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Anxiety Rises Over Medicare Audit Programs
Hospital officials in Florida and New York may join California lawmakers who seek a national moratorium

By David Whitney - dwhitney@mcclatchydc.com
Published 12:00 am PST Monday, November 26, 2007

Dr. Jeffrey Kaufman's Response


WASHINGTON – Florida and New York hospital officials are leaping onto legislation sponsored by California lawmakers that would temporarily halt a controversial Medicare auditing program.

The commission-based program has been operating for more than two years on an experimental basis in the three states and is set to expand permanently to 20 more in March.

But because of the California experience – in which rehabilitation hospitals have been forced to surrender tens of millions of dollars for past services deemed by auditors to be medically unnecessary – Democratic Rep. Lois Capps of Santa Barbara and Republican Rep. Devin Nunes of Visalia recently introduced legislation that would place the program on a one-year moratorium to investigate the problems.

While New York and Florida have not had the depth of problems that have the California Hospital Association complaining, officials in those states said the program has not gone smoothly there, either.

The increasing anxiety has elevated the auditing program to a top agenda item of the American Hospital Association. Don May, the association's vice president for policy, said association lobbyists are actively pressing for passage of the Capps-Nunes bill.

"We'd like to see this (program) scaled back substantially," May said in a telephone interview.

Among the biggest concerns is that the congressionally created program relies on "recovery auditing" – auditors who are paid a percentage of the money they recoup from hospitals through claims denials.

"This contingency fee or bounty mechanism sets some incentives for these auditors to be overly aggressive and to make questionable decisions in their favor by denying claims," May said.

Capps said she has been hearing more and more from Florida and New York lawmakers about program auditors in their states, and they are showing increasing interest in the bill she and Nunes introduced.

"Everyone is very concerned that this program and the Centers for Medicare & Medicaid Services mismanagement of it could be compromising the quality of health care for our seniors," Capps said.

The ire of California lawmakers was raised last summer when the California Hospital Association complained that the auditing company selected to review old Medicare payments in the state was targeting claims submitted for care of patients who had undergone knee and hip replacement surgery. The denial rates have been more than 90 percent of the claims reviewed.

The company, Atlanta-based PRG-Schultz International, said it is following rules laid out by Congress and the Centers for Medicare & Medicaid Services. It has focused on rehabilitation hospitals because of a Government Accountability Office report that most knee and hip replacement patients sent to them need such intensity of care, it said.

"Our job is to review claims and determine if patients got the right service, not whether they needed services," N. Lee White, executive vice president of operations for the auditing company, said in a recent interview.

Kathy Reep, vice president for financial services at the Florida Hospital Association, said hospitals there haven't been hit with the same severity of problems with the auditing contractor.

"The process hasn't put any of our hospitals at the point of closure," Reep said.

But internal auditors are starting to demand that hospital administrators adjust their budgeting forecasts in anticipation of future claims denials, she said.

Elisabeth Wynn, assistant vice president of finance for the Greater New York Hospital Association, said its concerns about the auditing program "are aligned with California's," even though New York's experience with the auditor also has not been so dramatic.

In addition to objections to the way the auditors are paid, Wynn said New York hospitals would like to see Congress eliminate their ability to reject claims based on medical necessity, which she and others said should be the province of doctors.

One option they like, Wynn said, is the arrangement hospitals use with health insurers where prior approval is obtained for hospital services.

Despite burgeoning support for the Capps-Nunes bill, most think it has a poor chance of passing as stand-alone legislation before the auditing program is set to expand nationally in March.

But with Congress under pressure to enact legislation before Jan. 1 to stop an automatic cut in Medicare fees paid to physicians, advocates see an opportunity for the bill to be merged into a larger Medicare package.

"We'd like to see this attached to any train that is moving," said May of the American Hospital Association.

All the Capps-Nunes bill would do, however, is set a moratorium on the national rollout of the auditing program while the pilot program, more recently expanded to Massachusetts and South Carolina, is studied.

Congress would have to tackle broader questions such as how the auditors are compensated. So far there is no legislative proposal to do that.


Dr. Jeffrey Kaufman's Response

While I appreciate your article and interest in this area, it appears from your story that you might not be as aware of how the Recovery Audit Contractor program has impacted physicians as you are about the hospitals' experience.

The RAC pilot project allowed 3 independent contractors freedom to audit part A and B Medicare claims in New York, Florida and California for the preceding 4 years with a few exceptions. Since reimbursement is on a contingency basis (or what we like to call "bounty hunting"), the contractors for Florida and New York chose to emphasize part A hospital charges since those are typically higher cost items with greater potential to return benefit to the contractor for the effort put forth (a better return on investment). However, last year, PRG Schultz, the California RAC contractor began to look at certain physician charges. As the result, physician offices began to receive requests for records in mid-2006 at a rate that became quite a burden. Some medical oncology offices were receiving more than 50 requests at a time which became impossible to address without closing their offices to patients while the staff devoted time to copying charts and responding to the requests. As if this unreimbursed overhead wasn't enough (although hospitals are paid for their effort responding to the records requests, physician offices are not), the RAC contractor then started to demand repayment for many charges that had been properly considered and paid correctly (or so we thought) up to 4 years earlier and beyond. You can imagine the impact this had on smaller practices.

At the same time, complaints arose that some requests were for patients that did not belong to that practice. Because of the identifying information accompanying such requests, this was a major HIPPA violation. At other times, the Explanation of Benefits from the Medicare intermediary demanding repayment or threatening to withhold money from future checks arrived before any letter of explanation from the RAC contractor causing much confusion and consternation among physicians who had no idea why such demands were made or how to appeal. The letters demanding records were vaguely written in a Kafka-esque fashion darkly suggesting that someone had preliminarily reviewed the records and had cause to suspect that payment had been made incorrectly. However, this was untrue; the demands were kicked out by computer and the chart had not been previously screened except for the fact that the charge code fell within the group which the contractor wished to audit. Moreover, the letters were quite unclear as to what records might be needed to fulfill the audit leaving the practice in a quandary as to how to respond, which records were requested and how much information to supply. Communication with the contractor was limited despite official invitations to PRG Schultz to appear before the Medicare Carrier Advisory Committee where William Davis, PRG Schultz VP, was reticent to respond to our concerns. Further, as you probably know, it came out that shortly before the contract was awarded to PRG Schultz, a major San Francisco investment group bought a controlling share of stock. It later came out that the principle in that group was Richard Blum, husband to our senior US Senator Diane Feinstein. Although the OIG has investigated and found no conflicts of interest, this close involvement with a for-profit bounty hunter engaged to investigate health care spending has not been well received by California hospitals and physicians (see articles in the Sacramento Bee from earlier this year).

Specific to my specialty, many urologists began to receive requests for records in mid-2006 that were shortly followed by demands for repayment for medications provided to prostate cancer patients more than 4 years earlier. Despite agreements at the time between the California Medicare carrier and state urologists that payments for Lupron (an LHRH agonist used to treat prostate cancer) were being made properly, the RAC contractor decided that such payments were not consistent with an element of the payment policy that provides for payment limited to the Least Costly Alternative. This principle was originally designed to limit payment for durable medical equipment to that attached to the least expensive, comparable item. Several years ago, CMS decided to extend the policy to medications however, in fact, there was only 1 class of drugs to which it applied, the LHRH agonists used for prostate cancer. For many years, the least expensive of these was Zoladex. If a doctor provided Lupron instead, he could have the patient sign a separate contract making the patient responsible for the difference between what Medicare paid (for the Zoladex) and what was charged for Lupron. Or the doctor would simply write off the difference as a loss. For a few years, while we discussed how the policy should be applied, what agents should be considered in computing the "least costly", whether some patients would be grandfathered in for the more expensive drug and other details, NHIC continued to pay for Lupron. After some time, when the disputed areas were worked out, all LHRH payments were limited to the least costly alternative.

For the interval before the issue was resolved, PRG Schultz decided that all payments that were paid at the higher rate were actually paid incorrectly and refunds were demanded. The law holds that the physician is responsible for knowing the law and applicable policies and adhering to them. If payment is made incorrectly and the physician is aware of it, he is obligated to notify the payer and refund the money. However, California urologists were intimately involved in discussions with NHIC (our California Medicare carrier) at that time and were quite clear that payments made were correct and in line with all applicable policies. Thus, the RAC contractor's decision made over 4 years after the fact was unilateral, arbitrary and contrary to our concurrent understandings when the payments were processed.

The amount of money involved was less than what was demanded of the rehabilitation hospitals but, considering that it was due from many small practices, each of whom was responsible for many tens of thousands of dollars, it was very a considerable sum. Individual appeals to PRG Schultz were of no avail. At the 11th hour, we were able to convince NHIC that the demands made by the contractor were for payments processed earlier than the 4 year interval the RAC contractor was authorized to review. Among other arguments, this convinced CMS that the demands were not justified and literally, at the last moment before penalties would begin to accrue on delinquent repayments, the demands were rescinded. Subsequently, I have been involved in many discussions with CMS mediated by attorneys for the AMA and CMA with the involvement of the CMA and a few representatives of my specialty, the American Urologic Association. CMS has made some concessions to limit their look back interval to 3 years (beginning August 31, 2007--this agreement is limited to California only), to alter their demand letters to make them more informative about the appeal process, to amend their request for records letters to make them more clear and less threatening and to improve communications with providers.

It was only after these repeated negotiating sessions with CMS that the 3rd level appeal was successful for the California Hospital Association and the entire RAC program was put on temporary hold. We are still waiting to see how it is changed based on the combined efforts of the CHA and our own intervention. I have asked our Washington lobbyists to investigate the status of Congresswoman Capps' bill and offer the support of the American Urologic Association and possibly bring in further support from the AMA if the situation warrants. Obviously, I cannot speak officially for either organization but I believe we would be supportive of any efforts to suspend, abolish or at least improve the RAC program. We are all supportive of efforts to eradicate improper payments, root out fraud and abuse from federal programs, make all payments correctly according to written policy and fairly according to the medical care provided. However, we view a bounty hunter audit program that looks back many years for questionable issues as contrary to the interests of the Medicare program and distasteful to physicians who endeavor to provide the best quality care possible to their patients. We would hope that a program could be designed to improve the administration of Medicare payments and still foster good relations with medical providers.

Please feel free to contact me if you wish more details on the RAC program's impact on physicians or need clarification on the issues. I have been very involved in all the above efforts and remain the lead for California and American urologists in this regard. Thank you again for your efforts to shed light on this issue which so far has been narrowly confined to California with very little awareness outside the 3 states involved in the pilot project (although they will soon be aware enough if the plan to extend the program to all 50 states goes forward!).

Yours,

Jeffrey Kaufman MD, FACS
Diplomate, American Board of Urology
Immediate past president, American Association of Clinical Urologists
Chair, Health Policy Committee, Western Section, American Urologic Association
Past president, California Urologic Association
Urology representative, NHIC Carrier Advisory Committee



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