant in some way. This may expose the provider to additional, larger audits on the same issues. Further, some contractors are paid a percentage of the overpayments they demand from providers and may have an incentive to conduct further audits. On the other hand, appealing an audit signals that the provider believes it is following Medicare requirements and are entitled to payment.

Published on: April 14, 2022

Private Equity and Healthcare Investments

by Wachler & Associates, P.C.

As a result of the emergence of the COVID-19 pandemic in early 2020, private equity (PE) investment activity saw a significant decline in many industries throughout the remainder of 2020. However, PE investments in healthcare have been viewed by some as a form of safe haven as the U.S. economy began to revitalize in the second half of 2020. While total deal value decreased by 7% from 2019 to 2020, total deal count increased by 10% as more investors looked to add-on existing platforms rather than seeking out new, larger targets of interest. Healthcare providers should be aware of some potential considerations when entering into PE investments or engaging in merger and acquisition activity.

A significant amount of deal activity materialized as a response to the numerous forced shutdowns caused by the pandemic. According to one survey conducted by the Alliance of M&A Advisors, while PE deals in other sectors experienced varying degrees of depressed activity levels through the Summer of 2020, healthcare transactions had the highest successful close rate of any industry (approximately 32%). Reported deal activity returned to 97% of pre-COVID levels by December 2020. Entering 2021, the PE transactions market remained very active, in large part due to PE firms being able to obtain cheap debt financing due to low interest rates. The transition to a new presidential administration and anticipated tax increases also caused many providers to contemplate exits ahead of potential increases in capital gains rates. Some areas worth noting that have garnered particularly strong preference amongst PE investors are behavioral and mental health, home health, and health technology services. While primary care has historically seen less PE activity than other healthcare segments, this seems to be changing as value-based care and capitated payment models become more popular.

Regarding business concerns relative to PE activity, there are many issues that are unique to the healthcare industry and providers should make sure that they have a clear understanding of how deals with PE investors may implicate these considerations. At the most basic level, states with corporate practice of medicine laws may restrict what types of entities or individuals may own or control a medical practice. Also, complex corporate structures and those that involve cross-ownership or ownership of multiple types of providers may implicate federal or state fraud and abuse laws, such as the Stark Law, Anti-Kickback Statute, and EKRA. As a practical consideration, long-time healthcare providers entering ventures with PE entities should ensure they understand how control of operations and the flow of revenues are allocated in the resulting structure. Moreover, the Executive Order issued by President Biden in July 2021 directs law enforcement to “focus in particular on … healthcare markets (which includes prescription drugs, hospital consolidation, and insurance), and the tech sector.” This may well result in heightened scrutiny of PE transaction in the healthcare industry and may also lengthen the timeline for closing deals in order to ensure compliance.

Published on: March 10, 2022

Referring Clinical Lab Services Under the “In Office Ancillary” Exception

by Wachler & Associates, P.C.

Physician referrals for clinical laboratory services are a common focus of federal regulatory and enforcement actions. Numerous statutes and their implementing regulations, including the Stark Law, Anti-Kickback Statute (AKS), and the Eliminating Kickbacks in Recovery Act (EKRA), may be implicated where a physician refers clinical lab services to an entity in which the physician has a financial interest. However, the “in-office ancillary” exception to the Stark Law provides an important exception.

The Physician Self-Referral Law, often referred to as the Stark Law, prohibits “physicians” (generally including MDs, DOs, dentists, optometrists, and chiropractors) from referring patients to receive “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both compensation and ownership or investment interests. Designated health services include clinical laboratory services, PT and OT, DME, some imaging services, and several other services. Some of the most common exceptions to the Stark Law include the in-office ancillary exception, fair market value compensation, and bona fide employment relationships. CMS has also recently implemented exceptions related to value-based arrangements.

“In Office Ancillary” services are an exception to the Stark Law. Generally, under the “in office ancillary” exception, the Stark Law does not apply to services that (1) are performed by the referring physician, another physician in the same group practice, or an individual supervised by the referring physicians or another physician in the same group practice; (2) are performed in the same building as the referring physician or their group practice offers services or in another centralized location; and (3) are billed by the performing physician, the supervising physician, their group practice, or a subsidiary that is wholly owned by the group practice.

Published on: February 21, 2022

Supplemental Medical Review Contractor (SMRC) Audits for Feb. 2022

by Wachler & Associates, P.C.

The Centers for Medicare & Medicaid Services (CMS) contracts with a Supplemental Medical Review Contractor (SMRC), which performs a variety of Medicare and Medicaid audit and medical review tasks. Noridian Healthcare Solutions, which is also a Medicare Administrative Contractor (MAC), was selected as the SMRC in 2018. The SMRC conducts nationwide medical reviews of Medicare Parts A and B, DMEPOS, and Medicaid claims for compliance with coverage, coding, payment, and billing requirements. The focus of the medical reviews may include areas identified by CMS data analysis, the Comprehensive Error Rate Testing (CERT) program, professional organizations, and federal oversight agencies. At the request of CMS, the SMRC may also carry out other special projects.

SMRC audits are referred to as projects and there are three categories of SMRC project reviews:

Healthcare Fraud Prevention Partnership (HFPP) Review: Based on fraud, waste, and abuse trends identified by the HFPP.

Published on: February 14, 2022

EKRA Continues to Cause Confusion for Clinical Labs

by Wachler & Associates, P.C.

The Eliminating Kickbacks in Recovery Act (“EKRA”) is an incredibly broad and incredibly vague criminal statute that continues to create compliance issues for clinical laboratories. Many arrangements between clinical laboratories and other entities that were previously compliant, or which are currently authorized under other federal statutes, may be unlawful under EKRA.

Congress enacted EKRA in 2018 and, throughout its drafting, it was intended to address patient brokering and kickback schemes in addiction treatment and recovery. For example, EKRA was targeted at individuals who received kickbacks for steering patients into sober living and recovery homes. However, shortly before EKRA was passed and with little consideration of the implications, the words “or laboratory” were inserted into the draft such that EKRA now likely applies to all referrals to clinical laboratories, regardless of payor and regardless of whether the testing relates to addiction treatment or recovery.

EKRA broadly prohibits paying, offering, receiving, or soliciting any remuneration in return for referrals to recovery homes, clinical treatment facilities, or laboratories. Further, EKRA is a criminal statute, the penalties for violation of which, up to 10 years in prison and fines up to $200,000, cannot be taken lightly. Like two other major federal healthcare fraud, waste, and abuse laws, the Anti-Kickback Statute and the Physician Self-Referral Law (commonly known as the Stark Law), EKRA contains a few exceptions. However, they are far fewer in number and often narrower than their counterparts in the older statutes.

Published on: February 10, 2022

Healthcare Companies Paid 90% of all False Claims Act Settlements in 2021

by Wachler & Associates, P.C.

Healthcare companies were once again the leading source of the Department of Justice’s (DOJ) False Claims Act (FCA) settlements and judgments last year. According to a DOJ news release, healthcare companies paid almost 90% of fraud settlement proceeds under the FCA in 2021. The Justice Department obtained more than $5.6 billion in total settlements and judgments under the FCA in the fiscal year ending September 30, 2021, which is the second largest annual total in the FCA’s history. Over $5 billion of that number relates to matters involving the healthcare industry, including hospitals, pharmacies, laboratories, drug and medical device manufacturers, managed care providers, hospice organizations, and physicians.

The largest settlements under the FCA were those reached with prescription drugmakers for their role in the opioid epidemic. A significant number of settlements also related to the Medicare Advantage Program, which pays a capitated amount to private health insurers for each patient enrolled in their plan according to a risk calculation. Other settlements involved claims of illegal kickbacks, claims of providing unnecessary medical services, and lawsuits filed under the FCA’s whistleblower provisions.

The DOJ’s healthcare fraud enforcement is more vigorous compared to other industries, in part due to the unique nature of the business of healthcare. The Department’s enforcement efforts attempt to restore funds to federal programs such as Medicare, Medicaid, and TRICARE, as well as prevent further losses by deterring others from engaging in fraudulent behavior. In many cases, the Department may be motivated to protect patients from medically unnecessary or potentially harmful actions. Providers should be aware that overpayment allegations are common, especially given the substantial effect that widespread healthcare fraud can have on individuals and entities throughout the US. The regulatory and business risks in healthcare are unlike other fields, in large part due to the web of complex and often vague regulatory and statutory restrictions, such as Stark law, the Anti-Kickback Statute (AKS), the Eliminating Kickbacks in Recovery Act (EKRA), and the Corporate Practice of Medicine doctrine (CPOM), among others. Healthcare providers should remain proactive in ensuring operations comply with the many different standards of practice governed by federal and state laws and regulations.

Published on: February 7, 2022

HHS to Audit More Providers That Received COVID-19 Relief Funds

by Wachler & Associates, P.C.

The Department of Health and Human Services (HHS) recently announced additional audits of certain healthcare providers that received funding from the Provider Relief Fund (PRF). These audits will focus on whether hospitals that received PRF payments have complied with the surprise billing provisions of the PRF terms and conditions. HHS has long promised “significant enforcement” related to the PRF, a promise which is beginning to take effect.

The PRF was created by Congress through the CARES Act and was designed to provide financial relief to healthcare providers during the COVID-19 pandemic. Acceptance of a PRF payment is conditioned on, among other things, the provider agreeing to use the funds only for healthcare related expenses and lost revenue attributable to coronavirus, and to file reports demonstrating compliance with the conditions of the payment.

Providers who received and retained payments through the PRF are required to file reports justifying their use of the funds. Providers must report information on healthcare-related expenses attributable to coronavirus, lost revenue attributable to coronavirus, other pandemic assistance received, and administrative data. Providers who received more than $500,000 in aggregate payments are required to report some data elements in greater detail, including specific information regarding operations, personnel, supplies, equipment, facilities, and several other categories. Some providers will be required to report significant amounts of financial information in significant detail, which may require time to compile or calculate.

Published on: February 1, 2022

OIG Opinion Underlines AKS Concerns About Healthcare Joint Ventures

by Wachler & Associates, P.C.

Late last year, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued a significant Advisory Opinion regarding a proposed joint venture (JV) between a therapy services provider and an owner of various long-term care (LTC) facilities. OIG concluded that it viewed the Proposed Arrangement as presenting a significant risk of fraud and abuse and potentially designed to permit the therapy services provider to pay the LTC owner a share of the profits derived from referrals for therapy services made by the LTC owner’s facilities. The opinion reiterates OIG’s longstanding concern that joint ventures formed between healthcare providers or suppliers and referral sources can present risk under the Anti-Kickback Statute (AKS).

Under the Proposed Arrangement, a therapy services provider would form a JV with an owner of LTC facilities where the JV would provide therapy services to the LTC facilities. The JV would contract out the bulk of operations (all clinical and non-clinical employees, space, and equipment) to the therapy services provider in exchange for a fair market value fee. The LTC owner would hold a 40% interest in the JV and the therapy services provider would hold the remaining 60% interest. The LTC owner’s investment in the JV would be based, at least in part, on the JV’s expected business from the LTC owner’s facilities. The LTC owner’s facilities were not required to contract with the JV or otherwise make or direct referrals to the JV, although the therapy services provider certified that it expected the LTC owner’s facilities to do so, and during the initial phases of the JV all of the JV’s revenues would be generated by services provided to the LTC owner’s facilities.

OIG concluded that the Proposed Arrangement would not satisfy any AKS safe harbors, including the small entity investment safe harbor, because the Arrangement likely violates the investor test, the revenue test, and the investment offer test. Moreover, OIG referred to its landmark 2003 Special Advisory Bulletin on Contractual Joint Ventures, which includes a detailed list of characteristics that OIG considers suspect when present under a contractual JV. Since the JV described in the Proposed Arrangement included several of these previously outlined suspect characteristics, OIG further determined that the proposed JV presents significant risk of fraud and abuse. This Advisory Opinion serves as a useful reminder of the regulatory framework applicable to joint ventures between healthcare providers and entities in a position to refer or generate business for the joint venture. Providers considering joint ventures should ensure that they are structured to comply with AKS and OIG guidance.

Published on: January 18, 2022

OIG Updates Work Plan for January 2022

by Wachler & Associates, P.C.

The Department of Health and Human Services (HHS) Office of Inspector General (OIG) included several new items in its work plan update in January 2021. The OIG work plan outlines the projects that OIG plans to implement over the foreseeable future. Such projects typically include OIG audits and evaluations. Below are the highlights from the work plan update that providers and suppliers should take notice of.

First, OIG will perform a nationwide audit to determine whether hospitals that received Provider Relief Fund (PRF) payments and attested to the associated terms and conditions complied with the balance billing requirement for COVID – 19 inpatients. Under the PRF terms and conditions, hospitals are eligible for PRF distribution payments if they attest to specific requirements, including a requirement that providers, such as hospitals, must not pursue the collection of out-of-pocket payments from presumptive or actual COVID – 19 patients in excess of what the patients otherwise would have been required to pay if the care had been provided by in-network providers. OIG plans to assess how bills were calculated for out-of-network patients admitted for COVID-19 treatment, review supporting documentation for compliance, and assess procedural controls and monitoring to ensure compliance with the balance billing requirement.

Second, OIG will perform a nationwide review of Medicare beneficiary hospice eligibility. OIG indicated that a number of recent compliance audits have identified findings related to beneficiary eligibility. In its review, OIG plans to focus on those hospice beneficiaries that haven’t had an inpatient hospital stay or an emergency room visit in certain periods prior to their start of hospice care.

Published on: January 6, 2022

A Primer on Medicare Statistical Extrapolations

by Wachler & Associates, P.C.

Medicare audits often include a statistical extrapolation to estimate the full extent of an alleged overpayment. Medicare contractors are authorized to review the merits of only a small “sample” of submitted claims and extrapolate the results of that review to a large “universe” of claims to estimate the overpayment amount. This practice can lead contractors to allege overpayments of hundreds of thousands or millions of dollars despite only reviewing and denying a small handful of claims. Medicare contractors generally have broad authority to use a wide array of statistical methods when extrapolating the overpayment amount, which can lead to grossly overestimated overpayment determinations.

When conducting the statistical sampling and extrapolation, the contractor will select the period for review and establish the universe and sample frame. The sample frame is the large group of claims from which the sample is randomly selected, and the universe is the group of claims over which the results of the review are projected. The sample frame and universe may or may not be identical. The universe and sample frame may be defined by specific codes, dates of services, beneficiaries, or some combination thereof. From here, the contractor will select a random sample from the sample frame, review the claims within the designated sample, and extrapolate the results of the review of the sample to all claims in the established universe.

A statistical extrapolation is subject to appeal, similar to any Medicare overpayment determination. However, there are several issues unique to appealing a statistically extrapolated overpayment. First, it adds increased importance to appealing the denial of each claim in the sample. While an individual claim may not represent significant monetary value on its own, it may represent tens of thousands of dollars after it has been statistically projected over a large universe. Second, there are special procedural rules for appealing an extrapolation. For example, providers are generally prevented from arguing before an Administrative Law Judge (ALJ) that the extrapolation was flawed unless they included specific language in their request for ALJ review.