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Laboratory Battle Brewing Over Proposed Anti-Kickback Rule Amendment

Changes to the Medicare Audit Procedures

Battle lines are being drawn over a proposed rule amendment by the Agency for Health Care Administration (AHCA) with respect to licensure requirements for clinical laboratories.  The big issue:  whether the state anti-kickback or patient brokering law (Section 483.245(1), Florida Statutes) should prohibit the placement of laboratory staff such as phlebotomists in a physician’s office for purpose of collecting lab samples.

In a Declaratory Statement and Final Order entered on July 8, 2008, AHCA had specifically ruled that Florida’s clinical lab rules and anti-kickback law prevent the placement of free laboratory personnel in physicians’ offices to collect urine samples.  The current clinical lab Rule 59A-7.020(15), Florida Administrative Code, provides the following definition of “kickback”:

(15) Kickback — a remuneration, payment back, or other inducement, direct or indirect, in cash or in kind, pursuant to an investment interest, compensation arrangement, or otherwise, made by any person as defined in Section 483.041(7), F.S., including any clinical laboratory as defined in Section 483.041(2), F.S., to any physician, surgeon, organization, agency, or person as an incentive or inducement to refer any individual or specimen to a laboratory licensed under Chapter 483, Part I, F.S., such as the following:

(g) Provision of personnel or assistance of any kind to perform any duties for the collection or processing of specimens. Such personnel or assistance is authorized to be provided on a temporary basis for the collection of specimens at a patient’s residence. These collections must meet the requirements of Chapter 59A-7, F.A.C.

Based on this Rule provision, and the underlying anti-kickback statute, AHCA ruled that placing free specimen collection personnel in a physician’s office violates the current rule.  AHCA also ruled that supplying free specimen collection cups to the physician’s offices may also violate anti-kickback prohibitions, if the intent was to induce referral of lab specimens to a specific laboratory.  See In re Declaratory Statement of Dominion Diagnostics, LLC, FRAES No. 100808228 (AHCA July 8, 2008).

After issuing its Declaratory Statement and Final Order, AHCA has been provided with some information that this ruling and interpretation could limit the ability of nursing home residents to access laboratory services, as many of these residents do not have the ability to travel to a laboratory collection site.  Many nursing homes rely upon laboratory collection staff provided to the nursing home by a clinical lab for blood or urine sample collection.

Based on concerns over possible limits to access for nursing home residents, AHCA has recently proposed an amendment to its clinical lab rule that defines what is a “kickback.”  The proposed rule language includes the following changes to 59A-7.020(15), Florida Administrative Code:

(g) Provision of personnel or assistance of any kind to perform any duties at less than fair market value for the collection or processing of specimens. Such personnel or assistance is authorized to be provided on a temporary basis for the collection of specimens at a patient’s residence. These collections must meet the requirements of Chapter 59A-7, F.A.C.

The proposed rule change has found little support among operators of clinical laboratories.  While most operators clearly oppose the draft rule language, there are two divergent camps emerging: 1) those laboratory operators who believe the practice of supplying free collection personnel to physician offices should continue to be prohibited: 2) those laboratory operators who believe that supplying free collection personnel should not be prohibited, and is entirely consistent with interpretations under Federal anti-kickback laws.

Supporters of a continued ban on allowing free collection personnel to be supplied to physician offices make the following arguments:

  • Florida is a progressive state similar to other large states like New York and California in prohibiting laboratories from using free collection staff as an inducement to obtain referrals.
  • It is virtually impossible to control what functions the “collection personnel” will provide in a physician’s office, and inevitably they will simply be used as “free labor” to assist with the day-to-day office management of the physician’s practice (e.g. answering phones, making copies, etc.).
  • The supplying of free labor is an obvious inducement to make referrals to the lab supplying the collection staff.
  • Trying to create a “fair market value” exception is fraught with difficulty, as it is highly debatable whether FMV includes “wages, salaries and benefits” of the worker, or only a “collection fee” for the sample that is drawn.
  • In an event, a bright line rule that prohibits the supplying of free labor, even for collection of samples, simplifies enforcement and creates a level playing field for all laboratory operators.
  • AHCA visited this issue less than two years ago, and there have been no changes in statute or overall policy that would warrant changing the existing prohibition.
  • If AHCA is concerned about access for nursing home patients, then it should carefully craft an exception that applies only to the limited use of specimen collection personnel at by nursing homes.

Opponents of the continued ban on supplying free specimen collection staff argue:

  • Florida law should be interpreted consistently with Federal law.
  • A 1994 Office of Inspector General (OIG) Fraud Alert specifically finds that supplying free specimen collection personnel such as phlebotomists to a physician office does not necessarily violate federal anti-kickback provisions provided that the staff only engages in activities for specimen collection and not in other clerical or medical functions of the physician’s office.
  • The Clinical Laboratories Improvement Act (CLIA) as well as Florida regulation of laboratories imposes a duty on laboratories to oversee the proper collection of lab samples.
  • Physicians receive no reimbursement for laboratory collection and therefore have no incentive to over-utilize such services, and are receiving no “kick-back” for having qualified collection staff from the laboratory taking samples in the physician office.
  • Federal law pre-empts Florida’s efforts to regulate, similar to a Florida Supreme Court’s finding that federal anti-kickback provisions and safe harbors pre-empted any differing interpretation of Florida Medicaid fraud statutes and regulations.  See State v. Harden, 938 So. 2d 480 (Fla. 2006).

After holding a lively Public Workshop on September 14, AHCA announced that it would continue to accept written comments and suggestions on the proposed Rule revision until September 29.  There are valid legal and factual arguments to be made on both sides of this debate.  Any provider with an interest in laboratory licensure and regulation should take the opportunity to participate in the rule development process.

Future proceedings may include additional workshops.  Ultimately, if AHCA elects to proceed with a proposed Rule, any provider that is affected by the Rule has specific rights under Florida’s Administrative Procedure Act to file a request for a public hearing and/or a formal challenge to the proposed rule.

For further information, please contact Geoff Smith at 850-297-2006 or Geoff@smithlawtlh.com.

Changes to the Medicare Audit Procedures

In response to concerns over improper Medicare billing and payments, Congress enacted Section 203 of the Tax Relief and Health Care Act of 2006.  Section 203 requires the Secretary of the Department of Health and Human Services to use Recovery Audit Contractors (RACs) under the Medicare Integrity Program.  The regulation mandates that the new Medicare auditing program be implemented nationwide by January 1, 2010.  Due to these substantial changes, Medicare providers and suppliers need to be aware of the new process and the steps that can be taken to ensure compliance.

The new Medicare auditing program is an extension of the RAC demonstration enacted under section 306 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA).  Under the MMA, Congress instructed the Department of Health and Human Services to conduct a three year demonstration program.  The program, which ran from 2005 to 2008, used Recovery Audit Contractors to identify improper Medicare payments through the detection and collection of overpayments and the identification of underpayments.  The demonstration started in the three states with the highest percentage of Medicare claims: California, Florida, and New York.  Later, the program expanded to include Massachusetts and South Carolina.

According to the Center for Medicare and Medicaid Services (CMS), the demonstration corrected over $1.03 billion of improper payments.  Of these improper payments, 96% were overpayments and 4% were underpayments.  Most of the overpayments were collected from inpatient hospital providers.

CMS found that the demonstration was cost-effective for both RACs as well as Medicare providers and determined that the work of the RACS had a minimum financial impact on Medicare providers.  Specifically, in Florida as well as New York, 90% of the hospitals that were audited during the demonstration had its 2007 Medicare revenue impacted by less than 2.5%.  The program also posed little financial burden on the contractors.  During the demonstration, it cost the RACs 20 cents for each dollar returned from overpayments.  Based on these findings, and the apparent financial and practical success of the demonstration, Congress decided to initiate the nationwide expansion.

Recovery Audit Contractors

Under the permanent program implemented by the Tax Relief and Health Care Act, four contractors were chosen through a competitive bidding process.  Each contractor will serve a particular region of the United States.  Connolly Consulting Associates, Inc. of Wilton, Connecticut will be the contractor for Florida and the rest of Region C, which is comprised of several southeast states.  Connolly Consulting will also subcontract some of its audits to Viant Payment Systems, Inc.

The RACs are independent contractors that do not work directly for the government. Accordingly, they are subject to strict rules when auditing claims and are bound by Medicare policies, regulations, national and local coverage determinations, and manual instructions.  The RACs will also receive a contingency fee between 9 and 12.5 percent of the amount of improper payments they discover, so they will actively search for overpayments.  However, RACs are prohibited from selecting claims at random to view and instead, must use proprietary data techniques to find claims that are likely to contain overpayments.  Moreover, if a RAC loses at any level of appeal, they must return the contingency fee.

The duties of the RAC are to identify underpayments or overpayments within past Medicare claims.  In order to assist in the process, each RAC will employ a full time medical director to help review the claims.  Additionally, RACs are required to employ nurses, therapists, certified coders, and full time physicians.

Who is Subject to Audits?

Based on the findings in the demonstration, certain groups will be subjected to Medicare audits under the new program.  These groups include physicians, inpatient and outpatient hospitals, nursing homes, ambulance and laboratory services, home health agencies, durable medical equipment suppliers, and other providers or suppliers that bill Medicare parts A and B.  The majority of audits are likely to come from inpatient hospitals, as they did in the demonstration.

RACs will generally look for the following types of improper payments within the claims to identify overpayments or underpayments:

  • Payments made for services that were medically unnecessary
  • Payments that did not meet Medicare medical necessity criteria
  • Payments made for services that are incorrectly coded
  • Provider’s failure to submit documentation to support services provided
  • Provider’s failure to submit enough documentation to support a claim
  • Payments made for duplicate services or services not covered

The Review Process

The two main activities of RACs will consist of performing data analysis to identify areas of investigation and requesting claims history information from carriers.  The RACs will review claims on a post payment basis and use the same Medicare policies as Carriers, FIs and MACs during the review process.  Generally, issues that are reviewed by RACs must be approved by CMS prior to widespread review.  The approved issue must also be posted to the RAC website.  For Florida, these issues will be posted at http://www.connollyhealthcare.com/RAC.  However, sometimes a provider may receive a medical records request for a new issue that is not identified on an RAC website.  If the RAC finds an overpayment, it will send a demand letter requesting recoupment.  If an underpayment exists, the RAC will reimburse the provider.

Medicare claims will be subject to one of two types of review:  automated review or complex review.  Automated review occurs when the RAC looks for claims that clearly contain errors which result in improper payments. This type of review is conducted through data mining using proprietary techniques.  Then, the RAC will contact the provider to collect the overpayment without reviewing any of medical records.

However, under complex review, the RAC looks at claims that likely contain errors resulting in improper payments.  In this review, the RAC requests medical records to further review the claim.  After reviewing the records, the RAC will then make a determination as to whether the payment was correct.  If a request for medical records is made, the provider must furnish the requested records within 45 days.  However, an extension may be requested.  Additionally, the RAC must complete the review within 60 days of requesting the medical records.  Then, if the RAC determines an overpayment exists after reviewing the claim, a demand letter will be sent to the provider in attempts to recoup the payment.  The letter will explain the nature of the overpayment and how much the provider owes.  The provider then has 30 days to pay the overpayment.

The Basic Timeline

15 Days

After receiving the demand letter, a provider has 15 days to rebut the RAC’s determination.  This is also called the discussion period.  During this time, the provider has the opportunity to rebut the proposed recoupment if the provider can furnish additional information to show it was incorrect.

30 Days

A provider has 30 days after receiving the demand letter to pay the overpayment or to apply for a repayment plan.  If a provider is unable to pay the amount of overpayment in full within the required 30 days, they can apply to gradually pay off the amount.  Additionally, if the provider was not approved for a repayment plan and fails to pay the amount of overpayment on time, interest will being to accrue.

40 Days

If no payment for recoupment has been paid within 40 days of receiving the demand letter, Medicare will begin to withhold payments.  These payments will apply to current and future claims.  Such payments will be withheld until the overpayment is fully paid along with any applicable interest or until an acceptable extended repayment request has been received.

Limitations on RACs

The new Medicare auditing process imposes some limitations on the RACs.  Most of the limitations were not present in the demonstration, but will be applied to the permanent program as a response to some concerns stemming from the demonstration.  First, RACs will only be permitted to review claims from the past three years under a limited look back period.  Additionally, the RACs are not permitted to look for improper payments on claims made before October 1, 2007.

Secondly, there are several limitations on the amount of claims that may be reviewed.  For inpatient hospitals, RACs cannot, within a 45 day period, request more than 10% of the hospital’s average monthly Medicare claims.  Also, the number of requests cannot exceed 200.  Similarly, for outpatient hospitals, RACs cannot request more than 1% of the average monthly Medicare service within a 45 day period.  Outpatient hospitals are also limited to no more than 200 requests.

Appeals Process

If a provider is unsatisfied with the determination made by the RAC, the provider has the option to appeal.  The appeal process is contained in 42 C.F.R. – 405.900.

Apart from the discussion period, a provider has an opportunity to appeal determinations at five different levels.  At the first level, called redetermination, a provider has 120 days to appeal from the date of the demand letter.  The redetermination could lead to a full reversal, partial reversal, or full affirmation of the previous determination.  If a provider is still unsatisfied with the result, it can file for the second level of appeal, reconsideration, within 180 days.  The possible results of full reversal, partial reversal, or full affirmation are the same under reconsideration.

The third level of appeal involves bringing the issue in front of an Administrative Law Judge (ALJ).  If at least $120 remains in controversy, a party may request an ALJ hearing within 60 days of receipt of reconsideration.  However, if the provider disagrees with the ALJ’s determination, it can appeal to the fourth level which includes review by the Medicare Appeals Council.  This appeal must be filed within 60 days of the receipt of the ALJ’s determination.  Lastly, the fifth level of appeal includes judicial review by a U.S. District Court.  A request for this level of review must be filed within 60 days of receipt of the Medicare Appeals Council’s decision.

What Providers Can Do to Prepare

There are many things Medicare providers can do to prepare for the upcoming increase of scrutiny within Medicare audits.  First, providers should analyze past RAC findings and identify where improper payments have been persistent.  Such information can be located on the RACs’ websites and in the three year demonstration’s results posted on the CMS website.  With this information, providers should identify certain patterns of claims to be prepared for the types of claims RACs generally audit.

Next, providers should create an RAC response team.  The team should consist of a group of individuals or department representatives that are capable of addressing the tasks associated with RAC reviews and audits.  The members of the response team should represent several areas including compliance, utilization review, coding, medical staff, patient financial services, care management, and health information management.  This team should perform an internal assessment to verify that submitted claims meet the Medicare standards and rules.  It should also establish systems to monitor claim denials and appeals and to make sure the provider can respond timely to RAC record requests.

Additionally, the provider should utilize American Hospital Association’s (AHA) RACTrac program.  This program was created to monitor the RACs and to assure they adhere to Medicare policy.  RACTrac also assesses the true impact of RACs on individual providers including financial impact of improper payments along with administrative burden.  The program is a survey that will track and monitor the impact of RAC activity on individual hospitals nationwide.  The AHA has also created a claim-level Excel tool to help hospitals internally track their RAC audits.  The program will be available on the AHA web site at no cost to AHA members and non-members.  Information under RACTrac will not be available until fall of 2009, but until then, providers should identify a mechanism to track all RAC correspondences.

Conclusion

The changes to the Medicare auditing process are substantial.  They will increase the amount of claims that are audited, which in turn will likely increase the amount of administrative burden on Medicare providers.  However, preparation can be taken to lessen the impact and ensure adequate compliance.  If you need assistance with a Medicare audit issue, please feel free to contact us.

New Certificate of Need Law

During the 2008 General Legislative Session, a major overhaul of Certificate of Need review for new general hospital projects was adopted. Senate Bill 2326 was signed into law by the Governor effective May 19, 2008 (Ch. 2008-29, Laws of Florida). These legislative changes do not apply to any CON Application filed prior to the effective date of the Act. Therefore, under AHCA’s batching schedule, the new law will be applied for the first time to CON Applications for new hospitals filed in the next batching cycle, which has a Letter of Intent filing deadline of August 11, 2008.

The substantial changes to CON review for new hospitals were the result of the Governor’s initiative to completely eliminate CON review for new hospitals. However, as a result of widespread opposition to CON repeal in the hospital industry, including opposition from the Florida Hospital Association, and virtually every hospital provider in the State, the compromise bill that was ultimately adopted by the Legislature significantly streamlines, but does not eliminate, the CON review process for new hospitals. The following is an overview of the substantive and procedural changes to CON review requirements.

Reduction in CON Review Criteria for New General Hospitals

A major component of SB 2326 is the reduction of the statutory review criteria that will apply to review of new general hospital CON projects. It is important to note that these legislative changes apply only to new general hospital projects, and will not effect CON Applications for the dwindling list of other beds or services that are still subject to CON review. Thus, these revisions will not apply to hospice services, specialty hospitals, non-exempt NICU proposals, comprehensive medical rehabilitation proposals, and open heart surgery (until such time as CON for open heart surgery is replaced by AHCA’s pending proposed licensure rules for adult cardiovascular services). It is somewhat unclear whether the proposed rules will apply to Long Term Acute Care Hospitals, although it seems likely that AHCA will apply the new law to new LTACH CON proposals.

The current statutory review criteria are contained in Section 408.035, Florida Statutes. The following review criteria are completely eliminated for review of new general hospital CON Applications, and therefore will not be used in reviewing future CON Applications for new hospitals:

(c) The ability of the applicant to provide quality of care and the applicant’s record of providing quality of care.

(d) The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation.

(f) The immediate and long-term financial feasibility of the proposal.

(h) The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction.

(j) The applicant’s designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility.

The rationale for the elimination of these criteria is that a decision on a new hospital should be based on true issues of need and access to hospital care services, and not upon technical application issues. Thus, issues related to “Schedule 6 – Proposed Staffing” and a proposed hospital’s ability to recruit qualified medical, clinical, and technical staff in the face of labor shortages, will no longer be relevant to review of new hospital CON proposals. Likewise, issues pertaining to “Schedules 7 and 8 – Projections of Revenues and Expenses” are likewise eliminated as relevant to a new hospital proposal. Finally, any matters that pertain to the proposed architectural plans are eliminated from review.

It will be a difficult task for AHCA to apply the reduced criteria, as many of the eliminated review criteria were issues that have been commonly used as “distinguishers” among competing CON applicants. With the elimination of these criteria, there are fewer issues for AHCA to draw meaningful comparisons and contrasts between applicants proposing to serve the same area.

The criteria remaining that will be reviewed for new general hospital proposals include only the following:

(a) The need for the health care facilities and health services being proposed.

(b) The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. (Note: “quality of care” is eliminated from consideration under this criteria for new hospitals.)

(e) The extent to which the proposed services will enhance access to health care for residents of the service district.

(g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness.

(i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent.

Thus, the focus of CON review and administrative hearings will be limited to these criteria focusing primarily upon issues of need, access to services, competition, and provision of indigent care.

New CON Application Content Requirements

The wording of the new statute for CON Application Content is awkward, but appears to eliminate all of the currently existing content requirements for new hospital CON projects. Thus, it appears a CON Application for a new hospital project will no longer be required to include:

  • A listing of all capital projects planned, approved or underway
  • Sources of funds for planned capital projects
  • Two years of financial pro forma projections
  • An audited financial statement of the applicant for most recent two years

In replace of these familiar Application Content items, SB 2326 establishes new content items for general hospital projects, including:

  • a detailed description of the proposed project and a statement of its purpose and the needs it will meet
  • the proposed project’s location
  • the primary and secondary service area, defined by zip code (primary service area is first 75% of patients, and secondary is all remainder)
  • a statement of intent, that if approved, the applicant will supply proof of financial ability to operate within 120 days. (AHCA will establish the financial documentation requirements, such as revenues and expenditures; basis for financing; and anticipated cash flows; and access to contingency financing.)

It is likely that AHCA will propose new rules and develop a new CON Application form to address these new requirements for hospital projects.

Limits on Ability to Challenge a CON Award

In addition to limiting the specific statutory review criteria at issue for new hospitals, the new law also imposes specific procedural limits on the ability of an existing hospital to file a challenge to approval of a new hospital.

Within 21 days of a CON Application for a new general hospital being filed and deemed complete, any existing hospital seeking to ultimately challenge the award of a CON must provide a detailed written statement of opposition to AHCA and to the CON applicant. Although not specified in the new law, these opposition statements should include both health planning information and data, as well as legal arguments, evaluation of case precedent, and overall application of statutory and rule criteria to the specific facts of the case. In many ways, such opposition statements should be similar in scope and depth to a Proposed Recommended Order – summarizing and detailing all of the facts and law that support the denial of a proposed CON Application. The applicant will then have 10 days from the receipt of the detailed statement of opposition to file a written response.

Only competing applicants, and existing hospitals that filed the required detailed written statement of opposition have the right to petition for a formal administrative hearing to challenge the Agency’s preliminary approval of a CON for a new hospital. Such challenges are limited in scope to only those issues raised in the detailed written statement of opposition.

However, an administrative law judge may, upon showing of good cause, expand the scope of the hearing. In seeking to expand the issues, the moving party must provide substantial and detailed facts and reasons for the failure to include the issues in the written statement of opposition. In all likelihood, administrative law judges will be reluctant to allow any significant expansion of the issues beyond the matters addressed in the detailed written statement of opposition, absent a showing that the matters could not have been raised at that time. But exceptions are allowed. For example, an administrative law judge could allow new issues to be litigated based upon information produced during the discovery process only after the submittal of the statement of opposition, and could not have been otherwise available to the opponent of the project.

New Time Frame for Hearing

The legislative amendments mandate that administrative hearings for new hospital CON Applications must be commenced within six months after an administrative law judge has been assigned. The law specifically provides that a continuance may not be granted absent a finding of extraordinary circumstances by the administrative law judge. This will likely eliminate the current practice where it is common for new hospital cases to take up to a year or longer to proceed to final hearing.

New Post Final Order Procedures

The legislative amendments include several new post Final Order procedures for new hospital CONs.

First, the new law provides that AHCA shall revoke the CON if the proposed location of the new hospital changes from what is specified in the CON Application, or if the primary service area of the proposed hospital changes from what is identified in the CON Application. Parties that participated in the administrative hearing, have standing to participate in any subsequent CON revocation proceedings based upon changed hospital location or service area. AHCA may allow such changes to location or service area if it is determined that such changes will enhance access to hospital services. It is not clear in the law whether this provision on CON revocation will apply to a hospital that is constructed, licensed, and becomes operational and then has a significant deviation in Primary Service Area from what was projected in the CON Application.

Second, the new law provides that a CON Applicant must submit proof of financial ability to operate and fund the project within 120 days of issuance of the Final Order. AHCA is to determine (presumably through rulemaking) the type and form of financial documentation to be submitted. Any party who participated in an administrative hearing on the CON may submit written comments concerning the adequacy of the financial documentation submitted; however, such party does not have standing to initiate or participate in any formal administrative hearing that may occur on the issue of financial ability to operate.

Additionally under the new law, AHCA may require a hospital licensee to provide proof of financial ability to operate at any time there is evidence of financial stability, including but not limited to unpaid expenses necessary for basic operations of the provider. This provision is interesting as it applies to “hospital licensees” (as opposed to CON applicants), and thus could be applied at any time after the hospital is operational. This appears to provide AHCA with new authority to “revoke a CON” for an operational hospital based upon financial instability.

Judicial Appeals

The new law includes some very substantial changes concerning attorney fees and costs for parties that undertake an appeal of a Final Order to the District Court of Appeal. Under these changes, an Appellant is liable for up to $1 million in attorney fees and costs, including fees and costs from the beginning of the original administrative hearing. Additionally, the party appealing must post a $1 million appeal bond. This will provide a strong disincentive for any party to pursue a judicial appeal of a Final Order in a CON proceeding. This provision may be subject to legal challenge as an unconstitutional impediment to access to the courts.

Conclusion

Legislative changes to CON regulation for proposed new hospitals will have significant impact on future CON Application review and challenges by existing hospital providers. Whether this streamlining of the CON process will satisfy critics of CON review remains to be seen.